business marketing

http://www.aldi.us/en/new-to-aldi/aldi-truths/

http://www.aldi.us/en/new-to-aldi/switch-save/

http://www.forbes.com/sites/walterloeb/2013/10/30/why-aldi-and-lidl-have-what-it-takes-to-beat-the-bestand-the-biggest/;

www.aldi.us

http://supermarketnews.com/limited-assortment/aldi-offers-thrill-discovery

www.businessweek.com/news/2013-12-20/aldi-plans-to-expand-u-dot-s-dot-storecount-by-50-percent-in-next-five-years

270 Part 3: Designing a customer Value-Driven strategy and Mix

of the company’s level of output. Variable costs vary directly with the level of produc- tion. Each PC produced by HP involves a cost of computer chips, wires, plastic, packag- ing, and other inputs. Although these costs tend to be the same for each unit produced, they are called variable costs because the total varies with the number of units produced. Total costs are the sum of the fixed and variable costs for any given level of production. Management wants to charge a price that will at least cover the total production costs at a given level of production.

The company must watch its costs carefully. If it costs the company more than its competitors to produce and sell a similar product, the company will need to charge a higher price or make less profit, putting it at a competitive disadvantage.

cost-Plus Pricing The simplest pricing method is cost-plus pricing (or markup pricing)—adding a stan- dard markup to the cost of the product. For example, an electronics retailer might pay a manufacturer $20 for a flash drive and mark it up to sell at $30, a 50 percent markup on cost. The retailer’s gross margin is $10. If the store’s operating costs amount to $8 per flash drive sold, the retailer’s profit margin will be $2. The manufacturer that made the flash drive probably used cost-plus pricing, too. If the manufacturer’s standard cost of pro- ducing the flash drive was $16, it might have added a 25 percent markup, setting the price to the retailers at $20.

Does using standard markups to set prices make sense? Generally, no. Any pricing method that ignores consumer demand and competitor prices is not likely to lead to the best price. Still, markup pricing remains popular for many reasons. First, sellers are more certain about costs than about demand. By tying the price to cost, sellers simplify pricing. Second, when all firms in the industry use this pricing method, prices tend to be similar and price competition is minimized.

Another cost-oriented pricing approach is break-even pricing, or a variation called target return pricing. The firm tries to determine the price at which it will break even or make the target return it is seeking. Target return pricing uses the concept of a break-even chart, which shows the total cost and total revenue expected at different sales volume levels. figure 9.3 shows a break-even chart for the flash drive manu- facturer discussed previously. Fixed costs are $6 million regardless of sales volume, and variable costs are $5 per unit. Variable costs are added to fixed costs to form total costs, which rise with volume. The slope of the total revenue curve reflects the price. Here, the price is $15 (for example, the company’s revenue is $12 million on 800,000 units, or $15 per unit).

At the $15 price, the manufacturer must sell at least 600,000 units to break even (break-even volume = fixed costs ÷ [price – variable costs] = $6,000,000 ÷ [$15 – $5] =

600,000). That is, at this level, total revenues will equal total costs of $9 million, producing no profit. If the flash drive manufacturer wants a tar- get return of $2 million, it must sell at least 800,000 units to obtain the $12 million of total revenue needed to cover the costs of $10 million plus the $2 million of target profits. In contrast, if the company charges a higher price, say, $20, it will not need to sell as many units to break even or to achieve its target profit. In fact, the higher the price, the lower the manu- facturer’s break-even point will be.

The major problem with this analysis, however, is that it fails to consider customer value and the rela- tionship between price and demand.

Variable costs Costs that vary directly with the level of production.

total costs The sum of the fixed and variable costs for any given level of production.

author comment Costs set the floor for price, but the

goal isn’t always to minimize costs. In fact, many firms invest in higher costs so that they can claim higher prices and margins (think

back about Patek Philippe watches). The key is to manage the spread between

costs and prices—how much the company makes for the customer

value it delivers.

cost-plus pricing (markup pricing) Adding a standard markup to the cost of the product.

break-even pricing (target return pricing) Setting price to break even on the costs of making and marketing a product or setting price to make a target return.

Sales volume in units (thousands)

200 400 600 800

Fixed cost

Total cost

Total revenue

Target return ($2 million)

D ol

la rs

( m

ill io

ns )

At the break-even point, here 600,000 units, total revenue equals total cost.

To make a target return of $2 million, the company must sell 800,000 units. But will customers buy that many units at the $15 price?

figure 9.3 break-even chart for Determining target return Price and break-even Volume

chapter 9: Pricing: Understanding and capturing customer Value 271

As the price increases, demand decreases, and the market may not buy even the lower volume needed to break even at the higher price. For example, suppose the flash drive manufacturer calculates that, given its current fixed and variable costs, it must charge a price of $30 for the product in order to earn its desired target profit. But marketing re- search shows that few consumers will pay more than $25. In this case, the company must trim its costs in order to lower the break-even point so that it can charge the lower price consumers expect.

Thus, although break-even analysis and target return pricing can help the company to determine the minimum prices needed to cover expected costs and profits, they do not take the price–demand relationship into account. When using this method, the company must also consider the impact of price on the sales volume needed to realize target profits and the likelihood that the needed volume will be achieved at each possible price.

competition-based Pricing Competition-based pricing involves setting prices based on competitors’ strategies, costs, prices, and market offerings. Consumers will base their judgments of a product’s value on the prices that competitors charge for similar products.

In assessing competitors’ pricing strategies, the company should ask several ques- tions. First, how does the company’s market offering compare with competitors’ offerings in terms of customer value? If consumers perceive that the company’s product or service provides greater value, the company can charge a higher price. If consumers perceive less value relative to competing products, the company must either charge a lower price or change customer perceptions to justify a higher price.

Next, how strong are current competitors, and what are their current pricing strate- gies? If the company faces a host of smaller competitors charging high prices relative to the value they deliver, it might charge lower prices to drive weaker competitors from the market. If the market is dominated by larger, lower-price competitors, a company may decide to target unserved market niches by offering value-added products and services at higher prices.

Importantly, the goal is not to match or beat competitors’ prices. Rather, the goal is to set prices according to the relative value created versus competitors. If a company creates greater value for customers, higher prices are justified. For example, Caterpillar makes high-quality, heavy-duty construction and mining equipment. It dominates its industry despite charging higher prices than competitors such as Komatsu. When a commercial customer once asked a Caterpillar dealer why it should pay $500,000 for a big Caterpillar

bulldozer when it could get an “equivalent” Komatsu dozer for $420,000, the Caterpillar dealer famously provided an analysis like the following:

$420,000 the Caterpillar’s price if equivalent to the competitor’s bulldozer

$50,000 the value added by Caterpillar’s superior reliability and durability

$40,000 the value added by Caterpillar’s lower life- time operating costs

$40,000 the value added by Caterpillar’s superior service

$20,000 the value added by Caterpillar’s longer parts warranty

$570,000 the total value-added price for Caterpillar’s bulldozer

−$70,000 discount

$500,000 final price

author comment In setting prices, the company must also consider competitors’ prices. No

matter what price it charges—high, low, or in between—the company must be certain to give customers superior

value for that price.

competition-based pricing Setting prices based on competitors’ strategies, prices, costs, and market offerings.

Pricing versus competitors: Despite caterpillar’s premium prices. customers believe that caterpillar gives them a lot more value for the price over the lifetime of its machines. Kristoffer Tripplaar/Alamy

272 Part 3: Designing a customer Value-Driven strategy and Mix

Thus, although the customer pays an $80,000 price premium for the Caterpillar bull- dozer, it’s actually getting $150,000 in added value over the product’s lifetime. The cus- tomer chose the Caterpillar bulldozer.

What principle should guide decisions about what price to charge relative to those of competitors? The answer is simple in concept but often difficult in practice: No matter what price you charge—high, low, or in between—be certain to give customers superior value for that price.

other internal and external considerations affecting Price Decisions Beyond customer value perceptions, costs, and competitor strategies, the company must consider several additional internal and external factors. Internal factors affecting pricing include the company’s overall marketing strategy, objectives, and marketing mix as well as other organizational considerations. External factors include the nature of the market and demand and other environmental factors.

overall Marketing strategy, objectives, and Mix Price is only one element of the company’s broader marketing strategy. So, before setting price, the company must decide on its overall marketing strategy for the product or ser- vice. Sometimes, a company’s overall strategy is built around its price and value story. For example, grocery retailer Trader Joe’s unique price-value positioning has made it one of the nation’s fastest-growing, most popular food stores:

Trader Joe’s has put its own special twist on the food price-value equation—call it “cheap gourmet.” It offers gourmet-caliber, one-of-a-kind products at bargain prices, all served up in a festive, vacation-like atmosphere that makes shopping fun. Trader Joe’s is a gourmet foodie’s delight, featuring everything from kettle corn cookies, organic strawberry lemonade, creamy Valencia peanut butter, and fair-trade coffees to kimchi fried rice and triple-ginger ginger snaps. If asked, almost any customer can tick off a ready list of Trader Joe’s favorites that he or she just can’t live without—a list that quickly grows.

The assortment is uniquely Trader Joe’s—more than 85 percent of the store’s brands are private labels. The prices aren’t all that low in absolute terms, but they’re a real bargain com- pared with what you’d pay for the same quality and coolness elsewhere. “It’s not complicated,” says Trader Joe’s. “We just focus on what matters—great food + great prices = value. So you can afford to be adventurous without breaking the bank.” Trader Joe’s inventive price-value positioning has earned it an almost cult-like following of devoted customers who love what they get from Trader Joe’s for the prices they pay.6

If a company has selected its target market and positioning carefully, then its market- ing mix strategy, including price, will be fairly straightforward. For example, Amazon positions its Kindle Fire tablet as offering the same (or even more) for less and prices it at 40 percent less than Apple’s iPads and Samsung’s Galaxy tablets. It recently began target- ing families with young children, positioning the Kindle Fire as the “perfect family tablet,” with models priced as low as $99, bundled with Kindle FreeTime, an all-in-one subscrip- tion service starting at $2.99 per month that brings together books, games, educational apps, movies, and TV shows for kids ages 3 through 8. Thus, the Kindle pricing strategy is largely determined by decisions on market positioning.

Pricing may play an important role in helping to accomplish company objectives at many levels. A firm can set prices to attract new customers or profitably retain existing ones. It can set prices low to prevent competition from entering the market or set prices at competitors’ levels to stabilize the market. It can price to keep the loyalty and support of resellers or avoid government intervention. Prices can be reduced temporarily to create excitement for a brand. Or one product may be priced to help the sales of other products in the company’s line.

author comment Now that we’ve looked at the three general

pricing strategies—value-, cost-, and competitor-based pricing—let’s dig into

some of the many other factors that affect pricing decisions.

chapter 9: Pricing: Understanding and capturing customer Value 273

Price decisions must be coordinated with product design, distribution, and promo- tion decisions to form a consistent and effective integrated marketing mix program. Decisions made for other marketing mix variables may affect pricing decisions. For example, a decision to position the product on high-performance quality will mean that the seller must charge a higher price to cover higher costs. And producers whose resell- ers are expected to support and promote their products may have to build larger reseller margins into their prices.

Companies often position their products on price and then tailor other marketing mix decisions to the prices they want to charge. Here, price is a crucial product-posi- tioning factor that defines the product’s market, competition, and design. Many firms support such price-positioning strategies with a technique called target costing. Target costing reverses the usual process of first designing a new product, determining its cost, and then asking, “Can we sell it for that?” Instead, it starts with an ideal selling price based on customer value considerations and then targets costs that will ensure that the price is met. For example, when Honda initially designed the Honda Fit, it began with a $13,950 starting price point and highway mileage of 33 miles per gallon firmly in mind. It then designed a stylish, peppy little car with costs that allowed it to give target cus- tomers those values.

Other companies deemphasize price and use other marketing mix tools to create nonprice positions. Often, the best strategy is not to charge the lowest price but rather to differentiate the marketing offer to make it worth a higher price. For example, luxury

smartphone maker Vertu puts very high value into its products and charges premium prices to match that value. Vertu phones are made from high-end materials such as titanium and sapphire crystal, and each phone is hand-assembled by a single craftsman in England. Phones come with additional services such as Vertu Concierge, which helps create personal, curated user experi- ences and recommendations. Vertu phones sell for an average price of $6,000, with top models going for more than $20,000. But target customers recognize Vertu’s very high quality and are willing to pay more to get it. With Vertu, “Every moment makes for an extraordinary story.”7

Thus, marketers must consider the total marketing strategy and mix when setting prices. But again, even when featuring price, marketers need to remember that customers rarely buy on price alone. Instead, they seek products that give them the best value in terms of benefits received for the prices paid.

organizational considerations Management must decide who within the organization should set prices. Companies handle pricing in a variety of ways. In small companies, prices are often set by top management rather than by the marketing or sales departments. In large companies, pricing is typically handled by divisional or product managers. In industrial markets, salespeople may be allowed to negotiate with customers within certain price ranges. Even so, top management sets the pricing objectives and policies, and it often approves the prices proposed by lower-level management or salespeople.

In industries in which pricing is a key factor (airlines, aero- space, steel, railroads, oil companies), companies often have pricing departments to set the best prices or help others set them. These departments report to the marketing department or top management. Others who have an influence on pricing include sales managers, production managers, finance managers, and accountants.

target costing Pricing that starts with an ideal selling price, then targets costs that will ensure that the price is met.

nonprice positioning: luxury smartphone maker Vertu puts very high value into its products and charges sky-high prices to match that value. average price: nearly $6,000. Vertu

274 Part 3: Designing a customer Value-Driven strategy and Mix

the Market and Demand As noted earlier, good pricing starts with an understanding of how customers’ perceptions of value affect the prices they are willing to pay. Both consumer and industrial buyers bal- ance the price of a product or service against the benefits of owning it. Thus, before setting prices, the marketer must understand the relationship between price and demand for the company’s product. In this section, we take a deeper look at the price–demand relationship and how it varies for different types of markets. We then discuss methods for analyzing the price–demand relationship.

Pricing in Different types of Markets The seller’s pricing freedom varies with different types of markets. Economists recognize four types of markets, each presenting a different pricing challenge.

Under pure competition, the market consists of many buyers and sellers trading in a uniform commodity, such as wheat, copper, or financial securities. No single buyer or seller has much effect on the going market price. In a purely competitive market, market- ing research, product development, pricing, advertising, and sales promotion play little or no role. Thus, sellers in these markets do not spend much time on marketing strategy.

Under monopolistic competition, the market consists of many buyers and sellers trading over a range of prices rather than a single market price. A range of prices occurs because sellers can differentiate their offers to buyers. Because there are many com- petitors, each firm is less affected by competitors’ pricing strategies than in oligopolis- tic markets. Sellers try to develop differentiated offers for different customer segments and, in addition to price, freely use branding, advertising, and personal selling to set their offers apart. Thus, Wrigley sets its Skittles candy brand apart from the profusion of other candy brands not by price but by brand building—clever “Taste the Rainbow” positioning built through quirky advertising and a heavy presence in social media such as Tumblr, Instagram, YouTube, Facebook, and Twitter. The social media-savvy brand boasts

nearly 27 million Facebook Likes and 258,000 Twitter followers.

Under oligopolistic competition, the market con- sists of only a few large sellers. For example, only a handful of providers—Comcast, Time Warner, AT&T, and Dish Network—control a lion’s share of the cable/satellite television market. Because there are few sellers, each seller is alert and responsive to competitors’ pricing strategies and marketing moves. In the battle for subscribers, price becomes a major competitive tool. For example, to woo customers away from Comcast, TimeWarner, and other cable companies, AT&T’s DirecTV unit offers low-price “Cable Crusher” offers, lock-in prices, and free HD. In a pure monopoly, the market is dominated by one seller. The seller may be a government monopoly (the U.S. Postal Service), a private regulated monopoly (a power company), or a private unregulated monopoly (De Beers and diamonds). Pricing is handled differ- ently in each case.

analyzing the Price–Demand relationship Each price the company might charge will lead to a different level of demand. The relation- ship between the price charged and the resulting demand level is shown in the demand curve in figure 9.4. The demand curve shows the number of units the market will buy in a given time period at different prices that might be charged. In the normal case, demand and price are inversely related—that is, the higher the price, the lower the demand. Thus, the company would sell less if it raised its price from P1 to P2. In short, consumers with limited budgets probably will buy less of something if its price is too high.

Demand curve A curve that shows the number of units the market will buy in a given time period at different prices that might be charged.

Pricing in oligopolistic markets: Price is an important competitive tool for at&t’s DirectV unit and other cable/satellite television providers. here, DirectV woos cable customers with low lock-in prices and free hD. NetPhotos/Alamy Stock Photo

chapter 9: Pricing: Understanding and capturing customer Value 275

Understanding a brand’s price–demand curve is crucial to good pricing decisions. ConAgra Foods learned this lesson when pricing its Banquet frozen dinners:8

When ConAgra tried to cover higher commodity costs by raising the list price of Banquet din- ners from $1 to $1.25, consumers turned up their noses to the higher price. Sales dropped, forc- ing ConAgra to sell off excess dinners at discount prices. It turns out that “the key component for Banquet dinners—the key attribute—is you’ve got to be at $1,” says ConAgra’s CEO Gary Rodkin. “Everything else pales in comparison to that.” Banquet dinner prices are now back to a buck a dinner. To make money at that price, ConAgra has done a better job of managing costs by shrinking portions and substituting less expensive ingredients for costlier ones. More than just Banquet dinners, ConAgra prices all of its frozen and canned products at under $1 per serv- ing. Consumers are responding well to the brand’s efforts to keep prices down. After all, where else can you find dinner for $1?

Most companies try to measure their demand curves by estimating demand at differ- ent prices. The type of market makes a difference. In a monopoly, the demand curve shows the total market demand resulting from different prices. If the company faces competition, its demand at different prices will depend on whether competitors’ prices stay constant or change with the company’s own prices.

Price elasticity of Demand Marketers also need to know price elasticity—how responsive demand will be to a change in price. If demand hardly changes with a small change in price, we say demand is inelastic. If demand changes greatly, we say the demand is elastic.

If demand is elastic rather than inelastic, sellers will consider lowering their prices. A lower price will produce more total revenue. This practice makes sense as long as the extra costs of producing and selling more do not exceed the extra revenue. At the same time, most firms want to avoid pricing that turns their products into commodities. In recent years, forces such as deregulation and the instant price comparisons afforded by the Internet and other technologies have increased consumer price sensitivity, turning products ranging from phones and computers to new automobiles into commodities in some consumers’ eyes.

the economy Economic conditions can have a strong impact on the firm’s pricing strategies. Economic factors such as a boom or recession, inflation, and interest rates affect pricing decisions because they affect consumer spending, consumer perceptions of the product’s price and value, and the company’s costs of producing and selling a product.

In the aftermath of the Great Recession of 2008 to 2009, many consumers rethought the price–value equation. They tightened their belts and become more value conscious. Consumers have continued their thriftier ways well beyond the economic recovery. As a result, many marketers have increased their emphasis on value-for-the-money pricing strategies.

The most obvious response to the new economic realities is to cut prices and offer discounts. Thousands of companies have done just that. Lower prices make products more affordable and help spur short-term sales. However, such price cuts can have undesirable

Price elasticity A measure of the sensitivity of demand to changes in price.

Q1Q2

P ric

Quantity demanded per period

Price and demand are related—no big surprise there. Usually, higher prices result in lower demand.

figure 9.4 Demand curve

276 Part 3: Designing a customer Value-Driven strategy and Mix

long-term consequences. Lower prices mean lower margins. Deep discounts may cheapen a brand in consumers’ eyes. And once a company cuts prices, it’s difficult to raise them again when the economy recovers.

Rather than cutting prices on their main-market brands, many companies have instead de- veloped “price tiers,” adding both more affordable lines and premium lines that span the varied means and preferences of different customer segments. For example, for cost-conscious cus- tomers with tighter budgets, P&G has added lower-price versions of its brands, such as “Basic” versions of Bounty and Charmin and a lower-priced version of Tide called Tide Simply Clean and Fresh. At the same time, at the higher end, P&G has launched upscale versions of some of its brands, such as Bounty DuraTowel and Cascade Platinum dishwasher detergent, which of- fer superior performance at up to twice the price of the middle-market versions.

Other companies are holding their price positions but redefining the “value” in their value propositions. Consider upscale grocery retailer Whole Foods Market:9

Whole Foods Market practically invented the upscale, socially responsible supermarket con- cept, and it grew rapidly and profitably under its “Whole Foods. Whole People. Whole Planet.” mission. However, the high-margin chain faced setbacks following the 2008 financial crisis, as even well-heeled consumers cut their food budgets. It also felt increasing price pressures from swarms of new, lower-priced competitors—from specialty supermarkets such as Trader Joe’s and Sprouts Farmers Market to traditional chains such as Walmart and Kroger—that rushed to add organics to their shelves.

In response, Whole Foods has worked to shed its “Whole Foods. Whole Paycheck.” image. The chain has reduced costs, passed the savings along to customers, and subtly increased its emphasis on affordable options. At the same time, however, Whole Foods has reinforced its core up-market positioning by convincing shoppers that, when it comes to quality food, bargain prices aren’t everything. Whole Foods’ new marketing campaign—called Values Matter—emphasizes that “value” is inseparable from “values.” When shopping at Whole Foods, customers can be confident about “where their food comes from and how it was grown, raised, or made.” The retailer’s produce is “responsibly grown.” Thus, Whole Foods Market is meeting pricing challenges in a way that preserves what has made it special to customers through the years. “We have the ability to compete on price, and we will do that,” says the chain’s co-CEO. “But this is not just a race to the bottom. We are also going to start a new race to the top, with better- quality food, higher standards, richer experiences for our cus- tomers, and new levels of transparency and accountability in the marketplace.” Even if that means a little higher prices.10

Remember, even in tough economic times, consumers do not buy based on prices alone. They balance the price they pay against the value they receive. For example, despite selling its shoes for as much as $150 a pair, Nike commands the highest consumer loyalty of any brand in the footwear segment. Customers perceive the value of Nike’s products and the Nike ownership experience to be well worth the price. Thus, no matter what price they charge—low or high— companies need to offer great value for the money.

other external factors Beyond the market and the economy, the company must consider several other factors in its external environment when setting prices. It must know what impact its prices will have on other parties in its environment. How will resellers react to various prices? The company should set prices that give resellers a fair profit, encourage their support, and help them to sell the product effectively. The government is another important external influence on

Whole foods Market’s new “Values Matter” campaign emphasizes that there is more to value than just bargain prices. “Value” is inseparable from “values.” Justin Sullivan/Getty Images

chapter 9: Pricing: Understanding and capturing customer Value 277

new Product Pricing strategies Pricing strategies usually change as the product passes through its life cycle. The introduc- tory stage is especially challenging. Companies bringing out a new product face the chal- lenge of setting prices for the first time. They can choose between two broad strategies: market-skimming pricing and market-penetration pricing.

Market-skimming Pricing Many companies that invent new products set high initial prices to skim revenues layer by layer from the market. Apple frequently uses this strategy, called market-skimming pricing (or price skimming). When Apple first introduced the iPhone, its initial price was as high as $599 per phone. The phones were purchased only by customers who really wanted the sleek new gadget and could afford to pay a high price for it. Six months later, Apple dropped the price to $399 for an 8-GB model and $499 for the 16-GB model to attract new buyers. Within a year, it dropped prices again to $199 and $299, respectively, and you can now get a basic 8-GB model for free with a wireless phone contract. In this way, each new iPhone model starts at a high price, then works its way down as new models are introduced. Apple skims the maximum amount of revenue from the various segments of the market.

Market skimming makes sense only under certain conditions. First, the product’s quality and image must support its higher price, and enough buyers must want the product at that price. Second, the costs of producing a smaller volume cannot be so high that they cancel the advantage of charging more. Finally, competitors should not be able to enter the market easily and undercut the high price.

Market-Penetration Pricing Rather than setting a high initial price to skim off small but profitable market segments, some companies use market-penetration pricing. Companies set a low initial price to penetrate the market quickly and deeply—to attract a large number of buyers quickly and win a large market share. The high sales volume results in falling costs, allowing compa- nies to cut their prices even further. For example, Samsung has used penetration pricing to quickly build demand for its mobile devices in fast-growing emerging markets:11

In Kenya, Nigeria, and other African countries, Samsung recently unveiled an affordable yet full-function Samsung Galaxy Pocket Neo model that sells for only about $113 with no contract. The Samsung Pocket is designed and priced to encourage millions of first-time

author comment Pricing new products can be

especially challenging. Just think about all the things you’d need to consider in pricing a new smartphone, say, the first

Apple iPhone. Even more, you need to start thinking about the price—along with many other marketing considerations—

at the very beginning of the design process.

Market-skimming pricing (price skimming) Setting a high price for a new product to skim maximum revenues layer by layer from the segments willing to pay the high price; the company makes fewer but more profitable sales.

Market-penetration pricing Setting a low price for a new product in order to attract a large number of buyers and a large market share.

linking the concePts The concept of customer value is critical to good pricing and to successful marketing in general. Pause for a minute and be certain that you appreciate what value really means.

●● An earlier example states that although the average Steinway piano costs $87,000, to those who own one, a Steinway is a great value. Does this fit your idea of value?

●● Pick two competing brands from a familiar product category (watches, perfume, consumer electronics, restaurants)—one low-priced and the other high-priced. Which, if either, offers the greatest value?

●● Does “value” mean the same thing as “low price”? How do these concepts differ?

pricing decisions. Finally, social concerns may need to be taken into account. In setting prices, a company’s short-term sales, market share, and profit goals may need to be tempered by broader societal considerations. We will examine public policy issues later in this chapter.

278 Part 3: Designing a customer Value-Driven strategy and Mix

African buyers to trade up to smartphones from their more basic handsets. Samsung also offers a line of Pocket models in India, selling for as little as $87. Through pen- etration pricing, the world’s largest smartphone maker hopes to make quick and deep inroads into India’s ex- ploding mobile device market, which consists of mostly first-time users and accounts for nearly one-quarter of all smartphones sold globally each year. Low prices are also required in emerging markets to compete with super- cheap phones from competitors such as Chinese phone maker Xiaomi. Samsung’s penetration pricing has set off price wars with Apple, which has responded in emerg- ing markets with heavy discounts and more affordable models of its own. Apple iPhones have typically sold for more than $300 in India, limiting Apple’s market share to only about 2 percent there.

Several conditions must be met for this low-price strategy to work. First, the market must be highly price sensitive so that a low price produces more mar- ket growth. Second, production and distribution costs must decrease as sales volume increases. Finally, the

low price must help keep out the competition, and the penetration pricer must maintain its low-price position. Otherwise, the price advantage may be only temporary.

Product Mix Pricing strategies The strategy for setting a product’s price often has to be changed when the product is part of a product mix. In this case, the firm looks for a set of prices that maximizes its profits on the total product mix. Pricing is difficult because the various products have related demand and costs and face different degrees of competition. We now take a closer look at the five product mix pricing situations summarized in table 9.1: product line pricing, optional- product pricing, captive-product pricing, by-product pricing, and product bundle pricing.

Product line Pricing Companies usually develop product lines rather than single products. In product line pricing, management must determine the price steps to set between the various products in a line. The price steps should take into account cost differences between products in the line. More important, they should account for differences in customer perceptions of the value of different features.

For example, at a Mr. Clean car wash, you can choose from any of six wash packages, ranging from a basic exterior-clean-only “Bronze” wash for $5; to an exterior clean, shine,

author comment Most individual products are part of a broader product mix and must be

priced accordingly. For example, Gillette prices its Fusion razors low. But once you buy the razor, you’re a captive customer for its higher-margin

replacement cartridges.

Product line pricing Setting the price steps between various products in a product line based on cost differences between the products, customer evaluations of different features, and competitors’ prices.

Penetration pricing: samsung has used low initial prices to make quick and deep inroads into emerging mobile device markets such as africa and india. Trevor Snapp/Bloomberg/Getty Images

table 9.1 Product Mix Pricing

Pricing situation Description

Product line pricing setting prices across an entire product line

optional-product pricing Pricing optional or accessory products sold with the main product

captive-product pricing Pricing products that must be used with the main product

by-product pricing Pricing low-value by-products to get rid of or make money on them

Product bundle pricing Pricing bundles of products sold together

chapter 9: Pricing: Understanding and capturing customer Value 279

and protect “Gold” package for $12; to an interior-exterior “Signature Shine” package for $27 that includes the works, from a thorough cleaning inside and out to a tire shine, un- derbody rust inhibitor, surface protectant, and even air freshener. The car wash’s task is to establish perceived value differences that support the price differences.

optional-Product Pricing Many companies use optional-product pricing—offering to sell optional or accessory products along with the main product. For example, a car buyer may choose to order a navigation system and premium entertainment system. Refrigerators come with optional ice makers. And when you order a new computer, you can select from a bewildering array of processors, hard drives, docking systems, software options, and service plans. Pricing these options is a sticky problem. Companies must decide which items to include in the base price and which to offer as options.

captive-Product Pricing Companies that make products that must be used along with a main product are using captive-product pricing. Examples of captive products are razor blade cartridges, video games, printer cartridges, single-serve coffee pods, and e-books. Producers of the main products (razors, video-game consoles, printers, single-cup coffee brewing systems, and tablet computers) often price them low and set high markups on the supplies. For exam- ple, Amazon makes little or no profit on its Kindle readers and tablets. It hopes to more than make up for thin margins through sales of digital books, music, movies, subscrip-

tion services, and other content for the devices. “We want to make money when people use our devices, not when they buy our devices,” declares Amazon CEO Jeff Bezos.12

Captive products can account for a substantial portion of a brand’s sales and profits. For example, only a relatively small percentage of Keurig’s revenues come from the sale of its single-cup brewing systems. The bulk of the brand’s revenues—nearly 77 percent—comes from captive sales of its K-Cup portion packs.13 However, companies that use captive-product pricing must be careful. Finding the right balance between the main-product and captive-product prices can be tricky. Even more, consumers trapped into buying expensive captive products may come to resent the brand that ensnared them.

For example, customers of single-cup coffee brewing systems may cringe at what they must pay for those handy little coffee portion packs. Although they might seem like a bargain when compared on a cost-per-cup basis versus Starbucks, the pods’ prices can seem like highway robbery when broken down by the pound. One investigator calculated the cost of pod coffee at a shocking $51 per pound.14 At those prices, you’d be bet- ter off cost-wise brewing a big pot of premium coffee and pouring out the unused portion. For many buyers, the convenience and selection offered by single-cup brewing systems outweigh the extra costs. However, such captive product costs might make others avoid buying the device in the first place or cause discomfort during use after purchase.

In the case of services, captive-product pricing is called two-part pric- ing. The price of the service is broken into a fixed fee plus a variable usage rate. Thus, at Six Flags and other amusement parks, you pay a daily ticket or season pass charge plus additional fees for food and other in-park features.

by-Product Pricing Producing products and services often generates by-products. If the by- products have no value and if getting rid of them is costly, this will affect the pricing of the main product. Using by-product pricing, the company seeks

optional-product pricing The pricing of optional or accessory products along with a main product.

captive-product pricing Setting a price for products that must be used along with a main product, such as blades for a razor and games for a video-game console.

by-product pricing Setting a price for by-products in order to make the main product’s price more competitive.

captive product pricing: nearly 77 percent of keurig’s sales come from its k-cup portion packs. the brand must find the right balance between main-product and captive-product prices. Toby Talbot/AP Images

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a market for these by-products to help offset the costs of disposing of them and help make the price of the main product more competitive.

The by-products themselves can even turn out to be profitable—turning trash into cash. For example, cheese makers in Wisconsin have discovered a use for their leftover brine, a salt solution used in the cheese-making process. Instead of paying to have it disposed of, they now sell it to local city and county highway departments, which use it in conjunction with salt to melt icy roads. It doesn’t stop there. In New Jersey, pickle makers sell their leftover brine for similar uses. In Tennessee, distilleries sell off potato juice, a by-product of vodka distillation. And on many highways across the nation, highway crews use a product called Beet Heet, which is made from—you guessed it—beet juice brine by-products. The only side effect of these brine solutions is a slight odor. Says one highway department of- ficial about cheese brine, “If you were behind a snow plow, you’d immediately smell it.”15

Product bundle Pricing Using product bundle pricing, sellers often combine several products and offer the bundle at a reduced price. For example, fast-food restaurants bundle a burger, fries, and a soft drink at a “combo” price. Bath & Body Works offers “three-fer” deals on its soaps and lotions (such as three antibacterial soaps for $10). And Comcast, AT&T, Verizon, and other telecommunications companies bundle TV service, phone service, and high-speed Internet connections at a low combined price. Price bundling can promote the sales of products consumers might not otherwise buy, but the combined price must be low enough to get them to buy the bundle.

Price adjustment strategies Companies usually adjust their basic prices to account for various customer differences and changing situations. Here we examine the seven price adjustment strategies summarized in table 9.2: discount and allowance pricing, segmented pricing, psychological pricing, promotional pricing, geographical pricing, dynamic pricing, and international pricing.

Discount and allowance Pricing Most companies adjust their basic price to reward customers for certain responses, such as paying bills early, volume purchases, and off-season buying. These price adjustments— called discounts and allowances—can take many forms.

Product bundle pricing Combining several products and offering the bundle at a reduced price.

author comment Setting the base price for a product is

only the start. The company must then adjust the price to account for customer

and situational differences. When was the last time you paid the full suggested

retail price for something?

table 9.2 Price adjustments

strategy Description

Discount and allowance pricing

reducing prices to reward customer responses such as volume purchases, paying early, or promoting the product

segmented pricing adjusting prices to allow for differences in customers, products, or locations

Psychological pricing adjusting prices for psychological effect

Promotional pricing temporarily reducing prices to spur short-run sales

geographical pricing adjusting prices to account for the geographic location of customers

Dynamic pricing adjusting prices continually to meet the characteristics and needs of individual customers and situations

international pricing adjusting prices for international markets

chapter 9: Pricing: Understanding and capturing customer Value 281

One form of discount is a cash discount, a price reduction to buyers who pay their bills promptly. A typical example is “2/10, net 30,” which means that although payment is due within 30 days, the buyer can deduct 2 percent if the bill is paid within 10 days. A quantity discount is a price reduction to buyers who buy large volumes. A seller offers a functional discount (also called a trade discount) to trade-channel members who perform certain functions, such as selling, storing, and record keeping. A seasonal discount is a price reduction to buyers who buy merchandise or services out of season.

Allowances are another type of reduction from the list price. For example, trade-in allowances are price reductions given for turning in an old item when buying a new one. Trade-in allowances are most common in the automobile industry, but they are also given for other durable goods. Promotional allowances are payments or price reductions that reward dealers for participating in advertising and sales-support programs.

segmented Pricing Companies will often adjust their basic prices to allow for differences in customers, prod- ucts, and locations. In segmented pricing, the company sells a product or service at two or more prices, even though the difference in prices is not based on differences in costs.

Segmented pricing takes several forms. Under customer-segment pricing, different cus- tomers pay different prices for the same product or service. Museums and movie theaters, for example, may charge a lower admission for students and senior citizens. Under product form pricing, different versions of the product are priced differently but not according to dif- ferences in their costs. For instance, a round-trip economy seat on a flight from New York to London might cost $1,100, whereas a business-class seat on the same flight might cost $3,400 or more. Although business-class customers receive roomier, more comfortable seats and higher-quality food and service, the differences in costs to the airlines are much less than the additional prices to passengers. However, to passengers who can afford it, the additional comfort and services are worth the extra charge.

Using location-based pricing, a company charges different prices for different locations, even though the cost of offering each location is the same. For instance, state universities charge higher tuition for out-of-state students, and theaters vary their seat prices because of audience preferences for certain locations. Finally, using time-based pricing, a firm varies its price by the season, the month, the day, and even the hour. For example, movie theaters charge matinee pricing during the daytime, and resorts give weekend and seasonal discounts.

For segmented pricing to be an effective strategy, certain conditions must exist. The market must be segmentable, and segments must show different degrees of demand. The costs of segmenting and reaching the market cannot exceed the extra revenue obtained from the price difference. Of course, the segmented pricing must also be legal.

Most important, segmented prices should reflect real differences in customers’ perceived value. Consumers in higher price tiers must feel that they’re getting their extra money’s worth for the higher prices paid. By the same token, companies must be careful not to treat custom- ers in lower price tiers as second-class citizens. Otherwise, in the long run, the practice will lead to customer resentment and ill will. For ex- ample, in recent years, the airlines have incurred the wrath of frustrated customers at both ends of the airplane. Passengers paying full fare for business- or first-class seats often feel that they are being gouged. At the same time, passengers in lower-priced coach seats feel that they’re be- ing ignored or treated poorly.

Discount A straight reduction in price on purchases during a stated period of time or of larger quantities.

allowance Promotional money paid by manufacturers to retailers in return for an agreement to feature the manufacturer’s products in some way.

segmented pricing Selling a product or service at two or more prices, where the difference in prices is not based on differences in costs.

Product-form pricing: a roomier business-class seat on a flight from new york to london is several times the price of an economy seat on the same flight. to customers who can afford it, the extra comfort and service are worth the extra charge. Stewart Cohen/Photolibrary/Getty Images

282 Part 3: Designing a customer Value-Driven strategy and Mix

Psychological Pricing Price says something about the product. For example, many consumers use price to judge quality. A $100 bottle of perfume may contain only $3 worth of scent, but some people are willing to pay the $100 because this price indicates something special.

In using psychological pricing, sellers consider the psychology of prices, not simply the economics. For example, consumers usually perceive higher-priced products as hav- ing higher quality. When they can judge the quality of a product by examining it or by calling on past experience with it, they use price less to judge quality. But when they can- not judge quality because they lack the information or skill, price becomes an important quality signal. For instance, who’s the better lawyer, one who charges $50 per hour or one who charges $500 per hour? You’d have to do a lot of digging into the respective lawyers’ credentials to answer this question objectively; even then, you might not be able to judge accurately. Most of us would simply assume that the higher-priced lawyer is better.

Another aspect of psychological pricing is reference prices—prices that buyers carry in their minds and refer to when looking at a given product. The reference price might be formed by noting current prices, remembering past prices, or assessing the buying situa- tion. Sellers can influence or use these consumers’ reference prices when setting price. For example, a grocery retailer might place its store brand of bran flakes and raisins cereal priced at $2.49 next to Kellogg’s Raisin Bran priced at $3.79. Or a company might offer more expensive models that don’t sell very well to make its less expensive but still-high- priced models look more affordable by comparison. For example, Williams-Sonoma once offered a fancy bread maker at the steep price of $279. However, it then added a $429 model. The expensive model flopped, but sales of the cheaper model doubled.16

For most purchases, consumers don’t have all the skill or information they need to fig- ure out whether they are paying a good price. They don’t have the time, ability, or inclina- tion to research different brands or stores, compare prices, and get the best deals. Instead, they may rely on certain cues that signal whether a price is high or low. Interestingly, such pricing cues are often provided by sellers, in the form of sales signs, price-matching guar- antees, loss-leader pricing, and other helpful hints.

Even small differences in price can signal product differences. A 9 or 0.99 at the end of a price often signals a bargain. You see such prices everywhere. For example, browse the online sites of top discounters such as Target, Best Buy, or Overstock.com, where almost every price ends in 9. In contrast, high- end retailers might favor prices ending in a whole number (for example, $6, $25, or $200). Others use 00-cent endings on regularly priced items and 99- cent endings on discount merchandise.

Although actual price differences might be small, the impact of such psychological tactics can be big. For example, in one study, people were asked how likely they were to choose among LASIK eye surgery providers based only on the prices they charged: $299 or $300. The actual price difference was only $1, but the study found that the psychological difference was much greater. Preference ratings for the providers charging $300 were much higher. Subjects perceived the $299 price as significantly less, but the lower price also raised stronger concerns about quality and risk. Some psychologists even argue that each digit has symbolic and visual qualities that should be consid- ered in pricing. Thus, eight (8) is round and even and creates a soothing effect, whereas seven (7) is angular and creates a jarring effect.17

Promotional Pricing With promotional pricing, companies will temporarily price their products below list price—and sometimes even below cost—to create buying excitement and urgency. Promotional pricing takes several forms. A seller may simply offer discounts from normal prices to increase sales and reduce inventories. Sellers also use special-event pricing in certain seasons to draw more customers. Thus, TVs and other consumer electronics are promotionally priced in November and

Psychological pricing Pricing that considers the psychology of prices and not simply the economics; the price is used to say something about the product.

reference prices Prices that buyers carry in their minds and refer to when they look at a given product.

Promotional pricing Temporarily pricing products below the list price, and sometimes even below cost, to increase short-run sales.

Psychological pricing: What do the prices marked on these tags suggest about the products and buying situations? Jamie Grill/Tetra Images/Alamy

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December to attract holiday shoppers into the stores. Limited-time offers, such as online flash sales, can create buying urgency and make buyers feel lucky to have gotten in on the deal.

Manufacturers sometimes offer cash rebates to consumers who buy the product from dealers within a specified time; the manufacturer sends the rebate directly to the customer. Rebates have been popular with automakers and producers of mobile phones and small ap- pliances, but they are also used with consumer packaged goods. Some manufacturers offer low-interest financing, longer warranties, or free maintenance to reduce the consumer’s “price.” This practice has become another favorite of the auto industry.

Promotional pricing can help move customers over humps in the buying decision process. For ex- ample, to encourage Apple customers to switch from their Apple laptops to its Surface tablets, Microsoft recently offered buyers up to $650 toward a Surface Pro 3 when they traded in a MacBook Air. Such ag- gressive price promotions can provide powerful buy- ing and switching incentives.

Promotional pricing, however, can have adverse effects. During most holiday seasons, for example, it’s an all-out bargain war. Marketers carpet-bomb consumers with deals, causing buyer wear-out and pricing confusion. Used too frequently, price promo- tions can create “deal-prone” customers who wait un- til brands go on sale before buying them. In addition, constantly reduced prices can erode a brand’s value in the eyes of customers.

Marketers sometimes become addicted to pro- motional pricing, especially in tight economic times.

They use price promotions as a quick fix instead of sweating through the difficult process of developing effective longer-term strategies for building their brands. Consider JCPenney:

Over the past two decades, JCPenney has steadily lost ground to discounters and department store ri- vals such as Walmart, Kohl’s, and Macy’s on the one hand and to nimbler specialty store retailers on the other. To compete, the 110-year-old retailer increasingly relied on deep and frequent discounts to drive sales, even at the expense of profitability. By 2012, almost 75 percent of JCPenney’s merchan- dise was being sold at discounts of 50 percent or more, and less than 1 percent was sold at full price.

To reverse declining sales and profits, Penney’s implemented a bold new everyday-low-pricing strategy, called “Fair and Square” pricing. It ditched deep discounts and endless rounds of sales, instead cutting regular retail prices by 40 percent across the board. The goal was to offer fair, pre- dictable prices for the value received while at the same time boosting the chain’s margins. However, the new pricing strategy turned out to be an absolute disaster. JCPenney’s deal-prone core custom- ers, accustomed to deep discounts, didn’t want just “fair” prices; they wanted rock-bottom prices. Penney’s sales plunged to the lowest levels in 25 years. To win back core customers, JCPenney soon reverted to pricing as usual, once again featuring regular sale prices, discounts, and coupons. Moving forward, as sales and profits continue to suffer, JCPenney faces a desperate struggle to find the right pricing formula. It can’t live with sale prices, but it can’t live without them, either.18

geographical Pricing A company also must decide how to price its products for customers located in different parts of the United States or the world. Should the company risk losing the business of more-distant customers by charging them higher prices to cover the higher shipping costs? Or should the company charge all customers the same prices regardless of location? We will look at five geographical pricing strategies for the following hypothetical situation:

The Peerless Paper Company is located in Atlanta, Georgia, and sells paper products to custom- ers all over the United States. The cost of freight is high and affects the companies from which customers buy their paper. Peerless wants to establish a geographical pricing policy. It is trying to determine how to price a $10,000 order to three specific customers: Customer A (Atlanta), Customer B (Bloomington, Indiana), and Customer C (Compton, California).

Promotional pricing: to encourage apple customers to switch from their apple laptops to its surface tablets, Microsoft recently offered buyers up to $650 toward a surface Pro 3 when they traded in a Macbook air. such aggressive price promotions can provide powerful buying incentives. Microsoft

284 Part 3: Designing a customer Value-Driven strategy and Mix

One option is for Peerless to ask each customer to pay the shipping cost from the Atlanta factory to the customer’s location. All three customers would pay the same factory price of $10,000, with Customer A paying, say, $100 for shipping; Customer B, $150; and Customer C, $250. Called FOB-origin pricing, this practice means that the goods are placed free on board (hence, FOB) a carrier. At that point, the title and responsibility pass to the customer, who pays the freight from the factory to the destination. Because each customer picks up its own cost, supporters of FOB pricing feel that this is the fairest way to assess freight charges. The disadvantage, however, is that Peerless will be a high-cost firm to distant customers.

Uniform-delivered pricing is the opposite of FOB pricing. Here, the company charges the same price plus freight to all customers, regardless of their location. The freight charge is set at the average freight cost. Suppose this is $150. Uniform-delivered pricing therefore results in a higher charge to the Atlanta customer (who pays $150 freight instead of $100) and a lower charge to the Compton customer (who pays $150 instead of $250). Although the Atlanta customer would prefer to buy paper from another local paper company that uses FOB-origin pricing, Peerless has a better chance of capturing the California customer.

Zone pricing falls between FOB-origin pricing and uniform-delivered pricing. The company sets up two or more zones. All customers within a given zone pay a single total price; the more distant the zone, the higher the price. For example, Peerless might set up an East Zone and charge $100 freight to all customers in this zone, a Midwest Zone in which it charges $150, and a West Zone in which it charges $250. In this way, the custom- ers within a given price zone receive no price advantage from the company. For example, customers in Atlanta and Boston pay the same total price to Peerless. The complaint, however, is that the Atlanta customer is paying part of the Boston customer’s freight cost.

Using basing-point pricing, the seller selects a given city as a “basing point” and charges all customers the freight cost from that city to the customer location, regardless of the city from which the goods are actually shipped. For example, Peerless might set Chicago as the basing point and charge all customers $10,000 plus the freight from Chicago to their locations. This means that an Atlanta customer pays the freight cost from Chicago to Atlanta, even though the goods may be shipped from Atlanta. If all sellers used the same basing-point city, delivered prices would be the same for all customers, and price competition would be eliminated.

Finally, the seller who is anxious to do business with a certain customer or geographi- cal area might use freight-absorption pricing. Using this strategy, the seller absorbs all or part of the actual freight charges to get the desired business. The seller might reason that if it can get more business, its average costs will decrease and more than compensate for its extra freight cost. Freight-absorption pricing is used for market penetration and to hold on to increasingly competitive markets.

Dynamic and online Pricing Throughout most of history, prices were set by negotiation between buyers and sellers. Fixed-price policies—setting one price for all buyers—is a relatively modern idea that arose with the development of large-scale retailing at the end of the nineteenth century. Today, most prices are set this way. However, some companies are now reversing the fixed-pricing trend. They are using dynamic pricing—adjusting prices continually to meet the characteristics and needs of individual customers and situations.

Dynamic pricing is especially prevalent online, where the Internet seems to be taking us back to a new age of fluid pricing. Such pricing offers many advantages for marketers. For example, online sellers such as L.L.Bean, Amazon.com, and Dell can mine their databases to gauge a specific shopper’s desires, measure his or her means, check out competitors’ prices, and instantaneously tailor offers to fit that shopper’s situation and behavior, pricing products accordingly.

Services ranging from retailers, airlines, and hotels to sports teams change prices on the fly according to changes in demand, costs, or competitor pricing, adjusting what they charge for specific items on a daily, hourly, or even continuous basis. Done well, dynamic pricing can help sellers to optimize sales and serve customers better. However, done poorly, it can trigger margin-eroding price wars and damage customer relationships and trust. Companies must be careful not to cross the fine line between smart dynamic pricing strategies and damaging ones (see Marketing at Work 9.2).

Dynamic pricing Adjusting prices continually to meet the characteristics and needs of individual customers and situations.

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Dynamic pricing: amazon’s automated dynamic pricing system reportedly changes the price on as many as 80 million items on its site in a given day based on a host of marketplace factors. Webpics/Alamy

These days, it seems every seller knows what prices competitors are charging—for anything and everything it sells, minute by minute, and down to the penny. What’s more, today’s technolo- gies give sellers the flexibility to adjust their own prices on the fly. This often results in some pretty zany pricing dynamics.

For example, during a recent Black Friday weekend, the prices charged for the latest version of an Xbox game, Dance Central, experienced some head-spinning dips and dives. The day before Thanksgiving, Amazon marked the game down to $49.96, matching Walmart’s price and beating Target’s price by three cents. On Thanksgiving Day, Amazon slashed that price in half to just $24.99, matching Best Buy’s Thanksgiving Day special. Walmart responded quickly with a rock-bottom price of $15, which Amazon matched immediately. “What kind of pricing lunacy is this?” you ask. Welcome to the wonders and woes of dynamic pricing.

On the plus side, dynamic pricing can help sellers optimize sales and serve customers better by aligning prices with market conditions. For example, airlines routinely use dynamic pric- ing to constantly adjust fares for specific flights, depending on competitor pricing and anticipated seat availability. As any frequent flyer knows, if you call now to book a seat on a flight to sunny Florida next week, you’ll get one price. Try again an hour later and you’ll get a different price—maybe higher, maybe lower. Book the same seat a month in advance, and you’ll probably pay a lot less.

Dynamic pricing isn’t just about sellers optimizing their re- turns. It also puts pricing power into the hands of consumers, as alert shoppers take advantage of the constant price skirmishes among sellers. By using online price checkers and shopping apps to monitor prices, consumers can snap up good deals or leverage retailer price-matching policies. In fact, today’s fluid pricing sometimes gives buyers too much of an upper hand. With price checking and online ordering now at the shopper’s fingertips, even giant retailers such as Target, Walmart, and Best Buy have fallen victim to “showrooming”—whereby shoppers check merchandise and prices in store-retailer show- rooms, then buy the goods online.

Stores like Best Buy are in turn using dynamic pricing to combat showrooming or even turn it into an advantage. For example, Best Buy Canada provides its sales associates with mobile price checkers of their own that they can use with every transaction to check the competing prices in real time. Associates can often show customers that Best Buy actually has the best prices on most items. When Best Buy’s price isn’t lowest, associates are instructed to beat the lower-priced com- petitor—online or offline—by 10 percent. Once it has neutral- ized price as a buying factor, Best Buy reasons, it can convert showroomers into in-store buyers with its nonprice advantages of service, immediacy, convenient locations, and easy returns.

As the Best Buy example illustrates, dynamic pricing doesn’t just happen in the fast-shifting online environment. For example, discount department store Kohl’s has replaced static price tags with digital ones. These digital tags can be centrally controlled to change prices dynamically on individual items within a given store or across the entire chain. The technol- ogy lets Kohl’s apply Internet-style dynamic pricing, chang- ing prices as conditions dictate without the time and costs of changing physical tags.

Beyond using dynamic pricing to match competitors, many sellers use it to adjust prices based on customer characteristics or buying situations. Some sellers vary prices they charge different customers based on customer purchase histories or personal data. Some companies offer special discounts to cus- tomers with more items in their shopping carts. Online travel agent Orbitz has even been reported to charge higher prices to Mac and iPad users because Apple fans have higher average household incomes.

Most consumers are surprised to learn that it’s perfectly legal under most circumstances to charge different prices to different customers based on their buying behaviors. In fact, one survey found that two-thirds of online shoppers thought the practice was illegal. When they learned that it was not illegal, nearly nine out of ten thought it should be.

Legal or not, dynamic pricing doesn’t always sit well with customers. Done poorly, it can cause customer confusion, frustration, or even resentment, damaging hard-won customer relationships. For example, according to one source, Amazon’s automated dynamic pricing system changes the price on as

Marketing at Work 9.2

Dynamic Pricing: the Wonders and Woes of real-time Price adjustments

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many as 80 million items on its site throughout a given day, based on a host of marketplace factors. Consider this Amazon shopper’s experience:

Nancy Plumlee had just taken up mahjong, a Chinese game of tiles similar to rummy. She browsed Amazon.com and, after sifting through several pages of options, settled on a set for $54.99. She placed it in her [shopping cart] and continued shopping for some scorecards and game accessories. A few minutes later, she scanned the cart and noticed the $54.99 had jumped to $70.99. Plumlee thought she was going crazy. She checked her computer’s viewing history and, indeed, the game’s original price was listed at $54.99. Determined, she cleared out the cart and tried again. [This time,] the game’s price jumped from $54.99 to $59.99. “That just doesn’t feel like straight-up business honesty. Shame on Amazon,” said Plumlee, who called [Amazon] and persuaded the online retailer to refund her $5.

It is sometimes difficult to locate the fine line between a smart dynamic pricing strategy and one that crosses the line, doing more damage to customer relationships than good to the company’s bottom line. Consider Uber, an app-based car dispatch service serving many major U.S. cities that lets cus- tomers summon taxis, cars, or other transportation using texts or the company’s phone app:

Uber uses a form of dynamic pricing called “surge pricing.” Under normal circumstances, Uber customers pay reasonable fares. However, using Uber in periods of surging demand can result in shocking price escalations. For example, on one recent stormy, holiday-Saturday night in Manhattan, Uber charged—and got— fares that were more than eight times the usual. Although Uber’s app warned customers of heightened fares before processing their requests, many customers were outraged. One customer shared an Instagram photo of a taxi receipt for $415. “That is robbery!”

Tweeted another. However, despite the protests, Uber experienced no subsequent drop in demand in the New York City area. It seems that, to most people who can afford Uber, convenience and pres- tige are the deciding factors, not price.

Thus, used well, dynamic pricing can help sellers to opti- mize sales and profits by keeping track of competitor pricing and quickly adjusting to marketplace changes. Used poorly, however, it can trigger margin-eroding price wars and damage customer relationships and trust. Too often, dynamic pricing takes the form of a pricing “arms race” among sellers, putting too much emphasis on prices at the expense of other important customer value-building elements. Companies must be careful to keep pricing in balance. As one Best Buy marketer states, pricing—dynamic or otherwise—remains “just one part of the equation. There’s the right assortment, convenience, expedited delivery, customer service, warranty. All of these things matter to the customer.”

Sources: Andrew Nusca, “The Future of Retail Is Dynamic Pricing. So Why Can’t We Get It Right?,” ZDNet, October 2, 2013, www.zdnet.com/the-future- of-retail-is-dynamic-pricing-so-why-cant-we-get-it-right-7000021444/; Laura Gunderson, “Amazon’s ‘Dynamic’ Prices Get Some Static,” The Oregonian, May 5, 2012, http://blog.oregonlive.com/complaintdesk/2012/05/amazons_ dynamic_prices_get_som.html; David P; Schulz, “Changing Direction,” Stores, March 2013, www.stores.org/STORES%20Magazine%20March%202013/ changing-direction; Jessi Hempel, “Why Surge-Pricing Fiasco Is Great for Uber,” CNNMoney, December 30, 2013, http://tech.fortune.cnn.com/2013/12/30/ why-the-surge-pricing-fiasco-is-great-for-uber/; Alison Griswold, “Everybody Hates Surge Pricing,” Slate, April 24, 2014, www.slate.com/articles/business/ moneybox/2014/04/uber_style_surge_pricing_does_the_system_make_sense_ for_d_c_cabs.html; and Mike Murphy, “Amazon Changed the Price of the Bible Over 100 Times in Five Years,” Quartz, January 21, 2015, http://qz.com/327835/ amazon-dynamic-pricing-changed-the-price-of-the-bible-over-100-times-in- five-years/.

In the extreme, some companies customize their offers and prices based on the spe- cific characteristics and behaviors of individual customers, mined from online browsing and purchasing histories. These days, online offers and prices might well be based on what specific customers search for and buy, how much they pay for other purchases, and whether they might be willing and able to spend more. For example, a consumer who recently went online to purchase a first-class ticket to Paris or customize a new Mercedes coupe might later get a higher quote on a new Bose Wave Radio. By comparison, a friend with a more modest online search and purchase history might receive an offer of 5 percent off and free shipping on the same radio.19

Although such dynamic pricing practices seem legally questionable, they’re not. Dynamic pricing is legal as long as companies do not discriminate based on age, gen- der, location, or other similar characteristics. Dynamic pricing makes sense in many contexts—it adjusts prices according to market forces and consumer preferences. But mar- keters need to be careful not to use dynamic pricing to take advantage of certain customer groups, thereby damaging important customer relationships.

The practice of online pricing, however, goes both ways, and consumers often benefit from online and dynamic pricing. Thanks to the Internet, the centuries-old art of haggling is suddenly back in vogue. For example, consumers can negotiate prices at online auction sites and exchanges. Want to sell that antique pickle jar that’s been collecting dust for gen- erations? Post it on eBay or Craigslist. Want to name your own price for a hotel room or rental car? Visit Priceline.com or another reverse auction site. Want to bid on a ticket to a hot show or sporting event? Check out Ticketmaster.com, which offers an online auction service for event tickets.

http://www.zdnet.com/the-future-of-retail-is-dynamic-pricing-so-why-cant-we-get-it-right-7000021444/

http://blog.oregonlive.com/complaintdesk/2012/05/amazons_dynamic_prices_get_som.html

http://www.stores.org/STORES%20Magazine%20March%202013/changing-direction

http://tech.fortune.cnn.com/2013/12/30/why-the-surge-pricing-fiasco-is-great-for-uber/

http://www.slate.com/articles/business/moneybox/2014/04/uber_style_surge_pricing_does_the_system_make_sense_for_d_c_cabs.html

http://qz.com/327835/amazon-dynamic-pricing-changed-the-price-of-the-bible-over-100-times-infive-years/

http://blog.oregonlive.com/complaintdesk/2012/05/amazons_dynamic_prices_get_som.html

http://www.stores.org/STORES%20Magazine%20March%202013/changing-direction

http://tech.fortune.cnn.com/2013/12/30/why-the-surge-pricing-fiasco-is-great-for-uber/

http://www.slate.com/articles/business/moneybox/2014/04/uber_style_surge_pricing_does_the_system_make_sense_for_d_c_cabs.html

http://qz.com/327835/amazon-dynamic-pricing-changed-the-price-of-the-bible-over-100-times-infive-years/

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Also thanks to the Internet, consumers can get instant product and price comparisons from thousands of vendors at price comparison sites such as Yahoo! Shopping, Epinions.com, and PriceGrabber.com or using mobile apps such as TheFind, eBay’s RedLaser, or Amazon’s Price Check. For example, the RedLaser mobile app lets customers scan barcodes or QR codes (or search by voice or image) while shopping in stores. It then searches online and at nearby stores to provide thousands of reviews and comparison prices, and even offers buying links for immediate online purchasing. Armed with this information, consumers can often negotiate better in-store prices.

In fact, many retailers are finding that ready online access to comparison prices is giving consumers too much of an edge. Store retailers ranging from Target and Best Buy to Brookstone and GNC are now devising strategies to combat the consumer practice of show- rooming. Consumers armed with smartphones now

routinely come to stores to see an item, compare prices online while in the store, and then buy the item online at a lower price. Such behavior is called showrooming because consum- ers use retailers’ stores as de facto “showrooms” for online resellers such as Amazon.com.

This past holiday season, Best Buy launched an advertising campaign—called “Your Ultimate Holiday Showroom”—designed to directly combat showrooming:20

In the campaign, a host of popular celebrities pitched Best Buy as a better shopping experience than buying from online-only retailers like Amazon.com. They touted Best Buy advantages, such as assistance by well-trained associates, the ability to order online and pick up in store, and Best Buy’s low-price guarantee. “Showrooming . . . is not the ideal experience,” says a Best Buy marketer, “. . . to do research at home, go to the store, do more research, then hit pause, go home and order and hope it arrives on time. There’s a better way.” That better way would be shopping and buying at Best Buy, the ultimate holiday showroom. Most consumers reacted positively to the light-hearted campaign, which helped lift holiday store traffic. However, the real challenge for Best Buy is to convert shoppers to buyers. Some customers remained skeptics. As one consumer Tweeted regarding the “Ultimate Showroom” ads: “Dear Best Buy, I’m glad you know your place as a showroom. Love, everyone who shops at Amazon.”

international Pricing Companies that market their products internationally must decide what prices to charge in different countries. In some cases, a company can set a uniform worldwide price. For example, Boeing sells its jetliners at about the same price everywhere, whether the buyer is in the United States, Europe, or a third-world country. However, most companies adjust their prices to reflect local market conditions and cost considerations.

The price that a company should charge in a specific country depends on many fac- tors, including economic conditions, competitive situations, laws and regulations, and the nature of the wholesaling and retailing system. Consumer perceptions and prefer- ences also may vary from country to country, calling for different prices. Or the com- pany may have different marketing objectives in various world markets, which require changes in pricing strategy. For example, Apple introduces sophisticated, feature-rich, premium smartphones in carefully segmented mature markets in highly developed countries using a market-skimming pricing strategy. By contrast, it’s now under pres- sure to discount older models and develop cheaper, more basic phone models for sizable but less affluent markets in developing countries, where even discounted older Apple phones sell at prices three to five times those of those of competing low-price models.

Costs play an important role in setting international prices. Travelers abroad are often surprised to find that goods that are relatively inexpensive at home may carry outrageously higher price tags in other countries. A pair of Levi’s selling for $30 in the United States

Dynamic and internet pricing: Using mobile apps such as amazon’s Price check, consumers can get instant product and price comparisons. just “scan it,” “snap it,” or “say it.” Andrew Harrer/Bloomberg/Getty Images

288 Part 3: Designing a customer Value-Driven strategy and Mix

might go for $63 in Tokyo and $88 in Paris. A McDonald’s Big Mac selling for a modest $4.20 in the United States might cost $7.85 in Norway or $5.65 in Brazil, and an Oral-B toothbrush selling for $2.49 at home may cost $10 in China. Conversely, a Gucci handbag going for only $140 in Milan, Italy, might fetch $240 in the United States.

In some cases, such price escalation may result from differences in selling strategies or market conditions. In most instances, however, it is simply a result of the higher costs of selling in another country—the additional costs of operations, product modifications, shipping and insur- ance, exchange-rate fluctuations, and physical distribution. Import tariffs and taxes can also add to costs. For exam- ple, China imposes duties as high as 25 percent on imported Western luxury products such as watches, designer dresses, shoes, and leather handbags. It also levies consumption taxes of 30 percent for cosmetics and 20 percent on high- end watches. As a result, Western luxury goods bought in mainland China carry prices as much as 50 percent higher than in Europe.21

Price has become a key element in the international marketing strategies of companies attempting to enter less affluent emerging markets. Typically, entering such markets has meant targeting the exploding middle classes in develop- ing countries such as China, India, Russia, and Brazil, whose economies have been growing rapidly. More recently, how- ever, as the weakened global economy has slowed growth in both domestic and emerging markets, many companies are

shifting their sights to include a new target—the so-called “bottom of the pyramid,” the vast untapped market consisting of the world’s poorest consumers.

Not long ago, the preferred way for many brands to market their products in develop- ing markets—whether consumer products or cars, computers, and smartphones—was to paste new labels on existing models and sell them at higher prices to the privileged few who could afford them. However, such a pricing approach put many products out of the reach of the tens of millions of poor consumers in emerging markets. As a result, many companies developed smaller, more basic and affordable product versions for these mar- kets. For example, Unilever—the maker of such brands as Dove, Sunsilk, Lipton, and Vaseline—shrunk its packaging and set low prices that even the world’s poorest consum- ers could afford. It developed single-use packages of its shampoo, laundry detergent, face cream, and other products that it could sell profitably for just pennies a pack. As a result, today, more than half of Unilever’s revenues come from emerging economies.22

Although this strategy has been successful for Unilever, most companies are learning that selling profitably to the bottom of the pyramid requires more than just repackaging or stripping down existing products and selling them at low prices. Just like more well-to-do consumers, low-income buyers want products that are both functional and aspirational. Thus, companies today are innovating to create products that not only sell at very low prices but also give bottom-of-the-pyramid consumers more for their money, not less.

International pricing presents many special problems and complexities. We discuss international pricing issues in more detail in Chapter 15.

Price changes After developing their pricing structures and strategies, companies often face situations in which they must initiate price changes or respond to price changes by competitors.

initiating Price changes In some cases, the company may find it desirable to initiate either a price cut or a price increase. In both cases, it must anticipate possible buyer and competitor reactions.

author comment When and how should a company change its price? What if costs rise,

putting the squeeze on profits? What if the economy sags and customers become more price sensitive? Or what if a major competitor raises or drops its prices? As Figure 9.5 suggests, companies

face many price-changing options.

international prices: travelers are often surprised to find that product price tags vary greatly from country to country. for example, thanks to chinese import tariffs and consumption taxes, Western luxury goods bought in mainland china carry prices as much as 50 percent higher than in europe. James McCauley/Harrods/Getty Images

chapter 9: Pricing: Understanding and capturing customer Value 289

initiating Price cuts Several situations may lead a firm to consider cutting its price. One such circumstance is excess capacity. Another is falling demand in the face of strong price competition or a weakened economy. In such cases, the firm may aggressively cut prices to boost sales and market share. But as the airline, fast-food, automobile, retailing, and other industries have learned in recent years, cutting prices in an industry loaded with excess capacity may lead to price wars as competitors try to hold on to market share.

A company may also cut prices in a drive to dominate the market through lower costs. Either the company starts with lower costs than its competitors, or it cuts prices in the hope of gaining market share that will further cut costs through larger volume. For example, computer and electronics maker Lenovo uses an aggressive low-cost, low-price strategy to increase its share of the PC market in developing countries. Similarly, Chinese low-price phone maker Xiaomi has now become China’s smartphone market leader, and the low-cost producer is making rapid inroads into India and other emerging markets.

initiating Price increases A successful price increase can greatly improve profits. For example, if the company’s profit margin is 3 percent of sales, a 1 percent price increase will boost profits by 33 percent if sales volume is unaffected. A major factor in price increases is cost inflation. Rising costs squeeze profit margins and lead companies to pass cost increases along to customers. Another factor leading to price increases is over-demand: When a company cannot supply all that its customers need, it may raise its prices, ration products to custom- ers, or both—consider today’s worldwide oil and gas industry.

When raising prices, the company must avoid being perceived as a price gouger. For example, when gasoline prices rise rapidly, angry customers often accuse the

major oil companies of enriching themselves at the expense of consumers. Customers have long memories, and they will eventually turn away from companies or even whole industries that they perceive as charging excessive prices. In the extreme, claims of price gouging may even bring about increased government regulation.

There are some techniques for avoiding these problems. One is to maintain a sense of fairness surrounding any price increase. Price increases should be supported by company communications telling customers why prices are being raised.

Wherever possible, the company should consider ways to meet higher costs or demand without raising prices. For example, it might consider more cost-effective ways to produce or distribute its products. It can “unbundle” its market offering, removing features, packaging, or services and separately pricing elements that were formerly part of the offer. Or it can shrink the product or substitute less-expensive ingredients instead of raising the price. P&G recently did this with Tide by holding price while shrinking 100-ounce containers to 92 ounces and 50-ounce containers to 46 ounces, creating a more than 8 percent price increase per ounce without changing package prices. Similarly, Kimberly-Clark raised Kleenex prices by “desheeting”— reducing the number of sheets of toilet paper or facial tissues in each package. And a regular Snickers bar now weighs 1.86 ounces, down from 2.07 ounces in the past, effectively increasing prices by 11 percent.23

buyer reactions to Price changes Customers do not always interpret price changes in a straightforward way. A price increase, which would normally lower sales, may have some positive meanings for buyers. For example, what would you think if Rolex raised the price of its latest watch model? On the one hand, you might think that the watch is even more exclusive or better made. On the other hand, you might think that Rolex is simply being greedy by charging what the traffic will bear.

Similarly, consumers may view a price cut in several ways. For example, what would you think if Rolex were to suddenly cut its prices? You might think that you are getting a better deal on an exclusive product. More likely, however, you’d think that quality had been reduced, and the brand’s luxury image might be tarnished. A brand’s price and image are often closely linked. A price change, especially a drop in price, can adversely affect how consumers view the brand.

initiating price increases: When gasoline prices rise rapidly, angry consumers often accuse the major oil companies of enriching themselves by gouging customers. Jerry/Marcy Monkman/EcoPhotography.com/Alamy

290 Part 3: Designing a customer Value-Driven strategy and Mix

competitor reactions to Price changes A firm considering a price change must worry about the reactions of its competitors as well as those of its customers. Competitors are most likely to react when the number of firms involved is small, when the product is uniform, and when the buyers are well in- formed about products and prices.

How can the firm anticipate the likely reactions of its competitors? The problem is complex because, like the customer, the competitor can interpret a company price cut in many ways. It might think the company is trying to grab a larger market share or that it’s doing poorly and trying to boost its sales. Or it might think that the company wants the whole industry to cut prices to increase total demand.

The company must assess each competitor’s likely reaction. If all competitors behave alike, this amounts to analyzing only a typical competitor. In contrast, if the competitors do not behave alike—perhaps because of differences in size, market shares, or policies— then separate analyses are necessary. However, if some competitors will match the price change, there is good reason to expect that the rest will also match it.

responding to Price changes Here we reverse the question and ask how a firm should respond to a price change by a competitor. The firm needs to consider several issues: Why did the competitor change the price? Is the price change temporary or permanent? What will happen to the company’s market share and profits if it does not respond? Are other competitors going to respond? Besides these issues, the company must also consider its own situation and strategy and possible customer reactions to price changes.

figure 9.5 shows the ways a company might assess and respond to a competitor’s price cut. Suppose a company learns that a competitor has cut its price and decides that this price cut is likely to harm its sales and profits. It might simply decide to hold its cur- rent price and profit margin. The company might believe that it will not lose too much market share or that it would lose too much profit if it reduced its own price. Or it might decide that it should wait and respond when it has more information on the effects of the competitor’s price change. However, waiting too long to act might let the competitor get stronger and more confident as its sales increase.

If the company decides that effective action can and should be taken, it might make any of four responses. First, it could reduce its price to match the competitor’s price. It may decide that the market is price sensitive and that it would lose too much market share to the lower-priced competitor. However, cutting the price will reduce the company’s profits in the short run. Some companies might also reduce their product quality, services,

Has competitor cut price?

Yes

NoWill lower price negatively affect our

market share and profits? Reduce price

Raise perceived value

Improve quality and increase price

Launch low-price “fighter brand”

Yes

Can/should effective action be taken?

NoNoN

Yes

Hold current price; continue to monitor competitor’s price

When a competitor cuts prices, a company’s first reaction may be to drop its prices as well. But that is often the wrong response. Instead, the firm may want to emphasize the “value” side of the price–value equation.

figure 9.5 responding to competitor Price changes

chapter 9: Pricing: Understanding and capturing customer Value 291

and marketing communications to retain profit margins, but this will ultimately hurt long- run market share. The company should try to maintain its quality as it cuts prices.

Alternatively, the company might maintain its price but raise the perceived value of its offer. It could improve its communications, stressing the relative value of its product over that of the lower-price competitor. The firm may find it cheaper to maintain price and spend money to improve its perceived value than to cut price and operate at a lower margin. Or the company might improve quality and increase price, moving its brand into a higher price–value position. The higher quality creates greater customer value, which

justifies the higher price. In turn, the higher price preserves the company’s higher margins.

Finally, the company might launch a low-price “fighter brand”—adding a lower- price item to the line or creating a sepa- rate lower-price brand. This is necessary if the particular market segment being lost is price sensitive and will not respond to ar- guments of higher quality. Starbucks did this when it acquired Seattle’s Best Coffee, a brand positioned with working-class, “ap- proachable-premium” appeal compared to the more professional, full-premium appeal of the main Starbucks brand. Seattle’s Best coffee is generally cheaper than the parent Starbucks brand. As such, at retail, it competes more di- rectly with Dunkin’ Donuts, McDonald’s, and other mass-premium brands through its fran- chise outlets and through partnerships with Subway, Burger King, Delta, AMC theaters, Royal Caribbean cruise lines, and others. On supermarket shelves, it competes with store brands and other mass-premium coffees such as Folgers Gourmet Selections and Millstone.

To counter store brands and other low-price entrants in a tighter economy, P&G turned a number of its brands into fighter brands. Luvs disposable diapers give parents “premium leakage protection for less than pricier brands.” And P&G offers popular budget-priced basic versions of several of its major brands. For example, Charmin Basic “holds up at a great everyday price,” and Puffs Basic gives you “Everyday softness. Everyday value.” Tide Simply Clean & Fresh is about 35 percent cheaper than regular Tide detergent. However, companies must use caution when introducing fighter brands, as such brands can tarnish the image of the main brand. In addition, although they may attract budget buyers away from lower-priced rivals, they can also take business away from the firm’s higher-margin brands.

Public Policy and Pricing Price competition is a core element of our free-market economy. In setting prices, compa- nies usually are not free to charge whatever prices they wish. Many federal, state, and even local laws govern the rules of fair play in pricing. In addition, companies must consider broader societal pricing concerns. In setting their prices, for example, pharmaceutical firms must balance their development costs and profit objectives against the sometimes life-and-death needs of drug consumers.

The most important pieces of legislation affecting pricing are the Sherman Act, the Clayton Act, and the Robinson-Patman Act, initially adopted to curb the formation of monopolies and regulate business practices that might unfairly restrain trade. Because these federal statutes can be applied only to interstate commerce, some states have adopted similar provisions for companies that operate locally.

author comment Pricing decisions are often

constrained by social and legal issues. For example, think about the pharmaceuticals

industry. Are rapidly rising prescription drug prices justified? Or are the drug companies unfairly lining their pockets

by gouging consumers who have few alternatives? Should the

government step in?

fighter brands: starbucks has positioned its seattle’s best coffee unit to compete more directly with the “mass-premium” brands sold buy Dunkin’ Donuts, McDonald’s, and other lower-priced competitors. Curved Light USA/Alamy

292 Part 3: Designing a customer Value-Driven strategy and Mix

figure 9.6 shows the major public policy issues in pricing. These include poten- tially damaging pricing practices within a given level of the channel (price-fixing and predatory pricing) and across levels of the channel (retail price maintenance, discrimina- tory pricing, and deceptive pricing).24

Pricing within channel levels Federal legislation on price-fixing states that sellers must set prices without talking to competitors. Otherwise, price collusion is suspected. Price-fixing is illegal per se—that is, the government does not accept any excuses for price-fixing. As such, companies found guilty of these practices can receive heavy fines. Recently, governments at the state and national levels have been aggressively enforcing price-fixing regulations in industries ranging from gasoline, insurance, and concrete to credit cards, CDs, computer chips, and e-books. For example, in recent years, the U.S. Department of Justice has brought charges against Apple for colluding with publishers to fix prices on e-books. Price-fixing is also prohibited in many international markets. For example, Apple was recently fined $670,000 on price-fixing charges for its iPhones in Taiwan.25

Sellers are also prohibited from using predatory pricing—selling below cost with the intention of punishing a competitor or gaining higher long-run profits by putting competitors out of business. This protects small sellers from larger ones that might sell items below cost temporarily or in a specific locale to drive them out of business. The biggest problem is determining just what constitutes preda- tory pricing behavior. Selling below cost to unload excess inventory is not consid- ered predatory; selling below cost to drive out competitors is. Thus, a given action may or may not be predatory depending on intent, and intent can be very difficult to determine or prove.

In recent years, several large and powerful companies have been accused of predatory pricing. However, turning an accusation into a lawsuit can be dif- ficult. For example, many publishers and booksellers have expressed con- cerns about Amazon.com’s predatory practices, especially its book pricing:26

Many booksellers and publishers complain that Amazon’s book pricing policies are destroying their industry. During past holiday seasons, Amazon has sold top 10 best- selling hardback books as loss leaders at cut-rate prices of less than $10 each. And Amazon now sells e-books at fire-sale prices in order to win customers for its Kindle e-reader. Such very low book prices have caused considerable damage to competing booksellers, many of whom view Amazon’s pricing actions as predatory. Says one observer, “The word ‘predator’ is pretty strong, and I don’t use it loosely, but . . . I could have sworn we had laws against predatory pricing. I just don’t understand why [Amazon’s pricing] is not an issue.” Still, no predatory pricing charges have ever been filed against Amazon. It would be extremely difficult to prove that such loss-leader pricing is purposefully predatory as opposed to just plain good competitive marketing.

Deceptive pricing

Consumers

Retail price maintenance

Deceptive pricing

Producer A

Price-fixing Predatory pricing

Producer B

Retailer 1

Price-fixing Predatory pricing

Retailer 2

ice-fixing

rice-fixingmaintenance pricing

Deceptive pricing

ducer B Retailer 2ducer B etailer 2

Discriminatory pricing

Major public policy issues in pricing take place at two levels: pricing practices within a given channel level …

… and pricing practices across channel levels.

figure 9.6 Public Policy issues in Pricing Source: Adapted from Dhruv Grewal and Larry D. Compeau, “Pricing and Public Policy: A Research Agenda and Overview of the Special Issue,” Journal of Public Policy and Marketing, Spring 1999, pp. 3–10.

Predatory pricing: some industry critics have accused amazon.com of pricing books at fire-sale prices that harm competing booksellers. but is it predatory pricing or just plain good competitive marketing? Iain Masterton/Alamy

chapter 9: Pricing: Understanding and capturing customer Value 293

Pricing across channel levels The Robinson-Patman Act seeks to prevent unfair price discrimination by ensuring that sellers offer the same price terms to customers at a given level of trade. For example, every retailer is entitled to the same price terms from a given manufacturer, whether the retailer is REI or a local bicycle shop. However, price discrimination is allowed if the seller can prove that its costs are different when selling to different retailers—for example, that it costs less per unit to sell a large volume of bicycles to REI than to sell a few bicycles to the local dealer.

The seller can also discriminate in its pricing if the seller manufactures different qualities of the same product for different retailers. The seller has to prove that these dif- ferences are proportional. Price differentials may also be used to “match competition” in “good faith,” provided the price discrimination is temporary, localized, and defensive rather than offensive.

Laws also prohibit retail (or resale) price maintenance—a manufacturer cannot require dealers to charge a specified retail price for its product. Although the seller can propose a manufacturer’s suggested retail price to dealers, it cannot refuse to sell to a dealer that takes independent pricing action, nor can it punish the dealer by shipping late or denying advertising allowances. For example, the Florida attorney general’s office investigated Nike for allegedly fixing the retail price of its shoes and clothing. It was con- cerned that Nike might be withholding items from retailers who were not selling its most expensive shoes at prices the company considered suitable.

Deceptive pricing occurs when a seller states prices or price savings that mislead consumers or are not actually available to consumers. This might involve bogus ref- erence or comparison prices, as when a retailer sets artificially high “regular” prices and then announces “sale” prices close to its previous everyday prices. For example, Overstock.com came under scrutiny for inaccurately listing manufacturer’s suggested retail prices, often quoting them higher than the actual prices. Such comparison pricing is widespread.

Although comparison pricing claims are legal if they are truthful, the Federal Trade Commission’s “Guides against Deceptive Pricing” warn sellers not to advertise (1) a price reduction unless it is a savings from the usual retail price, (2) “factory” or “wholesale” prices unless such prices are what they are claimed to be, and (3) comparable value prices on imperfect goods.27

Other deceptive pricing issues include scanner fraud and price confusion. The widespread use of scanner-based computer checkouts has led to increasing complaints of retailers overcharging their customers. Most of these overcharges result from poor management, such as a failure to enter current or sale prices into the system. Other cases, however, involve intentional overcharges.

Many federal and state statutes regulate against deceptive pricing practices. For example, the Automobile Information Disclosure Act requires automakers to attach a statement on new vehicle windows stating the manufacturer’s suggested retail price, the prices of optional equipment, and the dealer’s transportation charges. However, reputable sellers go beyond what is required by law. Treating customers fairly and making certain that they fully understand prices and pricing terms are an important part of building strong and lasting customer relationships.

294 Part 3: Designing a customer Value-Driven strategy and Mix

chaPter reVieW anD critical thinking

Price can be defined as the sum of all the values that customers give up in order to gain the benefits of having or using a product or service. Pricing decisions are subject to an incredibly com- plex array of company, environmental, and competitive forces.

objectiVe 9-1 identify the three major pricing strategies and discuss the importance of understanding customer-value perceptions, company costs, and com- petitor strategies when setting prices. (pp 264–272)

The three major pricing strategies include customer value- based pricing, cost-based pricing, and competition-based pric- ing. Good pricing begins with a complete understanding of the value that a product or service creates for customers and setting a price that captures that value.

Customer perceptions of the product’s value set the ceiling for prices. If customers perceive that the price is greater than the product’s value, they will not buy the product. At the other extreme, company and product costs set the floor for prices. If the company prices the product below its costs, its profits will suffer. Between these two extremes, consumers will base their judgments of a product’s value on the prices that competitors charge for similar products. Thus, in setting prices, companies need to consider all three factors: customer perceived value, costs, and competitors pricing strategies.

Costs are an important consideration in setting prices. However, cost-based pricing is often product driven. The com- pany designs what it considers to be a good product and sets a price that covers costs plus a target profit. If the price turns out to be too high, the company must settle for lower markups or lower sales, both resulting in disappointing profits. Value- based pricing reverses this process. The company assesses cus- tomer needs and value perceptions and then sets a target prices to match targeted value. The targeted value and price then drive decisions about product design and what costs can be incurred. As a result, price is set to match customers’ perceived value.

objectiVe 9-2 identify and define the other important external and internal factors affecting a firm’s pricing decisions. (pp 272–277)

Other internal factors that influence pricing decisions include the company’s overall marketing strategy, objectives, and mar- keting mix as well as organizational considerations. Price is only one element of the company’s broader marketing strategy. If the company has selected its target market and positioning carefully, then its marketing mix strategy, including price, will

reVieWing anD extenDing the concePts

objectives review be fairly straightforward. Common pricing objectives might include customer retention and building profitable customer relationships, preventing competition, supporting resellers and gaining their support, or avoiding government intervention. Price decisions must be coordinated with product design, dis- tribution, and promotion decisions to form a consistent and effective marketing program. Finally, in order to coordinate pricing goals and decisions, management must decide who within the organization is responsible for setting price.

Other external pricing considerations include the nature of the market and demand and environmental factors such as the economy, reseller needs, and government actions. Ultimately, the customer decides whether the company has set the right price. The customer weighs the price against the perceived values of using the product—if the price exceeds the sum of the values, consumers will not buy. So the company must under- stand concepts like demand curves (the price-demand relation- ship) and price elasticity (consumer sensitivity to prices).

Economic conditions can have a major impact on pricing decisions. The Great Recession caused consumers to rethink the price-value equation. Marketers have responded by increasing their emphasis on value-for-the-money pricing strategies. Even in tight economic times, however, consumers do not buy based on prices alone. Thus, no matter what price they charge—low or high—companies need to offer superior value for the money.

objectiVe 9-3 Describe the major strategies for pricing new products. (pp 277–278)

Pricing is a dynamic process. Companies design a pricing structure that covers all their products. They change this struc- ture over time and adjust it to account for different customers and situations. Pricing strategies usually change as a product passes through its life cycle. In pricing innovative new prod- ucts, a company can use market-skimming pricing by initially setting high prices to “skim” the maximum amount of revenue from various segments of the market. Or it can use market- penetrating pricing by setting a low initial price to penetrate the market deeply and win a large market share.

objectiVe 9-4 explain how companies find a set of prices that maximizes the profits from the total product mix. (pp 278–280)

When the product is part of a product mix, the firm searches for a set of prices that will maximize the profits from the total mix. In product line pricing, the company decides on price steps for

chapter 9: Pricing: Understanding and capturing customer Value 295

the entire set of products it offers. In addition, the company must set prices for optional products (optional or accessory products included with the main product), captive products (products that are required for use of the main product), by- products (waste or residual products produced when making the main product), and product bundles (combinations of prod- ucts at a reduced price).

objectiVe 9-5 Discuss how companies adjust their prices to take into account different types of customers and situations. (pp 280–288)

Companies apply a variety of price adjustment strategies to account for differences in consumer segments and situations. One is discount and allowance pricing, whereby the company establishes cash, quantity, functional, or seasonal discounts or varying types of allowances. A second strategy is segmented pricing, where the company sells a product at two or more prices to accommodate different customers, product forms, locations, or times. Sometimes companies consider more than economics in their pricing decisions, using psychological pric- ing to better communicate a product’s intended position. In promotional pricing, a company offers discounts or temporar- ily sells a product below list price as a special event, sometimes even selling below cost as a loss leader. Another approach is geographical pricing, whereby the company decides how to

price to near or distant customers. In dynamic pricing, com- panies adjust prices continually to meet the characteristics and needs of individual customers and situations. Finally, inter- national pricing means that the company adjusts its price to meet different conditions and expectations in different world markets.

objectiVe 9-6 Discuss the key issues related to initiat- ing and responding to price changes. (pp 288–293)

When a firm considers initiating a price change, it must con- sider customers’ and competitors’ reactions. There are differ- ent implications to initiating price cuts and initiating price increases. Buyer reactions to price changes are influenced by the meaning customers see in the price change. Competitors’ reactions flow from a set reaction policy or a fresh analysis of each situation.

There are also many factors to consider in responding to a competitor’s price changes. The company that faces a price change initiated by a competitor must try to understand the competitor’s intent as well as the likely duration and impact of the change. If a swift reaction is desirable, the firm should pre- plan its reactions to different possible price actions by competi- tors. When facing a competitor’s price change, the company might sit tight, reduce its own price, raise perceived quality, improve quality and raise price, or launch a fighting brand.

key terms objective 9-1 Price (p 264) Customer value-based pricing (p 265) Good-value pricing (p 267) Value-added pricing (p 267) Cost-based pricing (p 269) Fixed costs (overhead) (p 269) Variable costs (p 270) Total costs (p 270) Cost-plus pricing (markup pricing)

(p 270) Break-even pricing (target return

pricing) (p 270) Competition-based pricing (p 271)

objective 9-2 Target costing (p 273) Demand curve (p 274) Price elasticity (p 275)

objective 9-3 Market-skimming pricing (price

skimming) (p 277) Market-penetration pricing (p 277)

objective 9-4 Product line pricing (p 278) Optional-product pricing (p 279) Captive-product pricing (p 279)

By-product pricing (p 279) Product bundle pricing (p 280)

objective 9-5 Discount (p 281) Allowance (p 281) Segmented pricing (p 281) Psychological pricing (p 282) Reference prices (p 282) Promotional pricing (p 282) Dynamic pricing (p 284)

Discussion Questions 9-1. Name and describe the two types of value-based pric-

ing methods. (AACSB: Communication) 9-2. Name and describe the four types of markets and the

challenges they pose with respect to setting prices. (AACSB: Communication)

9-3. What is captive-product pricing? What is this pricing tactic called in the case of services? Give examples. (AACSB: Communication; Reflective Thinking)

9-4. Name and describe the two broad new product pricing strategies. When would each be appropriate? (AACSB: Communication)

9-5. Compare and contrast price discounts and allowances, describing the types of each. (AACSB: Communication)

296 Part 3: Designing a customer Value-Driven strategy and Mix

critical thinking exercises 9-6. If you’ve ever traveled to another country, such as

Germany, you may have noticed that the price on a product is the total amount you actually pay when you check out. That is, no sales tax is added to the purchase price at the checkout as it is in the Unit- ed States. That is because many countries impose a Value Added Tax (VAT). In a small group, research value added taxes and debate whether such taxes ben- efit consumers. Do marketers support or dislike these types of taxes? (AACSB: Communication; Reflective Thinking)

9-7. In a small group, research the legal requirements regarding orders resulting from an online pricing mistake. Must sell- ers honor such orders? Write a report of what you learned. Then describe an example of an online pricing glitch and summarize what the company did to respond to the glitch. (AACSB: Communication; Reflective Thinking)

9-8. Bridgestone Corporation, the world’s largest tire and rubber producer, recently agreed to plead guilty to price- fixing along with 25 other automotive suppliers. What is price-fixing? Discuss other recent examples of price- fixing. (AACSB: Communication; Reflective Thinking)

Got your eye on a new 32-inch Samsung television? Well, you better not purchase it in December—that’s when the price was highest on Amazon.com ($500 versus $400 in November or February). Most consumers know that prices fluctuate throughout the year, but did you know they even fluctuate hourly? You probably can’t keep up with that, but there’s an app that can. Camelcamelcamel is a tool that tracks Amazon’s prices for consumers and sends alerts when a price hits the sweet spot. This app allows users to import entire Amazon wishlists and to set desired price levels at which emails or tweets are sent to inform them of the prices. All of this is free. Camel makes its money from an unlikely partner— Amazon—which funnels price data directly to Camel. Camel is a member of Amazon’s Affiliate program, kicking back 8.5 percent of sales for each customer Camel refers. It would seem that Amazon would want customers to buy when prices

are higher, not lower. But the online behemoth sees this as a way to keep the bargain hunters happy while realizing more profitability from less price-sensitive customers. This is an improvement over Amazon’s earlier pricing tactics, which charged different customers different prices based on their buying behavior.

9-9. Go to http://us.camelcamelcamel.com/ and set up a free account. Track 10 products that interest you. Did any of the products reach your desired price? Write a report on the usefulness of this type of app for consumers. (AACSB: Communication; Use of IT)

9-10. Camel is not the only Amazon tracking or online price- tracking application. Find and describe an example of another online price-tracking tool for consumers. (AACSB: Communication; Use of IT)

Minicases anD aPPlications

online, Mobile, and social Media Marketing online Price tracking

Marketing ethics Psychology of Mobile Payments Consumers love to play games on their mobile devices, and Japanese consumers seem to be the most passionate. Mobile game publishers in Japan have mastered the art of getting as much revenue as possible from players—some earning more than $4 million per day. The makers of Puzzle & Dragons have seemingly cracked the revenue code by using the psychology of mobile payments to squeeze more revenue by encouraging players to play longer. One Puzzle & Dragons secret was to is- sue its own virtual currency, called magic stones, so consumers don’t feel like they are spending real money for chances to en- hance play. Then the game offers a little reward at the end with a reminder of what is lost if the player doesn’t take the offer. Limited-time sales offer monsters to use in battle for just a few magic stones, and if players run out of space, the game reminds them that they will lose their monsters if they don’t purchase more space. All the while, mathematicians and statisticians

work behind the scenes to track game play and make it easier or more challenging to keep players engaged and spending. One expert called Puzzle & Dragons “truly diabolical” in con- vincing players to pay and play more. These and other game producers’ tactics have propelled Japan’s game revenue alone to exceed revenue from all apps in the United States.

9-11. Is it ethical for game producers to use game-playing data to encourage consumers to spend more? Explain why or why not. (AACSB: Communication; Ethical Reasoning)

9-12. Is this similar to the “freemium” model used by many U.S. game producers? Explain the “freemium” model and discuss examples of games that use this model. (AACSB: Communication; Reflective Thinking; Ethi- cal Reasoning)

http://us.camelcamelcamel.com/

chapter 9: Pricing: Understanding and capturing customer Value 297

Marketing by the numbers breakeven on Price reduction Abercrombie & Fitch, once the favorite of loyal teens, is con- sidering lowering prices on all items it sells in an effort to win them back after several years of sales declines. A&F’s total sales were $4 billion last year, but they have been declining in the face of a weak economy and an intensively competitive retail environment. Price reductions are often effective in increasing sales, but marketers need to analyze how much sales must go up before a price reduction pays off and increases revenue enough to make the it worth doing. Refer to Appendix 3: Marketing by the Numbers to answer the following questions.

9-13. Assuming A&F’s gross profit margin is 60 percent and cost of goods sold represents the only variable cost, by how much must sales increase to maintain the same gross profit margin in terms of absolute dollars if A&F lowers prices by 10 percent? (AACSB: Communica- tion; Analytical Reasoning)

9-14. By what percentage must costs decrease if A&F wants to maintain the gross margin percentage of 60 percent? (AACSB: Communication; Analytical Reasoning)

Video case fast-food Discount Wars Fast-food chains are locked in a fierce battle that has them practically giving food away. McDonald’s, Wendy’s, Burger King, and others are constantly trying to lure customers at the low end of the price spectrum with tempting menu options that can serve as a snack or a meal. Although this technique is nothing new, it’s more popular today than ever. The tactic has even found its way into full-service restaurant chains such as Olive Garden.

But are bargain-basement options a sustainable path for restaurant chains? This video takes a look at the various ways discount menus are executed. It also considers the reasons for

using discount menu tactics as well as the possible negative outcomes.

After viewing the video featuring restaurant discount menu wars, answer the following questions:

9-15. Can discount menu strategies like those featured in the video be classified as “value pricing”? Explain.

9-16. Discuss why a restaurant chain might employ a discount menu as a pricing option.

9-17. What are the possible negative outcomes of employing a discount menu strategy?

company cases 9 coach/11 sears See Appendix 1 for cases appropriate for this chapter. Case 9, Coach: Riding the Wave of Premium Pricing. After years of high-growth revenues, discount tactics are taking a toll on

this premium brand. Case 11, Sears: Why Should You Shop There? Sears is a perfect example of why it takes more than low prices to succeed in discount retail.

MyMarketingLab If assigned by your instructor, complete these writing sections from your Assignments in the MyLab.

9-18. Describe the cost-plus pricing method and discuss why marketers use it even if it is not the best method for setting prices. (AACSB: Communication)

9-19. Compare and contrast fixed costs and variable costs and discuss their impor- tance in setting prices. (AACSB: Written and Oral Communication; Reflective Thinking)

10 objectiVe 10-1 explain why companies use marketing channels and discuss the functions these channels perform. Supply Chains and the Value Delivery Network (300–301); The Nature and Importance of Marketing Channels (301–303)

objectiVe 10-2 Discuss how channel members interact and how they organize to perform the work of the channel. Channel Behavior and Organization (304–311)

objectiVe 10-3 identify the major channel alternatives open to a company. Channel Design Decisions (311–315)

Marketing channels Delivering customer Value

objectiVe 10-4 explain how companies select, motivate, and evaluate channel members. Channel Management Decisions (315–318); Public Policy and Distribution Decisions (319)

objectiVe 10-5 Discuss the nature and importance of marketing logistics and integrated supply chain manage- ment. Marketing Logistics and Supply Chain Management (319–326)

Previewing the concepts We now look at the third marketing mix tool—distribution. companies rarely work alone in creating value for customers and building profitable customer relationships. instead, most are only a single link in a larger supply chain and marketing channel. as such, a firm’s success depends not only on how well it performs but also on how well its entire market- ing channel competes with competitors’ channels. the first part of this chapter explores the nature of marketing channels and the marketer’s channel design and management decisions. We then examine physical distribution—or logistics—an area that has grown dramatically in importance and sophistication. in the next chapter, we’ll look more closely at two major channel intermediaries: retailers and wholesalers.

We start by looking at Uber, the fast-growing, app-based car-hailing service that has recently sprouted up in cities around the world. Uber has radically reinvented urban transpor- tation channels, posing a serious threat to conventional taxi cab and car service companies. as Uber grows, traditional competitors must innovate or risk being pushed aside.

chaPter roaD MaP objective outline

299

first stop Uber: Radically Reshaping Urban Transportation Channels It’s rare. But every now and then a company comes along that completely disrupts the traditional ways of distributing a product or service. FedEx revolutionized small package deliv- ery channels; Amazon.com radically transformed online sell- ing; and Apple’s iTunes and iPod turned music distribution on its ear. Now comes Uber, the app-based ride service that is revolutionizing urban transportation. Fast-growing Uber is giv- ing conventional taxi cab and car services a real ride for their money. In just five short years, Uber has revved up operations in 270 major cities in 55 countries, already booking more than $1 billion in rides annually.

Why are so many customers around the world bypassing good old taxi cabs in favor of newcomer Uber? It’s all about convenience, ease of use, and peace of mind. No more step- ping out into busy city streets to wave down a passing cab. Instead, Uber’s smartphone app lets passengers hail the nearest cab or limo from any location with the touch of a button, then track the vehicle on a map as it approaches. The Uber app gives riders an accurate estimate in advance of the fare to their destinations (usually less than that charged by a regular cab), eliminating guesswork and un- certainty. After the ride, passengers simply exit and walk away. Uber automatically pays the driver (including tip) from the passenger’s pre- paid Uber account, eliminating the often inconvenient and awkward moment of payment. And it’s the same process all over the world, from San Francisco, London, Paris, or Abu Dhabi to Ashville, North Carolina, or Athens, Georgia.

Compare the Uber experience to the uncertain and often unset- tling experience of using a standard taxi cab. One business reporter describes waiting in line at a taxi stand while a driver tried to convince another would-be passenger—a total stranger—to share the cab, thereby increasing his fare. The cab itself was ancient and filthy, with ripped and worn seats. During the entire ride, the cabbie carried on a phone conversation in a foreign language via his headset, causing safety concerns while distractedly navigating busy city streets. The driver spoke only poor, hard-to-understand English. “That turned out to be a good thing,” says the reporter, “because I couldn’t understand what he was trying to say when he insulted me for not tipping him enough.” The reporter’s conclusion: “I stepped out of the taxi in front of my house and realized I just don’t have to put up with this gar- bage anymore. Uber has changed my life, and as God is my witness, [wherever Uber is available] I will never take a taxi again.”

Uber actually began as a ride-sharing service. Current Uber drivers range from professional drivers who’ve switched over from conventional cab and transportation companies to regular people looking for a little adventure and some extra income in their spare time. All Uber drivers go through an orientation that requires profi- ciency in a market area’s dominant language, ensuring that they can communicate effectively with customers. Uber vehicles must be at least 2007-year models or newer, and customers can often choose the type of car they want, from an entry-level Prius to a stretch Mercedes S-Class. A two-way rating system—by which riders rate drivers and drivers rate riders in return—helps keep both sides on

Uber—the fast-growing app-based ride service—is

revolutionizing urban transportation channels in cities around the globe.

as Uber grows, traditional taxi cab services must innovate or

risk extinction.

their best behavior. Poorly rated drivers risk being rejected by future passengers; poorly rated passengers risk rejection by drivers, who can choose which fares they accept.

Uber’s disruptive innovation has brought a breath of fresh air to an industry begging for change. Urban transportation channels have long been characterized by cartel-like relationships between cab companies and local governments, high fixed fares, poor service, and little accountability. As one economics professor points out, the taxi cab industry “was ripe for entry [by startups] because everybody hates it.” The business reporter puts it more plainly: “If service at Starbucks was as routinely disappointing as service from taxis, Star- bucks would have gone out of business long ago.”

Like any innovator, upstart Uber faces some significant challenges. For exam- ple, Uber has been criticized for exercising too little control over driver quality and security. So far, the company has rid- den beneath the radar of industry regulators by not directly employing drivers (all Uber drivers are inde- pendent contractors) and not owning any vehicles (all vehicles are driver-owned). However, although some muni- cipalities have passed ordinances favorable to Uber’s operations, others are imposing new regulatory restrictions and licensing requirements.

Uber has also been criticized for its “surge pricing” practices—a dynamic pricing mechanism that kicks in to raise prices when demand exceeds supply, sometimes resulting in shockingly high fares and accusations of price gouging. Uber justifies surge pricing by pointing to the very foundation of its business model—allowing the forces of sup- ply and demand to work. Surge pricing provides an incentive for more drivers to be available during periods when passengers need them most. According to Uber, if a passenger faces a higher-than-normal

Uber lets passengers hail the nearest cab from any location using its smartphone app, then track the vehicle on a map as it approaches. PAUL J. RICHARDS/AFP/Getty Images

300

fare because of surge pricing, the alternative without Uber would more than likely be no taxi at all. Moreover, Uber informs passengers in ad- vance what the fares will be. If they don’t like the fare, they can find another cab, take public transportation, or walk.

As Uber expands within a given market, Uber founder and CEO Travis Kalanick envisions the increased likelihood of what he calls “a perfect day”—a day when there is a ride available for everyone who needs one and no surge pricing results. Such a scenario is no pipe dream. In New York City recently, Uber riders experienced seven such “perfect days” in a row.

Uber’s huge success has attracted a garage full of competitors, such as Lyft, Sidecar, Gett, Carma, and Curb. Even Google (itself a major Uber investor) is rumored to be readying the launch of its own ride-sharing service, one that would eventually utilize the driverless vehicles Google is developing. Uber still has a huge first-to-market advantage. It has an estimated seven times the riders and 12 times the revenues of nearest competitor Lyft, and it’s adding new custom- ers at an estimated five times faster.

Beyond the numbers, however, for now, Uber has little to fear from like-minded competitors. In fact, the more competitors adopt the new model, the more the revolutionary channel will grow and thrive ver- sus traditional channels, creating opportunities for all new entrants. Instead, the new distribution model poses the biggest threat to tradi- tional taxi cab and car-for-hire companies, who are now losing both customers and drivers to Uber and its competitors.

Uber-mania is even catching on in other industries. It seems like there’s an app-based on-demand “Uber” for almost anything these days—laundry and dry cleaning (Washio), in-home massage (Zeel), 24/7 delivery services (Postmates), and even booze (Minibar). In fact, CEO Kalanick sees no end of future applications for Uber’s services, well beyond just delivering people to their destinations. Once Uber has established a dense network of cars in every city, he predicts using the network to deliver everything from packages from retailers to takeout food. As Kalanick puts it, “Once you’re delivering cars in five minutes, there are a lot of other things you can deliver in five minutes.”1

s the Uber story shows, good distribution strategies can contribute strongly to customer value and create competitive advantage for a firm. But firms cannot bring value to customers by themselves. Instead, they must work closely with other firms

in a larger value delivery network.

supply chains and the Value Delivery network Producing a product or service and making it available to buyers requires building relation- ships not only with customers but also with key suppliers and resellers in the company’s supply chain. This supply chain consists of upstream and downstream partners. Upstream from the company is the set of firms that supply the raw materials, components, parts, information, finances, and expertise needed to create a product or service. Marketers, however, have traditionally focused on the downstream side of the supply chain—the marketing channels (or distribution channels) that look toward the customer. Downstream

marketing channel partners, such as wholesalers and retailers, form a vital link between the firm and its customers.

The term supply chain may be too limited, as it takes a make-and-sell view of the business. It suggests that raw mate- rials, productive inputs, and factory capacity should serve as the starting point for market planning. A better term would be demand chain because it suggests a sense-and-respond view of the market. Under this view, planning starts by identify- ing the needs of target customers, to which the company re- sponds by organizing a chain of resources and activities with the goal of creating customer value.

Yet, even a demand chain view of a business may be too limited because it takes a step-by-step, linear view of pur- chase-production-consumption activities. Instead, most large companies today are engaged in building and managing a complex, continuously evolving value delivery network. As defined in Chapter 2, a value delivery network is made up of the company, suppliers, distributors, and, ultimately, custom- ers who “partner” with each other to improve the performance of the entire system. For example, Pepsi makes great bever- ages. But to make and market just one of its many lines—say, its classic colas—Pepsi manages a huge network of people

author comment These are pretty hefty terms for a really

simple concept: A company can’t go it alone in creating customer value. It must work within a broader network of partners to

accomplish this task. Individual companies and brands don’t compete; their entire

value delivery networks do.

Value delivery network: in making and marketing even just its classic colas, Pepsi manages a huge network of people within the company plus thousands of outside suppliers, bottlers, retailers, and marketing service firms that must work together to create customer value and establish the brand’s “Pepsi: live for now” positioning. Vasiliy Baziuk/AP Images

chapter 10: Marketing channels: Delivering customer Value 301

within the company, from marketing and sales people to folks in finance and operations. It also coordinates the efforts of thousands of suppliers, bottlers, retailers ranging from Kroger and Walmart to Papa John’s Pizza, and advertising agencies and other marketing service firms. The entire network must function together to create customer value and es- tablish the brand’s “Pepsi: Live for Now” positioning.

This chapter focuses on marketing channels—on the downstream side of the value delivery network. We examine four major questions concerning marketing channels: What is the nature of marketing channels, and why are they important? How do channel firms interact and organize to do the work of the channel? What problems do companies face in designing and managing their channels? What role do physical distribution and supply chain management play in attracting and satisfying customers? In the next chapter, we will look at marketing channel issues from the viewpoints of retailers and wholesalers.

the nature and importance of Marketing channels Few producers sell their goods directly to final users. Instead, most use intermediaries to bring their products to market. They try to forge a marketing channel (or distribution channel)—a set of interdependent organizations that help make a product or service avail- able for use or consumption by the consumer or business user.

A company’s channel decisions directly affect every other marketing decision. Pricing depends on whether the company works with national discount chains, uses high-quality specialty stores, or sells directly to consumers online. The firm’s sales force and communications decisions depend on how much persuasion, training, motivation, and support its channel partners need. Whether a company develops or acquires certain new products may depend on how well those products fit the capabilities of its channel members.

Companies often pay too little attention to their distribution channels—sometimes with damaging results. In contrast, many companies have used imaginative distribu- tion systems to gain a competitive advantage. Enterprise Rent-A-Car revolutionized the car-rental business by setting up off-airport rental offices. Apple turned the retail music business on its head by selling music for the iPod via the Internet on iTunes. FedEx’s cre- ative and imposing distribution system made it a leader in express package delivery. And Amazon.com forever changed the face of retailing and became the Walmart of the Internet by selling anything and everything without using physical stores.

Distribution channel decisions often involve long-term commitments to other firms. For example, companies such as Ford, McDonald’s, or Nike can easily change their advertising, pricing, or promotion programs. They can scrap old products and introduce new ones as market tastes demand. But when they set up distribution channels through contracts with franchisees, independent dealers, or large retailers, they cannot readily re- place these channels with company-owned stores or Internet sites if the conditions change. Therefore, management must design its channels carefully, with an eye on both today’s likely selling environment and tomorrow’s as well.

how channel Members add Value Why do producers give some of the selling job to channel partners? After all, doing so means giving up some control over how and to whom they sell their prod- ucts. Producers use intermediaries because they create greater efficiency in making goods available to target markets. Through their contacts, experience, specialization, and scale of operation, intermediaries usually offer the firm more than it can achieve on its own.

figure 10.1 shows how using intermediaries can provide economies. Figure 10.1A shows three manufacturers, each using direct marketing to reach three customers. This system requires nine different contacts. Figure 10.1B shows the three manufacturers work- ing through one distributor, which contacts the three customers. This system requires only

author comment In this section, we look at the

downstream side of the value delivery network—the marketing channel

organizations that connect the company and its customers. To understand their value, imagine life without retailers—

say, without grocery stores or department stores.

Marketing channel (distribution channel) A set of interdependent organizations that help make a product or service available for use or consumption by the consumer or business user.

302 Part 3: Designing a customer Value-Driven strategy and Mix

six contacts. In this way, intermediaries reduce the amount of work that must be done by both producers and consumers.

From the economic system’s point of view, the role of marketing intermediaries is to transform the assortments of products made by producers into the assortments wanted by consumers. Producers make narrow assortments of products in large quantities, but consumers want broad assortments of products in small quantities. Marketing channel members buy large quantities from many producers and break them down into the smaller quantities and broader assortments desired by consumers.

For example, Unilever makes millions of bars of Lever 2000 hand soap each week. However, you most likely only want to buy a few bars at a time. Therefore, big food, drug, and discount retailers, such as Safeway, Walgreens, and Target, buy Lever 2000 by the truckload and stock it on their stores’ shelves. In turn, you can buy a single bar of Lever 2000 along with a shopping cart full of small quantities of toothpaste, shampoo, and other related products as you need them. Thus, intermediaries play an important role in matching supply and demand.

In making products and services available to consumers, channel members add value by bridging the major time, place, and possession gaps that separate goods and services from those who use them. Members of the marketing channel perform many key func- tions. Some help to complete transactions:

● Information. Gathering and distributing information about consumers, producers, and other actors and forces in the marketing environment needed for planning and aiding exchange.

● Promotion. Developing and spreading persuasive communications about an offer. ● Contact. Finding and engaging customers and prospective buyers. ● Matching. Shaping offers to meet the buyer’s needs, including activities such as

manufacturing, grading, assembling, and packaging. ● Negotiation. Reaching an agreement on price and other terms so that ownership

or possession can be transferred.

Others help to fulfill the completed transactions:

● Physical distribution. Transporting and storing goods. ● Financing. Acquiring and using funds to cover the costs of the channel work. ● Risk taking. Assuming the risks of carrying out the channel work.

The question is not whether these functions need to be performed—they must be— but rather who will perform them. To the extent that the manufacturer performs these functions, its costs go up; therefore, its prices must be higher. When some of these func- tions are shifted to intermediaries, the producer’s costs and prices may be lower, but the

A. Number of contacts without a distributor

Manufacturer Customer

Customer

Manufacturer

B. Number of contacts with a distributor

Manufacturer Customer

Customer

Manufacturer Distributor

Manufacturer

8 9

Marketing channel intermediaries make buying a lot easier for consumers. Again, think about life without grocery retailers. How would you go about buying that 12-pack of Coke or any of the hundreds of other items that you now routinely drop into your shopping cart?

figure 10.1 how a Distributor reduces the number of channel transactions

chapter 10: Marketing channels: Delivering customer Value 303

intermediaries must charge more to cover the costs of their work. In dividing the work of the channel, the various functions should be assigned to the channel members that can add the most value for the cost.

number of channel levels Companies can design their distribution channels to make products and services available to customers in different ways. Each layer of marketing intermediaries that performs some work in bringing the product and its ownership closer to the final buyer is a channel level. Because both the producer and the final consumer perform some work, they are part of every channel.

The number of intermediary levels indicates the length of a channel. figure 10.2 shows both consumer and business channels of different lengths. Figure 10.2A shows several common consumer distribution channels. Channel 1, called a direct market- ing channel, has no intermediary levels—the company sells directly to consumers. For example, Mary Kay Cosmetics and Amway sell their products through home and office sales parties and online Web sites and social media; companies ranging from GEICO in- surance to Omaha Steaks sell directly to customers via the Internet, mobile, and telephone. The remaining channels in Figure 10.2A are indirect marketing channels, containing one or more intermediaries.

Figure 10.2B shows some common business distribution channels. The business marketer can use its own sales force to sell directly to business customers. Or it can sell to various types of intermediaries, which in turn sell to these customers. Although consumer and business marketing channels with even more levels can sometimes be found, these are less common. From the producer’s point of view, a greater number of levels means less control and greater channel complexity. Moreover, all the institu- tions in the channel are connected by several types of flows. These include the physical flow of products, the flow of ownership, the payment flow, the information flow, and the promotion flow. These flows can make even channels with only one or a few levels very complex.

channel level A layer of intermediaries that performs some work in bringing the product and its ownership closer to the final buyer.

Direct marketing channel A marketing channel that has no intermediary levels.

indirect marketing channel A marketing channel containing one or more intermediary levels.

Retailer

A. Consumer marketing channels

Wholesaler

Channel 3Channel 2Channel 1

B. Business marketing channels

Consumer

Producer

Retailer

Consumer

Producer

Consumer

Producer

Manufacturer’s representatives or sales branch

Channel 3Channel 2Channel 1

Producer

Business distributor

Business customer

ProducerProducer

Business customer

Using indirect channels, the company uses one or more levels of intermediaries to help bring its products to final buyers. Examples: most of the things you buy—everything from toothpaste to cameras to cars.

Using direct channels, a company sells directly to consumers (no surprise there!). Examples: GEICO and Amway.

figure 10.2 consumer and business Marketing channels

304 Part 3: Designing a customer Value-Driven strategy and Mix

channel behavior and organization Distribution channels are more than simple collections of firms tied together by various flows. They are complex behavioral systems in which people and companies interact to accomplish individual, company, and channel goals. Some channel systems consist of only informal interactions among loosely organized firms. Others consist of formal interactions guided by strong organizational structures. Moreover, channel systems do not stand still— new types of intermediaries emerge and whole new channel systems evolve. Here we look at channel behavior and how members organize to do the work of the channel.

channel behavior A marketing channel consists of firms that have partnered for their common good. Each chan- nel member depends on the others. For example, a Ford dealer depends on Ford to design cars that meet customer needs. In turn, Ford depends on the dealer to engage customers, persuade them to buy Ford cars, and service the cars after the sale. Each Ford dealer also depends on other dealers to provide good sales and service that will uphold the brand’s reputation. In fact, the success of individual Ford dealers depends on how well the entire Ford marketing channel competes with the channels of Toyota, GM, and other auto manufacturers.

Each channel member plays a specialized role in the channel. For example, Samsung’s role is to produce electronics products that consumers will covet and create demand through national advertising. Best Buy’s role is to display these Samsung products in con- venient locations, answer buyers’ questions, and complete sales. The channel will be most effective when each member assumes the tasks it can do best.

Ideally, because the success of individual channel members depends on the overall channel’s success, all channel firms should work together smoothly. They should under- stand and accept their roles, coordinate their activities, and cooperate to attain overall chan- nel goals. However, individual channel members rarely take such a broad view. Cooperating to achieve overall channel goals sometimes means giving up individual company goals. Although channel members depend on one another, they often act alone in their own short- run best interests. They often disagree on who should do what and for what rewards. Such disagreements over goals, roles, and rewards generate channel conflict.

Horizontal conflict occurs among firms at the same level of the channel. For instance, some Ford dealers in Chicago might complain that other dealers in the city steal sales from them by pricing too low or advertising outside their assigned territories. Or Holiday Inn franchi- sees might complain about other Holiday Inn operators overcharging guests or giving poor service, hurting the overall Holiday Inn image.

Vertical conflict, conflict between different levels of the same channel, is even more common. For example, McDonald’s has recently faced growing conflict with its corps of almost 3,000 independent franchisees:2

In a recent company Webcast, based on rising customer complaints that service isn’t fast or friendly enough, McDonald’s told its franchisees that their cashiers need to smile more. At the same time, it seems, the franchisees weren’t very happy with McDonald’s, either. A recent survey of franchise owners reflected growing franchisee discontent with the corporation. Much of the conflict stems from a recent slowdown in systemwide sales that has both sides on edge. The most basic conflicts are financial. McDonald’s makes its money from franchi- see royalties based on total system sales. In contrast, franchisees make money on margins—what’s left over after their costs.

author comment Channels are made up of more than just boxes and arrows on paper. They

are behavioral systems consisting of real companies and people who interact to accomplish their individual and

collective goals. Like groups of people, sometimes they work well together

and sometimes they don’t.

channel conflict Disagreements among marketing channel members on goals, roles, and rewards—who should do what and for what rewards.

channel conflict: growing McDonald’s franchisee discontent may explain the increasing lack of smiles on the faces of both McDonald’s cashiers and customers. “there’s a huge connection” between franchisee satisfaction and customer service. Seth Perlman/AP Images

chapter 10: Marketing channels: Delivering customer Value 305

To reverse the sales slump, McDonald’s has increased emphasis on Dollar Menu items, a strategy that increases corporate sales but squeezes franchisee margins. Franchisees are also grumbling about adding popular but more complex menu items, such as Snack Wraps, that increase the top line for McDonald’s but add preparation and staffing costs for franchisees while slowing down service. McDonald’s is also asking franchisees to make costly restaurant upgrades and overhauls. As one survey respondent summarized, there’s “too much reliance on price-pointing and discounting to drive top-line sales, which is where the corporate cow feeds.” In all, the survey rates McDonald’s current franchisee relations at a decade-low 1.93 out of a possible 5, in the “fair” to “poor” range. That fact might explain both the lack of smiles and the increasing customer complaints. According to one restaurant consultant, “there’s a huge con- nection” between franchisee satisfaction and customer service.

Some conflict in the channel takes the form of healthy competition. Such competi- tion can be good for the channel; without it, the channel could become passive and non- innovative. For example, the McDonald’s conflict with its franchisees might represent normal give-and-take over the respective rights of the channel partners. However, severe or prolonged conflict can disrupt channel effectiveness and cause lasting harm to channel relationships. McDonald’s should manage the channel conflict carefully to keep it from getting out of hand.

Vertical Marketing systems For the channel as a whole to perform well, each channel member’s role must be specified, and channel conflict must be managed. The channel will perform better if it includes a firm, agency, or mechanism that provides leadership and has the power to assign roles and manage conflict.

Historically, conventional distribution channels have lacked such leadership and power, often resulting in damaging conflict and poor performance. One of the biggest chan- nel developments over the years has been the emergence of vertical marketing systems that provide channel leadership. figure 10.3 contrasts the two types of channel arrangements.

A conventional distribution channel consists of one or more independent producers, wholesalers, and retailers. Each is a separate business seeking to maximize its own profits, perhaps even at the expense of the system as a whole. No channel member has much con- trol over the other members, and no formal means exists for assigning roles and resolving channel conflict.

In contrast, a vertical marketing system (VMS) consists of producers, wholesal- ers, and retailers acting as a unified system. One channel member owns the others, has

conventional distribution channel A channel consisting of one or more independent producers, wholesalers, and retailers, each a separate business seeking to maximize its own profits, perhaps even at the expense of profits for the system as a whole.

Vertical marketing system (VMs) A channel structure in which producers, wholesalers, and retailers act as a unified system. One channel member owns the others, has contracts with them, or has so much power that they all cooperate.

Wholesaler Retailer

Conventional marketing channel

Producer

Wholesaler

Retailer

Consumer

Vertical marketing

system

Consumer

Producer

Vertical marketing system—here’s another fancy term for a simple concept. It’s simply a channel in which members at different levels (hence, vertical) work together in a unified way (hence, system) to accomplish the work of the channel.

figure 10.3 comparison of conventional Distribution channel with Vertical Marketing system

306 Part 3: Designing a customer Value-Driven strategy and Mix

contracts with them, or wields so much power that they must all cooperate. The VMS can be dominated by the producer, the wholesaler, or the retailer.

We look now at three major types of VMSs: corporate, contractual, and administered. Each uses a different means for setting up leadership and power in the channel.

corporate VMs A corporate VMS integrates successive stages of production and distribution under single ownership. Coordination and conflict management are attained through regular organiza- tional channels. For example, Sherwin-Williams, the largest U.S. coatings manufacturer, sells its Sherwin-Williams-branded products exclusively through more than 4,000 company-owned retail paint stores. And grocery giant Kroger owns and operates 38 manufacturing plants—17 dairies, 6 bakery plants, 5 grocery plants, 2 frozen dough plants, 2 beverage plants, 2 cheese plants, 2 ice cream plants, and 2 meat plants—that give it factory-to-store channel control over 40 percent of the more than 11,000 private-label items found on its shelves.3

Integrating the entire distribution chain—from its own design and manufacturing operations to distribution through its own managed stores—has turned Spanish clothing chain Zara into the world’s fastest-growing fast-fashion retailer:4

In recent years, fashion retailer Zara has attracted an army of loyal shoppers swarming to buy its “cheap chic”—stylish designs that resemble those of big-name fashion houses but at moder- ate prices. However, Zara’s amazing success comes not just from what it sells but from how fast its cutting-edge distribution system delivers what it sells. Zara delivers fast fashion—really fast fashion. Thanks to vertical integration, Zara can take a new fashion concept through design, manufacturing, and store-shelf placement in as little as three weeks, whereas competitors such as H&M, Gap, or Benetton often take six months or more. And the resulting low costs let Zara offer the very latest midmarket chic at downmarket prices.

Speedy design and distribution allow Zara to introduce a copious supply of new fashions—at three times the rate of competitor introductions. Then Zara’s distribution system supplies its stores with small shipments of new merchandise twice a week, compared with competing chains’ outlets, which get large shipments seasonally, usu- ally just four to six times per year. The combination of a large number of timely new fashions delivered in frequent small batches gives Zara stores a continually updated merchandise mix that brings customers back more often. Fast turnover also results in less outdated and discounted merchandise. Rather than guessing about tomorrow’s fashions, Zara can wait to see what customers are actually buying and then make that.

contractual VMs A contractual VMS consists of independent firms at different levels of produc- tion and distribution that join together through contracts to obtain more economies or sales impact than each could achieve alone. Channel members coordinate their activities and manage conflict through contractual agreements.

The franchise organization is the most common type of contractual relation- ship. In this system, a channel member called a franchisor links several stages in the production-distribution process. In the United States alone, some 780,000 franchise outlets account for more than $889 billion of economic output. Industry analysts estimate that a new franchise outlet opens somewhere in the United States every eight minutes and that about one out of every 12 retail business outlets is a franchised business.5

Almost every kind of business has been franchised—from motels and fast- food restaurants to dental centers and dating services, from wedding consultants and handyman services to funeral homes, fitness centers, and moving services.

For example, through franchising, Two Men and a Truck moving services— “Movers Who Care”—grew quickly from two high school students looking to make extra money with a pickup truck to an international network of 330 franchise locations that’s experienced record growth over the past six years and completed more than 5.5 million moves.6

There are three types of franchises. The first type is the manufacturer- sponsored retailer franchise system—for example, Ford and its network of

corporate VMs A vertical marketing system that combines successive stages of production and distribution under single ownership—channel leadership is established through common ownership.

contractual VMs A vertical marketing system in which independent firms at different levels of production and distribution join together through contracts.

franchise organization A contractual vertical marketing system in which a channel member, called a franchisor, links several stages in the production-distribution process.

franchising systems: through franchising, two Men and a truck—“Movers Who care”—grew quickly from two high school students with a pickup truck to an international network of 330 franchise locations that’s experienced record growth over the past six years. Two Men and a Truck International

chapter 10: Marketing channels: Delivering customer Value 307

independent franchised dealers. The second type is the manufacturer-sponsored whole- saler franchise system—Coca-Cola licenses bottlers (wholesalers) in various world mar- kets that buy Coca-Cola syrup concentrate and then bottle and sell the finished product to retailers locally. The third type is the service-firm-sponsored retailer franchise system— for example, Burger King and its nearly 12,100 franchisee-operated restaurants around the world. Other examples can be found in everything from auto rentals (Hertz, Avis), apparel retailers (The Athlete’s Foot, Plato’s Closet), and motels (Holiday Inn, Hampton Inn) to supplemental education (Huntington Learning Center, Mathnasium) and personal services (Great Clips, Mr. Handyman, Anytime Fitness).

The fact that most consumers cannot tell the difference between contractual and cor- porate VMSs shows how successfully the contractual organizations compete with corpo- rate chains. The next chapter presents a fuller discussion of the various contractual VMSs.

administered VMs In an administered VMS, leadership is assumed not through common ownership or con- tractual ties but through the size and power of one or a few dominant channel members. Manufacturers of a top brand can obtain strong trade cooperation and support from resell- ers. For example, GE, P&G, and Apple can command unusual cooperation from many resellers regarding displays, shelf space, promotions, and price policies. In turn, large retailers such as Walmart, Home Depot, Kroger, and Walgreens can exert strong influence on the many manufacturers that supply the products they sell.

For example, in the normal push and pull between Walmart and its consumer goods suppliers, giant Walmart—the biggest grocer in the United States with nearly 30 percent share of all U.S. grocery sales—usually gets its way. Take supplier Clorox, for instance.

Although The Clorox Company’s strong consumer brand preference gives it significant negotiating power, Walmart simply holds more cards. Sales to Walmart make up 26 percent of Clorox’s sales, whereas Clorox prod- ucts account for only one-third of 1 percent of Walmart’s purchases, mak- ing Walmart by far the dominant partner. Things get even worse for Cal- Maine Foods and its Eggland’s Best brand, which relies on Walmart for nearly one-third of its sales but tallies only about one-tenth of 1 percent of Walmart’s volume. For such brands, maintaining a strong relationship with the giant retailer is crucial.7

horizontal Marketing systems Another channel development is the horizontal marketing system, in which two or more companies at one level join together to follow a new marketing opportunity. By working together, companies can combine their financial, production, or marketing resources to accomplish more than any one company could alone.

Companies might join forces with competitors or noncompetitors. They might work with each other on a temporary or permanent basis, or they may create a separate company. For example, competing big media companies Fox Broadcasting, Disney-ABC, and NBCUniversal (Comcast) jointly own and market Hulu, the successful online subscrip- tion service that provides on-demand streaming of TV shows, movies, and other video content. Together, they compete more effectively against digital streaming competitors such as Netflix. Walmart partners with noncompetitor McDonald’s to place “express” versions of McDonald’s restaurants in Walmart stores. McDonald’s benefits from Walmart’s heavy store traffic, and Walmart keeps hungry shoppers from needing to go else- where to eat.

Such channel arrangements also work well globally. For example, competitors General Mills and Nestlé operate a joint venture—Cereal Partners Worldwide—to market General Mills Big G cereal brands in 130 countries outside North America. General Mills supplies a kitchen

administered VMs A vertical marketing system that coordinates successive stages of production and distribution through the size and power of one of the parties.

horizontal marketing system A channel arrangement in which two or more companies at one level join together to follow a new marketing opportunity.

horizontal marketing systems: general Mills and nestlé operate a joint venture—cereal Partners Worldwide—that markets general Mills big g cereal brands outside north america. Sonny Meddle/Rex Features/Presselect/Alamy

308 Part 3: Designing a customer Value-Driven strategy and Mix

cabinet full of quality cereal brands, whereas Nestlé contributes its extensive international distribution channels and local market knowledge. The 25-year-old alliance produces $1.1 billion in revenues for General Mills.8

Multichannel Distribution systems In the past, many companies used a single channel to sell to a single market or market seg- ment. Today, with the proliferation of customer segments and channel possibilities, more and more companies have adopted multichannel distribution systems. Such multichan- nel marketing occurs when a single firm sets up two or more marketing channels to reach one or more customer segments.

figure 10.4 shows a multichannel marketing system. In the figure, the producer sells directly to consumer segment 1 using catalogs, online, and mobile channels and reaches consumer segment 2 through retailers. It sells indirectly to business segment 1 through distributors and dealers and to business segment 2 through its own sales force.

These days, almost every large company and many small ones distribute through multiple channels. For example, John Deere sells its familiar green-and-yellow lawn and garden tractors, mowers, and outdoor power products to consumers and commercial us- ers through several channels, including John Deere retailers, Lowe’s home improvement stores, and online. It sells and services its tractors, combines, planters, and other agricul- tural equipment through its premium John Deere dealer network. And it sells large con- struction and forestry equipment through selected large, full-service John Deere dealers and their sales forces.

Multichannel distribution systems offer many advantages to companies facing large and complex markets. With each new channel, the company expands its sales and market coverage and gains opportunities to tailor its products and services to the specific needs of diverse customer segments. But such multichannel systems are harder to control, and they can generate conflict as more channels compete for customers and sales. For example, when John Deere first began selling selected consumer products through Lowe’s home improvement stores, many of its independent dealers complained loudly. To avoid such conflicts in its online marketing channels, the company routes all of its online sales to John Deere dealers.

changing channel organization Changes in technology and the explosive growth of direct and online marketing are hav- ing a profound impact on the nature and design of marketing channels. One major trend is toward disintermediation—a big term with a clear message and important consequences.

Multichannel distribution system A distribution system in which a single firm sets up two or more marketing channels to reach one or more customer segments.

Disintermediation The cutting out of marketing channel intermediaries by product or service producers or the displacement of traditional resellers by radical new types of intermediaries.

figure 10.4 Multichannel Distribution system

chapter 10: Marketing channels: Delivering customer Value 309

Disintermediation occurs when product or service producers cut out intermediaries and go directly to final buyers or when radically new types of channel intermediaries displace traditional ones.

Thus, in many industries, traditional intermediaries are dropping by the wayside, as is the case with online marketers taking business from traditional brick-and-mortar retailers.

For example, online music download services such as iTunes and Amazon MP3 have pretty much put traditional music- store retailers out of business. In turn, streaming music services such as Spotify and Vevo are now disintermediating digital download services—digital downloads peaked last year while music streaming increased 32 percent.

Disintermediation presents both opportunities and prob- lems for producers and resellers. Channel innovators who find new ways to add value in the channel can displace traditional resellers and reap the rewards. In turn, traditional intermediaries must continue to innovate to avoid being swept aside. For example, when Netflix pioneered online DVD-by- mail video rentals, it sent traditional brick-and-mortar video stores such as Blockbuster into ruin. Then Netflix itself faced disintermediation threats from an even hotter channel—video streaming. But instead of simply watching developments, Netflix has led them (see Marketing at Work 10.1).

Similarly, superstore booksellers Borders and Barnes & Noble pioneered huge book selections and low prices, shut-

ting down most small independent bookstores. Then along came Amazon.com, which threatened even the largest brick-and-mortar bookstores. Amazon.com almost single- handedly bankrupted Borders in less than 10 years. Now, both offline and online sellers of physical books are being threatened by digital book downloads and e-readers. Rather than yielding to digital developments, however, Amazon.com is leading them with its highly successful Kindle e-readers and tablets. By contrast, Barnes & Noble—the giant that put so many independent bookstores out of business—was a latecomer with its struggling Nook e-reader and now finds itself locked in a battle for survival.9

Like resellers, to remain competitive, product and service producers must develop new channel opportunities, such as the Internet and other direct channels. However, devel- oping these new channels often brings them into direct competition with their established channels, resulting in conflict. To ease this problem, companies often look for ways to make going direct a plus for the entire channel.

For example, Volvo Car Group (now owned by Chinese car maker Geeley) recently announced plans to start selling Volvo vehicles online in all of its markets. Some 80 per- cent of Volvo buyers already shop online for other goods, so cars seem like a natural exten- sion. Few auto makers have tried selling directly, with the exception of Tesla, which sells its all-electric cars online, bypassing dealers altogether. Other car companies worry that selling directly would alienate their independent dealer networks. “If you say e-commerce, initially dealers get nervous,” says Volvo’s head of marketing. So, to avoid channel con- flicts, Volvo will pass all online sales through established dealers for delivery. In that way, boosting sales through direct marketing will benefit both Volvo and its channel partners.10

Disintermediation: streaming music services such as spotify are rapidly disintermediating both traditional music-store retailers and even music download services such as itunes. Dado Ruvic/Reuters/Corbis

linking the concePts Stop here for a moment and apply the distribution channel concepts we’ve discussed so far.

● Compare the Zara and Ford channels. Draw a diagram that shows the types of intermediaries in each channel. What kind of channel system does each company use?

● What are the roles and responsibilities of the members in each channel? How well do these chan- nel members work together toward overall channel success?

310 Part 3: Designing a customer Value-Driven strategy and Mix

Baseball great Yogi Berra, known more for his mangled phras- ing than for his baseball prowess, once said, “The future ain’t what it used to be.” For Netflix, the world’s largest video sub- scription service, no matter how you say it, figuring out the future is challenging and a bit scary. Netflix faces dramatic changes in how video entertainment will be distributed. The question is: Will Netflix be among the disintermediators or among the disintermediated?

Time and again, Netflix has innovated its way to the top in the distribution of video entertainment. In the early 2000s, Netflix’s revolutionary DVD-by-mail service put all but the most powerful movie-rental stores out of business. In 2007, Netflix’s then-groundbreaking move into digital streaming once again revolutionized how people accessed movies and other video content. Now, with Netflix leading the pack, video distribution has become a roiling pot of emerging technologies and high-tech competitors, one that offers both mind-bending opportunities and stomach-churning risks.

Just ask Blockbuster. Less than a decade ago, the giant brick-and-mortar movie-rental chain flat-out owned the indus- try. Then along came Netflix, the fledgling DVD-by-mail ser- vice. First thousands, then millions, of subscribers were drawn to Netflix’s innovative distribution model. In 2010, as Netflix surged, once-mighty Blockbuster fell into bankruptcy.

The Blockbuster riches-to-rags disintermediation story under- scores the turmoil that typifies today’s video distribution busi- ness. In only the past few years, a glut of video access options has materialized. At the same time that Netflix ascended and Blockbuster plunged, Coinstar’s Redbox came out of nowhere to build a novel national network of $1-a-day DVD-rental kiosks. Then high-tech start-ups such as Hulu—with its high- quality, ad-supported free access to movies and current TV shows—began pushing digital streaming via the Internet.

All along the way, Netflix has acted boldly to stay ahead of the competition. For example, by 2007, Netflix had mailed out its one-billionth DVD. But rather than rest on success, Netflix and its CEO, Reed Hastings, set their sights on a then-revolutionary new video distribu- tion model: Deliver Netflix to any and every Internet- connected screen—from laptops to Internet-ready TVs to smartphones and other Wi-Fi–enabled devices. Netflix launched a new Watch Instantly service, which let mem- bers stream movies to their computers as part of their monthly fee, even if it came at the expense of the com- pany’s still-hot DVD-by-mail business.

Although Netflix didn’t pioneer digital streaming, it poured resources into improving the technology and build- ing the largest streaming library. It built a huge subscriber base, and sales and profits soared. With its massive physical DVD library and a streaming library of more than 20,000

high-definition movies accessible via 200 different Internet- ready devices, it seemed that nothing could stop Netflix.

But Netflix’s stunning success drew a slew of resource- ful competitors. Video giants such as Google’s YouTube and Apple’s iTunes began renting movie downloads, and Hulu introduced subscription-based Hulu Plus. To stay ahead, even to survive, Netflix needed to keep the innovation pedal to the metal. So in the summer of 2011, in an ambitious but risky move, CEO Hastings made an all-in bet on digital streaming. He split off Netflix’s still-thriving DVD-by-mail service into a separate business named Qwikster and required separate subscriptions for DVD rentals and streaming (at a startling 60 percent price increase for customers using both). The Netflix name would now stand for nothing but digital streaming, which would be the primary focus of the company’s future growth.

Although perhaps visionary, Netflix’s abrupt changes didn’t sit well with customers. Some 800,000 subscribers dropped the service, and Netflix’s stock price plummeted by almost two-thirds. Within only weeks, Netflix admitted its blunder and reversed its decision to set up a separate Qwikster operation. Despite the setback, however, Netflix retained its separate, higher pricing for DVDs by mail. The company rebounded quickly, soon replacing all of its lost subscribers and then some. What’s more, with a 60 percent higher price, revenues and profits rose as well. Netflix’s stock price was once again skyrocketing.

Now more than ever, Netflix’s focus is on streaming video. Although customers can still access Netflix’s world’s-biggest DVD library, the DVD operation is now located at a separate DVD.Netflix Web site, with a separate subscription fee. Nearly

Marketing at Work 10.1

netflix: Disintermediate or be Disintermediated

netflix’s innovative distribution strategy: from DVDs by mail to Watch instantly to video streaming on almost any device, netflix has stayed ahead of the howling pack by doing what it does best—revolutionize distribution. What’s next? Mike Blake/Reuters

chapter 10: Marketing channels: Delivering customer Value 311

80 percent of Netflix’s revenues now come from streaming. Its current 62 million paid subscribers stream an astounding 3.3 billion hours of movies and TV programs every month. On an average weeknight, Netflix commands more than a third of all Internet traffic in North American homes.

Despite its continuing success, Netflix knows that it can’t rest its innovation machine. Competition continues to move at a blurring rate. For example, Amazon’s Prime Instant Video offers streaming of thousands of movies and TV shows to Amazon Prime members at no extra cost. Google has moved beyond its YouTube rental service with Google Play, an all-media enter- tainment portal for movies, music, e-books, and apps. Comcast offers Xfinity Streampix, which lets subscribers stream older movies and television programs via their TVs, laptops, tablets, or smartphones. And Apple and Samsung are creating smoother integration with streaming content via smart TVs.

Moving ahead, as the industry settles into streaming as the main delivery model, content—not just delivery—will be a key to distancing Netflix from the rest of the pack. Given its head start, Netflix remains well ahead in the content race. However, Amazon, Hulu Plus, and other competitors are work- ing feverishly to sign contracts with big movie and TV content providers. But so is Netflix. It recently scored a big win with a Disney exclusive—soon, Netflix will be the only place viewers can stream Disney’s deep catalog and new releases from Walt Disney Animation, Marvel, Pixar, and Lucasfilm.

But as content-licensing deals with movie and television studios become harder to get, in yet another innovative video distribution twist, Netflix and its competitors are now develop- ing their own original content at a feverish pace. Once again, Netflix appears to have the upper hand. For example, it led the way with the smash hit House of Cards, a U.S. version of a hit

British political drama series produced by Hollywood bigwigs David Fincher and Kevin Spacey. Based on its huge success with House of Cards, Netflix developed a number of other original series, including Hemlock Grove, Lillyhammer, Marco Polo, and Orange Is the New Black, its most successful release to date. Such efforts have left the rest of the video industry scrambling to keep up. And Netflix is just getting started. It plans to invest $300 million a year in developing new original content, adding at least five original titles annually.

Thus, from DVDs by mail, to Watch Instantly, to video streaming on almost any device, to developing original content, Netflix has stayed ahead of the howling pack by doing what it does best—innovate and revolutionize distribution. What’s next? No one really knows. But one thing seems certain: Whatever’s coming, if Netflix doesn’t lead the change, it risks being left behind—and quickly. Netflix must continue to disin- termediate its own distribution model before competitors can. As Netflix’s slower-moving competitors have learned the hard way, it’s disintermediate or be disintermediated.i

i See Susan Young, “2014 SUCCESS Achiever of the Year: Reed Hastings,” SUCCESS, February 10, 2015, www.success.com/article/2014-success- achiever-of-the-year-reed-hastings; Brian Stelter, “Netflix Grabs a Slice of Star Wars,” CNNMoney, February 13, 2014, http://money.cnn.com/2014/02/13/ technology/netflix-star-wars/; Mike Snider, “Netflix, Adding Customers and Profits, Will Raise Prices,” USA Today, April 22, 2014, www.usatoday .com/story/tech/2014/04/21/netflix-results/7965613/; Michael Leidtke, “With ‘House of Cards,’ Netflix Got a Winning Hand,” Boston Globe, February 27, 2015, www.bostonglobe.com/business/2015/02/27/house-cards-dealt-netflix- winning-hand/M5kBWc916HP1XMQyjdAd8N/story.html; Lisa Richwine, “Netflix Beats Forecasts with 62 Million Streaming Subscribers,” Reuters, April 15, 2015, http://www.reuters.com/article/2015/04/15/us-netflix-results- idUSKBN0N62HC20150415; and annual reports and information at www .netflix.com, accessed October 2015.

channel Design Decisions We now look at several channel design decisions manufacturers face. In designing market- ing channels, manufacturers struggle between what is ideal and what is practical. A new firm with limited capital usually starts by selling in a limited market area. In this case, deciding on the best channels might not be a problem: The problem might simply be how to convince one or a few good intermediaries to handle the line.

If successful, the new firm can branch out to new markets through existing interme- diaries. In smaller markets, the firm might sell directly to retailers; in larger markets, it might sell through distributors. In one part of the country, it might grant exclusive fran- chises; in another, it might sell through all available outlets. Then it might add an online store that sells directly to hard-to-reach customers. In this way, channel systems often evolve to meet market opportunities and conditions.

For maximum effectiveness, however, channel analysis and decision making should be more purposeful. Marketing channel design calls for analyzing consumer needs, setting channel objectives, identifying major channel alternatives, and evaluating those alternatives.

analyzing consumer needs As noted previously, marketing channels are part of the overall customer value delivery network. Each channel member and level adds value for the customer. Thus, designing the

author comment Like everything else in marketing, good channel design begins with analyzing

customer needs. Remember, marketing channels are really customer value

delivery networks.

Marketing channel design Designing effective marketing channels by analyzing customer needs, setting channel objectives, identifying major channel alternatives, and evaluating those alternatives.

http://www.success.com/article/2014-success-achiever-of-the-year-reed-hastings

http://money.cnn.com/2014/02/13/technology/netflix-star-wars/

http://www.usatoday.com/story/tech/2014/04/21/netflix-results/7965613/

http://www.bostonglobe.com/business/2015/02/27/house-cards-dealt-netflix-winning-hand/M5kBWc916HP1XMQyjdAd8N/story.html

http://www.reuters.com/article/2015/04/15/us-netflix-results-idUSKBN0N62HC20150415

http://money.cnn.com/2014/02/13/technology/netflix-star-wars/

http://www.usatoday.com/story/tech/2014/04/21/netflix-results/7965613/

http://www.reuters.com/article/2015/04/15/us-netflix-results-idUSKBN0N62HC20150415

www.netflix.com

312 Part 3: Designing a customer Value-Driven strategy and Mix

marketing channel starts with finding out what target consumers want from the channel. Do consumers want to buy nearby, or are they willing to travel to more centralized loca- tions? Would customers rather buy in person, by phone, or online? Do they value breadth of assortment, or do they prefer specialization? Do consumers want many add-on services (delivery, installation, repairs), or will they obtain these services elsewhere? The faster the delivery, the greater the assortment provided, and the more add-on services supplied, the greater the channel’s service level.

Providing the fastest delivery, the greatest assortment, and the most services, however, may not be possible, practical, or desired. The company and its channel members may not have the resources or skills needed to provide all the desired services. Also, higher levels of service result in higher costs for the channel and higher prices for consumers. The suc- cess of modern discount retailing shows that consumers often accept lower service levels in exchange for lower prices.

Many companies, however, position themselves on higher service levels, and customers willingly pay the higher prices. For example, your local independently owned Ace Hardware store probably provides more personalized service, a more convenient location, and less shopping hassle than the nearest huge Home Depot or Lowe’s store. As a result, it also charges somewhat higher prices. To loyal Ace customers, the convenience and higher service levels are well worth the price. Ace positions itself as “The helpful place.” Says the com- pany: “While others have become large and impersonal, at Ace, we’ve remained small and very personal. That’s why we say a visit to Ace is like a visit to your neighbor.” In his review on Yelp, one loyal Ace customer agrees:11

I have become a convert from Lowe’s/Home Depot to Ace for two reasons. For one, it’s much easier to get in and out of and it’s closer to my house. Second, and most impor- tantly, upon entering the store a knowledgeable employee will greet me and ask how they may help. Then they will lead me to where I need to go and boom, I’m done. At Lowe’s I end up wandering around the caverns of that

building—back and forth, is it here? down there? did I pass it?—until I’m exhausted. At Ace, the time and energy saved more than makes up for an increase in cost. Plus, they’re very friendly.

Thus, companies must balance consumer needs not only against the feasibility and costs of meeting these needs but also against customer price preferences.

setting channel objectives Companies should state their marketing channel objectives in terms of targeted levels of customer service. Usually, a company can identify several segments wanting different lev- els of service. The company should decide which segments to serve and the best channels to use in each case. In each segment, the company wants to minimize the total channel cost of meeting customer service requirements.

The company’s channel objectives are also influenced by the nature of the com- pany, its products, its marketing intermediaries, its competitors, and the environment. For example, the company’s size and financial situation determine which marketing functions it can handle itself and which it must give to intermediaries. Companies sell- ing perishable products, for example, may require more direct marketing to avoid delays and too much handling.

In some cases, a company may want to compete in or near the same outlets that carry competitors’ products. For example, Maytag and other appliance makers want their prod- ucts displayed alongside competing brands to facilitate comparison shopping. In other

Meeting customers’ channel service needs: ace hardware positions itself as “the helpful place.” to loyal ace customers, the convenience of smaller stores and the personal service they receive are well worth ace’s somewhat higher prices. ZUMA Press, Inc/Alamy

chapter 10: Marketing channels: Delivering customer Value 313

cases, companies may avoid the channels used by competitors. The Pampered Chef, for instance, sells high-quality kitchen tools directly to consumers through its corps of more than 60,000 consultants worldwide rather than going head-to-head with other kitchen tool makers for scarce positions in retail stores. And Stella & Dot sells quality jewelry through more than 30,000 independent reps—called stylists—who hold Tupperware-like in-home “trunk shows.”12 GEICO and USAA primarily market insurance and banking products to consumers via phone and Internet channels rather than through agents.

Finally, environmental factors such as economic conditions and legal constraints may affect channel objectives and design. For example, in a depressed economy, producers will want to distribute their goods in the most economical way, using shorter channels and dropping unneeded services that add to the final price of the goods.

identifying Major alternatives When the company has defined its channel objectives, it should next identify its major channel alternatives in terms of the types of intermediaries, the number of intermediaries, and the responsibilities of each channel member.

types of intermediaries A firm should identify the types of channel members available to carry out its channel work. Most companies face many channel member choices. For example, until recently, Dell sold directly to final consumers and business buyers only through its sophisticated phone and online marketing channel. It also sold directly to large corporate, institutional, and government buyers using its direct sales force. However, to reach more consumers and match competitors such as Samsung and Apple, Dell now sells indirectly through retail- ers such as Best Buy, Staples, and Walmart. It also sells indirectly through value-added resellers, independent distributors and dealers that develop computer systems and applica- tions tailored to the special needs of small and medium-sized business customers.

Using many types of resellers in a channel provides both benefits and drawbacks. For example, by selling through retailers and value-added resellers in addition to its own direct channels, Dell can reach more and different kinds of buyers. However, these are more dif- ficult to manage and control. In addition, the direct and indirect channels compete with each other for many of the same customers, causing potential conflict. In fact, Dell often finds itself “stuck in the middle,” with its direct sales reps complaining about competition from retail stores, whereas its value-added resellers complain that the direct sales reps are undercutting their business.

number of Marketing intermediaries Companies must also determine the number of channel members to use at each level. Three strategies are available: intensive distribution, exclusive distribution, and selective distribution. Producers of convenience products and common raw materials typically seek intensive distribution—a strategy in which they stock their products in as many outlets as possible. These products must be available where and when consumers want them. For ex- ample, toothpaste, candy, and other similar items are sold in millions of outlets to provide maximum brand exposure and consumer convenience. Kraft, Coca-Cola, Kimberly-Clark, and other consumer goods companies distribute their products in this way.

By contrast, some producers purposely limit the number of intermediaries handling their products. The extreme form of this practice is exclusive distribution, in which the producer gives only a limited number of dealers the exclusive right to distribute its prod- ucts in their territories. Exclusive distribution is often found in the distribution of luxury brands. Breitling watches—positioned as “Instruments for Professionals” and selling at prices from $5,000 to more than $100,000—are sold by only a few authorized dealers in any given market area. For example, the brand sells through only one jeweler in Chicago and only six jewelers in the entire state of Illinois. Exclusive distribution enhances Breitling’s distinctive positioning and earns greater dealer support and customer service.

Between intensive and exclusive distribution lies selective distribution—the use of more than one but fewer than all of the intermediaries who are willing to carry a

intensive distribution Stocking the product in as many outlets as possible.

exclusive distribution Giving a limited number of dealers the exclusive right to distribute the company’s products in their territories.

selective distribution The use of more than one but fewer than all of the intermediaries that are willing to carry the company’s products.

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company’s products. Most consumer electronics, furniture, and home appliance brands are distributed in this manner. For example, outdoor power equipment maker STIHL doesn’t sell its chain saws, blowers, hedge trimmers, and other products through mass merchandisers such as Lowe’s, Home Depot, or Sears. Instead, it sells through a select corps of independent hardware and lawn and garden dealers. By using selective distribution, STIHL can develop good work- ing relationships with dealers and expect a better-than-average selling effort. Exclusive distribution also enhances the STIHL brand’s image and allows for higher markups resulting from greater value-added dealer service. “We count on our select dealers every day and so can you,” says one STIHL ad.

responsibilities of channel Members The producer and intermediaries need to agree on the terms and responsibili- ties of each channel member. They should agree on price policies, conditions of sale, territory rights, and the specific services to be performed by each party. The producer should establish a list price and a fair set of discounts for the in- termediaries. It must define each channel member’s territory, and it should be careful about where it places new resellers.

Mutual services and duties need to be spelled out carefully, especially in franchise and exclusive distribution channels. For example, McDonald’s pro- vides franchisees with promotional support, a record-keeping system, training at Hamburger University, and general management assistance. In turn, franchisees must meet company standards for physical facilities and food quality, cooperate with new promotion programs, provide requested information, and buy speci- fied food products.

evaluating the Major alternatives Suppose a company has identified several channel alternatives and wants to select the one that will best satisfy its long-run objectives. Each alternative should be evaluated against economic, control, and adaptability criteria.

Using economic criteria, a company compares the likely sales, costs, and profitability of different channel alternatives. What will be the investment required by each channel alternative, and what returns will result? The company must also consider control issues. Using intermediaries usually means giving them some control over the marketing of the product, and some intermediaries take more control than others. Other things being equal, the company prefers to keep as much control as possible. Finally, the company must apply adaptability criteria. Channels often involve long-term commitments, yet the company wants to keep the channel flexible so that it can adapt to environmental changes. Thus, to be considered, a channel involving long-term commitments should be greatly superior on economic and control grounds.

Designing international Distribution channels International marketers face many additional complexities in designing their channels. Each country has its own unique distribution system that has evolved over time and changes very slowly. These channel systems can vary widely from country to country. Thus, global marketers must usually adapt their channel strategies to the existing struc- tures within each country.

In some markets, the distribution system is complex, competitive, and hard to penetrate. For example, many Western companies find India’s distribution system difficult to navigate. Large discount, department store, and supermarket retailers still account for only a small portion of the huge Indian market. Instead, most shop- ping is done in small neighborhood stores called kirana shops, run by their owners and popular because they offer personal service and credit. In addition, large Western retailers have difficulty dealing with India’s complex government regulations and poor infrastructure.

selective distribution: stihl sells its chain saws, blowers, hedge trimmers, and other products through a select corps of independent hardware and lawn and garden retailers. “We count on them every day and so can you.” STIHL Incorporated

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Distribution systems in developing countries may be scattered, inefficient, or altogether lacking. For example, China’s rural markets are highly decentralized, made of many distinct submarkets, each with its own subculture. And, because of inadequate distribution systems, most companies can profitably access only the small portion of China’s mas- sive population located in affluent cities. China’s distribution system is so fragmented that logistics costs to wrap, bundle, load, unload, sort, reload, and transport goods amount to 18 percent of the nation’s GDP, far higher than in most other countries. (In comparison, U.S. logistics costs account for about 8.5 percent of the nation’s GDP.) After years of effort, even Walmart executives admit that they have been unable to assemble an efficient supply chain in China.13

Sometimes local conditions can greatly influence how a company distributes products in global markets. For example, in low-income neighborhoods in Brazil where consumers have limited access to supermarkets, Nestlé sup- plements its distribution with thousands of self-employed salespeople who sell Nestlé products from refrigerated carts

door to door. And in big cities in Asia and Africa, where crowded streets and high real estate costs make drive-thrus impractical, fast-food restaurants such as McDonald’s and KFC offer delivery. Legions of motorbike delivery drivers in colorful uniforms dispense Big Macs and buckets of chicken to customers who call in. More than 30 percent of McDonald’s total sales in Egypt and 12 percent of its Singapore sales come from deliv- ery. Similarly, for KFC, delivery accounts for nearly half of all sales in Kuwait and a third of sales in Egypt.14

Thus, international marketers face a wide range of channel alternatives. Designing efficient and effective channel systems between and within various country markets poses a difficult challenge. We discuss international distribution decisions further in Chapter 15.

channel Management Decisions Once the company has reviewed its channel alternatives and determined the best channel design, it must implement and manage the chosen channel. Marketing channel man- agement calls for selecting, managing, and motivating individual channel members and evaluating their performance over time.

selecting channel Members Producers vary in their ability to attract qualified marketing intermediaries. Some produc- ers have no trouble signing up channel members. For example, when Toyota first intro- duced its Lexus line in the United States, it had no trouble attracting new dealers. In fact, it had to turn down many would-be resellers.

At the other extreme are producers that have to work hard to line up enough qualified intermediaries. For example, when Timex first tried to sell its inexpensive watches through regular jewelry stores, most jewelry stores refused to carry them. The company then man- aged to get its watches into mass-merchandise outlets. This turned out to be a wise deci- sion because of the rapid growth of mass merchandising.

Even established brands may have difficulty gaining and keeping their desired dis- tribution, especially when dealing with powerful resellers. For example, you won’t find Marlboro, Winston, Camel, or any other cigarette brand at your local CVS pharmacy store.

CVS Caremark recently announced that it will no longer sell cigarettes in its stores, despite the resulting loss of more than $2 billion in annual sales. “This is the right thing to do,” says the company. “We came to the decision that cigarettes and providing healthcare

author comment Now it’s time to implement the chosen channel design and work with selected

channel members to manage and motivate them.

Marketing channel management Selecting, managing, and motivating individual channel members and evaluating their performance over time.

international distribution: in the huge indian market, most shopping is done in small neighborhood stores call kirana shops, run by their owners and popular because they offer personal service and credit. Frank Bienewald/imageBROKER/Alamy

316 Part 3: Designing a customer Value-Driven strategy and Mix

just don’t go together in the same setting.” Target dropped ciga- rettes nearly 20 years ago, and public advocates are pressuring Walmart to do the same. If the major discount stores and other drugstore chains such as Walgreens and Rite Aid follow suit, Philip Morris, R.J. Reynolds, and other tobacco companies will have to seek new channels for selling their brands.15

When selecting intermediaries, the company should de- termine what characteristics distinguish the better ones. It will want to evaluate each channel member’s years in business, other lines carried, location, growth and profit record, cooperative- ness, and reputation.

Managing and Motivating channel Members Once selected, channel members must be continuously man- aged and motivated to do their best. The company must sell not only through the intermediaries but also to and with them. Most companies see their intermediaries as first-line customers and partners. They practice strong partner relationship management to forge long-term partnerships with channel members. This creates a value delivery system that meets the needs of both the company and its marketing partners.

In managing its channels, a company must convince suppliers and distributors that they can succeed better by working together as a part of a cohesive value delivery system. Companies must work in close harmony with others in the channel to find better ways to bring value to customers. Thus, Amazon and P&G work closely to accomplish their joint goal of selling consumer package

goods profitably online. Through its Vendor Flex program, Amazon operates within P&G warehouses to reduce distribution costs and speed up delivery, benefiting both the partnering companies and the customers they jointly serve (see Marketing at Work 10.2).

Similarly, heavy-equipment manufacturer Caterpillar works hand-in-hand with its superb dealer network—together they dominate the world’s construction, mining, and log- ging equipment business:

Heavy-equipment manufacturer Caterpillar produces innovative, high-quality industrial equipment products. But ask anyone at Caterpillar, and they’ll tell you that the most im- portant reason for Caterpillar’s dominance is its outstanding distribution network of 189 independent dealers in more than 180 countries. Dealers are the ones on the front line. Once the product leaves the factory, the dealers take over. They’re the ones that custom- ers see. So rather than selling to or through its dealers, Caterpillar treats dealers as inside partners. When a big piece of Caterpillar equipment breaks down, customers know that they can count on both Caterpillar and its dealer network for support. A strong dealer network makes for a strong Caterpillar, and the other way around. On a deeper level, dealers play a vital role in almost every aspect of Caterpillar’s operations, from product design and de- livery to service and support. As a result of its close partnership with dealers, the big Cat is purring. Caterpillar dominates the world’s markets for heavy construction, mining, and logging equipment. Its familiar yellow tractors, crawlers, loaders, bulldozers, and trucks capture well over a third of the worldwide heavy-equipment business, more than twice that of number-two Komatsu.

Many companies are now installing integrated high-tech partnership relationship management (PRM) systems to coordinate their whole-channel marketing efforts. Just as they use customer relationship management (CRM) software systems to help manage relationships with important customers, companies can now use PRM and supply chain management (SCM) software to help recruit, train, organize, manage, motivate, and evalu- ate relationships with channel partners.

This is the right thing to do.

selecting channels: even established brands may have difficulty keeping desired channels. cVs caremark’s decision to stop selling cigarettes leaves tobacco companies seeking new sales channels. CVS Caremark Corporation

chapter 10: Marketing channels: Delivering customer Value 317

Partnering in the distribution channel: Under amazon’s Vendor flex program, P&g and amazon share warehouse facilities, creating distribution cost and delivery advantages for both partners. Raywoo/Fotolia; Grzegorz Knec/Alamy; Grzegorz Knec/Alamy

Until recently, if you ordered Bounty paper towels, Pampers diapers, Charmin toilet paper, or any of the dozens of other P&G consumer products from Amazon.com, they probably came to your doorstep by a circuitous distribution route. The paper towels, for example, might well have been produced in P&G’s large northeastern Pennsylvania factory and shipped by the trailer-truck load to its nearby Tunkhannock ware- house, where they were unloaded and repacked with other P&G goods and shipped to Amazon’s Dinwiddie, Virginia, fulfillment center. At the fulfillment center, they were unloaded and shelved and then finally picked and packed by Amazon employees for shipment to you via UPS, FedEx, or the USPS.

But these days, in a move that could turn consumer pack- age goods distribution upside down, Amazon and P&G are quietly blazing a new, simpler, lower-cost distribution trail for such goods. Now, for example, at the Pennsylvania warehouse, rather than reloading truckloads of P&G prod- ucts and shipping them to Amazon fulfillment centers, P&G employees simply cart the goods to a fenced-off area inside their own warehouse. The fenced-in area is run by Amazon. From there, Amazon employees pack, label, and ship items directly to customers who’ve ordered them online. Amazon calls this venture Vendor Flex—and it’s revolutionizing how people buy low-priced, low-margin everyday household products.

Amazon’s Vendor Flex program offers big potential for both Amazon and supplier–partners like P&G. Americans currently buy only about 2 percent of their nonfood consumer package goods online. Boosting online sales of these staples to 6 percent—the percentage that the Internet now captures of overall retail sales—would give Amazon an additional $10 billion a year in rev- enues, up from the current $2 billion.

But there’s a reason why household staples have lagged behind other kinds of products in online sales. Such goods have long been deemed too bulky or too cheap to justify the high shipping costs involved with Internet selling. To sell household staples profitably online, companies like Amazon and P&G must work together to streamline the distribution process and reduce costs. That’s where Vendor Flex comes in.

Vendor Flex takes channel partnering to an entirely new level. Co-locating “in the same tent” creates advantages for both partners. For Amazon, Vendor Flex

reduces the costs of storing bulky items, such as diapers and toilet paper, in its own distribution centers, and it frees up space in Amazon’s centers for more higher-margin goods. The sharing arrangement lets Amazon extend its consumer package goods selection without building more distribution center space. For example, the P&G warehouse also stocks other popular P&G household brands, from Gillette razors to Pantene shampoo to Tide laundry detergent. Finally, locating at the source guarantees Amazon immediate avail- ability and facilitates quick delivery of P&G products to customers.

P&G also benefits from the Vendor Flex partnership. It saves money by cutting out the costs of transporting goods to Amazon’s fulfillment centers, which in turn lets it charge more competitive prices to the e-commerce giant. And al- though P&G is a superb in-store brand marketer, it is still a relative newcomer to online selling, one of the company’s top priorities. By partnering more closely with Amazon, P&G gets Amazon’s expert help in moving its brands online.

Amazon considers household staples to be one of its next big frontiers for Internet sales. Its presence inside the P&G Pennsylvania warehouse is just the tip of the iceberg for Vendor Flex. Amazon and P&G quietly began sharing warehouse space three years ago, and the online merchant has set up shop inside at least seven other P&G distribu- tion centers worldwide, including facilities in Japan and Germany. Amazon is also inside or talking with other ma- jor consumer goods suppliers—from Kimberly Clark to Georgia Pacific to Seventh Generation—about co- locating distribution facilities. Moreover, Amazon has invested heav- ily to build an infrastructure for profitably selling all kinds

Marketing at Work 10.2

amazon and P&g: taking channel Partnering to a new level

318 Part 3: Designing a customer Value-Driven strategy and Mix

of everyday household items to consumers online. For ex- ample, in late 2010, Amazon acquired Quidsi, the owner of Diapers.com and Soap.com, online retailers of baby prod- ucts and household essentials. Since the Amazon acquisi- tion, Quidsi has added a half-dozen new sites selling, among other things, toys (YoYo.com), pet supplies (Wag.com), pre- mium beauty products (BeautyBar.com), and home products (Casa.com).

Vendor Flex looks like a win-win for everyone involved— Amazon, P&G, and final consumers. However, the close Amazon–P&G partnership has caused some grumbling among other important channel participants. For example, what about Walmart, P&G’s largest customer by far? The giant store retailer is locked in a fierce online battle with Amazon, yet one of its largest suppliers appears to be giving Amazon preferential treatment. At the same time, Amazon’s courtship of P&G may upset other important suppliers that compete with P&G on Amazon’s site. Both P&G and Amazon must be careful that their close Vendor Flex relationship doesn’t damage other important channel partnerships.

More broadly, some analysts assert that even with Vendor Flex, Amazon won’t be able to sell products such as paper towels, detergent, or shaving cream profitably online. They reason that the margins on such items are simply too low to cover shipping costs. Amazon is already losing an estimated $1 billion to $2 billion annually on its Amazon Prime shipping program. And, they suggest, if there is money to be made by shipping a heavy jug of Tide or a bulky three-pack of Bounty

paper towels from P&G’s warehouse to your front door, P&G would have been doing that long ago.

However, such doom-and-gloom predictions seem to over- look recent rapid changes in the distribution landscape, espe- cially in online retailing. Mega-shippers like UPS and FedEx are continuing to drive down small-package delivery times and costs. And Amazon is moving aggressively toward same-day delivery in major market areas, including grocery and related items. The Vendor Flex program seems to align well with such distribution trends.

As for the Amazon–P&G Vendor Flex partnership, it looks like an ideal match for both companies. If P&G wants to be more effective in selling its brands online, what better partner could it have than Amazon, the undisputed master of online retailing? If Amazon wants to be more effective in selling household staples, what better partner could it have than P&G, the acknowledged master of consumer package goods market- ing? Together, under Amazon’s Vendor Flex, these respective industry leaders can flex their distribution muscles to their own benefit—and to the benefit of the consumers they jointly serve.

Sources: Serena Ng, “Soap Opera: Amazon Moves In with P&G,” Wall Street Journal, October 15, 2013, p. A1; Andre Mouton, “Amazon Considers ‘Co-Creation’ with Procter & Gamble,” USA Today, October 21, 2013, www.usatoday.com/story/tech/2013/10/21/amazon-proctor-gamble- products/3143773/; David Streitfeld, “Amazon to Raise Fees as Revenue Disappoints,” New York Times, January 31, 2014, p. B1; and Bridget Bergin, “Amazon’s Involvement with Manufacturing: When Is It Too Much?” Manufacturing.net, September 25, 2014, www.manufacturing.net/ blogs/2014/09/amazon%E2%80%99s-involvement-with-manufacturing- when-is-it-too-much.

evaluating channel Members The company must regularly check channel member performance against standards such as sales quotas, average inventory levels, customer delivery time, treatment of damaged and lost goods, cooperation in company promotion and training programs, and services to the customer. The company should recognize and reward intermediaries that are perform- ing well and adding good value for consumers. Those that are performing poorly should be assisted or, as a last resort, replaced.

Finally, companies need to be sensitive to the needs of their channel partners. Those that treat their partners poorly risk not only losing their support but also causing some le- gal problems. The next section describes various rights and duties pertaining to companies and other channel members.

linking the concePts Time for another pause. This time, compare the Caterpillar and KFC channel systems.

● Diagram the Caterpillar and KFC channel systems. How do they compare in terms of channel levels, types of intermediaries, channel member roles and responsibilities, and other characteris- tics? How well is each system designed?

● Assess how well Caterpillar and KFC have managed and supported their channels. With what results?

http://www.usatoday.com/story/tech/2013/10/21/amazon-proctor-gamble-products/3143773/

http://www.manufacturing.net/blogs/2014/09/amazon%E2%80%99s-involvement-with-manufacturingwhen-is-it-too-much

chapter 10: Marketing channels: Delivering customer Value 319

Public Policy and Distribution Decisions For the most part, companies are legally free to develop whatever channel arrangements suit them. In fact, the laws affecting channels seek to prevent the exclusionary tactics of some companies that might keep another company from using a desired channel. Most channel law deals with the mutual rights and duties of channel members once they have formed a relationship.

Many producers and wholesalers like to develop exclusive channels for their products. When the seller allows only certain outlets to carry its products, this strategy is called exclusive distribution. When the seller requires that these dealers not handle competitors’ products, its strategy is called exclusive dealing. Both parties can benefit from exclusive arrangements: The seller obtains more loyal and dependable outlets, and the dealers obtain a steady source of supply and stronger seller support. But exclusive arrangements also ex- clude other producers from selling to these dealers. This situation brings exclusive dealing contracts under the scope of the Clayton Act of 1914. They are legal as long as they do not substantially lessen competition or tend to create a monopoly and as long as both parties enter into the agreement voluntarily.

Exclusive dealing often includes exclusive territorial agreements. The producer may agree not to sell to other dealers in a given area, or the buyer may agree to sell only in its own territory. The first practice is normal under franchise systems as a way to increase dealer enthusiasm and commitment. It is also perfectly legal—a seller has no legal obliga- tion to sell through more outlets than it wishes. The second practice, whereby the producer tries to keep a dealer from selling outside its territory, has become a major legal issue.

Producers of a strong brand sometimes sell it to dealers only if the dealers will take some or all of the rest of its line. This is called full-line forcing. Such tying agreements are not necessarily illegal, but they violate the Clayton Act if they tend to lessen competition substantially. The practice may prevent consumers from freely choosing among competing suppliers of these other brands.

Finally, producers are free to select their dealers, but their right to terminate dealers is somewhat restricted. In general, sellers can drop dealers “for cause.” However, they cannot drop dealers if, for example, the dealers refuse to cooperate in a doubtful legal arrange- ment, such as exclusive dealing or tying agreements.

Marketing logistics and supply chain Management In today’s global marketplace, selling a product is sometimes easier than getting it to cus- tomers. Companies must decide on the best way to store, handle, and move their products and services so that they are available to customers in the right assortments, at the right time, and in the right place. Logistics effectiveness has a major impact on both customer satisfaction and company costs. Here we consider the nature and importance of logistics management in the supply chain, the goals of the logistics system, major logistics func- tions, and the need for integrated supply chain management.

nature and importance of Marketing logistics To some managers, marketing logistics means only trucks and warehouses. But mod- ern logistics is much more than this. Marketing logistics—also called physical distribution—involves planning, implementing, and controlling the physical flow of goods, services, and related information from points of origin to points of consumption to meet customer requirements at a profit. In short, it involves getting the right product to the right customer in the right place at the right time profitably.

In the past, physical distribution planners typically started with products at the plant and then tried to find low-cost solutions to get them to customers. However, today’s customer-centered logistics starts with the marketplace and works backward to the factory

author comment Marketers used to call this plain-old

“physical distribution.” But as these titles suggest, the topic has grown in importance,

complexity, and sophistication.

Marketing logistics (physical distribution) Planning, implementing, and controlling the physical flow of goods, services, and related information from points of origin to points of consumption to meet customer requirements at a profit.

320 Part 3: Designing a customer Value-Driven strategy and Mix

or even to sources of supply. Marketing logistics involves not only outbound logistics (moving prod- ucts from the factory to resellers and ultimately to customers) but also inbound logistics (mov- ing products and materials from suppliers to the factory) and reverse logistics (reusing, recycling, refurbishing, or disposing of broken, unwanted, or excess products returned by consumers or resellers). That is, it involves the entirety of supply chain management— managing upstream and downstream value-added flows of materials, final goods, and related information among suppliers, the company, resellers, and final consumers, as shown in figure 10.5.

The logistics manager’s task is to coordinate the activities of suppliers, purchasing agents, marketers, channel members, and customers. These activities include forecasting, information systems, purchasing, production planning, order processing, inventory, ware- housing, and transportation planning.

Companies today are placing greater emphasis on logistics for several reasons. First, companies can gain a powerful competitive advantage by using improved logistics to give customers better service or lower prices. Second, improved logistics can yield tremendous cost savings to both a company and its customers. As much as 20 percent of an average product’s price is accounted for by shipping and transport alone. This far exceeds the cost of advertising and many other marketing costs. American companies spend $1.39 tril-

lion each year—about 8.2 percent of GDP—to wrap, bundle, load, unload, sort, reload, and transport goods. That’s more than the total national GDPs of all but 12 countries worldwide.16

Shaving off even a small fraction of logistics costs can mean substantial savings. For example, Walmart is currently implementing a program of logistics improvements through more efficient sourcing, greater supply chain productivity, and better management of its more than $51 billion worth of owned inventory, and that will reduce supply chain costs by 5 to 15 percent over five years—that’s a whopping $4 billion to $12 billion.17

Third, the explosion in product variety has created a need for improved logistics management. For example, in 1916 the typical Piggly Wiggly grocery store carried only 605 items. Today, a Piggly Wiggly carries a bewildering stock of between 20,000 and 35,000 items, depending on store size. A Walmart Supercenter store carries more than 140,000 products, 30,000 of which are grocery products.18 Ordering, shipping, stocking, and controlling such a variety of products presents a sizable logistics challenge.

Improvements in information technology have also created opportunities for major gains in distribution efficiency. Today’s companies are using sophisticated supply chain management software, Internet-based logistics systems, point-of-sale scan- ners, RFID tags, satellite tracking, and electronic transfer of order and payment data. Such technology lets them quickly and efficiently manage the flow of goods, information, and finances through the supply chain.

supply chain management Managing upstream and downstream value-added flows of materials, final goods, and related information among suppliers, the company, resellers, and final consumers.

Resellers CustomersCompanySuppliers

Reverse logistics

Outbound logistics

Inbound logistics

Managing the supply chain calls for customer-centered thinking. Remember, it’s also called the customer value delivery network.

figure 10.5 supply chain Management

logistics: as this huge container ship suggests, american companies spent $1.39 trillion last year—8.2 percent of U.s. gDP—to wrap, bundle, load, unload, sort, reload, and transport goods. E.G.Pors/Shutterstock

chapter 10: Marketing channels: Delivering customer Value 321

Finally, more than almost any other marketing function, logistics affects the envi- ronment and a firm’s environmental sustainability efforts. Transportation, warehousing, packaging, and other logistics functions are typically the biggest supply chain contributors to the company’s environmental footprint. So many companies are now developing green supply chains.

sustainable supply chains Companies have many reasons for reducing the environmental impact of their supply chains. For one thing, if they don’t green up voluntarily, a host of sustainability regulations enacted around the world will soon require them to. For another, many large customers— from Walmart and Nike to the federal government—are demanding it. Environmental sustainability has become an important factor in supplier selection and performance evalu- ation. But perhaps even more important than having to do it, designing sustainable supply chains is simply the right thing to do. It’s one more way that companies can contribute to saving our world for future generations.

But that’s all pretty heady stuff. As it turns out, companies have a more immediate and practical reason for turning their supply chains green. Not only are sustainable channels good for the world, they’re also good for a company’s bottom line. The very logistics ac- tivities that create the biggest environmental footprint—such as transportation, warehous- ing, and packaging—also account for a lion’s share of logistics costs. Companies green up their supply chains through greater efficiency, and greater efficiency means lower costs and higher profits. In other words, developing a sustainable supply chain is not only envi- ronmentally responsible, it can also be profitable. Consider Nike:19

Nike, the iconic sports shoe and apparel company, has developed a sweeping strategy for greening every phase of its supply chain. For example, Nike recently teamed with Levi’s, REI, Target, and other members of the Sustainable Apparel Coalition to develop the Higg Index—a tool that measures how a single apparel product affects the environment across the entire supply chain. Nike uses the Higg Index to work with suppliers and distributors to reduce its supply chain’s environmental footprint. For instance, during just the past three years, the more than 900 contract factories that make Nike footwear worldwide have reduced their carbon emissions by 6 percent, despite production increases of 20 percent. That’s equivalent to an emissions savings equal to more than 1 billion car-miles.

Nike has found that even seemingly simple supply chain adjustments can produce big benefits. For example, the company sources its shoes in Asia, but most are sold in North America. Until about a decade ago, the shoes were shipped from factory to store by air freight. After analyzing distribution costs more carefully, Nike shifted a sizable por- tion of its cargo to ocean freight. That simple shoes-to-ships shift reduced emissions per product by 4 percent, making environmentalists smile. But it also put a smile on the faces of Nike’s accountants by saving the company some $8 mil- lion a year in shipping costs.

goals of the logistics system Some companies state their logistics objective as providing maximum customer service at the least cost. Unfortunately, as nice as this sounds, no logistics system can both maximize customer service and minimize distribution costs. Maximum customer service implies rapid delivery, large inventories, flexible assortments, liberal returns policies, and other services—all of which raise distribution costs. In contrast, minimum distribution costs

The Higg Index Sustainable Apparel Coalition

green supply chains: nike has developed a sweeping strategy for greening its supply chain. the higg index lets nike work with suppliers and distributors to reduce the supply chain’s environmental footprint while at the same time reducing its logistics costs. Sergio Azenha/Alamy

322 Part 3: Designing a customer Value-Driven strategy and Mix

imply slower delivery, smaller inventories, and larger shipping lots—which represent a lower level of overall customer service.

The goal of marketing logistics should be to provide a targeted level of customer ser- vice at the least cost. A company must first research the importance of various distribution services to customers and then set desired service levels for each segment. The objective is to maximize profits, not sales. Therefore, the company must weigh the benefits of pro- viding higher levels of service against the costs. Some companies offer less service than their competitors and charge a lower price. Other companies offer more service and charge higher prices to cover higher costs.

Major logistics functions Given a set of logistics objectives, the company designs a logistics system that will mini- mize the cost of attaining these objectives. The major logistics functions are warehousing, inventory management, transportation, and logistics information management.

Warehousing Production and consumption cycles rarely match, so most companies must store their goods while they wait to be sold. For example, Snapper, Toro, and other lawn mower man- ufacturers run their factories all year long and store up products for the heavy spring and summer buying seasons. The storage function overcomes differences in needed quantities and timing, ensuring that products are available when customers are ready to buy them.

A company must decide on how many and what types of warehouses it needs and where they will be located. The company might use either storage warehouses or distribution cen- ters. Storage warehouses store goods for moderate to long periods. In contrast, distribution centers are designed to move goods rather than just store them. They are large and highly automated warehouses designed to receive goods from various plants and suppliers, take orders, fill them efficiently, and deliver goods to customers as quickly as possible.

For example, Amazon operates more than 50 giant distribution centers, called ful- fillment centers, which fill online orders and handle returns. These centers are huge and highly automated. For example, the Amazon fulfillment center in Tracy, California, covers 1.2 million square feet (equivalent to 27 football fields). At the center, 4,000 employees control an inventory of 21 million items and ship out up to 700,000 packages a day to Amazon customers in Northern California and parts of the Pacific Northwest. During last year’s Cyber Monday, Amazon’s fulfillment center network filled customer orders at a rate of 426 items per second globally.20

Like almost everything else these days, warehousing has seen dramatic changes in technology in recent years. Outdated materials-handling methods are steadily being replaced by newer, computer-controlled systems requiring fewer employees. Computers and scanners read orders and direct lift trucks, electric hoists, or robots to gather goods, move them to loading docks, and issue invoices. For example, to improve efficiency in its massive fulfillment centers, Amazon recently purchased robot maker Kiva Systems:21

When you buy from Amazon, the chances are still good that your order will be plucked and packed by human hands.

However, the humans in Amazon’s fulfillment centers are increasingly being assisted by an army of squat, ottoman-size, day-glo orange robots. The Tracy, California, fulfillment center has 3,000 of them, “let out of their cage to scurry hither and yon bearing 6-foot-high . . . movable shelves.” The robots bring racks of merchandise to workers, who in turn fill boxes. Dubbed the “magic shelf,” racks of items simply materialize in front of workers, with red lasers pointing to items to be picked. The robots then drive off and new shelves appear. The super- efficient robots work tirelessly 16 hours a day, seven days a week. They

Distribution center A large, highly automated warehouse designed to receive goods from various plants and suppliers, take orders, fill them efficiently, and deliver goods to customers as quickly as possible.

high-tech distribution centers: amazon employs teams of super-retrievers—day-glo orange kiva robots—to keep its fulfillment centers humming. David Paul Morris/Bloomberg/Getty Images

chapter 10: Marketing channels: Delivering customer Value 323

never complain about the workload or ask for pay raises, and they are pretty much mainte- nance free. “When they run low on power, they head to battery-charging terminals,” notes one observer, “or, as warehouse personnel say, ‘They get themselves a drink of water.’”

inventory Management Inventory management also affects customer satisfaction. Here, managers must maintain the delicate balance between carrying too little inventory and carrying too much. With too little stock, the firm risks not having products when customers want to buy. To remedy this, the firm may need costly emergency shipments or production. Carrying too much in- ventory results in higher-than-necessary inventory-carrying costs and stock obsolescence. Thus, in managing inventory, firms must balance the costs of carrying larger inventories against resulting sales and profits.

Many companies have greatly reduced their inventories and related costs through just-in-time logistics systems. With such systems, producers and retailers carry only small inventories of parts or merchandise, often enough for only a few days of operations. New stock arrives exactly when needed rather than being stored in inventory until being used. Just-in-time systems require accurate forecasting along with fast, frequent, and flexible delivery so that new supplies will be available when needed. However, these systems result in substantial savings in inventory-carrying and inventory-handling costs.

Marketers are always looking for new ways to make inventory management more efficient. In the not-too-distant future, handling inventory might even become fully au- tomated. For example, in Chapter 3 we discussed RFID or “smart tag” technology, by which small transmitter chips are embedded in or placed on products and packaging for everything from flowers and razors to tires. Such “smart” products could make the entire supply chain—which accounts for nearly 75 percent of a product’s cost—intelligent and automated.

Companies using RFID know, at any time, exactly where a product is located physi- cally within the supply chain. “Smart shelves” would not only tell them when it’s time to reorder but also place the order automatically with their suppliers. Such exciting new information technology is revolutionizing distribution as we know it. Many large and resourceful marketing companies, such as Walmart, Macy’s, P&G, Kraft, and IBM, are investing heavily to make the full use of RFID technology a reality.

transportation The choice of transportation carriers affects the pricing of products, delivery performance, and the condition of goods when they arrive—all of which will affect customer satisfac- tion. In shipping goods to its warehouses, dealers, and customers, the company can choose among five main transportation modes: truck, rail, water, pipeline, and air, along with an alternative mode for digital products—the Internet.

Trucks have increased their share of transportation steadily and now account for 40 percent of total cargo ton-miles (a ton of freight moved one mile) transported in the United States. U.S. trucks travel more than 397 billion miles a year—more than double the distance traveled 25 years ago—carrying 9.2 billion tons of freight. According to the U.S. Department of Transportation, 70 percent of all the freight tonnage moved in the United States goes on trucks. Trucks are highly flexible in their routing and time sched- ules, and they can usually offer faster service than railroads. They are efficient for short hauls of high-value merchandise. Trucking firms have evolved in recent years to become full- service providers of global transportation services. For example, large trucking firms now offer everything from satellite tracking, Internet-based shipment management, and logistics planning software to cross-border shipping operations.22

Railroads account for 26 percent of the total cargo ton-miles moved. They are one of the most cost-effective modes for shipping large amounts of bulk products—coal, sand, minerals, and farm and forest products—over long distances. In recent years, railroads have increased their customer services by designing new equipment to handle special categories of goods, providing flatcars for carrying truck trailers by rail (piggyback), and providing in-transit services such as the diversion of shipped goods to other destinations en route and the processing of goods en route.

324 Part 3: Designing a customer Value-Driven strategy and Mix

Water carriers, which account for 7 percent of the cargo ton-miles, transport large amounts of goods by ships and barges on U.S. coastal and inland waterways. Although the cost of water transportation is very low for shipping bulky, low-value, nonperishable products such as sand, coal, grain, oil, and metallic ores, water transportation is the slow- est mode and may be affected by the weather. Pipelines, which account for 17 percent of the cargo ton-miles, are a specialized means of shipping petroleum, natural gas, and chemicals from sources to markets. Most pipelines are used by their owners to ship their own products.

Although air carriers transport less than 1 percent of the cargo ton-miles of the na- tion’s goods, they are an important transportation mode. Airfreight rates are much higher than rail or truck rates, but airfreight is ideal when speed is needed or distant markets have to be reached. Among the most frequently airfreighted products are perishables (such as fresh fish, cut flowers) and high-value, low-bulk items (technical instruments, jewelry). Companies find that airfreight also reduces inventory levels, packaging costs, and the number of warehouses needed.

The Internet carries digital products from producer to customer via satellite, cable, phone wire, or wireless signal. Software firms, the media, music and video companies, and education all make use of the Internet to transport digital products. The Internet holds the potential for lower product distribution costs. Whereas planes, trucks, and trains move freight and packages, digital technology moves information bits.

Shippers also use multimodal transportation— combining two or more modes of transportation. Eight percent of the total cargo ton-miles are moved via multiple modes. Piggyback describes the use of rail and trucks; fishyback, water and trucks; trainship, water and rail; and airtruck, air and trucks. Combining modes provides advantages that no single mode can deliver. Each combi- nation offers advantages to the shipper. For example, not only is piggyback cheaper than trucking alone, but it also provides flexibility and convenience. Numerous logistics companies provide single-source multi-modal transporta- tion solutions.

Most logistics carriers now recognize the importance of multimodal transportation, regardless of their main line of activity. For example, Union Pacific, primarily a rail carrier, offers “door-to-door shipping” coordination for its business customers. According to one Union Pacific ad: “The end of the tracks is just the beginning of our capabilities. Every day, we coordinate rail, trucks, and ocean carriers for thousands of companies—many without tracks to their doors. That would be a challenge if we were just a railroad, but we’re not. We’re logistics experts.”

logistics information Management Companies manage their supply chains through information. Channel partners often link up to share information and make better joint logistics decisions. From a logistics perspec- tive, flows of information, such as customer transactions, billing, shipment and inventory levels, and even customer data, are closely linked to channel performance. Companies need simple, accessible, fast, and accurate processes for capturing, processing, and sharing channel information.

Information can be shared and managed in many ways, but most sharing takes place through electronic data interchange (EDI), the digital exchange of data between organiza- tions, which primarily is transmitted via the Internet. Walmart, for example, requires EDI links with its more than 100,000 suppliers through its Retail Link sales data system. If new suppliers don’t have the required EDI capability, Walmart will work with them to find and implement the needed tools.23

Multimodal transportation Combining two or more modes of transportation.

transportation: in shipping goods to their warehouses, dealers, and customers, companies can choose among many transportation modes, including truck, rail, water, pipeline, and air. Much of today’s shipping requires multiple modes. Thanapun/Shutterstock

chapter 10: Marketing channels: Delivering customer Value 325

In some cases, suppliers might actually be asked to generate orders and arrange deliv- eries for their customers. Many large retailers—such as Walmart and Home Depot—work closely with major suppliers such as P&G or Moen to set up vendor-managed inventory (VMI) systems or continuous inventory replenishment systems. Using VMI, the customer shares real-time data on sales and current inventory levels with the supplier. The supplier then takes full responsibility for managing inventories and deliveries. Some retailers even go so far as to shift inventory and delivery costs to the supplier. Such systems require close cooperation between the buyer and seller.

integrated logistics Management Today, more and more companies are adopting the concept of integrated logistics management. This concept recognizes that providing better customer service and trim- ming distribution costs require teamwork, both inside the company and among all the marketing channel organizations. Inside, the company’s various departments must work closely together to maximize its own logistics performance. Outside, the company must integrate its logistics system with those of its suppliers and customers to maximize the performance of the entire distribution network.

cross-functional teamwork inside the company Most companies assign responsibility for various logistics activities to many differ- ent departments—marketing, sales, finance, operations, and purchasing. Too often, each function tries to optimize its own logistics performance without regard for the activities of the other functions. However, transportation, inventory, warehousing, and information management activities interact, often in an inverse way. Lower inventory levels reduce inventory-carrying costs. But they may also reduce customer service and increase costs from stockouts, backorders, special production runs, and costly fast-freight shipments. Because distribution activities involve strong trade-offs, deci- sions by different functions must be coordinated to achieve better overall logistics performance.

The goal of integrated supply chain management is to harmonize all of the company’s logistics decisions. Close working relationships among departments can be achieved in several ways. Some companies have created permanent logistics committees composed of managers responsible for different physical distribution activities. Companies can also create supply chain manager positions that link the logistics activities of functional areas. For example, P&G has created product supply managers who manage all the supply chain activities for each product category. Many companies have a vice president of logistics or a supply chain VP with cross- functional authority.

Finally, companies can employ sophisticated, system- wide supply chain management software, now available from a wide range of software enterprises large and small, from SAP and Oracle to Infor and Logility. For example, Oracle’s supply chain management software solutions help companies to “gain sustainable advantage and drive inno- vation by transforming their traditional supply chains into integrated value chains.” It coordinates every aspect of the supply chain, from value chain collaboration to inventory optimization to transportation and logistics management. The important thing is that the company must coordinate its logistics, inventory investments, demand forecasting, and marketing activities to create high market satisfaction at a reasonable cost.

integrated logistics management The logistics concept that emphasizes teamwork—both inside the company and among all the marketing channel organizations—to maximize the performance of the entire distribution system.

integrated logistics management: oracle’s supply chain management software solutions help companies to “gain sustainable advantage and drive innovation by transforming their traditional supply chains into integrated value chains.” Oracle Corporation

326 Part 3: Designing a customer Value-Driven strategy and Mix

building logistics Partnerships Companies must do more than improve their own logistics. They must also work with other channel partners to improve whole-channel distribution. The members of a mar- keting channel are linked closely in creating customer value and building customer relationships. One company’s distribution system is another company’s supply system. The success of each channel member depends on the performance of the entire sup- ply chain. For example, furniture retailer IKEA can create its stylish but affordable furniture and deliver the “IKEA lifestyle” only if its entire supply chain—consisting of thousands of merchandise designers and suppliers, transport companies, warehouses, and service providers—operates at maximum efficiency and with customer-focused effectiveness.

Smart companies coordinate their logistics strategies and forge strong partnerships with suppliers and customers to improve customer service and reduce channel costs. Many companies have created cross-functional, cross-company teams. For example, Nestlé’s Purina pet food unit has a team of dozens of people working in Bentonville, Arkansas, the home base of Walmart. The Purina Walmart team members work jointly with their counterparts at Walmart to find ways to squeeze costs out of their distribution system. Working together benefits not only Purina and Walmart but also their shared, final consumers.

Other companies partner through shared projects. For example, many large retail- ers conduct joint in-store programs with suppliers. Home Depot allows key suppliers to use its stores as a testing ground for new merchandising programs. The suppliers spend time at Home Depot stores watching how their product sells and how customers relate to it. They then create programs specially tailored to Home Depot and its customers. Clearly, both the supplier and the customer benefit from such partnerships. The point is that all supply chain members must work together in the cause of bringing value to final consumers.

third-Party logistics Although most big companies love to make and sell their products, many loathe the associated logistics “grunt work.” They detest the bundling, loading, unloading, sort- ing, storing, reloading, transporting, customs clearing, and tracking required to supply their factories and get products to their customers. They hate it so much that many firms outsource some or all of their logistics to third-party logistics (3PL) providers such as Ryder, Penske Logistics, BAX Global, DHL Logistics, FedEx Logistics, and UPS Business Solutions.

For example, UPS knows that, for many companies, logistics can be a real nightmare. But logistics is exactly what UPS does best. To UPS, logistics is today’s most powerful force for creating competitive advantage. “We ♥ logistics,” proclaims UPS. “It makes running your business easier. It can make your customers happier. It’s a whole new way of thinking.” As one UPS ad concludes: “We love logistics. Put UPS to work for you and you’ll love logistics too.”

At one level, UPS can simply handle a company’s package shipments. But on a deeper level, UPS can help businesses sharpen their own logistics systems to cut costs and serve customers better. At a still deeper level, companies can let UPS take over and manage part or all of their logistics operations. For example, consumer electronics maker Toshiba lets UPS handle its entire laptop PC repair process—lock, stock, and barrel. And UPS not only delivers packages for online shoe and accessories marketer Zappos, it also manages Zappos’s important and complex order returns process in an efficient, customer- pleasing way.24

3PL providers like UPS can help clients tighten up sluggish, overstuffed sup- ply chains; slash inventories; and get products to customers more quickly and reliably. According to one report, 86 percent of Fortune 500 companies use 3PL (also called out- sourced logistics or contract logistics) services. General Motors, P&G, and Walmart each use 50 or more 3PLs.25

third-party logistics (3Pl) provider An independent logistics provider that performs any or all of the functions required to get a client’s product to market.

chapter 10: Marketing channels: Delivering customer Value 327

chaPter reVieW anD critical thinking

Some companies pay too little attention to their distribution channels; others, however, have used imaginative distribu- tion systems to gain a competitive advantage. A company’s channel decisions directly affect every other marketing deci- sion. Management must make channel decisions carefully, incorporating today’s needs with tomorrow’s likely selling environment.

objectiVe 10-1 explain why companies use market- ing channels and discuss the functions these channels perform. (pp 300–303)

In creating customer value, a company can’t go it alone. It must work within an entire network of partners—a value delivery network—to accomplish this task. Individual companies and brands don’t compete; their entire value delivery networks do.

Most producers use intermediaries to bring their products to market. They forge a marketing channel (or distribution channel)—a set of interdependent organizations involved in the process of making a product or service available for use or consumption by the consumer or business user. Through their contacts, experience, specialization, and scale of operation, intermediaries usually offer the firm more than it can achieve on its own.

Marketing channels perform many key functions. Some help complete transactions by gathering and distributing information needed for planning and aiding exchange, devel- oping and spreading persuasive communications about an offer, performing contact work (finding and communicating

reVieWing anD extenDing the concePts

objectives review with prospective buyers), matching (shaping and fitting the offer to the buyer’s needs), and entering into negotiation to reach an agreement on price and other terms of the offer so that ownership can be transferred. Other functions help to fulfill the completed transactions by offering physical distribution (trans- porting and storing goods), financing (acquiring and using funds to cover the costs of the channel work), and risk taking (assuming the risks of carrying out the channel work.

objectiVe 10-2 Discuss how channel members interact and how they organize to perform the work of the channel. (pp 304–311)

The channel will be most effective when each member assumes the tasks it can do best. Ideally, because the success of indi- vidual channel members depends on overall channel success, all channel firms should work together smoothly. They should understand and accept their roles, coordinate their goals and activities, and cooperate to attain overall channel goals. By cooperating, they can more effectively sense, serve, and satisfy the target market.

In a large company, the formal organization structure assigns roles and provides needed leadership. But in a distribu- tion channel composed of independent firms, leadership and power are not formally set. Traditionally, distribution channels have lacked the leadership needed to assign roles and manage conflict. In recent years, however, new types of channel orga- nizations have appeared that provide stronger leadership and improved performance.

Companies use third-party logistics providers for several reasons. First, because get- ting the product to market is their main focus, using these providers makes the most sense, as they can often do it more efficiently and at lower cost. Outsourcing typically results in a 10 to 25 percent cost savings.26 Second, outsourcing logistics frees a company to focus more intensely on its core business. Finally, integrated logistics companies understand increasingly complex logistics environments.

328 Part 3: Designing a customer Value-Driven strategy and Mix

objectiVe 10-3 identify the major channel alternatives open to a company. (pp 311–315)

Channel alternatives vary from direct selling to using one, two, three, or more intermediary channel levels. Marketing channels face continuous and sometimes dramatic change. Three of the most important trends are the growth of vertical, horizontal, and multichannel marketing systems. These trends affect chan- nel cooperation, conflict, and competition.

Channel design begins with assessing customer channel service needs and company channel objectives and constraints. The company then identifies the major channel alternatives in terms of the types of intermediaries, the number of intermedi- aries, and the channel responsibilities of each. Each channel alternative must be evaluated according to economic, control, and adaptive criteria. Channel management calls for selecting qualified intermediaries and motivating them. Individual chan- nel members must be evaluated regularly.

objectiVe 10-4 explain how companies select, motivate, and evaluate channel members. (pp 315–319)

Producers vary in their ability to attract qualified marketing intermediaries. Some producers have no trouble signing up channel members, whereas others have to work hard to line up enough qualified intermediaries. When selecting intermediar- ies, the company should evaluate each channel member’s quali- fications and select those that best fit its channel objectives.

Once selected, channel members must be continuously motivated to do their best. The company must sell not only through the intermediaries but also with them. It should forge strong partnerships with channel members to create a

marketing system that meets the needs of both the manufac- turer and the partners.

objectiVe 10-5 Discuss the nature and importance of marketing logistics and integrated supply chain management. (pp 319–326)

Marketing logistics (or physical distribution) is an area of potentially high cost savings and improved customer satisfac- tion. Marketing logistics addresses not only outbound logistics but also inbound logistics and reverse logistics. That is, it in- volves the entire supply chain management—managing value- added flows between suppliers, the company, resellers, and final users. No logistics system can both maximize customer service and minimize distribution costs. Instead, the goal of logistics management is to provide a targeted level of service at the least cost. The major logistics functions are warehousing, inventory management, transportation, and logistics information management.

The integrated supply chain management concept recog- nizes that improved logistics requires teamwork in the form of close working relationships across functional areas inside the company and across various organizations in the supply chain. Companies can achieve logistics harmony among func- tions by creating cross-functional logistics teams, integrative supply manager positions, and senior-level logistics executive positions with cross-functional authority. Channel partnerships can take the form of cross-company teams, shared projects, and information-sharing systems. Today, some companies are out- sourcing their logistics functions to third-party logistics (3PL) providers to save costs, increase efficiency, and gain faster and more effective access to global markets.

key terms objective 10-1 Value delivery network (p 300) Marketing channel (distribution channel)

(p 301) Channel level (p 303) Direct marketing channel (p 303) Indirect marketing channel (p 303)

objective 10-2 Channel conflict (p 304) Conventional distribution channel

(p 305) Vertical marketing system (VMS)

(p 305)

Corporate VMS (p 306) Contractual VMS (p 306) Franchise organization (p 306) Administered VMS (p 307) Horizontal marketing system (p 307) Multichannel distribution system

(p 308) Disintermediation (p 308)

objective 10-3 Marketing channel design (p 311) Intensive distribution (p 313) Exclusive distribution (p 313) Selective distribution (p 313)

objective 10-4 Marketing channel management (p 315)

objective 10-5 Marketing logistics (physical

distribution) (p 319) Supply chain management (p 320) Distribution center (p 322) Multimodal transportation (p 324) Integrated logistics management

(p 325) Third-party logistics (3PL) provider

(p 326)

chapter 10: Marketing channels: Delivering customer Value 329

Discussion Questions 10-1. Compare and contrast upstream and downstream part-

ners in a company’s supply chain. Explain why value delivery network might be a better term to use than sup- ply chain. (AACSB: Communication)

10-2. Compare direct marketing channels and indirect mar- keting channels. Name the various types of resellers in marketing channels. (AACSB: Communication)

10-3. Name and describe the three strategies available when determining the number of marketing intermediaries. (AACSB: Communication; Reflective Thinking)

10-4. List and briefly describe the major logistics functions. Provide an example of a decision a logistics manager would make for each major function. (AACSB: Com- munication; Reflective Thinking)

10-5. What are third-party logistics providers, and why do companies use them? (AACSB: Communication)

critical thinking exercises 10-6. The most common type of contractual vertical market-

ing system is the franchise organization. Visit the In- ternational Franchise Association at www.franchise.org and find a franchise that interests you. Write a report describing the franchise. Identify what type of franchise it represents and research the market opportunities for that product or service. (AACSB: Communication; Use of IT; Reflective Thinking)

10-7. Form a small group and research the distribution chal- lenges faced by companies expanding into emerging international markets such as China, Africa, and India.

Develop a multimedia presentation on how one com- pany overcame these challenges. (AACSB: Communi- cation; Reflective Thinking; Use of IT)

10-8. The term last mile is often used in the telecommu- nications industry. Research what is going on in this industry and how the last mile has evolved in recent years, and then predict where it is heading in the future. What companies are major players in the last mile, and how does the concept of net neu- trality fit in? (AACSB: Communication; Reflective Thinking)

Do you think that you have what it takes to write a best- selling novel? In the past, authors had to go through tradi- tional publishing houses to print and distribute their work, but technology has turned the publishing industry on its head. Although aspiring authors could always self-publish a book, selling it through the traditional channels—bookstores—was only a pipe dream for most. But that has all changed thanks to the Internet and social media. Amazon’s Kindle Direct Publishing is a popular platform for self-publishers, but oth- ers such as Smashwords, Author Solutions, and Fast-Pencil offer similar services with hundreds of thousands of authors and titles. For example, Amanda Hocking’s self-published e-book sales caught the attention of a publisher, and now the former social worker is a millionaire. Self-published books have grown nearly 300 percent in less than 10 years, with the majority being e-books. Almost 40 percent of readers now own e-readers, such as Kindles and iPads. That creates

opportunities for anyone wanting to distribute their works to these avid readers. For example, after being turned away by traditional publishers, author Christine Bronstein created her own online social network to promote her book, Nothing but the Truth, So Help Me God: 51 Women Reveal the Power of Positive Female Connection, which launched on Amazon and Barnes & Noble sites.

10-9. Visit a self-publishing site such as Amazon’s Kindle Direct (https://kdp.amazon.com) and create a presenta- tion to give to aspiring authors about distributing their works this way. (AACSB: Communication; Use of IT; Reflective Thinking)

10-10. What other industries’ channels of distribution have been affected dramatically by online, mobile, and so- cial media? (AACSB: Communication; Reflective Thinking)

Minicases anD aPPlications

online, Mobile, and social Media Marketing self-Publishing

http://www.franchise.org

https://kdp.amazon.com

330 Part 3: Designing a customer Value-Driven strategy and Mix

Marketing by the numbers tyson expanding Distribution Tyson Foods is the largest U.S. beef and chicken supplier, processing more than 100,000 head of cattle and 40-plus million chickens weekly. Primary distribution channels are supermarket meat departments. However, the company is now expanding distribution into convenience stores. There are almost 150,000 gas stations and convenience stores where the company would like to sell hot Buffalo chicken bites near the checkout. This is a promising channel, as sales are growing considerably at these retail outlets and profit margins on prepared foods are higher than selling raw meat to grocery stores. Tyson will have to hire 10 more sales rep- resentatives at a salary of $45,000 each to expand into this distribution channel because many of these types of stores are

independently owned. Each convenience store is expected to generate an average of $50,000 in revenue for Tyson. Refer to Appendix 3: Marketing by the Numbers to answer the follow- ing questions.

10-13. If Tyson’s contribution margin is 30 percent on this product, what increase in sales will it need to break even on the increase in fixed costs to hire the new sales reps? (AACSB: Communication; Analytical Reasoning)

10-14. How many new retail accounts must the company acquire to break even on this tactic? What average num- ber of accounts must each new rep acquire? (AACSB: Communication; Analytical Reasoning)

Video case Progressive Progressive has attained top-tier status in the insurance industry by focusing on innovation. Progressive was the first company to offer drive-in claims service, installment payment of premiums, and 24/7 customer service. But perhaps Progressive’s most in- novative moves involve its channels of distribution. Whereas most insurance companies distribute via intermediary agents or direct-to-consumer methods, Progressive was one of the first to see value in doing both. In the late 1980s, it augmented its agency distribution with a direct 800-number channel.

Two decades ago, Progressive moved into the digital fu- ture by becoming the first major insurer to launch a Web site. Soon after, it allowed customers to buy auto insurance policies online in real time. Today, customers can use Progressive’s

Web site to do everything from managing their own account in- formation to reporting claims directly. Progressive even offers one-stop concierge claim service.

After viewing the Progressive video segment, answer the following questions about marketing channels.

10-15. Apply the concept of the supply chain to Progressive. 10-16. Using the model of consumer and business channels

found in the chapter, sketch out as many channels for Progressive as you can. How does each of these chan- nels meet distinct customer needs?

10-17. Discuss the various ways that Progressive has had an impact on the insurance industry.

Marketing ethics trucker rest rules Large trucks are an important piece of the logistics chain. However, there were 333,000 large truck crashes in 2012, resulting in almost 3,800 fatalities, the majority being drivers or passengers of other vehicles, not the truck driver. One ac- cident in 2014 caused a public uproar when a Walmart truck driver fell asleep at the wheel after being awake for 24 hours and crashed into another car, killing one person and critically injuring others, one being a well-known comedian. The U.S. Department of Transportation’s Federal Motor Carrier Safety Administration enacted tougher hours-of-service rules that went into effect in July 2013. One report claimed that the in- dustry would lose $1 billion in lost productivity as a result of these rules, while another concluded the industry would realize

almost $500 million in benefit from reduced driver mortal- ity. The new rules have caused considerable controversy and have caused hardships for drivers. As one driver put it, “If the wheels aren’t turning, you’re not earning.”

10-11. Research the DOT’s trucker hours-of-service rules and write a brief report outlining the rules. What is the cur- rent status of the 2013 rules? (AACSB: Communica- tion; Reflective Thinking)

10-12. Do you think it is ethical that the trucking industry wants the rules repealed? Explain why or why not. (AACSB: Communication; Reflective Thinking; Ethi- cal Reasoning)

chapter 10: Marketing channels: Delivering customer Value 331

company cases 10 apple Pay/15 7-eleven See Appendix 1 for cases appropriate for this chapter. Case 10, Apple Pay: Taking Moble Payments Mainstream. In the past, Apple has disrupted marketing channels with revolution- ary products. With Apple Pay, Apple is proving once again that

it can deliver. Case 15, 7-Eleven: Adapting to The World’s Many Cultures. Just a convenience store in the U.S., 7-Eleven has a strong global presence by catering to different distribution strategies throughout the world.

MyMarketingLab If assigned by your instructor, complete these writing sections from your Assignments in the MyLab.

10-18. Why does channel conflict occur? Name and describe the various types of channel conflict. (AACSB: Communication)

10-19. Should retailers be responsible for safety conditions in garment supplier facto- ries in other countries? Discuss. (AACSB: Written and Oral Communication; Reflective Thinking; Ethical Understanding and Reasoning)

11 objectiVe 11-1 explain the role of retailers in the distribution channel and describe the major types of retailers. Retailing (334–340)

objectiVe 11-2 Describe the major retailer marketing decisions. Retailer Marketing Decisions (341–348)

retailing and Wholesaling

objectiVe 11-3 Discuss the major trends and developments in retailing. Retailing Trends and Developments (348–354)

objectiVe 11-4 explain the major types of wholesalers and their marketing decisions. Wholesaling (355–360)

Previewing the concepts We now look more deeply into the two major intermediary marketing channel functions: retailing and wholesaling. you already know something about retailing—retailers of all shapes and sizes serve you every day, both in stores and online. however, you probably know much less about the hoard of wholesalers working behind the scenes. in this chapter, we examine the characteristics of different kinds of retailers and wholesalers, the marketing decisions they make, and trends for the future.

When it comes to retailers, you have to start with Walmart. this megaretailer’s phenom- enal success has resulted from an unrelenting focus on bringing value to its customers. Day in and day out, Walmart lives up to its promise: “save money. live better.” that focus on customer value has made Walmart the world’s largest retailer, the world’s largest company. yet, despite its huge success, Walmart still faces plenty of fresh opportunities and some daunting challenges as well.

chaPter roaD MaP objective outline

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first stop Walmart: The World’s Largest Retailer—the World’s Largest Company Walmart is almost unimaginably big. It’s the world’s largest retailer—the world’s largest company. It rang up an incredible $487 billion in sales last year—more than double the sales of competitors Costco, Target, Macy’s, Sears, Kmart, JCPenney, and Kohl’s combined.

Walmart is the number-one seller in many categories of con- sumer products, including groceries, clothing, toys, and pet care products. It sells nearly 2.7 times as many groceries as Kroger, the leading grocery-only food retailer, and its clothing and shoe sales alone exceed the total revenues of Macy’s Inc., parent of both Macy’s and Bloomingdale’s department stores. Incredibly, Walmart sells an estimated 30 percent of the disposable diapers purchased in the United States each year, 30 percent of the hair care products, 30 percent of all health and beauty products, 26 percent of the toothpaste, 25 percent of all groceries, and 20 percent of the pet food. On average, worldwide, Walmart serves more than 250 million customers per week through more than 11,000 stores in 27 countries and online in 10 countries.

It’s also hard to fathom Walmart’s impact on the U.S. economy. It’s the nation’s largest employer—one out of every 246 men, women, and children in the United States is a Walmart associate. The chain’s average profit is $3.1 million per hour. If Walmart were a separate country, it would be the world’s 26th largest economy. By one estimate, through its own low prices and impact on competitors’ prices, Walmart saves the average American household $2,500 each year, equivalent to more than six months’ worth of groceries for the average family.

What’s behind this spectacular success? First and foremost, Walmart is passionately dedicated to its long-time, low-price value proposition and what its low prices mean to customers: “Save money. Live better.” To accomplish this mission, Walmart offers a broad selec- tion of goods at “unbeatable low prices,” day in and day out. No other retailer has come nearly so close to mastering the concepts of every- day low prices and one-stop shopping. Sam Walton himself summed up Walmart’s mission best when he said, “If we work together, we’ll lower the cost of living for everyone … we’ll give the world an opportu- nity to see what it’s like to save and have a better life.”

How does Walmart make money with such low prices? Walmart is a lean, mean distribution machine—it has the lowest cost structure in the industry. Low costs let the giant retailer charge lower prices while remaining profitable. Lower prices attract more shoppers, producing more sales, making the company more efficient, and enabling it to lower prices even more.

Walmart’s low costs result from superior operations management, sophisticated information technology, and good-old “tough buying.” Its huge, fully automated distribution centers supply stores efficiently. It employs an information technology system that the U.S. Depart- ment of Defense would envy, giving managers around the world instant access to sales and operating information. And Walmart is known for using its massive scale to wring low prices from suppliers. “Don’t expect a greeter and don’t expect friendly,” said one supplier’s sales executive after a visit to Walmart’s buying offices. “Once you

are ushered into one of the spartan little buyers’ rooms, expect a steely eye across the table and be prepared to cut your price. They are very, very focused people, and they use their buying power more forcefully than anyone else in America.”

Despite its incredible success over the past five decades, mighty Walmart faces some weighty challenges ahead. Having grown so big, the maturing giant is having difficulty maintaining the rapid growth rates of its youth. Think about this: To grow just 7 percent next year, Walmart will have to add more than $33 billion in new sales. That’s a sales increase greater than the total sales of all but the top 96 com- panies on the Fortune 500, including companies such as McDonald’s, Macy’s, American Express, Xerox, Good- year, Nike, or nearly three JCPen- neys. The bigger Walmart gets, the harder it is to maintain a high rate of growth.

To keep growing, Walmart has pushed into new, faster-growing prod- uct and service lines, including organic foods, store brands, in-store health clinics, and con- sumer financial services. To combat trendier competitors such as Target, Walmart even gave itself a modest image face-lift. It spruced up its stores with a cleaner, brighter, more open look and less clutter to make them more shopper friendly. In search of broader appeal, it has added new, higher-quality products. Many Walmart stores now carry a selection of higher-end consumer electronics products, from Samsung ultra-thin televisions to Dell and Toshiba laptops to Apple iPhones and iPads.

Despite its massive presence, Walmart still has room to expand geographically. Believe it or not, there are plenty of places in the United States that still don’t have a Walmart. And the giant retailer is expanding rapidly in international markets, where sales grew to

Day in and day out, giant Walmart lives up to its promise: “save

money. live better.” its obsession with customer value has made Walmart not only the world’s largest retailer but also the

world’s largest company.

at Walmart: “save money. live better.” says Walmart’s ceo, “We’re obsessed with delivering value to customers.” Beth Hall/Bloomberg/Getty Images

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nearly 19 percent of total sales at $136 billion. Walmart also faces substantial growth opportunities—and challenges—in online, mobile, and social media commerce (see the Chapter 9 opening story on Walmart versus Amazon). Its online sales of an estimated $14 billion account for only about 2.7 percent of total sales, making it a distant online also-ran next to Amazon.com, which last year topped $89 bil- lion in online sales. Walmart lists “winning in global e-commerce” as one of its top priorities for the future.

As Walmart continues to adapt and grow, however, one thing seems certain. The giant retailer may add new product lines and services. It might go digital and global. It might brush up its look and image. But Walmart has no intention of ever giving up its core low-price value proposition. After all, Walmart is and always will be a discounter. “I don’t think Walmart’s . . . ever going to be edgy,” says a Walmart marketer. “I don’t think that fits our brand. Our brand is about saving people money” so that they can live better.1

he Walmart story sets the stage for examining the fast-changing world of today’s resellers. This chapter looks at retailing and wholesaling. In the first section, we look at the nature and importance of retailing, the major types of store and non-

store retailers, the decisions retailers make, and the future of retailing. In the second sec- tion, we discuss these same topics as they apply to wholesalers.

retailing What is retailing? We all know that Costco, Home Depot, Macy’s, and Target are retailers, but so are Amazon.com, the local Hampton Inn, and a doctor seeing patients. Retailing includes all the activities involved in selling products or services directly to final consum- ers for their personal, nonbusiness use. Many institutions—manufacturers, wholesalers, and retailers—do retailing. But most retailing is done by retailers, businesses whose sales come primarily from retailing. Retailing plays a very important role in most mar- keting channels. Last year, retailers accounted for more than $5 trillion of sales to final consumers.2

retailing: connecting brands with consumers Retailers connect brands with consumers in the final phases of the buying process and at the point of purchase. In fact, many marketers are now embracing the concept of shopper marketing, focusing the entire marketing process—from product and brand development to logistics, promotion, and merchandising—toward turning shoppers into buyers as they approach the point of sale. Of course, every well-designed marketing effort focuses on

customer buying behavior. What differentiates the concept of shopper marketing is the suggestion that these efforts should be coordinated around the shopping process itself.

Shopper marketing builds around what P&G calls the “First Moment of Truth”—the critical three to seven sec- onds that a shopper considers a product on a store shelf.3

However, the dramatic growth of online and mobile shop- ping has added new dimensions to shopper marketing. The retailing “moment of truth” no longer takes place only in stores. Instead, Google defines a “zero moment of truth,” when consumers begin the buying process by searching for and learning about products online.

Today’s consumers are increasingly omni-channel buyers, who make little distinction between in-store and online shop- ping and for whom the path to a retail purchase runs across multiple channels. For these buyers, a particular purchase might consist of researching a product online and buying it from an online retailer, without ever setting foot in a retail store. Alternatively, they might use a smartphone to research a purchase on the fly, or even while in retail store aisles. For example, it’s common to see a consumer examining an item

author comment You already know a lot about retailers. You deal with them every day—store retailers, service retailers, online and

mobile retailers, and others.

retailing All the activities involved in selling products or services directly to final consumers for their personal, nonbusiness use.

retailer A business whose sales come primarily from retailing.

shopper marketing Focusing the entire marketing process on turning shoppers into buyers as they approach the point of sale, whether during in-store, online, or mobile shopping.

shopper marketing: the dramatic growth in online and mobile shopping has added new dimensions to “point of purchase.” influencing consumers’ buying decisions as they shop now involves omni-channel efforts aimed at integrating in-store, online, and mobile shopping. Betsie Van der Meer/Getty Images

chapter 11: retailing and Wholesaling 335

on a shelf at Target while at the same time using a mobile app to look for coupons or check product reviews and prices at Amazon.com.

Thus, these days, shopper marketing and the “point of purchase” go well beyond in-store buying. They involve consumers working across multiple channels as they shop. Influencing consumers’ buying decisions calls for omni-channel retailing, creating a seam- less cross-channel buying experience that integrates in-store, online, and mobile shopping.4

Although most retailing is still done in retail stores, in recent years direct and online retailing have been growing much faster than store retailing. We discuss direct, online, and omni-channel retailing in detail later in this chapter and in Chapter 14. For now, we will focus on store retailing.

types of retailers Retail stores come in all shapes and sizes—from your local hairstyling salon or family- owned restaurant to national specialty chain retailers such as REI or Williams-Sonoma to megadiscounters such as Costco or Walmart. The most important types of retail stores are described in table 11.1 and discussed in the following sections. They can be classified in terms of several characteristics, including the amount of service they offer, the breadth and depth of their product lines, the relative prices they charge, and how they are organized.

amount of service Different types of customers and products require different amounts of service. To meet these varying service needs, retailers may offer one of three service levels: self-service, limited service, and full service.

omni-channel retailing Creating a seamless cross-channel buying experience that integrates in- store, online, and mobile shopping.

table 11.1 Major store retailer types

type Description examples

specialty store a store that carries a narrow product line with a deep assortment, such as apparel stores, sporting-goods stores, furniture stores, florists, and bookstores.

rei, sunglass hut, sephora, Williams-sonoma

Department store a store that carries several product lines—typically clothing, home furnishings, and household goods—with each line operated as a separate department managed by specialist buyers or merchandisers.

Macy’s, sears, neiman Marcus

supermarket a relatively large, low-cost, low-margin, high-volume, self-service operation designed to serve the consumer’s total needs for grocery and household products.

kroger, safeway, superValu, Publix

convenience store a relatively small store located near residential areas, open 24/7, and carrying a limited line of high-turnover convenience products at slightly higher prices.

7-eleven, circle k, speedway, sheetz

Discount store a store that carries standard merchandise sold at lower prices with lower margins and higher volumes.

Walmart, target, kohl’s

off-price retailer a store that sells merchandise bought at less-than-regular wholesale prices and sold at less than retail. these include factory outlets owned and operated by manufacturers; independent off-price retailers owned and run by entrepreneurs or by divisions of larger retail corporations; and warehouse (or wholesale) clubs selling a limited selection of goods at deep discounts to consumers who pay membership fees.

Mikasa (factory outlet); tj Maxx (independent off-price retailer); costco, sam’s club, bj’s (warehouse clubs)

superstore a very large store that meets consumers’ total needs for routinely purchased food and nonfood items. this includes supercenters, combined supermarket and discount stores, and category killers, which carry a deep assortment in a particular category.

Walmart supercenter, supertarget, Meijer (discount stores); best buy, Petco, staples, bed bath & beyond (category killers)

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Self-service retailers serve customers who are willing to perform their own locate- compare-select process to save time or money. Self-service is the basis of all discount operations and is typically used by retailers selling convenience goods (such as super- markets) and nationally branded, fast-moving shopping goods (such as Target or Kohl’s). Limited-service retailers, such as Sears or JCPenney, provide more sales assistance because they carry more shopping goods about which customers need information. Their increased operating costs result in higher prices.

Full-service retailers, such as high-end specialty stores (for example, Tiffany or Williams-Sonoma) and first-class department stores (such as Nordstrom or Neiman Marcus) assist customers in every phase of the shopping process. Full-service stores usu- ally carry more specialty goods for which customers need or want assistance or advice. They provide more services, which results in much higher operating costs. These higher costs are passed along to customers as higher prices.

Product line Retailers can also be classified by the length and breadth of their product assortments. Some retailers, such as specialty stores, carry narrow product lines with deep assortments within those lines. Today, specialty stores are flourishing. The increasing use of market segmentation, market targeting, and product specialization has resulted in a greater need for stores that focus on specific products and segments.

By contrast, department stores carry a wide variety of product lines. In recent years, middle-market department stores have been squeezed between more focused and flexible specialty stores on the one hand and more efficient, lower-priced discounters on the other. In response, many have added promotional pricing to meet the discount threat. Others have stepped up the use of store brands and single-brand designer shops to compete with specialty stores. Still others are trying direct and online selling. Service remains the key differentiating factor. Retailers such as Nordstrom, Saks, Neiman Marcus, and other high-end department stores are doing well by emphasizing exclusive merchandise and high-quality service.

Supermarkets are the most frequently visited type of retail store. Today, however, they are facing slow sales growth because of slower population growth and an increase

in competition from discounters (Walmart, Costco, and Dollar General) on the one hand and specialty food stores (Whole Foods Market, Trader Joe’s, ALDI, Sprouts) on the other. Supermarkets’ share of U.S. packaged foods sales slipped from 53 percent in 1998 to 37 percent in 2012.5 Supermarkets also have been hit hard by the rapid growth of out-of-home eating over the past two decades.

In the battle for “share of stomachs,” some supermarkets have moved upscale, providing improved store environments and higher-quality food offerings, such as from-scratch bakeries, gourmet deli counters, natural foods, and fresh seafood departments. Others, however, are competing head-on with large discounters such as Costco and Walmart by cutting costs, establishing more-efficient operations, and lowering prices. WinCo, a fast- growing regional discount-grocery chain in the western United States, has done this successfully:6

You probably haven’t heard of WinCo yet. But you can bet that Walmart and Costco are keeping a close eye on the small discount-grocery chain. In fact, according to one supermarket-retailing expert, WinCo is fast becoming “Walmart’s worst nightmare.” In its markets, WinCo (short for “Winning Company”) posi- tions itself directly against mighty Walmart as “The Supermarket Low Price Leader.” And that’s more than just a slogan—WinCo doesn’t just match Walmart’s prices; it often undercuts them. WinCo keeps prices low through low-cost, effi- cient operations. The chain often cuts out distributors and buys goods at lower costs directly from farms and factories. Its large, efficient, no-frills stores carry a limited assortment of basic fast-moving merchandise. WinCo’s customers help to keep costs down by bagging their own groceries and paying cash (no credit cards accepted). Finally, the employee-owned chain has a reputation for treating its

specialty store A retail store that carries a narrow product line with a deep assortment within that line.

Department store A retail store that carries a wide variety of product lines, each operated as a separate department managed by specialist buyers or merchandisers.

supermarket A large, low-cost, low-margin, high- volume, self-service store that carries a wide variety of grocery and household products.

in the battle for “share of stomach,” regional supermarket chain Winco successfully competes head- on with large discounters such as costco and Walmart. it’s rapidly becoming “Walmart’s worst nightmare.” WinCo Foods, Inc.

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employees right in terms of pay, benefits, and pensions. The result is a cheerful, highly moti- vated, productive workforce that genuinely contributes to the company’s low-cost success. Why should Walmart and Costco worry about WinCo? The rapidly growing chain expects to double in size every five to seven years. According to the retailing expert, “WinCo is really unstoppable at this point.”

Convenience stores are small stores that carry a limited line of high-turnover con- venience goods. After several years of stagnant sales, these stores are now experiencing growth. Many convenience store chains have tried to expand beyond their primary market of young, blue-collar men by redesigning their stores to attract female shoppers. They are shedding the image of a “truck stop” where men go to buy gas, beer, cigarettes, or shriv- eled hotdogs on a roller grill and are instead offering freshly prepared foods and cleaner, safer, more-upscale environments.

For example, consider 7-Eleven, long known as a haven for Slurpees, Big Gulps, hot dogs spinning on a roller, self-serve nachos, smokes, beer, and bags of chips. The conve- nience chain now employs a team of culinary and food science experts who are stocking its shelves with an expanding menu of healthier snack and meal items under 400 calories, such as yogurt parfaits, salads, bags of carrots and celery, fresh subs, Smart turkey sand- wiches on whole wheat bread, and a Bistro Snack Protein Pack—carrots, hummus, pita rounds, cheddar cheese, and grapes in a meal-to-go box. The chain is also resizing and single-sizing existing products. Over the next three years, 7-Eleven plans to boost its sales of high-margin fresh foods to 20 percent, twice the current level.7

Superstores are much larger than regular supermarkets and offer a large assortment of routinely purchased food products, nonfood items, and services. Walmart, Target, Meijer, and other discount retailers offer supercenters, very large combination food and discount stores. Whereas a traditional grocery store brings in about $482,000 a week in sales, a supercenter brings in about $1.4 million a week. Walmart, which opened its first supercenter in 1988, now has more than 3,400 supercenters in the United States and is opening new ones at a rate of about 120 per year.8

Recent years have also seen the rapid growth of superstores that are actually giant specialty stores, the so-called category killers (for example, Best Buy, Home Depot, Petco, and Bed Bath & Beyond). They feature stores the size of airplane hangars that carry a very deep assortment of a particular line. Category killers are found in a wide range of categories, including electronics, home-improvement products, books, baby gear, toys, home goods, party goods, sporting goods, and even pet supplies.

Finally, for many retailers, the product line is actually a service. Service retailers include hotels and motels, banks, airlines, restaurants, colleges, hospitals, movie theaters, tennis clubs, bowling alleys, repair services, hair salons, and dry cleaners. Service retailers in the United States are growing faster than product retailers.

relative Prices Retailers can also be classified according to the prices they charge (see Table 11.1). Most retailers charge regular prices and offer normal-quality goods and customer service. Others offer higher-quality goods and service at higher prices. Retailers that feature low prices are discount stores and “off-price” retailers.

Discount stores. A discount store (for example, Target, Kohl’s, or Walmart) sells standard merchandise at lower prices by accepting lower margins and selling at higher volume. The early discount stores cut expenses by offering few services and operating in warehouse-like facilities in low-rent, heavily traveled districts. Today’s discounters have improved their store environments and increased their services while at the same time keeping prices low through lean, efficient operations.

Leading “big-box” discounters, such as Walmart and Target, now dominate the retail scene. However, even “small-box” discounters are thriving in the current economic envi- ronment. For example, dollar stores are now today’s fastest-growing retail format. Back in the day, dollar stores sold mostly odd-lot assortments of novelties, factory overruns, close- outs, and outdated merchandise—most priced at $1. Not anymore. Dollar General, the

convenience store A small store, located near a residential area, that is open long hours seven days a week and carries a limited line of high-turnover convenience goods.

superstore A store much larger than a regular supermarket that offers a large assortment of routinely purchased food products, nonfood items, and services.

category killer A giant specialty store that carries a very deep assortment of a particular line.

service retailer A retailer whose product line is actually a service; examples include hotels, airlines, banks, colleges, and many others.

Discount store A retail operation that sells standard merchandise at lower prices by accepting lower margins and selling at higher volume.

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nation’s largest small-box discount retailer, makes a powerful value promise for the times: “Save time. Save money. Every day”:9

Dollar General’s slogan isn’t just for show. It’s a careful statement of the store’s value promise. The retailer’s goal is to keep shopping simple by offering only a selected assortment of popular brands at everyday low prices in small and convenient locations. Dollar General’s slimmed-down product line and smaller stores (you could fit more than 25 Dollar General stores inside the average Walmart supercenter) add up to a quick trip— the average customer is in and out of the store in less than 10 minutes. And its prices on the popular brand name products it car- ries are an estimated 20 to 40 percent lower than grocery store prices. Put it all together, and things are sizzling right now at Dollar General. Moreover, the fast-growing retailer is well positioned for the future. We “see signs of a new consumerism,” says Dollar

General’s CEO, “as people shift where they shop, switch to lower-cost brands, and stay gener- ally more frugal.” Convenience and low prices, it seems, never go out of style.

off-Price retailers. As the major discount stores traded up, a new wave of off-price retailers moved in to fill the ultralow-price, high-volume gap. Ordinary discounters buy at regular whole- sale prices and accept lower margins to keep prices down. By contrast, off-price retailers buy at less-than-regular wholesale prices and charge consumers less than retail. Off-price retailers can be found in all areas, from food, clothing, and electronics to no-frills banking and discount brokerages.

The three main types of off-price retailers are independents, factory outlets, and ware- house clubs. Independent off-price retailers either are independently owned and run or are divisions of larger retail corporations. Although many off-price operations are run by smaller independents, most large off-price retailer operations are owned by bigger retail chains. Examples include store retailers such as TJ Maxx, Marshalls, and HomeGoods, all owned by TJX Companies, and online sellers such as Overstock.com. TJ Maxx prom- ises brand name and designer fashions for 20 to 60 percent off department store prices. How does it fulfill this promise? Its buyers are constantly on the lookout for deals. “So when a designer overproduces and department stores overbuy,” says the company, “we swoop in, negotiate the lowest possible price, and pass the savings on.”10

Factory outlets—manufacturer-owned and operated stores by firms such as J.Crew, Gap, Levi Strauss, and others—sometimes group together in factory outlet malls and value- retail centers. At these centers, dozens of outlet stores offer prices as much as 50 percent below retail on a wide range of mostly surplus, discounted, or irregular goods. Whereas outlet malls consist primarily of manufacturers’ outlets, value-retail centers combine manu- facturers’ outlets with off-price retail stores and department store clearance outlets.

These malls in general are now moving upscale—and even dropping factory from their descriptions. A growing number of outlet malls now feature luxury brands such as Coach, Polo Ralph Lauren, Dolce & Gabbana, Giorgio Armani, Burberry, and Versace. As consum- ers become more value-minded, even upper-end retailers are accelerating their factory outlet strategies, placing more emphasis on outlets such as Nordstrom Rack, Neiman Marcus Last Call, Bloomingdale’s Outlets, and Saks Off 5th. Many companies now regard outlets not simply as a way of disposing of problem merchandise but as an additional way of gaining business for fresh merchandise. For example, 90 percent of the merchandise sold in Neiman Marcus’s Last Call outlets is made specifically for those stores.11 The combination of high- brow brands and lowbrow prices found at outlets provides powerful shopper appeal, espe- cially in thriftier times.

off-price retailer A retailer that buys at less-than-regular wholesale prices and sells at less than retail.

independent off-price retailer An off-price retailer that is independently owned and operated or a division of a larger retail corporation.

factory outlet An off-price retailing operation that is owned and operated by a manufacturer and normally carries the manufacturer’s surplus, discontinued, or irregular goods.

Discounter Dollar general, the nation’s largest small-box discount retailer, makes a powerful value promise for the times: “save time. save money. every day.” Daniel Acker/Bloomberg/Getty Images

chapter 11: retailing and Wholesaling 339

Warehouse clubs (also known as wholesale clubs or membership warehouses), such as Costco, Sam’s Club, and BJ’s, operate in huge, drafty, warehouse-like facilities and offer few frills. However, they offer ultralow prices and surprise deals on selected branded merchandise. Warehouse clubs have grown rapidly in recent years. These retailers appeal not only to low-income consumers seeking bargains on bare-bones products but also to all kinds of customers shopping for a wide range of goods, from necessities to extravagances.

Consider Costco, now the world’s second-largest retailer, behind only Walmart. Low price is an important part of Costco’s equation, but what really set Costco apart are the products it carries and the sense of urgency that it builds into the Costco shopper’s store experience:12

Costco is a retail treasure hunt, where both low-end and high-end products meet deep- discount prices. Alongside the gallon jars of peanut butter and 2,250-count packs of Q-Tips, Costco offers an ever-changing assortment of high-quality products—even luxu- ries—all at tantalizingly low margins. Last year, Costco sold more than 109 million hot dog and soda combinations (still only $1.50, as they have been for more than 27 years). At the same time, it sold more than 100,000 carats of diamonds. It is the nation’s biggest baster of poultry (nearly 70,000 rotisserie chickens a year at $4.99) but also the country’s biggest seller of fine wines (including the likes of a Chateau Cheval Blanc Premier Grand Cru Classe at $1,750 a bottle).

Each Costco store is a theater of retail that creates buying urgency and excitement. Mixed in with its regular stock of staples, Costco features a glittering, constantly shift- ing array of one-time specials, such as discounted Prada bags, Calloway golf clubs, or Kenneth Cole bags—deals you just won’t find anywhere else. In fact, of the 3,600 items that Costco carries, 1,000 are designated as “treasure items” (Costco’s words). The changing assortment and great prices keep people of all kinds coming back, wallets in hand. There was a time when only the great, unwashed masses shopped at off-price retailers, but Costco has changed all that. Now, even people who don’t have to pinch pen- nies shop there.

organizational approach Although many retail stores are independently owned, others band together under some form of corporate or contractual organization. table 11.2 describes four major types of retail organizations—corporate chains, voluntary chains, retailer cooperatives, and fran- chise organizations.

Corporate chains are two or more outlets that are commonly owned and controlled. They have many advantages over independents. Their size allows them to buy in large quan- tities at lower prices and gain promotional economies. They can hire specialists to deal with areas such as pricing, promotion, merchandising, inventory control, and sales forecasting.

Warehouse club An off-price retailer that sells a limited selection of brand name grocery items, appliances, clothing, and other goods at deep discounts to members who pay annual membership fees.

corporate chains Two or more outlets that are commonly owned and controlled.

off-price retailers: independent off-price retailer tjx companies negotiates the lowest prices on brand name goods and passes the savings on to customers. Matthew Staver/Bloomberg/Getty Images

table 11.2 Major types of retail organizations

type Description examples

corporate chain two or more outlets that are commonly owned and controlled. corporate chains appear in all types of retailing but they are strongest in department stores, discount stores, food stores, drugstores, and restaurants.

Macy’s (department stores), target (discount stores), kroger (grocery stores), cVs (drugstores)

Voluntary chain Wholesaler-sponsored group of independent retailers engaged in group buying and merchandising.

independent grocers alliance (iga), Western auto (auto supply), true Value (hardware)

retailer cooperative group of independent retailers who jointly establish a central buying organization and conduct joint promotion efforts.

associated grocers (groceries), ace hardware (hardware)

franchise organization contractual association between a franchisor (a manufacturer, wholesaler, or service organization) and franchisees (independent businesspeople who buy the right to own and operate one or more units in the franchise system).

McDonald’s, subway, Pizza hut, jiffy lube, Meineke Mufflers, 7-eleven

340 Part 3: Designing a customer Value-Driven strategy and Mix

The great success of corporate chains caused many independents to band together in one of two forms of contractual associations. One is the voluntary chain—a wholesaler- sponsored group of independent retailers that engages in group buying and common merchandising. Examples include the Independent Grocers Alliance (IGA), Western Auto, and True Value hardware stores. The other type of contractual association is the retailer cooperative—a group of independent retailers that bands together to set up a jointly owned, central wholesale operation and conduct joint merchandising and promo- tion efforts. Examples are Associated Grocers and Ace Hardware. These organizations give independents the buying and promotion economies they need to meet the prices of corporate chains.

Another form of contractual retail organization is a franchise. The main difference between franchise organizations and other contractual systems (voluntary chains and retail cooperatives) is that franchise systems are normally based on some unique product or ser- vice; a method of doing business; or the trade name, goodwill, or patent that the franchisor has developed. Franchising has been prominent in fast-food restaurants, motels, health and fitness centers, auto sales and service dealerships, and real estate agencies.

However, franchising covers a lot more than just burger joints and fitness centers. Franchises have sprung up to meet just about any need. For example, Mad Science Group

franchisees put on science programs for schools, scout troops, and birthday parties. H&R Block provides tax- preparation services, and Supercuts offers affordable, anytime, walk-in haircuts. Mr. Handyman provides repair services for homeowners, while Merry Maids tidies up their houses. And Soccer Shots offers pro- grams that give kids ages two to eight an introduction to basic soccer skills at daycare centers, schools, and parks.

Franchises now command about 45 percent of all retail sales in the United States. These days, it’s nearly impossible to stroll down a city block or drive on a city street without seeing a McDonald’s, Subway, Jiffy Lube, or Holiday Inn. One of the best-known and most successful franchisers, McDonald’s, now has more than 36,000 stores in more than 100 countries, including more than 14,000 in the United States. It serves 70 mil- lion customers a day and racks up more than $98 bil- lion in annual system-wide sales. More than 80 percent of McDonald’s restaurants worldwide are owned and operated by franchisees. Gaining fast is Subway, one of the fastest-growing franchise restaurants, with system- wide sales of $18.8 billion and more than 43,000 shops in 110 countries, including more than 27,000 in the United States.13

franchise A contractual association between a manufacturer, wholesaler, or service organization (a franchisor) and independent businesspeople (franchisees) who buy the right to own and operate one or more units in the franchise system.

franchising covers a lot more than just burger joints and fitness centers. for example, soccer shots franchisees offer programs that give kids ages two to eight an introduction to basic soccer skills. Soccer Shots Franchising

linking the concePts Pause here and think about all the different kinds of retailers you deal with regularly, many of which overlap in the products they carry.

● Pick a familiar product: a camera, microwave oven, lawn tool, or something else. Shop for this product at two very different store types, say, a discount store or category killer on the one hand and a department store or smaller specialty store on the other. Then shop for it online. Compare the three shopping outlets on product assortment, services, and prices. If you were going to buy the product, where would you buy it and why?

● What does your shopping trip suggest about the futures of the competing store formats that you sampled?

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retailer Marketing Decisions Retailers are always searching for new marketing strategies to attract and hold custom- ers. In the past, retailers attracted customers with unique product assortments and more or better services. Today, the assortments and services of various retailers are look- ing more and more alike. You can find most consumer brands not only in department stores but also in mass-merchandise discount stores, off-price discount stores, and all over the Internet. Thus, it’s now more difficult for any one retailer to offer exclusive merchandise.

Service differentiation among retailers has also eroded. Many department stores have trimmed their services, whereas discounters have increased theirs. In addition, customers have become smarter and more price sensitive. They see no reason to pay more for identi- cal brands, especially when service differences are shrinking. For all these reasons, many retailers today are rethinking their marketing strategies.

As shown in figure 11.1, retailers face major marketing decisions about segmenta- tion and targeting, store differentiation and positioning, and the retail marketing mix.

segmentation, targeting, Differentiation, and Positioning Decisions Retailers must first segment and define their target markets and then decide how they will differentiate and position themselves in these markets. Should they focus on upscale, midscale, or downscale shoppers? Do target shoppers want variety, depth of assortment, convenience, or low prices? Until they define and profile their markets, retailers cannot make consistent decisions about product assortment, services, pricing, advertising, store décor, online and mobile site design, or any of the other decisions that must support their positions.

Too many retailers, even big ones, fail to clearly define their target markets and positions. For example, what market does Sears target? For what is the department store known? What is its value proposition versus, say, Walmart on one hand and Macy’s or Nordstrom on the other? If you’re having trouble answering those questions, you’re not alone—so is Sears’s management:

For well over a century, Sears was America’s iconic retailer. Its well-known slogan, “Where America Shops,” was more than just an advertising tagline—it was a meaningful position- ing statement. Almost every American relied on Sears for everything from basic apparel and home goods to appliances and tools. But during the past two decades, once-mighty Sears has lost its way. Squeezed between lower-priced big-box discount stores on the one hand and trendier, more targeted upscale department and specialty stores on the other, Sears has gotten lost in the murky middle. Its old “Where America Shops” positioning has

Retail marketing mix

Product and service assortment

Retail prices

Promotion

Distribution (location)

Retail strategy

Retail segmentation and targeting

Store differentiation and positioning

Create value for targeted retail customers

As with other types of marketers, the name of the game for retailers is to find the customer value-driven marketing strategy and mix that will let them create value for customers and capture value in return. Think of Target’s “Expect More. Pay Less.” value proposition. And Olive Garden’s “When you’re here, you’re family.”

figure 11.1 retailer Marketing strategies

342 Part 3: Designing a customer Value-Driven strategy and Mix

little meaning these days for a store with little more than one-twentieth the sales of com- petitor Walmart. It seems that about the only thing Sears has going for it these days is that everything it sells is always on sale. However, price is not a convincing value proposition for Sears, which has trouble matching the low prices of competitors such as Walmart, Target, or Kohl’s. Now in a financial tailspin, some analysts even predict that once-dominant Sears will soon disappear entirely. To once again position Sears as the place “Where America Shops,” the retailer must first answer the question “Why should people shop at Sears?”

By contrast, successful retailers define their target markets well and position them- selves strongly. For example, Trader Joe’s has established its “cheap gourmet” value prop- osition. Walmart is powerfully positioned on low prices and what those always-low prices mean to its customers. And highly successful outdoor products retailer Bass Pro Shops positions itself strongly as being “as close to the Great Outdoors as you can get indoors!”

With solid targeting and positioning, a retailer can compete effectively against even the largest and strongest competitors. For example, compare little Which Wich Superior Sandwiches to giant Subway. Which Wich has only about 300 stores and $175 million in sales; Subway has nearly 43,000 stores worldwide and system-wide sales of $18.8 bil- lion. How does Which Wich compete with one of the world’s largest franchise chains? It doesn’t—at least not directly. Which Wich succeeds by carefully positioning itself away from Subway:14

Sandwiches are where it’s at these days. If you’re craving some- thing between two slices of bread, you have no end of choices, from a basic Subway sub to more exotic creations from Panera Bread, McAlister’s Deli, Au Bon Pain, or Potbelly Sandwich Shop. But Which Wich Superior Sandwiches stands out from the pack as the ultimate “have it your way” sandwich place. Which Wich invites you to “Crave something interesting.” It offers more than 50 varieties of customizable “wiches”—unlike anything you’ll find at Subway— from the signature Wicked (loaded with five meats and three cheeses) to unique items such as the Thank You Turkey (with stuffing and cranberry sauce) and the Elvis Wich (peanut butter, bacon, sweet honey, and fresh banana). Customers use red Sharpies to mark up preprinted menus on sandwich bags, starting with one of the 50 sand- wich bases and customizing it with their choices of everything from breads to mustards to veggies. The possibilities for personalization are endless. And instead of standing in a cafeteria-style line as you would at Subway, at Which Wich you hand your bag to the cashier, grab a drink and chips, have a seat, and wait to hear your name called. While you’re eating, use the red Sharpie to draw on your bag, then hang your “artwork” on the community wall. It’s not just the food that sets Which Wich apart, says the company, “it’s a feeling, that positive energy you get from being in our store.”

So, Which Wich can’t match Subway’s massive economies of scale, incredible volume purchasing power, ultraefficient logistics, and low prices. But then again, it doesn’t even try. By positioning itself away from Subway and other large competitors, Which Wich has become one of the nation’s fastest-growing fast-casual restau- rant chains.

Product assortment and services Decision Retailers must decide on three major product variables: product assortment, services mix, and store atmosphere.

The retailer’s product assortment should differentiate it while matching target shop- pers’ expectations. One strategy is to offer a highly targeted product assortment: Lane Bryant carries plus-size clothing, Brookstone offers an unusual assortment of gadgets and gifts, and BatteryDepot.com offers about every imaginable kind of replacement battery. Alternatively, a retailer can differentiate itself by offering merchandise that no

retail targeting and positioning: Which Wich superior sandwiches succeeds by positioning itself strongly away from larger competitors. it offers more than 50 varieties of unique customizable “wiches” and a “positive energy” from being in the store—both unlike anything you’ll find at subway. Courtesy of Which Wich® Superior Sandwiches. www.WhichWich.com

http://www.WhichWich.com

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other competitor carries, such as store brands or national brands on which it holds exclu- sive rights. For example, Kohl’s gets exclusive rights to carry well-known labels such as Simply Vera by Vera Wang and a Food Network-branded line of kitchen tools, utensils, and appliances. Kohl’s also offers its own private-label lines, such as Sonoma, Croft & Barrow, Candies, and Apt. 9.

The services mix can also help set one retailer apart from another. For example, some retailers invite customers to ask questions or consult service representatives in person or via phone or keyboard. Home Depot offers a diverse mix of services to do-it-yourselfers, from “how-to” classes and “do-it-herself” and kid workshops to a proprietary credit card. Nordstrom delivers top-notch service and promises to “take care of the customer, no mat- ter what it takes.”

The store’s atmosphere is another important element in the reseller’s product arsenal. Retailers want to create a unique store experience, one that suits the target market and moves customers to buy. Many retailers practice experiential retailing. For example, L.L.Bean has turned its flagship retail store in Freeport, Maine, into an adventure center where customers can experience the store’s goods before buying them:15

Customers don’t just shop at L.L.Bean’s flagship store in Freeport; they experience it. Sure, the company’s several stores on the Freeport campus offer a full assortment of outdoor ap-

parel and gear. But more than that, they create outdoor experiences. For example, along with selling camping, fishing, hiking, boating, home furnishings, and other goods, L.L.Bean offers a slate of free in-store, hands-on clinics in which knowledgeable experts share tips and techniques to help customers prepare for their own outdoor adventures. Clinics cover everything from tying knots and fishing flies to roadside bike repair to compass navigation and even stargazing. Customers seeking more depth can sign up for one of L.L.Bean’s Outdoor Discovery Schools programs in snowshoeing, cross-country skiing, stand-up paddleboard- ing, fly fishing, biking, birdwatching, canoeing, hunting, or any of a dozen other outdoor activities.

L.L.Bean has turned the Freeport campus into a full- fledged outdoor adventure center, where customers can hike, bike, golf, kayak, or even go seal watching or fish- ing at nearby Cisco Bay. The adventure center pulls in more customers, who in turn buy more goods. L.L.Bean’s flagship store and Freeport campus attract more than 3 million visitors a year, making them Maine’s second-most popular tourist destination behind Acadia National Park. In addition, the Freeport campus has become a model for additional L.L.Bean adventure centers in other states from Vermont to Illinois.

Today’s digital technologies present many new challenges and opportunities for shaping retail experiences. The surge in online and mobile shopping has changed retail customer behaviors and expectations. As a result, a wide range of store retailers—from high-tech sellers such as AT&T to high-touch sellers like Audi and Build-A-Bear—are digitizing the in-store experience. They are merging the physical and digital worlds to cre- ate new-age experiential retailing environments (see Marketing at Work 11.1).

Successful retailers carefully orchestrate virtually every aspect of the consumer store experience. The next time you step into a retail store—whether it sells consumer electron- ics, hardware, or high fashion—stop and carefully consider your surroundings. Think about the store’s layout and displays. Listen to the background music. Check out the col- ors. Smell the smells. Chances are good that everything in the store, from the layout and lighting to the music and even the colors and smells, has been carefully orchestrated to help shape the customers’ shopping experiences—and open their wallets.

For example, retailers choose the colors in their logos and interiors carefully: Black suggests sophistication, orange is associated with fairness and affordability, white signifies

experiential retailing: l.l.bean has turned its flagship retail store in freeport, Maine, into an adventure center where customers can experience goods before buying them. Photos courtesy of L.L.Bean

344 Part 3: Designing a customer Value-Driven strategy and Mix

There’s a flashy new store on Michigan Avenue in downtown Chicago’s high-end retail district known as the Magnificent Mile. The store is bright and inviting, with sights and sounds designed to pull people in and get them to linger longer. Customers sit at any of dozens of stations, sampling the lat- est phone apps and electronic gadgetry. Enthusiastic, iPad- wielding associates mingle with customers, talking tech and dispensing hands-on help and advice. With 130 digital screens and an 18-foot video wall, every aspect of the open space is designed to engage customers about future wireless tech- nologies and services. It feels more like a techy neighborhood hangout than a place to buy products.

A gleaming new Apple store? Think again. This is AT&T’s new flagship store. But the resemblance to Apple’s ground- breaking retail concept is no mistake. Dozens of diverse retail chains—from high-tech sellers like AT&T to high-touch mer- chants such as Audi and Build-A-Bear—are remaking their stores in the image of Apple’s open marketplace prototypes. But even more, with the surge in digital, online, and mobile tech- nologies invading the retail space, these store chains are blazing new ground. They are digitizing in-store retail—transforming the traditional in-store experience by infusing digital and online technologies into their physical store environments. It’s the future of store retailing, but it’s already happening.

When they first walk into AT&T’s new store, customers quickly realize that it’s like nothing they’ve seen before. “One of my favorite comments from a recent patron … was that it was like walking into a Web site,” says AT&T’s president of retail. Organized into zones and stations, the store’s tech- nology immerses customers in multimedia and interpersonal experiences. In the Explorer Lounge, customers can play with and learn about the latest apps. At the App Bar, “apptenders” give one-on-one or group demos, which are displayed on the Apps Wall for others to follow along. The 18-foot-high Connect Wall features a giant interactive video screen that displays customer inter- actions with content and product information, visible to the entire store and to passersby outside. Lifestyle Boutiques organize products, apps, and accessories by customer needs, such as Get Fit, Be Productive, and Share Your Life. At the Experience Platform, customers can interact with AT&T products for home security and automation, entertainment, music, and automobiles.

Although it might seem that the store is all about products and technologies, the real focus is on the customer experience. The store is designed to let cus- tomers interact with devices and services, understand how they work, and experience the impact the devices can have on their lives. In one store area, for example, customers can experience how Jawbone’s Up Bracelet

integrates with a smartphone app to monitor health and fitness by tracking sleep, eating, and movement patterns. In another, a Nissan Leaf is set up to interactively demonstrate various auto-based apps that help customers solve problems, such as monitoring how fast their teenagers are driving. The store is a physical manifestation of AT&T’s “It’s what you do with what we do” marketing campaign. “We used to sell phones,” says the AT&T executive. “Now we’ve shifted to offering solutions.”

Digitizing in-store retail is an obvious fit for a technology retailer like AT&T. But companies in a wide range of other industries are also pioneering the concept. Take German auto- maker Audi, for instance. In the lead-up to the XXX Summer Olympics in London, Audi threw open the doors to its first Audi City, a stunningly innovative digitized showroom in London’s busy Piccadilly Circus area.

Rather than displaying a sea of shiny new vehicles, the Audi City showroom contains very few actual cars, and future Audi showrooms may have none at all. Instead, Audi City is all-digital. Prospective customers use touchscreens and Kinect- style cameras to design and manipulate virtual, life-size cars of their dreams displayed on massive screens surrounding the showroom space. When they’ve finished, a video shows the car they’ve designed in action, complete with the exact sound of the chosen engine in full stereo fidelity. The car is then loaded onto a memory stick that the customer can take for later remembering and sharing.

The idea of buying a car without actually seeing it flies in the face of auto retailing tradition. But these car-buying times are anything but traditional. Audi sees digitization as a way to fit showrooms into smaller urban settings and to overcome the limi- tations of physical dealerships. With 12 different models, each

Marketing at Work 11.1

Digitizing the in-store retail experience

Digitizing in-store retail: at&t’s flagship chicago showroom infuses digital and online technologies into a physical store environment to let customers experience the impact of its devices and services on their lives. it’s “like walking into a Web site.” AT&T Intellectual Property. Used with permission.

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simplicity and purity (think Apple stores), and blue connotes trust and dependability (financial institutions use it a lot). And most large retailers have developed signature scents that you smell only in their stores:16

Anytime Fitness pipes in “Inspire,” a eucalyptus-mint fragrance to create a uniform scent from store to store and mask that “gym” smell. Bloomingdale’s uses different essences in different departments: the soft scent of baby powder in the baby store, coconut in the swimsuit area, lilacs in intimate apparel, and sugar cookies and evergreen scent during the holiday season. Luxury men’s fashion brand Hugo Boss chose a signature smooth, musky scent for all of its stores. “We wanted it to feel like coming home,” says a Hugo Boss marketer. Scents can sub- tly reinforce a brand’s imagery and positioning. For example, the Hard Rock Café Hotel in Orlando added a scent of the ocean in its lobby to help guests imagine checking into a seaside resort (even though the hotel is located an hour from the coast). To draw customers into the hotel’s often-overlooked downstairs ice cream shop, the hotel put a sugar cookie aroma at the top of the stairs and a whiff of waffle cone at the bottom. Ice cream sales jumped 45 percent in the following six months.

Such experiential retailing confirms that retail stores are much more than simply assort- ments of goods. They are environments to be experienced by the people who shop in them.

Price Decision A retailer’s price policy must fit its target market and positioning, product and service assortment, the competition, and economic factors. All retailers would like to charge high markups and achieve high volume, but the two seldom go together. Most retailers seek either high markups on lower volume (most specialty stores) or low markups on higher volume (mass merchandisers and discount stores).

with up to six different trim levels, all with numerous options, no physical dealership can have every possible model on hand. Virtual showrooms, however, can present every model in Audi’s extensive portfolio in every possible permutation. Moreover, cus- tomers can call them up instantly and make changes on the fly.

So far, the Audi City virtual experience is producing very real-world results. Audi City showrooms in London, Beijing, and Dubai are outselling their traditional counterparts by 70 percent, with an average increase in margin per vehicle of 30 percent. And the digitized auto lounges are bringing more new customers through the doors. Ninety percent of Audi City visi- tors are new to the brand.

The digitized showroom is finding its way into every indus- try imaginable. Consider Build-A-Bear Workshop. No stranger to retail innovation, Build-A-Bear revolutionized the in-store experience when it burst into America’s malls almost 20 years ago with unique stores that were part showroom, part factory, and part theme park. With the original Build-A-Bear format, children moved from station to station, constructing and cus- tomizing their stuffed bears and watching them come to life before their very eyes.

But as smartphones, tablets, and other digital devices changed the way children play, Build-A-Bear saw its sales decline and losses mount. Now, however, rather than fighting digital-age developments, Build-A-Bear is deploying them. Today’s Build-A-Bear stores are designed to engage the new generation of digitally adept children. A large video screen at the front of the store uses movement technology to greet chil- dren, engage them with interactive games, and introduce store

features. From there, each of the eight stations in the bear- building process is enhanced by touchscreens and digital fea- tures that give young bear-builders more hands-on involvement and more design options. Kids can even give their finished bear a virtual bath before fluffing it with real air.

For AT&T, Audi, and Build-A-Bear, retailing is nothing new. Each has been in brick-and-mortar retailing for years, with hundreds of showrooms worldwide. But these forward- looking retailers are now betting on a digitized in-store future. AT&T plans to roll out six or seven elements of its Michigan Avenue store to each of its 2,300 other stores. Audi plans to open 20 more Audi City showrooms within a year. And Build- A-Bear has already updated each of its more than 400 stores with its new digital workstations. As AT&T’s president of retail points out, digitization is more than just electronic whizbang. “It’s all about creating [relevant customer experiences and] interactions rather than just transactions.”

Sources: Jacqueline Renfrow, “AT&T Turns Michigan Avenue Flagship into a Museum,” Fierce Retail, March 11, 2015, www.fierceretail.com/story/att- turns-michigan-avenue-flagship-museum/2015-03-11; Christopher Heine, “The Store of the Future Has Arrived,” Adweek, June 3, 2013, www.adweek.com/ print/149900; Nicole Giannopoulos, “A ‘Magnificent’ In-Store Experience,” Retail Info Systems News, June 10, 2013, http://risnews.edgl.com/magazine/ June-2013/A-Magnificent-In-Store-Experience86772; Elizabeth Olson, “Build- A-Bear Goes High Tech,” New York Times, September 27, 2012, p. B3; Rajesh Setty, “Re-Imagining the Retail Experience: The Audi City Store,” Huffington Post, December 29, 2013, www.huffingtonpost.com/rajesh-setty/re-imagining- the-retail-e_b_4514046.html; and www.callison.com/projects/att-%E2%80%93- michigan-avenue and www.youtube.com/watch?v=GDdPN6mVLPM, accessed October 2015.

http://www.fierceretail.com/story/att-turns-michigan-avenue-flagship-museum/2015-03-11

http://www.adweek.com/print/149900

http://risnews.edgl.com/magazine/June-2013/A-Magnificent-In-Store-Experience86772

http://www.huffingtonpost.com/rajesh-setty/re-imagining-the-retail-e_b_4514046.html

http://www.callison.com/projects/att-%E2%80%93-michigan-avenue

http://www.youtube.com/watch?v=GDdPN6mVLPM

http://www.adweek.com/print/149900

http://risnews.edgl.com/magazine/June-2013/A-Magnificent-In-Store-Experience86772

346 Part 3: Designing a customer Value-Driven strategy and Mix

Thus, 110-year-old Bergdorf Goodman caters to the upper crust by selling apparel, shoes, and jewelry created by designers such as Chanel, Prada, Hermes, and Jimmy Choo. The upmarket retailer pampers its customers with services such as a personal shopper and in-store showings of the upcoming season’s trends with cocktails and hors d’oeuvres. By contrast, TJ Maxx sells brand name clothing at discount prices aimed at middle-class Americans. As it stocks new products each week, the discounter provides a treasure hunt for bargain shoppers. “No sales. No gimmicks.” says the retailer. “Just brand name and designer fashions for you . . . for up to 60 percent off department store prices.”

Retailers must also decide on the extent to which they will use sales and other price promotions. Some retailers use no price promotions at all, competing instead on product and service quality rather than on price. For example, it’s difficult to imagine Bergdorf Goodman holding a two-for-the-price-of-one sale on Chanel handbags, even in a tight economy. Other retailers—such as Walmart, Costco, ALDI, and Family Dollar—practice everyday low pricing (EDLP), charging constant, everyday low prices with few sales or discounts.

Still other retailers practice high-low pricing—charging higher prices on an everyday basis coupled with frequent sales and other price promotions to increase store traffic, cre- ate a low-price image, or attract customers who will buy other goods at full prices. Recent tighter economic times caused a rash of high-low pricing, as retailers poured on price cuts and promotions to coax bargain-hunting customers into their stores. Which pricing strat- egy is best depends on the retailer’s overall marketing strategy, the pricing approaches of its competitors, and the economic environment.

Promotion Decision Retailers use various combinations of the five promotion tools—advertising, personal selling, sales promotion, public relations, and direct and social media marketing—to reach consumers. They advertise in newspapers and magazines and on radio and televi- sion. Advertising may be supported by newspaper inserts and catalogs. Store salespeople greet customers, meet their needs, and build relationships. Sales promotions may include in-store demonstrations, displays, sales, and loyalty programs. PR activities, such as new- store openings, special events, newsletters and blogs, store magazines, and public service activities, are also available to retailers.

Most retailers also interact digitally with customers using Web sites and digital catalogs, online ads and video, social media, mobile ads and apps, blogs, and email. Almost every retailer, large or small, maintains a full social media presence. For example, giant Walmart leads the way with a whopping 35 million Facebook Likes, 41,000 Pinterest followers, 664,000 Twitter followers, and 66,000 YouTube subscribers. By contrast, Fairway Market, the small but fast-growing metropolitan New York grocery chain that carries a huge product assortment—from “sky-high piles” of produce to overflowing bins of fresh seafood to hand-roasted coffee—has only 114,000 Facebook Likes. But Fairway isn’t complaining—that’s twice as many Facebook Likes per mil- lion dollars of sales as mighty Walmart.17

Digital promotions let retailers reach individual customers with carefully targeted messages. For example, to compete more effectively against rivals online, CVS distributes personal- ized versions of its weekly circulars to the chain’s ExtraCare loyalty program members. Called myWeekly Ad, customers can view their circulars by logging into their personal accounts at CVS.com on computers, tablets, or smartphones. Based on ExtraCare members’ characteristics and previous purchases, the personalized promotions highlight sales items and special offers of special interest to each specific customer. With the myWeekly Ad program, “We’re trying to get people to change

retailer promotion: Most retailers interact digitally with customers using Web sites and digital catalogs, mobile and social media, and other digital platforms. cVs’s myWeekly ad program distributes personalized versions of its weekly circulars to the chain’s extracare loyalty program members. CVS Caremark Corporation

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their behavior,” says the CVS marketer heading up the effort, “going online for a much more personalized experience” rather than checking weekly circulars.18

Place Decision Retailers often point to three critical factors in retailing success: location, location, and location! It’s very important that retailers select locations that are accessible to the target market in areas that are consistent with the retailer’s positioning. For example, Apple locates its stores in high-end malls and trendy shopping districts—such as the Magnificent Mile on Chicago’s Michigan Avenue or Fifth Avenue in Manhattan—not low-rent strip malls on the edge of town. By contrast, to keep costs down and support its “cheap gourmet” positioning, Trader Joe’s places its stores in lower-rent, out-of-the-way locations. Small retailers may have to settle for whatever locations they can find or afford. Large retailers, however, usually employ specialists who use advanced methods to select store locations.

Most stores today cluster together to increase their customer pulling power and give consumers the convenience of one-stop shopping. Central business districts were the main form of retail cluster until the 1950s. Every large city and town had a central business district with department stores, specialty stores, banks, and movie theaters. When people began moving to the suburbs, however, many of these central business districts, with their traffic, parking, and crime problems, began to lose business. In recent years, many cit- ies have joined with merchants to revive downtown shopping areas, generally with only mixed success.

A shopping center is a group of retail businesses built on a site that is planned, devel- oped, owned, and managed as a unit. A regional shopping center, or regional shopping mall, the largest and most dramatic shopping center, has from 50 to more than 100 stores, including two or more full-line department stores. It is like a covered mini-downtown and attracts customers from a wide area. A community shopping center contains between 15 and 50 retail stores. It normally contains a branch of a department store or variety store, a supermarket, specialty stores, professional offices, and sometimes a bank. Most shopping centers are neighborhood shopping centers or strip malls that generally contain between 5 and 15 stores. These centers, which are close and convenient for consumers, usually contain a supermarket, perhaps a discount store, and several service stores—dry cleaner, drugstore, hardware store, local restaurant, or other stores.19

A newer form of shopping center is the so-called power center. Power centers are huge unenclosed shopping centers consisting of a long strip of retail stores, including large, freestanding anchors such as Walmart, Home Depot, Costco, Best Buy, Michaels, PetSmart, and Office Depot. Each store has its own entrance with parking directly in front for shoppers who wish to visit only one store.

In contrast, lifestyle centers are smaller, open-air malls with upscale stores, conve- nient locations, and nonretail activities, such as a playground, skating rink, hotel, dining establishments, and a movie theater complex. The most recent lifestyle centers often con- sist of mixed-use developments, with ground-floor retail establishments and apartments or condominiums above, combining shopping convenience with the community feel of a neighborhood center. Meanwhile, traditional regional shopping malls are adding life- style elements—such as fitness centers, common areas, and multiplex theaters—to make themselves more social and welcoming. In all, today’s centers are more like places to hang out rather than just places to shop. “The line between shopping, entertainment, and com- munity building has blurred,” says one analyst. “Shopping centers aren’t just places to buy things. They’re social centers, places for entertainment, and employment hubs.”20

The past few years have brought hard times for shopping centers. Many experts sug- gest that the country has long been “overmalled.” Not surprisingly, the Great Recession and its aftermath hit shopping malls hard. Consumer spending cutbacks forced many retailers—small and large—out of business, and vacancy rates at the nation’s enclosed malls soared.21 Power centers were also hard hit as their big-box retailer tenants such as Circuit City, Borders, Mervyns, and Linens N Things went out of business and others such as Best Buy, Barnes & Noble, and Office Depot reduced the number or size of their stores. Some of the pizzazz has also gone out of lifestyle centers, whose upper-middle-class shop- pers suffered most during the recession.

shopping center A group of retail businesses built on a site that is planned, developed, owned, and managed as a unit.

348 Part 3: Designing a customer Value-Driven strategy and Mix

As the economy has improved, however, malls of all types have rebounded a bit. Many power centers, for example, are filling their empty space with a broader range of retailers, from the likes of Ross Dress for Less, Boot Barn, Nordstrom Rack, and other off- price retailers to dollar stores, warehouse grocers, and traditional discounters like Walmart and Target.

retailing trends and Developments Retailers operate in a harsh and fast-changing environment, which offers threats as well as opportunities. Consumer demographics, lifestyles, and spending patterns are chang- ing rapidly, as are retailing technologies. To be successful, retailers need to choose target segments carefully and position themselves strongly. They need to take the fol- lowing retailing developments into account as they plan and execute their competitive strategies.

tighter consumer spending Following many years of good economic times for retailers, the Great Recession of 2008–2009 turned many retailers’ fortunes from boom to bust. Even as the economy has

recovered, retailers will feel the effects of changed consumer spending patterns well into the future.

Some retailers actually benefit from a down economy. For example, as consum- ers cut back and looked for ways to spend less on what they bought, big discounters such as Costco scooped up new business from bargain-hungry shoppers. And price- oriented and off-price retailers such as ALDI, Dollar General, and TJ Maxx have attracted greater shares of more frugal buyers.

For other retailers, however, tighter consumer spending meant tough times. During and following the recession, several large and familiar retailers declared bankruptcy or closed their doors completely—including household names such as Linens N Things, Circuit City, KB Toys, Borders Books, and Sharper Image, to name a few. Other retailers, from Macy’s and Home Depot to Starbucks, laid off employ- ees, cut their costs, and offered deep price discounts and promotions aimed at luring cash-strapped customers back into their stores.

As the economy has improved and as consumers have retained their more frugal spending ways, many retailers have added new value pitches to their positioning.

For example, Home Depot replaced its older “You can do it. We can help.” theme with a thriftier one: “More saving. More doing.” And retailers ranging from Walmart to Macy’s to Kroger and Whole Foods Market are boosting their emphasis on more economical private-label brands.

When reacting to economic difficulties, retailers must be careful that their short- run actions don’t damage their long-run images and positions. For example, drastic price discounting can increase immediate sales but damage brand loyalty. One analyst calls this “death by discount” and suggests that “virtually every retailer—at both the high and the low end—has fallen so deeply into the trap that discounting has become an expectation of customers rather than a bonus.”22 A stroll through your local shop- ping mall confirms this assessment. However, instead of relying on cost-cutting and price reductions, retailers should focus on building greater customer value within their long-term store positioning strategies.

new retail forms, shortening retail life cycles, and retail convergence New retail forms continue to emerge to meet new situations and consumer needs, but the life cycle of new retail forms is getting shorter. Department stores took about 100 years to reach the mature stage of the life cycle; more recent forms, such as warehouse stores, reached maturity in about 10 years. In such an environment, seemingly solid retail posi- tions can crumble quickly. Of the top 10 discount retailers in 1962 (the year that the first Walmart, Kmart, Target, and Kohl’s stores opened), not one still exists today. Even the most successful retailers can’t sit back with a winning formula. To remain successful, they must keep adapting.

Value positioning: facing tighter consumer spending, home Depot adopted a thriftier theme: “More saving. More doing.” iofoto/Shutterstock; The Home Depot, Inc.

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New retail forms are always emerging. The most recent blockbuster retailing trend is the advent of online retailing, by both online-only and store retailers, via Web sites, mobile apps, and social media. But lesser innovations occur regu- larly. For example, many retailers are now using limited- time pop-up stores that let them promote their brands to seasonal shoppers and create buzz in busy areas. During an NBA All-Star weekend at the Barclays Center in Brooklyn, New York, Nike opened a Jordan-themed pop-up shop across the street. Brazilian sandal maker Havaianas is known for opening temporary seasonal pop-up shops at beaches, festi- vals, and other summer hot spots around the world.23

The online and mobile equivalent is flash sales sites, such as Nordstrom’s HauteLook and Amazon’s MyHabit, which host time-limited sales events on top fashion and lifestyle brands. Similarly, Gilt.com flashes member-only, 70 percent discounts on designer-label clothing; and Groupon offers flash deals on travel through Groupon Getaways. Zulily flashes sales on products for moms, babies, and kids,

offering limited-time sales “events” that quickly “scoot away to make room for new events.” Flash sales add excitement and urgency to buying. Says Zulily, “Shopping here is like opening a new treasure chest every day. You never know exactly what you’ll uncover, but you know gems are waiting.”24

Today’s retail forms appear to be converging. Increasingly, different types of retail- ers now sell the same products at the same prices to the same consumers. For example, you can buy brand name home appliances at department stores, discount stores, home- improvement stores, off-price retailers, electronics superstores, and a slew of online sites that all compete for the same customers. If you can’t find the microwave oven you want at Sears, you can step across the street and find one for a better price at Lowe’s or Best Buy—or just order one online from Amazon.com or even RitzCamera.com. This merging of consumers, products, prices, and retailers is called retail convergence. Such conver- gence means greater competition for retailers and greater difficulty in differentiating the product assortments of different types of retailers.

the rise of Megaretailers The rise of huge mass merchandisers and specialty superstores, the formation of vertical marketing systems, and a rash of retail mergers and acquisitions have created a core of superpower megaretailers. With their size and buying power, these giant retailers can offer better merchandise selections, good service, and strong price savings to consumers. As a result, they grow even larger by squeezing out their smaller, weaker competitors.

The megaretailers have shifted the balance of power between retailers and producers. A small handful of retailers now controls access to enormous numbers of consumers, giv- ing them the upper hand in their dealings with manufacturers. For example, you may never have heard of specialty coatings and sealants manufacturer RPM International, but you’ve probably used one or more of its many familiar do-it-yourself brands—such as Rust- Oleum paints, Plastic Wood and Dap fillers, Mohawk and Watco finishes, and Testors hobby cements and paints—all of which you can buy at your local Home Depot store. Home Depot is a very important customer to RPM, accounting for a significant share of its consumer sales. However, Home Depot’s sales of $78 billion are almost 20 times RPM’s sales of $4.3 billion. As a result, the giant retailer can, and often does, use this power to wring concessions from RPM and thousands of other smaller suppliers.25

growth of Direct, online, Mobile, and social Media retailing Most consumers still make a majority of their purchases the old-fashioned way: They go to a store, find what they want, plunk down their cash or credit cards, and bring home the goods. However, consumers now have a broad array of nonstore alternatives, including direct and digital shopping via Web sites, mobiles apps, and social media. As we’ll discuss

new retail forms: Many retailers, such as brazilian sandal maker havaianas, use temporary pop-up shops to promote their brands to seasonal shoppers and create buzz in busy areas. Havaianas

350 Part 3: Designing a customer Value-Driven strategy and Mix

in Chapter 14, direct and digital marketing are currently the fastest-growing forms of marketing.

Today, thanks to advanced technologies, easier-to-use and enticing online sites and mobile apps, improved online services, and the increasing sophistication of search tech- nologies, online retailing is thriving. In fact, although it currently accounts for only about 7 percent of total U.S. retail sales, online buying is growing at a much brisker pace than retail buying as a whole. Last year’s U.S. online retail sales grew 117 percent over the pre- vious year versus a 4 percent increase in overall retail sales.26

Retailer online sites, mobile apps, and social media also influence a large amount of in- store buying. An estimated 52 percent of total U.S. retail sales were either transacted directly or influenced by online research. An estimated 15 percent of all online sales now take place on mobile devices, a number that will grow to 25 percent by 2017. Retailers of all kinds rely on social media to engage their buyer communities. For example, whereas Walmart leads among retailers in Facebook Likes, L.L.Bean is tops in Pinterest followers. Victoria’s Secret leads in Twitter followers, but H&M comes in a close second. And Victoria’s Secret has the most YouTube subscribers.27

The spurt in online, mobile, and social media retailing is both a blessing and a curse to store retailers. Although it gives them new channels for engaging and selling to customers, it also creates more competition from online-only retailers. To the dismay of some store retailers, many shoppers now check out merchandise at physical-store showrooms but then buy it online using a computer or mobile device, sometimes while in the store—a process called showrooming. These days, 75 percent of smartphone-carrying shoppers use their phones while shopping in stores. And as many as half of all shoppers who buy products online check them out first at a traditional store.28 Store retailers such as Target, Walmart, Best Buy, Bed Bath & Beyond, and Toys “R” Us have been hit hard by showrooming.

Today, however, many store retailers are developing effective strategies to counter showrooming. Others are even embracing it as an opportunity to highlight the advan- tages of shopping in stores versus online-only retailers. The flip side of showrooming is webrooming, by which consumers first check out merchandise online, then buy it in a store. The key for store retailers is to convert showrooming shoppers into buyers when they visit the store.

However, it’s no longer a matter of customers deciding whether to shop in a store or shop online. The Internet and digital devices have spawned a whole new breed of shopper and way of shopping. Today’s omni-channel buyers shift seamlessly across online and in- store channels during the buying process. They’ve gotten used to researching and buying

anywhere, anytime—whether it’s in the store, online, on the go, or even online while in the store. To meet the needs of these omni-channel buyers, store retailers must master omni- channel retailing, integrating store and online channels into a single shopper experience (see Marketing at Work 11.2).

An increasing share of the growth in online sales is being captured by omni-channel retailers who successfully merge the virtual and physical worlds. In a recent ranking of the top 10 online retailers, five were store-based retail chains. Another study showed that, among the top 500 online retail- ers, online sales by store chains were growing 8 percent faster than those of online-only retailers and 40 percent faster than overall e-commerce.29

For example, thanks largely to rapid growth in online sales, upscale home products retailer Williams-Sonoma now captures more than half of its total revenues from its direct- to-consumer channel. Like many retailers, Williams-Sonoma has discovered that many of its best customers visit and shop both online and offline. Beyond just offering online shop- ping, the retailer engages customers through its Web site, online communities, social media, mobile apps, a blog, and special online programs. “The Internet has changed the way

showrooming The shopping practice of coming into retail store showrooms to check out merchandise and prices but instead buying from an online-only rival, sometimes while in the store.

showrooming: the now-common practice of viewing products in stores but buying them online presents serious challenges to store retailers. but rather than fighting showrooming, retailers are now embracing it as a way to showcase their omni-channel strengths. Kumar Sriskandan/Alamy

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foot locker has mastered omni-channel retailing. it skillfully integrates its in-store environment, high-powered Web sites, and extensive social media presence to create the seamless, anytime-anywhere, omni-channel shopping experience that today’s customers seek. Luke Sharrett/Bloomberg/Getty Images

The shopping process has changed radically in recent years. Not all that long ago, shopping consisted mostly of going store to store—or perhaps flipping through catalogs—to gather product information, make price comparisons, and purchase goods. That was then. Now—in this age of the Internet, com- puters, smartphones, and other digital devices—shopping typi- cally involves a dazzling array of channels and platforms.

Today’s omni-channel consumers readily research products and prices online, shopping digitally from home, from work, in stores, or anywhere in between. They scour retailer Web sites and social media for buying ideas, inspiration, and advice. They might see products in stores and order them online, see products online then buy them in stores, or even buy goods online for in-store pickup. This massive shift in how people shop calls for massive changes in how store retailers oper- ate. Omni-channel buying calls for omni-channel retailing, integrating all available shopping channels and devices into a seamless customer shopping experience.

At first, as online and mobile shopping caught fire, store retail- ers worried about showrooming—smartphone-wielding custom- ers researching products online while examining them in stores, then jumping ship to catch lower online prices. But most store retailers have now adjusted to the showrooming threat with price- matching and other in-store tactics. In fact, smart retailers now see phone-toting customers not as a threat but as an opportunity.

For example, Best Buy has found that omni-channel shop- pers have a higher-than-average propensity to purchase. One study showed that shoppers who use mobile devices in stores are almost twice as likely to purchase from the same retailer in-store or online than to buy elsewhere. “We love being used as the Internet’s showroom,” says Best Buy’s CEO. Where Best Buy once fought showrooming, the chain now facilitates the process, converting showroomers into buyers. Best Buy sales associates are trained to proactively cross-check prices against both their own and other retailer’s online offers, including online retailers like Amazon. Employees can then price-match competitors, putting the price ques- tion to rest and letting associates focus on areas where Best Buy has the advantage—such as personal advice and service, immediacy, convenient locations, and easy returns. Best Buy’s new tagline highlights this strategy: “Best Buy: Expert Service. Unbeatable Prices.”

Retailers have learned that shoppers with smart- phones are doing far more than just checking online prices. More often, they are filling in the infor- mation gap. “The consumer has never been more informed, and that information comes from their phone,” says a senior marketer at outdoor-gear retailer REI. “We love when someone enters the

store holding their phone saying, ‘I want this tent. I want this bike. Help me find this.’” This type of activity shows how digital and store retailing can come together to make a sale, even without cutting price.

But omni-channel retailing goes way beyond just helping in- store customers as they cross-shop on digital devices. It requires carefully integrating the entire range of available shopping channels, both in-store and out, from discovery to purchase in the buying process. For example, most large retailers are now boosting their own online and digital selling options and link- ing them with stores. One popular way to do that is by letting customers order online and pick up in the store. The “click-and- collect” experience merges the attractions of digital and in-store shopping. For example, Walmart has upped its emphasis on in-store pickups. It tells customers that they can order from its Walmart.com site, often pick up items on the same day, avoid shipping fees, and easily return items to the store if not satis- fied. Customers now pick up half of all Walmart.com purchases in stores, often buying additional merchandise during the visit.

Some customers even use mobile devices to place online orders with a given retailer while visiting that retailer’s store. Ten percent of Walmart purchases via mobile devices are made from inside a Walmart store. GAP Inc.—which operates the GAP, Old Navy, and Banana Republic chains—actively promotes in-store online ordering. Sales associates with tablets help customers search company-wide store and online inventories to find out- of-stock items. “It gives the team in the store the full capability

Marketing at Work 11.2

omni-channel retailing: creating a seamless shopping experience

352 Part 3: Designing a customer Value-Driven strategy and Mix

our customers shop,” says Williams-Sonoma CEO Laura Alber, “and the online brand experience has to be inspiring and seamless.”30

growing importance of retail technology Retail technologies have become critically important as competitive tools. Progressive retailers are using advanced information technology and software systems to produce better forecasts, control inventory costs, interact electronically with suppliers, send information between stores, and even sell to customers within stores. They have adopted sophisticated systems for checkout scanning, RFID inventory tracking, merchandise han- dling, information sharing, and customer interactions.

Perhaps the most startling advances in retail technology concern the ways in which retailers are connecting with consumers. Increasingly, retailers are bringing online and digital technologies into their physical stores. Many retailers now routinely use tech- nologies ranging from touchscreen kiosks and handheld shopping assistants to interactive dressing-room mirrors and virtual sales associates. Macy’s uses Shopkick’s shopBeacon indoor positioning system to engage customers digitally as they shop around its stores.

When opted-in customers enter a Macy’s store, a Bluetooth signal wakes up the shop- Beacon app on their smartphone or tablet, which welcomes them and alerts them to loca- tion-specific rewards, deals, discounts, and personalized product recommendations within the store. The technology can also link in-store and at-home browsing; if the customer “likes” a specific product online, shopBeacon can remind them where to find it in the store, pop up a brief product video, and maybe pass along a for-you-only deal. The goal of

to . . . meet your needs without you having to go home and do it yourself,” says a Banana Republic marketer.

In addition to Web sites, omni-channel retailers are integrat- ing other digital shopping channels. Walmart, Target, Macy’s, and other major retailers offer handy mobile apps that pull customers to both their Web sites and stores, let them prepare shopping lists, help them locate merchandise inside stores, and, in Target’s case, received daily alerts and exclusive discounts sent to their phones. Macy’s uses Shopkick’s shopBeacon tech- nology, by which in-store sensors detect opted-in customers as they enter a Macy’s store, welcome them via the Macy’s app on their phones, and pass along personalized shopping informa- tion and “only-for-you” deals.

Social media also play an important part in omni-channel retailing. Thirty percent of shoppers made purchases via social media last year, 44 percent discovered new products via social networks, and 49 percent made purchases based on referrals from social media. In turn, most large store retailers now use social media extensively to engage customers, build commu- nity, and link buyers to their Web sites and stores.

But simply creating a digital-friendly store, high-powered Web site, and extensive social media presence doesn’t constitute good omni-channel retailing. The key is to integrate these elements to create that critical seamless, anywhere-anytime, omni-channel shopping experience that today’s customers seek. Consider ath- letic footwear and apparel giant Foot Locker, which operates several chains, including Foot Locker and Champs Sports:

Foot Locker has mastered omni-channel retailing. It now gets 12 percent of its sales online, half of that from mobile buying, and its online sales are growing at an eye-popping 40 percent annually. Its online and mobile efforts link seamlessly with store operations, offering options such as “buy online, ship from store” and “buy

online, reserve in store” for pickup. And you’ll find Foot Locker everywhere in social media, with more than 150 million total fol- lowers across Instagram, Facebook, Snapchat, Twitter, YouTube, and Pinterest, where it builds customer community and pulls cus- tomers to its online and store locations.

Foot Locker’s omni-channel prowess comes to life inside its Foot Locker, Champs Sports, and other stores. The chain gives sales associates the same mobile research capabilities that custom- ers have. Tablets in hand, using online information about products and competitor offers, associates work with and educate custom- ers. Foot Locker trains store employees to go beyond prices and engage customers in ways that add value through personal touches. With 3,500 stores and Foot Locker’s own substantial online pres- ence, the store retailer can help customers to shape almost any kind of shopping experience, including a broad choice of service, pay- ment, and delivery options not available from online-only retailers. Thanks to its omni-channel mastery, whereas other shoe and ap- parel retailers have had trouble fending off Web-only sellers like online star Zappos, Foot Locker is thriving in the new omni-chan- nel shopping environment. Over the past four years, the retailer’s sales have zoomed 40 percent and profits have tripled.

Sources: Tim Simmons, “The Keys to Unlocking the Retail Omni-Channel Advantage,” Forbes, January 2, 2015, www.forbes.com/sites/teradata/2015/01/02/ the-keys-to-unlocking-the-retail-omni-channel-advantage/; Sarah Halzack, “Online or In-Store? How about a Little of Both?”, Washington Post, November 28, 2014, p. A01; Christine Birkner, “Good Tidings for Retail,” Marketing News, December 2014, p. 14; Kyle Stock, “Does Foot Locker Have Too Many Nikes?” Bloomberg Businessweek, March 7, 2014, www.bloomberg.com/bw/articles/2014-03-07/does- foot-locker-have-too-many-nikes; Laura Heller, “How Foot Locker Is Using Mobile to Reach Millennials,” FierceMobileRetail, August 4, 2014, www.fierceretail.com/ mobileretail/story/how-foot-locker-using-mobile-reach-millennials/2014-08-04; Brian Sozzi, “Foot Locker Transforming Its Stores as It Seeks to Keep Sales on Fire,” TheStreet, March 17, 2015, www.thestreet.com/story/13081277/1/foot- locker-transforming-its-stores-as-it-seeks-to-keep-sales-on-fire.html; and www .footlocker-inc.com and www.footlocker.com, accessed October 2015.

http://www.forbes.com/sites/teradata/2015/01/02/the-keys-to-unlocking-the-retail-omni-channel-advantage/

http://www.bloomberg.com/bw/articles/2014-03-07/does-foot-locker-have-too-many-nikes

http://www.fierceretail.com/mobileretail/story/how-foot-locker-using-mobile-reach-millennials/2014-08-04

http://www.thestreet.com/story/13081277/1/foot-locker-transforming-its-stores-as-it-seeks-to-keep-sales-on-fire.html

http://www.footlocker.com

http://www.forbes.com/sites/teradata/2015/01/02/the-keys-to-unlocking-the-retail-omni-channel-advantage/

http://www.fierceretail.com/mobileretail/story/how-foot-locker-using-mobile-reach-millennials/2014-08-04

www.footlocker-inc.com

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shopBeacon is to engage Macy’s tech-savvy and social customers as a trusted companion and to personalize their in-store shopping experience.31

The future of technology in retailing is to blend the new technologies with traditional services. For exam- ple, Walmart’s goal is to merge in-store and online, social media, and mobile innovations to give customers an enhanced shopping experience:

To augment in-store shopping, Walmart formed @ WalmartLabs, which develops mobile and social media platforms that make shopping easier, more accessible, and more fun. For example, the retailer’s Walmart Gifts gift-finder app applies data from users’ Facebook Likes, comments, status updates, and other data to recom- mend the best products for customers and gifts for their friends. The retailer’s feature-rich mobile apps let customers create smart shopping lists, scan barcodes

and check prices, access product information, and scan coupons in real time—all from a smart- phone or tablet, at home, at work, in the store, or anywhere in between. Walmart’s “Savings Catcher” app lets customers scan their store receipt to compare prices at competing stores—if the app finds cheaper prices elsewhere, shoppers get money back in the form of a gift card. And Walmart customers will soon be able to use their smartphones in self-checkout lines. The Walmart SocialStore team at @WalmartLabs is exploring other new in-store social media, mobile, and kiosk technologies that will both assist customers as they shop and help stores get to know and serve their customers better.32

green retailing Today’s retailers are increasingly adopting environmentally sustainable practices. They are greening up their stores and operations, promoting more environmentally responsible

products, launching programs to help customers be more responsible, and working with channel partners to reduce their environmental impact.

At the most basic level, most large retailers are making their stores more environmentally friendly through sustainable building design, construction, and operations. For example, under its “People & Planet Positive” sustain- ability strategy, home furnishings retailer IKEA’s long-term goal is to become 100 sustainable:33

The “People & Planet Positive” strategy begins with making IKEA’s 315 giant stores in 27 countries more energy independent and efficient. To power its stores, IKEA has committed to owning and operating 224 wind turbines and has installed 700,000 solar panels—90 percent of its U.S. stores have solar panels. By 2020, IKEA will generate as much energy as it uses from renewable sources. Inside its stores, IKEA uses only energy-efficient LED lighting. Most stores also sort food waste from in-store cus- tomer restaurants for composting or send it to treatment centers where it is turned into animal feed or biogas to fuel cars and buses. Some IKEAs offer customer recycling centers for products such as plastic, paper, CFL light bulbs, batteries, and even end- of-life appliances.

Retailers are also greening up their product assortments. For example, IKEA now sells only LED lighting products in its stores, and a growing pro- portion of the home furnishing products it sells are made from sustainable and renewable cotton, wood, and other resources. IKEA suppliers must adhere the retailer’s IWAY supplier code of conduct sustainability standards. IKEA’s goal is have all of its home furnishings made from renewable, recyclable, or recycled materials. “At IKEA, sustainability is central to our business,” says the company, “to ensure that we have a positive impact on people and the planet.”

Many retailers have also launched programs that help consumers make more environmentally responsible decisions. Staples’s Easy on the Planet program

retail technology: Macy’s uses shopkick’s shopbeacon to engage consumers in the store and personalize their shopping experiences. Shopkick, Inc.

green retailing: Under its “People & Planet Positive” sustainability strategy, ikea’s long-term goal is to become 100 sustainable. Used with the permission of Inter IKEA Systems B.V

354 Part 3: Designing a customer Value-Driven strategy and Mix

“makes it easier to make a difference” by helping customers to identify green products sold in its stores and to recycle printer cartridges, mobile phones, computers, and other office technology products. Staples recycles some 30 million printer cartridges and 10 mil- lion pounds of old technology each year.34

Finally, many large retailers are joining forces with suppliers and distributors to cre- ate more sustainable products, packaging, and distribution systems. For example, Amazon .com works closely with the producers of many of the products it sells to reduce and sim- plify their packaging. And beyond its own substantial sustainability initiatives, Walmart wields its huge buying power to urge its army of suppliers to improve their environmental impact and practices. The retailer has even developed a worldwide Sustainable Product Index by which it rates suppliers. It plans to translate the index into a simple rating for consumers to help them make more sustainable buying choices.

Green retailing yields both top- and bottom-line benefits. Sustainable practices lift a retailer’s top line by attracting consumers looking to support environmentally friendly sellers and products. They also help the bottom line by reducing costs. For example, Amazon.com’s reduced-packaging efforts increase customer convenience and eliminate “wrap rage” while at the same time saving packaging costs. And IKEA’s more energy- efficient buildings not only appeal to customers and help save the planet but also cost less to operate.

global expansion of Major retailers Retailers with unique formats and strong brand positions are increasingly moving into other countries. Many are expanding internationally to escape saturated home markets. Over the years, some giant U.S. retailers, such as McDonald’s, have become globally prominent as a result of their marketing prowess. Others, such as Walmart, are rapidly establishing a global presence. Walmart, which now operates more than 6,100 stores in 26 non-U.S. markets, sees exciting global potential. Its international division alone last year racked up sales of more than $136 billion, almost 86 percent more than rival Target’s total sales of $73 billion.35

However, most U.S. retailers are still significantly behind Europe and Asia when it comes to global expansion. Although nine of the world’s top 20 retailers are U.S. com- panies, only four of these retailers have set up stores outside North America (Walmart, Home Depot, Costco, and Best Buy). Of the 12 non-U.S. retailers in the world’s top 20, eight have stores in at least 10 countries. Foreign retailers that have gone global include France’s Carrefour, Groupe Casino, and Auchan chains; Germany’s Metro, Lidl, and ALDI chains; Britain’s Tesco; and Japan’s Seven & I.36

International retailing presents challenges as well as opportunities. Retailers can face dramatically different retail environments when crossing countries, continents, and cul- tures. Simply adapting the operations that work well in the home country is usually not enough to create success abroad. Instead, when going global, retailers must understand and meet the needs of local markets.

linking the concePts Time out! So-called experts have long predicted that online retailing eventually will replace store retailing as our primary way to shop. What do you think?

● Shop for a good book at the Barnes & Noble Web site (www.bn.com), taking time to browse the site and see what it has to offer. Next, shop at a nearby Barnes & Noble or other bookstore. Com- pare the two shopping experiences. Where would you rather shop? On what occasions? Why?

● A Barnes & Noble store creates an ideal “community” where people can “hang out.” How does its Web site compare on this dimension?

● Do Barnes & Noble’s various social media efforts create community for the retailer and its cus- tomers? For example, see www.facebook.com/barnesandnoble, https://twitter.com/bnbooks, and http://pinterest.com/barnesandnoble/followers/.

http://www.bn.com

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Wholesaling Wholesaling includes all the activities involved in selling goods and services to those buy- ing them for resale or business use. Firms engaged primarily in wholesaling activities are called wholesalers.

Wholesalers buy mostly from producers and sell mostly to retailers, industrial consumers, and other wholesalers. As a result, many of the nation’s largest and most important wholesalers are largely unknown to final consumers. For example, Sysco is a huge $46 billion wholesale food distribution company that operates behind the scenes to supply boxes of seafood, chicken, pasta, vegetables, baked goods, condiments, nap- kins, and other goods to more than 425,000 restaurants, schools, hospitals, colleges, and other commercial customers that prepare meals away from home. Wholesaler Arrow Electronics supplies $23 billion worth of computer chips, capacitors, and other electron- ics and computer components annually to more than 100,000 original equipment manu- facturers and commercial customers through a global network of more than 460 locations in 56 countries. And you may never have heard of a company called Grainger, even though it is very well known and much valued by its more than 2 million business and institutional customers in more than 150 countries:37

Grainger may be the biggest market leader you’ve never heard of. It’s a $10 billion busi- ness that offers more than 1.4 million maintenance, repair, and operating (MRO) products from more than 4,500 manufacturers to over 2 million active customers. Through its branch network, service centers, sales reps, catalog, and online and social media sites, Grainger links customers with the supplies they need to keep their facilities running smoothly and their people safe—everything from lightbulbs, cleaners, and display cases to nuts and bolts, motors, valves, power tools, test equipment, and safety supplies. Grainger’s nearly 700 branches, 33 strategically located distribution centers, more than 23,700 employees, and innovative Web sites handle more than 115,000 transactions a day. Grainger’s customers

include organizations ranging from factories, garages, and grocers to schools and military bases.

Grainger operates on a simple value proposition: to make it easier and less costly for customers to find and buy MRO supplies. It starts by acting as a one- stop shop for products needed to maintain facilities. On a broader level, it builds lasting relationships with customers by helping them find solutions to their overall MRO problems. Acting as consultants, Grainger sales reps help buyers with every- thing from improving their supply chain management to reducing inventories and streamlining warehousing operations.

So, how come you’ve never heard of Grainger? Perhaps it’s because the com- pany operates in the not-so-glamorous world of MRO supplies, which are impor- tant to every business but not so important to consumers. More likely, it’s because Grainger is a wholesaler. And like most wholesalers, it operates behind the scenes, selling mostly to other businesses.

Why are wholesalers important to sellers? For example, why would a producer use wholesalers rather than selling directly to retailers or consumers? Simply put, wholesalers add value by performing one or more of the following channel functions:

● Selling and promoting. Wholesalers’ sales forces help manufactur- ers reach many small customers at a low cost. The wholesaler has more contacts and is often more trusted by the buyer than the distant manufacturer.

● Buying and assortment building. Wholesalers can select items and build assortments needed by their customers, thereby saving much work.

● Bulk breaking. Wholesalers save their customers money by buying in carload lots and breaking bulk (breaking large lots into small quantities).

● Warehousing. Wholesalers hold inventories, thereby reducing the in- ventory costs and risks of suppliers and customers.

author comment Whereas retailers primarily sell goods

and services directly to final consumers for personal use, wholesalers sell primarily to those buying for resale or business use. Because wholesalers operate behind the

scenes, they are largely unknown to final consumers. But they are very

important to their business customers.

Wholesaling All the activities involved in selling goods and services to those buying for resale or business use.

Wholesaler A firm engaged primarily in wholesaling activities.

Wholesaling: Many of the nation’s largest and most important wholesalers—like grainger—are largely unknown to final consumers. but they are very well known and much valued by the business customers they serve. W. W. Grainger, Inc.

356 Part 3: Designing a customer Value-Driven strategy and Mix

● Transportation. Wholesalers can provide quicker delivery to buyers because they are closer to buyers than are producers.

● Financing. Wholesalers finance their customers by giving credit, and they finance their suppliers by ordering early and paying bills on time.

● Risk bearing. Wholesalers absorb risk by taking title and bearing the cost of theft, damage, spoilage, and obsolescence.

● Market information. Wholesalers give information to suppliers and customers about competitors, new products, and price developments.

● Management services and advice. Wholesalers often help retailers train their salesclerks, improve store layouts and displays, and set up accounting and inven- tory control systems.

types of Wholesalers Wholesalers fall into three major groups (see table 11.3): merchant wholesalers, bro- kers and agents, and manufacturers’ and retailers’ branches and offices. Merchant whole- salers are the largest single group of wholesalers, accounting for roughly 50 percent of all wholesaling. Merchant wholesalers include two broad types: full-service wholesalers and limited-service wholesalers. Full-service wholesalers provide a full set of services, whereas the various limited-service wholesalers offer fewer services to their suppliers and customers. The different types of limited-service wholesalers perform varied specialized functions in the distribution channel.

Merchant wholesaler An independently owned wholesale business that takes title to the merchandise it handles.

table 11.3 Major types of Wholesalers

type Description

Merchant wholesalers independently owned businesses that take title to all merchandise handled. there are full-service wholesalers and limited-service wholesalers.

full-service wholesalers Provide a full line of services: carrying stock, maintaining a sales force, offering credit, making deliveries, and pro- viding management assistance. full-service wholesalers include wholesale merchants and industrial distributors.

Wholesale merchants sell primarily to retailers and provide a full range of services. general merchandise wholesalers carry several merchandise lines, whereas general line wholesalers carry one or two lines in great depth. specialty wholesalers specialize in carrying only part of a line.

Industrial distributors sell to manufacturers rather than to retailers. Provide several services, such as carrying stock, offering credit, and providing delivery. May carry a broad range of merchandise, a general line, or a specialty line.

limited-service wholesalers offer fewer services than full-service wholesalers. limited-service wholesalers are of several types:

Cash-and-carry wholesalers carry a limited line of fast-moving goods and sell to small retailers for cash. normally do not deliver.

Truck wholesalers (or truck jobbers)

Perform primarily a selling and delivery function. carry a limited line of semiperishable merchandise (such as milk, bread, snack foods), which is sold for cash as deliveries are made to supermarkets, small groceries, hospitals, restaurants, factory cafeterias, and hotels.

Drop shippers Do not carry inventory or handle the product. on receiving an order, drop shippers select a manufacturer, who then ships the merchandise directly to the customer. Drop shippers operate in bulk industries, such as coal, lumber, and heavy equipment.

Rack jobbers serve grocery and drug retailers, mostly in nonfood items. rack jobbers send delivery trucks to stores, where the delivery people set up toys, paperbacks, hardware items, health and beauty aids, or other items. rack jobbers price the goods, keep them fresh, set up point-of-purchase displays, and keep inventory records.

Producers’ cooperatives farmer-owned members that assemble farm produce for sale in local markets. Producers’ cooperatives often attempt to improve product quality and promote a co-op brand name, such as sun-Maid raisins, sunkist oranges, or Diamond nuts.

Mail-order or Web wholesalers

send catalogs to or maintain Web sites for retail, industrial, and institutional customers featuring jewelry, cosmetics, specialty foods, and other small items. its primary customers are businesses in small outlying areas.

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brokers and agents Do not take title to goods. the main function is to facilitate buying and selling, for which they earn a commis- sion on the selling price. generally specialize by product line or customer type.

brokers bring buyers and sellers together and assist in negotiation. brokers are paid by the party who hired the broker and do not carry inventory, get involved in financing, or assume risk. examples include food brokers, real estate brokers, insurance brokers, and security brokers.

agents represent either buyers or sellers on a more permanent basis than brokers do. there are four types:

Manufacturers’ agents represent two or more manufacturers of complementary lines. often used in such lines as apparel, furniture, and electrical goods. a manufacturer’s agent is hired by small manufacturers who cannot afford their own field sales forces and by large manufacturers who use agents to open new territories or cover territories that cannot support full-time salespeople.

Selling agents have contractual authority to sell a manufacturer’s entire output. the selling agent serves as a sales department and has significant influence over prices, terms, and conditions of sale. found in product areas such as textiles, industrial machinery and equipment, coal and coke, chemicals, and metals.

Purchasing agents generally have a long-term relationship with buyers and make purchases for them, often receiving, inspecting, warehousing, and shipping the merchandise to buyers. Purchasing agents help clients obtain the best goods and prices available.

Commission merchants take physical possession of products and negotiate sales. Used most often in agricultural marketing by farmers who do not want to sell their own output. take a truckload of commodities to a central market, sell it for the best price, deduct a commission and expenses, and remit the balance to the producers.

Manufacturers’ and retailers’ branches and offices

Wholesaling operations conducted by sellers or buyers themselves rather than operating through independent wholesalers. separate branches and offices can be dedicated to either sales or purchasing.

sales branches and offices set up by manufacturers to improve inventory control, selling, and promotion. sales branches carry inventory and are found in industries such as lumber and automotive equipment and parts. sales offices do not carry inventory and are most prominent in the dry goods and notions industries.

Purchasing offices Perform a role similar to that of brokers or agents but are part of the buyer’s organization. Many retailers set up purchasing offices in major market centers, such as new york and chicago.

Brokers and agents differ from merchant wholesalers in two ways: They do not take title to goods, and they perform only a few functions. Like merchant wholesalers, they generally specialize by product line or customer type. A broker brings buyers and sellers together and assists in negotiation. Agents represent buyers or sellers on a more perma- nent basis. Manufacturers’ agents (also called manufacturers’ representatives) are the most common type of agent wholesaler. The third major type of wholesaling is that done in manufacturers’ and retailers’ branches and offices by sellers or buyers themselves rather than through independent wholesalers.

Wholesaler Marketing Decisions Wholesalers now face growing competitive pressures, more-demanding customers, new technologies, and more direct-buying programs on the part of large industrial, institu- tional, and retail buyers. As a result, they have taken a fresh look at their marketing strat- egies. As with retailers, their marketing decisions include choices of segmentation and targeting, differentiation and positioning, and the marketing mix—product and service assortments, price, promotion, and distribution (see figure 11.2).

segmentation, targeting, Differentiation, and Positioning Decisions Like retailers, wholesalers must segment and define their target markets and differentiate and position themselves effectively—they cannot serve everyone. They can choose a target group by size of customer (for example, large retailers only), type of customer (convenience stores only), the need for service (customers who need credit), or other factors. Within the target

Manufacturers’ and retailers’ branches and offices Wholesaling by sellers or buyers themselves rather than through independent wholesalers.

agent A wholesaler who represents buyers or sellers on a relatively permanent basis, performs only a few functions, and does not take title to goods.

broker A wholesaler who does not take title to goods and whose function is to bring buyers and sellers together and assist in negotiation.

358 Part 3: Designing a customer Value-Driven strategy and Mix

group, they can identify the more profitable customers, design stronger offers, and build better relationships with them. They can propose automatic reordering systems, establish manage- ment-training and advisory systems, or even sponsor a voluntary chain. They can discourage less-profitable customers by requiring larger orders or adding service charges to smaller ones.

Marketing Mix Decisions Like retailers, wholesalers must decide on product and service assortments, prices, promo- tion, and place. Wholesalers add customer value though the products and services they offer. They are often under great pressure to carry a full line and stock enough for immedi- ate delivery. But this practice can damage profits. Wholesalers today are cutting down on the number of lines they carry, choosing to carry only the more profitable ones. They are also rethinking which services count most in building strong customer relationships and which should be dropped or paid for by the customer. The key for companies is to find the mix of services most valued by their target customers.

Price is also an important wholesaler decision. Wholesalers usually mark up the cost of goods by a standard percentage—say, 20 percent. Expenses may run 17 percent of the gross margin, leaving a profit margin of 3 percent. In grocery wholesaling, the average profit mar- gin is often less than 2 percent. The recent recession put heavy pressure on wholesalers to cut their costs and prices. As their retail and industrial customers face sales and margin declines, these customers turn to wholesalers, looking for lower prices. Wholesalers may, in turn, cut their margins on some lines to keep important customers. They may also ask suppliers for special price breaks in cases when they can turn them into an increase in the supplier’s sales.

Although promotion can be critical to wholesaler success, most wholesalers are not promotion minded. They use largely scattered and unplanned trade advertising, sales promo- tion, personal selling, and public relations. Many are behind the times in personal selling; they still see selling as a single salesperson talking to a single customer instead of as a team effort to sell, build, and service major accounts. Wholesalers also need to adopt some of the nonpersonal promotion techniques used by retailers. They need to develop an overall promo- tion strategy and make greater use of supplier promotion materials and programs. Digital and social media are playing an increasingly important role. For example, Grainger maintains an active presence on Facebook, YouTube, Twitter, LinkedIn, and Google+. It also provides a feature-rich mobile app. On its YouTube channel, Grainger lists more than 500 videos on top- ics ranging from the company and its products and services to keeping down inventory costs.

Finally, distribution (location) is important. Wholesalers must choose their locations, facilities, and Web locations carefully. There was a time when wholesalers could locate in low-rent, low-tax areas and invest little money in their buildings, equipment, and systems. Today, however, as technology zooms forward, such behavior results in outdated systems for material handling, order processing, and delivery.

Wholesale marketing mix

Product and service assortment

Wholesale prices

Promotion

Distribution (location)

Wholesale strategy

Wholesale segmentation and targeting

Differentiation and service positioning

Create value for targeted wholesale customers

Why does this figure look so much like Figure 11.1? You guessed it. Like retailers, wholesalers must develop customer-driven marketing strategies and mixes that create value for customers and capture value in return. For example, Grainger helps its business customers “save time and money by providing them with the right products and solutions to keep their facilities up and running.”

figure 11.2 Wholesaler Marketing strategies

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Instead, today’s large and progressive wholesalers have reacted to rising costs by investing in automated warehouses and IT systems. Orders are fed from the retailer’s information system directly into the wholesaler’s, and the items are picked up by mechanical devices and automatically taken to a shipping platform where they are assembled. Most large wholesalers use technology to carry out accounting, billing, inventory control, and forecasting. Modern wholesalers are adapting their services to the needs of target customers and finding cost- reducing methods of doing business. They are also transacting more business online. For example, e-commerce is Grainger’s fastest- growing sales channel, making Grainger the 13th-largest online seller in the United States and Canada. Online and mobile purchasing now account for 36 percent of the wholesaler’s total sales.38

trends in Wholesaling Today’s wholesalers face considerable challenges. The industry remains vulnerable to one of its most enduring trends—the need for ever-greater efficiency. Recent tighter economic conditions have led to demands for even lower prices and the winnowing out of suppli- ers who are not adding value based on cost and quality. Progressive wholesalers constantly watch for better ways to meet the changing needs of their suppliers and target customers. They recognize that their only reason for existence comes from adding value, which occurs by increasing the efficiency and effectiveness of the entire marketing channel.

As with other types of marketers, the goal is to build value- adding customer relationships. McKesson provides an example of progressive, value-adding wholesaling. The company is a diversified health-care-services provider and the nation’s leading wholesaler of pharmaceuticals, health and beauty care, home health-care, and medi-

cal supply and equipment products. To survive, especially in a tight economic environ- ment, McKesson has to be more cost effective than manufacturers’ sales branches. Thus, the company has built efficient automated warehouses, established direct computer links with drug manufacturers, and created extensive online supply management and accounts receivable systems for customers. It offers retail pharmacists a wide range of online resources, including supply management assistance, catalog searches, real-time order tracking, and an account management system. It has also created solutions such as auto- mated pharmaceutical-dispensing machines that assist pharmacists by reducing costs and improving accuracy. Retailers can even use the McKesson systems to maintain prescrip- tion histories and medical profiles on their customers.

McKesson’s medical-surgical supply and equipment customers receive a rich assort- ment of online solutions and supply management tools, including an online order manage- ment system and real-time information on products and pricing, inventory availability, and order status. According to McKesson, it adds value in the channel by providing “supply, information, and health care management products and services designed to reduce costs and improve quality across healthcare.”39

The distinction between large retailers and large wholesalers continues to blur. Many retailers now operate formats such as wholesale clubs and supercenters that perform many wholesale functions. In return, some large wholesalers are setting up their own retailing operations. For example, SuperValu is the nation’s largest food wholesaler, and it’s also one of the country’s largest food retailers. About half of the company’s sales come from its Cub Foods, Save-A-Lot, Farm Fresh, Hornbacher’s, Shop ‘n Save, and Shoppers stores. In fact, SuperValu now bills itself as “America’s neighborhood grocer.”40

Wholesalers will continue to increase the services they provide to retailers—retail pricing, cooperative advertising, marketing and management information services, account- ing services, online transactions, and others. However, both the more value-focused

Wholesaler marketing: Progressive wholesalers like grainger maintain an active presence in online, mobile, and social media. for example, online and mobile purchasing now account for 80 percent of grainger’s total sales. W. W. Grainger, Inc.

360 Part 3: Designing a customer Value-Driven strategy and Mix

environment and the demand for increased services have put the squeeze on wholesaler profits. Wholesalers that do not find efficient ways to deliver value to their customers will soon drop by the wayside. Fortunately, the increased use of computerized, automated, and Internet-based systems will help wholesalers contain the costs of ordering, shipping, and inventory holding, thus boosting their productivity.

chaPter reVieW anD critical thinking

Retailing and wholesaling consist of many organizations bring- ing goods and services from the point of production to the point of use. In this chapter, we examined the nature and im- portance of retailing, the major types of retailers, the decisions retailers make, and the future of retailing. We then examined these same topics for wholesalers.

objectiVe 11-1 explain the role of retailers in the distribution channel and describe the major types of retailers. (pp 334–340)

Retailing includes all the activities involved in selling goods or services directly to final consumers for their personal, nonbusi- ness use. Retailers play an important role in connecting brands to consumers in the final phases of the buying process. Shopper marketing involves focusing the entire marketing process on turning shoppers into buyers as they approach the point of sale. These days, shopper marketing and the “point of purchase” go well beyond in-store buying. Today’s buyers are omni-channel consumers who work across multiple channels as they shop. Thus, influencing consumers’ buying decisions calls for omni- channel retailing, creating a seamless cross-channel buying experience that integrates in-store, online, and mobile shopping

Retail stores come in all shapes and sizes, and new retail types keep emerging. Store retailers can be classified by the amount of service they provide (self-service, limited service, or full service), product line sold (specialty stores, department stores, supermarkets, convenience stores, superstores, and ser- vice businesses), and relative prices (discount stores and off- price retailers). Today, many retailers are banding together in corporate and contractual retail organizations (corporate chains, voluntary chains, retailer cooperatives, and franchise organizations).

reVieWing anD extenDing the concePts

objectives review objectiVe 11-2 Describe the major retailer marketing decisions. (pp 341–348)

Retailers are always searching for new marketing strategies to attract and hold customers. They face major marketing deci- sions about segmentation and targeting, store differentiation and positioning, and the retail marketing mix.

Retailers must first segment and define their target mar- kets and then decide how they will differentiate and position themselves in these markets. Those that try to offer “something for everyone” end up satisfying no market well. By contrast, successful retailers define their target markets well and position themselves strongly.

Guided by strong targeting and positioning, retailers must decide on a retail marketing mix—product and services as- sortment, price, promotion, and place. Retail stores are much more than simply an assortment of goods. Beyond the products and services they offer, today’s successful retailers carefully orchestrate virtually every aspect of the consumer store expe- rience. A retailer’s price policy must fit its target market and positioning, products and services assortment, and competi- tion. Retailers use various combinations of the five promotion tools—advertising, personal selling, sales promotion, PR, and direct marketing—to reach consumers. Online, mobile, and so- cial media tools are playing an ever-increasing role in helping retailers to engage customers. Finally, it’s very important that retailers select locations that are accessible to the target market in areas that are consistent with the retailer’s positioning.

objectiVe 11-3 Discuss the major trends and develop- ments in retailing. (pp 348–354)

Retailers operate in a harsh and fast-changing environment, which offers threats as well as opportunities. Following years

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of good economic times, retailers have now adjusted to the new economic realities and more thrift-minded consumers. New retail forms continue to emerge. At the same time, however, different types of retailers are increasingly serving similar cus- tomers with the same products and prices (retail convergence), making differentiation more difficult. Other trends in retailing include the rise of megaretailers; the rapid growth of direct, online, mobile, and social media retailing; the growing impor- tance of retail technology; a surge in green retailing; and the global expansion of major retailers.

objectiVe 11-4 explain the major types of wholesal- ers and their marketing decisions. (pp 355–360)

Wholesaling includes all the activities involved in selling goods or services to those who are buying for the purpose of resale or business use. Wholesalers fall into three groups. First, merchant wholesalers take possession of the goods. They include full- service

wholesalers (wholesale merchants and industrial distributors) and limited-service wholesalers (cash-and-carry wholesalers, truck wholesalers, drop shippers, rack jobbers, producers’ coop- eratives, and mail-order wholesalers). Second, brokers and agents do not take possession of the goods but are paid a commission for aiding companies in buying and selling. Finally, manufacturers’ and retailers’ branches and offices are wholesaling operations conducted by non-wholesalers to bypass the wholesalers.

Like retailers, wholesalers must target carefully and posi- tion themselves strongly. And, like retailers, wholesalers must decide on product and service assortments, prices, promotion, and place. Progressive wholesalers constantly watch for better ways to meet the changing needs of their suppliers and target customers. They recognize that, in the long run, their only reason for existence comes from adding value, which occurs by increasing the efficiency and effectiveness of the entire mar- keting channel. As with other types of marketers, the goal is to build value-adding customer relationships.

key terms objective 11-1 Retailing (p 334) Retailer (p 334) Shopper marketing (p 334) Omni-channel retailing (p 335) Specialty store (p 336) Department store (p 336) Supermarket (p 336) Convenience store (p 337) Superstore (p 337) Category killer (p 337)

Service retailer (p 337) Discount store (p 337) Off-price retailer (p 338) Independent off-price retailer (p 338) Factory outlet (p 338) Warehouse club (p 339) Corporate chains (p 339) Franchise (p 340)

objective 11-2 Shopping center (p 347)

objective 11-3 Showrooming (p 350)

objective 11-4 Wholesaling (p 355) Wholesaler (p 355) Merchant wholesaler (p 356) Broker (p 357) Agent (p 357) Manufacturers’ and retailers’ branches

and offices (p 357)

Discussion Questions 11-1. Define the concept of shopper marketing and explain why

it has grown in prominence. (AACSB: Communication) 11-2. Explain how retailers can be classified based by the amount

of service offered and discuss an example of each retailer type. (AACSB: Communication; Reflective Thinking)

11-3. Name and describe the three types of off-price retailers. How do off-price retailers differ from discount stores? (AACSB: Communication)

11-4. Name and describe the three major groups of wholesal- ers. (AACSB: Communication; Reflective Thinking)

11-5. Compare and contrast brokers and agents with mer- chant wholesalers. (AACSB: Communication; Reflec- tive Thinking)

critical thinking exercises 11-6. In a small group, present a plan for a new retail store.

Who is the target market? Describe the merchandise, atmospherics, price points, services provided, location, and how you would promote your retail store. Describe how you will differentiate your store from competitors. (AACSB: Communication; Reflective Thinking)

11-7. Visit a local mall and evaluate five stores. What type of retailer is each of these stores? What is the target

market for each? How is each store positioned? Do the retail atmospherics of each store enhance this position- ing effectively to attract and satisfy the target market? (AACSB: Communication; Reflective Thinking)

11-8. Identify a retailer that is currently struggling. Discuss why it is having difficulties and suggest ways to turn things around. (AACSB: Communication; Reflective Thinking)

362 Part 3: Designing a customer Value-Driven strategy and Mix

It seems you can’t get away from the buzz of online, mo- bile, and social media marketing from the likes of Amazon, Walmart, Nordstrom, and other large retailers. But what about the small independent retailers? Are they also getting on the online, mobile, and social media bandwagon? Some indepen- dent retailers are using these tools. For example, a convenience store owner in Miami Tweets a picture to 7,000 followers of a new beer he just stocked that morning, and by late afternoon customers come streaming in to check it out. Emerson Salon in Seattle sources 75 percent of its business from Facebook, Twitter, and its blog. Butter Lane cupcake bakery in New York City has found success using social media as well. Although these retailers have embraced online, mobile, and social media marketing, to most small retailers, using Facebook, Twitter,

Pinterest, Tumblr, Groupon, Instagram, Yelp, Foursquare, and other digital media can seem downright intimidating.

11-9. Find an example of a local retailer in your community that uses online, mobile, and social media marketing. Interview the owner of the store or restaurant and ask about the challenges and successes they’ve experienced when implementing this strategy. (AACSB: Communi- cation; Use of IT; Reflective Thinking)

11-10. Create a presentation to give to local retailers explain- ing how they can effectively use online, mobile, and social media marketing to engage customers and enhance their business. (AACSB: Communication; Reflective Thinking)

Minicases anD aPPlications

online, Mobile, and social Media Marketing local retailers

Marketing ethics lilly for target The Lilly Pulitzer brand of brightly colored dresses and resort- themed designer items is the uniform of the preppy, Palm Beach set. Indeed, only select young women belonging to cer- tain sororities in certain communities are allowed discounts on the $100 to $500 items. But Target created a buying frenzy by debuting its Lilly for Target collection in April 2015. Target’s Pulitzer line was composed of 250 items, such as Lilly dresses at $40, which sold out within minutes of launch, crashed the store’s Web site, and created a firestorm of negative online comments from customers. The long lines outside stores caused one manager to name the event “Preppy Black Friday,” liken- ing it to the frenzied shopping day after Thanksgiving known as Black Friday. Most shoppers went home empty-handed be- cause others scooped up as much as they could, emptying the racks within minutes. Items then sold on eBay for much higher prices. This type of launch is not new for Target. In 2011, the retailer launched a line of Missoni items priced at $30 to $40.

Missoni’s distinctive zigzag and geometric-patterned knitwear, shoes, and houseware items normally sell for hundreds of dol- lars at retailers such as Bloomingdale’s and Saks Fifth Avenue. During the Missoni event, shoppers grabbed goods by the arm- load, even poaching items from other shoppers’ carts. While some shoppers went away happy, many more were not. In both merchandise promotions, Target officials announced the sold- out items would not be replenished.

11-11. Is it ethical for retailers to create a promotion but not have sufficient merchandise for all shoppers who want to buy the items? (AACSB: Communication; Ethical Reasoning)

11-12. Is it smart for Target to create such shopping frenzies even though some customers are dissatisfied? Explain why or why not. (AACSB: Communication; Reflective Thinking)

Marketing by the numbers stockturn rate Retailers need merchandise to make sales. In fact, a retailer’s inventory is its biggest asset. Not stocking enough merchan- dise can result in lost sales, but carrying too much inventory increases costs and lowers margins. Both circumstances reduce profits. One measure of a reseller’s inventory management ef- fectiveness is its stockturn rate (also called inventory turnover rate for manufacturers). The key to success in retailing is real- izing a large volume of sales on as little inventory as possible while maintaining enough stock to meet customer demands.

11-13. Refer to Appendix 3: Marketing by the Numbers, and determine the stockturn rate of a retailer carrying an average inventory at cost of $850,000, with a cost of goods sold of $1,800,000. (AACSB: Communication; Analytical Reasoning)

11-14. If this company’s stockturn rate was 4.5 last year, is the stockturn rate calculated above better or worse? Explain. (AACSB: Communication; Reflective Thinking)

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Video case kmart Once the leader in discount retailing, Kmart long ago took a back seat to Walmart, Target, and others discount chains. But recent efforts to provide value to customers through innovation show that the veteran retailer may still have its edge. To gain a competitive one-up, Kmart started a unique program that combined the benefits of online and brick-and-mortar shop- ping. When an item that customers wanted to purchase was not in stock at one of its stores, Kmart would ship the item to the customer’s home for free.

To launch this program, Kmart unveiled an ad campaign that illustrated an uncharacteristic relevance to younger, tech- savvy customers. With the slight-of-mouth message that cus- tomers could “ship their pants” (or any of the other 65 million

items in Kmart’s inventory) for free, the ad went viral. As a result, Kmart got its message out in spades, entertaining many while offending a few along the way.

After viewing the video featuring Kmart, answer the fol- lowing questions:

11-15. Consider the retail marketing mix. How did Kmart dif- ferentiate itself from other retailers with its free ship- ping program?

11-16. What kind of customer does the “Ship My Pants” cam- paign target? How is this significant?

11-17. Discuss what will be the ultimate effects of this Kmart campaign.

company cases 11 sears/14 alibaba/15 7-eleven See Appendix 1 for cases appropriate for this chapter. Case 11, Sears: Why Should You Shop There? Once “Where America Shops”, the former leading retailer now has customers scratching their heads. Case 14, Alibaba: The World’s Largest E-Tailer Is Not Amazon. Hardly known in the U.S., Alibaba has become the

fastest growing e-tailer in the world by expanding into just about every consumer business imaginable. Case 15, 7-Eleven: Adapt- ing to The World’s Many Cultures. Just a convenience store in the U.S., 7-Eleven has a strong global presence by adapting its re- tail marketing mix to fit the unique needs of consumers worldwide.

MyMarketingLab If assigned by your instructor, complete these writing sections from your Assignments in the MyLab.

11-18. Describe the types of shopping centers and identify specific examples in your community or a nearby city. (AACSB: Communication; Reflective Thinking)

11-19. The atmosphere in a retail store is carefully crafted to influence shoppers. Select a retailer that has both a physical store and an online store. Describe the elements of the physical store’s atmosphere, such as the colors, lighting, music, scents, and décor. What image is the store’s atmosphere projecting? Is that image appropriate given the merchandise assortment and target market of the store? Which elements of the physical store’s atmosphere are part of its online store atmosphere? Does the retailer integrate the physical store’s atmosphere with its online presence? Explain. (AACSB: Written and Oral Communication; Information Technology; Reflective Thinking)

12 objectiVe 12-1 Define the five promotion mix tools for communicating customer value. The Promotion Mix (366–367)

objectiVe 12-2 Discuss the changing communications landscape and the need for integrated marketing communica- tions. Integrated Marketing Communications (367–374)

engaging consumers and communicating customer Value

advertising and Public relations

objectiVe 12-3 Describe and discuss the major decisions involved in developing an advertising program. Advertising (375–392)

objectiVe 12-4 explain how companies use public relations to communicate with their publics. Public Relations (392–394)

Previewing the concepts in this and the next two chapters, we’ll examine the last of the marketing mix tools—promotion. companies must do more than just create customer value. they must also clearly and persua- sively communicate that value. Promotion is not a single tool but rather a mix of several tools. ideally, under the concept of integrated marketing communications, a company will carefully coordinate these promotion elements to engage customers and build a clear, consistent, and compelling message about an organization and its products. We’ll begin by introducing the various promotion mix tools. next, we’ll examine the rapidly changing communications environment—especially the addition of digital, mobile, and social media—and the need for integrated marketing communications. finally, we’ll look more closely at two of the promotion tools—advertising and public relations. in the next chapter, we’ll visit two other promotion mix tools—sales promotion and personal selling. then, in chapter 14, we’ll explore direct, online, mobile, and social media marketing.

let’s start by looking at an outstanding advertising campaign. two decades ago, geico was a little-known nicher in the U.s. auto-insurance industry. but now, thanks in large part to an industry-changing, big-budget advertising program, featuring an enduring tagline and a likeable but unlikely spokes-lizard, geico has muscled its way to the number- two position in its ultra-competitive industry. the message: good advertising really does matter. here’s the story.

chaPter roaD MaP objective outline

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first stop geico: From Bit Player to Behemoth through Good Advertising Founded in 1936, GEICO initially targeted a select customer group of government employees and noncommissioned military officers with exceptional driving records. Unlike its competitors, GEICO had no agents. Instead, the auto insurer marketed directly to customers, keeping its costs low and passing on the savings in the form of lower premiums. For nearly 60 years, GEICO’s marketing relied almost entirely on direct mail and telephone advertising.

In 1994, however, when GEICO decided to expand its customer base, it knew that it must also expand its marketing. So it entered the world of mass media, a shift that would dramatically change the face of insurance advertising. GEICO started slowly, spending a pal- try $10 million to launch its first national TV, radio, and print ads. Then, in 1996, billionaire investor Warren Buffett bought the com- pany and famously told the marketing group “money is no object” when it comes to growing the business, so “speed things up.” Did it ever. Over the next 10 years, GEICO’s ad spending jumped 50-fold, to more than $500 million a year.

By now, you know a lot about GEICO and its smooth-talking gecko. But at the start, the insurer faced a tough task—introducing a little-known brand with a funny name to a national audience. Like all good advertising, the GEICO campaign began with a simple but compelling theme, one that highlights the convenience and savings advantages of GEICO’s direct-to-customers system. To this day, every single one of the hundreds of ads and other content pieces in the GEICO campaign has driven home the now-familiar pitch: “15 minutes could save you 15 percent or more on car insurance.”

But what really set GEICO’s advertising apart was the inspired way the company chose to bring its value proposition to life. At the time, competitors were using serious and sentimental pitches— “You’re in good hands with Allstate” or “Like a good neighbor, State Farm is there.” To make its advertising stand out, GEICO decided to deliver its punch line with humor. The creative approach worked, and sales began to climb.

In trying to grow the brand, it become apparent that customers had difficulty pronouncing the GEICO name (which stands for Government Employees Insurance Company). Too often, GEICO became “gecko.” Enter the charismatic green lizard. In 1999, GEICO ran a 15- second spot in which the now-famous, British-accented gecko called a press conference and pleaded: “I am a gecko, not to be confused with GEICO, which could save you hundreds on car insurance. So stop calling me.” The ad was supposed to be a one-time “throwaway,” but consumers quickly flooded the company with calls and letters begging to see more of the gecko. The rest, as they say, is history.

Although the gecko remains GEICO’s iconic spokesman, one liz- ard could take the company only so far. So over the years, to keep its pitch fresh and entertaining, GEICO has supplemented the gecko ads with a continuous flow of clever, buzzworthy new executions tell- ing the brand’s value story. Early on, when GEICO first went online, the campaign employed a clutch of cultured cavemen, insulted by the company’s advertising slogan, “It’s so easy to use GEICO.com, even a caveman could do it.” Later, in response to the question, “Can switching to GEICO really save you 15 percent or more on car

insurance?,” the “Rhetorical Questions” campaign responded, “Is Ed ‘Too Tall’ Jones too tall?,” “Was Abe Lincoln honest?,” and “Did the little piggy cry ‘wee wee wee’ all the way home?” That last ad intro- duced the world to Maxwell, the talking pig who went on to star in his own GEICO campaign, emphasizing GEICO’s growing digital, social, and mobile advances.

Another ad series promoted yet another GEICO character to pop culture icon status—the wildly popular Caleb the Camel who struts through the office every Wednesday rejoicing “It’s hump day,” sug- gesting that GEICO customers are “Happier than a camel on hump day.” The swaggering Caleb went on to star in other GEICO com- mercials and even appeared in a string of pre-game Super Bowl commercials with Terry Bradshaw. In GEICO’s more recent “It’s what you do” campaign, among another fresh batch of creative ads and characters, one epi- sode features Caleb and a friend at the zoo, non- chalantly accepting the taunts of people imitating his best “it’s hump day” lines from previous com- mercials. The ad concludes, “If you’re a camel, you put up with this all the time. It’s what you do. And if you want to save 15 percent or more on car insurance, you switch to GEICO. It’s what you do.”

“No matter how many GEICO ads you’ve seen over the years— and it’s a bunch—they never seem to grow stale,” observes one expert. The company’s chief marketing officer explains, “We’re trying to stay ever-present in the consumer’s mind but not bore them and have them just tune out yet another GEICO ad.” However, no matter how varied, each minicampaign has a distinctly GEICO flavor, and every single ad closes strongly with the crucial “15 minutes could save you 15 percent” tagline.

for nearly 20 years, geico’s advertising and charismatic gecko have creatively and relentlessly driven home the brand’s value proposition: “15 minutes could save you 15 percent or more on car insurance.” All text and images are copy written with permission from GEICO.

thanks in large part to an industry-

changing, big-budget advertising program, featuring

an enduring tagline and a likeable but unlikely spokes-lizard, geico

has muscled its way to the number-two position in

its ultra-competitive industry.

366

The GEICO tagline is now so well-recognized that in one minicam- paign—“Did you know?”—the brand even poked a little fun at itself. The commercials showed one person reading a GEICO “15 percent” ad while a second person observed, “Everybody knows that.” The first person then responded, “Well, did you know . . .” followed by a humorous (though fictional) fact. For instance, after revealing that “Old MacDonald was a really bad speller,” one ad showed a farmer participant being eliminated from a spelling bee when he spells cow “C-O-W . . . E-I-E-I-O.” Each ad concluded, “GEICO: 15 minutes could save you, well . . . you know.”

Along with fresh content, GEICO has also adapted its content delivery to the fast-changing digital times. The brand was one of the first in its industry to provide customers with mobile apps and options for obtaining quotes, buying policies, and managing their accounts. The company is also an acknowledged leader in the use of online and social media, ranking third in the insurance industry behind only full-line insurers Allstate and State Farm in social media performance and digital customer engagement. The company’s ads and Web-only videos are heavily viewed favorites online.

GEICO continues to invest heavily in advertising and content marketing, outspending every other insurance company in measured media by a nearly two-to-one margin. Its annual advertising budget, now more than $1 billion, makes GEICO the third-most-advertised U.S. megabrand, ahead of big spenders such as McDonald’s, Toy- ota, and Walmart. The brand’s creative and relentless advertising messaging, plus its heavy investment, has paid big dividends. The once little-known GEICO brand now enjoys well over 90 percent awareness among insurance shoppers. And after years of double- digit market share gains, GEICO recently passed Allstate to move into second place in the ultra-competitive U.S. car-insurance market.

Moreover, beyond spurring GEICO’s spectacular growth, the brand’s advertising has changed the way the entire insurance indus- try markets its products. In what was once a yawn-provoking category, competitors ranging from Allstate (with “Mayhem”) to Progressive (with “Flo”) are now injecting humor and interest in their own advertising campaigns. “This strategy is absolutely working for GEICO,” asserts one analyst. It’s “a testament to how GEICO has used advertising to evolve from a bit player to a behemoth,” says another.1

uilding good customer relationships calls for more than just developing a good product, pricing it attractively, and making it available to target customers. Companies must also engage consumers and communicate their value propositions

to customers, and what they communicate should not be left to chance. All communica- tions must be planned and blended into carefully integrated programs. Just as good com- munication is important in building and maintaining any other kind of relationship, it is a crucial element in a company’s efforts to engage customers and build profitable customer relationships.

the Promotion Mix A company’s total promotion mix—also called its marketing communications mix— consists of the specific blend of advertising, public relations, personal selling, sales promotion, and direct marketing tools that the company uses to engage consumers, per- suasively communicate customer value, and build customer relationships. The five major promotion tools are defined as follows:2

●● Advertising. Any paid form of nonpersonal presentation and promotion of ideas, goods, or services by an identified sponsor.

●● Sales promotion. Short-term incentives to encourage the purchase or sale of a product or service.

●● Personal selling. Personal customer interactions by the firm’s sales force for the purpose of engaging customers, making sales, and building customer relationships.

●● Public relations (PR). Building good relations with the company’s various publics by obtaining favorable publicity, building up a good corporate image, and handling or heading off unfavorable rumors, stories, and events.

●● Direct and digital marketing. Engaging directly with carefully targeted individ- ual consumers and customer communities to both obtain an immediate response and build lasting customer relationships.

Each category involves specific promotional tools that are used to communicate with cus- tomers. For example, advertising includes broadcast, print, online, mobile, outdoor, and other forms. Sales promotion includes discounts, coupons, displays, and demonstrations. Personal selling includes sales presentations, trade shows, and incentive programs. Public relations

author comment The promotion mix is the marketer’s bag

of tools for engaging and communicating with customers and other stakeholders. To deliver a clear and compelling message, each tool

must be carefully coordinated under the concept of integrated marketing

communications (IMC).

Promotion mix (marketing communications mix) The specific blend of promotion tools that the company uses to engage customers, persuasively communicate customer value, and build customer relationships.

advertising Any paid form of nonpersonal presentation and promotion of ideas, goods, or services by an identified sponsor.

sales promotion Short-term incentives to encourage the purchase or sale of a product or a service.

Personal selling Personal customer interactions by the firm’s sales force for the purpose of engaging customers, making sales, and building customer relationships.

chapter 12: engaging consumers and communicating customer Value 367

includes press releases, sponsorships, events, and Web pages. And direct and digital market- ing includes direct mail, catalogs, online and social media, mobile marketing, and more.

At the same time, marketing communication goes beyond these specific promotion tools. The product’s design, its price, the shape and color of its package, and the stores that sell it—all communicate something to buyers. Thus, although the promotion mix is the company’s primary engagement and communications activity, the entire marketing mix—promotion, and product, price, and place—must be coordinated for greatest impact.

integrated Marketing communications In past decades, marketers perfected the art of mass marketing: selling highly standard- ized products to masses of customers. In the process, they developed effective mass-media communication techniques to support these strategies. Large companies now routinely invest millions or even billions of dollars in television, magazine, or other mass-media advertising, reaching tens of millions of customers with a single ad. Today, however, marketing managers face some new marketing communications realities. Perhaps no other area of marketing is changing so profoundly as marketing communications, creating both exciting and challenging times for marketing communicators.

the new Marketing communications Model Several major factors are changing the face of today’s marketing communications. First, consumers are changing. In this digital, wireless age, consumers are better informed and more communications empowered. Rather than relying on marketer-supplied information, they can use the Internet, social media, and other technologies to find information on their own. They can connect easily with other consumers to exchange brand-related information or even create their own brand messages and experiences.

Second, marketing strategies are changing. As mass markets have fragmented, market- ers are shifting away from mass marketing. More and more, they are developing focused marketing programs designed to engage customers and build customer relationships in more narrowly defined micromarkets.

Finally, sweeping advances in digital technology are causing remarkable changes in the ways companies and customers communicate with each other. The digital age has spawned a host of new information and communication tools—from smartphones and tab- lets to satellite and cable television systems to the many faces of the Internet (brand Web sites, email, blogs, social media and online communities, the mobile Web, and so much more). Just as mass marketing once gave rise to a new generation of mass-media commu- nications, the new digital and social media have given birth to a more targeted, social, and engaging marketing communications model.

Although network television, magazines, newspapers, and other traditional mass media remain very important, their dominance is declining. In their place, advertisers are now adding a broad selection of more-specialized and highly targeted media to engage smaller customer communities with more personalized, interactive content. The new media range from specialty cable television channels and made-for-the-Web videos to online ads, email and texting, blogs, mobile catalogs and coupons, and a burgeoning list of social media. Such new media have taken marketing by storm.

Some advertising industry experts even predict that the old mass-media communica- tions model will eventually become obsolete. Mass-media costs are rising, audiences are shrinking, ad clutter is increasing, and viewers are gaining control of message exposure through technologies such as video streaming or DVRs that let them skip disruptive tele- vision commercials. As a result, the skeptics suggest, marketers are shifting ever-larger portions of their marketing budgets away from old-media mainstays and moving them to online, social, mobile, and other new-age media.

In recent years, although TV still dominates as an advertising medium with a 38 percent share of U.S. ad spending, its growth has stagnated. Spending in magazines, newspapers, and radio has lost ground. Meanwhile, digital media have come from nowhere during the

Public relations (Pr) Building good relations with the company’s various publics by obtaining favorable publicity, building up a good corporate image, and handling or heading off unfavorable rumors, stories, and events.

author comment Integrated marketing communications— IMC—is a really hot topic these days.

No other area of marketing is changing so quickly and profoundly. A big part of the reason is the huge surge in

customer engagement through digital media—online, mobile, and social

media marketing.

Direct and digital marketing Engaging directly with carefully targeted individual consumers and customer communities to both obtain an immediate response and build lasting customer relationships.

368 Part 3: Designing a customer Value-Driven strategy and Mix

past several years to account for about 30 percent of U.S. advertising spending, second only to TV. By far the fastest-growing ad-spending category, digital’s share is expected to grow to 36 percent by 2019. P&G, the world’s biggest advertiser, now spends as much as one-third of its marketing budget on digital media. By one estimate, companies around the world now invest an average of 24 percent of their media budgets on digital.3

Some marketers now rely almost entirely on digital and social media. For example, eco-friendly household products maker Method employs a full but mostly digital promo- tional campaign themed “Clean happy”:4

Method is known for offbeat campaigns using slogans like “People against dirty” and “For the love of clean.” But the most notable thing about the “Clean happy” campaign is that it at first used zero ads in traditional media like TV or magazines. Instead, the centerpiece of the campaign was brand videos aired only on YouTube and on the Method Facebook page. The campaign also employed online media ads as well as a major presence in social media that included, in addition to YouTube and Facebook, the Method Twitter feed and blogs. The “Clean happy” campaign fit both Method’s personality and its budget. Method is the kind of grassroots brand that benefits from

social media–type word of mouth. Moreover, “Clean happy” ran a first-year budget of only about $3.5 mil- lion, compared with the whopping $150 million or so that rival P&G might spend just to bring out a single new product, such as Tide Pods detergent packets.

Method ran the digital-only campaign for a full year before beginning to bring it to TV. Even now, the “Clean happy” campaign relies heavily on digital and social media, supported only by carefully targeted regional cable TV in selected markets. More recent campaign installments include “Life’s Messy Moments,” a romantic comedy-style series of TV and online ads and other social media content that fol- low a young couple and their relatable messes from their first kiss to first kid to a clean, happy ending. To kick off the campaign on Facebook, Method hosted a photo contest called Clean Happy Awards, asking fans to submit their best pet, kid, and party messes. “We’re embracing this grassroots movement,” says a Method ad executive. “When you don’t have 150 million bucks, that’s what you have to do.”

In the new marketing communications world, rather than using old approaches that inter- rupt customers and force-feed them mass messages, new media formats let marketers reach smaller communities of consumers in more engaging ways. For example, think about televi- sion viewing these days. Consumers can now watch their favorite programs on just about anything with a screen—on televisions but also laptops, smartphones, or tablets. And they can choose to watch programs whenever and wherever they wish, often without commercials. Increasingly, some programs, ads, and videos are being produced only for online viewing.

Despite the shift toward digital media, however, traditional mass media still capture a sizable share of the promotion budgets of most major marketing firms, a fact that prob- ably won’t change quickly. Thus, rather than the old-media model collapsing completely, most marketers foresee a shifting mix of both traditional mass media and online, mobile, and social media that engage more-targeted consumer communities in a more personalized way. In the end, regardless of the communications channel, the key is to integrate all of these media in a way that best engages customers, communicates the brand message, and enhances the customer’s brand experiences.

As the marketing communications environment shifts, so will the role of market- ing communicators. Rather than just creating and placing “TV ads” or “print ads” or “Snapchat branded story ads,” many marketers now view themselves more broadly as content marketing managers. As such, they create, inspire, and share brand messages and conversations with and among customers across a fluid mix of paid, owned, earned, and shared communication channels. These channels include media that are both tradi- tional and new as well as controlled and not controlled (see Marketing at Work 12.1).

content marketing Creating, inspiring, and sharing brand messages and conversations with and among consumers across a fluid mix of paid, owned, earned, and shared channels.

the new marketing communications model: Method’s successful and long-running “clean happy” campaign began as an online-only effort and still relies heavily on digital and social media, supported only by carefully targeted regional cable tV ads in selected markets. Method Products PBC

chapter 12: engaging consumers and communicating customer Value 369

content marketing: intel and toshiba’s award-winning “inside” social media film series blurs the line between advertising, social media, and entertainment, creating high levels of customer– brand engagement for the two brands. Courtesy Intel and Toshiba American Information Systems, Inc.

In the good old days, life seemed so simple for advertisers. When a brand needed an advertising campaign, everybody knew what that meant. The brand team and ad agency came up with a creative strategy, developed a media plan, produced and placed a set of TV commercials and magazine or newspaper ads, and maybe issued a press release to stir up some news. But in these digital times, the old practice of placing “advertise- ments” in well-defined “media” within the tidy framework of a carefully managed “advertising campaign” just doesn’t work anymore.

Instead, the lines are rapidly blurring between traditional advertising and new digital content. To be relevant, today’s brand messages must be social, mobile, interactively engag- ing, and multi-platformed. Says one industry insider: “Today’s media landscape keeps getting more diverse—it’s broadcast, cable, and streaming; it’s online, tablet, and smartphone; it’s video, rich media, social media, branded content, banners, apps, in-app advertising, and interactive technology products.”

The new digital landscape has called into question the very definition of advertising. “What Is Advertising Anyway?” asks one provocative headline. Call it whatever you want, admon- ishes another, but “Just Don’t Call It Advertising.” Instead, according to many marketers these days, it’s “content mar- keting,” creating and distributing a broad mix of compelling content that engages customers, builds relationships with and among them, and moves them to action. To feed today’s digital and social media machinery and to sustain “always-on” con- sumer conversations, brands need a constant supply of fresh content across a breadth of traditional and digital platforms.

Many advertisers and marketers now view themselves more broadly as content marketing managers who create, inspire, share, and curate marketing content— both their own content and that created by consumers and others. Rather than using traditional media breakdowns, they subscribe to a new framework that builds on how and by whom marketing content is created, controlled, and dis- tributed. The new classification identifies four major types of media: paid, owned, earned, and shared (POES):

Paid media—promotional channels paid for by the marketer, including tra- ditional media (such as TV, radio, print, or outdoor) and online and digital media (paid search ads, mobile ads, email mar- keting, or Web and social media display ads and sponsored content).

Owned media—promotional channels owned and con- trolled by the company, including company Web sites, corporate blogs, owned social media sites, proprietary brand communities, sales forces, and events.

Earned media—PR media channels, such as television, newspapers, blogs, online video sites, and other media not directly paid for or controlled by the marketer but that incor- porate the content because of viewer, reader, or user interest.

Shared media—media shared by consumers with other con- sumers, such as social media, blogs, mobile media, and viral channels as well as traditional word of mouth.

In the past, advertisers have focused on traditional paid (broadcast, print) or earned (public relations) media. Now, however, content marketers are rapidly adding the new digital generation of owned (Web sites, blogs, brand communities) and shared (online social, mobile, email) media. Whereas a success- ful paid ad used to be an end in itself, marketers are now devel- oping integrated marketing content that leverages the combined power of all the POES channels. Thus, many TV ads often aren’t just TV ads anymore. They’re “video content” you might see anywhere—on a TV screen but also on a tablet or phone. Other video content looks a lot like TV advertising but was never intended for TV, such as made-for-online videos posted on Web sites or social media. Similarly, printed brand messages and pictures no longer appear only in carefully crafted maga- zine ads or catalogs. Instead, such content, created by a variety of sources, pops up in anything from formal ads and online brand pages to mobile and social media and independent blogs.

Marketing at Work 12.1

just Don’t call it advertising: it’s content Marketing

370 Part 3: Designing a customer Value-Driven strategy and Mix

the need for Integrated Marketing communications The shift toward a richer mix of media and content approaches poses a problem for marketers. Consumers today are bombarded by brand messages from a broad range of sources. But all too often, companies fail to integrate their various communication chan- nels. Mass-media ads say one thing, whereas company’s Internet site, emails, social media pages, or videos posted on YouTube say something altogether different.

One problem is that marketing content often comes from different parts of the com- pany. Advertising messages are prepared by the advertising department or an ad agency. Other company departments or agencies prepare public relations messages, sales promo- tion events, and online or social media content. However, consumers don’t distinguish between content sources the way marketers do. In the consumer’s mind, brand-related content from different sources—whether it’s a Super Bowl ad, in-store display, mobile app, or friend’s social media post—all merge into a single message about the brand or

The new “content marketing” campaigns look a lot different from the old “advertising” campaigns. For example, to move beyond its long-running, traditional “Intel Inside” advertis- ing, Intel recently teamed with computer maker Toshiba to produce an award-winning social media film series called “Inside.” Enlisting the talents of Hollywood directors and actors, the engaging series blurs the lines between advertising, social media, and entertainment. One series, a comedy/sci-fi adventure called “The Power Inside,” chronicled the efforts of a Scooby-Doo squad of 20-somethings to foil the plans of aliens intent on taking over the world by disguising themselves as mustaches and unibrows. Intel-powered Toshiba Ultrabooks play a central role, but the subtle product placement doesn’t come across as an ad.

“The Power Inside” was released in six episodes on YouTube, with traffic driven through Facebook and Twitter (shared media), a dedicated microsite (owned media), and ads placed on Skype and Spotify (paid media). Awareness and pop- ularity of the series were driven higher by mentions and articles in independent blogs and the press (earned media). “The Power Inside” earned even more publicity when its launch coincided perfectly with the awarding of a Daytime Emmy and the cov- eted Cannes Grand Prix award to the previous Intel/Toshiba series, “The Beauty Inside.” In all, the integrated, multi- platform content marketing campaign created high levels of customer–brand engagement for the Intel and Toshiba brands. Based on the success of its partnership with Toshiba, Intel recently launched yet another social film series, “What Lives Inside,” this time partnering with Dell.

Careful integration across the POES channels can produce striking communications results. Consider Samsung’s “Life’s a Photo. Take It.” campaign to launch its Web-connected Galaxy Camera in 18 regions worldwide. To show how easily images taken by the camera can be shared instantly anytime, anyplace, Samsung chose 32 prominent Instagramers (“the world’s most social photographers”) and challenged them to use the new camera to prove that their cities—from London, Amsterdam, Berlin, Madrid, and Milan to Paris, Sydney, and San Francisco—were the most photogenic in the world. Their photos were uploaded to Tumblr, and fans voted for their

favorites via Tumblr, Facebook, Twitter, and Pinterest. The winning city—Berlin—hosted a massive final event, where influencers invited from across Europe took photos with the connected camera and saw them projected onto giant, inflat- able, 3D-projection cubes.

The “Life’s a Photo. Take It.” campaign, with its rich mix of marketing content, was an unqualified success. During its three-month run, the campaign reached more than 79 million people worldwide. Awareness of the Galaxy Camera rose 58 percent; purchase intent jumped 115 percent. The campaign won an Interactive Advertising Bureau MIXX award for content marketing, sparking a flurry of additional publicity. Finally, the social media campaign served as a foundation for a series of paid television ads. In the end, Samsung reignited a product category that many considered to be waning—dedicated digital cameras—and became the market leader in Web-connected digital imaging.

So, we can’t just call it “advertising” anymore. Today’s shift- ing and sometimes chaotic marketing communications environ- ment calls for more than simply creating and placing ads in well-defined and controlled media spaces. Rather, today’s mar- keting communicators must be marketing content strategists, creators, connectors, and catalysts who manage brand conversa- tions with and among customers and help those conversations catch fire across a fluid mix of channels. That’s a tall order, but with today’s new thinking, anything is POES-ible!

Sources: Randall Rothenberg, “What Is Advertising Anyway?” Ad Week, September 16, 2013, p. 15; Joan Voight, “Intel and Toshiba Peddle Product Placement in Branded Film ‘The Power Inside,’” Ad Week, July 29, 2013, www .adweek.com/print/151476; Patrick Darling, “Chip Shot: Dell and Intel Debut New Social Film ‘What Lives Inside’ on Hulu,” March 23, 2015, http:// newsroom.intel.com/community/intel_newsroom/blog/2015/03/23/ chip-shot-dell-and-intel-debut-new-social-film-what-lives-inside-on-hulu; Peter Himler, “Paid, Earned & Owned: Revisited,” The Flack, June 21, 2011, http:// flatironcomm.com/2011/06/paid-earned-owned-revisited/; “Samsung’s Galaxy Camera,” 2013 AIB MIXX Awards Winners Gallery, www.iab.net/mixxawards/ gallery2013/strategies-and-objectives/content-marketing.html; http:// samsung camera.tumblr.com/latest; “Life’s a Photo, Take It,” Jam, www.spreadingjam .com/our-work/samsung/life-s-a-photo-take-it, accessed June 2015; and “‘Life’s a Photo. Take It’—Campaign Overview,” Vice, www.vice.com/sgc/lifes-a- photo-take-it-campaign-overview, accessed October 2015.

http://newsroom.intel.com/community/intel_newsroom/blog/2015/03/23/chip-shot-dell-and-intel-debut-new-social-film-what-lives-inside-on-hulu

http://flatironcomm.com/2011/06/paid-earned-owned-revisited/

http://www.iab.net/mixxawards/gallery2013/strategies-and-objectives/content-marketing.html

http://samsungcamera.tumblr.com/latest

http://www.spreadingjam.com/our-work/samsung/life-s-a-photo-take-it

http://www.vice.com/sgc/lifes-a-photo-take-it-campaign-overview

www.adweek.com/print/151476

http://newsroom.intel.com/community/intel_newsroom/blog/2015/03/23/chip-shot-dell-and-intel-debut-new-social-film-what-lives-inside-on-hulu

http://www.iab.net/mixxawards/gallery2013/strategies-and-objectives/content-marketing.html

http://samsungcamera.tumblr.com/latest

http://www.spreadingjam.com/our-work/samsung/life-s-a-photo-take-it

chapter 12: engaging consumers and communicating customer Value 371

company. Conflicting content from these different sources can result in confused company images, brand positions, and customer relationships.

Thus, the explosion of online, mobile, and social media marketing presents tremen- dous opportunities but also big challenges. It gives marketers rich new tools for under- standing and engaging customers. At the same time, it complicates and fragments overall marketing communications. The challenge is to bring it all together in an organized way. To that end, more companies today are adopting the concept of integrated marketing communications (IMC). Under this concept, as illustrated in figure 12.1, the company carefully integrates and coordinates its many communication channels to deliver a clear, consistent, and compelling message about the organization and its brands.

Often, different media play unique roles in engaging, informing, and persuading consumers. For example, a recent study showed that more than two-thirds of advertisers and their agencies are planning video ad campaigns that stretch across multiple view- ing platforms, such as traditional TV and digital, mobile, and social media. Such video

convergence, as it’s called, combines TV’s core strength— vast reach—with digital’s better targeting, interaction, and engagement.5 These varied media and roles must be carefully coordinated under the overall integrated marketing communi- cations plan.

One good example of a well-integrated marketing com- munications effort is home-improvement retailer Lowe’s “Never Stop Improving” campaign, which integrates the clout of big-budget traditional media with the power of social media to create personalized, real-time customer engagement:6

To be sure, Lowe’s runs a full slate of big-budget television spots and other traditional media ads that drive home its “Never Stop Improving” positioning. But in recent years, the company has added a rich flow of engaging, carefully integrated social media content that personalizes and enriches the Lowe’s customer expe- rience in ways that traditional media can’t. Just one example is the Lowe’s “Fix in Six” Vine video campaign. “Fix in Six” features dozens of clever six-second looping videos showing quick-fix solutions to home-improvement problems—everything from removing stripped screws to keeping squirrels away from plants. The award-winning series was a huge success from the start, generating 28,000 social media mentions within just the first week and earning millions of total campaign impressions to date.

integrated marketing communications (iMc) Carefully integrating and coordinating the company’s many communications channels to deliver a clear, consistent, and compelling message about the organization and its brands.

figure 12.1 integrated Marketing communications

integrated marketing communications: the lowe’s “never stop improving” campaign integrates the clout of big-budget traditional media with the power of social media to create personalized, real-time customer engagement. LOWE’S, the Gable Mansard Design, and NEVER STOP IMPROVING are trademarks or registered trademarks of LF, LLC.

372 Part 3: Designing a customer Value-Driven strategy and Mix

Beyond Vine, the Lowe’s “Never Stop Improving” campaign integrates a broad mix of social media, each playing its own unique role. Lowe’s uses its heavily subscribed YouTube channel for longer DIY video tips and tutorials to supplement the quick hits on Vine. It uses Pinterest and Instagram to inspire customers’ projects to life through high-impact imagery. Facebook provides a platform for engaging customers in dialogue—every Facebook comment gets an answer. Twitter serves for posting short comments or spreading the word about special offers. No matter what the platform, all content—from television spots to online videos to Facebook posts—is carefully coordinated under Lowe’s “Never Stop Improving” mantra and its mission of helping customers find home-improvement solutions. According to one Lowe’s marketer, the integrated marketing campaign is less about making the cash register ring and more about “making sure that customers . . . know that Lowe’s is offering them value and [about keeping them] engaged with the brand.”

shaping the overall Promotion Mix The concept of integrated marketing communications suggests that the company must blend the promotion tools carefully into a coordinated promotion mix. But how does it determine what mix of promotion tools to use? Companies within the same industry dif- fer greatly in the design of their promotion mixes. For example, cosmetics maker Mary Kay spends most of its promotion funds on personal selling and direct marketing, whereas competitor CoverGirl spends heavily on consumer advertising. We now look at factors that influence the marketer’s choice of promotion tools.

the nature of each Promotion tool Each promotion tool has unique characteristics and costs. Marketers must understand these characteristics in shaping the promotion mix.

advertising. Advertising can reach masses of geographically dispersed buyers at a low cost per exposure, and it enables the seller to repeat a message many times. Television advertising

can reach huge audiences. For example, more than 114 million Americans watched the most recent Super Bowl, and as many as 18 million avid fans tuned in each week for the latest season of NCIS. What’s more, a popular TV ad’s reach can be extended through online and social media. For example, consider Microsoft’s inspiring and effective Super Bowl XLIX “Empow- ering” ad, featuring six-year-old Braylon O’Neill excelling on prosthetic legs and showing how technology empowers us all to make the impossible possible. In addition to 100-plus mil- lion TV viewers, the ad drew more than 6.2 million YouTube views during the ensuing two months. For companies that want to reach a mass audience, TV is the place to be.7

Beyond its reach, large-scale advertising says some- thing positive about the seller’s size, popularity, and success. Because of advertising’s public nature, consumers tend to view advertised products as more legitimate. Advertising is also very expressive; it allows the company to dramatize its products through the artful use of visuals, print, sound, and color. On the one hand, advertising can be used to build up a long-term image for a product (such as Coca-Cola ads). On the other hand, advertising can trigger quick sales (as when Kohl’s advertises weekend specials).

Advertising also has some shortcomings. Although it reaches many people quickly, mass-media advertising is impersonal and lacks the direct persuasiveness of com- pany salespeople. For the most part, advertising can carry on only a one-way communication with an audience, and the audience does not feel that it has to pay attention or respond. In addition, advertising can be very costly. Although some advertising forms—such as newspaper, radio, or online advertising—can be done on smaller budgets, other forms,

author comment In this section, we’ll look at how

marketers blend the various marketing communication tools into a

smooth-functioning integrated promotion mix.

tV advertising has vast reach. Microsoft’s inspiring super bowl xlix “empowering” ad—about how technology improves our lives—drew 100-plus million tV viewers and triggered millions of online views and shares. Microsoft Corporation

chapter 12: engaging consumers and communicating customer Value 373

such as network TV advertising, require very large budgets. For example, the one-minute Microsoft “Empowering” Super Bowl ad discussed above cost $9 million for media time alone, not counting the costs of producing the ad.

Personal selling. Personal selling is the most effective tool at certain stages of the buy- ing process, particularly in building up buyers’ preferences, convictions, and actions. It involves personal interaction between two or more people, so each person can observe the other’s needs and characteristics and make quick adjustments. Personal selling also allows all kinds of customer relationships to spring up, ranging from matter-of-fact selling relationships to personal friendships. An effective salesperson keeps the customer’s inter- ests at heart to build a long-term relationship by solving a customer’s problems. Finally, with personal selling, the buyer usually feels a greater need to listen and respond, even if the response is a polite “No, thank you.”

These unique qualities come at a cost, however. A sales force requires a longer-term commitment than does advertising—advertising can be turned up or down, but the size of a sales force is harder to change. Personal selling is also the company’s most expensive promo- tion tool, costing companies on average $600 or more per sales call, depending on the indus- try.8 U.S. firms spend up to three times as much on personal selling as they do on advertising.

sales Promotion. Sales promotion includes a wide assortment of tools—coupons, con- tests, discounts, premiums, and others—all of which have many unique qualities. They attract consumer attention, engage consumers, offer strong incentives to purchase, and can be used to dramatize product offers and boost sagging sales. Sales promotions invite and reward quick response. Whereas advertising says, “Buy our product,” sales promotion says, “Buy it now.” Sales promotion effects can be short lived, however, and often are not as effective as advertising or personal selling in building long-run brand preference and cus- tomer relationships.

Public relations. Public relations is very believable—news stories, features, sponsorships, and events seem more real and believable to readers than ads do. PR can also reach many prospects who avoid salespeople and advertisements—the message gets to buyers as “news and events” rather than as a sales-directed communication. And, as with advertising, public relations can dramatize a company or product. Marketers tend to underuse public relations or use it as an afterthought. Yet a well-thought-out public relations campaign used with other promotion mix elements can be very effective and economical.

Direct and Digital Marketing. The many forms of direct and digital marketing—from direct mail, catalogs, and telephone marketing to online, mobile, and social media—all share some distinctive characteristics. Direct marketing is more targeted: It’s usually directed to a specific customer or customer community. Direct marketing is immediate and personal- ized: Messages can be prepared quickly—even in real time—and tailored to appeal to individual consumers or brand groups. Finally, direct marketing is interactive: It allows a dialogue between the marketing team and the consumer, and messages can be altered depending on the consumer’s response. Thus, direct and digital marketing are well suited to highly targeted marketing efforts, creating customer engagement, and building one-to-one customer relationships.

Promotion Mix strategies Marketers can choose from two basic promotion mix strategies: push promotion or pull promotion. figure 12.2 contrasts the two strategies. The relative emphasis given to the specific promotion tools differs for push and pull strategies. A push strategy involves “pushing” the product through marketing channels to final consumers. The producer directs its marketing activities (primarily personal selling and trade promotion) toward channel members to induce them to carry the product and promote it to final consumers. For example, John Deere does very little promoting of its lawn mowers, garden tractors, and other residential consumer products to final consumers. Instead, John Deere’s sales force works with Lowe’s, Home Depot, independent dealers, and other channel members, who in turn push John Deere products to final consumers.

Push strategy A promotion strategy that calls for using the sales force and trade promotion to push the product through channels. The producer promotes the product to channel members who in turn promote it to final consumers.

374 Part 3: Designing a customer Value-Driven strategy and Mix

Using a pull strategy, the producer directs its marketing activities (primarily advertising, consumer promotion, and direct and digital media) toward final consumers to induce them to buy the product. For example, Unilever promotes its Axe grooming products directly to its young male target market using TV and print ads, Web and social media brand sites, and other channels. If the pull strategy is effective, consumers will then demand the brand from retailers such as CVS, Walgreens, or Walmart, which will in turn demand it from Unilever. Thus, under a pull strategy, consumer demand “pulls” the prod- uct through the channels.

Some industrial-goods companies use only push strategies; likewise, some direct marketing companies use only pull strategies. However, most large companies use some combination of both. For example, Unilever spends nearly $8 billion worldwide each year on consumer marketing and sales promotions to create brand preference and pull custom- ers into stores that carry its products.9 At the same time, it uses its own and distributors’ sales forces and trade promotions to push its brands through the channels so that they will be available on store shelves when consumers come calling.

Companies consider many factors when designing their promotion mix strategies, including the type of product and market. For example, the importance of different pro- motion tools varies between consumer and business markets. Business-to-consumer com- panies usually pull more, putting more of their funds into advertising, followed by sales promotion, personal selling, and then public relations. In contrast, business-to-business marketers tend to push more, putting more of their funds into personal selling, followed by sales promotion, advertising, and public relations.

Now that we’ve examined the concept of integrated marketing communications and the factors that firms consider when shaping their promotion mixes, let’s look more closely at the specific marketing communications tools.

Pull strategy A promotion strategy that calls for spending a lot on consumer advertising and promotion to induce final consumers to buy the product, creating a demand vacuum that “pulls” the product through the channel.

Producer Retailers and wholesalers

Push strategy

Consumers

Producer Retailers and wholesalers

Reseller marketing activities (personal selling, advertising,

sales promotion, other)

Demand

Producer marketing activities (personal selling, trade

promotion, other)

Producer marketing activities (advertising, sales promotion, online and social media, other)

Demand Consumers

promotion, other) sales promotion, other)

DemandDemand

Producer marketing activities (advertising, sales promotion, online and social media, other)

Pull strategy

In a push strategy, the company “pushes” the product to resellers, which in turn “push” it to consumers.

In a pull strategy, the company promotes directly to final consumers, creating a demand vacuum that “pulls” the product through the channel. Most companies use some combination of push and pull.

figure 12.2 Push versus Pull Promotion strategy

linking the concePts Pause here for a few minutes. Flip back through and link the parts of the chapter you’ve read so far.

●● How does the integrated marketing communications (IMC) concept relate to the promotion mix concept?

●● How has the changing communications environment affected the ways in which companies com- municate with you about their products and services? If you were in the market for a new car, where might you hear about various available models? Where would you search for information?

chapter 12: engaging consumers and communicating customer Value 375

advertising Advertising can be traced back to the very beginnings of recorded history. Archaeologists working in countries around the Mediterranean Sea have dug up signs announcing vari- ous events and offers. The Romans painted walls to announce gladiator fights, and the Phoenicians painted pictures on large rocks to promote their wares along parade routes. During the golden age in Greece, town criers announced the sale of cattle, crafted items, and even cosmetics. An early “singing commercial” went as follows: “For eyes that are shining, for cheeks like the dawn/For beauty that lasts after girlhood is gone/For prices in reason, the woman who knows/Will buy her cosmetics from Aesclyptos.”

Modern advertising, however, is a far cry from these early efforts. U.S. advertisers now run up an estimated annual bill of nearly $183 billion on measured advertising media; worldwide ad spending is an estimated $545 billion. P&G, the world’s largest advertiser, spent more than $4.6 billion on U.S. advertising and $11.5 billion worldwide.10

Although advertising is used mostly by business firms, a wide range of not-for-profit organizations, professionals, and social agencies also use advertising to promote their causes to various target publics. In fact, the 39th-largest U.S. advertising spender is a not-for-profit organization—the U.S. government, which advertises in many ways. For example, its Centers for Disease Control spent $68 million on the third year of an anti- smoking advertising campaign titled “Tips from a Former Smoker,” showing people who have paid dearly due to smoking-related diseases.11 Advertising is a good way to engage, inform, and persuade, whether the purpose is to sell Coca-Cola worldwide, help smokers kick the habit, or educate people in developing nations on how to lead healthier lives.

Marketing management must make four important decisions when developing an advertising program (see figure 12.3): setting advertising objectives, setting the adver- tising budget, developing advertising strategy (message decisions and media decisions), and evaluating advertising effectiveness.

setting advertising objectives The first step is to set advertising objectives. These objectives should be based on past decisions about the target market, positioning, and the marketing mix, which define the job that advertising must do in the total marketing program. The overall advertising objec- tive is to help engage customers and build customer relationships by communicating cus- tomer value. Here, we discuss specific advertising objectives.

An advertising objective is a specific communication task to be accomplished with a specific target audience during a specific period of time. Advertising objectives can be classified by their primary purpose—to inform, persuade, or remind. table 12.1 lists examples of each of these specific objectives.

author comment You already know a lot about

advertising—you are exposed to it every day. But here we’ll look behind the scenes at how companies make

advertising decisions.

advertising objective A specific communication task to be accomplished with a specific target audience during a specific period of time.

figure 12.3 Major advertising Decisions

376 Part 3: Designing a customer Value-Driven strategy and Mix

Informative advertising is used heavily when introducing a new product category. In this case, the objective is to build primary demand. Thus, early producers of HDTVs first had to inform consumers of the image quality and size benefits of the new product. Persuasive advertising becomes more important as competition increases. Here, the company’s objective is to build selective demand. For example, once HDTVs became established, Samsung began trying to persuade consumers that its brand offered the best quality for their money. Such advertising wants to engage customers and create brand community.

Some persuasive advertising has become comparative advertising (or attack advertis- ing), in which a company directly or indirectly compares its brand with one or more other brands. You see examples of comparative advertising in almost every product category, ranging from sports drinks and fast food to car rentals, credit cards, and wireless phone services. For example, Taco Bell’s initial ads introducing its then-new breakfast menu took a direct poke at fast-food breakfast leader McDonald’s. Taco Bell ads employed a slew of actual people named Ronald McDonald as Taco Bell spokespeople. “It’s not surprising these guys are loving Taco Bell,” says one ad. “What’s surprising is who they are.” An online “behind-the-scenes” video drew millions of YouTube views. Taco Bell has continued rubbing its breakfast fare in McDonald’s face with new comparative ads intro- ducing other breakfast items.12

Microsoft has run several recent ad campaigns featuring head-on comparisons with competitors Google and Apple. Its “Bing It On” campaign directly challenged users to make side-by-side comparisons of Microsoft’s Bing search engine results to Google search results without knowing which results were from which search engine. Similarly, ads for Microsoft’s Surface tablets directly challenge Apple’s laptops. One recent Surface Pro video ad made a convincing side-by-side comparison of the Microsoft Surface Pro with the Apple MacBook Air, concluding that the Surface is “the tablet that can replace your laptop.” A Surface Pro print ad proclaimed, “Powerful as a laptop, lighter than Air.”13

Advertisers should use comparative advertising with caution. All too often, such ads invite competitor responses, resulting in an advertising war that neither competitor can win. Upset competitors might also take more drastic action, such as filing complaints with the self-regulatory National Advertising Division of the Council of Better Business Bureaus or even filing false-advertising lawsuits.

table 12.1 Possible advertising objectives

informative advertising

communicating customer value suggesting new uses for a product

building a brand and company image informing the market of a price change

telling the market about a new product Describing available services and support

explaining how a product works correcting false impressions

Persuasive advertising

building brand preference Persuading customers to purchase now

encouraging switching to a brand creating customer engagement

changing customer perceptions of product value building brand community

reminder advertising

Maintaining customer relationships reminding consumers where to buy the product

reminding consumers that the product may be needed in the near future

keeping the brand in a customer’s mind during off-seasons

chapter 12: engaging consumers and communicating customer Value 377

Reminder advertising is important for mature products; it helps to maintain customer relationships and keep consumers thinking about the product. Expensive Coca-Cola television ads primarily build and maintain the Coca-Cola brand relationship rather than inform consumers or persuade them to buy it in the short run.

Advertising’s goal is to help move consumers through the buying process. Some advertising is designed to move people to immediate action. For example, a direct-response television ad by Weight Watchers urges consumers to go online and sign up right away, and a Best Buy newspaper insert for a weekend sale encour- ages immediate store visits. However, many ads focus on building or strengthening long-term customer relationships. For example, a Nike television ad in which well-known athletes work through extreme challenges in their Nike gear never directly asks for a sale. Instead, the goal is to engage customers and somehow change the way they think or feel about the brand.

setting the advertising budget After determining its advertising objectives, the company next sets its advertising budget for each product. Here, we look at four com- mon methods used to set the total budget for advertising: the afford- able method, the percentage-of-sales method, the competitive-parity method, and the objective-and-task method.

affordable Method Some companies use the affordable method: They set the promo- tion budget at the level they think the company can afford. Small businesses often use this method, reasoning that a company cannot spend more on advertising than it has. They start with total reve- nues, deduct operating expenses and capital outlays, and then devote some portion of the remaining funds to advertising.

Unfortunately, this method of setting budgets completely ignores the effects of promotion on sales. It tends to place promo- tion last among spending priorities, even in situations in which advertising is critical to the firm’s success. It leads to an uncertain

annual promotion budget, which makes long-range market planning difficult. Although the affordable method can result in overspending on advertising, it more often results in underspending.

Percentage-of-sales Method Other companies use the percentage-of-sales method, setting their promotion budget at a certain percentage of current or forecasted sales. Or they budget a percentage of the unit sales price. The percentage-of-sales method has advantages. It is simple to use and helps management think about the relationships between promotion spending, selling price, and profit per unit.

Despite these claimed advantages, however, the percentage-of-sales method has little to justify it. It wrongly views sales as the cause of promotion rather than as the result. Although studies have found a positive correlation between promotional spending and brand strength, this relationship often turns out to be effect and cause, not cause and effect. Stronger brands with higher sales can afford the biggest ad budgets.

Thus, the percentage-of-sales budget is based on availability of funds rather than on opportunities. It may prevent the increased spending sometimes needed to turn around falling sales. Because the budget varies with year-to-year sales, long-range planning is dif- ficult. Finally, the method does not provide any basis for choosing a specific percentage, except what has been done in the past or what competitors are doing.

advertising budget The dollars and other resources allocated to a product or a company advertising program.

affordable method Setting the promotion budget at the level management thinks the company can afford.

Percentage-of-sales method Setting the promotion budget at a certain percentage of current or forecasted sales or as a percentage of the unit sales price.

comparative advertising: Many Microsoft ads feature head-on comparisons with competitors like apple. the above video compared the Microsoft surface Pro with the apple Macbook air, concluding that the surface is “the tablet that can replace your laptop.” Microsoft Corporation

378 Part 3: Designing a customer Value-Driven strategy and Mix

competitive-Parity Method Still other companies use the competitive-parity method, setting their promotion bud- gets to match competitors’ outlays. They monitor competitors’ advertising or get industry promotion spending estimates from publications or trade associations and then set their budgets based on the industry average.

Two arguments support this method. First, competitors’ budgets represent the col- lective wisdom of the industry. Second, spending what competitors spend helps prevent promotion wars. Unfortunately, neither argument is valid. There are no grounds for believing that the competition has a better idea of what a company should be spending on promotion than does the company itself. Companies differ greatly, and each has its own special promotion needs. Finally, there is no evidence that budgets based on competitive parity prevent promotion wars.

objective-and-task Method The most logical budget-setting method is the objective-and-task method, whereby the company sets its promotion budget based on what it wants to accomplish with promotion. This budgeting method entails (1) defining specific promotion objectives, (2) determining the tasks needed to achieve these objectives, and (3) estimating the costs of performing these tasks. The sum of these costs is the proposed promotion budget.

The advantage of the objective-and-task method is that it forces management to spell out its assumptions about the relationship between dollars spent and promotion results. But it is also the most difficult method to use. Often, it is hard to figure out which specific tasks will achieve stated objectives. For example, suppose Microsoft wants 75 percent awareness for the latest version of its Surface tablet during the three-month introduc- tory period. What specific advertising messages and media schedules should Microsoft use to attain this objective? How much would these messages and media schedules cost? Microsoft management must consider such questions, even though they are hard to answer.

No matter what method is used, setting the advertising budget is no easy task. John Wanamaker, the department store magnate, once said, “I know that half of my advertising is wasted, but I don’t know which half. I spent $2 million for advertising, and I don’t know if that is half enough or twice too much.” For example, Coca-Cola spends hundreds of millions of dollars annually on advertising, but is that too little, just right, or too much?

As a result of such thinking, advertising is one of the easiest budget items to cut when economic times get tough. Cuts in brand-building advertising appear to do little short- term harm to sales. For example, in the wake of the recent Great Recession, U.S. advertising expenditures plummeted 12 percent over the previous year. In the long run, however, slashing ad spending risks long-term damage to a brand’s image and market share. In fact, companies that can maintain or even increase their advertising spending while competitors are decreasing theirs can gain competitive advantage.

For example, during the Great Recession, while com- petitors were cutting back, car maker Audi actually increased its marketing and advertising spending. Audi “kept its foot on the pedal while everyone else is pulling back,” said an Audi ad executive at the time. “Why would we go backwards now when the industry is generally locking the brakes and cutting spending?” As a result, Audi’s brand awareness and buyer consideration reached record levels during the reces- sion, outstripping those of BMW, Mercedes, and Lexus and positioning Audi strongly for the post-recession era. In the post-recession economy, Audi is now one of the hottest auto brands on the market.14

competitive-parity method Setting the promotion budget to match competitors’ outlays.

objective-and-task method Developing the promotion budget by (1) defining specific promotion objectives, (2) determining the tasks needed to achieve these objectives, and (3) estimating the costs of performing these tasks. The sum of these costs is the proposed promotion budget.

setting the promotion budget is one of the hardest decisions facing a company. coca-cola spends hundreds of millions of dollars annually, but is that “half enough or twice too much”? Migstock/Alamy

chapter 12: engaging consumers and communicating customer Value 379

Developing advertising strategy Advertising strategy consists of two major elements: creating advertising messages and selecting advertising media. In the past, companies often viewed media planning as secondary to the message-creation process. After the creative department created good advertisements, the media department then selected and purchased the best media for carrying those advertisements to the desired target audiences. This often caused friction between creatives and media planners.

Today, however, soaring media costs, more-focused target marketing strategies, and the blizzard of new online, mobile, and social media have promoted the importance of the media- planning function. The decision about which media to use for an ad campaign—television, newspapers, magazines, video, a Web site, social media, mobile devices, or email—is now sometimes more critical than the creative elements of the campaign. Also, brand content is now often co-created through interactions with and among consumers. As a result, more and more advertisers are orchestrating a closer harmony between their messages and the media that deliver them. As discussed in the previous chapter, the goal is to create and manage brand content across a full range of media, whether they are paid, owned, earned, or shared.

creating the advertising Message and brand content No matter how big the budget, advertising can succeed only if it engages consumers and communicates well. Good advertising messages and content are especially important in today’s costly and cluttered advertising environment.

Today, the average household receives about TV 189 channels, and consumers have more than 7,200 magazines from which to choose.15 Add in the countless radio sta- tions and a continuous barrage of catalogs, direct mail, out-of-home media, email, and online, mobile, and social media exposures, and consumers are being bombarded with ads and brand content at home, work, and all points in between. For example, Americans

are exposed to a cumulative 5.3 trillion online ad impressions each year and a daily diet of 500 million Tweets, 432,000 hours of uploaded YouTube video, 70 million photos shared on Instagram, 5 million article pins on Pinterest, and 4.75 billion pieces of shared content on Facebook.16

breaking through the clutter. If all this clutter bothers some con- sumers, it also causes huge headaches for marketers. Take the situation facing network television advertisers. They pay an average of $354,000 to produce a single 30-second commercial. Then, each time they show it, they pay an average of $112,100 for 30 seconds of advertising time during a popular primetime pro- gram. They pay even more if it’s an especially popular program, such as Sunday Night Football ($627,000), The Big Bang Theory ($345,000), or a mega-event such as the Super Bowl (averaging $4.5 million per 30 seconds!). Then their ads are sandwiched in with a clutter of other commercials, network promotions, and other nonprogram material totaling as much as 20 minutes per primetime hour, with long commercial breaks coming every six minutes on average. Such clutter in television and other ad media has created an increasingly hostile advertising environment.17

Until recently, television viewers were pretty much a captive audience for advertisers. But today’s digital wizardry has given viewers a rich new set of information and enter- tainment options—the Internet, video streaming, social and mobile media, tablets and smartphones, and others. Digital technology has also armed consumers with an arsenal of weapons for choosing what they watch or don’t watch and when. Increasingly, thanks to the growth of DVR systems and digital streaming, consumers are choosing not to watch

advertising strategy The strategy by which the company accomplishes its advertising objectives. It consists of two major elements: creating advertising messages and selecting advertising media.

advertising clutter: today’s consumers, armed with an arsenal of weapons, can choose what they watch and don’t watch. increasingly, they are choosing not to watch ads. Piotr Marcinski/Shutterstock

380 Part 3: Designing a customer Value-Driven strategy and Mix

ads. For example, 76 percent of U.S. homes have a DVR, subscribe to Netflix, or use video-on-demand from a cable or telecommunications provider. Forty-seven percent of American TV homes have DVRs, and two-thirds of DVR owners use the device to skip commercials.18

Thus, advertisers can no longer force-feed the same old cookie-cutter messages and content to captive consumers through traditional media. Simply interrupting or disrupting consumers no longer works. Unless ads provide content that is engaging, useful, or enter- taining, many consumers will simply ignore or skip them.

Merging advertising and entertainment. To break through the clutter, many marketers have subscribed to a new merging of advertising and entertainment, dubbed “Madison & Vine.” You’ve probably heard of Madison Avenue, the New York City street that houses the head- quarters of many of the nation’s largest advertising agencies. You may also have heard of Hollywood & Vine, the intersection of Hollywood Avenue and Vine Street in Hollywood, California, long the symbolic heart of the U.S. entertainment industry. Now, Madison Ave- nue and Hollywood & Vine have come together to form a new intersection—Madison & Vine—that represents the merging of advertising and entertainment in an effort to create new avenues for reaching consumers with more engaging messages.19

This merging of advertising and entertainment takes one of two forms: advertainment or brand integrations. The aim of advertainment is to make ads and brand content them- selves so entertaining, or so useful, that people want to watch them. There’s no chance that you’d watch ads on purpose, you say? Think again. For example, the Super Bowl has become an annual advertainment showcase. Tens of millions of people tune in to the Super Bowl each year, as much to watch the entertaining ads as to see the game. And ads and related content posted online before and after the big game draw tens of millions of views. These days, it’s common to see an entertaining ad on YouTube before you see it on TV.

Advertisers are also creating new content forms that look less like ads and more like short films or shows. A range of new brand messaging platforms—from Webisodes and blogs to online videos and social media posts—now blur the line between ads and other consumer content. For example, as part of its long-running, highly successful Campaign for Real Beauty, Unilever’s Dove brand created a thought-provoking three- minute video, called “Dove Real Beauty Sketches,” about how women view themselves. The video compares images of women drawn by an FBI-trained sketch artist based on their self-descriptions versus strangers’ descriptions of them. Side-by-side comparisons show that the stranger-described images are invariably more accurate and more flatter- ing, creating strong reactions from the women. The tagline concludes, “You’re more beautiful than you think.” Although the award-winning video was never shown on TV, it drew more than 163 million global YouTube views within just two months, making it the most-watched video ever.20

Marketers have tested all kinds of novel ways to break through today’s clutter and engage consumers. For example, Hostess Brands—maker of those yummy Twinkies, Ho Hos, Ding Dongs, and cream-filled cupcakes—recently shared a Tweet celebrating the opening day of the Major League Baseball season. The Tweet contained a picture of baseball-decorated cupcakes but also the bold headline TOUCHDOWN. As expected, the Tweet grabbed plenty of attention, as droves of Twitter followers pounced to point out the mistake, just the reaction Hostess intended. “The ‘touchdown’ line was intentional,” says the marketing director of Hostess Brands. “It’s fun and aimed at young audiences who are in on the running joke.” Other brands have also “tested the stupid waters,” as one analyst puts it. For example, JCPenney once posted incoherent Tweets, grabbing widespread attention and leading to speculation that the retailer’s social media person was either drunk or had been hacked. Instead, says JCPenney, the person was Tweeting with mittens on to promote its winter merchandise.21

Brand integrations (or branded entertainment) involve making the brand an insepara- ble part of some other form of entertainment or content. The most common form of brand integration is product placements—embedding brands as props within other programming. It might be a brief glimpse of Starbucks coffee products on Morning Joe on MSNBC or of Microsoft’s Surface tablet and Bing search engine in episodes of Elementary or Arrow.

Madison & Vine A term that has come to represent the merging of advertising and entertainment in an effort to break through the clutter and create new avenues for reaching customers with more engaging messages.

chapter 12: engaging consumers and communicating customer Value 381

It might be scenes from Captain America: The Winter Soldier in which our superhero rides a Harley-Davidson Street 750.

Or the product placement might be scripted into an episode. For example, an entire episode of Modern Family, called “Lost Connection,” was built around and told through character Claire Dunphy’s Apple MacBook Pro. The episode was shot completely with Apple MacBook Pros, iPhones, and iPads and told using familiar Apple apps—such as FaceTime, Messaging, Safari, iTunes, Reminders, iPhoto, and the iCloud—all seam- lessly integrated within the show’s theme of searching for missing daughter Haley. Other Modern Family episodes have been built around products ranging from Oreos and Target to the Toyota Prius.22

Originally created with TV in mind, brand integration has spread quickly into other sectors of the entertainment industry. If you look carefully, you’ll see product placements in movies, video games, comic books, Broadway musicals, and even pop music. For example, last year’s top 35 mov- ies contained 464 identifiable brand placements.23

The highly acclaimed film The LEGO Movie was pretty much a 100-minute product placement for iconic LEGO construction bricks. According to one writer, “The audience happily sits through a cinematic sales pitch . . . that shows off the immense versatility of the product while placing it in a deeply personal context. The majority of the film is a breathtaking display of what LEGO bricks are capable of as creative tools, but the personal element is what really elevates this film to product-

placement perfection.” The LEGO Movie boosted The LEGO Group’s sales by 11 percent in the six months after it opened.24

A related form of brand integration is so-called native advertising, advertising or other brand-produced online content that appears to be “native to” the Web or social media site in which it is placed. That is, the brand content looks in form and function like the other natural content surrounding it on a Web or social media platform. It might be an arti- cle on a Web site such as The Huffington Post, BuzzFeed, Mashable, or even The New York Times or The Wall Street Journal that is paid for, written by, and placed by an advertiser but uses the same format as articles written by the editorial staff. Or it might be brand- prepared videos, pictures, posts, or pages integrated into social media such as Facebook, YouTube, Instagram, Pinterest, or Twitter that match the form and feel of native content on those media. Examples include Twitter’s promoted Tweets, Facebook’s promoted stories, BuzzFeed’s sponsored posts, or Snapchat’s “brand story” ads, branded posts that appear in the app’s “Stories” feed. Native advertising is an increasingly popular form of brand con- tent. It lets advertisers create relevant associations between brand and consumer content. According to a recent study by the Association of National Advertisers, “given today’s media landscape, where consumers can avoid ads more than ever, advertisers are looking for new ways to get their messages noticed and acted upon.”25

Thus, Madison & Vine is now the meeting place for advertising, brand content, and entertainment. The goal is to make brand messages a part of the broader flow of consumer content and conversation rather than an intrusion or interruption of it. As advertising agency JWT puts it, “We believe advertising needs to stop interrupting what people are interested in and be what people are interested in.” However, advertisers must be care- ful that the new intersection itself doesn’t become too congested. With all the new brand content formats and integration, Madison & Vine threatens to create even more of the very clutter that it was designed to break through. At that point, consumers might decide to take yet a different route.

Message and content strategy. The first step in creating effective advertising content is to plan a message strategy—the general message that will be communicated to consumers. The

branded entertainment: the highly acclaimed The LEGO Movie was pretty much a 100-minute product placement for iconic lego construction bricks, what one writer calls “product-placement perfection. Pictorial Press Ltd/Alamy

382 Part 3: Designing a customer Value-Driven strategy and Mix

purpose of advertising is to get consumers to engage with or react to the product or company in a certain way. People will engage and react only if they believe they will benefit from doing so. Thus, developing an effective message strategy begins with identifying customer benefits that can be used as advertising appeals. Ideally, the message strategy will follow directly from the company’s broader positioning and customer value-creation strategies.

Message strategy statements tend to be plain, straightforward outlines of benefits and positioning points that the advertiser wants to stress. The advertiser must next develop a compelling creative concept—or big idea—that will bring the message strategy to life in a distinctive and memorable way. At this stage, simple mes- sage ideas become great ad campaigns. Usually, a copywriter and an art director will team up to generate many creative concepts, hoping that one of these concepts will turn out to be the big idea. The creative concept may emerge as a visualization, a phrase, or a combination of the two.

The creative concept will guide the choice of specific appeals to be used in an advertising campaign. Advertising appeals should have three characteristics. First, they should be meaningful, pointing out benefits that make the product more desirable or interesting to consumers. Second, appeals must be believable. Consumers must believe that the product or service will deliver the promised benefits.

However, the most meaningful and believable benefits may not be the best ones to feature. Appeals should also be distinctive. They should tell how the product is better than competing brands. For example, the most meaningful benefit of a refrigerator is that it keeps foods cold. But GE sets its Café refrigerator apart as one that gives users an in-the-door filtered hot water dispenser and a Keurig K-Cup single-serve brewing system for making cups of coffee, tea, and other hot beverages at the fridge. It’s “Brewing up the next big thing in refrigeration.” Similarly, the most meaningful benefit of owning a wristwatch is that it keeps accurate time, yet few watch ads feature this benefit. Instead, watch advertisers might select any of a number of advertising themes. For years, Timex has been the affordable watch that “takes a licking and keeps on tick- ing.” In contrast, Rolex ads talk about the brand’s “obsession with perfection” and the fact that “Rolex has been the preeminent sym- bol of performance and prestige for more than a century.”

Message execution. The advertiser now must turn the big idea into an actual ad execution that will capture the target market’s attention and interest. The creative team must find the best approach, style, tone, words, and format for executing the message. The message can be presented in various execution styles, such as the following:

●● Slice of life. This style shows one or more “typical” people using the product in a normal setting. For example, a Silk Soymilk “Rise and Shine” ad shows a young professional starting the day with a healthier breakfast and high hopes.

●● Lifestyle. This style shows how a product fits in with a particular lifestyle. For example, an ad for Athleta active wear shows a woman in a complex yoga pose and states: “If your body is your temple, build it one piece at a time.”

●● Fantasy. This style creates a fantasy around the product or its use. For example, a Calvin Klein “Drive in to Fantasy” ad shows a woman floating blissfully above a surf-strewn beach at sunset in her Calvin Klein Nightwear.

●● Mood or image. This style builds a mood or image around the product or service, such as beauty, love, intrigue, serenity, or pride. Few claims are made about the product or service except through suggestion. For example, Dodge Ram Truck’s moving Super Bowl XLVII commercial—“To the Farmer in Us All”—added poi- gnant pictures to radio-broadcast-legend Paul Harvey’s “So God Made a Farmer”

creative concept The compelling “big idea” that will bring an advertising message strategy to life in a distinctive and memorable way.

execution style The approach, style, tone, words, and format used for presenting an advertising message.

Distinctive advertising appeals: ge sets its café refrigerator apart as one that gives users an in-the-door filtered hot water dispenser and keurig k-cup single-serve brewing system. it’s “brewing up the next big thing in refrigeration.” Courtesy of General Electric

chapter 12: engaging consumers and communicating customer Value 383

speech, pulling down the number-two spot in USA Today’s Ad Meter ratings that year. Except for a few brief frames and a closing picture, the two-minute ad never directly mentioned or showed sponsor Dodge Ram Trucks. However, it associated the brand with strong emotions and basic American values.

●● Musical. This style shows people or cartoon characters singing about the product. For example, the M&M’s “Love Ballad” ad, part of the Better with M campaign, featured Red singing Meat Loaf’s “I’d Do Anything for Love,” showcasing his commitment to actress Naya Rivera. Red has second thoughts, however, when Rivera can’t resist add- ing Red to some of her favorite treats, including cookies, cake, and ice cream. To all of that, Red answers with the lyric, “But I won’t do that . . . or that . . . or that . . . or that.”

●● Personality symbol. This style creates a character that represents the product. The character might be animated (Mr. Clean, the GEICO Gecko, or the Michelin Man) or real (perky Progressive Insurance spokeswoman Flo, Allstate’s Mayhem, Ronald McDonald).

●● Technical expertise. This style shows the company’s expertise in making the prod- uct. Thus, Jim Koch of the Boston Beer Company tells about his many years of experience in brewing Samuel Adams beer.

●● Scientific evidence. This style presents survey or scientific evidence that the brand is better or better liked than one or more other brands. For years, Crest toothpaste has used scientific evidence to convince buyers that Crest is better than other brands at fighting cavities.

●● Testimonial evidence or endorsement. This style features a highly believable or likable source endorsing the product. It could be ordinary people saying how much they like a given product. For example, Whole Foods features a variety of real customers in its Values Matter marketing campaign. Or it might be a celebrity presenting the product, such as Beyoncé or Sofia Vergara speaking for Diet Pepsi.

The advertiser also must choose a tone for the ad. For example, P&G always uses a positive tone: Its ads say something very positive about its products. Other advertisers now use edgy humor to break through the commercial clutter. Bud Light commercials are famous for this.

The advertiser must use memorable and attention-getting words in the ad. For example, rather than just saying that its prescription sunglass lenses protect your eyes and look good at the same time, a LensCrafters ad announces, “Sunblock Never Looked So Good.” Similarly, rather than claiming simply that its laundry detergent is “superconcentrated,” Method asks

customers, “Are you jug addicted?” The solution: “Our patent-pending formula that’s so fricken’ concentrated, 50 loads fits in a teeny bottle. . . . With our help, you can get off the jugs and get clean.”

Finally, format elements make a difference in an ad’s impact as well as in its cost. A small change in an ad’s design can make a big difference in its effect. In a print or display ad, the illustration is the first thing the reader notices—it must be strong enough to draw attention. Next, the headline must effectively entice the right people to read the copy. Finally, the copy—the main block of text in the ad—must be simple but strong and convincing. Moreover, these three elements must effectively work together to engage customers and persuasively present customer value. However, novel formats can help an ad stand out from the clutter. For example, in one striking ad from Volkswagen, the illustration does most of the work in catching relevant attention for the car maker’s precision parking assist feature. It shows a porcupine “parked” in a tight space between goldfish in water-filled plastic bags. The small-print headline says only, “Precision Parking. Park Assist by Volkswagen.” Enough said!

novel formats can help an advertisement stand out. in this Volkswagen ad, the illustration does most of the work in illustrating the car maker’s parking assist feature. Used with permission of Volkswagen Aktiengesellschaft. Creative studio - The Operators

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consumer-generated content. Taking advantage of today’s digital and social media tech- nologies, many companies are now tapping consumers for marketing content, message ideas, or even actual ads and videos. Sometimes the results are outstanding; sometimes they are forgettable. If done well, however, user-generated content can incorporate the voice of the customer into brand messages and generate greater customer engagement.

Perhaps the best-known consumer-generated content effort is the long-running annual “Crash the Super Bowl Challenge” held annually by PepsiCo’s Doritos brand. Doritos invites consumers to create their own 30-second video ads, and winners receive large cash awards and have their ads run during the Super Bowl. But brands across a wide range of industries—from automakers and fast-food chains to apparel brands and pet food marketers—are inviting customers to participate in generating marketing content.

For example, Chevrolet held an Oscars Program Video Contest last year that pro- duced 72 imaginative ad videos for its Chevy Cruze model. The winner—a delightfully quirky one-minute video called “Speed Chaser”—was shot in an open field for only $4,000. Similarly, Purina conducted a video contest on its YouTube page, inviting owners of everyday dogs to submit videos showing “How is your dog great?” Using a compila- tion of clips from more than 500 submitted videos, Purina created a 60-second “How I’m Great” commercial and aired it during the broadcast of the Westminster Kennel Club Dog

Show. And to help boost digital and social media engagement, Taco Bell invited YouTube stars and influencers to create video content for its new Fiery Doritos Locos Tacos. Taco Bell ended up choosing 65 video ads to distribute online through Twitter feeds and social networks and used one clever video—featuring a “3D Doritos Taco printer”—in subsequent paid online advertising.26

Consumer-generated content can make customers an everyday part of the brand conversation. Yogawear company Lululemon launched its #TheSweatLife campaign, in which it invited customers to Tweet or Instagram photos of themselves “getting their sweat on” in Lululemon gear. “Your perspiration is our inspiration,” said the brand at its Web site. Within only a few months, the brand had received more than 7,000 photos, which it featured in a #TheSweatLife online gallery, quickly drawing more than 40,000 unique visitors. The user-generated content campaign created substantial customer engagement for Lululemon. “We

created the program as a way to connect with our guests and showcase how they’re authen- tically sweating in our product offline,” says a Lululemon brand manager. “We see it as a unique way to bring their offline experiences into our online community.”27

Not all consumer-generated content efforts, however, are so successful. As many big companies have learned, ads and other content made by amateurs can be . . . well, pretty amateurish. If done well, however, consumer-generated content efforts can produce new creative ideas and fresh perspectives on the brand from consumers who actually experi- ence it. Such campaigns can boost consumer engagement and get customers talking and thinking about a brand and its value to them.

selecting advertising Media The major steps in advertising media selection are (1) determining reach, frequency, impact, and engagement; (2) choosing among major media types; (3) selecting specific media vehicles; and (4) choosing media timing.

Determining reach, frequency, impact, and engagement. To select media, the advertiser must determine the reach and frequency needed to achieve the advertising objectives. Reach is a measure of the percentage of people in the target market who are exposed to an ad campaign during a given period of time. For example, the advertiser might try to reach

advertising media The vehicles through which advertising messages are delivered to their intended audiences.

consumer-generated content: taco bell boosted digital and social media coverage of the introduction of its fiery Doritos locos tacos with consumer-generated videos distributed through twitter feeds, social networks, and online advertising buys. Taco Bell

chapter 12: engaging consumers and communicating customer Value 385

70 percent of the target market during the first three months of a campaign. Frequency is a measure of how many times the average person in the target market is exposed to a mes- sage. For example, the advertiser might want an average exposure frequency of three.

But advertisers want to do more than just reach a given number of consumers a specific number of times. The advertiser also must determine the desired media impact—the qualitative value of message exposure through a given medium. For example, the same message in one magazine (say, Time) may be more believable than in another (say, the National Enquirer). For products that need to be demonstrated, television ads or online videos may have more impact than radio messages because they use sight, motion, and sound. Products for which consumers provide input on design or features might be better promoted at an interactive Web site or social media page than in a direct mailing.

More generally, an advertiser wants to choose media that will engage consumers rather than simply reach them. Using any medium, the relevance of ad content for its audience is often much more important than how many people it reaches. For example, when Mazda

wanted to preannounce the sale of 100 25th-anniversary models of its iconic Mazda MX-5 Miata car at last year’s New York International Auto show, it didn’t use big-budget, high-reach media. Instead, it began churn- ing out Facebook, Twitter, and Google+ posts directly to its large MX-5 Miata fan base, directing them to a microsite where they could preorder the sporty little car. Engaging the right audience in the right media worked well for Mazda. The microsite opened a month later to a flood of responses, and the limited-edition Miata model sold out within only 10 minutes.28

Although Nielsen is beginning to measure media engagement levels for some television, radio, and social media, such measures are still hard to find in most cases. Current media measures are things such as rat- ings, readership, listenership, and click-through rates. However, engagement happens inside the consumer. It’s hard enough to measure how many people are exposed to a given television ad, video, or social media post, let alone measuring the depth of engagement with that content. Still, marketers need to know how custom- ers connect with an ad and brand idea as a part of the broader brand relationship.

Engaged consumers are more likely to act upon brand messages and even share them with others. Thus, rather than simply tracking consumer impressions for a media place- ment—how many people see, hear, or read an ad—Coca-Cola now also tracks the con- sumer expressions that result, such as a comment, a “Like,” uploading a photo or video, or sharing brand content on social networks. Today’s empowered consumers often generate more messages about a brand than a company can.

For example, Coca-Cola estimates that of the hundreds of millions of views of Coca-Cola– related content on YouTube each year, only about 18 percent are of content created by Coca- Cola. The other 82 percent are of content created by engaged consumers. So, many Coca-Cola marketing campaigns are aimed at sparking brand-related consumer expressions rather than just impressions. For example, the brand’s recent “Ahh Effect” campaign called for teens to share the “ahh moments” they experience while drinking Coke at a www.AHH.com Web site and via social media using the hashtag #ThisisAHH. It then featured the user- generated personal expressions in “This is AHH” commercials on youth-oriented TV channels.29

choosing among Major Media types. As summarized in table 12.2, the major media types are television; digital, mobile, and social media; newspapers; direct mail; magazines; radio; and outdoor. Each medium has its advantages and its limitations. Media planners want to choose a mix of media that will effectively and efficiently present the advertising message to target customers. Thus, they must consider each medium’s impact, message effectiveness, and cost.

engaging the right consumers with the right media worked well for Mazda. Using a highly targeted digital campaign, it sold out 100 25th-anniversary models of its iconic Mazda Mx-5 Miata car in only 10 minutes. Special thanks to those at Mazda North America Operations. Here’s to 26 years of the MX-5 Miata and beyond. Long live the roadster.

http://www.AHH.com

386 Part 3: Designing a customer Value-Driven strategy and Mix

As discussed earlier in the chapter, traditional mass media still dominate today’s media mixes. However, as mass-media costs rise and audiences shrink, many companies are now adding digital, mobile, and social media that cost less, target more effectively, and engage consumers more fully. Today’s marketers want to assemble a full mix of paid, owned, earned, and shared media that create and deliver engaging brand content to target consumers.

In addition to the explosion of online, mobile, and social media, cable and satellite television systems are thriving. Such systems allow narrow programming formats, such as all sports, all news, nutrition, arts, home improvement and gardening, cooking, travel, history, finance, and others that target select groups. Comcast and other cable operators are even testing systems that will let them target specific types of ads to TVs in specific

neighborhoods or individually to specific types of customers. For example, ads for a Spanish-language channel would run in only Hispanic neighborhoods, or only pet owners would see ads from pet food companies.

Finally, in their efforts to find less costly and more highly targeted ways to reach consumers, advertisers have discovered a dazzling collection of alternative media. These days, no mat- ter where you go or what you do, you will probably run into some new form of advertising:

Tiny billboards attached to shopping carts urge you to buy Pampers while ads roll by on the store’s checkout conveyor touting your local Chevy dealer. Step outside and there goes a city trash truck sporting an ad for Glad trash bags or a school bus displaying a Little Caesar’s pizza ad. A nearby fire hydrant is emblazoned with advertising for KFC’s “fiery” chicken wings. You escape to the ballpark, only to find billboard-size video screens running Budweiser ads while a blimp with an electronic message board circles lazily overhead. In midwinter, you wait in a city bus shelter that looks like an oven—with heat coming from the coils— shouting out Caribou Coffee’s lineup of hot breakfast sandwiches.

These days, you’re likely to find ads—well—anywhere. Taxi cabs sport electronic messaging signs tied to GPS location

Marketers have discovered a dazzling array of alternative media, like this heated caribou coffee bus shelter. Caribou Coffee

table 12.2 Profiles of Major Media types

Medium advantages limitations

television good mass-marketing coverage; low cost per exposure; combines sight, sound, and motion; appealing to the senses

high absolute costs; high clutter; fleeting exposure; less audience selectivity

Digital, mobile, and social media

high selectivity; low cost; immediacy; engagement capabilities

Potentially low impact; high audience control of content and exposure

newspapers flexibility; timeliness; good local market coverage; broad acceptability; high believability

short life; poor reproduction quality; small pass-along audience

Direct mail high audience selectivity; flexibility; no ad competition within the same medium; allows personalization

relatively high cost per exposure; “junk mail” image

Magazines high geographic and demographic selectivity; credibility and prestige; high-quality reproduction; long life and good pass-along readership

long ad purchase lead time; high cost; no guarantee of position

radio good local acceptance; high geographic and demographic selectivity; low cost

audio only; fleeting exposure; low attention (“the half- heard” medium); fragmented audiences

outdoor flexibility; high repeat exposure; low cost; low message competition; good positional selectivity

little audience selectivity; creative limitations

chapter 12: engaging consumers and communicating customer Value 387

sensors that can pitch local stores and restaurants wherever they roam. Ad space is being sold on parking-lot tickets, airline boarding passes, subway turnstiles, highway toll booth gates, ATMs, municipal garbage cans, and even police cars, doctors’ examining tables, and church bulletins. One company even sells space on toilet paper furnished free to restaurants, stadiums, and malls—the paper carries advertiser logos, coupons, and codes you can scan with your smartphone to download digital coupons or link to advertisers’ social media pages. Now that’s a captive audience.

Such alternative media seem a bit far-fetched, and they sometimes irritate consumers who resent it all as “ad nauseam.” But for many marketers, these media can save money and provide a way to hit selected consumers where they live, shop, work, and play.

Another important trend affecting media selection is the rapid growth in the number of media multitaskers, people who absorb more than one medium at a time. For example, it’s not uncommon to find someone watching TV with a smartphone in hand, Tweeting, Snapchatting with friends, and chasing down product information on Google. One recent survey found that 35 percent of all screen time involves simultaneous use of TV and a dig- ital device. Although some of this multitasking is related to TV viewing—such as looking up related product and program information—most multitasking involves tasks unrelated to the shows or ads being watched. Marketers need to take such media interactions into account when selecting the types of media they will use.30

selecting specific Media Vehicles. Media planners must also choose the best media vehicles—specific media within each general media type. For example, television vehi- cles include Modern Family and ABC World News Tonight. Magazine vehicles include Time, Real Simple, and ESPN The Magazine. Online and mobile vehicles include Twitter, Facebook, Instagram, and YouTube.

Media planners must compute the cost per 1,000 persons reached by a vehicle. For example, if a full-page, four-color advertisement in the U.S. national edition of Forbes costs $148,220 and Forbes’s readership is 900,000 people, the cost of reach- ing each group of 1,000 persons is about $164. The same advertisement in Bloomberg Businessweek’s Northeast U.S. regional edition may cost only $48,100 but reach only 155,000 people—at a cost per 1,000 of about $310.31 The media planner ranks each magazine by cost per 1,000 and favors those magazines with the lower cost per 1,000 for reaching target consumers. In the previous case, if a marketer is targeting Northeast busi- ness managers, Businessweek might be the more cost-effective buy, even at a higher cost per thousand.

Media planners must also consider the costs of producing ads for different media. Whereas newspaper ads may cost very little to produce, flashy television ads can be very costly. Many online and social media ads cost little to produce, but costs can climb when producing made-for-the-Web video and ad series.

In selecting specific media vehicles, media planners must balance media costs against several media effectiveness factors. First, the planner should evaluate the media vehicle’s audience quality. For a Huggies disposable diapers ad, for example, Parents magazine would have a high exposure value; men’s lifestyle magazine Maxim would have a low exposure value. Second, the media planner should consider audience engagement. Readers of Vogue, for example, typically pay more attention to ads than do Time readers. Third, the planner should assess the vehicle’s editorial quality. Time and The Wall Street Journal are more believable and prestigious than Star or the National Enquirer.

Deciding on Media timing. An advertiser must also decide how to schedule the advertising over time. Suppose sales of a product peak in December and drop in March (for winter outdoor gear, for instance). The firm can vary its advertising to follow the seasonal pat- tern, oppose the seasonal pattern, or be the same all year. Most firms do some seasonal advertising. For example, Mars currently runs M&M’s special ads for almost every holiday and “season,” from Easter, Fourth of July, and Halloween to the Super Bowl season and the Oscar season. And weight-loss product and service marketers tend to heavy-up after the first of the year, targeting consumers who let their appetites get the better of them

388 Part 3: Designing a customer Value-Driven strategy and Mix

over the holiday season. Weight Watchers, for instance, spends more than a quarter of its annual advertising budget in January. Some marketers do only seasonal advertising: For instance, P&G advertises its Vicks NyQuil only during the cold and flu season.32

Today’s online and social media let advertisers cre- ate ads that respond to events in real time. For example, Lexus recently introduced a new model through live streaming from the North American International Auto Show via Facebook’s News Feed. Some 100,000 people watched the introduction live in only the first 10 min- utes; another 600,000 viewed it online within the next few days. Oreos reacted in a timely way to a power out- age during Super Bowl XLVII with an outage-related “You can still dunk in the dark” Tweet ad. The fast- reaction ad was re-Tweeted and Favorited thousands of times in only 15 minutes. Similarly, Arby’s created big buzz during last year’s Grammy Awards with a real- time Tweet responding to Pharrell Williams’ infamous

Vivienne Westwood hat, which looks a bit like the hat in the familiar Arby’s logo. The Tweet “Hey @Pharrell, can we have our hat back?” earned more than 75,000 re-Tweets and 40,000 Favorites.33

evaluating advertising effectiveness and the return on advertising investment Measuring advertising effectiveness and the return on advertising investment has become a hot issue for most companies. Top management at many companies is asking marketing managers, “How do we know that we’re spending the right amount on advertis- ing?” and “What return are we getting on our advertising investment?”

Advertisers should regularly evaluate two types of advertising results: the commu- nication effects and the sales and profit effects. Measuring the communication effects of an ad or ad campaign tells whether the ads and media are communicating the ad message well. Individual ads can be tested before or after they are run. Before an ad is placed, the advertiser can show it to consumers, ask how they like it, and measure message recall or attitude changes resulting from it. After an ad is run, the advertiser can measure how the ad affected consumer recall or product awareness, engagement, knowledge, and prefer- ence. Pre- and post-evaluations of communication effects can be made for entire advertis- ing campaigns as well.

Advertisers have gotten pretty good at measuring the communication effects of their ads and ad campaigns. However, sales and profit effects of advertising and other content are often much harder to measure. For example, what sales and profits are produced by an ad campaign that increases brand awareness by 20 percent and brand preference by 10 percent? Sales and profits are affected by many factors other than advertising—such as product features, price, and availability.

One way to measure the sales and profit effects of advertising is to compare past sales and profits with past advertising expenditures. Another way is through experiments. For example, to test the effects of different advertising spending levels, Coca-Cola could vary the amount it spends on advertising in different market areas and measure the differences in the resulting sales and profit levels. More complex experiments could be designed to include other variables, such as differences in the ads or media used.

However, because so many factors affect advertising effectiveness, some controllable and others not, measuring the results of advertising spending remains an inexact science. For example, dozens of advertisers spend lavishly on high-profile Super Bowl ads each year. Although they sense that the returns are worth the sizable investment, few could actually measure or prove it (see Marketing at Work 12.2). Managers often must rely on large doses of judgment along with quantitative analysis when assessing advertising performance.

return on advertising investment The net return on advertising investment divided by the costs of the advertising investment.

Media timing: today’s social media let advertisers respond to events in real-time. arby’s “hey @Pharrell, can we have our hat back?” tweet during the grammy awards earned the brand more than 75,000 re-tweets and 40,000 favorites. Kevin Winter/WireImage/Getty Images; Arby’s Restaurant Group, Inc.

chapter 12: engaging consumers and communicating customer Value 389

the Doritos crash the super bowl contest and ads generate substantial consumer engagement before, during, and after the big game, extending the brand’s return on its hefty super bowl advertising investment Frito-Lay Inc.

The Super Bowl is the mother of all advertising events. Each year, dozens of blue-chip advertisers showcase some of their best work to huge audiences around the world. But all this doesn’t come cheap. Last year, major advertisers plunked down an average of $4.5 million per 30-second spot—that’s $150,000 per second! Throw in ad production costs—which can run millions more per ad—and running even a single Super Bowl ad becomes a super-expensive proposition.

So each year, up pops the big debate: Is Super Bowl adver- tising worth all that money? Super Bowl stalwarts such as Anheuser-Busch, Doritos, Coca-Cola, and GM must think it’s a good investment—they come back year after year. But for every big brand that invests in the Super Bowl, there are lots of others that just don’t think the returns justify the costs.

The naysayers make some pretty good arguments. Super Bowl advertising is outrageously expensive. And, beyond the costs, the competition for attention during the Super Bowl is fierce. Every single ad represents the best efforts of a major marketer trying to design a knock-your-socks-off spectacular. Many advertisers feel they can get more for their dollar in venues that aren’t so crowded with bigger-than-life commercials. For example, the cost of just one Super Bowl ad would buy more than 40 regular prime-time TV commercials, 6.4 million clicks on search ads, 50 million views on Facebook, a full week’s worth of advertising on Snapchat, or a whopping 3.5 billion display ads across the Internet.

Still, the Super Bowl has much to offer advertisers. It plays to a huge and receptive audience. Super Bowl XLIV drew nearly 115 million U.S. viewers, making it the most-watched television event in history. What’s more, during a typical Super Bowl, the ads draw as much or more viewership than the game. As a result, according to one study, the ROI for one Super Bowl ad can equal that of as many as 250 regular TV ads.

Perhaps more important, more and more these days, a Super Bowl ad itself is only the centerpiece of something much, much bigger. Long before the game begins and long after it ends, consumers, ad critics, media pundits, and advertisers are previewing, reviewing, sharing, rating, and rehashing the commercials. What used to be a one- time showing with some postgame “watercooler” chat is now a full eight- to 12-week experience.

In this digital, mobile, and social media age, rather than surprising viewers with their blockbuster ads during the game, most sponsors now flood online and social media channels weeks in advance with teasers or often entire ads. Weeks and days before the Super Bowl XLIX kick- off, ads posted by Budweiser, Doritos, BMW, Morphie, Snickers, Dove Men+Care, and many other brands had already grabbed hundreds of millions of online views. In fact, YouTube activity for Super Bowl XLIX ads and

teaser videos produced 4 million hours of viewing before the game even started. Rather than stealing from a blockbuster ad, the previews seem to make them even more effective on game day. According to one study, 60 percent of the most-shared Super Bowl spots of all time were introduced before the game was broadcast. And on average, commercials uploaded to YouTube before the game generated 3.4 times more views than commercials released on game day.

Consider Anheuser-Busch’s pregame activities for Super Bowl XLIX. The company released its Budweiser “Lost Dog” ad—a heartwarming tale featuring a lost Golden Retriever puppy rescued in the nick of time by the Clydesdales—on YouTube four days before the game. By game time, “Lost Dog” had already garnered 41.8 million YouTube views, 10 million more than the brand’s ever-so-popular “Puppy Love” prequel the previous year. Aided by the previews, during the game, the endearing ad became the runaway leader in almost every major Super Bowl ad rating.

Super Bowl advertisers also work hard these days to create ads that engage consumers interactively during the game itself. Half of this year’s Super Bowl ads incorporated hashtags, and many ads prominently mentioned Facebook, Twitter, YouTube, and other social media. All those digital nods made Super Bowl XLIX the most social Super Bowl ever. Viewers exchanged more than 28 million game-related Tweets during the event. Sixty-five million Facebook users generated 265 million actions, most related to the ads. Budweiser scored the big win—“Lost Dog” was shared more than 2 million times and inspired off nearly 200,000 Tweets during the game. Skittles, Nationwide, Doritos, and McDonald’s rounded out the top-five most-talked-about ads on social media.

Marketing at Work 12.2

the super bowl: the Mother of all advertising events—but is it Worth the Price?

390 Part 3: Designing a customer Value-Driven strategy and Mix

other advertising considerations In developing advertising strategies and programs, the company must address two addi- tional questions. First, how will the company organize its advertising function—who will perform which advertising tasks? Second, how will the company adapt its advertising strategies and programs to the complexities of international markets?

organizing for advertising Different companies organize in different ways to handle advertising. In small companies, advertising might be handled by someone in the sales department. Large companies have advertising departments whose job it is to set the advertising budget, work with ad agen- cies, and handle other advertising not done by an agency. However, most large companies use outside advertising agencies because they offer several advantages.

How does an advertising agency work? Advertising agencies originated in the mid- to late 1800s from salespeople and brokers who worked for the media and received a com- mission for selling advertising space to companies. As time passed, the salespeople began to help customers prepare their ads. Eventually, they formed agencies and grew closer to the advertisers than to the media.

Today’s agencies employ specialists who can often perform advertising and brand content tasks better than the company’s own staff can. Agencies also bring an outside point of view to solving the company’s problems, along with lots of experience from working with different clients and situations. So, today, even companies with strong adver- tising departments of their own use advertising agencies.

Some ad agencies are huge; the largest U.S. agency, Y&R, has annual gross U.S. rev- enues of $1.69 billion. In recent years, many agencies have grown by gobbling up other agencies, thus creating huge agency holding companies. The largest of these megagroups, WPP, includes several large advertising, PR, digital, and promotion agencies with com- bined worldwide revenues of more than $17 billion.34

Most large advertising agencies have the staff and resources to handle all phases of an advertising campaign for their clients, from creating a marketing plan to developing ad and

advertising agency A marketing services firm that assists companies in planning, preparing, implementing, and evaluating all or portions of their advertising programs.

Finally, for most Super Bowl advertisers, long after the game ends, the marketing content machine is still cranking. Next-day watercooler discussions about Super Bowl ads have been going on for decades. But digital, mobile, and social media have taken post-game buzz into the stratosphere. For days or even weeks following the game, online social channels hum with ad views and reviews, Likes, Shares, and comments. Becoming a part of all that online conversation and sharing can substantially extend a company’s return on the game-day investment.

PepsiCo’s Doritos brand begins its Super Bowl campaign each year a full four months prior to the event with its “Crash the Super Bowl” contest. Doritos invites consumers to submit their own 30-second commercials and, based on fan votes, runs the best ones during the game. The contest and ads ensure several months of heavy consumer involvement. Now in its ninth year, “Crash the Super Bowl” has produced numerous top-place finishers in the USA Today Ad Meter rankings. Last year’s contest attracted 4,900 entries from 29 countries. The winner, “Middle Seat”—a clever ad about a man who uses a bag of Doritos to entice a pretty woman to sit next to him on a plane flight only to find that she has a fussy baby in tow —placed fifth in the Ad Meter rankings and earned its amateur creators a $1 million prize plus a “dream job” working at Universal Studios. The ad created buzz well beyond the actual game-day broadcast, as did the runner-up ad, “When Pigs Fly”—a chuckler in which a farm kid straps a rocket on a pig and makes the impossible happen in order to score a bag of Doritos.

So—back to the original question: Is Super Bowl advertising really worth the huge investment? The Super Bowl is certainly not for every brand. But for the right brands—and the brands that do it right—the answer is a resounding “yes.” It’s not just about running an ad or two during the big game. Instead, it’s about consumers by the millions watching, streaming, sharing, commenting, debat- ing, and buzzing about ads and brands before the game, in the moment, and after the main event. For the Super Bowl, says one marketing executive, “We are fundamentally playing a different game. [It’s] no longer about 30 seconds [but] about a month long, really, really meaningful program.” Says another Super Bowl regular: “Not only does the broadcast itself bring great value, but if you just look at the explosion in the social-media value and digital value in recent years, it’s a terrific return on investment.”

Sources: Julia Boorstin, “Who Won the Social Super Bowl,” CNBC, February 2, 2015, www.cnbc.com/id/102389530; Drew Beechler, “Super Bowl XLIX Social Media Trends and Analysis #Infographic,” Salesforce.com, February 2, 2015, www.salesforce.com/blog/2015/02/super-bowl-xlix-social-media- trends-and-analysis.html; Stuart Elliott, “Super Bowl Ads Get Their Own Pregame Show,” New York Times, January 17, 2014; “Pepsi Alters Super Bowl Strategy, Takes Masterbrand Approach,” Advertising Age, January 24, 2014, http://adage.com/print/291271; “How Marketers Can Bring Their A-Game to the Super Bowl,” Advertising Age, November 4, 2013, http://adage.com/ print/291177; John McDermott, “What the Cost of a Super Bowl Ad Can Buy Online,” Digiday, January 30, 2015, http://digiday.com/platforms/cost-super- bowl-ad-can-buy-online/; and Jeanine Poggi, “Is the Super Bowl Worth the Price?” Advertising Age, February 9, 2015, p. 8.

http://www.cnbc.com/id/102389530

http://www.salesforce.com/blog/2015/02/super-bowl-xlix-social-media-trends-and-analysis.html

http://adage.com/print/291271

http://adage.com/print/291177

http://digiday.com/platforms/cost-super-bowl-ad-can-buy-online/

http://adage.com/print/291177

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content campaigns and preparing, placing, and evaluating ads and content. Large brands commonly employ several agencies that handle everything from mass-media advertising campaigns to shopper marketing and social media content.

international advertising Decisions International advertisers face many complexities not encountered by domestic advertisers. The most basic issue concerns the degree to which global advertising should be adapted to the unique characteristics of various country markets.

Some advertisers have attempted to support their global brands with highly standard- ized worldwide advertising, with campaigns that work as well in Bangkok as they do in

Baltimore. For example, McDonald’s unifies its creative elements and brand presentation under the familiar “i’m lovin’ it” theme in all its 100-plus mar- kets worldwide. Visa coordinates its $500 million worldwide advertising efforts for its debit and credit cards under the “Everywhere you want to be” creative platform, which works as well in Korea as it does in the United States or Brazil.35 And Snickers runs similar versions of its “You’re not you when you’re hungry” ads in 80 different countries, from the United States and the United Kingdom to Mexico, Australia, and even Russia. No matter what the country, the ads strike a common human emotion that everyone can relate to—people get out of sorts and do uncharacteristic things when they need nutri- tion. A Snickers bar can help them get back to being their real selves. Snickers let’s local markets make adjustments for local languages and personalities. Otherwise, the ads are similar worldwide.36

In recent years, the increased popularity of online marketing and social media sharing has boosted the need for advertising standardization for global brands. Most big marketing and advertising campaigns include a large online presence. Connected consumers can now zip easily across borders via the Internet and social media, making it difficult for advertisers to roll out adapted campaigns in a controlled, orderly fashion. As a result, at the very least, most global consumer brands coordinate their Web sites internationally. For example, Coca-Cola Web sites around the world, from Australia and Argentina to France, Romania, and Russia, are surprisingly uniform. All feature splashes of familiar Coke red, iconic Coke bottle shapes, and Coca-Cola’s music and “open happiness” themes.

Standardization produces many benefits—lower advertising costs, greater global advertising coordination, and a more consistent worldwide image. But it also has draw- backs. Most important, it ignores the fact that country markets differ greatly in their cul- tures, demographics, and economic conditions. Thus, most international advertisers “think globally but act locally.” They develop global advertising strategies that make their world- wide efforts more efficient and consistent. Then they adapt their advertising programs to make them more responsive to consumer needs and expectations within local markets. For example, although Visa employs its “Everywhere you want to be” theme globally, ads in specific locales employ local language and inspiring local imagery that make the theme relevant to the local markets in which they appear.

Global advertisers face several special problems. For instance, advertising media costs and availability differ vastly from country to country. Countries also differ in the extent to which they regulate advertising practices. Many countries have extensive systems of laws restricting how much a company can spend on advertising, the media used, the nature of advertising claims, and other aspects of the advertising program. Such restrictions often require advertisers to adapt their campaigns from country to country.

Thus, although advertisers may develop global strategies to guide their overall adver- tising efforts, specific advertising programs must usually be adapted to meet local cultures and customs, media characteristics, and regulations.

international advertising: McDonald’s unifies its global advertising under the familiar “i’m lovin’ it” theme in all its 100-plus markets worldwide, here china. TED ALJIBE/AFP/Getty Images

392 Part 3: Designing a customer Value-Driven strategy and Mix

MilkPeP’s “built With chocolate Milk” public relations campaign is repositioning chocolate milk as a sports recovery “after” beverage for both everyday and well-known adults, here ironman World champion chris lieto. Bob Levey/WireImage/Getty images

linking the concePts Think about what goes on behind the scenes for the ads we all tend to take for granted.

●● Pick a favorite print or television ad. Why do you like it? Do you think that it’s effective? Can you think of an ad that people like that may not be effective?

●● Dig a little deeper and learn about the campaign behind your ad. What are the campaign’s objec- tives? What is its budget? Assess the campaign’s message and media strategies. What other brand content does the campaign contain? Looking beyond your own feelings about the ad, is the campaign likely to be effective?

Public relations Another major mass-promotion tool, public relations, consists of activities designed to engage and build good relations with the company’s various publics. PR departments may perform any or all of the following functions:37

●● Press relations or press agency. Creating and placing newsworthy information in the news media to attract attention to a person, product, or service.

●● Product publicity. Publicizing specific products. ●● Public affairs. Building and maintaining national or local community relationships. ●● Lobbying. Building and maintaining relationships with legislators and government

officials to influence legislation and regulation. ●● Investor relations. Maintaining relationships with shareholders and others in the

financial community. ●● Development. Working with donors or members of nonprofit organizations to gain

financial or volunteer support.

Public relations is used to promote products, people, places, ideas, activities, organizations, and even nations. Companies use PR to build good relations with consumers, investors, the media, and their com- munities. Trade associations have used PR to rebuild interest in com- modities, such as eggs, apples, potatoes, onions, and even chocolate milk. For example, the Milk Processor Education Program (MilkPEP), known for its successful “Got Milk?” campaign in previous years, cre- ated a strong PR campaign to promote the health benefits and boost consumption of chocolate milk:38

MilkPEP launched an extensive, integrated PR campaign to reposition choco- late milk—the traditional children’s favorite—as a post-workout, sports re- covery beverage for adults. Backed by more than 20 research studies that support the refueling benefits of chocolate milk, MilkPEP’s “Built With Chocolate Milk” campaign enlists important influencers—such as athletes, sports nutritionists, fitness bloggers, and health researchers—to help change perceptions of chocolate milk from just a kid’s drink to a legitimate sports drink, one that’s “Trusted by Athletes. Backed by Science.” Ads and so- cial media content feature both everyday and well-known athletes, such as 12-time swimming medalist Dara Torres, pro hockey’s Zach Parise, Ironman World Champions Chris Lieto and Mirinda Carfrae, and NBA basketball star Carmelo Anthony. For example, MilkPEP sponsored Pittsburgh Steelers foot- ball player Hines Ward to train and compete in the Ironman. The chocolate milk team followed Hines through workouts and meetings with dieticians, showing the science behind chocolate milk as a recovery drink, then posted videos and other accounts on YouTube, Twitter, and Facebook. Hines’s ex- perience with chocolate milk inspired both fans and fellow athletes to try the beverage. Beyond working with professional athletes, MilkPEP also partici- pates in hundreds of local events across the country, such as California’s Big

author comment Not long ago, public relations was considered a marketing stepchild

because of its limited marketing use. That situation is changing fast, however,

as more marketers recognize PR’s brand-building, customer engagement,

and social power.

chapter 12: engaging consumers and communicating customer Value 393

Sur Marathon, passing out free chocolate milk at finish lines. Thanks to strong PR, chocolate milk is now making a comeback, with 6 to 12 percent sales increases among targeted adults.

the role and impact of Pr Public relations can have a strong impact on public awareness at a much lower cost than advertising can. When using public relations, the company does not pay for the space or time in the media. Rather, it pays for a staff to develop and circulate information and man- age events. If the company develops an interesting story or event, it could be picked up by several different media and have the same effect as advertising that would cost millions of dollars. What’s more, public relations has the power to engage consumers and make them a part of the brand story and its telling.

PR results can sometimes be spectacular. Consider the launch of Apple’s iPad:39

Apple’s iPad was one of the most successful new product launches in history. The funny thing: Whereas most big product launches are accompanied by huge prelaunch advertising campaigns, Apple pulled this one off with no advertising. None at all. Instead, it simply fed the PR fire. It built buzz months in advance by distributing iPads for early reviews, feeding the offline and online press with tempting tidbits and offering fans an early online peek at thousands of new iPad apps that would be available. At launch time, it fanned the flames with a cameo on the TV sitcom Modern Family, a flurry of launch-day appearances on TV talk shows, and other launch-day events. In the process, through PR alone, the iPad launch generated unbounded consumer excitement, a media frenzy, and long lines outside retail stores on launch day. Apple sold more than 300,000 of the sleek gadgets on the first day alone and more than 2 million in the first two months—even as demand outstripped supply. Apple repeated the feat a year later with the equally successful launch of iPad 2, which sold close to 1 million devices the weekend of its launch.

Despite its potential strengths, public relations is occasionally described as a market- ing stepchild because of its sometimes limited and scattered use. The PR department is often located at corporate headquarters or handled by a third-party agency. Its staff is so busy dealing with various publics—stockholders, employees, legislators, and the press— that PR programs to support product marketing objectives may be ignored. Moreover, marketing managers and PR practitioners do not always speak the same language. Whereas many PR practitioners see their jobs as simply communicating, marketing man- agers tend to be much more interested in how advertising and PR affect brand building, sales and profits, and customer engagement and relationships.

This situation is changing, however. Although public relations still captures only a small portion of the overall marketing budgets of many firms, PR can be a powerful brand- building tool. Especially in this digital age, the lines between advertising, PR, and other content are becoming more and more blurred. For example, are brand Web sites, blogs, brand videos, and social media activities advertising, PR, or something else? All are mar- keting content. And as the use of earned and shared digital content grows rapidly, PR may play a bigger role in marketing content management. More than any other department, PR has always been responsible for creating relevant marketing content that draws consumers to a brand rather than pushing messages out. “PR pros are an organization’s master story- tellers. In a word, they do content,” says one expert. “The rise of social media [is] moving public relations professionals from the backroom, crafting press releases and organizing events, to the forefront of brand development and customer engagement,” says another.40 The point is that PR should work hand in hand with advertising within an integrated mar- keting communications program to help build customer engagement and relationships.

Major Public relations tools Public relations uses several tools. One of the major tools is news. PR professionals find or create favorable news about the company and its products or people. Sometimes news sto- ries occur naturally; sometimes the PR person can suggest events or activities that would create news. Another common PR tool is special events, ranging from news conferences and speeches, brand tours, and sponsorships to laser light shows, multimedia presenta- tions, or educational programs designed to reach and interest target publics.

394 Part 3: Designing a customer Value-Driven strategy and Mix

Public relations people also prepare written materials to reach and influence their target markets. These materials include annual reports, brochures, articles, and company newslet- ters and magazines. Audiovisual materials, such as DVDs and online videos, are being used increasingly as communication tools. Corporate identity materials can also help create a cor- porate identity that the public immediately recognizes. Logos, stationery, brochures, signs, business forms, business cards, buildings, uniforms, and company cars and trucks all become marketing tools when they are attractive, distinctive, and memorable. Finally, companies can improve public goodwill by contributing money and time to public service activities.

As previously discussed, the Web and social media are also important PR channels. Web sites, blogs, and social media such as YouTube, Facebook, Instagram, Snapchat, Pinterest, and Twitter are providing new ways to reach and engage people. As noted, storytelling and engage- ment are core PR strengths, and that plays well into the use of online, mobile, and social media.

As with the other promotion tools, in considering when and how to use product public rela- tions, management should set PR objectives, choose the PR messages and vehicles, implement the PR plan, and evaluate the results. The firm’s PR should be blended smoothly with other promotion activities within the company’s overall integrated marketing communications effort.

chaPter reVieW anD critical thinking

In this chapter, you’ve learned how companies use integrated marketing communications (IMC) to engage customers and communicate customer value. You’ve also explored two of the major marketing communications mix elements—advertising and public relations. Modern marketing calls for more than just creating customer value by developing a good product, pric- ing it attractively, and making it available to target customers. Companies also must clearly and persuasively communicate that value to current and prospective customers. To do this, they must blend five communication mix tools, guided by a well-designed and implemented integrated marketing communications strategy.

objectiVe 12-1 Define the five promotion mix tools for communicating customer value. (pp 366–367)

A company’s total promotion mix—also called its marketing com- munications mix—consists of the specific blend of advertising, personal selling, sales promotion, public relations, and direct and digital marketing tools that the company uses to engage customers, persuasively communicate customer value, and build customer relationships. Advertising includes any paid form of nonpersonal presentation and promotion of ideas, goods, or services by an identified sponsor. In contrast, public relations focuses on building good relations with the company’s various publics. Personal selling

reVieWing anD extenDing the concePts

objectives review is personal presentation by the firm’s sales force for the purpose of making sales and building customer relationships. Firms use sales promotion to provide short-term incentives to encourage the pur- chase or sale of a product or service. Finally, firms seeking imme- diate response from targeted individual consumers and consumer communities use direct, digital, and social media marketing tools to engage consumers and cultivate relationships with them.

objectiVe 12-2 Discuss the changing communica- tions landscape and the need for integrated marketing communications. (pp 367–374)

The explosive developments in communications technology and changes in marketer and customer communication strategies have had a dramatic impact on marketing communications. The new digital and social media have given birth to a more tar- geted, social, and engaging marketing communications model. Along with traditional media, advertisers are now adding a broad selection of more-specialized and highly targeted media to engage smaller customer segments with more-personalized, interactive content. As they adopt richer but more fragmented media and promotion mixes to reach their diverse markets, however, they risk creating a communications hodgepodge for consumers. To prevent this, companies are adopting the concept

chapter 12: engaging consumers and communicating customer Value 395

of integrated marketing communications (IMC). Guided by an overall IMC strategy, the company works out the roles that the various promotional tools will play and the extent to which each will be used. It carefully coordinates the promotional activities and the timing of when major campaigns take place.

objectiVe 12-3 Describe and discuss the major decisions involved in developing an advertising program. (pp 375–392)

Advertising—the use of paid, owned, earned, and shared media by a seller to inform, persuade, and remind about its products or organization—is a strong promotion tool that takes many forms and has many uses. Advertising decision making in- volves decisions about the objectives, the budget, the message, the media, and, finally, the evaluation of results. Advertisers should set clear objectives as to whether the advertising is supposed to inform, persuade, or remind buyers. The advertis- ing budget can be based on what is affordable, on sales, on competitors’ spending, or on advertising objectives and tasks. The message decision calls for planning a creative concept (or “big idea”) and message strategy and executing it effectively. The media decision involves defining reach, frequency, impact, and engagement goals; choosing major media types; selecting media vehicles; and deciding on media timing. Message and

media decisions must be closely coordinated for maximum campaign effectiveness. Finally, evaluation calls for evaluating the communication and sales effects of advertising and other brand content before, during, and after it is placed and measur- ing advertising return on investment.

objectiVe 12-4 explain how companies use public relations to communicate with their publics. (pp 392–394)

Public relations involves building good relations with the company’s various publics. Its functions include press agency, product publicity, public affairs, lobbying, investor relations, and development. Public relations can have a strong impact on public awareness at a much lower cost than advertising can, and PR results can sometimes be spectacular. Despite its potential strengths, however, PR sometimes sees only limited and scat- tered use. Public relations tools include news, special events, written materials, audiovisual materials, corporate identity materials, and public service activities. A company’s Web site and online social media can be good PR vehicles. In considering when and how to use product PR, management should set PR objectives, choose the PR messages and vehicles, implement the PR plan, and evaluate the results. Public relations should be blended smoothly with other promotion activities within the company’s overall integrated marketing communications effort.

key terms objective 12-1 Promotion mix (marketing

communications mix) (p 366) Advertising (p 366) Sales promotion (p 366) Personal selling (p 366) Public relations (PR) (p 366) Direct and digital

marketing (p 366) Content marketing (p 368)

objective 12-2 Integrated marketing

communications (IMC) (p 371) Push strategy (p 373) Pull strategy (p 374)

objective 12-3 Advertising objective (p 375) Advertising budget (p 377) Affordable method (p 377)

Percentage-of-sales method (p 377) Competitive-parity method (p 378) Objective-and-task method (p 378) Advertising strategy (p 379) Madison & Vine (p 380) Creative concept (p 382) Execution style (p 382) Advertising media (p 384) Return on advertising investment (p 388) Advertising agency (p 390)

Discussion Questions 12-1. Name and describe the five major promotion tools used

in marketing. (AASCB: Communication) 12-2. What is integrated marketing communications (IMC),

and how does a company go about implementing it? (AACSB: Communication)

12-3. Compare and contrast push and pull promotion strate- gies and discuss the factors marketers consider when

deciding which one to use. (AACSB: Communication; Reflective Thinking)

12-4. What are the role and functions of public relations within an organization? (AACSB: Communication)

12-5. Discuss the major public relations tools and the roles played by the Internet and social media. (AACSB: Communication)

critical thinking exercises 12-6. Marketers use Q Scores to determine a celebrity’s appeal

to their target audience. Research Q Scores and write a report on a specific celebrity’s Q Score for the past sev- eral years. If the score changed considerably, what could be the reason? What other types of Q Scores are there

besides scores for celebrities? (AACSB: Communica- tion; Reflective Thinking)

12-7. Find three examples of advertisements that incorpo- rate socially responsible marketing in their messages. Some companies are criticized for exploiting social

396 Part 3: Designing a customer Value-Driven strategy and Mix

Marketers have always advertised in traditional media such as newspapers, television, and magazines, but today they are increasingly creating content for the online platforms of these media through native advertising, also called sponsored content. This form of promotion is not new. It dates back to the late 1880s as “reading notices” that placed information about brands and companies in news stories, usually without indicating sponsorship. However, sponsorship of today’s na- tive advertising is often clearly labeled. Native advertising is growing quickly. It is now offered by 73 percent of online publishers, and more than 40 percent of brands now use it. For example, Forbes’s BrandVoice lets companies such as IBM and CenturyLink place content both in the print magazine and on its digital platform at Forbes.com. Readers can learn from CenturyLink about how big data will change travel marketing or from Samsung about how to close the gender gap in science, technology, engineering, and math (STEM) education. Other publisher sites, such as The Huffington Post, help marketers create sponsored content. Its HuffPost Partner Studio provides writers, designers, and editors who assist business partners in creating relevant content about their brands in the familiar HuffPost voice. Fiber One tells readers “11 Diet ‘Rules’ You

Can Absolutely Break,” IBM explains how businesses can use social media, and Cottonelle tells readers how to fix the mistakes they are making in the bathroom. Social media are also getting in on the action. For example, Facebook reaped more than $1 billion in mobile native advertising alone in just one quarter. The rapid growth of native advertising has also caught the attention of the Federal Trade Commission. The FTC recently held a conference, “Blurred Lines: Advertising or Content? An FTC Workshop on Native Advertising” to discuss the issues of blending advertising with news and other content, leaving some to wonder if further regulations are forthcoming.

12-9. Find examples of native advertising on various publish- ers’ Web and mobile sites. Create a presentation with screenshots showing the content and how it is identi- fied. Has the content been shared with others via social media? (AACSB: Communication; Use of IT)

12-10. Debate whether the FTC’s current regulations and guidelines regarding online advertising are adequate for this nature of advertising promotions. Will the FTC likely issue new guidelines or regulations? (AACSB Communication; Reflective Thinking)

Minicases anD aPPlications

online, Mobile, and social Media Marketing native advertising

Marketing ethics amazon’s Dronerama On the eve of the biggest e-commerce shopping day of the year in 2013, Amazon’s normally secretive founder and CEO, Jeff Bezos, scored a public relations home run by going on CBS’s 60 Minutes program to unveil the company’s Prime Air un- manned aircraft project to deliver packages to consumers’ door- steps. Forget that it couldn’t be implemented because the Federal Aviation Administration does not allow such use of drones and that it will likely be 2026 before drone delivery might even be possible. The interview set off “Dronerama,” as some have called it. The next morning—Cyber Monday—the media were abuzz about drone delivery, with news organizations and Internet sites replaying the video of Amazon’s cool drone delivering a package. The normally hard-hitting 60 Minutes interview has been criti- cized because the interviewer, the famous Charlie Rose, seemed to gush all over Bezos and ignore other controversial issues, such as working conditions at Amazon. Rose further gushed over Amazon during the 60 Minutes Overtime digital supplement to the show. Critics believe the normally unattainable Bezos called

the shots in return for appearing on the show. “Dronerama” not only got Amazon on every cyber shoppers’ lips on that all-impor- tant online shopping day, it seemed to take some of the wind out of the sails of a recently released book critical of Bezos at a time when Amazon needed customers the most.

12-11. Watch the 60 Minutes interview at www.cbsnews.com/ news/amazons-jeff-bezos-looks-to-the-future/. Is it ethi- cal for companies to use the media in this way to gain favorable exposure? Did Jeff Bezos acknowledge the fact that drones were not feasible at the time of the inter- view? (AACSB: Communication; Ethical Reasoning; Reflective Thinking)

12-12. Create a presentation on the publicity Amazon received as a result of the 60 Minutes interview and continues to receive over drone delivery. Would you judge this cam- paign a success or failure? (AACSB: Communication; Use of IT; Reflective Thinking)

issues or organizations by promoting them for their own gain. Do the examples you found do that? Ex- plain. (AACSB: Communication; Ethical Reasoning; Reflective Thinking)

12-8. The Public Relations Society of America (PRSA) awards the best public relations campaigns with Silver

Anvil Awards. Visit www.prsa.org/Awards/Search and review several case reports on previous winners. What does the field of public relations encompass? Write a report on one of the award winners focusing on market- ing-related activities. (AACSB: Communication; Use of IT; Reflective Thinking)

http://www.cbsnews.com/

http://www.prsa.org/Awards/Search

chapter 12: engaging consumers and communicating customer Value 397

Marketing by the numbers advertising-to-sales ratios Using the percent-of-sales method, an advertiser sets its adver- tising budget at a certain percentage of current or forecasted sales. However, determining what percentage to use is not always clear. Many marketers look at industry averages and competitor spending for comparisons. Web sites and trade publications publish data regarding industry averages to guide marketers in setting the percentage to use. For example, firms competing in the toy and apparel industries spend 10 percent or more of sales on advertising, whereas firms competing in the mortgage servicing and insulation industries spend less than 1 percent of sales on advertising. You read about GEICO at the beginning of the chapter. It is the number-two auto in- surer with $17 billion in revenue last year. It spent $1.1 billion on advertising that year and plans to continue spending the

same percentage of sales on advertising next year. The aver- age advertising-to-sales ratio for the insurance industry is 0.1 percent of sales.

12-13. If GEICO projects $19 billion in sales next year, using the percentage-of-sales method of advertising budget- ing, how much will the company budget for advertising if basing it on projected sales? (AACSB: Communica- tion; Analytical Reasoning; Reflective Thinking)

12-14. How much would GEICO budget if the company based its advertising spending on the industry advertising-to- sales ratio? Is GEICO consistent with average industry ad spending? (AACSB: Communication; Analytical Reasoning; Reflective Thinking)

Video case kmart On the heels of its wildly popular “Ship My Pants” ads, Kmart struck again with an ad that was considered hilarious by some, offensive by others, and a stroke of genius by advertising crit- ics. Its latest ad, “Big Gas Savings,” was launched on YouTube prior to airing on television. And like its “Ship My Pants” pre- decessor, the ad also went viral.

In addition to relying on potty humor to pull its sales out of the toilet, Kmart struck a very timely note in the tune of cus- tomer value—saving money on gasoline. Customers could save 30 cents a gallon on gas by spending $50 or more in its stores.

Millions of customers took advantage of the offer, driving traf- fic into Kmart stores.

After viewing the video featuring Kmart, answer the fol- lowing questions:

12-15. What is the advertising message in the Kmart “Big Gas Savings” ad?

12-16. Why did Kmart choose to air this video on YouTube? 12-17. Is this Kmart ad effective? Explain.

company cases 12 allstate/5 goldieblox See Appendix 1 for cases appropriate for this chapter. Case 12, Allstate: Bringing Mayhem to the Auto Insurance Advertising Wars. With an endlessly flexible advertising mascot, Allstate is driving its message to consumers and keep- ing competitors on their toes. Case 5, GoldieBlox: Swimming

Upstream Against Consumer Perceptions. A new toy com- pany, GoldieBlox is out to change how people think of toys for girls with the message that success comes not from playing with dollhouses, but from building them.

MyMarketingLab If assigned by your instructor, complete these writing sections from your Assignments in the MyLab.

12-18. Name and describe the various execution styles for presenting messages and provide an example of each style different from the ones in the chapter. (AACSB: Communication)

12-19. Discuss the major advertising objectives and describe an advertisement that is attempting to achieve each objective. (AACSB: Written and Oral Commu- nication; Reflective Thinking)

13 objectiVe 13-1 Discuss the role of a company’s salespeople in creating value for customers and building customer relationships. Personal Selling (400–402)

objectiVe 13-2 identify and explain the six major sales force management steps. Managing the Sales Force (402–410); Social Selling: Online, Mobile, and Social Media Tools (410–413)

Personal selling and sales Promotion

objectiVe 13-3 Discuss the personal selling process, distinguishing between transaction-oriented marketing and relationship marketing. The Personal Selling Process (414–417)

objectiVe 13-4 explain how sales promotion campaigns are developed and implemented. Sales Promotion (417–424)

Previewing the concepts in the previous two chapters, you learned about engaging customers and communicating customer value through integrated marketing communications (iMc) and two elements of the promotion mix: advertising and public relations. in this chapter, we examine two more iMc elements: personal selling and sales promotion. Personal selling is the interpersonal arm of marketing communications, in which the sales force engages customers and prospects to build relationships and make sales. sales promotion consists of short-term incentives to encourage the purchase or sale of a product or service. although this chapter presents per- sonal selling and sales promotion as separate tools, they must be carefully integrated with the other elements of the promotion mix.

first, let’s look at a real-life sales force. When you think of salespeople, perhaps you think of pushy retail sales clerks, “yell and sell” tV pitchmen, or the stereotypical glad- handing “used-car salesman.” but such stereotypes don’t fit the reality of most of today’s salespeople—sales professionals who succeed not by taking advantage of customers but by listening to their needs and helping to forge solutions. consider salesforce—the industry leader in customer relationship management solutions. salesforce not only produces market- leading sales management software, it also excels at practicing what it preaches—effective personal selling.

chaPter roaD MaP objective outline

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first stop salesforce: You Need a Great Sales Force to Sell Salesforce Salesforce is way out in front of the $20 billion market for cus- tomer relationship management (CRM) solutions. The Sales- force logo, set inside the image of a puffy cloud, underscores Salesforce’s highly successful cloud-based computing model (no software to install or own). Cloud-based systems are com- mon today, but they were state-of-the-art when Salesforce pio- neered the concept more than 15 years ago. Since then, the company has established itself as a leading innovator, con- stantly finding new ways to help client companies connect with customers and achieve greater sales force effectiveness using the latest online, mobile, social, and cloud technologies.

Salesforce helps businesses to “supercharge their sales.” It supplies what it calls a “Customer Success Platform,” a wide array of cloud-based sales force automation and customer rela- tionship management tools that gather, organize, analyze, and disseminate in-depth data about a company’s customers, sales, and individual sales rep and overall sales force performance. From its home in the cloud, Salesforce makes all these data and analysis readily available anytime, from anywhere, on any device with online access—desktops, laptops, tablets, or smartphones. Salesforce also integrates with major social media, providing tools for social media monitoring and real-time customer engagement and collaboration on its Salesforce Chatter platform, a kind of Facebook for enterprises.

Salesforce’s innovative products have made it the world’s number-one and fastest-growing CRM platform, ahead of blue-chip competitors such as Microsoft, Oracle, SAP, and IBM. The compa- ny’s revenues hit $5.4 billion last year, up an impressive 32 percent over the previous year and more than triple what they were just four years ago. Salesforce has been named by Forbes as the World’s Most Innovative Company in any industry for four straight years.

Innovative products and platforms have played a major role in Salesforce’s stunning success. But even the best products don’t sell themselves. You need a great sales force to sell Salesforce, and the company excels at practicing what it preaches—effective personal selling. Like the companies that buy its services, Salesforce has its own army of experienced, well-trained, highly motivated sales reps who take the company’s products to customers. In many respects, Salesforce’s own sales force serves as a model for the products and services it sells—not just for using the Salesforce cloud but more generally for achieving the “supercharged” sales force results that the company promises its clients.

At Salesforce, developing an outstanding sale force starts with recruiting and hiring top-notch salespeople. Salesforce’s aggressive but highly selective recruiting program skims the cream off the top of the global sales rep candidate pool. Last year, Salesforce hired only 4.5 percent of the more than 100,000 candidates who applied. Expe- rience counts. Salesforce expects a minimum of two years of prior sales experience for small-business sales reps and up to two decades of experience for sales execs assigned to major accounts. To find such experienced candidates, Salesforce freely raids rival companies for new hires, counting on its high-energy culture and strong compensation packages to lure successful salespeople into the Salesforce fold.

Once hired, as you might expect, Salesforce salespeople have access to all the latest high-tech selling tools. In fact, the first major assignment of new hires is to study 20 hours of at-home video that teaches them the ins and outs of the Salesforce technologies that they won’t be just selling but also using. But Salesforce would be the first to tell you that, although its cloud wizardry can help to optimize customer contact and the selling process, it doesn’t take the place of good per- sonal selling skills. So in training and fine-tuning its own sales force, the company starts by preaching tried-and-true selling fundamentals, tempered by its own modern twists.

The first fundamental of good selling at Salesforce is to listen and learn. As new recruits go through Salesforce’s week- long selling boot camp, taught at the company’s Salesforce U, they learn that they should begin building customer rela- tionships by asking prob- ing questions and getting customers to talk, seeking to understand everything they can about a customer’s situation and needs. “Eighty-five percent of salespeople don’t slow down enough to really understand their customer’s business,” says a senior Salesforce sales executive.

Understanding the customer leads to a second selling fundamen- tal: empathize—let customers know that you understand their issues and feel their pain. Empathy builds rapport and trust, an important step toward closing sales and building long-term customer relationships. Listening, learning, and empathizing are important first steps, but more is needed. “If all you are is responsive and helpful, then all you are is an administrative assistant,” says the Salesforce sales executive.

salesforce leads the market in sales force

automation and customer relationship management

solutions. but even salesforce’s innovative products won’t sell

themselves. the company knows that it needs a great sales force to

sell salesforce.

salesforce’s cloud-based “customer success Platform” provides a wide array of customer relationship management tools that help its customers “supercharge their sales.” webpics/Alamy

400

So the next important step is to offer solutions—to show how Salesforce’s cloud-based solutions will help clients make their sales forces more effective and productive in connecting with and selling to customers. Salesforce believes that the best way to offer solutions is by telling good stories that highlight other customers’ successes with its products. “Storytelling is very, very important,” says Salesforce’s sales productivity manager. “It can be the foundation of things like the corporate pitch and your interactions with your customers and pros- pects.” When it comes to handling objections—such as “I don’t trust putting our data in the cloud,” or “My current system is working fine,” or “It costs too much”—Salesforce tells its salespeople that stories can be the most powerful tools they have. “When faced with objec- tions, we always relate it back to a customer story,” says a Salesforce marketing manager. “We’re not the hero in our customer’s stories,” says another manager. “It’s how the customer succeeded, not how we saved them.”

When it comes to competitors, Salesforce’s salespeople are ferocious. But Salesforce reps are trained to take the high road—to

sell Salesforce’s strengths, not competitors’ weaknesses. “Inter- nally, we have these posters: Crush Microsoft and Obliterate Oracle,” says the Salesforce marketing manager. But, he adds “when you go out to your customers, you have to be careful that you’re guiding them and not just stepping on Microsoft. Even though we all want to.”

Thus, effective professional selling is about much more than glad-handing and back-slapping on the one hand or plying high- tech CRM tools and data analytics on the other. Even though Salesforce boasts the best sales and customer connection tools in the business, backed by big data and combined with plenty of new-school techniques, its sales reps stay focused on old-school selling principles. At Salesforce—or anywhere else—good selling starts with the fundamentals of engaging and listening to cus- tomers, understanding and empathizing with their problems, and building relationships by offering meaningful solutions for mutual gain. That’s how you build an incredibly successful sales force and Salesforce.1

n this chapter, we examine two more promotion mix tools: personal selling and sales promotion. Personal selling consists of interpersonal interactions with cus- tomers and prospects to make sales and maintain customer relationships. Sales

promotion involves using short-term incentives to encourage customer purchasing, reseller support, and sales force efforts.

Personal selling Robert Louis Stevenson once noted, “Everyone lives by selling something.” Companies around the world use sales forces to sell products and services to business customers and final consumers. But sales forces are also found in many other kinds of organizations. For example, colleges use recruiters to attract new students, and churches use membership committees to attract new members. Museums and fine arts organizations use fundraisers to contact donors and raise money. Even governments use sales forces. The U.S. Postal Service, for instance, uses a sales force to sell Express Mail and other shipping and mail- ing solutions to corporate customers. In the first part of this chapter, we examine personal selling’s role in the organization, sales force management decisions, and the personal sell- ing process.

the nature of Personal selling Personal selling is one of the oldest professions in the world. The people who do the sell- ing go by many names, including salespeople, sales representatives, agents, district man- agers, account executives, sales consultants, and sales engineers.

People hold many stereotypes of salespeople—including some unfavorable ones. Salesman may bring to mind the image of Dwight Schrute, the opinionated Dunder Mifflin paper salesman from the old TV show The Office, who lacks both common sense and social skills. Or they may think of the real-life “yell-and-sell” TV pitchmen, who hawk everything from the Flex Seal to the FOCUS T25 Workout and the Ove Glove in infomercials. However, the majority of salespeople are a far cry from these unfortunate stereotypes.

As the opening Salesforce story shows, most salespeople are well-educated and well-trained professionals who add value for customers and maintain long-term cus- tomer relationships. They listen to their customers, assess customer needs, and organize

author comment Personal selling is the interpersonal

arm of the promotion mix. A company’s sales force creates and communicates customer value by personally engaging

customers and building customer relationships.

Personal selling Personal presentations by the firm’s sales force for the purpose of engaging customers, making sales, and building customer relationships.

chapter 13: Personal selling and sales Promotion 401

the company’s efforts to solve customer problems. The best salespeople are the ones who work closely with customers for mutual gain. Consider Boeing, the aerospace giant competing in the rough- and-tumble worldwide commercial aircraft market. It takes more than fast talk and a warm smile to sell expensive airplanes:

Selling high-tech aircraft at $150 million or more a copy is complex and challenging. A single big sale to an airline, air-freight car- rier, government, and military customer can easily run into billions of dollars. Boeing salespeople head up an extensive team of company specialists—sales and service technicians, financial analysts, planners, engineers—all dedicated to finding ways to satisfy a large customer’s needs. On the customer side, buying a batch of jetliners involves dozens or even hundreds of decision- makers from all levels of the buying organi- zation and layer upon layer of subtle and not-so-subtle buying influences. The selling process is nerve-rackingly slow—it can take

two or three years from the first sales presentation to the day the sale is announced. After getting the order, salespeople then must stay in almost constant touch to keep track of the account’s equipment needs and to make certain the customer stays satisfied. The real challenge is to win buyers’ business by building day-in, day-out, year-in, year-out partnerships with them based on superior products and close collaboration.

The term salesperson covers a wide range of positions. At one extreme, a salesperson might be largely an order taker, such as the department store salesperson standing behind the counter. At the other extreme are order getters, whose positions demand creative selling, social selling, and relationship building for products and services ranging from appliances, industrial equipment, and airplanes to insurance and IT services. In this chapter, we focus on the more creative types of selling and the process of building and managing an effective sales force.

the role of the sales force Personal selling is the interpersonal arm of the promotion mix. It involves interpersonal interactions and engagement between salespeople and individual customers—whether face to face, by phone, via email or social media, through video or online conferences, or by other means. Personal selling can be very effective in complex selling situations. Salespeople can probe customers to learn more about their problems and then adjust the marketing offer and presentation to fit each customer’s special needs.

The role of personal selling varies from company to company. Some firms have no salespeople at all—for example, companies that sell only online, or companies that sell through manufacturers’ reps, sales agents, or brokers. In most firms, however, the sales force plays a major role. In companies that sell business products and services, such as IBM, DuPont, or Boeing, salespeople work directly with customers. In consumer product companies such as P&G or Nike, the sales force plays an important behind-the-scenes role. It works with wholesalers and retailers to gain their support and help them be more effective in selling the company’s products to final buyers.

linking the company with its customers The sales force serves as a critical link between a company and its customers. In many cases, salespeople serve two masters—the seller and the buyer. First, they represent the company to customers. They find and develop new customers and communicate information about

salesperson An individual who represents a company to customers by performing one or more of the following activities: prospecting, communicating, selling, servicing, information gathering, and relationship building.

Professional selling: it takes more than fast talk and a warm smile to sell expensive airplanes. boeing’s real challenge is to win business by building partnerships—day-in, day-out, year-in, year-out—with its customers. Kin Cheung/AP Images

402 Part 3: Designing a customer Value-Driven strategy and Mix

the company’s products and services. They sell products by engaging customers, presenting their offerings, answering objections, negotiating prices and terms, closing sales, servicing accounts, and maintaining account relationships.

At the same time, salespeople represent customers to the company, act- ing inside the firm as “champions” of customers’ interests and managing the buyer–seller relationship. Salespeople relay customer concerns about company products and actions back inside to those who can handle them. They learn about customer needs and work with other marketing and nonmarketing people in the company to develop greater customer value.

In fact, to many customers, the salesperson is the company—the only tangible manifestation of the company that they see. Hence, customers may become loyal to salespeople as well as to the companies and products they rep- resent. This concept of salesperson-owned loyalty lends even more importance to the salesperson’s customer-relationship-building abilities. Strong relation- ships with the salesperson will result in strong relationships with the company and its products. Conversely, poor salesperson relationships will probably result in poor company and product relationships.

coordinating Marketing and sales Ideally, the sales force and other marketing functions (marketing planners, brand managers, marketing content managers, and researchers) should work together closely to jointly create value for customers. Unfortunately, however, some companies still treat sales and marketing as separate functions. When this happens, the separate sales and marketing groups may not get along well. When things go wrong, marketers blame the sales force for its poor execution

of what they see as an otherwise splendid strategy. In turn, the sales team blames the mar- keters for being out of touch with what’s really going on with customers. Neither group fully values the other’s contributions. However, if not repaired, such disconnects between marketing and sales can damage customer relationships and company performance.

A company can take several actions to help bring its marketing and sales functions closer together. At the most basic level, it can increase communications between the two groups by arranging joint meetings and spelling out communication channels. It can create opportunities for salespeople and marketers to work together. Brand managers and research- ers can tag along on sales calls or sit in on sales planning sessions. In turn, salespeople can sit in on marketing planning sessions and share their firsthand customer knowledge.

A company can also create joint objectives and reward systems for sales and market- ing teams or appoint marketing–sales liaisons—people from marketing who “live with the sales force” and help coordinate marketing and sales force programs and efforts. Finally, it can appoint a high-level marketing executive to oversee both marketing and sales. Such a person can help infuse marketing and sales with the common goal of creating value for customers to capture value in return.2

Managing the sales force We define sales force management as analyzing, planning, implementing, and control- ling sales force activities. It includes designing sales force strategy and structure as well as recruiting, selecting, training, compensating, supervising, and evaluating the firm’s salespeople. These major sales force management decisions are shown in figure 13.1 and discussed in the following sections.

Designing the sales force strategy and structure Marketing managers face several sales force strategy and design questions. How should salespeople and their tasks be structured? How big should the sales force be? Should salespeople sell alone or work in teams with other people in the company? Should they sell in the field, by phone, or using online and social media? We address these issues next.

author comment Here’s another definition of

sales force management: “planning, organizing, leading, and controlling

personal contact programs designed to achieve profitable customer relationships.” Once again, the goal of every marketing

activity is to create customer value, engage customers, and build

profitable customer relationships.

sales force management Analyzing, planning, implementing, and controlling sales force activities.

salespeople link the company with its customers. to many customers, the salesperson is the company. Tim Robbins/Mint Images Limited/Alamy

chapter 13: Personal selling and sales Promotion 403

the sales force structure A company can divide sales responsibilities along any of several lines. The structure decision is simple if the company sells only one product line to one industry with customers in many locations. In that case the company would use a territorial sales force structure. However, if the company sells many products to many types of customers, it might need a product sales force structure, a customer sales force structure, or a combination of the two.

In the territorial sales force structure, each salesperson is assigned to an exclusive geographic area and sells the company’s full line of products or services to all customers in that territory. This organization clearly defines each salesperson’s job and fixes account- ability. It also increases the salesperson’s desire to build local customer relationships that, in turn, improve selling effectiveness. Finally, because each salesperson travels within a limited geographic area, travel expenses are relatively small. A territorial sales organi- zation is often supported by many levels of sales management positions. For example, individual territory sales reps may report to area managers, who in turn report to regional managers who report to a director of sales.

If a company has numerous and complex products, it can adopt a product sales force structure, in which the sales force specializes along product lines. For example, GE employs different sales forces within different product and service divisions of its major businesses. Within GE Infrastructure, for instance, the company has separate sales forces for aviation, energy, transportation, and water processing products and technologies. No single salesperson can become expert in all of these product categories, so product special- ization is required. Similarly, GE Healthcare employs different sales forces for diagnostic imaging, life sciences, and integrated IT products and services. In all, a company as large and complex as GE might have dozens of separate sales forces serving its diverse product and service portfolio.

Using a customer (or market) sales force structure, a company organizes its sales force along customer or industry lines. Separate sales forces may be set up for different industries, serving current customers versus finding new ones, and serving major accounts

versus regular accounts. Organizing the sales force around customers can help a company build closer relationships with important customers. Many companies even have special sales forces to handle the needs of individual large customers. For example, GE Aviation has a special Boeing sales team. And appliance maker Whirlpool assigns individual teams of sales- people to big retail customers such as Sears, Lowe’s, Best Buy, and Home Depot. Each Whirlpool sales team aligns with the large customer’s buying team.

When a company sells a wide variety of products to many types of customers over a broad geographic area, it often employs a complex sales force structure, which combines several types of organization. Salespeople can be specialized by customer and territory; product and territory; product and customer; or terri- tory, product, and customer. For example, Whirlpool specializes its sales force by customer (with different sales teams for Sears, Lowe’s, Best Buy, Home Depot, and smaller independent retail- ers) and by territory for each key customer group (territory repre- sentatives, territory managers, regional managers, and so on). No

territorial sales force structure A sales force organization that assigns each salesperson to an exclusive geographic territory in which that salesperson sells the company’s full line.

Product sales force structure A sales force organization in which salespeople specialize in selling only a portion of the company’s products or lines.

customer (or market) sales force structure A sales force organization in which salespeople specialize in selling only to certain customers or industries.

Designing sales force strategy and structure

Recruiting and selecting

salespeople

Training salespeople

Compensating salespeople

Supervising salespeople

Evaluating salespeople

The goal of this process? You guessed it! The company wants to build a skilled and motivated sales team that will help to create customer value, engage customers, and build strong customer relationships.

figure 13.1 Major steps in sales force Management

sales force structure: Whirlpool specializes its sales force by customer and by territory for each key customer group. Paul Sancya/AP Images

404 Part 3: Designing a customer Value-Driven strategy and Mix

single structure is best for all companies and situations. Each company should select a sales force structure that best serves the needs of its customers and fits its overall marketing strategy.

sales force size Once the company has set its structure, it is ready to consider sales force size. Sales forces may range in size from only a few salespeople to tens of thousands. Some sales forces are huge—for example, in the United States, PepsiCo employs 36,000 salespeople; American Express, 23,400; GE, 16,400; and Cisco Systems, 14,000.3 Salespeople constitute one of the company’s most productive—and most expensive—assets. Therefore, increasing their numbers will increase both sales and costs.

A company might use some form of workload approach to set sales force size. Using this approach, a company first groups accounts into different classes according to size, account status, or other factors related to the amount of effort required to maintain the account. It then determines the number of salespeople needed to call on each class of accounts the desired number of times.

The company might think as follows: Suppose we have 1,000 A-level accounts and 2,000 B-level accounts. A-level accounts require 36 calls per year, and B-level accounts require 12 calls per year. In this case, the sales force’s workload—the number of calls it must make per year—is 60,000 calls [(1,000 * 36) + (2,000 * 12) = 36,000 + 24,000 = 60,000]. Suppose our average salesperson can make 1,000 calls a year. Thus, we need 60 salespeople (60,000 , 1,000).

other sales force strategy and structure issues Sales management must also determine who will be involved in the selling effort and how various sales and sales-support people will work together.

outside and inside sales forces. A company may have an outside sales force (or field sales force), an inside sales force, or both. Outside salespeople travel to call on customers in the field. In contrast, inside salespeople conduct business from their offices via telephone, online and social media interactions, or visits from buyers. The use of inside sales has grown in recent years as a result of increased outside selling costs and the surge in online, mobile, and social media technologies.

Some inside salespeople provide support for the outside sales force, freeing them to spend more time selling to major accounts and finding new prospects. For example, tech- nical sales-support people provide technical information and answers to customers’ ques- tions. Sales assistants provide research and administrative backup for outside salespeople. They track down sales leads, call ahead and confirm appointments, follow up on deliver- ies, and answer customers’ questions when outside salespeople cannot be reached. Using such combinations of inside and outside salespeople can help serve important customers better. The inside rep provides daily access and support, whereas the outside rep provides face-to-face collaboration and relationship building.

Other inside salespeople do more than just provide support. Telemarketers and online sellers use the phone, Internet, and social media to find new leads, learn about customers and their business, and sell and service accounts directly. Telemarketing and online sell- ing can be very effective, less costly ways to sell to smaller, harder-to-reach customers. Depending on the complexity of the product and customer, for example, a telemarketer can make from 20 to 33 decision-maker contacts a day, compared with the average of four that an outside salesperson can make. In addition, whereas the cost of a business-to-busi- ness (B-to-B) field sales call can average close to $600, a routine industrial telemarketing or online contact might average only $20 to $30.4

Although the federal government’s Do Not Call Registry put a dent in telephone sales to consumers, telemarketing remains a vital tool for most B-to-B marketers. For some smaller companies, telephone and online selling may be the primary sales approaches. However, most of the larger companies also use these tactics extensively, either to sell directly to small and midsize customers or to assist their sales forces in selling to larger ones.

In addition to costs savings, in today’s digital, mobile, and social media environments, many buyers are more receptive to—or even prefer—phone and online contact versus the high level of face-to-face contact once required. Today’s customers are more inclined to

outside sales force (or field sales force) Salespeople who travel to call on customers in the field.

inside sales force Salespeople who conduct business from their offices via telephone, online and social media interactions, or visits from buyers.

chapter 13: Personal selling and sales Promotion 405

gather their own information online—one study showed that a typical buyer reports con- tacting a sales rep only after independently completing about 60 percent of the buying pro- cess. Then buyers routinely use the phone, online meetings, and social media interactions to engage sellers and close deals. “With virtual meeting software such as GoToMeeting. com and WebEx, communications tools such as Skype, and social media sites such as Twitter, Facebook, and LinkedIn, it’s become easier to sell with few if any face-to-face meetings,” says an inside sales consultant.5

As a result of these trends, telephone and online selling are growing much faster than in-person selling. One recent study found that inside sales positions are growing 300 times faster than outside sales positions. Another study also notes the emergence of the “hybrid sales rep,” a modern cross between a field sales rep and an inside rep, who often works from a remote location. Some 41 percent of outside sales activity is now done over the phone or a mobile device, from either a home office or a company office or on the go.6

For many types of products and selling situations, phone or online selling can be as effective as a personal sales call:7

Climax Portable Machining and Welding Systems Company, which manufactures portable maintenance tools for the metal cutting industry, has proven that telephone and online mar- keting can save money and still lavish attention on buyers. Under the old system, Climax sales engineers spent one-third of their time on the road, training distributor salespeople and accompanying them on calls. They could make about four contacts a day. Now, each sales

engineers on Climax’s inside sales team calls about 30 pros- pects a day, following up on leads generated by ads, emails, and the company’s Facebook, LinkedIn, Twitter, YouTube, and other social media sites. Because it takes about five calls to close a sale, the sales engineers update a prospect’s profile after each contact, noting the degree of commitment, requirements, next call date, and personal comments. “If anyone mentions he’s going on a fishing trip, our sales engineer enters that in the sales information system and uses it to personalize the next call,” says Climax’s president, noting that this is one way to engage customers and build good relations.

Another is that the first contact with a prospect includes the sales engineer’s business card with his or her picture on it. Climax’s customer sales system also gives inside reps instant access to customer information entered by the outside sales force and service people. Armed with all the informa- tion, inside reps can build surprisingly strong and personal customer relationships. Of course, it takes more than friend- liness to sell $15,000 machine tools without face-to-face contact (special orders may run $200,000), but the telephone and online approach works well. When Climax customers were asked, “Do you see the sales engineer often enough?” the response was overwhelmingly positive. Obviously, many people didn’t realize that the only contact they had with Climax had been on the phone or Internet.

team selling. As products become more complex and as customers grow larger and more demanding, a single salesperson simply can’t handle all of a large customer’s needs. Instead, most companies now use team selling to service large, complex accounts. Sales teams can unearth problems, solutions, and sales opportunities that no individual salesper- son could. Such teams might include experts from any area or level of the selling firm— sales, marketing, technical and support services, research and development, engineering, operations, finance, and others.

In many cases, the move to team selling mirrors similar changes in customers’ buying organizations. Many large customer companies have implemented team-based purchasing, requiring marketers to employ equivalent team-based selling. When dealing with large, complex accounts, one salesperson can’t be an expert in everything the customer needs. Instead, selling is done by strategic account teams, quarterbacked by senior account man- agers or customer business managers.

team selling Using teams of people from sales, marketing, engineering, finance, technical support, and even upper management to service large, complex accounts.

for many types of selling situations, phone or Web selling can be as effective as a personal sales call. at climax Portable Machine tools, phone reps build surprisingly strong and personal customer relationships. Image Source/Getty Images

406 Part 3: Designing a customer Value-Driven strategy and Mix

Some companies, such as IBM and P&G, have used teams for a long time. P&G sales reps are organized into Customer Business Development (CBD) teams. Each CBD team is assigned to a major P&G customer, such as Walmart, Safeway, or CVS Health. The CBD organization places the focus on serving the complete needs of each major customer. It lets P&G “grow business by working as a ‘strategic partner’ with our accounts,” not just as a supplier.8

Team selling does have some pitfalls, however. For example, salespeople are by nature competitive and have often been trained and rewarded for outstanding individual performance. Salespeople who are used to having customers all to themselves may have trouble learning to work with and trust others on a team. In addition, selling teams can confuse or overwhelm cus- tomers who are used to working with only one salesperson. Finally, difficulties in evaluating individual contributions to the team-selling effort can create some sticky compensation issues.

recruiting and selecting salespeople At the heart of any successful sales force operation is the recruitment and selection of good salespeople. The performance difference between an average salesperson and a top salesperson can be substantial. In a typical sales force, the top 30 percent of the salespeople might bring in 60 percent of the sales. Thus, careful salesperson selection can greatly increase overall sales force performance. Beyond the differences in sales performance, poor selection results in costly turnover. When a salesperson quits, the costs of finding and train- ing a new salesperson—plus the costs of lost sales—can be very high. One sales consulting firm calculates the total costs of a bad sales hire at a whopping $616,000.9 Also, a sales force with many new people is less productive, and turnover disrupts important customer relationships and sales team morale.

What sets great salespeople apart from all the rest? In an effort to profile top sales performers, Gallup Consulting, a division of the well-known Gallup polling organization, has interviewed hundreds of thousands of salespeople. Its research suggests that the best salespeople possess four key talents: intrinsic motivation, a disciplined work style, the ability to close a sale, and, perhaps most important, the ability to build relationships with customers.10

Super salespeople are motivated from within—they have an unre- lenting drive to excel. Some salespeople are driven by money, a desire for recognition, or the satisfaction of competing and winning. Others are driven by the desire to provide service and build relationships. The best salespeople possess some of each of these motivations. However, another analysis found that the best salespeople are driven by a strong sense of purpose: “The salespeople who sold with noble purpose, who truly want to make a difference to customers, consistently outsold the salespeople focused on sales goals and money.” Selling with such a sense of customer-related purpose is not only more successful, it’s also more profitable and more satisfying to salespeople.11

Super salespeople also have a disciplined work style. They lay out detailed, organized plans and then follow through in a timely way. But moti- vation and discipline mean little unless they result in closing more sales and building better customer relationships. Super salespeople build the skills and knowledge they need to get the job done. Perhaps most important, top salespeople are excellent customer problem solvers and relationship build- ers. They understand their customers’ needs. Talk to sales executives and they’ll describe top performers in these terms: good listeners, empathetic, patient, caring, and responsive. Top performers can put themselves on the buyer’s side of the desk and see the world through their customers’ eyes. They don’t want just to be liked; they want to add value for their customers.

That said, there is no one right way to sell. Each successful sales- person uses a different approach, one that best applies his or her unique strengths and talents. For example, some salespeople enjoy the thrill of a harder sell in confronting challenges and winning people over. Others

great salespeople: the best salespeople possess intrinsic motivation, a disciplined work style, the ability to close a sale, and, perhaps most important, the ability to build relationships with customers. Paul Bradbury/OJO Images Ltd/Alamy

chapter 13: Personal selling and sales Promotion 407

might apply “softer” talents to reach the same goal. “The truth is, no two great sales reps are alike,” says one sales consultant. “You might thrive on fierce competition, while a col- league wins by being a super-analytical problem solver. Or maybe you have a tremendous talent for building relationships, while your fellow top performer is a brilliant strategist. What’s most important is that you win business your way.”12

When recruiting, a company should analyze the sales job itself and the characteristics of its most successful salespeople to identify the traits needed by a successful salesperson in their industry. Then it must recruit the right salespeople. The human resources depart- ment looks for applicants by getting names from current salespeople, using employment agencies, searching the Internet and online social media, posting ads and notices on its Web site and industry media, and working through college placement services. Another source is to attract top salespeople from other companies. Proven salespeople need less training and can be productive immediately.

Recruiting will attract many applicants from which the company must select the best. The selection procedure can vary from a single informal interview to lengthy testing and interviewing. Many companies give formal tests to sales applicants. Tests typically measure sales aptitude, analytical and organizational skills, personality traits, and other characteristics. But test scores provide only one piece of information in a set that includes personal characteristics, references, past employment history, and interviewer reactions.

training salespeople New salespeople may spend anywhere from a few weeks or months to a year or more in training. After the initial training ends, most companies provide continuing sales train- ing via seminars, sales meetings, and online learning throughout the salesperson’s career. According to one source, American firms spent approximately $15 billion on sales train- ing each year. Although training can be expensive, it can also yield dramatic returns. For instance, one recent study showed that sales training conducted by ADP, an administrative services firm, resulted in a return on investment of nearly 340 percent in only 90 days.13

Training programs have several goals. First, salespeople need to know about cus- tomers and how to build relationships with them. Therefore, the training program must teach them about different types of customers and their needs, buying motives, and buy- ing habits. It must also teach them how to sell effectively and train them in the basics of the selling process. Salespeople also need to know and identify with the company, its

products, and its competitors. Therefore, an effective training program teaches them about the company’s objectives, organization, products, and the strategies of major competitors.

Today, many companies are adding digital e-learning to their sales training programs. Online training may range from simple text- and video-based product training and Internet-based sales exercises that build sales skills to sophisticated simulations that re-create the dynamics of real-life sales calls. One of the most basic forms is virtual instructor-led training (VILT). Using this method, a small group of salespeople at remote locations logs on to an online conferencing site, where a sales instructor leads training sessions using online video, audio, and interac- tive learning tools.

Training online instead of on-site can cut travel and other training costs, and it takes up less of a sales- person’s selling time. It also makes on-demand training available to salespeople, letting them train as little or as much as needed, whenever and wherever needed. Although most e-learning is Web-based, many compa- nies now offer on-demand training from anywhere via almost any mobile digital device.

e-training can make sales training more efficient—and more fun. bayer healthcare Pharmaceuticals’ role-playing video game—rep race—helped improve sales rep effectiveness by 20 percent. Concentric Pharma Advertising

408 Part 3: Designing a customer Value-Driven strategy and Mix

Many companies are now using imaginative and sophisticated e-learning techniques to make sales training more efficient—and sometimes even more fun. For example, Bayer HealthCare Pharmaceuticals worked with Concentric Pharma Advertising, a health-care marketing agency, to create a role-playing simulation video game to train its sales force on a new drug marketing program:14

Most people don’t usually associate fast-paced rock music and flashy graphics with online sales training tools. But Concentric Pharma Advertising’s innovative role-playing video game—Rep Race: The Battle for Office Supremacy—has all that and a lot more. Rep Race gives Bayer sales reps far more entertainment than the staid old multiple-choice skills tests it replaces. The game was created to help breathe new life into a mature Bayer product—Betaseron, an 18-year-old multiple sclerosis (MS) therapy treatment. The aim was to find a fresh, more active way to help Bayer sales reps apply the in-depth information they learned about Betaseron to actual selling and objections-handling situations. Bayer also wanted to increase rep engagement through interactive learning and feedback through real-time results. Bayer reps liked Rep Race from the start. According to Bayer, when the game was first launched, reps played it as many as 30 times. In addition to its educational and motivational value, Rep Race allowed Bayer to mea- sure sales reps’ individual and collective performance. In the end, Bayer calculated that the Rep Race simulation helped improve the Betaseron sales team’s effectiveness by 20 percent.

compensating salespeople To attract good salespeople, a company must have an appealing compensation plan. Compensation consists of four elements: a fixed amount, a variable amount, expenses, and fringe benefits. The fixed amount, usually a salary, gives the salesperson some stable income. The variable amount, which might be commissions or bonuses based on sales per- formance, rewards the salesperson for greater effort and success.

A sales force compensation plan can both motivate salespeople and direct their activities. Compensation should direct salespeople toward activities that are consis- tent with the overall sales force and marketing objectives.15 For example, if the strategy is to acquire new business, grow rapidly, and gain market share, the compensation plan might include a larger commission component, coupled with a new-account bonus to encourage high sales performance and new account development. In contrast, if the goal is to maximize current account profitability, the compensation plan might contain a larger base-salary component with additional incentives for current account sales or customer satisfaction.

In fact, more and more companies are moving away from high-commission plans that may drive salespeople to make short-term grabs for business. They worry that a salesperson who is pushing too hard to close a deal may ruin the customer relationship. Instead, companies are designing compensation plans that reward salespeople for building customer relation- ships and growing the long-run value of each customer.

When times get tough economically, some com- panies are tempted to cut costs by reducing sales compensation. However, although some cost-cutting measures make sense when business is sluggish, cutting sales force compensation across the board is usually an action of last resort. Top salespeople are always in demand, and paying them less might mean losing them at a time when they are most needed. Thus, short-changing key salespeople can result in short-changing important customer relationships. If the company must reduce its compensation expenses, rather than making across-the-board cuts, companies should continue to pay top performers well while turning loose low performers.

sales force compensation: a good compensation plan both motivates salespeople and directs their activities. Amble Design/Shutterstock

chapter 13: Personal selling and sales Promotion 409

supervising and Motivating salespeople New salespeople need more than a territory, compensation, and training—they need supervision and motivation. The goal of supervision is to help salespeople “work smart” by doing the right things in the right ways. The goal of motivation is to encourage sales- people to “work hard” and energetically toward sales force goals. If salespeople work smart and work hard, they will realize their full potential—to their own and the com- pany’s benefit.

supervising salespeople Companies vary in how closely they supervise their salespeople. Many help salespeople identify target customers and set call objectives. Some may also specify how much time the sales force should spend prospecting for new accounts and set other time management priorities. One tool is the weekly, monthly, or annual call plan that shows which customers and prospects to call on and which activities to carry out. Another tool is time-and-duty analysis. In addition to time spent selling, the salesperson spends time traveling, waiting, taking breaks, and doing administrative chores.

figure 13.2 shows how salespeople spend their time. On average, active selling time accounts for only 37 percent of total working time.16 Companies are always looking for ways to save time—simplifying administrative duties, developing better sales-call and routing plans, supplying more and better customer information, and using phone, email, online, or mobile conferencing instead of traveling.

Many firms have adopted sales force automation systems: computerized, digitized sales force operations that let salespeople work more effectively anytime, anywhere. Companies now routinely equip their salespeople with laptops or tablets, smartphones, wireless connections, videoconferencing technologies, and customer-contact and relation- ship management software. Armed with these technologies, salespeople can more effec- tively and efficiently profile customers and prospects, analyze and forecast sales, engage customers, make presentations, prepare sales and expense reports, and manage account relationships. The result is better time management, improved customer service, lower sales costs, and higher sales performance. In all, technology has reshaped the ways in which salespeople carry out their duties and engage customers.

Motivating salespeople Beyond directing salespeople, sales managers must also motivate them. Some salespeople will do their best without any special urging from management. To them, selling may be the most fascinating job in the world. But selling can also be frustrating. Salespeople often work alone, and they must sometimes travel away from home. They may also face aggres- sive competing salespeople and difficult customers. Therefore, salespeople often need special encouragement to do their best.

Management can boost sales force morale and performance through its organizational climate, sales quotas, and positive incen-

tives. Organizational climate describes the feeling that salespeople have about their opportunities,

value, and rewards for a good performance. Some companies treat salespeople as if they

are not very important, so performance suf- fers accordingly. Other companies treat their

13.9% Meetings,

administrative

21.7% Researching

accounts, pursuing

leads

10% Travel, training

17.1% Post-sales

tasks

This is far too little. Companies need to free up salespeople to spend much more face-to-face time with customers and prospects. For example, GE wants its salespeople to “spend four days a week in front of the customer and one day a week for all the admin stuff.”

37.1% Active selling (face to face

or phone)

figure 13.2 how salespeople spend their time Source: “2014 Sales Performance Optimization Study,” CSO Insights, www.csoinsights.com. Used with permission.

http://www.csoinsights.com

410 Part 3: Designing a customer Value-Driven strategy and Mix

salespeople as valued contributors and allow virtually unlimited opportunity for income and promotion. Not surprisingly, these companies enjoy higher sales force performance and less turnover.

Many companies motivate their salespeople by setting sales quotas—standards stating the amount they should sell and how sales should be divided among the com- pany’s products. Compensation is often related to how well salespeople meet their quotas. Companies also use various positive incentives to increase the sales force effort. Sales meetings provide social occasions, breaks from the routine, chances to meet and talk with “company brass,” and opportunities to air feelings and identify with a larger group. Companies also sponsor sales contests to spur the sales force to make a selling effort above and beyond what is normally expected. Other incentives include honors, merchan- dise and cash awards, trips, and profit-sharing plans.

evaluating salespeople and sales force Performance We have thus far described how management communicates what salespeople should be doing and how it motivates them to do it. This process requires good feedback, which means getting regular information about salespeople to evaluate their performance.

Management gets information about its salespeople in several ways. The most important source is sales reports, including weekly or monthly work plans and longer- term territory marketing plans. Salespeople also write up their completed activities on call reports and turn in expense reports for which they are partly or wholly reimbursed. The company can also monitor the sales and profit performance data in the salesperson’s territory. Additional information comes from personal observation, customer surveys, and talks with other salespeople.

Using various sales force reports and other information, sales management evaluates the members of the sales force. It evaluates salespeople on their ability to “plan their work and work their plan.” Formal evaluation forces management to develop and communicate clear standards for judging performance. It also provides salespeople with constructive feedback and motivates them to perform well.

On a broader level, management should evaluate the performance of the sales force as a whole. Is the sales force accomplishing its customer relationship, sales, and profit objec- tives? Is it working well with other areas of the marketing and company organization? Are sales force costs in line with outcomes? As with other marketing activities, the company wants to measure its return on sales investment.

social selling: online, Mobile, and social Media tools The fastest-growing sales trend is the explosion in social selling—the use of online, mobile, and social media to engage customers, build stronger customer relationships, and augment sales performance. New digital sales force technologies are creating exciting new avenues for connecting with and engaging customers in the digital and social media age. Some analysts even predict that the Internet will mean the death of person-to-person sell- ing, as salespeople are ultimately replaced by Web sites, online social media, mobile apps, video and conferencing technologies, and other tools that allow direct customer contact. “Don’t believe it,” says one sales expert. “There may be less face-to-face selling,” says another. “But on the seller’s side, there needs to be someone in charge of that (customer) interaction. That will remain the role of the salesperson” (see Marketing at Work 13.1).17 Thus, online and social media technologies won’t likely make salespeople obsolete. Used properly, however, they will make salespeople more productive and effective.

The new digital technologies are providing salespeople with powerful tools for identi- fying and learning about prospects, engaging customers, creating customer value, closing sales, and nurturing customer relationships. Social selling technologies can produce big organizational benefits for sales forces. They help conserve salespeople’s valuable time, save travel dollars, and give salespeople new vehicles for selling and servicing accounts.

sales quota A standard that states the amount a salesperson should sell and how sales should be divided among the company’s products.

author comment Like just about everything else

these days, digital technologies have affected selling big time. Today’s sales

forces are mastering the use of online, mobile, and social media tools to engage business

customers, build relationships, and make sales.

social selling Using online, mobile, and social media to engage customers, build stronger customer relationships, and augment sales performance.

chapter 13: Personal selling and sales Promotion 411

online selling tools, such as saP’s ecohub and saP store online community-based marketplaces, can help to build customer engagement and generate buying interest and sales. but rather than replacing salespeople, such efforts extend their reach and effectiveness. ©2015 SAP SE

It’s hard to imagine a world without salespeople. But accord- ing to some analysts, there will be a lot fewer of them a decade from now. With the explosion of the Internet, mobile devices, social media, and other technologies that link customers directly with companies, they reason, who needs face-to-face selling anymore? According to the doubters, salespeople are rapidly being replaced by Web sites, email, blogs, mobile apps, video sharing, virtual trade shows, social media such as LinkedIn and Facebook, and a host of other digital-age interaction tools.

Research firm Forrester predicts a 22 percent decline in the number of B-to-B sales reps in the United States over the next five years. That means that one in five sales reps will be out of a job by 2020. “The world no longer needs salespeople,” one doomsayer boldly proclaims. “Sales is a dying profession and soon will be as outmoded as oil lamps and the rotary phone.” Says another, “If we don’t find and fill a need faster than a computer, we won’t be needed.”

So, is business-to-business selling really dying? Will the Internet, mobile technologies, and social media replace the age-old art of selling face to face? To answer these questions, SellingPower magazine called together a panel of sales experts and asked them to weigh in on the future of B-to-B sales. The panel members agreed that technology is radically transforming the selling profes- sion. Today’s revolutionary changes in how people communicate are affecting every aspect of business, and selling is no exception.

But is B-to-B selling dead in this digital and social media age? Don’t believe it, says the SellingPower panel. Technology and the Internet won’t soon be replacing person-to-person buying and selling. Selling has changed, agrees the panel, and the technology can greatly enhance the selling process. But it can’t replace many of the functions that salespeople perform. “The Internet can take orders and disseminate content, but what it can’t do is discover customer needs,” says one panelist. “It can’t build relationships, and it can’t prospect on its own.” Adds another panelist, “Someone must define the company’s value proposition and unique message and communicate it to the market, and that person is the sales rep.”

What is dying, however, is what one panelist calls the account-maintenance role—the order taker who stops by the customer’s office on Friday and says, “Hey, got anything for me?” Likewise, there’s not much of a future for explainers, reps who simply convey product and service information that can be obtained more quickly and easily online. Such salespeople are not creating value and can easily be replaced by automation. However, salespeople who excel at new customer acquisition, relationship management, problem solving, and account growth with existing customers will always be in high demand.

There’s no doubt about it—technology is transforming the selling profession. Instead of relying on salespeople for basic

information and education, customers can now do much of their own prepurchase research via Web sites, online searches, phone apps, social media contacts, and other venues. Many customers now start the sales process online and do their homework about problems, competing products, and suppliers before the first sales meeting ever takes place. They don’t need basic information or product education; they need solutions and new insights. According to one recent survey, business buyers are at least 57 percent of the way through the buying process by the time they reach out to a vendor. So today’s salespeople need “to move into the discovery and relationship- building phase, uncovering pain points and focusing on the prospect’s business,” says a panelist. In fact, jobs for such consultant-type sales reps are expected to increase by one-half million during the next five years.

Rather than replacing salespeople, technology is augmenting them. Today’s salespeople aren’t really doing anything fun- damentally new. They’ve always done customer research and social networking. Today, however, they are doing it on steroids, using a new kit of high-tech digital tools and applications.

For example, many companies have moved rapidly into online-community-based selling. Case in point: Enterprise- software company SAP, which six years ago set up EcoHub, its

Marketing at Work 13.1

b-to-b salespeople: in this Digital and social Media age, Who needs them anymore?

412 Part 3: Designing a customer Value-Driven strategy and Mix

Social selling hasn’t really changed the fundamentals of selling. Sales forces have always taken the primary responsibility for reaching out to and engaging customers and managing customer relationships. Now, more of that is being done digitally. However, online and social media are dramatically changing the customer buying process. As a result, they are also chang- ing the selling process. In today’s digital world, many customers no longer rely as much as they once did on information and assistance provided by salespeople. Instead, they carry out more of the buying process on their own—especially the early stages. Increasingly, they use online and social media resources to analyze their own problems, research solutions, get advice from colleagues, and rank buying options before ever speaking to a salesperson. A recent study of business buyers found that 92 percent of buyers start their searches online and that, on aver- age, buyers completed nearly 60 percent of the buying process before contacting a supplier.18

Thus, today’s customers have much more control over the sales process than they had in the days when brochures, pricing, and product advice were available only from a sales rep. Customers can now browse corporate Web sites, blogs, and YouTube videos to identify and qualify sellers. They can hobnob with other buyers on social media such as LinkedIn, Google+, Twitter, or Facebook to share experiences, identify solutions, and evaluate products they are considering. As a result, if and when salespeople do enter the buying process, customers often know almost as much about a company’s products as the salespeople do. And when customers do call in salespeople, they are more often doing it digitally, with the expectation of real-time engagement.

In response to this new digital buying environment, sellers are reorienting their sell- ing processes around the new customer buying process. They are “going where customers are”—social media, Web forums, online communities, blogs—in order to engage custom- ers earlier. They are engaging customers not just where and when they are buying but also where and when they are learning about and evaluating what they will buy.

Salespeople now routinely use digital tools that monitor customer social media exchanges to spot trends, identify prospects, and learn what customers would like to buy, how they feel about a vendor, and what it would take to make a sale. They generate lists of prospective customers from online databases and social networking sites, such as

own online, community-powered social media and mobile mar- ketplace consisting of customers, SAP software experts, partners, and almost anyone else who wanted to join. The EcoHub commu- nity grew quickly to more than 2 million users in 200 countries, extending across a broad online spectrum—a dedicated Web site, mobile apps, Twitter channels, LinkedIn groups, Facebook and Google+ pages, YouTube channels, and more. EcoHub grew to more than 600 “solution storefronts,” where visitors could “dis- cover, evaluate, and buy” software solutions and services from SAP and its partners. EcoHub also let users rate and share the solutions and advice they got from other community members.

SAP was surprised to learn that what it had originally seen as a place for customers to discuss issues, problems, and solutions turned into a significant point of sale. The information, give-and- take discussions, and conversations at the site drew in custom- ers, even for big-ticket sales of $20 to $30 million or more. In fact, EcoHub has now evolved into SAP Store, a gigantic SAP marketplace where customers can engage with SAP, its partners, and each other to share information, post comments and reviews, discover problems, and evaluate and buy SAP solutions.

However, although the SAP Store draws in new potential cus- tomers and takes them through many of the initial stages of product discovery and evaluation, it doesn’t replace SAP’s or its partners’ salespeople. Instead, it extends their reach and effectiveness. Its real value is the flood of sales leads it creates for the SAP and partner sales forces. Once prospective customers have discovered,

discussed, and evaluated SAP solutions online, SAP invites them to initiate contact, request a proposal, or start the negotiation pro- cess. That’s where the person-to-person selling begins.

All this suggests that B-to-B selling isn’t dying, it’s just changing. The tools and techniques may be different as sales forces leverage and adapt to selling in the digital and social media age. But the panelists agree strongly that B-to-B mar- keters will never be able to do without strong sales teams. Salespeople who can engage customers, discover customer needs, solve customer problems, and build relationships will be needed and successful, regardless of what else changes. Especially for those big-ticket B-to-B sales, “all the new tech- nology may make it easier to sell by building strong ties to cus- tomers even before the first sit-down, but when the signature hits the dotted line, there will be a sales rep there.”

Sources: Based on information from Tom Pisello, “Death of a Salesman? Forrester Says Yes (at Least 1 in 5 at Risk)!” Alinean, March 12, 2015, http://blog .alinean.com/2015/03/death-of-salesman-forrester-says-yes.html; Tony J. Hughes, “Back to the Future of Sales in 2015,” LinkedIn, December 27, 2014, www .linkedin.com/pulse/back-future-sales-2015-tony-j-hughes; Lain Chroust Ehmann, “Sales Up!” SellingPower, January/February 2011, p. 40; Paul Nolan, “Mapping the Buyer’s Journey,” Sales and Marketing Management, March 27, 2015, www .salesandmarketing.com/content/mapping-buyer’s-journey; “Getting Started with SAP EcoHub,” http://ecohub.sap.com/getting-started, accessed June 2015; “SAP EcoHub to the SAP Store: The Evolution of the Online Channel at SAP,” YouTube, www.youtube.com/watch?v=WADFf6k34V8, accessed June 2015; and https:// store.sap.com/ and https://scn.sap.com, accessed September 2015.

http://blog.alinean.com/2015/03/death-of-salesman-forrester-says-yes.html

http://ecohub.sap.com/getting-started

http://www.youtube.com/watch?v=WADFf6k34V8

https://store.sap.com/

https://scn.sap.com

http://blog.alinean.com/2015/03/death-of-salesman-forrester-says-yes.html

www.linkedin.com/pulse/back-future-sales-2015-tony-j-hughes

www.salesandmarketing.com/content/mapping-buyer%E2%80%99s-journey

chapter 13: Personal selling and sales Promotion 413

InsideView, Hoovers, and LinkedIn. They create dialogues when prospective customers visit their Web and social media sites through live chats with the sales team. They use Internet conferencing tools such as WebEx, Zoom, GoToMeeting, or TelePresence to talk live with customers about products and services. They provide videos and other informa- tion on their YouTube channels and Facebook pages.

Today’s sales forces are also ramping up their own use of social media to engage cus- tomers throughout the buying process. A recent survey of business-to-business marketers found that, although they have recently cut back on traditional media and event spending, they are investing more in social media, ranging from proprietary online customer commu- nities to Webinars and social media and mobile applications.19 Consider industrial and consumer products giant GE:20

GE complements its sales force efforts through a wide variety of digital and social media that inform and engage business customers, connect them with GE salespeople, and promote cus- tomer purchasing and relationships. For exam- ple, GE’s various divisions—from GE Aviation to GE Healthcare and GE Energy—offer dozens of industry-specific Web sites, containing thou- sands of individual site areas and tens of thou- sands of pages that provide B-to-B customers with purchasing solutions, product overviews, detailed technical information, online videos and Webinars, live chats, and real-time cus- tomer support. GE also builds brand awareness and helps its sales force engage business cus- tomers deeply through a comprehensive pres- ence in major social media, such as Facebook, Twitter, LinkedIn, Google+, Salesforce.com, and even Instagram, Pinterest, and Vine. “We have a core belief that business is social,” says GE’s chief marketing officer. “If you’re in busi- ness you need social because it’s going to get you closer to your customers. We want to get our sales team 100 percent digitized.”

Ultimately, social selling technologies are helping to make sales forces more efficient, cost-effective, and productive. The technologies help salespeople do what good salespeo- ple have always done—build customer relationships by solving customer problems—but do it better, faster, and cheaper.

However, social selling also has some drawbacks. For starters, it’s not cheap. In addi- tion, such systems can intimidate low-tech salespeople or clients. Even more, there are some things you just can’t present or teach via the Internet—things that require personal engage- ment and interaction. For these reasons, some high-tech experts recommend that sales executives use online and social media technologies to spot opportunities, provide informa- tion, maintain customer contact, and make preliminary client sales presentations but resort to old-fashioned, face-to-face meetings when the time draws near to close a big deal.

social selling: ge complements its sales force efforts through a wide variety of social media that inform and engage business customers, connect them with ge salespeople, and promote customer purchasing and relationships. “We want to get our sales team 100 percent digitized.” GE

linking the concePts Take a break and reexamine your thoughts about salespeople and sales management.

● Again, when someone says “salesperson,” what image comes to mind? Have your perceptions of salespeople changed after what you’ve read in the chapter so far? If so, how? Be specific.

● Find and talk with someone employed in professional sales. Ask about and report on how this salesperson’s company designs its sales force and recruits, selects, trains, compensates, super- vises, and evaluates its salespeople. Would you like to work as a salesperson for this company?

414 Part 3: Designing a customer Value-Driven strategy and Mix

the Personal selling Process We now turn from designing and managing a sales force to the personal selling process. The selling process consists of several steps that salespeople must master. These steps focus on the goal of getting new customers and obtaining orders from them. However, most salespeople spend much of their time maintaining existing accounts and building long-term customer relationships. We will discuss the relationship aspect of the personal selling process in a later section.

steps in the selling Process As shown in figure 13.3, the selling process consists of seven steps: prospecting and qualifying, preapproach, approach, presentation and demonstration, handling objections, closing, and follow-up.

Prospecting and Qualifying The first step in the selling process is prospecting—identifying qualified potential cus- tomers. Approaching the right customers is crucial to selling success. Salespeople don’t want to call on just any potential customers. They want to call on those who are most likely to appreciate and respond to the company’s value proposition—those the company can serve well and profitably.

A salesperson must often approach many prospects to get only a few sales. Although the company supplies some leads, salespeople need skill in finding their own. The best source is referrals. Salespeople can ask current customers for referrals and cultivate other referral sources, such as suppliers, dealers, noncompeting salespeople, and online or social media contacts. They can also search for prospects in directories or on the Internet and track down leads using the telephone, email, and social media. Or, as a last resort, they can drop in unannounced on various offices (a practice known as cold calling).

Salespeople also need to know how to qualify leads—that is, how to identify the good ones and screen out the poor ones. Prospects can be qualified by looking at their financial ability, volume of business, special needs, location, and possibilities for growth.

Preapproach Before calling on a prospect, the salesperson should learn as much as possible about the organization (what it needs, who is involved in the buying) and its buyers (their characteris- tics and buying styles). This step is known as preapproach. A successful sale begins long before the salesperson makes initial contact with a prospect. Preapproach begins with good research and preparation. The salesperson can consult standard industry and online sources, acquaintances, and others to learn about the company. He or she can scour the prospect’s Web and social media sites for information about its products, buyers, and buying processes. Then the salesperson must apply the research gathered to develop a customer strategy.

author comment So far, we’ve examined how sales management develops

and implements overall sales force strategies and programs. In this section, we’ll look at how individual salespeople

and sales teams sell to customers and build relationships

with them.

selling process The steps that salespeople follow when selling, which include prospecting and qualifying, preapproach, approach, presentation and demonstration, handling objections, closing, and follow-up.

Prospecting The sales step in which a salesperson or company identifies qualified potential customers.

Preapproach The sales step in which a salesperson learns as much as possible about a prospective customer before making a sales call.

Follow-upHandlingobjections Closing

Presentation and

demonstration

Prospecting and qualifying Preapproach Approach

Building and maintaining profitable customer relationships

…but remember that in the long run, a single sale is only one element of a long-term customer relationship. So the selling process steps must be understood in the broader context of maintaining profitable customer relationships.

As shown here, these steps are transaction-oriented— aimed at closing a specific sale with the customer…

figure 13.3 steps in the selling Process

chapter 13: Personal selling and sales Promotion 415

The salesperson should set call objectives, which may be to qualify the prospect, gather information, or make an immediate sale. Another task is to determine the best approach, which might be a personal visit, a phone call, an email, or a text or Tweet. The ideal timing should be considered carefully because many prospects are busiest at certain times of the day or week. Finally, the salesperson should give thought to an overall sales strategy for the account.

approach During the approach step, the salesperson should know how to meet and greet the buyer and get the relationship off to a good start. The approach might take place offline or online, in-person or via digital conferencing or social media. This step involves the sales- person’s appearance, opening lines, and follow-up remarks. The opening lines should be positive to build goodwill from the outset. This opening might be followed by some key questions to learn more about the customer’s needs or by showing a display or sample to attract the buyer’s attention and curiosity. As in all stages of the selling process, listening to the customer is crucial.

Presentation and Demonstration During the presentation step of the selling process, the salesperson tells the “value story” to the buyer, showing how the company’s offer solves the customer’s problems. The customer-solution approach fits better with today’s relationship marketing focus than does a hard sell or glad-handing approach.

The goal should be to show how the company’s products and services fit the custom- er’s needs. Buyers today want insights and solutions, not smiles; results, not razzle-dazzle. Moreover, buyers don’t want just products; they want to know how those products will add value to their businesses. They want salespeople who listen to their concerns, understand their needs, and respond with the right products and services.

But before salespeople can present customer solutions, they must develop solutions to present. The solutions approach calls for good listening and problem-solving skills. The qualities that buyers dislike most in salespeople include being pushy, late, deceitful, unprepared, disorganized, or overly talkative. The qualities they value most include good

listening, empathy, honesty, dependability, thoroughness, and follow-through. Great salespeople know how to sell, but more important, they know how to listen and build strong customer relationships. According to an old sales adage, “You have two ears and one mouth. Use them proportionally.” A classic ad from office products maker Boise Cascade makes the listening point. It shows a Boise salesperson with huge ears drawn on. “With Boise, you’ll notice a difference right away, especially with our sales force,” says the ad. “At Boise . . . our account representatives have the unique ability to listen to your needs.”

Finally, salespeople must also plan their presentation methods. Good interpersonal communication skills count when it comes to engaging customers and making effective sales presentations. However, the current media-rich and cluttered communications environment presents many new challenges for sales presenters. Today’s information-overloaded customers demand richer presen- tation experiences. For their part, presenters now face multiple dis- tractions during presentations from mobile phones, text messages, and other digital competition. As a result, salespeople must deliver their messages in more engaging and compelling ways.

Thus, today’s salespeople are employing advanced presenta- tion technologies that allow for full multimedia presentations to only one or a few people. The venerable old sales presentation flip chart has been replaced with tablets, sophisticated presenta- tion software, online presentation technologies, interactive white- boards, and digital projectors.

approach The sales step in which a salesperson meets the customer for the first time.

Presentation The sales step in which a salesperson tells the “value story” to the buyer, showing how the company’s offer solves the customer’s problems.

great salespeople know how to sell, but more important, they know how to listen and build strong customer relationships. Tony Garcia/The Image Bank/Getty Images

416 Part 3: Designing a customer Value-Driven strategy and Mix

handling objections Customers almost always have objections during the presentation or when asked to place an order. The objections can be either logical or psychological, and they are often unspoken. In handling objections, the salesperson should use a positive approach, seek out hidden objections, ask the buyer to clarify any objections, take objections as opportunities to pro- vide more information, and turn the objections into reasons for buying. Every salesperson needs training in the skills of handling objections.

closing After handling the prospect’s objections, the salesperson next tries to close the sale. However, some salespeople do not get around to closing or don’t handle it well. They may lack confidence, feel guilty about asking for the order, or fail to recognize the right moment to close the sale. Salespeople should know how to recognize closing signals from the buyer, including physical actions, comments, and questions. For example, the cus- tomer might sit forward and nod approvingly or ask about prices and credit terms.

Salespeople can use any of several closing techniques. They can ask for the order, review points of agreement, offer to help write up the order, ask whether the buyer wants this model or that one, or note that the buyer will lose out if the order is not placed now. The salesperson may offer the buyer special reasons to close, such as a lower price, an extra quantity at no charge, or additional services.

follow-Up The last step in the selling process—follow-up—is necessary if the salesperson wants to ensure customer satisfaction and repeat business. Right after closing, the salesperson should complete any details on delivery time, purchase terms, and other matters. The salesperson then should schedule a follow-up call after the buyer receives the initial order to make sure proper installation, instruction, and servicing occur. This visit would reveal any problems, assure the buyer of the salesperson’s interest, and reduce any buyer con- cerns that might have arisen since the sale.

Personal selling and Managing customer relationships The steps in the just-described selling process are transaction oriented—their aim is to help salespeople close a specific sale with a customer. But in most cases, the company is not simply seeking a sale. Rather, it wants to engage the customer over the long haul in a mutually profitable relationship. The sales force usually plays an important role in customer relationship building. Thus, as shown in Figure 13.3, the selling process must be understood in the context of building and maintaining profitable customer relationships. Moreover, as discussed in a previous section, today’s buyers are increasingly moving through the early stages of the buying process themselves, before ever engaging sellers. Salespeople must adapt their selling process to match the new buying process. That means discovering and engaging customers on a relationship basis rather than a transaction basis.

Successful sales organizations recognize that winning and keeping accounts requires more than making good products and directing the sales force to close lots of sales. If the company wishes only to close sales and capture short-term business, it can do this by simply slashing its prices to meet or beat those of competitors. Instead, most companies want their salespeople to practice value selling—demonstrating and delivering superior customer value and capturing a return on that value that is fair for both the customer and the company.

Unfortunately, in the heat of closing sales, salespeople too often take the easy way out by cutting prices rather than selling value. Sales management’s challenge is to transform salespeople from customer advocates for price cuts into company advocates for value. Here’s how Rockwell Automation sells value and relationships rather than price:21

Under pressure from Walmart to lower its prices, a condiment producer asked several compet- ing supplier representatives—including Rockwell Automation sales rep Jeff Policicchio—to help it find ways to reduce its operating costs. After spending a day in the customer’s plant,

handling objections The sales step in which a salesperson seeks out, clarifies, and overcomes any customer objections to buying.

closing The sales step in which a salesperson asks the customer for an order.

follow-up The sales step in which a salesperson follows up after the sale to ensure customer satisfaction and repeat business.

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Policicchio quickly put his finger on the major problem: Production was suffering because of down time due to poorly performing pumps on the customer’s 32 large condiment tanks. Quickly gather- ing cost and usage data, Policicchio used his Rockwell Automation laptop value-assessment tool to develop an effective solution for the customer’s pump problem.

The next day, as he and competing reps presented their cost-reduction proposals to plant management, Policicchio offered the following value proposition: “With this Rockwell Automation pump solution, through less downtime, reduced administrative costs in procurement, and lower spending on repair parts, your company will save at least $16,268 per pump—on up to 32 pumps—relative to our best competitor’s solution.” Compared with competitors’ pro- posals, Policicchio’s solution carried a higher initial price. However, no competing rep offered more than fuzzy promises about possible cost savings. Most simply lowered their prices.

Impressed by Policicchio’s value proposition—despite its higher initial price—the plant managers opted to buy and try one Rockwell Automation pump. When the pump performed even better than predicted, the customer ordered all of the remaining pumps. By demonstrating tangible value rather than simply selling on price, Policicchio not only landed the initial sale but also earned a loyal future customer.

Thus, value selling requires listening to customers, understanding their needs, and carefully coordinating the whole company’s efforts to create lasting relationships based on customer value.

sales Promotion Personal selling and advertising often work closely with another promotion tool: sales promotion. Sales promotion consists of short-term incentives to encourage the purchase or sales of a product or service. Whereas advertising offers reasons to buy a product or service, sales promotion offers reasons to buy now.

Examples of sales promotions are found everywhere. A freestanding insert in the Sunday newspaper contains a coupon offering $1 off Meow Mix Tender Centers food for your cat. A Sunday newspaper ad from your local Orange Leaf frozen yogurt store offers “Buy 1 Get 1 Free” and “20% off your next purchase.” The end-of-the-aisle display in the local supermarket tempts impulse buyers with a wall of Coca-Cola cases—four 12-packs for $12. Buy a new Samsung tablet and get a free memory upgrade. A hardware store chain receives a 10 percent discount on selected Stihl power lawn and garden tools if it agrees to advertise them in local newspapers. Sales promotion includes a wide variety of promotion tools designed to stimulate earlier or stronger market response.

the rapid growth of sales Promotion Sales promotion tools are used by most organizations, including manufacturers, dis- tributors, retailers, and not-for-profit institutions. They are targeted toward final buyers (consumer promotions), retailers and wholesalers (trade promotions), business customers (business promotions), and members of the sales force (sales force promotions). Today, in the average consumer packaged-goods company, sales promotion accounts for 60 percent of all marketing budgets.22

Several factors have contributed to the rapid growth of sales promotion, particularly in consumer markets. First, inside the company, product managers face greater pressures to increase current sales, and they view promotion as an effective short-run sales tool. Second, externally, the company faces more competition, and competing brands are less differentiated. Increasingly, competitors are using sales promotion to help differentiate their offers. Third, advertising efficiency has declined because of rising costs, media clutter, and legal restraints.

author comment Sales promotion is the most

short-term of the promotion mix tools. Whereas advertising or personal

selling says “buy,” sales promotions say “buy now.”

sales promotion Short-term incentives to encourage the purchase or sale of a product or a service.

Value selling: sales management’s challenge is to transform salespeople from customer advocates for price cuts into company advocates for value. Almagami/123rf

418 Part 3: Designing a customer Value-Driven strategy and Mix

Finally, consumers have become more deal oriented. In the current economy, consumers are demanding lower prices and better deals. Sales promotions can help attract today’s more thrift-oriented consumers.

The growing use of sales promotion has resulted in promotion clutter, which is similar to advertising clutter. With so many products being sold on deal these days, a given promotion runs the risk of being lost in a sea of other promotions, weakening its abil- ity to trigger an immediate purchase. Manufacturers are now searching for ways to rise above the clutter, such as offering larger coupon values, creating more dramatic point-of-purchase displays, or delivering promotions through new digital media—such as the Internet or mobile phones. According to one study, 88 percent of retailers now see digital promotions— such as mobile coupons, shopper emails, and online deals—as an important part of their shopper market- ing efforts.23

In developing a sales promotion program, a company must first set sales promotion objectives and then select the best tools for accomplishing these objectives.

sales Promotion objectives Sales promotion objectives vary widely. Sellers may use consumer promotions to urge short-term customer buying or boost customer−brand engagement. Objectives for trade promotions include getting retailers to carry new items and more inventory, buy ahead, or promote the company’s products and give them more shelf space. Business promotions are used to generate business leads, stimulate purchases, reward customers, and motivate salespeople. For the sales force, objectives include getting more sales force support for current or new products and getting salespeople to sign up new accounts.

Sales promotions are usually used together with advertising, personal selling, direct marketing, or other promotion mix tools. Consumer promotions must usually be adver- tised and can add excitement and pulling power to ads and other marketing content. Trade and business sales promotions support the firm’s personal selling process.

When the economy tightens and sales lag, it’s tempting to offer deep promotional discounts to spur consumer spending. In general, however, rather than creating only short-term sales or temporary brand switching, sales promotions should help to reinforce the product’s position and build long-term customer relationships. If properly designed, every sales promotion tool has the potential to build both short-term excitement and long-term consumer engage- ment and relationships. Marketers should avoid “quick fix,” price- only promotions in favor of promotions that are designed to build brand equity. Examples include the various frequency marketing programs and loyalty cards that have mushroomed in popularity in recent years. Most hotels, supermarkets, and airlines offer frequent- guest/buyer/flier programs that give rewards to regular customers to keep them coming back. Such promotional programs can build loyalty through added value rather than discounted prices.

For example, department store Bloomingdale’s offers its Loyallist program for loyal shoppers. Loyallist members earn points for every dollar they spend, in-store or online, no matter how they pay. They also receive special opportunities to earn double, triple, or even quadruple points at special times, along with free shipping and a

customer loyalty programs: bloomingdale’s loyallist program works well because of its simplicity. “become a loyallist,” says the company. “it’s better on the list.” Bloomingdale’s, Inc.

sales promotions are found everywhere. for example, your sunday newspaper or favorite magazine is loaded with offers like this one that promote a strong and immediate response. Orange Leaf Frozen Yogurt

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$25 Bloomingdale’s gift card every time they reach 5,000 points. Loyallists can use any of a variety of apps to access their cards and balances wherever they are. The Loyallist program’s success lies in its simplicity. According to one analyst, the program “is winning because it delivers well on the main goal of all loyalty programs: when members spend money, they are rewarded by points that they can turn around and use like money, which incentivizes future purchases for happy shoppers to spend—you guessed it—more money.”24

Major sales Promotion tools Many tools can be used to accomplish sales promotion objectives. Descriptions of the main consumer, trade, and business promotion tools follow.

consumer Promotions Consumer promotions include a wide range of tools—from samples, coupons, refunds, premiums, and point-of-purchase displays to contests, sweepstakes, and event sponsorships.

Samples are offers of a trial amount of a product. Sampling is the most effective—but most expensive—way to introduce a new product or create new excitement for an exist- ing one. Some samples are free; for others, the company charges a small amount to offset its cost. The sample might be sent by mail, handed out in a store or at a kiosk, attached to another product, or featured in an ad, email, or mobile offer. Samples are sometimes combined into sample packs, which can then be used to promote other products and ser- vices. Sampling can be a powerful promotional tool. For example, a bevy of big-name food marketers—from Papa John’s Pizza and Pizza Hut to Campbell Soup and PepsiCo— descended upon Super Bowl XLVIII–related events in New York and New Jersey, handing out free samples. Pizza Hut handed out more than 10,000 slices of its hand-tossed pizza. “It’s a massive opportunity to sample our new product,” said a Pizza Hut marketer.25

Coupons are certificates that save buyers money when they purchase specified prod- ucts. Most consumers love coupons. U.S. consumer packaged goods companies distributed 310 billion coupons with an average face value of $1.72 last year. Consumers redeemed more than 2.75 billion of them for a total savings of about $3.6 billion.26 Coupons can pro- mote early trial of a new brand or stimulate sales of a mature brand. However, to combat the increase in coupon clutter, most major consumer goods companies are issuing fewer coupons and targeting them more carefully.

Marketers are also cultivating new outlets for distributing coupons, such as super- market shelf dispensers, electronic point-of-sale coupon printers, and online and mobile coupon programs. Digital coupons represent today’s fastest-growing coupon segment. Digital coupons can be individually targeted and personalized in ways that print coupons can’t. Digital coupons accounted for nearly 11 percent of all coupons redeemed last year; about 7 percent were printed from a computer at home, and 4 percent were redeemed via smartphone or other mobile devices. According to one study, an estimate 40 percent of smartphone users will redeem a mobile coupon this year.27

As mobile phones become appendages that many people can’t live without, busi- nesses are increasingly eyeing them as prime real estate for coupons, offers, and other marketing messages. For example, drugstore chain Walgreens makes coupons available to its customers through several mobile channels:28

Using the Walgreens smartphone app, customers can instantly download coupons ranging in value from 50 cents to $5, good toward anything from health and beauty products to everyday essentials such as diapers. The coupons are conveniently scannable—no clipping or printing required. Customers simply pull up the coupons on the Walgreens app and cashiers scan them straight from the customer’s phone. Walgreens also Tweets mobile coupons to customers who check in to any of its 8,100 stores nationwide using check-in apps such as Foursquare, Yelp, or Shopkick. Walgreens has mobile scanning capabilities available at all of its stores, giving it the nation’s largest retail mobile coupon program. Through its mobile app, “Walgreens is using technology to go above and beyond,” says one analyst. “They’re thinking about the customer.”

Rebates (or cash refunds) are like coupons except that the price reduction occurs after the purchase rather than at the retail outlet. The customer sends proof of purchase to the

consumer promotions Sales promotion tools used to boost short-term customer buying and engagement or enhance long-term customer relationships.

coupons: Drugstore chain Walgreens makes coupons available to customers through numerous channels, including its weekly ads, Web site, and mobile app. Courtesy of Walgreen Co.

420 Part 3: Designing a customer Value-Driven strategy and Mix

manufacturer, who then refunds part of the purchase price by mail. For example, Toro ran a clever preseason promotion on some of its snowblower models, offering a rebate if the snowfall in the buyer’s market area turned out to be below average. Competitors were not able to match this offer on such short notice, and the promotion was very successful.

Price packs (also called cents-off deals) offer consumers savings off the regular price of a product. The producer marks the reduced prices directly on the label or package. Price packs can be single packages sold at a reduced price (such as two for the price of one) or two related products banded together (such as a toothbrush and toothpaste). Price packs are very effective—even more so than coupons—in stimulating short-term sales.

Premiums are goods offered either free or at low cost as an incentive to buy a product, ranging from toys included with kids’ products to phone cards and DVDs. A premium may come inside the package (in-pack), outside the package (on-pack), or through the mail. For example, over the years, McDonald’s has offered a variety of premiums in its Happy Meals—from My Little Pony characters to Beanie Boos and LEGO hologram drink cups. Customers can visit www.happymeal.com to play games, read e-books, and watch com- mercials associated with the current Happy Meal sponsor.29

Advertising specialties, also called promotional products, are useful articles imprinted with an advertiser’s name, logo, or message that are given as gifts to consumers. Typical items include T-shirts and other apparel, pens, coffee mugs, calendars, key rings, tote bags, coolers, golf balls, and caps. U.S. marketers spent nearly $20 billion on advertising special- ties last year. Such items can be very effective. The “best of them stick around for months, subtly burning a brand name into a user’s brain,” notes a promotional products expert.30

Point-of-purchase (POP) promotions include displays and demonstrations that take place at the point of sale. Think of your last visit to the local Costco, Walmart, or Bed Bath & Beyond. Chances are good that you were tripping over aisle displays, promo- tional signs, “shelf talkers,” or demonstrators offering free tastes of featured food prod- ucts. Unfortunately, many retailers do not like to handle the hundreds of displays, signs, and posters they receive from manufacturers each year. Manufacturers have therefore responded by offering better POP materials, offering to set them up, and tying them in with television, print, or online messages.

Contests, sweepstakes, and games give consumers the chance to win something, such as cash, trips, or goods, by luck or through extra effort. A contest calls for consumers to submit an entry—a jingle, guess, suggestion—to be judged by a panel that will select the best entries. A sweepstakes calls for consumers to submit their names for a drawing. A game presents consumers with something—bingo numbers, missing letters—every time they buy, which may or may not help them win a prize.

All kinds of companies use sweepstakes and contests to create brand attention and boost consumer involvement. For example, Google’s “Doodle 4 Google” contest invites kids to design a Google logo based on the theme “If I could invent one thing to make the world a better place . . . ,” with prizes ranging from T-shirts and tablets to a $30,000 college scholarship. The “OXO I Do Sweepstakes” invites soon-to-be-married couples to “Like” OXO’s Facebook page and earn a chance to win $500 toward their Amazon wedding regis- try. Enter the Coleman Camping Kit Giveaway and you win a gear prize pack worth more than $1,000. And if your recipe wins the annual Pillsbury Bake-Off, you could take home a $1 million prize.

Finally, marketers can promote their brands through event marketing (or event spon- sorships). They can create their own brand-marketing events or serve as sole or participat- ing sponsors of events created by others. The events might include anything from mobile brand tours to festivals, reunions, marathons, concerts, or other sponsored gatherings. Event marketing is huge, and it may be the fastest-growing area of promotion. Effective event marketing links events and sponsorships to a brand’s value proposition. And with the social sharing power of today’s digital media, even local events can have far-reaching impact. For example, P&G’s recent “Everyday Effect” takeover event in Manhattan illustrates how companies are now blending old-school promotional techniques with new-school social sharing technologies to enhance the impact of both (see Marketing at Work 13.2).

All kinds of brands now hold events. One week, it might be the National Football League (NFL) filling the southern tip of Times Square with NFL players to promote new

event marketing (or event sponsorships) Creating a brand-marketing event or serving as a sole or participating sponsor of events created by others.

http://www.happymeal.com

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It was a hot, sunny June day in Manhattan, and pedestrians bustled along at 33rd Street and 7th Avenue near Madison Square Garden. But on this day, something special happened. In the middle of the sidewalk stood a glass shower stall, emblazoned with colorful Old Spice signage, causing even normally jaded New York City pass- ersby to take notice. An Old Spice brand rep handed out samples of Old Spice bar soap and extended an unusual invitation—jump in the shower and give it a try. Surprisingly, many people accepted, including a well-dressed executive who lathered up while still in his finely tailored business suit.

Just another sales promotion gimmick? Not this time. The Old Spice Constant Shower was just one small piece of a live mega-promotion—P&G’s “Everyday Effect” event—in which brand representatives and celebrities handed out more than 50,000 samples of 25 different P&G brands at multiple Manhattan locations in a single day. With street teams and exhibits all over town, the Everyday Effect takeover extrava- ganza was by far the biggest “consumer experience” event in P&G’s 175-year history.

Visitors to the Gillette Man Cave “experience box” in Washington Square Park were pampered with free shaves and visits from actor Laz Alonso and New York Jets center Nick Mangold. At the Covergirl Beauty box near Times Square, Fast and Furious actress Jordana Brewster helped with free beauty and nail touch-ups. The Iam’s Loving Home box at Riverside Park on the Upper West Side featured Dancing with the Stars heartthrob Val Chmerkovskiy posing for photos with pets and handing out Iam’s product samples. And in Harlem, P&G’s “My Black Is Beautiful” reps served up beauty tips and free mini-makeovers. All day long, brand ambassadors and charac- ters such as the Charmin Bears fanned out across city streets giving out product samples, high-value coupons, advice, and even special P&G pedicab rides. They dispensed Scope mouth- wash samples to coffee drinkers, Febreze car vent clips to taxi drivers, and personal care products to barber shops and salons.

By itself, the massive Manhattan giveaway produced sub- stantial benefits for P&G in terms of brand trial and experience. “Simply getting someone to try a product remains the holy grail for consumer-goods companies,” says one analyst. The event also reinforced P&G’s broader, ongoing Everyday Effect campaign showcasing the effects of its products on the lives of real people. “We’re making a deliberate effort to demonstrate to consumers how our brands improve their everyday life in small yet meaningful ways,” says P&G’s North American group president. “That’s what we call the P&G ‘Everyday Effect.’”

However, some experts question whether the returns on such a massive—and expensive—local event could ever justify the investment. Beyond the costs of product samples, P&G had to rent pricy Manhattan real estate, employ hundreds of reps, erect

expensive facilities and props, provide incentives for celebrities, and put a sizable security detail in place to keep things orderly.

But the impact of the Everyday Effect event went far beyond the city limits of New York City. What made the event extra special was the skillful way that P&G used social media channels to turbocharge consumer engagement, not just in Manhattan but around the nation and world. Throughout the day, video of live events was streamed across P&G brand and social media sites. Nearly every element of the event was hashtagged, and visitors to event sites were given incen- tives to upload photos to their personal feeds. Followers of PGEveryday on Twitter and Facebook had opportunities to win Visa and Amazon gift cards. Participating celebrities not only helped draw coverage from more than 100 media outlets, they also reached out personally to their own fans through Twitter, Facebook, Instagram, and other social media.

“We chose New York as the world’s largest stage,” says a P&G brand executive. “At the end of the day, [we wanted to reach] as many New Yorkers as possible [but also] touch con- sumers we couldn’t physically reach that day.” Mission accom- plished. By evening, the Everyday Effect event had scored some impressive social sharing results. The opt-in rate at the PGEveryday.com coupon and sampling site jumped 20 percent;

Marketing at Work 13.2

P&g’s “everyday effect” event: a great Marriage between old-school Promotions and new-school social sharing

P&g’s star-studded everyday effect event blended old-school live event marketing with new-school social sharing. Visitors to the gillette Man cave box were pampered with free shaves and visits from actor laz alonso and new york jets center nick Mangold. at the covergirl beauty box, actress jordana brewster helped with free beauty and nail touch-ups. such celebrities helped draw substantial social and traditional media coverage. Everett Collection/Newscom (left); Dennis Van Tine/ABACAUSA.COM/Newscom (right)

422 Part 3: Designing a customer Value-Driven strategy and Mix

NFL jersey designs. The next week, it’s a mob of Russian models on the northern triangle of Times Square (called Duffy Square), using it as a fashion runway for Maybelline. But according to one business reporter, energy drink maker Red Bull is the “mother of all event marketers”:31

Event pioneer Red Bull holds hundreds of events each year in dozens of sports around the world. Each event features off- the-grid experiences designed to bring the high-octane world of Red Bull to its community of enthusiasts. The brand even hosts a “Holy S**t” tab on its Web site, featuring videos of everything from 27-meter ocean cliff dives at its Cliff Diving Series event in Grimstad, Norway, to daredevil freeskiing feats at its Red Bull Cold Rush event in the Colorado mountain peaks to absolutely breathtaking wing suit flights at Red Bull events staged in exotic locations from Monterrey, Mexico, to Hunan Province, China. The Red Bull Final Descent series is a mountain biking chal- lenge that pushes riders to the brink and back, over some of the most technically challenging terrain in North America. Red Bull events draw large crowds and plenty of media coverage. But it’s

about more than just the events—it’s about customer engagement. It’s about creating face-to- face experiences in which customers can actually feel the excitement and live the brand. “It’s about deepening and enhancing relationships,” says one analyst.

trade Promotions Manufacturers direct more sales promotion dollars toward retailers and wholesalers (79 percent of all promotions dollars) than to final consumers (21 percent).32 Trade promotions can persuade resellers to carry a brand, give it shelf space, promote it in advertising, and push it to consumers. Shelf space is so scarce these days that manufactur- ers often have to offer price-offs, allowances, buy-back guarantees, or free goods to retail- ers and wholesalers to get products on the shelf and, once there, to keep them on it.

Manufacturers use several trade promotion tools. Many of the tools used for consumer promotions—contests, premiums, displays—can also be used as trade promotions. Or the manufacturer may offer a straight discount off the list price on each case purchased during a stated period of time (also called a price-off, off-invoice, or off-list). Manufacturers also may offer an allowance (usually so much off per case) in return for the retailer’s agree- ment to feature the manufacturer’s products in some way. For example, an advertising allowance compensates retailers for advertising the product, whereas a display allowance compensates them for using special displays.

trade promotions Sales promotion tools used to persuade resellers to carry a brand, give it shelf space, promote it in advertising, and push it to consumers.

event marketing: red bull hosts hundreds of events each year in dozens of sports around the world, designed to bring the high-octane world of red bull to its community of enthusiasts. Max Rossi/Reuters

the engagement rate for visitors to the PGEveryday Facebook page soared 151 percent. And the social media were abuzz with pictures and posts of the day’s happenings. #EverydayEffect became the day’s number-two trending topic on Twitter.

P&G’s Everyday Effect event is an example of how compa- nies these days are blending old-school promotion techniques, such as samples and pop-ups, with new-school social sharing technologies to enhance the impact of both. Increasingly, the two promotional approaches form an important symbiotic rela- tionship: A live event creates special face-to-face brand engage- ments that generate needed social media content. In turn, the social media help amplify and extend the event’s impact.

“On the one hand, social is extending the reach of events to intensify their impact beyond those in attendance,” says one event marketing expert. “On the other, events are becom- ing crucial content sources for brands’ Facebook, Twitter,

and Instagram feeds.” Says another expert, “Social media in isolation is sort of like a long distance relationship; the human contact piece is missing.” In contrast, an “experiential [event], as a deep engagement thing, can be very satisfying but you can’t get scale behind it.” His conclusion: “Together they’re a great marriage.”

Sources: Stuart Feil, “All the World Is a Stage,” Adweek, July 22, 2013, www .adweek.com/print/151231; Kyle Stock, “The Logic behind P&G’s Old-School Manhattan Giveaway,” Businessweek, June 19, 2013, www.businessweek.com/ articles/2013-06-19/the-logic-behind-p-and-gs-old-school-manhattan-give- away; Barry Silverstein, “P&G Hosts Massive Everyday Effect Giveaway Event in New York City,” Brand Channel, June 19, 2013, www.brandchannel.com/ home/post/2013/06/19/PG-Everyday-Effect-Event-061913.aspx; “Tweeting the #EverydayEffect,” www.pgeveryday.com/beauty/get-the-look/article/tweeting- the-everydayeffect, accessed June 2015; and “Everyday Effect,” P&G Newsroom, http://news.pg.com/category/tags/everyday-effect and www.pgeveryday.com/tag/ everydayeffect, accessed September 2015.

http://www.businessweek.com/articles/2013-06-19/the-logic-behind-p-and-gs-old-school-manhattan-giveaway

http://www.brandchannel.com/

http://www.pgeveryday.com/beauty/get-the-look/article/tweeting-the-everydayeffect

http://news.pg.com/category/tags/everyday-effect

http://www.pgeveryday.com/tag/everydayeffect

www.adweek.com/print/151231

http://www.businessweek.com/articles/2013-06-19/the-logic-behind-p-and-gs-old-school-manhattan-giveaway

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Manufacturers may offer free goods, which are extra cases of merchandise, to resell- ers who buy a certain quantity or who feature a certain flavor or size. They may also offer push money—cash or gifts to dealers or their sales forces to “push” the manufacturer’s goods. Manufacturers may give retailers free specialty advertising items that carry the company’s name, such as pens, calendars, memo pads, flashlights, and tote bags.

business Promotions Companies spend billions of dollars each year on promotion geared toward industrial customers. Business promotions are used to generate business leads, stimulate purchases, reward customers, and motivate salespeople. Business promotions include many of the same tools used for consumer or trade promotions. Here, we focus on two additional major business promotion tools: conventions and trade shows and sales contests.

Many companies and trade associations organize conventions and trade shows to promote their products. Firms selling to the industry show their products at the trade show. Vendors at these shows receive many benefits, such as opportunities to find new sales leads, contact customers, introduce new products, meet new customers, sell more to present customers,

and educate customers with publications and audiovisual materials. Trade shows also help companies reach many prospects that are not reached through their sales forces.

Some trade shows are huge. For example, at this year’s International Consumer Electronics Show, 3,673 exhibitors attracted some 165,000 professional visitors. Even more impressive, at the Bauma min- ing and construction equipment trade show in Munich, Germany, more than 3,400 exhibitors from 57 coun- tries presented their latest product innovations to more than 530,000 attendees from more than 200 coun- tries. Total exhibition space equaled about 6.1 million square feet (more than 127 football fields).33

A sales contest is a contest for salespeople or deal- ers to motivate them to increase their sales performance over a given period. Sales contests motivate and recog- nize good company performers, who may receive trips, cash prizes, or other gifts. Some companies award points for performance, which the receiver can turn in for any of a variety of prizes. Sales contests work best when they are tied to measurable and achievable sales objectives (such as finding new accounts, reviving old accounts, or increasing account profitability).

Developing the sales Promotion Program Beyond selecting the types of promotions to use, marketers must make several other deci- sions in designing the full sales promotion program. First, they must determine the size of the incentive. A certain minimum incentive is necessary if the promotion is to succeed; a larger incentive will produce more sales response. The marketer also must set conditions for participation. Incentives might be offered to everyone or only to select groups.

Marketers must determine how to promote and distribute the promotion program itself. For example, a $2-off coupon could be given out in a package, in an advertisement, at the store, via the Internet, or in a mobile download. Each distribution method involves a different level of reach and cost. Increasingly, marketers are blending several media into a total campaign concept. The length of the promotion is also important. If the sales pro- motion period is too short, many prospects (who may not be buying during that time) will miss it. If the promotion runs too long, the deal will lose some of its “act now” force.

Evaluation is also very important. Marketers should work to measure the returns on their sales promotion investments, just as they should seek to assess the returns on other marketing activities. The most common evaluation method is to compare sales before,

business promotions Sales promotion tools used to generate business leads, stimulate purchases, reward customers, and motivate salespeople.

some trade shows are huge. at this year’s bauma mining and construction equipment trade show in Munich, germany, more than 3,400 exhibitors from 57 countries presented their latest product innovations to more than 530,000 attendees from more than 200 countries. Messe Munchen

424 Part 3: Designing a customer Value-Driven strategy and Mix

during, and after a promotion. Marketers should ask: Did the promotion attract new customers or more purchasing from current customers? Can we hold onto these new cus- tomers and purchases? Will the long-run customer relationship and sales gains from the promotion justify its costs?

Clearly, sales promotion plays an important role in the total promotion mix. To use it well, the marketer must define the sales promotion objectives, select the best tools, design the sales promotion program, implement the program, and evaluate the results. Moreover, sales promotion must be coordinated carefully with other promotion mix elements within the overall IMC program.

chaPter reVieW anD critical thinking

This chapter is the second of three chapters covering the fi- nal marketing mix element—promotion. The previous chapter dealt with overall integrated marketing communications and with advertising and public relations. This chapter investigated personal selling and sales promotion. Personal selling is the interpersonal arm of the communications mix. Sales promotion consists of short-term incentives to encourage the purchase or sale of a product or service.

objectiVe 13-1 Discuss the role of a company’s salespeople in creating value for customers and building customer relationships. (pp 400–402)

Most companies use salespeople, and many companies assign them an important role in the marketing mix. For companies selling business products, the firm’s sales force works di- rectly with customers. Often, the sales force is the customer’s only direct contact with the company and therefore may be viewed by customers as representing the company itself. In contrast, for consumer product companies that sell through intermediaries, consumers usually do not meet salespeople or even know about them. The sales force works behind the scenes, dealing with wholesalers and retailers to obtain their support and helping them become more effective in selling the firm’s products.

As an element of the promotion mix, the sales force is very effective in achieving certain marketing objectives and carry- ing out such activities as prospecting, communicating, selling

reVieWing anD extenDing the concePts

objectives review and servicing, and information gathering. But with companies becoming more market oriented, a customer-focused sales force also works to produce both customer satisfaction and company profit. The sales force plays a key role in engaging customers and developing and managing profitable customer relationships.

objectiVe 13-2 identify and explain the six major sales force management steps. (pp 402–413)

High sales force costs necessitate an effective sales manage- ment process consisting of six steps: designing sales force strategy and structure, recruiting and selecting, training, com- pensating, supervising, and evaluating salespeople and sales force performance.

In designing a sales force, sales management must address various issues, including what type of sales force structure will work best (territorial, product, customer, or complex structure), sales force size, who will be involved in selling, and how vari- ous salespeople and sales-support people will work together (inside or outside sales forces and team selling).

Salespeople must be recruited and selected carefully. In recruiting salespeople, a company may look to the job duties and the characteristics of its most successful salespeople to suggest the traits it wants in new salespeople. It must then look for applicants through recommendations of current salespeo- ple, ads, and the Internet and social media as well as college recruitment/placement centers. After the selection process is

chapter 13: Personal selling and sales Promotion 425

complete, training programs familiarize new salespeople not only with the art of selling but also with the company’s history, its products and policies, and the characteristics of its custom- ers and competitors.

The sales force compensation system helps to reward, motivate, and direct salespeople. In addition to compensation, all salespeople need supervision, and many need continuous encouragement because they must make many decisions and face many frustrations. Periodically, the company must evalu- ate their performance to help them do a better job. In evaluating salespeople, the company relies on information gathered from sales reports, personal observations, customer surveys, and conversations with other salespeople.

The fastest-growing sales trend is the explosion in social selling—using online, mobile, and social media in selling. The new digital technologies are providing salespeople with powerful tools for identifying and learning about prospects, engaging customers, creating customer value, closing sales, and nurturing customer relationships. Many of today’s cus- tomers no longer rely as much on assistance provided by salespeople. Instead, increasingly, they use online and social media resources to analyze their own problems, research so- lutions, get advice from colleagues, and rank buying options before ever speaking to a salesperson. In response, sellers are reorienting their selling processes around the new customer buying process. They are using social media, mobile devices, Web forums, online communities, blogs, and other digital tools to engage customers earlier and more fully. Ultimately, online, mobile, and social media technologies are helping to make sales forces more efficient, cost-effective, and productive.

objectiVe 13-3 Discuss the personal selling process, distinguishing between transaction-oriented marketing and relationship marketing. (pp 414–417)

Selling involves a seven-step process: prospecting and qualify- ing, preapproach, approach, presentation and demonstration, handling objections, closing, and follow-up. These steps help marketers close a specific sale and, as such, are transaction oriented. However, a seller’s dealings with customers should be guided by the larger concept of relationship marketing. The com- pany’s sales force should help to orchestrate a whole-company effort to develop profitable long-term relationships with key cus- tomers based on superior customer value and satisfaction.

objectiVe 13-4 explain how sales promotion cam- paigns are developed and implemented. (pp 417–424)

Sales promotion campaigns call for setting sales promotion objectives (in general, sales promotions should be consumer relationship building); selecting tools; and developing and implementing the sales promotion program by using consumer promotion tools (from coupons, refunds, premiums, and point- of-purchase promotions to contests, sweepstakes, and events), trade promotion tools (from discounts and allowances to free goods and push money), and business promotion tools (conven- tions, trade shows, and sales contests) as well as determining such things as the size of the incentive, the conditions for partic- ipation, how to promote and distribute the promotion package, and the length of the promotion. After this process is completed, the company must evaluate its sales promotion results.

key terms objective 3-1 Personal selling (p 400) Salesperson (p 401)

objective 3-2 Sales force management (p 402) Territorial sales force structure (p 403) Product sales force structure (p 403) Customer (or market) sales force

structure (p 403) Outside sales force (or field sales force)

(p 404)

Inside sales force (p 404) Team selling (p 405) Sales quota (p 410) Social selling (p 410)

objective 3-3 Selling process (p 414) Prospecting (p 414) Preapproach (p 414) Approach (p 415) Presentation (p 415)

Handling objections (p 416) Closing (p 416) Follow-up (p 416)

objective 3-4 Sales promotion (p 417) Consumer promotions (p 419) Event marketing (or event sponsorships)

(p 420) Trade promotions (p 422) Business promotions (p 423)

Discussion Questions 13-1. Describe the roles that a salesperson and the sales force

perform in marketing. (AASCB: Communication; Reflective Thinking)

13-2. What traits and behaviors should an ethical salesperson possess? What role does the sales manager play in ethi- cal selling behavior? (AACSB: Ethical Understanding and Reasoning)

13-3. Name and describe the four sales compensation elements. What are the various compensation combinations, and

how can they be used to achieve the company’s market- ing objectives? (AACSB: Communication; Reflective Thinking)

13-4. Define sales promotion and discuss its objectives. (AACSB: Communication)

13-5. Discuss the different types of trade sales promotions and distinguish these types of promotions from busi- ness promotions. (AACSB: Communication)

426 Part 3: Designing a customer Value-Driven strategy and Mix

critical thinking exercises 13-6. There are considerable free sales training resources

available on the Internet. Search “free sales training” to find some of these resources and access one of them. Create a presentation highlighting what you learned. (AACSB: Communication; Use of IT; Reflective Thinking)

13-7. Select a product or service and role-play a sales call—from the approach to the close—with another student. Have one member of the team act as the salesperson with the other member acting as the customer, raising at least

three objections. Select another product or service and perform this exercise again with your roles reversed. (AACSB: Communication; Reflective Thinking)

13-8. In a small group, design a sales promotion campaign using online, social media, and mobile marketing for a small business or organization in your community. Develop a presentation to pitch your campaign to the business or organization and incorporate what you’ve learned about the selling process. (AACSB: Communi- cation; Reflective Thinking)

More than 300 billion coupons are distributed each year, with more than 90 percent of them printed on paper. Consumers re- deem only about 1 percent of coupons distributed, often because they clip them but forget to use them in the store. SnipSnap has a solution for consumers. Hailed as the Best Shopping App by About.com and winning Media Post’s Apply Awards for Best Finance App, this app has mobilized those paper coupons for consumers. SnipSnap now boasts 4 million users and more than 50 national retail partners. The app allows consumers to snap a photo of retailers’ paper coupons and redeem them at the store. Users can share with friends on Facebook and Twitter and follow others’ couponing. SnipSnap is the first mobile app that scans the text, images, logos, and barcodes in printed coupons and creates a mobile coupon. It also sends expiration date reminders and location-based notifications. Retailer Lord & Taylor installed iBeacon technology and partnered with SnipSnap to send shop- pers targeted coupons based on where they are in the store. So if you want a good deal on a Michael Kors purse, it knows you are looking at the item and might send you a coupon through the app.

SnipSnap employees noticed consumers were snapping pictures of “coupons” they created to send to friends and family that were good for some special treatment, so the company created a spin- off app called GoodFor. Now, if you want to send a special some- one a coupon good for a 30-minute massage or your kid a “get out of chores free” coupon, GoodFor allows you to do it!

13-9. Research other types of apps that rely on smartphone cameras to redeem a sales promotion offer. Explain how they work and how they are similar to and differ- ent from SnipSnap. (AACSB: Communication; Use of IT; Reflective Thinking)

13-10. The profitable growth potential for SnipSnap is in the enterprise market where it provides mobile promotion services to retailers. SnipSnap is working with retailers to create and manage geo-conquesting campaigns. Re- search what this is and create a presentation explaining how it works. (AACSB: Communication; Use of IT; Re- flective Thinking)

Minicases anD aPPlications

online, social Media, and Mobile Marketing snap it and redeem it!

Marketing ethics “Dollars for Docs”? The pharmaceutical industry is innovating at a dizzying pace, but it is getting more difficult for pharmaceutical sales reps to reach doctors to inform them of new or improved products. One option is to host educational seminars. However, many educa- tional seminars are held at lavish restaurants or destinations un- derwritten by pharmaceutical companies, and doctors providing the education are paid consulting and speaking fees to the tune of more than $2 billion since 2009. In some cases, speakers are given scripts developed by the pharmaceutical company, lead- ing to the criticism that this is company-scripted marketing and the distinguished speaker is merely a “paid parrot” selling drugs for the company. Critics also claim that such promotion results in needlessly increased prescriptions for expensive branded

drugs that are no better than generic alternatives. Many drug makers are reducing expenditures for such product promotions because of the Physician Payment Sunshine Act, a provision of the Affordable Care Act of 2010. Pro Publica has a “Dollars for Docs” searchable database, and as part of the Sunshine Act, a searchable government Web site is available to the public to shed light on pharmaceutical sales practices.

13-11. Is it wrong for pharmaceutical companies to explain the benefits of their products to physicians this way? Suggest other alternatives for reaching doctors to inform them of the benefits of a company’s products. (AACSB: Commu- nication; Ethical Reasoning; Reflective Thinking)

chapter 13: Personal selling and sales Promotion 427

13-12. Learn about the Physician Payment Sunshine Act. Search Pro Publica’s “Dollars for Docs” database (http://projects .propublica.org/docdollars/) for local physicians to see if they have received payments from pharmaceutical companies. Search the government’s Web site (https://

openpaymentsdata.cms.gov/) and compare your find- ings with those of Pro Publica’s database. Write a report on what you found. (AACSB: Communication; Use of IT; Reflective Thinking)

Marketing by the numbers salesforce analysis Wheels, Inc. manufactures bicycles sold through retail bicy- cle shops in the southeastern United States. The company has two salespeople that do more than just sell the products— they manage relationships with the bicycle shops to enable them to better meet consumers’ needs. The company’s sales reps visit the shops several times per year, often for hours at a time. The owner of Wheels is considering expanding to the rest of the country and would like to have distribution through 1,000 bicycle shops. To do so, however, the com- pany would have to hire more salespeople. Each salesperson earns $40,000 plus 2 percent commission on all sales annu- ally. Another alternative is to use the services of sales agents instead of its own sales force. Sales agents would be paid 5 percent of sales.

13-13. Refer to Appendix 3 to answer this question. Deter- mine the number of salespeople Wheels needs if it has 1,000 bicycle shop accounts that need to be called on four times per year. Each sales call lasts approximately 2.5 hours, and each sales rep has approximately 1,250 hours per year to devote to customers. (AACSB: Com- munication; Analytical Reasoning)

13-14. At what level of sales would it be more cost efficient for Wheels to use to sales agents compared with its own sales force? To determine this, consider the fixed and variable costs for each alternative. What are the pros and cons of using a company’s own sales force versus independent sales agents? (AACSB: Communication; Analytical Reasoning; Reflective Thinking)

Video case first flavor First Flavor is a start-up company with a unique product. It man- ufactures great-tasting edible film that can replicate the flavor of just about anything, from an eight-topping pizza to an alcoholic beverage. If you’re wondering why a company would make such a product, think of the endless possibilities it allows for consum- ers to sample the taste of a food or beverage before purchasing it.

Although First Flavor first replicated flavors on thin film in order to market the product as a new method for product sampling, the company is now evaluating many other appli- cations of the technology. This video demonstrates how one product can be marketed in multiple ways.

After viewing the video featuring First Flavor, answer the following questions:

13-15. Classify First Flavor’s core business as a sales promo- tion element.

13-16. Brainstorm a list of the ways that First Flavor’s edible film might be used to sample products.

13-17. Can First Flavor successfully in pursue consumer prod- uct opportunities in addition to its promotional servic- es? Explain.

company cases 13 sungard/8 3M See Appendix 1 for cases appropriate for this chapter. Case 13, Sungard: Building Sustained Growth by Selling the SunGard Way. Consistently one of the top companies to sell for, Sungard is out to stay that way through a complete

transformation of its sales force model. Case 8, 3M: Where Innovation Is a Way of Life. Although it has many consumer products, 3M is truly a B2B company that relies on a strong sales force.

MyMarketingLab If assigned by your instructor, complete these writing sections from your Assignments in the MyLab.

13-18. What is social selling, and how is it affecting the sales function in organizations? (AACSB: Communication; Reflective Thinking)

13-19. What is team selling, and why has it become more important? Are there any pitfalls to this approach? (AACSB: Communication; Reflective Thinking)

http://projects.propublica.org/docdollars/

https://openpaymentsdata.cms.gov/

14 objectiVe 14-1 Define direct and digital marketing and discuss their rapid growth and benefits to customers and companies. Direct and Digital Marketing (430–432)

objectiVe 14-2 identify and discuss the major forms of direct and digital marketing. Forms of Direct and Digital Marketing (432–433); Digital and Social Media Marketing (433)

objectiVe 14-3 explain how companies have responded to the internet and the digital age with various online marketing strategies. Marketing, the Internet, and the Digital Age (433–434); Online Marketing (434–439)

Direct, online, social Media, and Mobile Marketing

objectiVe 14-4 Discuss how companies use social media and mobile marketing to engage consumers and create brand community. Social Media Marketing (439–443); Mobile Marketing (443–447)

objectiVe 14-5 identify and discuss the traditional direct marketing forms and overview public policy and ethical issues presented by direct marketing. Traditional Direct Marketing Forms (447–451); Public Policy Issues in Direct and Digital Marketing (451–453)

Previewing the concepts in the previous two chapters, you learned about engaging consumers and communicating customer value through integrated marketing communication, and about four elements of the marketing communications mix: advertising, publicity, personal selling, and sales promotion. in this chapter, we examine direct marketing and its fastest-growing form: digital marketing (online, social media, and mobile marketing). today, spurred by the surge in internet usage and buying as well as rapid advances in digital technologies—from smartphones, tablets, and other digital devices to the spate of online mobile and social media—direct marketing has undergone a dramatic transformation. as you read this chapter, remember that although direct and digital marketing are presented as separate tools, they must be carefully integrated with each other and with other elements of the promotion and marketing mixes.

let’s start by looking at amazon, a company that markets only directly and digitally. in little over 20 years, amazon has blossomed from an obscure dot-com upstart into one of the most powerful names on the internet. according to one estimate, an incredible 30 percent of all online shoppers research amazon.com first before buying. how has amazon become such an incredibly successful direct and online marketer in such a short time? it’s all about creating customer engagement, value, and relationships through personal and satisfying online customer experiences. few online marketers do that as well as amazon.com.

chaPter roaD MaP objective outline

429

first stop amazon.com: The Poster Child for Direct and Digital Marketing When you think of shopping online, chances are good that you think first of Amazon. The online pioneer first opened its vir- tual doors in 1995, selling books out of founder Jeff Bezos’s garage in suburban Seattle. Amazon still sells books—lots and lots of books. But it now sells just about everything else as well, from music, electronics, tools, housewares, apparel, and gro- ceries to fashions, loose diamonds, and Maine lobsters. Most analysts view Amazon as the model for direct marketing in the digital age.

From the start, Amazon has grown explosively. Its annual sales have rocketed from a modest $150 million in 1997 to $89 billion today. During just the past five years, Amazon’s revenues have more than tripled. On last year’s Cyber Monday alone, Amazon.com sold 37 million items to its 270 million active cus- tomers worldwide—that’s 428 items per second. Amazon’s rev- enues will likely reach $100 billion within the next year, faster to that mark than any other company in history (it took Walmart 34 years). That would make it the nation’s second-largest retailer, trailing only Walmart.

What has made Amazon such an amazing success story? Founder and CEO Bezos puts it in three simple words: “Obsess over customers.” To its core, the company is relentlessly customer driven. “The thing that drives everything is creating genuine value for customers,” says Bezos. Amazon believes that if it does what’s good for customers, profits will follow. So the company starts with the customer and works backward. Rather than asking what it can do with its current capabilities, Amazon first asks: Who are our custom- ers? What do they need? Then it develops whatever capabilities are required to meet those customer needs.

At Amazon, every decision is made with an eye toward improv- ing the Amazon.com customer experience. In fact, at many Amazon meetings, the most influential figure in the room is “the empty chair”— literally an empty chair at the table that represents the all-important customer. At times, the empty chair isn’t empty but is occupied by a “Customer Experience Bar Raiser,” an employee who is specially trained to represent customers’ interests.

Amazon’s obsession with serving the needs of its custom- ers drives the company to take risks and innovate in ways that other companies don’t. For example, when it noted that its book-buying customers needed better access to e-books and other digital content, Amazon developed the Kindle e-reader, its first-ever original product. The Kindle took more than four years and a whole new set of skills to develop. But Amazon’s start- with-the-customer thinking paid off handsomely. The Kindle is one of the company’s best-selling products, and Amazon.com now sells more e-books than hardcovers and paperbacks com- bined. What’s more, the company’s growing line of Kindle Fire tablets now leads the market for low-priced tablet computers. Thus, what started as an effort to improve the customer experience now gives Amazon a powerful presence in the burgeoning world of digital, mobile, and social media. Not only does the Kindle allow access to e-books, music, videos, and apps sold by Amazon, it

makes interacting online with the digital giant easier than ever. Cus- tomers use their Kindle tablets to shop at Amazon.com and interact with the company on its blogs and social media pages.

Amazon wants to deliver a special online experience to every customer. Most Amazon.com regulars feel a surprisingly strong relationship with the company, especially given the almost complete lack of actual human interaction. Amazon obsesses over mak- ing each customer’s experience uniquely personal. For example, the Amazon.com site greets customers with their very own home pages, complete with personalized recommendations. Amazon was the first company to sift through each cus- tomer’s past purchases and brows- ing histories and the purchasing patterns of customers with similar profiles to come up with personalized site content. Amazon wants to personalize the shop- ping experience for each individual customer. If it has 270 million custom- ers, it reasons, it should have 270 million stores.

Visitors to Amazon.com receive a unique blend of bene- fits: huge selection, good value, low prices, and convenience. But it’s the “dis- covery” factor that makes the buying experience really special. Once on the Amazon.com site, you’re compelled to stay for a while—looking, learning, and discovering. To create even greater selection and discovery for customers, Amazon allows competing retailers—from mom-and-pop operations to Marks & Spencer—to sell their products on Amazon.com through the Amazon Marketplace, creating a vir- tual shopping mall of incredible proportions. The broader selection attracts more customers, and everyone benefits. Last year, Amazon customers bought more than 2 billion items from 2 million third-party

amazon’s deep-down passion for creating superb online customer experiences has made it one of the most

powerful names on the internet. amazon is the model for

successful direct and digital marketing.

amazon does much more than just sell goods online. it engages customers and creates direct, personalized, and highly satisfying customer online buying experiences. Philippe Huguen/AFP/Getty Images

430

Amazon Marketplace sellers worldwide, accounting for 40 percent of Amazon’s unit sales.

Amazon also makes the order delivery experience a whiz with its Amazon Prime service. For $99 a year, Prime members can receive free two-day shipping for all eligible purchases plus unlimited stream- ing of movies and TV shows with Prime Instant Video and access to borrowing e-books from the Kindle Owners’ Lending Library. Amazon is moving rapidly toward same-day delivery. It recently launched Prime Now, which offers speedy two-hour free delivery of tens of thousands of items in several large metropolitan areas (or one-hour delivery for a $7.99 fee). “In the past six weeks my husband and I have made an embarrassing number of orders through Amazon Prime Now,” says one excited customer. “It’s cheap, easy, and insanely fast.”

More than just a place to buy things, Amazon.com has become a kind of online community in which customers can browse for prod- ucts, research purchase alternatives, share opinions and reviews with other visitors, and chat online with authors and experts. In this way, Amazon does much more than just sell goods online. It engages customers and creates direct, personalized customer relationships and satisfying online experiences. Year after year, Amazon places

at or near the top of almost every customer satisfaction ranking, regardless of industry.

Based on its powerful growth, many analysts have speculated that Amazon will become the Walmart of the Web. In fact, some argue, it already is. Although Walmart’s total sales of $487 billion dwarf Ama- zon’s $89 billion in sales, Amazon’s online sales are 7.5 times greater than Walmart’s. So online, it’s Walmart that’s chasing Amazon. Put another way, Walmart wants to become the Amazon of the Web, not the other way around. However, despite its mammoth proportions, to catch Amazon online, Walmart will have to match the superb Amazon .com online customer experience, and that won’t be easy.

Thus, Amazon has become the poster child for direct and digital marketing. “The reason I’m so obsessed with . . . the customer expe- rience is that I believe [our success] has been driven exclusively by that experience,” says Jeff Bezos. It all starts with customer value. If Amazon creates superior value for customers, it will earn their busi- ness and loyalty, and success will follow in terms of company sales and returns. As Bezos puts it, “When things get complicated, we sim- plify them by asking, ‘What’s best for the customer?’ We believe that if we do that, things will work out in the long term.”1

any of the marketing and promotion tools that we’ve examined in previous chapters were developed in the context of mass marketing: targeting broad markets with stan- dardized messages and offers distributed through intermediaries. Today, however,

with the trend toward narrower targeting and the surge in digital and social media technolo- gies, many companies are adopting direct marketing, either as a primary marketing approach or as a supplement to other approaches. In this section, we explore the exploding world of direct marketing and its fastest-growing form—digital marketing using online, social media, and mobile marketing channels.

Direct and Digital Marketing Direct and digital marketing involve engaging directly with carefully targeted individual consumers and customer communities to both obtain an immediate response and build lasting customer relationships. Companies use direct marketing to tailor their offers and content to the needs and interests of narrowly defined segments or individual buyers. In this way, they build customer engagement, brand community, and sales.

For example, Amazon.com interacts directly with customers via its Web site or mobile app to help them discover and buy almost anything and everything online. Similarly, GEICO interacts directly with customers—by telephone, through its Web site or smartphone app, or on its Facebook, Twitter, and YouTube pages—to build individual brand relationships, give insurance quotes, sell policies, or service customer accounts.

the new Direct Marketing Model Early direct marketers—catalog companies, direct mailers, and telemarketers—gathered customer names and sold goods mainly by mail and telephone. Today, however, spurred by the surge in Internet usage and buying, and by rapid advances in digital technologies—from smartphones, tablets, and other digital devices to the spate of online social and mobile media—direct marketing has undergone a dramatic transformation.

In previous chapters, we discussed direct marketing as direct distribution—as marketing channels that contain no intermediaries. We also included direct and digital marketing ele- ments of the promotion mix—as an approach for engaging consumers directly and creating brand community. In actuality, direct marketing is both of these things and much more.

author comment For most companies, direct and digital marketing are supplemental channels or

media. But for many other companies today— such as Amazon, GEICO, or Priceline—

direct marketing is a complete way of doing business.

Direct and digital marketing Engaging directly with carefully targeted individual consumers and customer communities to both obtain an immediate response and build lasting customer relationships.

chapter 14: Direct, online, social Media, and Mobile Marketing 431

Most companies still use direct marketing as a supplementary channel or medium. Thus, most department stores, such as Sears or Macy’s, sell the majority of their merchan- dise off their store shelves, but they also sell through direct mail, online catalogs, and social media pages. Pepsi’s Mountain Dew brand markets heavily through mass-media advertis- ing and its retail partners’ channels. However, it also supplements these channels with a heavy dose of direct marketing. Mountain Dew’s marketing mix consists of 55 percent television advertising and 45 percent digital. It uses its several brand Web sites and a long

list of social media to engage its digitally connected customer community in everything from designing their own Mountain Dew lifestyle pages to deciding which limited-edition flavors should be launched or retired. Through such direct interactions, Mountain Dew has created one of the most passionately loyal fan bases of any brand, who in turn have made it the nation’s fourth-largest soft drink brand.2

However, for many companies today, direct and digital marketing are more than just supplementary channels or advertising media—they constitute a complete model for doing business. Firms employ- ing this direct model use it as the only approach. Companies such as Amazon, Google, Facebook, eBay, Netflix, GEICO, and Priceline.com have suc- cessfully built their entire approach to the market- place around direct and digital marketing. For example, Priceline.com, the online travel company, sells its services exclusively through online, mobile, and social media channels. Priceline.com and other online travel agency competitors such as Expedia and Orbitz have pretty much driven traditional offline travel agencies to extinction.3

rapid growth of Direct and Digital Marketing Direct and digital marketing have become the fastest-growing form of marketing. According to one source, U.S. companies spent an estimated $157 billion on direct and digital marketing last year, up more than 11 percent over the previous year. As a result, direct-marketing-driven sales now amount to more than $2 trillion, accounting for 12 percent of the U.S. economy.4

Direct marketing continues to become more Internet-based, and digital direct mar- keting is claiming a surging share of marketing spending and sales. For example, U.S. marketers spent an estimated $64 billion on digital advertising alone last year, up a blis- tering 26 percent over the previous year. Total digital advertising spending—including online display and search advertising, social media, mobile, video, email, and other—now accounts for the second-largest share of media spending, behind only television, which it’s expected to overtake by 2018. And as consumers spend more and more time on their tablets and smartphones, spending on mobile advertising is exploding. Next year alone, mobile ad spending is expected to grow by 50 percent, and by 2018 it will account for an expected 25 percent of all U.S. ad spending.5

benefits of Direct and Digital Marketing to buyers and sellers For buyers, direct and digital marketing are convenient, easy, and private. They give buyers anywhere, anytime access to an almost unlimited assortment of goods and a wealth of product and buying information. For example, on its Web site and mobile app, Amazon.com offers more information than most of us can digest, ranging from top 10 product lists, extensive product descriptions, and expert and user product reviews to recommendations based on customers’ previous searches and purchases. Through direct marketing, buyers can interact with sellers by phone or on the seller’s Web site or mobile

the new direct marketing model: online travel agency Priceline.com sells its services exclusively through online, mobile, and social media channels. along with other online competitors, Priceline.com has pretty much driven traditional offline travel agencies to extinction. Priceline.com

432 Part 3: Designing a customer Value-Driven strategy and Mix

app to create exactly the configuration of information, products, or services they want and then order them on the spot. Finally, for consumers who want it, digital marketing through online, mobile, and social media provides a sense of brand engagement and community—a place to share brand information and experiences with other brand fans.

For sellers, direct marketing often provides a low-cost, efficient, speedy alternative for reaching their markets. Today’s direct marketers can target small groups or individual custom- ers. Because of the one-to-one nature of direct marketing, com- panies can interact with customers by phone or online, learn more about their needs, and personalize products and services to specific customer tastes. In turn, customers can ask ques- tions and volunteer feedback.

Direct and digital marketing also offer sellers greater flexibility. They let marketers make ongoing adjustments to prices and programs or create immediate, timely, and per- sonal engagement and offers. For example, last Fourth of July, home-improvement retailer Lowe’s issued a stop-motion “Happy 4th of July” Vine video showing tools exploding into fireworks, a nice supplement to its ongoing Vine series of “Fix in Six” do-it-yourself videos. GE celebrated last year’s National Inventors’ Day by asking its Twitter followers for offbeat invention ideas, then created illustrations of the best ones, such as a “hand-holding robot.”

Especially in today’s digital environment, direct market- ing provides opportunities for real-time marketing that links

brands to important moments and trending events in customers’ lives. It is a powerful tool for moving customers through the buying process and for building customer engagement, com- munity, and personalized relationships.

forms of Direct and Digital Marketing The major forms of direct and digital marketing are shown in figure 14.1. Traditional direct marketing tools include face-to-face selling, direct-mail marketing, catalog market- ing, telemarketing, direct-response television marketing, and kiosk marketing. In recent years, however, a dazzling new set of digital direct marketing tools has burst onto the marketing scene, including online marketing (Web sites, online ads and promotions, email, online videos, and blogs), social media marketing, and mobile marketing. We’ll begin by examining the new direct digital and social media marketing tools that have received so much attention lately. Then we’ll look at the still heavily used and very important tradi- tional direct marketing tools. As always, however, it’s important to remember that all of these tools—both the new digital and the more traditional forms—must be blended into a fully integrated marketing communications program.

author comment Direct marketing is rich in tools, from traditional favorites such as

direct mail and catalogs to dazzling new digital tools—online, mobile,

and social media.

Direct and digital marketing lets brands create immediate and timely customer engagement, as when ge celebrated last year’s national inventors’ Day by asking twitter followers for offbeat invention ideas, then created illustrations of the best ones. GE

Build direct customer

engagement and

community

Traditional direct marketing Face-to-face selling

Direct-mail marketing Catalog marketing

Telemarketing Direct-response TV marketing

Kiosk marketing

Digital and social media marketing Online marketing

(Web sites, online advertising, email, online videos, blogs)

Social media marketing Mobile marketing

We’ll begin with the exciting new digital forms of direct marketing. But remember that the traditional forms are still heavily used and that the new and old must be integrated for maximum impact.

figure 14.1 forms of Direct and Digital Marketing

chapter 14: Direct, online, social Media, and Mobile Marketing 433

Digital and social Media Marketing As noted earlier, digital and social media marketing is the fastest-growing form of direct marketing. It uses digital marketing tools such as Web sites, online video, email, blogs, social media, mobile ads and apps, and other digital platforms to directly engage consum- ers anywhere, anytime via their computers, smartphones, tablets, Internet-ready TVs, and other digital devices. The widespread use of the Internet and digital technologies is having a dramatic impact on both buyers and the marketers who serve them.

Marketing, the internet, and the Digital age Much of the world’s business today is carried out over digital networks that connect people and companies. These days, people connect digitally with information, brands, and each other at almost any time and from almost anywhere. The digital age has fundamen- tally changed customers’ notions of convenience, speed, price, product information, ser- vice, and brand interactions. As a result, it has given marketers a whole new way to create customer value, engage customers, and build customer relationships.

Digital usage and impact continues to grow steadily. More than 87 percent of all U.S. adults use the Internet, and the average U.S. Internet user spends almost six hours a day using digital media, primarily via mobile devices. Worldwide, 40 percent of the popula- tion has Internet access. And 23 percent has access to the mobile Internet, a number that’s expected to double over the next five years as mobile becomes an ever-more-popular way to get online.6

As a result, more than half of all U.S. households now regularly shop online, and digi- tal buying continues to grow at a healthy double-digit rate. U.S. online retail sales were an estimated $305 billion last year, 6.5 percent of total retail sales. By 2018 as consumers continue to shift their spending from physical to digital stores, that number is expected to grow to almost $500 billion (8.9 percent of total retail sales). Perhaps even more impor- tant, it’s estimated that nearly half of all U.S. retail sales were either transacted directly online or influenced by Internet research.7 As today’s omni-channel consumers become more and more adept at blending online and in-store shopping, digital channels will come into play for an ever-larger proportion of their purchases.

To reach this burgeoning market, most companies now market online. Some com- panies operate only online. They include a wide array of firms, from e-tailers such as Amazon and Expedia.com that sell products and services directly to final buyers via the Internet to search engines and portals (such as Google, Yahoo!, Bing, and DuckDuckGo), transaction sites (eBay, Craigslist), content sites (the New York Times on the Web, ESPN.com, and Encyclopædia Britannica), and online social media (Facebook, Twitter, YouTube, Pinterest, Instragram, and Snapchat).

Today, however, it’s hard to find a company that doesn’t have a substantial online pres- ence. Even companies that have traditionally operated offline have now created their own

author comment Direct digital and social media

marketing is surging and grabbing all the headlines these days, so we’ll

start with it. But the traditional direct marketing tools are still heavily

used. We’ll dig into them later in the chapter.

linking the concePts Hold up a moment and think about the impact of direct and digital marketing on your life.

●● When was last time that you bought something via direct or digital marketing? What did you buy, and why did you buy it direct? When was the last time that you rejected a direct or digital market- ing offer? Why did you reject it? Based on these experiences, what advice would you give to direct marketers?

●● For the next week, keep track of all the direct and digital marketing offers that come your way via direct mail and catalogs, email and mobile ads, online and social media marketing offers, and oth- ers. Then analyze the offers by type, source, and what you liked or disliked about each offer and the way it was delivered. Which offer best hit its target (you)? Which missed by the widest margin?

434 Part 3: Designing a customer Value-Driven strategy and Mix

online sales, marketing, and brand community channels. In fact, omni-channel retailing companies are having as much online success as their online-only competitors. A recent ranking of the nation’s 10 largest online retail sites contained only three online-only retailers (Amazon.com, which was ranked number one, Netflix, and Liberty Interactive). Number two was a manufacturer—Apple. All of the rest were omni-channel retailers.8

For example, number three on the list of online retail sites is Staples, the $22 billion office supply retailer. Staples operates more than 1,675 North American superstores. But you might be surprised to learn that almost half of Staples’s sales are generated online from its Web site and mobile app; its presence on social media such as Facebook, Google+, Twitter, YouTube, and LinkedIn; and its own Staples.com community.9

Selling online lets Staples build deeper, more personal- ized relationships with customers large and small. A large customer, such as GE or P&G, can create lists of approved office products at discount prices and then let company departments or even individuals do their own online and mobile purchasing. This reduces ordering costs, cuts through the red tape, and speeds up the ordering process for customers. At the same time, it encourages companies to use Staples as a sole source for office supplies. Even the smallest companies and individual consumers find 24/7 online ordering via the Web, Staples mobile app, or social media sites easier and more efficient.

In addition, Staples’ online, mobile, and social media efforts complement store sales by engaging customers, enlarging product assortments, offering hot deals, and help- ing customers find a local store and check stock and prices. In return, local stores promote online buying through in- store kiosks. If customers don’t find what they need on the shelves, they can quickly order it via the kiosk. Thus, Staples backs its “make more happen” positioning by offer-

ing a full range of contact points and delivery modes—online, social media, mobile, catalogs, phone, and in the store. No online-only or store-only seller can match that kind of call, click, or visit convenience and support. “We’re offering more products, more ways to buy, and more great value,” summarizes Staples’s vice president of global marketing.

Direct digital and social media marketing takes any of the several forms shown in Figure 14.1. These forms include online marketing, social media marketing, and mobile marketing. We discuss each in turn, starting with online marketing.

online Marketing Online marketing refers to marketing via the Internet using company Web sites, online advertising and promotions, email marketing, online video, and blogs. Social media and mobile marketing also take place online and must be closely coordinated with other forms of digital marketing. However, because of their special characteris- tics, we discuss the fast-growing social media and mobile marketing approaches in separate sections.

Web sites and branded Web communities For most companies, the first step in conducting online marketing is to create a Web site. Web sites vary greatly in purpose and content. Some Web sites are primarily marketing Web sites, designed to engage consumers and move them closer to a direct purchase or other marketing outcome.

For example, GEICO operates a marketing Web site at www.geico.com. Once a potential customer clicks in, GEICO wastes no time trying to turn the inquiry into a sale and then into a long-term relationship. A bold headline urges potential customers to “Get a quote,” and the site provides all the information and tools needed to do just that, complete with an auto insurance calculator to help buyers estimate the right insurance

omni-channel retailing Creating a seamless cross-channel buying experience that integrates in-store, online, and mobile shopping.

online marketing Marketing via the Internet using company Web sites, online ads and promotions, email, online video, and blogs.

Marketing Web site A Web site that engages consumers to move them closer to a direct purchase or other marketing outcome.

Multichannel marketing: almost half of staples’s sales come from its online marketing operations, including its Web site and mobile app, its presence on social media, and its own staples.com community. Courtesy of Staples the Office Superstore, LLC & Staples, Inc.

http://www.geico.com

chapter 14: Direct, online, social Media, and Mobile Marketing 435

coverage, rates, and savings. The straightforward site also makes it easy for current customers to manage their accounts and policies, add or replace vehicles, and make and view claims, all under the watchful eye of the familiar GEICO Gecko. Customers can also use GEICO’s mobile app to access the brand’s mobile Web site, where they can pay bills, get account and cover- age information, view their ID cards, and even watch the latest GEICO ads and chat with Lily, their GEICO insurance voice assistant.

In contrast, branded community Web sites don’t try to sell anything at all. Instead, their primary purpose is to present brand content that engages consumers and creates customer−brand community. Such sites typi- cally offer a rich variety of brand information, videos, blogs, activities, and other features that build closer customer relationships and generate engagement with and between the brand and its customers.

For example, consider ESPN’s Web site. You can’t buy anything at ESPN.com. Instead, the site creates a vast branded sports community:10

At ESPN.com, sports fans can access an almost overwhelming repository of sports information, statistics, and game updates. They can customize site content by sport, team, players, and au- thors to match their own special sports interests and team preferences. The site engages fans in contests and fantasy games (everything from fantasy football, baseball, basketball, and hockey to poker). Sports fans from around the world can participate in discussions with other fans and celebrities before, during, and after sporting events. They can friend and message other users and post comments on message boards and blogs. By downloading various widgets and apps, fans can customize their ESPN experience and carry it with them wherever they go. In all, ESPN’s Web site creates a virtual brand community without walls, a must-have experience that keeps fans coming back again and again.

Creating a Web site is one thing; getting people to visit the site is another. To attract visitors, companies aggressively promote their Web sites in offline print and broadcast advertising and through ads and links on other sites. But today’s Web users are quick to abandon any Web site that doesn’t measure up. The key is to create enough engaging and valued content to get consumers to come to the site, stick around, and come back again.

At the very least, a Web site should be easy to use and visually appealing. Ultimately, however, Web sites must also be useful. When it comes to online browsing and shopping, most people prefer substance over style and function over flash. For example, ESPN’s site isn’t all that flashy, and it’s pretty heavily packed and congested. But it connects custom- ers quickly and effectively to all the sports information and involvement they are seeking. Thus, effective Web sites contain deep and useful information, interactive tools that help find and evaluate content of interest, links to other related sites, changing promotional offers, and entertaining features that lend relevant excitement.

online advertising As consumers spend more and more time online, companies are shifting more of their marketing dollars to online advertising to build brand sales or attract visitors to their Internet, mobile, and social media sites. Online advertising has become a major promo- tional medium. The main forms of online advertising are display ads and search-related ads. Together, display and search-related ads account for the largest portion of firms’ digi- tal marketing budgets.

Online display ads might appear anywhere on an Internet user’s screen and are often related to the information being viewed. Such display ads have come a long way in recent years in terms of engaging consumers and moving them along the path to purchase. Today’s rich media ads incorporate animation, video, sound, and interactivity. For example, while

branded community Web site A Web site that presents brand content that engages consumers and creates customer community around a brand.

online advertising Advertising that appears while consumers are browsing online, including display ads and search- related ads.

Marketing Web sites: once a potential customer clicks in, geico’s Web site wastes no time trying to turn the inquiry into a sale and then into a long-term relationship. GEICO

436 Part 3: Designing a customer Value-Driven strategy and Mix

browsing sports-related content on your laptop, tablet, or phone, you might see a bright blue and green banner ad for Gillette Fusion PROGLIDE razors floating at the bottom of the page, with the provocative headline “Our Gentlest Shave.” A click on the banner expands it into a full interac- tive display ad, complete with an embedded 15-second demonstration video plus click- throughs to the Gillette Fusion PROGLIDE microsite and a buy-now link. Similarly, while perusing your favorite backpacking site, you might see an attention-grabbing video ad from The North Face. Roll over the brand logo and up pops an interactive ad panel, with the video continuing in the upper right corner alongside information on featured products and real-time links to The North Face Web site and a store loca- tor. Such dynamic ads can engage consum- ers and deliver substantial impact.11

Using search-related ads (or contextual advertising), text- and image-based ads and links appear atop or alongside search engine results on sites such as Google, Yahoo!, and Bing. For example, search Google for “LCD TVs.” At the top and side of the resulting search list, you’ll see inconspicuous ads for 10 or more advertisers, ranging from Samsung and Panasonic to Best Buy, Amazon.com, Walmart.com, Crutchfield, and CDW. Almost 90 percent of Google’s $66 billion in revenues last year came from ad sales. Search is an always-on kind of medium, and the results are easily measured.12

A search advertiser buys search terms from the search site and pays only if consum- ers click through to its site. For instance, type “Coke” or “Coca-Cola” or even just “soft drinks” or “rewards” into your search engine and almost without fail “My Coke Rewards” comes up as one of the top options, perhaps along with a display ad and link to Coca- Cola’s official Google+ page. This is no coincidence. Coca-Cola supports its popular online loyalty program largely through search buys. The soft drink giant started first with traditional TV and print advertising but quickly learned that search was the most effective way to bring consumers to its www.mycokerewards.com Web site to register. Now, any of dozens of purchased search terms will return mycokerewards.com at or near the top of the search list.

email Marketing Email marketing remains an important and growing digital marketing tool. “Social media is the hot new thing,” says one observer, “but email is still the king.”13 By one estimate, 91 percent of all U.S. consumers use email every day. What’s more, email is no longer limited to PCs and workstations; 66 percent of all emails are now opened on mobile devices. Not surprisingly, then, a recent study found that email is 40 times more effective at capturing customers than Facebook and Twitter combined.

According to one recent survey, during the latest holiday season, 90 percent of mar- keters said that their holiday campaigns included email marketing. U.S. companies spent $2.3 billion on email marketing last year, up from only $243 million 12 years earlier. Despite all the email clutter, thanks to its low costs, email marketing still brings one of the highest marketing returns on investment. According to the Direct Marketing Association, marketers get a return of $42 on every $1 they spend on email.14

When used properly, email can be the ultimate direct marketing medium. Email lets these marketers send highly targeted, tightly personalized, relationship-building mes- sages. And today’s emails are anything but the staid, text-only messages of the past. Instead, they are colorful, inviting, personalized, and interactive. For example, one recent CVS Pharmacy email, sent to the chain’s ExtraCare Rewards Program members

email marketing Sending highly targeted, tightly personalized, relationship-building marketing messages via email.

online display advertising: today’s dynamic rich media ads incorporate animation, video, sound, and interactivity, engaging consumers and moving them along the path to purchase. The Procter & Gamble Company

http://www.mycokerewards.com

chapter 14: Direct, online, social Media, and Mobile Marketing 437

prior to Halloween, contained a colorful, attention-getting coupon offering 30 percent off an in-store purchase. Clicking the “Get Coupon” button gave customers a choice of printing the coupon or simply having it zapped onto their loyalty cards for later automatic redemption. The CVS “Prepare for the Scare” email also contained a “View myWeekly Ad” button, by which ExtraCare members could link through to a Web page loaded with personalized deals based on things they buy most. Thus, the much-viewed email pro- moted both immediate store visits and customer loyalty.

But there’s a dark side to the growing use of email marketing. The explosion of spam—unsolicited, unwanted commercial email messages that clog up our email boxes—has produced consumer irritation and frustration. According to one research company, spam now accounts for 64 percent of the billions of emails sent worldwide each day, almost two out of every three emails. Workers in American businesses send and receive nearly 109 billion emails per day and spend nearly one-third of their workweek managing email.15 Email marketers walk a fine line between adding value for consumers and being intrusive and annoying.

To address these concerns, most legitimate marketers now prac- tice permission-based email marketing, sending email pitches only to customers who “opt in.” Many companies use configurable email sys- tems that let customers choose what they want to get. Amazon.com targets opt-in customers with a limited number of helpful “we thought you’d like to know” messages based on their expressed preferences and previous purchases. Few customers object, and many actually welcome such promotional messages. Amazon.com benefits through higher return rates and by avoiding alienating customers with emails they don’t want.

online Videos Another form of online marketing is posting digital video content on brand Web sites or on social media sites such as YouTube, Facebook, Vine, and others. Some videos are made specifically for the Web and social media. Such videos range from “how-to” instructional videos and public relations (PR) pieces to brand promotions and brand- related entertainment. Other videos are ads that a company makes primarily for TV and other media but posts online before or after an advertising campaign to extend their reach and impact.

Good online videos can engage consumers by the tens of millions. The online video audience is soaring, with more than 60 percent of the U.S. population now streaming video.16 Marketers hope that some of their videos will go viral. Viral marketing, the digital version of word-of-mouth marketing, involves creating videos, ads, and other mar- keting content that are so infectious that customers will seek them out or pass them along to their friends. Because customers find and pass along the message or promotion, viral marketing can be very inexpensive. And when a video or other information comes from a friend, the recipient is much more likely to view or read it.

All kinds of videos can go viral, producing engagement and positive exposure for a brand. For example, in one simple but honest McDonald’s video, the director of market- ing at McDonald’s Canada answered an online viewer’s question about why McDonald’s products look better in ads than in real life by conducting a behind-the-scenes tour of how a McDonald’s ad is made. The award-winning three-and-a-half-minute video pulled almost 15 million views and 15,000 shares, earning the company praise for its honesty and transparency. As another example, P&G’s Always brand launched an inspiring #LikeAGirl video campaign, which set out to replace the negative connotations of what it means “to do something like a girl” with the message “Let’s make #LikeAGirl mean amazing things.” The initial three-minute video was an instant viral hit, garnering 8 million YouTube views in the first week alone and more than 57 million views to date.17

spam Unsolicited, unwanted commercial email messages.

Viral marketing The digital version of word-of-mouth marketing: videos, ads, and other marketing content that is so infectious that customers will seek it out or pass it along to friends.

email marketing: today’s emails are colorful, inviting, personalized, and interactive, like the cVs Pharmacy “Prepare for the scare” email coupon offer. CVS Caremark Corporation

438 Part 3: Designing a customer Value-Driven strategy and Mix

Many brands produce multi-platform video campaigns that bridge traditional TV, online, and mobile media. For example, Adidas’s recent “Take It” campaign—a series of action-packed 60-second video ads featuring famous Adidas athletes gutting it out in practice and on game day—began on TV but quickly zoomed to the top of the viral charts. The campaign drove home a captivating motivational message: “Do some- thing, and be remembered. Or do nothing, and be forgotten. No one owns today. Take it.” The initial “Take It” ad broke during NBA All-Star Weekend, but that was only the beginning. The video ad went on to capture a whopping 21 mil- lion YouTube views in just the first week and 40 million in the first two months. Additional videos in the ad series grabbed millions more views, making “Take It” one of the most successful viral campaigns of the decade.18

Despite these viral successes, it’s important to note that marketers usually have little control over where their viral messages end up. They can seed content online, but that does little good unless the message itself strikes a chord with consumers. Says one creative director, “You hope that the creative is at a high enough mark where the seeds grow into mighty oaks. If they don’t like it, it ain’t gonna move. If they like it, it’ll move a little bit; and if they love it, it’s gonna move like a fast-burning fire through the Hollywood hills.”19

blogs and other online forums Brands also conduct online marketing through various digital forums that appeal to specific special-interest groups and brand communities. Blogs (or Web logs) are online forums where

people and companies post their thoughts and other content, usually related to narrowly defined top- ics. Blogs can be about anything, from politics or baseball to haiku, car repair, brands, or the latest television series. Many bloggers use social networks such as Twitter, Facebook, Tumblr, and Instagram to promote their blogs, giving them huge reach. Such reach can give blogs—especially those with large and devoted followings—substantial influence.

Most marketers are now tapping into the blogosphere with their own brand-related blogs that reach customer communities. For example, on the Coca-Cola Unbottled blog, Coke fans and company insiders can “look at what’s beyond the bottle,” sharing posts on everything from new prod- ucts and sustainability initiatives to fun and inspir- ing “what’s bubbling” fan stories about “spreading happiness.” On the Netflix Blog, members of the Netflix team (themselves rabid movie fans) tell about the latest Netflix features, share tricks for getting the most out of the Netflix experience, and collect feedback from subscribers. And the creative Nuts About Southwest blog, written by Southwest Airline employees, fosters a two-way dialogue that gives customers a look inside the company’s culture and operations. At the same time, it lets Southwest engage customers directly and get feedback from them.

blogs Online forums where people and companies post their thoughts and other content, usually related to narrowly defined topics.

tapping into blogs: the creative nuts about southwest blog, written by southwest employees, fosters a two-way dialogue that gives customers a look inside the company’s culture and operations. Southwest Airlines Co.

Viral marketing: adidas’s recent “take it” campaign featuring famous adidas athletes (here international soccer star lionel Messi) gutting it out in practice and on game day began on tV but quickly zoomed to the top of the viral charts. adidas

chapter 14: Direct, online, social Media, and Mobile Marketing 439

Beyond their own brand blogs, many marketers use third-party blogs to help get their messages out. For example, McDonald’s systematically reaches out to key “mommy blog- gers,” those who influence the nation’s homemakers, who in turn influence their families’ eating-out choices:20

McDonald’s recently hosted 15 influential bloggers on an all-expenses-paid tour of its headquar- ters in Oak Brook, Illinois. The bloggers toured the facilities (including the company’s test kitch- ens), met McDonald’s USA president, and had their pictures taken with Ronald at a nearby Ronald McDonald House. McDonald’s knows that these mommy bloggers have loyal followings and talk a lot about McDonald’s in their blogs. So it’s turning the bloggers into believers by giving them a behind-the-scenes view. McDonald’s doesn’t try to tell the bloggers what to say in their posts about the visit. It simply asks them to write one honest recap of their trip. However, the resulting posts (each acknowledging the blogger’s connection with McDonald’s) were mostly very positive. Thanks to this and other such efforts, mommy bloggers around the country are now more informed about and connected with McDonald’s. “I know they have smoothies and they have yogurt and they have other things that my kids would want,” says one prominent blogger. “I really couldn’t tell you what Burger King’s doing right now,” she adds. “I have no idea.”

As a marketing tool, blogs offer some advantages. They can offer a fresh, original, personal, and cheap way to enter into consumer online and social media conversations. However, the blogosphere is cluttered and difficult to control. And although companies can sometimes leverage blogs to engage customers in meaningful relationships, blogs remain largely a consumer-controlled medium. Whether or not they actively participate in the blogs, companies should monitor and listen to them. Marketers can use insights from consumer online conversations to improve their marketing programs.

social Media Marketing As we’ve discussed throughout the text so far, the surge in Internet usage and digital technologies and devices has spawned a dazzling array of online social media and digital communities. Countless independent and commercial social networks have arisen where people congregate to socialize and share messages, opinions, pictures, videos, and other content. These days, it seems, almost everyone is buddying up on Facebook or Google+, checking in with Twitter, tuning into the day’s hottest videos at YouTube, pinning images on social scrapbooking site Pinterest, or sharing photos with Instagram and Snapchat. And, of course, wherever consumers congregate, marketers will surely follow.

Most marketers are now riding the huge social media wave. According to one survey, 92 percent of U.S. companies now claim that social media marketing is important for their businesses.21 Interestingly, just as marketers are now learning how to use social media to engage customers, the social media themselves are learning how to make their communi- ties a suitable platform for marketing content, in a way that benefits both social media users and brands. Most social media, even the most successful ones, still face a monetiza- tion issue: How can they profitably tap the marketing potential of their massive communi- ties to make money without driving off loyal users (see Marketing at Work 14.1)?

Using social Media Marketers can engage in social media in two ways: They can use existing social media or they can set up their own. Using existing social media seems the easiest. Thus, most brands—large and small—have set up shop on a host of social media sites. Check the Web sites of brands ranging from Coca-Cola, Nike, and Victoria’s Secret to the Chicago Bulls or even the U.S. Forest Service and you’ll find links to each brand’s Facebook, Google+, Twitter, YouTube, Flickr, Instagram, or other social media pages. Such social media can create substantial brand communities. For example, the Bulls have more the 17 million Facebook fans; Coca-Cola has an eye-popping 90 million Facebook fans.

Some of the major social networks are huge. Nearly 1.4 billion people access Facebook every month, nearly 4.4 times the population of the United States. Similarly, Twitter has more than 288 million active monthly users. And YouTube’s more than 1 billion users upload 300 hours of video every minute of every day. The list goes on: Google+ has 359 million active users, Instagram 300 million, LinkedIn 187 million, and Pinterest 40 million.22

author comment As in about every other area of our lives, social media and

mobile technologies have taken the marketing world by storm. They offer some amazing marketing possibilities. But truth be told, many marketers are still sweating over how to use

them most effectively.

social media Independent and commercial online social networks where people congregate to socialize and share messages, opinions, pictures, videos, and other content.

440 Part 3: Designing a customer Value-Driven strategy and Mix

As the world has rapidly gone social and mobile, social media have played a huge role. Whether it’s on massive networks such as Facebook, Twitter, YouTube, Instagram, and Snapchat or lesser-known niche sites such as Blurty, Dogster, and Reddit, it’s common to see people everywhere these days, heads down with devices in hand, connecting, posting, and sharing. On Facebook alone, every day, a mind-blowing 936 million of the network’s 1.4 billion active users worldwide upload 350 million photos, gener- ate 4.5 billion “Likes,” and share 4.75 billion pieces of content.

However, although social media networks have achieved incredible success in terms of numbers of users, sheer volume of content and activity, and even company valuations, a nag- ging problem still plagues them. It’s called monetization. How can social media profitably tap the marketing potential of their massive communities to make money without driving off their legions of loyal users? Most social media still struggle to make a profit, and even the most popular ones are only beginning to tap their full financial potential.

The first and best bet for converting the social-sharing potential of a social network’s gigantic user community into real dollars is online advertising. For marketers, the targeting and customer engagement potential of social media is a dream come true, and advertisers willingly pay for access via ads and other paid brand content. However, placing commercial content in social media is still in its infancy, for both marketers and the social media networks. Successfully injecting brand content alongside user content can be tricky and risky. Social media users often cherish the free (and commercial-free) shar- ing cultures of their online communities. If not well conceived, commercial content becomes an unwelcome intrusion that can alienate users and potentially drive them away.

Thus, although social media have exploded in popularity, most are still having trouble making money. Even Facebook— far and away the most financially successful social network, which earned $2.9 billion in profits on $12.5 billion in revenues last year—has yet to scratch the surface of its vast financial potential.

To illustrate the monetization difficulties that social media face, let’s dig deeper into one of today’s most successful ones, Snapchat, the wildly popular messaging app. Snapchat serves a fast-growing community of more than 100 million users, heavily weighted toward young Millennials. As on other social media, Snapchat users share pictures or videos—known as Snaps—with friends and family. But unlike images shared on other networks, Snaps disappear without a trace in only seconds.

Snapchat exploded onto the scene only about five years ago. By the end of its first year, 1 billion photos had been shared through Snapchat’s servers; after only two years, the Snapchat community was sharing 700 million photos every single day. As Snapchat’s popularity soared, so did its valuation. Two years in, Facebook made Snapchat’s founders a startling $3 billion buyout

offer; the founders politely declined. A year later, Snapchat had raised more than $200 million in venture capital funding and was valued at $10 billion. Yet in its rise to glory, Snapchat had yet to make even a dime of revenues or profits.

Snapchat’s financial story is typical for successful social media: modest beginnings as a start-up, followed by meteoric growth in popularity and use, leading to outrageously high valua- tion—all with little or no income. Then comes that difficult ques- tion: How can they monetize their massive user bases to make profits and sustain themselves? For Snapchat, that’s especially difficult. The very feature that makes Snapchat unique and so popular—content lasting only seconds—means that it can’t track and analyze users for targeting purposes, a turnoff to marketers. “In an era where big data rules, how does Snapchat, which col- lects no data on the user, sell itself to marketers?” asks one online advertiser. Snapchat’s challenge is to persuade marketers that the benefits of reaching its young Millennials community outweigh user anonymity and lack of pinpoint targeting potential.

Careful not to ruffle its community’s sensitivities or disrupt the user experience, Snapchat didn’t introduce its first adver- tising platform until October 2014. Called Brand Stories, the platform let marketers share brand-related photo and video posts with users via its sponsored Stories feed, at rates of up to $750,000 per ad unit. The first client was Universal Pictures, which sent a 20-second video trailer for its upcoming fright film Ouija. A growing number of other brands—from Taco Bell and frozen-yogurt chain 16 Handles to the New Orleans Saints—soon began creating Snapchat handles and dabbling with Snaps to users. Although advertisers seemed eager to pay for the ad units, Snapchat halted Brand Stories after only six

Marketing at Work 14.1

social Media Monetization: Making Money without Driving fans away

Wildly popular messaging app snapchat and other social media face a nagging monetization issue: how can they profitably tap the marketing potential of their massive communities to make money without driving off their legions of loyal users? Jens Büttner/AP Images

chapter 14: Direct, online, social Media, and Mobile Marketing 441

Although these large social media networks grab most of the headlines, countless niche social media have also emerged. Niche online social networks cater to the needs of smaller communities of like-minded people, making them ideal vehicles for market-

ers who want to target special interest groups. There’s at least one social media network for just about every interest, hobby, or group. Kaboodle.com is for shopa- holics, whereas moms share advice and commis- eration at CafeMom.com. FarmersOnly.com provides online dating for down-to-earth “country folks” who enjoy “blue skies, living free and at peace in wide open spaces, raising animals, and appreciating nature”— “because city folks just don’t get it.” At Birdpost.com, avid bird watchers can keep an online list of birds they’ve seen and share bird sightings with other mem- bers using modern satellite maps.23

Beyond these independent social media, many com- panies have created their own online brand communities. For example, in Nike’s Nike+ running community— consisting of more than 20 million runners who together have logged more than 1 billion running miles worldwide—members join together online to upload, track, and compare their performances. Due to its suc- cess, Nike has expanded Nike+ to both basketball and general training, each with its own unique community site, app, and corresponding products.24

countless niche social media have emerged, catering to needs of smaller communities of like-minded people. cafeMom is a “Meeting Place for Moms,” where they can share conversations, advice, and entertainment. CafeMom.com

months, apparently concerned about the feature’s impact on the Snapchat user experience. The company suggested that it might reintroduce the feature later in a new form.

Meanwhile, Snapchat has focused on two other advertising formats: a magazine-like platform called “Discover” and a spon- sored feeds platform dubbed “Our Story.” Discover is a Snapchat content area where publishers ranging from ESPN, CNN, Comedy Central, and Food Channel to Cosmopolitan, National Geographic, and People post daily collections of their best con- tent. Snapchat users can share Discover news stories and video with personalized comments or emoji. Advertisers pay as much as $100,000 a day to advertise alongside the Discover content.

Snapchat’s Our Story feeds are TV-like streams of an event such as New Year’s Eve, March Madness, an important football game, or the Macy’s Thanksgiving Parade, featuring user-generated content curated by Snapchat. Advertisers can buy sponsorship rights for an Our Story feed for $400,000 to $500,000, which includes a brand mention in the opening title as well as branded snaps interspersed throughout the feed. For example, Macy’s sponsors the Macy’s Thanksgiving Parade feed, weaving its own brand content in with user content. Advertisers can also pay $100,000 for a single 10-second brand snap woven into a feed. Our Story feeds garner an esti- mated 20 million daily views within the Snapchat community.

All this leaves Snapchat’s revenue model in a state of constant flux, as it tinkers to find the best monetization formula. In fact, features like Discover and Our Story may well have morphed into something else by the time you read this story. For example, word leaked recently that Snapchat would soon change the name of its Our Story feature to Live Story, Live Event, or even just Live,

more in line with the evolving nature of the platform. “Snapchat, like social platforms before it, is making the bumpy transition from startup to big media company,” says an analyst. “Ad products— and the clients who love them—are often affected by that change.”

In its quest to monetize, Snapchat has a lot at stake. Will increased advertising and brand content alienate avid Snapchat fans? If they’re done right, probably not. Studies show that social media users readily accept—even welcome—well-tar- geted brand content. A recent Snapchat survey found that 60 percent of Snapchat users actually like Our Story ads.

But that’s the catch—doing it right. Like its own disappear- ing photo feature, Snapchat’s soaring popularity could vanish quickly if overly aggressive monetization causes resentment within its highly mobile and typically fickle fan base. Snapchat must move forward carefully. As one Snapchat marketer con- cludes, “We’re always fine tuning to ensure we deliver the best possible experience for our community.”

Sources: Julia Greenberg, “Snapchat Allows Users to (Finally!) Share News,” Wired, May 5, 2015, www.wired.com/2015/05/snapchat-news-business- discover-share/; “By the Numbers: 200+ Amazing Facebook User Statistics,” http://expandedramblings.com/index.php/by-the-numbers-17-amazing- facebook-stats/#.U2F1gtxH38u, accessed June 2015; Kurt Wagner, “Snapchat Is No Longer Selling Its Original Ad Unit, Brand Stories,” re/code, April 13, 2015, http://recode.net/2015/04/13/snapchat-is-no-longer-selling-its-original- ad-unit-brand-stories/; Jessi Hempel and Adam Lashinsky, “Countdown to the Snapchat Revolution,” Fortune, January 1, 2014, pp. 82-87; James O’Toole, “Could Snapchat Really Be Worth $10 billion?” CNNMoney, August 1, 2014, http://money.cnn.com/2014/08/01/technology/social/snapchat-10-billion/ index.html; Garrett Sloane, “Snapchat Persuades Brands to Go Vertical with Their Video,” Adweek, April 27, 2015, pp. 20–22; and Tim Peterson, “With Snapchat’s First Ad Format on Hold, Focus Shifts to Live Event Feeds,” Advertising Age, April 16, 2015, www.adage.com/print/298082.

http://www.wired.com/2015/05/snapchat-news-business-discover-share/

http://expandedramblings.com/index.php/by-the-numbers-17-amazing-facebook-stats/#.U2F1gtxH38u

http://recode.net/2015/04/13/snapchat-is-no-longer-selling-its-original-ad-unit-brand-stories/

http://money.cnn.com/2014/08/01/technology/social/snapchat-10-billion/index.html

http://www.adage.com/print/298082

http://money.cnn.com/2014/08/01/technology/social/snapchat-10-billion/index.html

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social Media Marketing advantages and challenges Using social media presents both advantages and challenges. On the plus side, social media are targeted and personal—they allow marketers to create and share tailored brand con- tent with individual consumers and customer communities. Social media are interactive, making them ideal for starting and participating in customer conversations and listening to customer feedback. For example, Whole Foods Market hosts regular Thursday evening Twitter chats using the #WFMDish hashtag hosted by the @wholefoods account. The chats bring together the Whole Foods community of health-minded eaters to discuss themes such as what to eat during the winter months or how to host a healthy (but tasty) Super Bowl party. Chat participants share recipes, ideas, and opinions, while Whole Foods tweets links to blog posts and multimedia content.25

Social media are also immediate and timely. They can be used to reach customers anytime, anywhere with timely and relevant marketing content regarding brand happenings and activities. As discussed earlier in the chapter, the rapid growth in social media usage has caused a surge in real-time marketing, allowing marketers to create and join consumer conversations around situations and events as they occur. Marketers can now watch what’s trending and create content to match.

Social media can be very cost-effective. Although creating and administering social media content can be costly, many social media are free or inexpensive to use. Thus, returns on social media investments are often high compared with those of expensive traditional media such as television or print. The low cost of social media puts them within easy reach of even small busi- nesses and brands that can’t afford the high costs of big-budget marketing campaigns.

Perhaps the biggest advantage of social media is their engagement and social sharing capabilities. Social media are especially well suited to creating customer engagement and community—for getting customers involved with the brand and with each other. More than any other channels, social media can involve customers in shaping and sharing brand content, experiences, information, and ideas.

For example, consider Etsy—the online craft marketplace that’s “Your place to buy and sell all things handmade.” Etsy uses its Web and mobile sites and a host of social media to create an Etsy lifestyle community, where buyers congregate to learn about, explore, exchange, and share ideas about handmade and vintage products and related topics. In addi- tion to its active Facebook, Twitter, and YouTube pages, Etsy engages 334,000 brand follow- ers on photo-sharing site Instagram, where the Etsy community shares photos of creative ideas and projects. It also engages 580,000 followers on social scrapbooking site Pinterest,

with 113 boards on topics ranging from “DIY Projects,” “Entertaining,” and “Stuff We Love” to “Etsy Weddings” and even “Yum! Recipes to Share,” where the community posts favorite recipes. Etsy sells few of the ingredients that go into the recipes, but it’s all part of the Etsy lifestyle. Through its extensive online and social media presence, Etsy has created an active and engaged worldwide community of 19.8 million buyers and 1.4 million sellers worldwide in what it calls “The marketplace we make together.”26

Social media marketing also presents chal- lenges. First, many companies are still experi- menting with how to use them effectively, and results are hard to measure. Second, such social networks are largely user controlled. The com- pany’s goal in using social media is to make the brand a part of consumers’ conversations and their lives. However, marketers can’t simply muscle their way into consumers’ digital interactions— they need to earn the right to be there. Rather than intruding, marketers must become a valued part of the online experience by developing a steady flow of engaging content.

through its extensive online and social media presence, etsy has created an active and engaged worldwide brand community of buyers and sellers in what it calls “the marketplace we make together.” Etsy, Inc.

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Because consumers have so much control over social media content, even the seemingly most harmless social media campaign can backfire. For example, Frito-Lay recently launched an annual Do Us a Flavor contest, in which it asks people to come up with new potato chip flavors, submit them to its Web or Facebook site, and design bag art for their creations. Many consumers take the annual contest (and the $1 million grand prize) seriously, submitting flavors that people would truly want to eat. However, others recently hijacked the contest by submitting sometimes hilarious but completely bogus flavors, ranging from Crunchy Frog and Blue Cheese, Toothpaste and Orange Juice, and 7th Grade Locker Room to Bandaid in a Public Pool and “90% Air and Like 4 Chips.” Unfortunately, for each submission, no matter how bogus, the Web site responded cheerfully with a colorful rendition of the bag and flavor name, along with a message like the following: “7th Grade Locker Room? That does sound yummy as a chip! Keep those tasty ideas coming for your next chance to win $1 million.”

Frito-Lay and its customers took the hijacking with good humor, and the Do Us a Flavor contest continues on its successful way. However, there’s a clear message. With social media, “you’re going into the consumer’s backyard. This is their place,” warns one social marketer. “Social media is a pressure cooker,” says another. “The hundreds of thou- sands, or millions, of people out there are going to take your idea, and they’re going to try to shred it or tear it apart and find what’s weak or stupid in it.”27

integrated social Media Marketing Using social media might be as simple as posting some messages and promotions on a brand’s Facebook or Twitter pages or creating brand buzz with videos or images on YouTube, Vine, or Pinterest. However, most large companies are now designing full-scale social media efforts that blend with and support other elements of a brand’s marketing content strategy and tactics. More than making scattered efforts and chasing “Likes” and Tweets, companies that use social media successfully are integrating a broad range of diverse media to create brand-related social sharing, engagement, and customer community.

Managing a brand’s social media efforts can be a major undertaking. For example, Starbucks, one of the most successful social media marketers, manages 51 Facebook pages (including 43 in other countries), 31 Twitter handles (19 of them international), and 22 Instagram names (14 international) plus Google+, Pinterest, YouTube, and Foursquare accounts. Managing and integrating all that social media content is challenging, but the results are worth the investment. Customers can and do engage with Starbucks by the tens of millions digitally, without ever setting foot in a store.

But more than just creating online engagement and community, Starbucks’ social media presence also drives customers into its stores. For example, in its first big social media promotion six years ago, Starbucks offered a free pastry with a morning drink pur- chase. A million people showed up. Its more recent “Tweet-a-Coffee” promotion, which let customers give a $5 gift card to a friend by putting both #tweetacoffee and the friend’s han- dle in a Tweet, resulted in $180,000 in purchases within little more than one month. Social media “are not just about engaging and telling a story and connecting,” says Starbucks’s head of global digital marketing. “They can have a material impact on the business.”28

Mobile Marketing Mobile marketing features marketing messages, promotions, and other marketing content delivered to on-the-go consumers through their mobile devices. Marketers use mobile marketing to engage customers anywhere, anytime during the buying and relationship- building processes. The widespread adoption of mobile devices and the surge in mobile Web traffic have made mobile marketing a must for most brands.

With the recent proliferation of mobile phones, smartphones, and tablets, mobile device penetration is now greater than 100 percent in the United States (many people possess more than one mobile device). Almost 40 percent of U.S. households are cur- rently mobile-only households with no landline phone. About 65 percent of people in the United States own a smartphone, and more than 60 percent of smartphone users use them to access the mobile Internet. They not only browse the mobile Internet but are also avid mobile app users. The mobile apps market has exploded globally: There are more than 2 million apps available, and the average smartphone has 26 apps installed on it.29

Mobile marketing Marketing messages, promotions, and other marketing content delivered to on-the-go consumers through mobile phones, smartphones, tablets, and other mobile devices.

444 Part 3: Designing a customer Value-Driven strategy and Mix

Most people love their phones and rely heavily on them. According to one study, nearly 90 percent of consumers who own smartphones, tablets, computers, and TVs would give up all of those other screens before giving up their phones. On average, Americans check their phones 150 times a day—once every six-and-a-half minutes— and spend two hours and 51 minutes a day on their smartphones and other mobile devices talking, texting, and visiting Web sites. Thus, although TV is still a big part of people’s lives, mobile is rapidly becoming their “first screen.” Away from home, it’s their only screen.30

For consumers, a smartphone or tablet can be a handy shopping companion. It can provide on-the-go product information, price comparisons, advice and reviews from other consumers, and access to instant deals and digital coupons. One recent study by Google found that 87 percent of mobile device owners use mobile to pre-shop and research pur- chases before getting to a store, and 75 percent of smartphone-toting shoppers use their phones in-store.31 Not surprisingly, then, mobile devices provide a rich platform for engaging consumers more deeply as they move through the buying process with tools ranging from mobile ads, coupons, and texts to apps and mobile Web sites.

Mobile advertising spending in the United States is surging; it more than doubled last year alone and is expected to double again by next year. Almost every major marketer—from P&G and Macy’s to your local bank or supermarket to nonprofits such as the ASPCA—is now integrating mobile marketing into its direct marketing programs. Such efforts can produce very positive outcomes. For example, 49 percent of mobile users search for more information after seeing a mobile ad.32

Companies use mobile marketing to stimulate immediate buying, make shopping easier, enrich the brand experience, or all of these. It lets marketers provide consumers with information, incentives, and choices at the moment they are expressing an interest or when they are in a position to make a buying choice. For example, McDonald’s uses mobile marketing to promote new menu items, announce special promotions, and drive immediate traffic at its restaurants. One recent interactive ad on Pandora’s mobile app read “Taste buds. Any size soft drink or sweet tea for $1. Tap to visit site.” A tap on the mobile ad took customers to a mobile site promoting McDonald’s ongoing summer promotion. Another McDonald’s mobile campaign used a word scrabble game to entice customers to try the fast feeder’s dollar menu items. Such efforts create both customer engagement and store traffic. Using a game “inside a mobile campaign is all about finding and maintaining engagement,” says a McDonald’s marketer.33

Today’s rich-media mobile ads can create substantial engagement and impact. For example, JetBlue recently created a voice-activated mobile ad that interacts with custom- ers and talks back. It starts with a JetBlue mobile banner ad that says, “Click here to learn how to speak pigeon.” A click expands the ad, which then instructs users by voice to repeat words on the screen, such as “coo, coo, coo.” When they’ve completed two full sentences in pigeon, users receive a virtual medal and the option to play again. Hitting “Learn more” takes users to the JetBlue Landing Perch, where they can explore and send messages to friends via digital carrier pigeons. The mobile ad is part of JetBlue’s “Air on the Side of Humanity” campaign, which features pigeons—the ultimate frequent fliers. Rather than making direct sales pitches, the voice ad aims simply to enrich the JetBlue experience. The airline hopes people will “watch the ads, play with the pigeons, and remember us when they want to book tickets,” says JetBlue’s advertising manager.34

Retailers can use mobile marketing to enrich the customer’s shopping experience at the same time that they stimulate buying. For example, Macy’s built its recent “Brasil: A Magical Journey” promotion around a popular and imaginative smartphone app. The campaign featured apparel from Brazilian designers and in-store experiences celebrating Brazilian culture. By using their smartphones to scan codes throughout the store, shop- pers could learn about featured fashions and experience Brazilian culture through virtual tours, such as a trip to the Amazon, a visit to Rio de Janeiro during Carnival, or attending a Brazilian soccer match.

Many marketers have created their own mobile online sites, optimized for specific phones and mobile service providers. Others have created useful or entertaining mobile apps to engage customers with their brands and help them shop (see Marketing at Work 14.2).

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Armed only with a smartphone or other mobile device, you can learn, do, or buy almost anything these days, from anywhere, and at any time. Google’s Waze app does more than just help you navigate—it pinpoints traffic jams, accidents, speed traps, and gas prices in real time, all updated by members of the Waze community. Is that Redbox kiosk too slow? Download the Redbox app—it lets you find and reserve a DVD using your mobile device and have it waiting for you at the kiosk. REI’s Snow Report app, with its snowy fresh look and feel, gives you ski slope information for locations throughout the United States and Canada, such as snow conditions, number of open lifts, trail maps, and Webcam views. The app even helps you share resort information with friends via Twitter and Facebook, and it links you to “Shop REI” for times “when you decide you can’t live without a new set of K2 skis or a two-man Hubba Hubba tent.”

Welcome to the world of mobile marketing. Today’s smart- phones and other mobile devices are changing how people live, becoming indispensable hubs for communication, informa- tion, and entertainment. They are also revolutionizing the way people shop and buy, giving marketers new opportunities to engage customers in more effective and satisfying ways.

Marketers are responding to the huge growth in mobile access and use. Mobile ad spending has skyrocketed by more than 400 percent in the past three years and is expected to dou- ble in the next three. And the mobile app market has outright exploded. Just six years ago, Apple’s App Store had a then- astounding 10,000 apps. But by last year, it boasted 1.2 million apps; Android’s Google Play took the lead with more than 1.3 million apps. Mobile has become today’s brave new marketing frontier, especially for brands courting younger consumers. Mobile devices are very personal, ever-present, and always on. That makes them an ideal medium for obtaining quick responses to individualized, time-sensitive offers.

Some marketers are still just warming up to mobile, and most are still learning how to use it effectively. Successful mobile marketing goes beyond just giving people a coupon and a link to buy. Instead, it enhances brand engagement and creates a “frictionless” buying experience. For example, with Amazon’s mobile app—thanks to “1-click” purchasing, Prime membership, and other features—customers located anywhere, anytime can have products delivered to practically any location in less than 24 hours with nothing more than a smartphone, a simple search or scan, and the click of a button.

Consumers have come to expect such frictionless mobile buying experiences from marketing giants like Amazon. But with recent rapid advances in mobile capabilities, from loca- tion-based technologies to mobile payment systems, more and more companies are becoming the Amazons of their industries. Consider mobile app-based car-sharing service Getaround.

In the United States alone, personal cars sit idle for 6 billion car- hours every day. Peer-to-peer car-sharing service Getaround lets car owners earn money by sharing those unused hours with others in the Getaround community for a fee. The young company has already developed a fast-growing base of 25,000 car-sharing owners, who re- ceive 60 percent of the rental fees—an average of $500 to $1,000 per month depending on the car. Getaround takes care of everything— customer contact and support, insurance, roadside assistance, and payment. To use Getaround, you just download the mobile app and supply credit card and driver’s license information. Then you can use the app to search among and view thousands of cars available in the neighborhood and rent one by the hour or day, right when you need it. You locate the car with your phone’s GPS, unlock it with the app, and get in and drive it away. Pay with a credit card on file or using Apple Pay with a single tap. It’s that simple. The Getaround app even provides trip management tools for planning getaways on the go.

Mobile marketing can do much more than simply ease the buying process. It can also take ads, coupons, and other promotions to new levels. Mobile marketers can personalize promotions and weave them into relevant everyday customer experiences. For example, Kiip, a mobile reward network, spe- cializes in helping brands provide customers with just the right reward at just the right time based on their everyday activities. The agency started by embedding its technology into video game apps such as Zombie Farm and Mega Jump. Gamers who

Marketing at Work 14.2

Mobile Marketing: smartphones are changing how People live—and how they buy

Mobile marketing: Mobile promotions agency kiip helps client brands link mobile offers to relevant customer experiences and positive moments. “We want to capitalize on happiness,” says kiip’s ceo. Kiip, inc.

446 Part 3: Designing a customer Value-Driven strategy and Mix

For example, the Benjamin Moore Color Capture app lets customers take photos of colorful objects, then match them to any of 3,500 Benjamin Moore paint colors. Starbucks’s mobile app lets customers use their phones as a Starbucks card to make fast and easy purchases. And Charles Schwab’s mobile apps let customers get up-to-the-minute investment news, monitor their accounts, and make trades at any time from any location—it helps you “stay connected with your money.”

As with other forms of direct marketing, however, com- panies must use mobile marketing responsibly or risk anger- ing already ad-weary consumers. Most people don’t want to be interrupted regularly by advertising, so marketers must be smart about how they engage people on mobile devices. The key is to provide genuinely useful information and offers that will make consumers want to engage. And many marketers target mobile ads on an opt-in-only basis.

In all, digital direct marketing—online, social media, and mobile marketing—offers both great promise and many chal- lenges for the future. Its most ardent apostles still envision a time when the Internet and digital marketing will replace magazines, newspapers, and even stores as sources for infor- mation, engagement, and buying. Most marketers, however, hold a more realistic view. For most companies, digital and

Mobile marketing: the benjamin Moore color capture app engages customers and helps them shop. Benjamin Moore, Color Capture and the triangle “M” are registered trademarks licensed to Benjamin Moore & Co.

reach a new game level or meet some other goal get a coupon to one of their favorite retailers, such as American Apparel.

Kiip now boasts a network of 2,500 apps and 60 million users across games, fitness, productivity, music, and cook- ing categories. It showcases more than 500 million reward moments every month for clients like McDonald’s, Propel, Sour Patch Kids, P&G, and MasterCard. For fitness apps like MapMyRun and productivity apps like Any.do, Kiip ties rewards to real-life achievements. When users cross things off their to-do lists or achieve a running goal, they get a reward from a relevant brand. For example, P&G’s Secret deodor- ant recently rewarded female MapMyRun users with free song downloads for their workout playlists. And snack giant Mondelez rewarded Any.do users with free packs of Trident when they set new personal records.

Kiip helps marketers reach targeted users at positive moments with rewards relevant to their real-time doings and accomplish- ments. Readers who finish a certain number of pages in a read- ing app receive a free magazine subscription. People using a couple’s app to stay in touch receive credits toward a purchase from 1-800-Flowers. Kiip is even working with connected-car company Mojio, whose 4G telematic device plugs into a car’s diagnostic port, tracks information about the car’s status, and keeps the owner connected to favorite people, places, and things. Through Mojio, Kiip helps clients—from insurance companies and car repair shops to parking meter and garage operators— provide rewards tied to specific driver locations and behaviors.

Unlike typical banner ads, pop-ups, or emails, Kiip offers enhance a user’s regular activities rather than interrupting them. According to Kiip’s founder and CEO, Kiip “is less about real-time marketing and more about real-time-needs

addressing.” In fact, he asserts, Kiip isn’t really in the mobile ad business at all—it’s in the happiness business. “We want to capitalize on happiness,” he says. “Everything’s better when you’re happy.” Mobile timeliness, relevance, and happiness pay off in terms of consumer response. Users redeem Kiip’s mobile promotions at a 22-percent clip, compared with the 0.3 percent for typical app ad engagement. Kiip’s offers also increase mobile app revisits by 30 percent and more than double average app length of use.

Many consumers are initially skeptical about mobile mar- keting. But they often change their minds if mobile offers deliver useful brand and shopping information, entertaining content, or timely coupons and discounted prices. Most mobile efforts target only consumers who voluntarily opt in or down- load apps. In the increasingly cluttered mobile marketing space, customers just won’t do that unless they see real value in it. The challenge for marketers: develop valued mobile offers, ads, and apps that make customers come calling.

Sources: Robert Hof, “Mobile Ads Will Smash $100 Billion Mark Worldwide in 2016,” Forbes, April 2, 2015, www.forbes.com/sites/roberthof/2015/04/02/mobile- ads-will-smash-100-billion-mark-worldwide-in-2016/; Lindsay Harrison, “Kiip: For Making Mobile Ads That People Want,” Fast Company, February 11, 2013, www.fastcompany.com/most-innovative-companies/2013/kiip; Christina Chaey, “How Kiip Ties Brand Rewards to Game and Life Achievements to Make Mobile Ads Engaging,” Fast Company, July 23, 2012, www.fastcocreate.com/1681287; Neil Undgerleider, “Advertisers Are about to Enter Your Connected Car,” Fast Company, April 11, 2014, www.fastcompany.com/3028744/most-innovative- companies/advertisers-are-about-to-enter-your-connected-car; Jason Ankeny, “Young Millionaires: How These Entrepreneurs under 30 Are Changing the World,” Entrepreneur, August 20, 2014, www.entrepreneur.com/article/236621; and www.kiip.com/me, www.getaround.com/mobile, www.getaround.com/tour, and www.getaround.com/tour/benefits, accessed September 2015.

http://www.forbes.com/sites/roberthof/2015/04/02/mobile-ads-will-smash-100-billion-mark-worldwide-in-2016/

http://www.fastcompany.com/most-innovative-companies/2013/kiip

http://www.fastcocreate.com/1681287

http://www.fastcompany.com/3028744/most-innovative-companies/advertisers-are-about-to-enter-your-connected-car

http://www.entrepreneur.com/article/236621

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http://www.getaround.com/mobile

http://www.getaround.com/tour

http://www.getaround.com/tour/benefits

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linking the concePts Stop now and think about how online, social media, and mobile marketing affect your brand buying behavior and preferences.

●● How much of your product research, shopping, and actual buying take place online? How much of that is conducted on a mobile device? How and how much do your digital and in-store buying activities interact?

●● How much and what kinds of online, social media, and mobile marketing do you encounter? Do you benefit from such marketing, or is it more of an unwelcome intrusion? In what ways?

●● Do you engage directly with any brands or brand communities through online sites, social media, or phone apps? Do your online, social media, or mobile interactions influence your brand prefer- ences and buying? Discuss.

traditional Direct Marketing forms The major traditional forms of direct marketing—as shown in Figure 14.1—are face-to- face or personal selling, direct-mail marketing, catalog marketing, telemarketing, direct- response television (DRTV) marketing, and kiosk marketing. We examined personal selling in depth in Chapter 13. Here, we look into the other forms of traditional direct marketing.

Direct-Mail Marketing Direct-mail marketing involves sending an offer, announcement, reminder, or other item directly to a person at a particular address. Using highly selective mailing lists, direct marketers send out millions of mail pieces each year—letters, catalogs, ads, brochures, samples, videos, and other “salespeople with wings.” U.S. marketers spent an estimated $46 billion on direct mail last year (including both catalog and noncatalog mail), which accounted for 29 percent of all direct marketing spending. According to the Direct Mail Marketing Association, every dollar spent on direct mail generates $12.53 in sales.35

Direct mail is well suited to direct, one-to-one communication. It permits high target- market selectivity, can be personalized, is flexible, and allows the easy measurement of results. Although direct mail costs more per thousand people reached than mass media such as television or magazines, the people it reaches are much better prospects. Direct mail has proved successful in promoting all kinds of products, from books, insurance, travel, gift items, gourmet foods, clothing, and other consumer goods to industrial prod- ucts of all kinds. Charities also use direct mail heavily to raise billions of dollars each year.

Some analysts predict a decline in the use of traditional forms of direct mail in the com- ing years as marketers switch to newer digital forms, such as email and online, social media, and mobile marketing. The newer digital direct marketing approaches deliver messages at incredible speeds and lower costs compared to the U.S. Post Office’s “snail mail” pace.

However, even though new digital forms of direct marketing are bursting onto the scene, traditional direct mail is still heavily used by most marketers. Mail marketing offers some distinct advantages over digital forms. It provides something tangible for people to hold and keep, and it can be used to send samples. “Mail makes it real,” says one analyst. It “creates an emotional connection with customers that digital cannot. They hold it, view it, and engage with it in a manner entirely different from their [digital] experiences.” In contrast, email and other digital forms are easily filtered or trashed. “[With] spam filters and spam folders

author comment Again, although online, social

media, and mobile direct marketing seem to be getting much of the

attention these days, traditional direct media still carry a lot of the direct

marketing freight. Just think about your often overstuffed

mailbox.

Direct-mail marketing Marketing that occurs by sending an offer, announcement, reminder, or other item directly to a person at a particular address.

social media marketing will remain just one important approach to the marketplace that works alongside other approaches in a fully integrated marketing mix.

Although the fast-growing digital marketing tools have grabbed most of the headlines lately, traditional direct marketing tools are very much alive and still heavily used. We now examine the traditional direct marketing approaches shown on the right side of Figure 14.1.

448 Part 3: Designing a customer Value-Driven strategy and Mix

to keep our messaging away from consumers’ inboxes,” says a direct marketer, “sometimes you have to lick a few stamps.”36

Traditional direct mail can be an effective component of a broader integrated marketing campaign. For example, most large insurance companies rely heavily on TV advertising to establish broad customer awareness and positioning. However, the insur- ance companies also use lots of good old direct mail to break through the glut of insurance advertising on TV. Whereas TV advertising talks to broad audiences, direct mail communicates in a more direct and personal way. “Mail is a channel that allows all of us to find the consumer with a very targeted, very specific message that you can’t do in broadcast,” says John Ingersoll, vice president of marketing communications for Farmers Insurance. And “most people are still amenable to getting marketing com- munications in their mailbox, which is why I think direct mail will grow.”37

Direct mail may be resented as junk mail if sent to people who have no interest in it. For this reason, smart marketers are target- ing their direct mail carefully so as not to waste their money and recipients’ time. They are designing permission-based programs that send direct mail only to those who want to receive it.

catalog Marketing Advances in technology, along with the move toward personal- ized, one-to-one marketing, have resulted in exciting changes in catalog marketing. Catalog Age magazine used to define a catalog as “a printed, bound piece of at least eight pages, sell-

ing multiple products, and offering a direct ordering mechanism.” Today, the definition must be revamped to meet the changing times.

With the stampede to the Internet and digital marketing, more and more catalogs are going digital. A variety of online-only catalogers have emerged, and most print catalogers have added Web-based catalogs and smartphone catalog shopping apps to their marketing mixes. For example, apps such as Catalog Spree put a mall full of classic catalogs from retailers such as Macy’s, Anthropologie, L.L. Bean, Hammacher Schlemmer, Coldwater Creek, or West Elm only a swipe of the finger away on a smartphone or tablet. And days before the latest Eddie Bauer catalog arrives in the mail, customers can access it digitally on a laptop or mobile device at eddiebauer.com or catch highlights via social media outlets such as Pinterest. Eddie Bauer’s mobile catalog gives customers the convenience of on-the-go browsing and purchasing.

Digital catalogs eliminate printing and mailing costs. And whereas space is limited in a print catalog, online catalogs can offer an almost unlimited amount of merchandise. They also offer a broader assortment of presentation formats, including search and video. Finally, online catalogs allow real-time merchandising; products and features can be added or removed as needed, and prices can be adjusted instantly to match demand. Customers can carry digital catalogs anywhere they go, even when shopping at physical stores.

Despite the advantages of digital catalogs, however, as your overstuffed mailbox may suggest, printed catalogs are still thriving. U.S. direct marketers mailed out some 12 billion catalogs last year—more than 97 per American household.38 Why aren’t companies ditching their old-fashioned paper catalogs in this new digital era? For one thing, printed catalogs are one of the best ways to drive online and mobile sales, making them more important than ever in digital time. According to one study, about 58 percent of online shoppers browse physi- cal catalogs for ideas, and 31 percent have a retailer’s catalog with them when they make a purchase online. Catalog users look at more than double the number of online pages per visit to the company’s site than the average visitor and spend twice the amount of time there.39

But beyond their ability to drive immediate sales, paper catalogs create emotional connections with customers. Somehow, turning actual catalog pages engages consum- ers in a way that digital images simply can’t. And many sellers are revamping their

catalog marketing Direct marketing through print, video, or digital catalogs that are mailed to select customers, made available in stores, or presented online.

Direct mail marketing: insurance companies like farmers insurance rely heavily on tV advertising to establish broad customer awareness. however, they also use lots of good old direct mail to communicate with consumers in a more direct and personalized way. Farmers Group, Inc.

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catalogs, making them much more than just big books full of product pic- tures and prices. For example, Anthropologie calls its catalogs “journals” and fills them with lifestyle images. “Of course we’re trying to sell clothes and accessories,” says Anthropologie’s CMO, “but it’s more to inspire and engage.” Similarly, in addition to the 10 or so traditional catalogs that it publishes each year, Patagonia sends out other catalogs built around themes. One recent catalog featured falconry, with images of children with condors in Chile and wildlife volunteers in California releasing rehabilitated red-tailed hawks. The catalog included only a handful of products, placed on the last four pages of the 43-page book. Such catalogs are “a way we’re speaking to our closest friends and people who know the brand really well,” says a Patagonia marketer. “Years ago, [a catalog] was a selling tool, and now it’s become an inspirational source,” says another direct marketer. “We know our customers love a tactile experience.”40

telemarketing Telemarketing involves using the telephone to sell directly to consum- ers and business customers. U.S. marketers spent an estimated $43 billion on telemarketing last year, almost as much as on direct mail.41 We’re all familiar with telephone marketing directed toward consumers, but business-to- business (B-to-B) marketers also use telemarketing extensively. Marketers use outbound telephone marketing to sell directly to consumers and businesses. They also use inbound toll-free numbers to receive orders from television and print ads, direct mail, or catalogs.

Properly designed and targeted telemarketing provides many benefits, including purchasing convenience and increased product and service infor- mation. However, the explosion in unsolicited outbound telephone marketing over the years annoyed many consumers, who objected to the almost daily “junk phone calls.” In 2003, U.S. lawmakers responded with the National Do

Not Call Registry, which is managed by the Federal Trade Commission (FTC). The leg- islation bans most telemarketing calls to registered phone numbers (although people can still receive calls from nonprofit groups, politicians, and companies with which they have recently done business). Consumers responded enthusiastically. To date, more than 217 million home and mobile phone numbers have been registered at www.donotcall.gov or by calling 888-382-1222.42 Businesses that break do-not-call laws can be fined up to $16,000 per violation. As a result, the program has been very successful.

Do-not-call legislation has hurt parts of the consumer telemarketing industry. However, two major forms of telemarketing—inbound consumer telemarketing and out- bound B-to-B telemarketing—remain strong and growing. Telemarketing also remains a major fundraising tool for nonprofit and political groups. Interestingly, do-not-call regula- tions appear to be helping some direct marketers more than they’re hurting them. Rather than making unwanted calls, many of these marketers are developing “opt-in” calling sys- tems, in which they provide useful information and offers to customers who have invited the company to contact them by phone or email. The opt-in model provides better returns for marketers than the formerly invasive one.

Direct-response television Marketing Direct-response television (DRTV) marketing takes one of two major forms: direct- response television advertising and interactive TV (iTV) advertising. Using direct- response television advertising, direct marketers air television spots, often 60 or 120 seconds in length, which persuasively describe a product and give customers a toll-free number or an online site for ordering. It also includes full 30-minute or longer advertising programs, called infomercials, for a single product.

Successful direct-response television advertising campaigns can ring up big sales. For example, little-known infomercial maker Guthy-Renker has helped propel its Proactiv

telemarketing Using the telephone to sell directly to customers.

Direct-response television (DrtV) marketing Direct marketing via television, including direct-response television advertising (or infomercials) and interactive television (iTV) advertising.

catalogs: even in the digital era, printed catalogs are still thriving. in addition to its traditional catalogs, Patagonia sends out catalogs built around lifestyle themes, as “a way we’re speaking to our closest friends and people who know the brand really well.” Patagonia, Inc.

http://www.donotcall.gov

450 Part 3: Designing a customer Value-Driven strategy and Mix

Solution acne treatment and other “transformational” products into power brands that pull in $1.8 billion in sales annually to 5 million active customers (compare that to only about $150 million in annual drugstore sales of acne products in the United States). Guthy- Renker now combines DRTV with social media campaigns using Facebook, Pinterest, Google+, Twitter, and YouTube to create a powerful integrated direct marketing channel that builds consumer involvement and buying.43

DRTV ads are often associated with somewhat loud or questionable pitches for clean- ers, stain removers, kitchen gadgets, and nifty ways to stay in shape without working very hard at it. For example, over the past few years yell-and-sell TV pitchmen like Anthony Sullivan (Swivel Sweeper, Awesome Auger) and Vince Offer (ShamWow, SlapChop) have racked up billions of dollars in sales of “As Seen on TV” products. Brands like OxiClean, ShamWow, and the Snuggie (a blanket with sleeves) have become DRTV cult classics. And direct marketer Beachbody brings in more than $32 million annually via an army of workout videos—from P90X and T-25 to Insanity and Hip Hop Abs—that it advertises on TV using before-and-after stories, clips of the workout, and words of encouragement from the creators.

In recent years, however, a number of large companies—from P&G, Disney, Revlon, and Apple to Toyota, Coca-Cola, Anheuser-Busch, and even the U.S. Navy—have begun using infomercials to sell their wares, refer customers to retailers, recruit members, or attract buyers to their online, mobile, and social media sites.

A more recent form of direct-response television marketing is interactive TV (iTV), which lets viewers interact with television programming and advertising. Thanks to tech- nologies such as interactive cable systems, Internet-ready smart TVs, and smartphones and tablets, consumers can now use their TV remotes, phones, or other devices to obtain more information or make purchases directly from TV ads. For example, fashion retailer H&M recently ran ads that let viewers with certain Samsung smart TVs use their remotes to interact directly with the commercials. A small pop-up menu, shown as the ads ran, offered product information, the ability to send that information to another device, and the

option to buy directly.44

Also, increasingly, as the lines continue to blur between TV screens and other video screens, interactive ads and infomercials are appearing not just on TV, but also on mobile, online, and social media platforms, adding even more TV-like interactive direct marketing venues.

kiosk Marketing As consumers become more and more comfortable with digital and touchscreen technologies, many companies are placing information and ordering machines— called kiosks (good old-fashioned vending machines but so much more)—in stores, airports, hotels, college campuses, and other locations. Kiosks are everywhere these days, from self-service hotel and airline check-in devices, to unmanned product and information kiosks in malls, to in-store ordering devices that let you order mer- chandise not carried in the store. Many modern “smart kiosks” are now wireless- enabled. And some machines can even use facial recognition software that lets them guess gender and age and make product recommendations based on that data.

In-store Kodak, Fuji, and HP kiosks let customers transfer pictures from memory cards, mobile phones, and other digital storage devices; edit them; and make high-quality color prints. Seattle’s Best kiosks in grocery, drug, and mass merchandise stores grind and brew fresh coffee beans and serve coffee, mochas, and lattes to on-the-go customers around the clock. Redbox operates more than 42,000 DVD rental kiosks in McDonald’s, Walmart, Walgreens, CVS, Family Dollar, and other retail outlets—customers make their selections on a touch- screen, then swipe a credit or debit card to rent DVDs for less than $2 a day.

ZoomSystems creates small, free-standing kiosks called ZoomShops for retailers ranging from Apple, Sephora, and The Body Shop to Macy’s and Best Buy. For example, 100 Best Buy Express ZoomShop kiosks across the country—conveniently located in airports, busy malls, military bases, retail stores, and resorts—automatically dispense an assortment of portable media

kiosk marketing: redbox operates more than 42,000 DVD rental kiosks in supermarkets, fast-food restaurants, and other retail outlets. Images-USA/Alamy

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players, digital cameras, gaming consoles, headphones, phone chargers, travel gadgets, and other popular products. According to ZoomSystems, today’s automated retailing “offers [consumers] the convenience of online shopping with the immediate gratification of traditional retail.”45

Public Policy issues in Direct and Digital Marketing Direct marketers and their customers usually enjoy mutually rewarding relationships. Occasionally, however, a darker side emerges. The aggressive and sometimes shady tactics of a few direct marketers can bother or harm consumers, giving the entire industry a black eye. Abuses range from simple excesses that irritate consumers to instances of unfair practices or even outright deception and fraud. The direct marketing industry has also faced growing pri- vacy concerns, and online marketers must deal with Internet and mobile security issues.

irritation, Unfairness, Deception, and fraud Direct marketing excesses sometimes annoy or offend consumers. For example, most of us dislike direct-response TV commercials that are too loud, long, and insistent. Our mail- boxes fill up with unwanted junk mail, our email inboxes bulge with unwanted spam, and our computer, phone, and tablet screens flash with unwanted online or mobile display ads, pop-ups, or pop-unders.

Beyond irritating consumers, some direct marketers have been accused of taking unfair advantage of impulsive or less-sophisticated buyers. Television shopping channels, enticing Web sites, and program-long infomercials targeting television-addicted shop- pers seem to be the worst culprits. They feature smooth-talking hosts, elaborately staged demonstrations, claims of drastic price reductions, “while they last” time limitations, and unequaled ease of purchase to inflame buyers who have low sales resistance.

Fraudulent schemes, such as investment scams or phony collections for charity, have also multiplied in recent years. Internet fraud, including identity theft and financial

scams, has become a serious problem. According to the Internet Crime Complaint Center, since 2005, Internet scam complaints have more than tripled to almost 300,000 per year. Last year, the monetary loss of scam complaints exceeded $800 million.46

One common form of Internet fraud is phishing, a type of identity theft that uses deceptive emails and fraudulent online sites to fool users into divulging their personal data. For example, consumers may receive an email, supposedly from their bank or credit card company, saying that their account’s security has been compromised. The sender asks them to log on to a provided Web address and confirm their account number, pass- word, and perhaps even their Social Security number. If they follow the instructions, users are actually turning this sensitive information over to scam artists. Although many consumers are now aware of such schemes, phishing can be extremely costly to those caught in the net. It also dam- ages the brand identities of legitimate online marketers who have worked to build user confidence in Web, email, and other digital transactions.

Many consumers also worry about online and digital security. They fear that unscrupulous snoopers will eavesdrop on their online transactions and social media postings, picking up personal information or intercept- ing credit and debit card numbers. Although online shopping has grown rapidly, one recent study indicated that 70 percent of participants were still concerned about identity theft.47

Another Internet marketing concern is that of access by vulnerable or unauthorized groups. For example, marketers of adult-oriented materials and sites have found it difficult to restrict access by minors. Although Facebook allows no children under age 13 to have a profile, it has an estimated 5.6 million underage accounts. It removed some 800,000 underage accounts last year. And it’s not just Facebook. Young users are logging onto social media

author comment Although we mostly benefit

from direct and digital marketing, like most other things in life, they have

a dark side as well. Marketers and customers alike must guard against

irritating or harmful direct and digital marketing practices.

internet fraud has multiplied in recent years. the fbi’s internet crime complaint center provides consumers with a convenient way to alert authorities to suspected violations. FBI

452 Part 3: Designing a customer Value-Driven strategy and Mix

such as Formspring, Tweeting their locations to the Web, and making friends with strangers on Disney and other game sites. Concerned state and national lawmakers are currently debat- ing bills that would help better protect children online. Unfortunately, this requires the devel- opment of technology solutions, and as Facebook puts it, “That’s not so easy.”48

consumer Privacy Invasion of privacy is perhaps the toughest public policy issue now confronting the direct marketing industry. Consumers often benefit from database marketing; they receive more offers that are closely matched to their interests. However, many critics worry that market- ers may know too much about consumers’ lives and that they may use this knowledge to take unfair advantage of consumers. At some point, they claim, the extensive use of data- bases intrudes on consumer privacy. Consumers, too, worry about their privacy. Although they are now much more willing to share personal information and preferences with mar- keters via digital and social media, they are still nervous about it. One recent survey found that 92 percent of U.S. Internet users worry about their privacy online. Another found that more than 90 percent of Americans feel they have lost control over the collection and use by companies of their personal data and information they share on social media sites.49

In these days of “big data,” it seems that almost every time consumers post something on social media or send a Tweet, visit a Web site, enter a sweepstakes, apply for a credit card, or order products by phone or online, their names are entered into some company’s already bulging database. Using sophisticated big data analytics, direct marketers can mine these databases to “microtarget” their selling efforts. Most marketers have become highly skilled at collecting and analyzing detailed consumer information both online and offline. Even the experts are sometimes surprised by how much marketers can learn. Consider this account by one Advertising Age reporter:50

I’m no neophyte when it comes to targeting—not only do I work at Ad Age, but I cover direct marketing. Yet even I was taken aback when, as an experiment, we asked the database- marketing company to come up with a demographic and psychographic profile of me. Was it ever spot-on. Using only publicly available information, it concluded my date of birth, home phone number, and political-party affiliation. It gleamed that I was a college graduate, that I was married, and that one of my parents had passed away. It found that I have several bank, credit, and retail cards at “low-end” department stores. It knew not just how long I’ve lived at my house but how much it cost, how much it was worth, the type of mortgage that’s on it, and—within a really close ballpark guess—how much is left to pay on it. It estimated my household income—again nearly perfectly—and determined that I am of British descent.

But that was just the beginning. The company also nailed my psychographic profile. It correctly placed me into various groupings such as: someone who relies more on their own opinions than the recommendations of others when making a purchase; someone who is turned off by loud and aggressive advertising; someone who is family-oriented and has an interest in music, running, sports, computers, and is an avid concert-goer; someone who is never far from an Internet connection, generally used to peruse sports and general news updates; and someone who sees health as a core value. Scary? Certainly.

Some consumers and policy makers worry that the ready availability of informa- tion may leave consumers open to abuse. For example, they ask, should online sellers be allowed to plant cookies in the browsers of consumers who visit their sites and use track- ing information to target ads and other marketing efforts? Should credit card companies be allowed to make data on their millions of cardholders worldwide available to merchants who accept their cards? Or is it right for states to sell the names and addresses of driver’s license holders, along with height, weight, and gender information, allowing apparel retailers to target tall or overweight people with special clothing offers?

a need for action To curb direct marketing excesses, various government agencies are investigating not only do-not-call lists but also do-not-mail lists, do-not-track-online lists, and Can Spam legis- lation. In response to online privacy and security concerns, the federal government has

chapter 14: Direct, online, social Media, and Mobile Marketing 453

considered numerous legislative actions to regulate how online, social media, and mobile operators obtain and use consumer information. For example, Congress is drafting legisla- tion that would give consumers more control over how online information is used. In addi- tion, the FTC is taking a more active role in policing online privacy.

All of these concerns call for strong actions by marketers to monitor and prevent pri- vacy abuses before legislators step in to do it for them. For example, to head off increased government regulation, six advertiser groups—the American Association of Advertising Agencies, the American Advertising Federation, the Association of National Advertisers, the Direct Marketing Association, the Interactive Advertising Bureau, and the Network Advertising Initiative—recently issued a set of online advertising principles through the Digital Advertising Alliance. Among other measures, the self-regulatory principles call for online marketers to provide transparency and choice to consumers if online viewing data are collected or used for targeting interest-based advertising. The ad industry uses an adver- tising option icon—a little “i” inside a triangle—that it adds to behaviorally targeted online ads to tell consumers why they are seeing a particular ad and allowing them to opt out.51

Of special concern are the privacy rights of children. In 2000, Congress passed the Children’s Online Privacy Protection Act (COPPA), which requires online operators target- ing children to post privacy policies on their sites. They must also notify parents about any information they’re gathering and obtain parental consent before collecting personal informa- tion from children under age 13. With the subsequent advent of online social media, mobile phones, and other digital technologies, Congress in 2013 extended COPPA to include “identi- fiers such as cookies that track a child’s activity online, as well as geolocation information, photos, videos, and audio recordings.” The main concern is the amount of data mined by third parties from social media as well as social media’s own hazy privacy policies.52

Many companies have responded to consumer privacy and security concerns with actions of their own. Still others are taking an industry-wide approach. For example, TRUSTe, a nonprofit self-regulatory organization, works with many large corporate sponsors, including Microsoft, Yahoo!, AT&T, Facebook, Disney, and Apple, to audit privacy and security mea- sures and help consumers navigate the Internet safely. According to the company’s Web site, “TRUSTe believes that an environment of mutual trust and openness will help make and keep the Internet a free, comfortable, and richly diverse community for everyone.” To reassure con- sumers, the company lends its TRUSTe privacy seal to Web sites, mobile apps, email market- ing, and other online and social media channels that meet its privacy and security standards.53

The direct marketing industry as a whole is also addressing public policy issues. For example, in an effort to build consumer confidence in shopping direct, the Direct Marketing Association—the largest association for businesses practicing direct, database, and interactive marketing, including nearly half of the Fortune 100 companies—launched a “Privacy Promise to American Consumers.” The Privacy Promise requires that all DMA members adhere to a carefully developed set of consumer privacy rules. Members must agree to notify customers when any personal information is rented, sold, or exchanged with others. They must also honor consumer requests to opt out of receiving further solici- tations or having their contact information transferred to other marketers. Finally, they must abide by the DMA’s Preference Service by removing the names of consumers who do not wish to receive mail, phone, or email offers.54

Direct marketers know that, if left untended, such direct marketing abuses will lead to increasingly negative consumer attitudes, lower response and engagement rates, and calls for more restrictive state and federal legislation. Most direct marketers want the same things that consumers want: honest and well-designed marketing offers targeted only toward consumers who will appreciate and respond to them. Direct marketing is just too expensive to waste on consumers who don’t want it.

consumer privacy: the ad industry has agreed on an advertising option icon that will tell consumers why they are seeing a particular ad and allow them to opt out. Digital Advertising Alliance

454 Part 3: Designing a customer Value-Driven strategy and Mix

chaPter reVieW anD critical thinking

This chapter is the last of three chapters covering the final market- ing mix element—promotion. The previous chapters dealt with advertising, public relations, personal selling, and sales promotion. This one investigates the burgeoning field of direct and digital marketing, including online, social media, and mobile marketing.

objectiVe 14-1 Define direct and digital marketing and discuss their rapid growth and benefits to customers and companies. (pp 430–432)

Direct and digital marketing involve engaging directly with carefully targeted individual consumers and customer com- munities to both obtain an immediate response and build last- ing customer relationships. Companies use direct marketing to tailor their offers and content to the needs and interests of nar- rowly defined segments or individual buyers to build direct cus- tomer engagement, brand community, and sales. Today, spurred by the surge in Internet usage and buying and by rapid advances in digital technologies—from smartphones, tablets, and other digital devices to the spate of online social and mobile media— direct marketing has undergone a dramatic transformation.

For buyers, direct and digital marketing are convenient, easy to use, and private. They give buyers anywhere, anytime access to an almost unlimited assortment of products and buying information. Direct marketing is also immediate and interactive, allowing buyers to create exactly the configuration of informa- tion, products, or services they desire and then order them on the spot. Finally, for consumers who want it, digital market- ing through online, mobile, and social media provides a sense of brand engagement and community—a place to share brand information and experiences with other brand fans. For sellers, direct and digital marketing are powerful tools for building cus- tomer engagement and close, personalized, interactive customer relationships. They also offer greater flexibility, letting market- ers make ongoing adjustments to prices and programs or make immediate, timely, and personal announcements and offers.

objectiVe 14-2 identify and discuss the major forms of direct and digital marketing. (pp 432–433)

The main forms of direct and digital marketing include tradi- tional direct marketing tools and the new digital marketing tools. Traditional direct approaches are face-to-face personal selling, direct-mail marketing, catalog marketing, telemarketing, DRTV marketing, and kiosk marketing. These traditional tools are still heavily used and very important in most firms’ direct market- ing efforts. In recent years, however, a dazzling new set of direct

reVieWing anD extenDing the concePts

objectives review digital marketing tools has burst onto the marketing scene, includ- ing online marketing (Web sites, online ads and promotions, email, online videos, and blogs), social media marketing, and mobile marketing. The chapter first discusses the fast-growing new digital direct marketing tools and then examines the traditional tools.

objectiVe 14-3 explain how companies have respond- ed to the internet and the digital age with various online marketing strategies. (pp 433–439)

The Internet and digital age have fundamentally changed cus- tomers’ notions of convenience, speed, price, product informa- tion, service, and brand interactions. As a result, they have given marketers a whole new way to create customer value, engage customers, and build customer relationships. The Internet now influences a staggering 50 percent of total sales—including sales transacted online plus those made in stores but encour- aged by online research. To reach this burgeoning market, most companies now market online.

Online marketing takes several forms, including company Web sites, online advertising and promotions, email marketing, online video, and blogs. Social media and mobile marketing also take place online. But because of their special characteristics, we discuss these fast-growing digital marketing approaches in sepa- rate sections. For most companies, the first step in conducting online marketing is to create a Web site. The key to a successful Web site is to create enough value and engagement to get con- sumers to come to the site, stick around, and come back again.

Online advertising has become a major promotional medium. The main forms of online advertising are display ads and search-related ads. Email marketing is also an important form of digital marketing. Used properly, email lets marketers send highly targeted, tightly personalized, relationship-build- ing messages. Another important form of online marketing is posting digital video content on brand Web sites or social media. Marketers hope that some of their videos will go viral, engaging consumers by the tens of millions. Finally, compa- nies can use blogs as effective means of reaching customer communities. They can create their own blogs and advertise on existing blogs or influence content there.

objectiVe 14-4 Discuss how companies use social media and mobile marketing to engage consumers and create brand community. (pp 439–447)

In the digital age, countless independent and commercial social media have arisen that give consumers online places

chapter 14: Direct, online, social Media, and Mobile Marketing 455

to congregate, socialize, and exchange views and informa- tion. Most marketers are now riding this huge social media wave. Brands can use existing social media or they can set up their own. Using existing social media seems the easiest. Thus, most brands—large and small—have set up shop on a host of social media sites. Some of the major social net- works are huge; other niche social media cater to the needs of smaller communities of like-minded people. Beyond these independent social media, many companies have created their own online brand communities. More than making just scattered efforts and chasing “Likes” and Tweets, most com- panies are integrating a broad range of diverse media to cre- ate brand-related social sharing, engagement, and customer community.

Using social media presents both advantages and chal- lenges. On the plus side, social media are targeted and per- sonal, interactive, immediate and timely, and cost-effective. Perhaps the biggest advantage is their engagement and social sharing capabilities, making them ideal for creating customer community. On the down side, consumers’ control over social media content makes social media difficult to control.

Mobile marketing features marketing messages, promo- tions, and other content delivered to on-the-go consumers through their mobile devices. Marketers use mobile marketing to engage customers anywhere, anytime during the buying and relationship-building processes. The widespread adoption of mobile devices and the surge in mobile Web traffic have made mobile marketing a must for most brands, and almost every major marketer is now integrating mobile marketing into its direct marketing programs. Many marketers have created their own mobile online sites. Others have created useful or enter- taining mobile apps to engage customers with their brands and help them shop.

objectiVe 14-5 identify and discuss the traditional direct marketing forms and overview the public policy and ethical issues presented by direct marketing. (pp 447–453)

Although the fast-growing digital marketing tools have grabbed most of the headlines lately, traditional direct marketing tools are very much alive and still heavily used. The major forms are face-to-face or personal selling, direct-mail marketing, catalog marketing, telemarketing, direct-response television (DRTV) marketing, and kiosk marketing.

Direct-mail marketing consists of the company sending an offer, announcement, reminder, or other item to a person at a specific address. Some marketers rely on catalog marketing— selling through catalogs mailed to a select list of customers, made available in stores, or accessed online. Telemarketing con- sists of using the telephone to sell directly to consumers. DRTV marketing has two forms: direct-response advertising (or info- mercials) and interactive television (iTV) marketing. Kiosks are information and ordering machines that direct marketers place in stores, airports, hotels, and other locations.

Direct marketers and their customers usually enjoy mutually rewarding relationships. Sometimes, however, direct marketing presents a darker side. The aggressive and sometimes shady tactics of a few direct marketers can bother or harm consumers, giving the entire industry a black eye. Abuses range from simple excesses that irritate consumers to instances of unfair practices or even out- right deception and fraud. The direct marketing industry has also faced growing concerns about invasion-of-privacy and Internet security issues. Such concerns call for strong action by marketers and public policy makers to curb direct marketing abuses. In the end, most direct marketers want the same things that consumers want: honest and well-designed marketing offers targeted only toward consumers who will appreciate and respond to them.

key terms objective 14-1 Direct and digital marketing (p 430)

objective 14-2 Digital and social media marketing (p 433)

objective 14-3 Omni-channel retailing (p 434) Online marketing (p 434) Marketing Web site (p 434)

Branded community Web site (p 435) Online advertising (p 435) Email marketing (p 436) Spam (p 437) Viral marketing (p 437) Blogs (p 438)

objective 14-4 Social media (p 439) Mobile marketing (p 443)

objective 14-5 Direct-mail marketing (p 447) Catalog marketing (p 448) Telemarketing (p 449) Direct-response television (DRTV)

marketing (p 449)

Discussion Questions 14-1. Discuss the benefits of direct and digital marketing to

buyers and sellers. (AACSB: Communication) 14-2. What are blogs, and how are marketers using them to mar-

ket their products and services? What advantages and disadvantages do blogs pose for marketers? (AACSB: Communication)

14-3. Discuss the advantages and challenges of social media marketing. (AASCB: Communication)

14-4. List and briefly describe the major traditional forms of direct marketing. (AACSB: Communication)

14-5. What is phishing, and how does it affect Internet market- ing? (AACSB: Communication; Reflective Thinking)

456 Part 3: Designing a customer Value-Driven strategy and Mix

critical thinking exercises 14-6. In a small group, design and deliver a direct response

television (DRTV) ad for a national brand not normal- ly associated with this type of promotion, such as an athletic shoe, automobile, or food product. (AACSB: Communication; Reflective Thinking)

14-7. Review the Telephone Consumer Protection Act and discuss a recent case in which a marketer was fined for violating the act. (AACSB: Communication; Use of IT; Reflective Thinking)

14-8. Although mobile advertising makes up a small percent- age of online advertising, it is one of the fastest- growing advertising channels. But one obstacle is measuring return on investment in mobile advertising. How are marketers doing so? Develop a presentation suggesting metrics marketers should use to measure effectiveness of mobile advertising. (AACSB: Communication; Use of IT; Reflective Thinking)

Amazon is the big gun in e-commerce that has disrupted tradi- tional retailing. But now, it seems, Amazon is in for some disrup- tive competition itself. With global e-commerce sales expected to reach almost $2 trillion a year, Google and social media sites such as Facebook, Twitter, Pinterest, and Instagram want to get in on the action. Several social media sites are experimenting with “Buy” buttons on their sites that let consumers purchase directly through the social medium. Google is experimenting with “Buy” buttons on search results to counter the almost 40 percent of consumers who now start their shopping searches on Amazon instead of search engines like Google. The biggest game changer, however, might be Pinterest. Pinterest started in 1999 as a sharable bulletin board where participants “pin” pic- tures of things they like. It is now a multibillion-dollar company with 70 million monthly visitors who have saved more than 50 billion objects on a billion Pinterest bulletin boards. Lots of peo- ple would like to be able to buy some of those pinned objects, so Pinterest has added a “Buy” button to its mobile app. Users had already been able to click through to a marketer’s Web site, but

now they can purchase any of more than 2 million products from retailers such as Macy’s, Bloomingdales, and Nordstrom directly through Pinterest without leaving the site. Payments are pro- cessed through Pinterest’s partners Stripe, Brainstorm, or Apply Pay, but the seller provides the order fulfillment. In the future, Pinterest users may see an appetizing recipe, click the “Buy” button to order the ingredients from Fresh Direct, and have them delivered to their homes in less than an hour.

14-9. What competitive advantage does Pinterest (www .pinterest.com) have over other social media that might make its “Buy” button more successful? (AACSB: Communication; Reflective Thinking)

14-10. Discuss advantages and disadvantages of “Buy” but- tons for social media sites like Pinterest and search engines like Google. What are the advantages and dis- advantages for marketers making their goods available through “Buy” buttons on these sites? (AACSB Com- munication; Reflective Thinking)

Minicases anD aPPlications

online, social Media, and Mobile Marketing “buy” buttons

Marketing ethics tracking in “Meat space” By now, you know about behavioral targeting—marketers tracking consumers’ online behavior in cyberspace to send them targeted advertising. Krux Digital reports that the average visit to a Web page generated 56 instances of data collection, a fivefold increase in just one year. An investigation by The Wall Street Journal found that the 50 most popular U.S. Web sites installed more than 3,000 tracking files on the computer used in the study. The total was even higher—4,123 tracking files—for the top 50 sites that are popular with children and teens. Many sites installed more than 100 tracking tools each during the tests. Tracking tools include files placed on users’

computers and on Web sites. Marketers use this information to target online advertisements. But now, wearable and mobile devices allow marketers to track consumer movements in the physical world. The term meat space refers to the physical world in which our bodies move and do things, and market- ers are using information obtained from wearable and mobile devices to personalize offers while consumers move around their space. With the growing trend in smartphone tracking and wearable technology such as smartwatches, fitness bands, and smart garments that are part of the “Internet of Things,” track- ing consumers in meat space is only going to grow.

www.pinterest.com

chapter 14: Direct, online, social Media, and Mobile Marketing 457

Marketing by the numbers field sales versus telemarketing Many companies are realizing the efficiency of telemarketing in the face of soaring sales force costs. Whereas a business-to- business sales call by an outside salesperson on average costs $600, the cost of a telemarketing sales call can be as little as $20 to $30. And telemarketers can make 20 to 33 decision- maker contacts per day to a salesperson’s four per day. This has gotten the attention of many business-to-business marketers, where telemarketing can be very effective.

14-13. Refer to Appendix 3: Marketing by the Numbers to determine the marketing return on sales (marketing ROS) and return on marketing investment (market- ing ROI) for company A and company B in the chart below. Which company is performing better? Explain.

(AACSB: Communication; Analytical Reasoning; Re- flective Thinking)

Company A (sales force

only)

Company B (telemarketing

only)

Net sales $1,000,000 $850,000 Cost of goods sold $500,000 $425,000 Sales expenses $300,000 $100,000

14-14. Should all companies consider reducing their sales forces in favor of telemarketing? Discuss the pros and cons of this action. (AACSB: Communication; Reflec- tive Thinking)

Video case nutrisystem You’ve probably heard of Nutrisystem, a company that produced $800 million in revenues last year by selling weight-loss prod- ucts. What started as a small effort based on an e-commerce marketing plan has evolved into a multipronged marketing cam- paign that not only has expanded the business but also provides substantial return-on-investment potential.

The key to Nutrisystem’s efforts is its direct-to-consumer platform. Using various advertising outlets, from magazines to television, Nutrisystem’s promotions all have one thing in common—they let customers make direct contact with the com- pany. Inserting a unique URL or 800 number in every ad also lets Nutrisystem track the success of each and every effort.

After viewing the video featuring Nutrisystem, answer the following questions:

14-15. In what different ways does Nutrisystem engage in di- rect marketing?

14-16. What advantages does Nutrisystem’s marketing cam- paign have over selling through intermediary channels?

14-17. In addition to its direct-to-consumer distribution and promotional efforts, what is essential to the success of Nutrisystem?

company cases 14 alibaba/10 apple Pay/11 sears See Appendix 1 for cases appropriate for this chapter. Case 14, Alibaba: The World’s Largest E-Tailer Is Not Amazon. Selling more than Amazon and EBay combined, Alibaba’s rapid growth may keep it out in front for good. Case 10, Apple Pay: Taking Mobile Payments Mainstream. Apple may

succeed where Google, Paypal, Visa, and others have failed in making mobile payments the go-to way to pay. Case 11, Sears: Why Should You Shop There? Formerly the leading retailer, Sears struggles for survival by trying everything, in- cluding building an ecommerce presence.

14-11. Debate whether it is ethical to track consumers’ physi- cal movements, especially children’s movements. (AACSB: Communication; Ethical Reasoning)

14-12. Discuss other ways marketers can track consumers in meat space. (AACSB: Communication; Reflective Thinking)

MyMarketingLab If assigned by your instructor, complete these writing sections from your Assignments in the MyLab.

14-18. Compare and contrast a marketing Web site and a branded community Web site. (AACSB: Communication)

14-19. Review the FTC’s guidelines on disclosure in online, social media, and mobile advertisements at www.ftc.gov/os/2013/03/130312dotcomdisclosures.pdf. Will the FTC’s requirements regarding ads and endorsements make Twitter less effective as an advertising medium?

http://www.ftc.gov/os/2013/03/130312dotcomdisclosures.pdf

15 objectiVe 15-1 Discuss how the international trade system and the economic, political-legal, and cultural environments affect a company’s international marketing decisions. Global Marketing Today (460–462); Looking at the Global Marketing Environment (462–470); Deciding Whether to Go Global (470); Deciding Which Markets to Enter (471–472)

objectiVe 15-2 Describe three key approaches to entering international markets. Deciding How to Enter the Market (472–475)

the global Marketplace

objectiVe 15-3 explain how companies adapt their marketing strategies and mixes for international markets. Deciding on the Global Marketing Program (475–482)

objectiVe 15-4 identify the three major forms of international marketing organization. Deciding on the Global Marketing Organization (483)

Previewing the concepts you’ve now learned the fundamentals of how companies develop competitive marketing strategies to engage customers, create customer value, and build lasting customer relationships. in this chapter, we extend these fundamentals to global marketing. although we’ve discussed global topics in each previous chapter—it’s difficult to find an area of marketing that doesn’t contain at least some international elements—here we’ll focus on special considerations that companies face when they market their brands globally. advances in communication, transportation, and digital technologies have made the world a much smaller place. today, almost every firm, large or small, faces international marketing issues. in this chapter, we will examine six major decisions marketers make in going global.

to start our exploration of global marketing, let’s look at l’oréal, the french cosmetics and beauty care giant. l’oréal and its brands are truly global in scope and appeal. but the company’s outstanding international success comes from achieving a global–local balance, one that adapts and differentiates l’oréal’s well-known brands to meet local needs while also integrating them across world markets to optimize their global impact. you can think of l’oréal as a kind of “United nations of beauty.”

chaPter roaD MaP objective outline

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first stop l’oréal: “The United Nations of Beauty” How does a French company successfully market an American version of a Korean skin-beautifier under a French brand name in Australia? Ask L’Oréal, which sells more than $25 billion worth of cosmetics, hair care products, skin care concoctions, and fragrances each year in 130 countries, making it the world’s biggest cosmetics marketer. L’Oréal sells its brands globally by understanding how they appeal to varied cultural nuances of beauty in specific local markets. Then it finds the best balance between standardizing its brands for global impact and adapt- ing them to meet local needs and desires.

L’Oréal is as global as a company gets. With offices spread across 130 nations and more than half of its sales coming from markets outside Europe and North America, the company no longer has a clearly defined home market. L’Oréal’s well-known brands originated in a half dozen or more different cultures, including French (L’Oréal Paris, Garnier, Lancôme), American (Maybelline, Kiehl’s, SoftSheen-Carson, Ralph Lauren, Urban Decay, Clarisonic, Redken), British (The Body Shop), Italian (Giorgio Armani), and Japanese (Shu Uemura). With these and many other well-known brands, the master global marketer is the uncontested world leader in makeup, skin care, and hair coloring and second only to P&G in hair care.

L’Oréal’s global mastery starts with a corps of highly multicultural managers. The company is famous for building global brand teams around managers who have deep backgrounds in several cultures. L’Oréal managers around the world bring diverse cultural perspectives to their brands as if they were, say, German or American or Chinese— or all three at once. As explained by one Indian-American-French manager of a team that launched a men’s skin care line in Southeast Asia: “I cannot think about things one way. I have a stock of refer- ences in different languages: English, Hindi, and French. I read books in three different languages, meet people from different countries, eat food from different [cultures], and so on.”

For example, a French-Irish-Cambodian skin care manager noticed that, in Europe, face creams tended to be either “tinted” (and considered makeup) or “lifting” (considered skin care). In Asia, how- ever, many face creams combine both traits. Recognizing the grow- ing popularity of Asian beauty trends in Europe, the manager and his team developed a tinted lifting cream for the French market, a product that proved highly successful.

L’Oréal digs deep to understand what beauty means to consum- ers in different parts of the world. It outspends all major competi- tors on R&D, painstakingly researching beauty and personal care behaviors unique to specific locales. L’Oréal has set up R&D centers all over the world, perfecting a local observation approach it calls “geocosmetics.” This science is fueled with insights gained through everything from in-home visits to observations made in “bathroom laboratories” equipped with high-tech gadgetry. L’Oréal’s research produces precise information about regional beauty and hygiene rituals and about local conditions and constraints that affect the use of its products, such as humidity and temperature:

How many minutes does a Chinese woman devote to her morning beauty routine? How do people wash their hair in Bangkok? How many

brush strokes does a Japanese woman or a French woman use to apply mascara? These beauty rituals, repeated thousands of times, are inher- ently cultural. Passed on by tradition, influenced by climate and by local living conditions, they strive to achieve an ideal of perfection that is dif- ferent from one country and from one continent to the next. They provide an incredibly rich source of information for L’Oréal. Behind these ritu- als, there are physiological realities: fine, straight, and short eyelashes cannot be made up the same way as thick, curled, and long lashes.

L’Oréal uses such detailed insights to create products and posi- tioning for brands in local markets. “Beauty is less and less one size fits all,” says a L’Oréal executive in China. “You have to have an answer for very different needs.” For example, more than 260 scientists now work in L’Oréal’s Shanghai research center, tailoring products ranging from lip- stick to herbal cleaners to cucumber toners for Chinese tastes.

At the same time that understanding the minute details of local customer behavior helps L’Oréal be responsive to specific market needs, it also lets the company achieve global scale by integrating brands across world cultures. For example, consider Elséve Total Reparação, a hair care line initially developed at L’Oréal’s labs in Rio de Janeiro to address specific hair problems described by Brazilian women. In Brazil, more than half of all women have long, dry, dull, and very curly hair, resulting from the humid Brazilian climate, exposure to the sun, frequent washing, and smoothing and straightening treatments. Elséve Total Reparação was an immediate hit in Brazil, and L’Oréal quickly rolled it out to other South American and Latin American markets. The company then tracked down other global locales with

cosmetic and beauty care giant l’oréal and

its brands are truly global. but the company’s huge international success comes from a global–local balance that adapts brands

to local markets while optimizing their impact

globally.

global–local balance: cosmetics and beauty care giant l’oréal balances local brand responsiveness and global brand impact, making it “the United nations of beauty.” Marc Piasecki/Stringer/Getty images

460

climate characteristics and hair care rituals similar to those faced by Brazilian women. Subsequently, L’Oréal launched the brand as Elséve Total Repair in numerous European, Indian, and other South East Asian markets, where consumers greeted it with similar enthu- siasm.

Such adaptation often plays out across multiple L’Oréal brands— which takes us back to that Korean skin-beautifier sold under a French brand in Australia mentioned in the opening paragraph. Blemish Balm Cream (BB Cream) was originally created by L’Oréal dermatologists in Korea to soothe skin and hide minor blemishes. It quickly became a high-flying Korean brand. However, applying their deep knowledge of skin colors, treatments, and makeup worldwide, L’Oréal researchers developed a successful new-generation BB Cream adapted to conditions and skin colors in U.S. markets (where BB stands for “beauty balm”) and launched it under the Maybelline New York brand. Still not finished, L’Oréal created yet another local version for Europe under the Garnier brand, which it also introduced in other world markets, including Australia.

L’Oréal doesn’t just adapt its product formulations globally. It also adapts brand positioning and marketing to international needs and

expectations. For example, more than 20 years ago, the company bought stodgy American makeup producer Maybelline. To reinvigorate and globalize the brand, it moved the unit’s headquarters from Tennes- see to New York City and added “New York” to the label. The result- ing urban, street-smart, Big Apple image played well with the midprice positioning of the workaday makeup brand globally. The makeover soon earned Maybelline a 20 percent market share in its category in Western Europe. The young urban positioning also hit the mark in Asia, where few women realized that the trendy “New York” Maybelline brand belonged to French cosmetics giant L’Oréal.

Thus, L’Oréal and its brands are truly global. But the company’s huge international success comes from achieving a global–local balance that adapts and differentiates brands in local markets while optimizing their impact across global markets. L’Oréal is one of few companies that have achieved both local brand responsiveness and global brand integration. “We respect the differences among our consumers around the world,” says L’Oréal’s CEO. “We have global brands, but we need to adapt them to local needs.” When a former CEO once addressed a UNESCO conference, nobody batted an eyelid when he described L’Oréal as “The United Nations of Beauty.”1

n the past, U.S. companies paid little attention to international trade. If they could pick up some extra sales via exports, that was fine. But the big market was at home, and it teemed with opportunities. The home market was also much safer. Managers

did not need to learn other languages, deal with strange and changing currencies, face political and legal uncertainties, or adapt their products to different customer needs and expectations. Today, however, the situation is much different. Organizations of all kinds, from Coca-Cola and Nike to Google, MTV, and even the NBA, have gone global.

global Marketing today The world is shrinking rapidly with the advent of faster digital communication, transporta- tion, and financial flows. Products developed in one country— McDonald’s hamburgers, Netflix video service, Samsung electronics, Zara fashions, Caterpillar construction equip- ment, German BMWs, Facebook social networking—have found enthusiastic acceptance in other countries. It would not be surprising to hear about a German businessman wearing an Italian suit meeting an English friend at a Japanese restaurant who later returns home to drink Russian vodka while watching The Big Bang Theory on TV and checking Facebook posts from friends around the world.

International trade has boomed over the past three decades. Since 1990, the number of multinational corporations in the world has more than doubled to more than 65,000. Some of these multinationals are true giants. In fact, of the largest 150 economies in the world, only 88 are countries. The remaining 62 are multinational corporations. Walmart, the world’s largest company (based on a weighted average of sales, profits, assets, and market value), has annual revenues greater than the gross domestic product (GDP) of all but the world’s 27 largest countries.2 Despite a dip in world trade caused by the recent worldwide recession, the world trade of products and services last year was valued at nearly $19 trillion, about 24 percent of GDP worldwide.3

Many U.S. companies have long been successful at international marketing: Coca- Cola, McDonald’s, Starbucks, Nike, GE, IBM, Apple, Google, Colgate, Caterpillar, Boeing, and dozens of other American firms have made the world their market. In the United States, non-American brands such as Toyota, Samsung, Nestlé, IKEA, Canon, and adidas have become household words. Other products and services that appear to be American

author comment The rapidly changing global environment provides both

opportunities and threats. It’s difficult to find a marketer today that

isn’t affected in some way by global developments.

chapter 15: the global Marketplace 461

are, in fact, produced or owned by foreign companies, such as Ben & Jerry’s ice cream, Budweiser beer, Purina pet foods, 7-Eleven, GE and RCA televisions, Carnation milk, Universal Studios, and Motel 6. Michelin, the oh-so- French tire manufacturer, now does 35 percent of its business in North America and Mexico; J&J, the maker of quintessentially all-American products such as BAND-AIDs and Johnson’s Baby Shampoo, does 53 percent of its busi- ness abroad. America’s own Caterpillar belongs more to the wider world, with 62 percent of its sales coming from outside the United States. And with more than 3,500 products world- wide, American favorite Coca-Cola now sells “moments of happiness” more than 1.9 billion times a day in more than 200 countries.4

But as global trade grows, global com- petition is also intensifying. Foreign firms are expanding aggressively into new inter- national markets, and home markets are no longer as rich in opportunity. Few industries

are currently safe from foreign competition. If companies delay taking steps toward internationalizing, they risk being shut out of growing markets in Western and Eastern Europe, China and the Pacific Rim, Russia, India, Brazil, and elsewhere. Firms that stay at home to play it safe might not only lose their chances to enter other markets but also risk losing their home markets. Domestic companies that never thought about foreign competitors suddenly find these competitors in their own backyards.

Ironically, although the need for companies to go abroad is greater today than in the past, so are the risks. Companies that go global may face highly unstable governments and currencies, restrictive government policies and regulations, and high trade barriers. The recently dampened global economic environment has also created big global challenges. In addition, corruption is an increasing problem; officials in several countries often award business not to the best bidder but to the highest briber.

A global firm is one that, by operating in more than one country, gains marketing, production, research and development (R&D), and financial advantages that are not avail- able to purely domestic competitors. Because the global company sees the world as one market, it minimizes the importance of national boundaries and develops global brands. The global company raises capital, obtains materials and components, and manufactures and markets its goods wherever it can do the best job.

For example, U.S.-based Otis Elevator, the world’s largest elevator maker, is headquar- tered in Farmington, Connecticut. However, it offers products in more than 200 countries and achieves 83 percent of its sales from outside the United States. It gets elevator door systems from France, small geared parts from Spain, electronics from Germany, and special motor drives from Japan. It operates manufacturing facilities in the Americas, Europe, and Asia and engineering and test centers in the United States, Austria, Brazil, China, Czech Republic, France, Germany, India, Italy, Japan, Korea, and Spain. In turn, Otis Elevator is a wholly owned subsidiary of global commercial and aerospace giant United Technologies Corporation.5 Many of today’s global corporations—both large and small—have become truly borderless.

This does not mean, however, that every firm must operate in dozens of countries to succeed. Smaller firms can practice global niching. But the world is becoming smaller, and every company operating in a global industry—whether large or small—must assess and establish its place in world markets.

The rapid move toward globalization means that all companies will have to answer some basic questions: What market position should we try to establish in our country, in

global firm A firm that, by operating in more than one country, gains R&D, production, marketing, and financial advantages in its costs and reputation that are not available to purely domestic competitors.

Many american companies have now made the world their market. nearly 60 percent of apple’s sales come from outside the americas. Prakash Singh/AFP/Getty Images

462 Part 4: extending Marketing

our economic region, and globally? Who will our global competitors be, and what are their strategies and resources? Where should we produce or source our products? What strategic alliances should we form with other firms around the world?

As shown in figure 15.1, a company faces six major decisions in international mar- keting. We discuss each decision in detail in this chapter.

looking at the global Marketing environment Before deciding whether to operate internationally, a company must understand the inter- national marketing environment. That environment has changed a great deal in recent decades, creating both new opportunities and new problems.

the international trade system U.S. companies looking abroad must start by understanding the international trade system. When selling to another country, a firm may face restrictions on trade between nations. Governments may charge tariffs or duties, taxes on certain imported products designed to raise revenue or protect domestic firms. Tariffs and duties are often used to force favorable trade behaviors from other nations.

For example, the European Union (EU) recently placed import duties on Chinese solar panels after determining that Chinese companies were selling the panels in EU coun- tries at under-market prices. To retaliate, the very next day, the Chinese government placed duties on EU wine exports to China. The duties targeted the wines of Spain, France, and Italy but spared Germany, which had taken China’s side in the solar panel dispute. The disputes were resolved when Chinese solar panel producers agreed to a minimum price in Europe and Europe agreed to help China develop its own wine industry in return for pro-

moting European wines there.6

Countries may set quotas, limits on the amount of foreign imports that they will accept in certain prod- uct categories. The purpose of a quota is to conserve on foreign exchange and protect local industry and employment. Firms may also encounter exchange con- trols, which limit the amount of foreign exchange and the exchange rate against other currencies.

A company also may face nontariff trade barri- ers, such as biases against its bids, restrictive prod- uct standards, or excessive host-country regulations or enforcement. For example, Walmart recently sus- pended its once-ambitious plans to expand into India’s huge but fragmented retail market by opening hundreds of Walmart superstores there. Beyond difficult market conditions, such as spotty electricity and poor roads, India is notorious for throwing up nontariff obstacles to protect the nation’s own predominately mom-and-pop retailers, which control 96 percent of India’s $500 bil- lion in retail sales. One such obstacle is a government regulation requiring foreign retailers in India to buy 30 percent of the merchandise they sell from local small

author comment As if operating within a

company’s own borders wasn’t difficult enough, going global adds many layers of complexities. For

example, Coca-Cola markets its products in hundreds of countries around the globe. It must understand the varying

trade, economic, cultural, and political environments in

each market.

Looking at the global marketing

environment

Deciding on the global marketing

organization

Deciding on the global marketing program

Deciding how to enter the market

Deciding which

markets to enter

Deciding whether to go global

It’s a big and beautiful but threatening world out there for marketers! Most large American firms have made the world their market. For example, once all-American McDonald’s now captures 66 percent of its sales from outside the United States.

figure 15.1 Major international Marketing Decisions

nontariff trade barriers: because of nontariff obstacles, Walmart recently suspended its once-ambitious plans to expand into india’s huge but fragmented retail market. Prakash Singh/Bloomberg/Getty Images

chapter 15: the global Marketplace 463

businesses. Such a requirement is nearly impossible for Walmart because small suppliers can’t produce the quantities of goods needed by the giant retailer. Further, India’s few large domestic retailers are not bound by the same rule, making it difficult for Walmart to com- pete profitably. Walmart is now looking for a domestic partner that can help it crack the mammoth Indian market.7

At the same time, certain other forces can help trade between nations. Examples include the World Trade Organization (WTO) and various regional free trade agreements.

the World trade organization The General Agreement on Tariffs and Trade (GATT), established in 1947 and modified in 1994, was designed to promote world trade by reducing tariffs and other international trade barriers.

It established the World Trade Organization (WTO), which replaced GATT in 1995 and now oversees the original GATT pro-

visions. WTO and GATT member nations (currently numbering 161) have met in eight rounds of negotiations to reassess trade barriers and establish new rules for interna- tional trade. The WTO also imposes international trade sanctions and mediates global trade disputes. Its actions have been productive. The first seven rounds of negotiations reduced the average worldwide tariffs on manufactured goods from 45 percent to just 5 percent.8

The most recently completed negotiations, dubbed the Uruguay Round, dragged on for seven long years before concluding in 1994. The benefits of the Uruguay Round will be felt for many years, as the accord promoted long-term global trade growth, reduced the world’s remaining merchandise tariffs by 30 percent, extended the WTO to cover trade in agriculture and a wide range of services, and toughened the international protection of copyrights, patents, trademarks, and other intellectual property. A new round of global WTO trade talks, the Doha Round, began in Doha, Qatar, in late 2001 and was set to con- clude in 2005; however, the discussions still continued through 2015.9

regional free trade Zones Certain countries have formed free trade zones or economic communities. These are groups of nations organized to work toward common goals in the regulation of interna- tional trade. One such community is the European Union (EU). Formed in 1957, the EU set out to create a single European market by reducing barriers to the free flow of products,

services, finances, and labor among member countries and developing policies on trade with nonmember nations. Today, the EU represents one of the world’s largest single markets. Currently, it has 28 member countries containing more than half a billion consum- ers and accounting for almost 16 percent of the world’s imports and exports.10 The EU offers tremendous trade opportunities for U.S. and other non-European firms.

Over the past decade and a half, 19 EU member nations have adopted the euro as a common currency. Widespread adoption of the euro has decreased much of the currency risk associated with doing business in Europe, making member countries with previously weak currencies more attractive markets. However, the adoption of a common currency has also caused prob- lems, as European economic powers such as Germany and France have had to step in recently to prop up weaker economies such as those of Greece, Portugal, and Cyprus. This recent ongoing “euro crisis” has led some analysts to predict the possible breakup of the euro zone as it is now set up.11

economic community A group of nations organized to work toward common goals in the regulation of international trade.

the Wto promotes trade by reducing tariffs and other international trade barriers. it also imposes international trade sanctions and mediates global trade disputes. (left) Stockbyte/Getty Images; (right) Donald Stampfli/AP Images

economic communities: the european Union represents one of the world’s single largest markets. its current member countries contain more than half a billion consumers and account for 20 percent of the world’s exports. Europian Union, 2015

464 Part 4: extending Marketing

It is unlikely that the EU will ever go against 2,000 years of tradition and become the “United States of Europe.” A community with more than two dozen different languages and cultures will always have difficulty coming together and acting as a single entity. Still, with a combined annual GDP of more than $18 trillion, the EU has become a potent eco- nomic force.12

In 1994, the North American Free Trade Agreement (NAFTA) established a free trade zone among the United States, Mexico, and Canada. The agreement created a single market of 474 million people who produce and consume $20.5 trillion worth of goods and services annually. Over the past 20 years, NAFTA has eliminated trade barriers and investment restrictions among the three countries. Total trade among the NAFTA countries nearly tripled from $288 billion in 1993 to more than $1.1 trillion a year.13

Following the apparent success of NAFTA, in 2005 the Central American Free Trade Agreement (CAFTA-DR) established a free trade zone between the United States and Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua. Other free trade areas have formed in Latin America and South America. For example, the Union of South American Nations (UNASUR), modeled after the EU, was formed in 2004 and formalized by a constitutional treaty in 2008. Consisting of 12 countries, UNASUR makes up the largest trading bloc after NAFTA and the EU, with a population of more than 387 million and a combined economy of more than $4.1 trillion. Similar to NAFTA and the EU, UNASUR aims to eliminate all tariffs between nations by 2019.14

Each nation has unique features that must be understood. A nation’s readiness for dif- ferent products and services and its attractiveness as a market to foreign firms depend on its economic, political-legal, and cultural environments.

economic environment The international marketer must study each country’s economy. Two economic factors reflect the country’s attractiveness as a market: its industrial structure and its income distribution.

The country’s industrial structure shapes its product and service needs, income levels, and employment levels. The four types of industrial structures are as follows:

●● Subsistence economies. In a subsistence economy, the vast majority of people en- gage in simple agriculture. They consume most of their output and barter the rest for simple goods and services. These economies offer few market opportunities. Many African countries fall into this category.

●● Raw material exporting economies. These economies are rich in one or more nat- ural resources but poor in other ways. Much of their revenue comes from exporting these resources. Some examples are Chile (tin and copper) and the Democratic Republic of the Congo (copper, cobalt, and coffee). These countries are good mar- kets for large equipment, tools and supplies, and trucks. If there are many foreign residents and a wealthy upper class, they are also a market for luxury goods.

●● Emerging economies (industrializing economies). In an emerging economy, fast growth in manufacturing results in rapid overall economic growth. Examples include the BRIC countries—Brazil, Russia, India, and China. As manufactur- ing increases, the country needs more imports of raw textile materials, steel, and heavy machinery and fewer imports of finished textiles, paper products, and auto- mobiles. Industrialization typically creates a new rich class and a growing middle class, both demanding new types of imported goods. As more developed markets stagnate and become increasingly competitive, many marketers are now targeting growth opportunities in emerging markets.

●● Industrial economies. Industrial economies are major exporters of manufactured goods, services, and investment funds. They trade goods among themselves and also export them to other types of economies for raw materials and semifinished goods. The varied manufacturing activities of these industrial nations and their large middle class make them rich markets for all sorts of goods. Examples include the United States, Japan, and Norway.

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The second economic factor is the country’s income distribution. Industrialized nations may have low-, medium-, and high-income households. In contrast, countries with subsistence economies consist mostly of households with very low family incomes. Still other countries may have households with either very low or very high incomes. Even poor or emerging economies may be attractive markets for all kinds of goods. In recent years, as the weak- ened global economy has slowed growth in both domestic and emerging markets, many companies are shifting their sights to include a new target—the so-called “bottom of the economic pyramid,” the vast untapped market consisting of the world’s poorest consumers (see Marketing at Work 15.1).

These days, companies in a wide range of industries—from cars to computers to soft drinks—are increasingly targeting middle-income or low-income consumers in emerging economies. For example, as soft drink sales growth has lost its fizz in North America and Europe, Coca-Cola has had to look elsewhere to meet its ambitious growth goals. So the company has set its sights on Africa, with its promising though challenging long-term growth opportunities. Many Western companies view Africa as an untamed final frontier, plagued by poverty, political instability, unreliable transportation, and shortages of fresh water and other essential resources. But Coca-Cola sees plenty of opportunity to justify the risks. The African continent has a growing population of more than 1.1 billion people, a just-emerging middle class, and $2.4 trillion of GDP and spending power. Six of the world’s 10 fastest-growing markets are in Africa: 15

Coca-Cola has operated in Africa since 1929 and holds a dominant 29 percent market share in Africa and the Middle East, compared with Pepsi’s 15 percent share. However, there’s still plenty of room for Coca-Cola to grow there. For example, annual per capita consump-

tion of Coke and other soft drinks is about 13 times less in Africa than in North America. Still, marketing in Africa is very different from marketing in more developed regions. Beyond just marketing through traditional channels in larger African cities, Coca-Cola is now invading smaller communi- ties with more grassroots tactics.

Small stores play a big role in helping Coca-Cola to grow in Africa. In countless poor neighborhoods across the continent, crowded streets are lined with shops painted Coke red, selling low-priced Coca-Cola products by the bottle out of Coke-provided, refrigerated coolers. Such shops are sup- plied by a rudimentary but effective network of Coca-Cola distributors, whose crews often deliver crates of Coke prod- ucts by hand-pulled trolleys or even a crate at a time carried on their heads. Because of the poor roads crowded with traf- fic, moving drinks by hand is often the best method. The com- pany’s first rule is to get its products “cold and close.” “If they don’t have roads to move products long distances on trucks, we will use boats, canoes, or trolleys,” says the president of Coca-Cola South Africa. For example, in Nigeria’s Makako district—a maze of stilt houses on the Lagos lagoon—women crisscross the waterways in canoes selling Coca-Cola directly to residents.

Political-legal environment Nations differ greatly in their political-legal environments. In considering whether to do business in a given country, a company should consider factors such as the country’s attitudes toward international buying, government bureaucracy, political stability, and monetary regulations.

Some nations are very receptive to foreign firms; others are less accommodating. For example, India has tended to bother foreign businesses with import quotas, currency restric- tions, and other limitations that make operating there a challenge. In contrast, neighboring Asian countries, such as Singapore and Thailand, court foreign investors and shower them with incentives and favorable operating conditions. Political and regulatory stability is another

With sales stagnating in its mature markets, coca-cola is looking to emerging markets—such as africa—to meet its ambitious growth goals. its african distribution network is rudimentary but effective. Marco Di Lauro/Getty Images

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Many companies are now waking up to a shocking statistic. Of the roughly 7 billion people on this planet, 4 billion of them (that’s 57 percent) live in poverty. Known as the “bot- tom of the pyramid,” the world’s poor might not seem like a promising market. However, despite their paltry incomes, as a group, these consumers represent an eye-popping $5 tril- lion in annual purchasing power. Moreover, this vast segment is largely untapped. The world’s poor often have little or no access to even the most basic products and services taken for granted by more affluent consumers. As the weakened global economy has flattened domestic markets and slowed the growth of emerging middle-class markets, companies are increasingly looking to the bottom of the pyramid for fresh growth opportunities.

But how can a company sell profitably to consumers with incomes below the poverty level? For starters, the price has got to be right. And in this case, says one analyst, “right” means “lower than you can imagine.” With this in mind, many com- panies have made their products more affordable simply by offering smaller package sizes or lower-tech versions of current products. For example, in Nigeria, P&G sells a Gillette razor for 23 cents, a 1-ounce package of Ariel detergent for about 10 cents, and a 10-count pack of one-diaper-a-night Pampers for $2.30. Although there isn’t much margin on products selling for pennies apiece, P&G is succeeding through massive volume.

Consider Pampers: Nigeria alone produces some 6 million newborns each year, almost 50 percent more than the United States, a country with twice the population. Nigeria’s astounding birthrate cre- ates a huge, untapped market for Pampers dia- pers, P&G’s top-selling brand. However, the typical Nigerian mother spends only about 5,000 naira a month, about $30, on all household purchases. P&G’s task is to make Pampers affordable to this mother and to convince her that Pampers are worth some of her scarce spending. To keep costs and prices low in markets like Nigeria, P&G invented an absorbent diaper with fewer features. Although much less expensive, the diaper still functions at a high level. When creating such affordable new prod- ucts, says an R&D manager at P&G, “Delight, don’t dilute.” That is, the diaper needs to be priced low, but it also has to do what other cheap diapers don’t— keep a baby comfortable and dry for 12 hours.

Even with the right diaper at the right price, selling Pampers in Nigeria presents a challenge. In the West, babies typically go through numer- ous disposable diapers a day. In Nigeria, however, most babies are in cloth diapers. To make Pampers more acceptable and even more affordable for

Nigerians, P&G markets the diapers as a one-a-day item. According to company ads, “One Pampers equals one dry night.” The campaign tells mothers that keeping babies dry at night helps them to get a good night’s sleep, which in turn helps them to grow and achieve. The message taps into a deep sentiment among Nigerians, unearthed by P&G researchers, that their children will have a better life than they do. Thus, thanks to affordable pricing, a product that meets customers’ needs, and relevant positioning, Pampers sales are booming. In Nigeria, the name Pampers is now synonymous with diapers.

As P&G has learned, in most cases, selling profitably to the bottom of the pyramid takes much more than just developing single-use packets and pennies-apiece pricing. It requires broad- based innovation that produces not just lower prices but also new products that give people in poverty more for their money, not less. As another example, consider how Indian appliance company Godrej & Boyce used customer-driven innovation to successfully tap the market for low-priced refrigerators in India:

Because of their high cost to both buy and operate, traditional compressor-driven refrigerators had penetrated only 18 percent of the Indian market. But rather than just produce a cheaper, stripped- down version of its higher-end refrigerators, Godrej assigned a team to study the needs of Indian consumers with poor or no refrig- eration. The semi-urban and rural people the team observed typi- cally earned 5,000 to 8,000 rupees (about $125 to $200) a month,

Marketing at Work 15.1

international Marketing: targeting the bottom of the economic Pyramid

selling to the world’s poor: at only $69, godrej’s chotukool (“little cool”) does a better job of meeting the needs of low-end indian consumers at half the price of even the most basic conventional refrigerator. Courtesy of Godrej & Boyce Mfg. Co. Ltd.

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issue. For example, Russia is consumed by corruption and governmental red tape, which the government finds difficult to control. The country’s recent geopolitical conflicts with Europe, the United States, and other countries have made doing business in Russia difficult and risky.16

Companies must also consider a country’s monetary regulations. Sellers want to take their profits in a currency of value to them. Ideally, the buyer can pay in the seller’s cur- rency or in other world currencies. Short of this, sellers might accept a blocked currency— one whose removal from the country is restricted by the buyer’s government—if they can buy other goods in that country that they need or can sell elsewhere for a needed currency. In addition to currency limits, a changing exchange rate also creates high risks for the seller.

Most international trade involves cash transactions. Yet many nations have too little hard currency to pay for their purchases from other countries. They may want to pay with other items instead of cash. Barter involves the direct exchange of goods or services. For example, Venezuela regularly barters oil, which it produces in surplus quantities, for food on the international market—rice from Guyana; coffee from El Salvador; sugar, coffee, meat, and more from Nicaragua; and beans and pasta from the Dominican Republic. Venezuela has even struck a deal to supply oil to Cuba in exchange for Cuban doctors and medical care for Venezuelans.17

cultural environment Each country has its own folkways, norms, and taboos. When designing global marketing strategies, companies must understand how culture affects consumer reactions in each of its world markets. In turn, they must also understand how their strategies affect local cultures.

the impact of culture on Marketing strategy Sellers must understand the ways that consumers in different countries think about and use certain products before planning a marketing program. There are often surprises. For example, the average French man uses almost twice as many cosmetics and groom- ing aids as his wife. The Germans and the French eat more packaged, branded spaghetti than Italians do. Some 49 percent of Chinese eat on the way to work. Most American women let down their hair and take off makeup at bedtime, whereas 15 percent of Chinese women style their hair at bedtime and 11 percent put on makeup.18

lived in single-room dwellings with four or five family members, and changed residences frequently. Unable to afford conventional refrigerators, these consumers were making do with communal, usu- ally second-hand ones. But even the shared fridges usually contained only a few items. Their users tended to shop daily and buy only small quantities of vegetables and milk. Moreover, electricity was unreli- able, putting even the little food they wanted to keep cool at risk.

Godrej concluded that the low-end segment had little need for a conventional high-end refrigerator; it needed a fundamentally new product. So Godrej invented the ChotuKool (“little cool”), a candy red, top-opening, highly portable, dorm-size unit that has room for the few items users want to keep fresh for a day or two. Rather than a compressor and refrigerant, the miserly little unit uses a chip that cools when current is applied, and its top-opening design keeps cold air inside when the lid is opened. In all, the ChotuKool uses less than half the energy of a conventional refrigerator and can run on a battery during the power outages common in rural vil- lages. The best part: At only $69, “little cool” does a better job of meeting the needs of low-end consumers at half the price of even the most basic traditional refrigerator.

Thus, the bottom of the pyramid offers huge untapped opportunities to companies that can develop the right products at the right prices. And companies such as P&G are moving

aggressively to capture these opportunities. P&G has set lofty goals for acquiring new customers, moving the company’s emphasis from the developed West, where it currently gets most of its revenue, to the developing economies of Asia and Africa.

But successfully tapping these new developing markets will require more than just shipping out cheaper versions of exist- ing products. “Our innovation strategy is not just diluting the top-tier product for the lower-end consumer,” says P&G’s CEO. “You have to discretely innovate for every one of those consum- ers on that economic curve, and if you don’t do that, you’ll fail.”

Sources: See Erik Simanis and Duncan Duke, “Profits at the Bottom of the Pyramid, Harvard Business Review, October 2014, pp. 87–93; Matthew J. Eyring, Mark W. Johnson, and Hari Nair, “New Business Models in Emerging Markets,” Harvard Business Review, January–February 2011, pp. 89–95; Mya Frazier, “How P&G Brought the Diaper Revolution to China,” CBS News, January 7, 2010, www.cbsnews.com/8301-505125_162-51379838/; David Holthaus, “Health Talk First, Then a Sales Pitch,” April 17, 2011, Cincinnati .com, http://news.cincinnati.com/article/20110417/BIZ01/104170344/; Lisa Jones Christensen, Enno Siemsen, and Sridhar Balasubramanian, “Consumer Behavior Change at the Base of the Pyramid: Bridging the Gap between For-Profit and Social Responsibility Strategies,” Strategic Management Journal, February 2015, pp. 307–317; and “The State of Consumption Today,” Worldwatch Institute, www .worldwatch.org/node/810, accessed September 2015.

http://www.cbsnews.com/8301-505125_162-51379838/

http://news.cincinnati.com/article/20110417/BIZ01/104170344/

www.worldwatch.org/node/810

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Companies that ignore cultural norms and differences can make some very expensive and embarrassing mistakes. Here are two examples:

Nike inadvertently offended Chinese officials when it ran an ad featuring LeBron James crushing a number of culturally revered Chinese figures in a kung fu–themed television ad. The Chinese government found that the ad violated regulations to uphold national dignity and respect the “motherland’s culture” and yanked the multimillion-dollar campaign. With egg on its face, Nike released a formal apology. Burger King made a similar mistake when it created in-store ads in Spain showing Hindu goddess Lakshmi atop a ham sandwich with the caption “a snack that is sacred.” Cultural and religious groups worldwide objected strenuously—Hindus are vegetarian. Burger King apologized and pulled the ads.19

Business norms and behaviors also vary from country to country. For example, American executives like to get right down to business and engage in fast and tough face- to-face bargaining. However, Japanese and other Asian businesspeople often find this behavior offensive. They prefer to start with polite conversation, and they rarely say no in face-to-face conversations. As another example, firm handshakes are a common and

expected greeting in most Western countries; in some Middle Eastern countries, however, handshakes might be refused if offered. Microsoft founder Bill Gates once set off a flurry of international controversy when he shook the hand of South Korea’s president with his right hand while keeping his left hand in his pocket, something that Koreans consider highly disrespectful. In some coun- tries, when being entertained at a meal, not finishing all the food implies that it was somehow substandard. In other countries, in contrast, wolfing down every last bite might be taken as a mild insult, suggesting that the host didn’t sup- ply enough quantity.20 American business executives need to understand these kinds of cultural nuances before conducting business in another country.

By the same token, companies that understand cultural nuances can use them to their advantage in the global markets. For example, furniture retailer IKEA’s stores are a big draw for up-and-coming Chinese consumers. But IKEA has learned that customers in China want a lot more from its stores than just affordable Scandinavian-designed furniture:21

In Chinese, IKEA is known as Yi Jia. Translated, it means “comfortable home,” a concept taken literally by the millions of consumers who visit one of IKEA’s 18 huge Chinese stores each year. “Customers come on family outings, hop into display beds and nap, pose for snapshots with the décor, and hang out for hours to enjoy the air conditioning and free soda refills,” notes one observer. On a typical Saturday after- noon, for example, display beds and other furniture in a huge Chinese IKEA store are occupied with customers of all ages lounging or even fast asleep. One Chinese IKEA has even hosted several weddings. IKEA managers encourage such behavior, figuring that familiarity with the store will result in later purchasing when shoppers’ incomes eventually rise to match their aspirations. “Maybe if you’ve been visiting IKEA, eating meatballs, hot dogs, or ice cream for 10 years, then maybe you will consider IKEA when you get yourself a sofa,” says the company’s Asia-Pacific president. Thanks to such cultural understandings coupled with competitively low prices, China was IKEA’s fastest-growing market last year. What do Chinese consumers think of Swedish meatballs? “They love them,” says IKEA China’s marketing director.

Thus, understanding cultural traditions, preferences, and behaviors can help companies not only avoid embarrassing mistakes but also take advantage of cross-cultural opportunities.

the impact of Marketing strategy on cultures Whereas marketers worry about the impact of global cultures on their marketing strate- gies, others may worry about the impact of marketing strategies on global cultures. For example, social critics contend that large American multinationals, such as McDonald’s, Coca-Cola, Starbucks, Nike, Google, Disney, and Facebook, aren’t just globalizing their brands; they are Americanizing the world’s cultures. Other elements of American culture have become pervasive worldwide. For instance, more people now study English in China

the impact of culture on marketing strategy: ikea customers in china want a lot more from its stores than just affordable scandinavian-designed furniture. ZUMA Press, Inc./Alamy

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than speak it in the United States. If you assemble businesspeople from Brazil, Germany, and China, they’ll likely transact in English. And the thing that binds the world’s teens together in a kind of global community, notes one observer, “is American culture—the music, the Hollywood fare, the electronic games, Google, Facebook, American consumer brands. The . . . rest of the world is becoming [evermore] like us—in ways good and bad.”22

“Today, globalization often wears Mickey Mouse ears, eats Big Macs, drinks Coke or Pepsi, and does its computing with Windows,” says Thomas Friedman in his book The Lexus and the Olive Tree: Understanding Globalization. “Some Chinese kids’ first English word [is] Mickey,” notes another writer.23

Critics worry that, under such “McDomination,” countries around the globe are losing their individual cultural identities. Teens in Turkey watch MTV, connect with others globally through Facebook and Twitter, and ask their parents for more Westernized clothes and other symbols of American pop culture and values. Grandmothers in small European villas no lon- ger spend each morning visiting local meat, bread, and produce markets to gather the ingre- dients for dinner. Instead, they now shop at Walmart. Women in Saudi Arabia see American films, question their societal roles, and shop at any of the country’s growing number of Victoria’s Secret boutiques. In China, most people never drank coffee before Starbucks entered the market. Now Chinese consumers rush to Starbucks stores because it symbolizes a new kind of lifestyle. Similarly, in China, where McDonald’s operates more than 80 res- taurants in Beijing alone, nearly half of all children identify the chain as a domestic brand.

Such concerns have sometimes led to a backlash against American globalization. Well- known U.S. brands have become the targets of boycotts and protests in some international markets. As symbols of American capitalism, companies such as Coca-Cola, McDonald’s, Nike, and KFC have been singled out by protestors and governments in hot spots around the world, especially when anti-American sentiment peaks. For example, following Russia’s annexation of Crimea and the resulting sanctions by the West, Russian authorities

initiated a crackdown on McDonald’s franchises (even though most were Russian-owned), forcing some to close for uncertain reasons. The three McDonald’s in Crimea were shuttered, with at least one becoming a nationalist chain outlet called Rusburger, serving “Czar Cheeseburgers” where Quarter Pounders once flowed.24

Despite such problems, defenders of globalization argue that concerns of Americanization and the potential damage to American brands are overblown. U.S. brands are doing very well internation- ally. In the most recent Millward Brown BrandZ brand value survey of global consumer brands, 19 of the top 25 global brands were American owned, including megabrands such as Google, Apple, IBM, Microsoft, McDonald’s, Coca-Cola, GE, Amazon.com, and Walmart.25

Many iconic American brands are soaring globally. For example, most international markets covet American fast food. Consider KFC in Japan. On the day that KFC introduced its outrageous Double Down sandwich—bacon, melted cheese, and a “secret sauce” between two deep-fried chicken patties—in one of its restaurants in Japan, fans formed long lines and slept on the sidewalks outside to get a taste. “It was like the iPhone,” says the CMO of KFC International, “people [were] crazy.” The U.S. limited-time item has since become a runaway success worldwide, from Canada to Australia, the Philippines, and Malaysia. More broadly, KFC has become its own cultural institu- tion in Japan. For instance, the brand has long been one of Japan’s leading Christmas dining traditions, with the iconic Colonel Sanders standing in as a kind of Japanese Father Christmas:26

Japan’s KFC Christmas tradition began more than 40 years ago when the company unleashed a “Kentucky for Christmas” advertising campaign in Japan to help the brand get off the ground. Now, eating Kentucky Fried Chicken has become one of the country’s most popular

american brands in other cultures: kfc has become one of japan’s leading christmas dining traditions, with the iconic colonel sanders standing in as a kind of japanese father christmas. Anthea Freshwater

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holiday traditions. Each KFC store displays a life-size Colonel Sanders statue, adorned in a traditional fur-trimmed red suit and Santa hat. A month in advance, Japanese customers order their special Christmas meal—a special bucket of fried chicken with wine and cake for about US $40. Those who don’t preorder risk standing in lines that snake around the block or having to go without KFC’s coveted blend of 11 herbs and spices altogether. Christmas Eve is KFC’s most successful sales day of the year in Japan, and December monthly sales run as much as 10 times greater than sales in other months.

More fundamentally, the cultural exchange goes both ways: America gets as well as gives cultural influence. True, Hollywood dominates the global movie market, but British TV originated the programming that was Americanized into such hits as House of Cards and Dancing with the Stars. Although Chinese and Russian youth are donning NBA superstar jerseys, the increasing popularity of soccer in America has deep interna- tional roots.

Even American childhood has been increasingly influenced by European and Asian cultural imports. Most kids know all about imports such as Hello Kitty, the Bakugan Battle Brawler, or any of a host of Nintendo or Sega game characters. And J. K. Rowling’s so-very-British Harry Potter books shaped the thinking of a genera- tion of American youngsters, not to mention the millions of American oldsters who fell under their spell as well. For the moment, English remains the dominant language of the Internet, and having Web and mobile access often means that third-world youth have greater exposure to American popular culture. Yet these same technologies let Eastern European students studying in the United States hear Webcast news and music from Poland, Romania, or Belarus.

Thus, globalization is a two-way street. If globalization has Mickey Mouse ears, it is also talking on a Samsung smartphone, buying furniture at IKEA, driving a Toyota Camry, and watching a British-inspired show on a Panasonic LED TV.

Deciding Whether to go global Not all companies need to venture into international markets to survive. For example, most local businesses need to market well only in their local marketplaces. Operating domesti- cally is easier and safer. Managers don’t need to learn another country’s language and laws. They don’t have to deal with unstable currencies, face political and legal uncertain- ties, or redesign their products to suit different customer expectations. However, compa- nies that operate in global industries, where their strategic positions in specific markets are affected strongly by their overall global positions, must compete on a regional or world- wide basis to succeed.

Any of several factors might draw a company into the international arena. For example, global competitors might attack the company’s home market by offering bet- ter products or lower prices. The company might want to counterattack these competi- tors in their home markets to tie up their resources. The company’s customers might be expanding abroad and require international servicing. Or, most likely, international markets might simply provide better opportunities for growth. For example, as note previously, Coca-Cola has emphasized international growth in recent years to offset stagnant or declining U.S. soft drink sales. Today, non-U.S. sales account for 57 percent of Coca-Cola’s total revenues and 83 percent of its net income, and the company is mak- ing major pushes into 90 emerging markets, such as China, India, and the entire African continent.27

Before going abroad, the company must weigh several risks and answer many ques- tions about its ability to operate globally. Can the company learn to understand the pref- erences and buyer behavior of consumers in other countries? Can it offer competitively attractive products? Will it be able to adapt to other countries’ business cultures and deal effectively with foreign nationals? Do the company’s managers have the necessary inter- national experience? Has management considered the impact of regulations and the politi- cal environments of other countries?

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Deciding Which Markets to enter Before going abroad, the company should try to define its international marketing objec- tives and policies. It should decide what volume of foreign sales it wants. Most companies start small when they go abroad. Some plan to stay small, seeing international sales as a small part of their business. Other companies have bigger plans, however, seeing interna- tional business as equal to—or even more important than—their domestic business.

The company also needs to choose in how many countries it wants to market. Companies must be careful not to spread themselves too thin or expand beyond their capabilities by oper- ating in too many countries too soon. Next, the company needs to decide on the types of coun- tries to enter. A country’s attractiveness depends on the product, geographical factors, income and population, political climate, and other considerations. In recent years, many major new markets have emerged, offering both substantial opportunities and daunting challenges.

After listing possible international markets, the company must carefully evaluate each one. It must consider many factors. For example, Netflix’s decision to expand into European markets such as Germany, France, Austria, and Switzerland seems like a no-brainer. Netflix needs to grow its subscriber base to cover rapidly rising content costs, and Europe offers huge opportunities. Western Europe boasts 134 million broadband homes, compared with 94 million in the United States. The as-yet-largely-untapped European video-services market is expected to grow by 67 per- cent to more than $1.1 billion by 2017. Netflix has already entered the UK and the Nordic nations and is the leading video service in Sweden after only two years.28

However, as Netflix considers expanding into new European markets, it must ask some important ques- tions. Can it compete effectively on a country-by- country basis with local competitors? Can it master the varied cultural and buying differences of European consumers? Will it be able to meet environmental and regulatory hurdles in each country? For example,

Netflix’s expansion has been slow and difficult in Latin America, where e-commerce is less established.

In entering new European markets, Netflix will face many challenges. For example, Europe is now crowded with formidable competitors. More than a dozen local Netflix-like rivals have sprung up there during the past few years—services such as Snap in Germany, Infinity in Italy, and CanalPlay in France have been busy locking in subscribers and content rights. And Amazon.com’s Prime Instant Video is already the leading streaming service in Germany.

Content is another major consideration. Although Netflix is building its own portfolio of international content rights, European competitors already own exclusive in-country rights to many popular U.S. and non-U.S. shows. Netflix may also encounter local regula- tory obstacles. Regulations in France, for instance, restrict services like Netflix from airing films until three years after they open nationally in theaters, and video services there are usu- ally required to invest in film production in the country. Despite these challenges, however, Netflix CEO Reed Hastings seems unfazed. “We can still build a very successful business [in these new markets],” he says. Wherever Netflix goes, “I think the key is having unique content, a great reputation, and a good value proposition,” things at which Netflix excels.

Possible global markets should be ranked on several factors, including market size, mar- ket growth, the cost of doing business, competitive advantage, and risk level. The goal is to determine the potential of each market, using indicators such as those shown in table 15.1. Then the marketer must decide which markets offer the greatest long-run return on investment.

entering new global markets: netflix’s decision to expand into new european markets seems like a no-brainer. but despite its huge market potential, europe presents netflix with some formidable challenges. PSL Images/Alamy (logo)/Abstract images/Alamy (map)

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Deciding how to enter the Market Once a company has decided to sell in a foreign country, it must determine the best mode of entry. Its choices are exporting, joint venturing, and direct investment. figure 15.2 shows the three market entry strategies along with the options each one offers. As the figure shows, each succeeding strategy involves more commitment and risk but also more control and potential profits.

exporting The simplest way to enter a foreign market is through exporting. The company may passively export its surpluses from time to time, or it may make an active commit- ment to expand exports to a particular market. In either case, the company produces all its goods in its home country. It may or may not modify them for the export market. Exporting involves the least change in the company’s product lines, organization, invest- ments, or mission.

author comment A company has many options for entering an international

market, from simply exporting its products to working jointly with foreign

companies to setting up its own foreign-based operations.

exporting Entering foreign markets by selling goods produced in the company’s home country, often with little modification.

Direct investment

Amount of commitment, risk, control, and profit potential

Joint venturingExporting

Exporting is the simplest way to enter a foreign market, but it usually offers less control and profit potential.

Direct investment—owning your own foreign-based operation—affords greater control and profit potential, but it’s often riskier.

Assembly facilities

Manufacturing facilities

Licensing

Contract manufacturing

Management contracting

Joint ownership

Indirect

Direct

figure 15.2 Market entry strategies

table 15.1 indicators of Market Potential

Demographic characteristics sociocultural factors

education Population size and growth Population age composition

consumer lifestyles, beliefs, and values business norms and approaches cultural and social norms languages

geographic characteristics Political and legal factors

climate country size Population density—urban, rural transportation structure and market accessibility

national priorities Political stability government attitudes toward global trade government bureaucracy Monetary and trade regulations

economic factors

gDP size and growth income distribution industrial infrastructure natural resources financial and human resources

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Companies typically start with indirect exporting, working through independent inter- national marketing intermediaries. Indirect exporting involves less investment because the firm does not require an overseas marketing organization or network. It also involves less risk. International marketing intermediaries bring know-how and services to the relation- ship, so the seller normally makes fewer mistakes. Sellers may eventually move into direct exporting, whereby they handle their own exports. The investment and risk are somewhat greater in this strategy, but so is the potential return.

joint Venturing A second method of entering a foreign market is by joint venturing—joining with foreign companies to produce or market products or services. Joint venturing differs from export- ing in that the company joins with a host country partner to sell or market abroad. It differs from direct investment in that an association is formed with someone in the foreign coun- try. There are four types of joint ventures: licensing, contract manufacturing, management contracting, and joint ownership.

licensing Licensing is a simple way for a manufacturer to enter international marketing. The com- pany enters into an agreement with a licensee in the foreign market. For a fee or royalty payments, the licensee buys the right to use the company’s manufacturing process, trade- mark, patent, trade secret, or other item of value. The company thus gains entry into a foreign market at little risk; at the same time, the licensee gains production expertise or a well-known product or name without having to start from scratch.

In Japan, Budweiser beer flows from Kirin breweries, and Mizkan produces Sunkist lemon juice, drinks, and des- sert items. Tokyo Disney Resort is owned and operated by Oriental Land Company under license from The Walt Disney Company. The 45-year license gives Disney licensing fees plus a percentage of admissions and food and merchandise sales. And Coca-Cola markets internationally by licensing bottlers around the world and supplying them with the syrup needed to produce the product. Its global bottling partners range from the Coca-Cola Bottling Company of Saudi Arabia to Europe-based Coca-Cola Hellenic, which bottles and markets 136 Coca-Cola brands to 589 million people in 28 countries, from Italy and Greece to Nigeria and Russia.29

Licensing has potential disadvantages, however. The firm has less control over the licensee than it would over its own operations. Furthermore, if the licensee is very successful, the firm has given up these profits, and if and when the contract ends, it may find it has created a competitor.

contract Manufacturing Another option is contract manufacturing, in which the com- pany makes agreements with manufacturers in the foreign market to produce its product or provide its service. For example, P&G serves 650 million consumers across India with the help of nine contract manufacturing sites there. And Volkswagen contracts

with Russia’s largest auto manufacturer, GAZ Group, to make Volkswagen Jettas for the Russian market as well as its Škoda (VW’s Czech Republic subsidiary) Octavia and Yeti models sold there.30 The drawbacks of contract manufacturing are decreased control over the manufacturing process and loss of potential profits on manufacturing. The benefits are the chance to start faster, with less risk, and the later opportunity either to form a partner- ship with or buy out the local manufacturer. Contract manufacturing can also reduce plant investment, transportation, and tariff costs while at the same time helping to meet the host country’s local manufacturing requirements.

joint venturing Entering foreign markets by joining with foreign companies to produce or market products or services.

licensing Entering foreign markets through developing an agreement with a licensee in the foreign market.

contract manufacturing A joint venture in which a company contracts with manufacturers in a foreign market to produce its product or provide its service.

international licensing: the tokyo Disney resort is owned and operated by oriental land company (a japanese development company) under license from the Walt Disney company. David Harding/Alamy

474 Part 4: extending Marketing

Management contracting Under management contracting, the domestic firm provides the management know-how to a foreign company that supplies the capital. In other words, the domestic firm exports management services rather than products. Hilton uses this arrangement in managing hotels around the world. For example, the hotel chain operates DoubleTree by Hilton hotels in countries ranging from the UK and Italy to Peru and Costa Rica to China, Russia, and Tanzania. The properties are locally owned, but Hilton manages the hotels with its world-renowned hospitality expertise.31

Management contracting is a low-risk method of getting into a foreign market, and it yields income from the beginning. The arrangement is even more attractive if the contracting firm has an option to buy some share in the managed company later on. The arrangement is not sensible, however, if the company can put its scarce management talent to better uses or if it can make greater profits by undertaking the whole venture. Management contracting also prevents the company from setting up its own operations for a period of time.

joint ownership Joint ownership ventures consist of one company joining forces with foreign investors to create a local business in which they share possession and control. A company may buy an interest in a local firm, or the two parties may form a new business venture. Joint owner- ship may be needed for economic or political reasons. For example, the firm may lack the financial, physical, or managerial resources to undertake the venture alone. Alternatively,

a foreign government may require joint ownership as a condition for entry.

Often, companies form joint ownership ventures to merge their complementary strengths in developing a global m arketing opportunity. For example, to increase its presence and local influence in China’s mobile phone and tablets markets, chipmaker Intel recently paid $1.5 billion for 20 percent ownership in China’s state-run Tsinghua Unigroup, which controls two domestic mobile chipmakers. The joint ownership investment will help Intel to bet- ter understand Chinese consumers. It may also help to earn more favorable treatment from Chinese regulators. So far, Intel has gone untouched by China’s recent crackdown on foreign technology companies such as competitor Qualcomm and software makers Microsoft and Symantec.32

Joint ownership has certain drawbacks, however. The partners may disagree over investment, marketing, or other policies. Whereas many U.S. firms like to reinvest earnings for growth, local firms often prefer to take out these earnings; whereas U.S. firms empha- size the role of marketing, local investors may rely on selling.

Direct investment The biggest involvement in a foreign market comes through direct investment—the development of foreign-based assembly or manufacturing facilities. For example, in addi- tion to joint ownership ventures in China, Intel has also made substantial investments in its own manufacturing and research facilities there. It recently spent $1.6 billion upgrading its decade-old chip factory in the central Chinese city of Chengdu and another $2.5 billion to build a shiny new fabrication plant in Dalian, a port city in China’s northeast. “China is our fastest-growing major market,” says Intel’s CEO, “and we believe it’s critical that we invest in markets that will provide for future growth to better serve our customers.” 33

If a company has gained experience in exporting and if the foreign market is large enough, foreign production facilities offer many advantages. The firm may have lower costs in the form of cheaper labor or raw materials, foreign government investment incentives, and freight savings. The firm may also improve its image in the host country because it cre- ates jobs. Generally, a firm develops a deeper relationship with the government, customers, local suppliers, and distributors, allowing it to adapt its products to the local market better.

Management contracting A joint venture in which the domestic firm supplies the management know- how to a foreign company that supplies the capital; the domestic firm exports management services rather than products.

joint ownership A cooperative venture in which a company creates a local business with investors in a foreign market who share ownership and control.

Direct investment Entering a foreign market by developing foreign-based assembly or manufacturing facilities.

joint ownership and direct investment: to increase its understanding and influence in china’s huge mobile device market, intel has invested heavily there in joint ownership ventures and its own manufacturing facilities. Jing Wei/Imaginechina/AP Images

chapter 15: the global Marketplace 475

Finally, the firm keeps full control over the investment and therefore can develop manufac- turing and marketing policies that serve its long-term international objectives.

The main disadvantage of direct investment is that the firm faces many risks, such as restricted or devalued currencies, falling markets, or government changes. In some cases, a firm has no choice but to accept these risks if it wants to operate in the host country.

linking the concePts Slow down here and think about McDonald’s global marketing issues.

●● To what extent can McDonald’s standardize for the Chinese market? What marketing strategy and program elements can be similar to those used in the United States and other parts of the Western world? Which ones must be adapted? Be specific.

●● To what extent can McDonald’s standardize its strategy, products, and programs for the Canadian market? What elements can be standardized, and which must be adapted?

●● To what extent are McDonald’s “globalization” efforts contributing to “Americanization” of countries and cultures around the world? What are the positives and negatives of such cultural developments?

Deciding on the global Marketing Program Companies that operate in one or more foreign markets must decide how much, if at all, to adapt their marketing strategies and programs to local conditions. At one extreme are global companies that use standardized global marketing, essentially using the same marketing strategy approaches and marketing mix worldwide. At the other extreme is adapted global marketing. In this case, the producer adjusts the marketing strategy and mix elements to each international target market, resulting in more costs but hopefully producing a larger market share and return.

The question of whether to adapt or standardize the marketing strategy and program has been much debated over the years. On the one hand, some global marketers believe that technology is making the world a smaller place, and consumer needs around the world are becoming more similar. This paves the way for global brands and standardized global marketing. Global branding and standardization, in turn, result in greater brand power and reduced costs from economies of scale.

On the other hand, the marketing concept holds that marketing programs will be more engaging if tailored to the unique needs of each targeted customer group. If this concept applies within a country, it should apply even more across international markets. Despite global con- vergence, consumers in different countries still have widely varied cultural backgrounds. They still differ significantly in their needs and wants, spending power, product preferences, and shopping patterns. Because these differences are hard to change, most marketers today adapt their products, prices, channels, and promotions to fit consumer desires in each country.

However, global standardization is not an all-or-nothing proposition. It’s a matter of degree. Most international marketers suggest that companies should “think globally but act locally.” They should seek a balance between standardization and adaptation, leverag- ing global brand recognition but adapting their marketing, products, and operations to spe- cific markets. For example, as discussed in the story at the start of this chapter, cosmetics and beauty care giant L’Oréal and its brands are truly global. But the company’s outstand- ing international success comes from achieving a global–local balance that adapts and differentiates brands to make them responsive to local needs while also integrating them across world markets to optimize their global impact.

Collectively, local brands still account for the overwhelming majority of consumer purchases. Most consumers, wherever they live, lead very local lives. So a global brand must engage consumers at a local level, respecting the culture and becoming a part of it. Starbucks operates this way. The company’s overall brand strategy provides global stra- tegic direction. Then regional or local units focus on adapting the strategy and brand to

author comment The major global marketing

decision usually boils down to this: How much, if at all, should a company

adapt its marketing strategy and programs to local markets? How

might the answer differ for Boeing versus McDonald’s?

standardized global marketing A global marketing strategy that basically uses the same marketing strategy and mix in all of the company’s international markets.

adapted global marketing A global marketing approach that adjusts the marketing strategy and mix elements to each international target market, which creates more costs but hopefully produces a larger market share and return.

476 Part 4: extending Marketing

specific local markets. For example, when Starbucks entered China in 1998, given the strong Chinese tea-drinking culture, few observers expected success. But Starbucks quickly proved the doubters wrong:34

Starbucks’s success in China results from building on its global brand identity and values while at the same time adapting its brand strategy to the unique character- istics of Chinese consumers. Rather than forcing U.S. products on the Chinese, Starbucks developed new flavors—such as green tea–flavored coffee drinks—that appeal to local tastes. Rather than just charging U.S.-style premium prices in China, Starbucks boosted prices even higher, positioning the brand as a status symbol for the rapidly growing Chinese middle and upper classes. And rather than pushing takeout orders, which account for most of its U.S. revenues, Starbucks promoted dine-in services—making its stores the perfect meeting place for Chinese professionals and their friends. Whereas U.S. locations do about 70 per- cent of their business before 10 am, China stores do more than 70 percent of their business in the afternoon and evening. “It’s a lifestyle to the Chinese,” says the head of Starbucks’s China and Asia Pacific operations. “It’s much more of a gath- ering place for social occasions.” Under this adapted strategy, Starbucks China is thriving. China is now Starbucks’s largest market outside of the United States, with more than 1,700 current stores and 1,700 more stores in 70 cities planned by 2020. “We’re trying to build a different kind of company in China and are mindful of how we grow while maintaining the heart and soul of what Starbucks stands for,” says the Starbucks executive.

Product Five strategies are used for adapting product and marketing communication strategies to a global market (see figure 15.3).35 We first discuss the three product strategies and then turn to the two communication strategies.

Straight product extension means marketing a product in a foreign mar- ket without making significant changes to the product. Top management tells its marketing people, “Take the product as is and find customers for it.” The first step, however, should be to find out whether foreign consumers use that product and what form they prefer.

Straight extension has been successful in some cases and disastrous in others. Apple iPads, Gillette razors, Black & Decker tools, and even 7-Eleven Slurpees are all sold suc- cessfully in about the same form around the world. But when General Foods introduced its standard powdered JELL-O in the British market, it discovered that British consumers pre- fer a solid wafer or cake form. Likewise, Philips began to make a profit in Japan only after it reduced the size of its coffeemakers to fit into smaller Japanese kitchens and its shavers to fit smaller Japanese hands. And Panasonic’s refrigerator sales in China surged 10-fold in a single year after it shaved the width of its appliances by 15 percent to fit smaller Chinese kitchens.36 Straight extension is tempting because it involves no additional prod- uct development costs, manufacturing changes, or new promotion. But it can be costly in the long run if products fail to satisfy consumers in specific global markets.

Product adaptation involves changing the product to meet local requirements, conditions, or wants. For example, McDonald’s operates in more than 100 countries, with sometimes widely varying local food preferences. So although you’ll find its

straight product extension Marketing a product in a foreign market without making significant changes to the product.

Product adaptation Adapting a product to meet local conditions or wants in foreign markets.

Don’t change product

Don’t change communications

Adapt communications

Straight extension

Communication adaptation

C om

m un

ic at

io ns

The real question buried in this figure is this: How much should a company standardize or adapt its products and marketing across global markets?

Adapt product

Product adaptation

Dual adaptation

Product Develop new

product

Product invention

figure 15.3 five global Product and communications strategies

think globally, act locally: starbucks’s outstanding success in china results from building on its global brand identity and values while at the same time adapting its brand strategy to the unique characteristics of chinese consumers. Chris Willson/Alamy

chapter 15: the global Marketplace 477

signature burgers and fries in most locations around the world, the chain has added menu items that meet the unique taste buds of customers in local markets. McDonald’s serves salmon burgers in Norway, mashed-potato burgers in China, shrimp burgers in Japan, a Samurai Pork Burger in Thailand, chicken porridge in Malaysia, and Spam and eggs in Hawaii. In a German McDonald’s, you’ll find the Nürnburger (three large bratwurst on a soft roll with lots of mustard, of course); in Israel, there’s the McFalafel (chickpea fritters, tomatoes, cucumber, and cheese topped with tahini and wrapped in lafa). And menus in Turkey feature a chocolate orange fried pie (Brazil adds banana, Egypt taro, and Hawaii pineapple).

In many major global markets, McDonald’s adapts more than just its menu. It also adjusts its restaurant design and operations. For example, McDonald’s France has redefined itself as a French company that adapts to the needs and preferences of French consumers:37

“France—the land of haute cuisine, fine wine, and cheese—would be the last place you would expect to find a thriving [McDonald’s],” opines one observer. Yet the fast-food giant

has turned France into its second-most-profitable world market. Although a McDonald’s in Paris might at first seem a lot like one in Chicago, McDonald’s has carefully adapted its French operations to the preferences of local customers. At the most basic level, although a majority of revenues still come from burgers and fries, McDonald’s France has changed its menu to please the French palate. For instance, it offers up burgers with French cheeses such as chevre, cantel, and bleu, topped off with whole- grain French mustard sauce. And French consumers love baguettes, so McDonald’s bakes them fresh in its restaurants and sells them in oh-so-French McBaguette sandwiches.

But perhaps the biggest difference isn’t in the food, but in the design of the restaurants themselves, which have been adapted to suit French lifestyles. For example, French meal times tend to be longer, with more food consumed per sitting. So McDonald’s has refined its restaurant interi- ors to create a comfortable, welcoming environment where customers want to linger and perhaps order an additional coffee or dessert. McDonald’s even provides table-side service. As a result, the average French McDonald’s cus- tomer spends about four times what an American customer spends per visit.

Product invention consists of creating something new to meet the needs of consum- ers in a given country. As markets have gone global, companies ranging from appliance manufacturers and carmakers to candy and soft drink producers have developed products that meet the special purchasing needs of low-income consumers in developing economies.

For example, Chinese appliance producer Haier developed sturdier washing machines for rural users in emerging markets, where it found that lighter-duty machines often became clogged with mud when farmers used them to clean vegetables as well as clothes. And solar lighting manufacturer d.light Solar has developed affordable solar-powered home lighting systems for the hundreds of millions of people in the developing world who don’t have access to reliable power. d.light’s hanging lamps and portable lanterns require no energy source other than the sun and can last up to 15 hours on one charge. The com- pany has already reached 49 million users, is adding 1 million users per month and plans to reach 100 million users by 2020.38

Promotion Companies can either adopt the same communication strategy they use in the home market or change it for each local market. Consider advertising messages. Some global companies use a standardized advertising theme around the world. For example, Chevrolet recently

Product invention Creating new products or services for foreign markets.

Product adaptation: by leveraging the power of its global brand but constantly adapting to the needs and preferences of french consumers and their culture, McDonald’s has turned france into its second-most-profitable world market. AFP/Getty Images

478 Part 4: extending Marketing

swapped out its previous, American-focused “Chevy Runs Deep” posi- tioning and advertising theme with a more global “Find New Roads” theme. The new theme is one “that works in all markets,” says a GM marketing executive. “The theme has meaning in mature markets like the U.S. as well as emerging markets like Russia and India, where the potential for continued growth is the greatest.” The time is right for a more globally consistent Chevy brand message. Chevrolet sells cars in more than 140 countries, and nearly two-thirds of its sales are now outside the United States, compared with only about one-third a decade ago.39

Of course, even in highly standardized communications cam- paigns, some adjustments might be required for language and cultural differences. For example, ads for Pepsi’s youthful “Live for Now” campaign have a similar look worldwide but are adapted in different global markets to feature local consumers, languages, and events. Similarly, in Western markets, fast-casual clothing retailer H&M runs fashion ads with models showing liberal amounts of bare skin. But in the Middle East, where attitudes toward public nudity are more conservative, the retailer runs the same ads digitally adapted to better cover its models.

Global companies often have difficulty crossing the language bar- rier, with results ranging from mild embarrassment to outright failure. Seemingly innocuous brand names and advertising phrases can take on unintended or hidden meanings when translated into other languages. For example, Interbrand of London, the firm that created household names such as Prozac and Acura, recently developed a brand name “hall of shame” list, which contained these and other foreign brand names you’re never likely to see inside the local Kroger supermarket: Krapp toilet paper (Denmark), Plopp chocolate (Scandinavia), Crapsy Fruit cereal (France), Poo curry powder (Argentina), and Pschitt lem- onade (France). Similarly, advertising themes often lose—or gain—

something in the translation. In Chinese, the KFC slogan “finger-lickin’ good” came out as “eat your fingers off.” And Motorola’s Hellomoto ringtone sounds like “Hello, Fatty” in India.

Marketers must be watchful to avoid such mistakes, taking great care when localizing their brand names and messages to specific global markets. In important but culturally different markets such as China, finding just the right name can make or break a brand (see Marketing at Work 15.2).

Rather than standardizing their advertising globally, other companies follow a strat- egy of communication adaptation, fully adapting their advertising messages to local markets. For example, in the United States and most Western countries, where running is accepted as a positive, healthful activity, Nike advertising focuses on products and personal performance. In China, however, running is viewed as a boring sport or even a punishment—something rigorous and painful. It’s not something that most people in Asia’s polluted cities choose to do, especially on streets jammed with pedestrians, bicy- cles, cars, and even rickshaws. “The joke is that when there’s a person running in the city (and it’s often a Westerner), people turn to see who’s chasing him,” quips one observer.

However, China is the largest footwear market in the world, offering huge untapped potential for Nike. So, in China, rather than pushing products and performance, Nike’s advertising focuses on just trying to get more Chinese to put on running shoes. Ads and social media feature ordinary people who choose to run on city streets, letting them relate their reasons in their own words. “I run to make the hidden visible,” says one young woman. “I run to get lost,” says another. Salad—a stressed-out office worker who lives and runs in Shanghai—relates: “The city is always noisy and busy. This adds even more pressure to my day. I guess for me, running is about shutting down the noise.” To make running a more social activity, Nike also sponsors nighttime “Lunar Runs” in big cit- ies like Beijing and marathons in Shanghai, featuring fitness instructors, live music, and

communication adaptation A global communication strategy of fully adapting advertising messages to local markets.

communication standardization: With nearly two-thirds of its sales now outside the United states, chevy recently switched to a new, more global “find new roads” positioning and advertising theme that has meaning in all markets worldwide, here russia. General Motors, LLC

chapter 15: the global Marketplace 479

brand names in china take on deep significance. coca-cola’s chinese name, when pronounced, sounds much like the english name, and the chinese symbols convey “tasty fun” or “happiness in the mouth,” a close fit to coca-cola’s current worldwide “open happiness” positioning. Zhang Peng/Getty Images

After a long day’s work, an average upscale Beijinger can’t wait to dash home, lace on a comfortable pair of Enduring and Persevering, pop the top on a refreshing can of Tasty Fun, then hop into his Dashing Speed and head to the local tavern for a frosty glass of Happiness Power with friends. Translation? In China, those are the brand-name meanings for Nike, Coca- Cola, Mercedes, and Heineken, respectively.

To Westerners, such names sound pretty silly, but to brands doing business in China, the world’s biggest and fastest- growing consumer market, they are no laughing matter. Perhaps more than anywhere else in the world, brand names in China take on deep significance. Finding just the right name can make or break a brand. “Often, a company’s most important marketing decision in China is localizing its name,” asserts one global branding analyst. “It’s also a notoriously tricky one.”

Ideally, to maintain global consistency, the Chinese name should sound similar to the original, while at the same time conveying the brand’s benefits in meaningful symbolic terms. Nike’s Chinese brand name, Nai ke, does this well. Not only does it sound the same when pronounced in Chinese, its “Enduring and Persevering” meaning powerfully encapsulates the “Just Do It” essence of the Nike brand the world over. Similarly, P&G’s Tide is Taizi in China, which translates to “gets out the dirt,” a perfect moniker for a tough-acting detergent. Coca-Cola’s Chinese name—Ke kou ke le—dates all the way back to 1928. It not only sounds much like the English name, the Chinese symbols convey happiness in the mouth, a close fit to Coca-Cola’s current “open happiness” positioning. Other names that wear well on Chinese ears while also con- veying a brand’s essence include Lay’s snack foods—Le shi (“happy things”); Reebok—Rui bu (“quick steps”); and Colgate—Gau lu jie (“revealing superior cleanliness”).

Chinese brand names can convey sub- tle meanings that might not be appar- ent to Western sensibilities. For example, “Dashing Speed” seems appropriate enough for an upscale automobile brand like Mercedes. So does BMW’s name— Bao Ma—which translates to “Precious Horse.” However, in China, “precious” has a feminine connotation, whereas “dashing speed” is more masculine. This works out well for both car mak- ers, which target different genders among

China’s upper crust. For instance, BMW is a market leader among affluent Chinese women.

Some brand names translate naturally. For example, when Garnier introduced its Clear shampoo in China, it lucked out. The Chinese word for “clear”—Qing—is one of a select few Chinese words with unusually positive associations that are used in many brand names. Garnier added the word yang, which means “flying” or “scattering to the wind.” According to the director of Garnier’s brand consultancy, the Qing Yang brand name connotes “very light, healthy, and happy—think of hair in the air,” just what the brand intends. Other uni- versally positive Chinese words commonly found in brand names include “le” and “xi” (happy), “li” (strength or power), “ma” (horse), and “fu” (lucky). Thus, Kia sells one model in China named Qian li ma, or “thousand kilometer horse,” sug- gesting unusual strength.

There was a time when Western companies entering China simply created a brand name that was phonetically similar to the domestic name, even if it had no meaning in the Chinese language. In fact, such obviously foreign-looking and sound- ing names often communicated a sense of Western cache. For example, Cadillac went with Ka di la ke—a meaningless group of sounds that gave status to the luxury brand. And McDonald’s got away with Mai dang lao, a term that sounds

Marketing at Work 15.2

localizing chinese brand names: Very important but notoriously tricky

480 Part 4: extending Marketing

celebrities to introduce Chinese students and young professionals to running as a fun and rewarding after-class or after-work activity. The goal is to get more people to at least give running a try. But changing basic perceptions of the sport won’t be easy. “It’s a very long road for us,” says a Nike China marketer.40

Media also need to be adapted internationally because media availability and regu- lations vary from country to country. TV advertising time is very limited in Europe, for instance, ranging from four hours a day in France to none in Scandinavian countries. Advertisers must buy time months in advance, and they have little control over airtimes. However, mobile phone ads are much more widely accepted in Europe and Asia than in the United States. Magazines also vary in effectiveness. For example, magazines are a major medium in Italy but a minor one in Austria. Newspapers are national in the United Kingdom but only local in Spain.41

Price Companies also face many considerations in setting their international prices. For example, how might Makita price its power tools globally? It could set a uniform price globally, but this amount would be too high of a price in poor countries and not high enough in rich ones. It could charge what consumers in each country would bear, but this strategy ignores differences in the actual costs from country to country. Finally, the company could use a standard markup of its costs everywhere, but this approach might price Makita out of the market in some countries where costs are high.

Regardless of how companies go about pricing their products, their foreign prices probably will be higher than their domestic prices for comparable products. An Apple iPad Air that sells for $499 in the United States goes for $609 in the United Kingdom. Why? Apple faces a price escalation problem. It must add the cost of transportation, tariffs, importer margin, wholesaler margin, and retailer margin to its factory price. Depending on these added costs, a product may have to sell for two to five times as much in another country to make the same profit.

To overcome this problem when selling to less-affluent consumers in developing countries, many companies make simpler or smaller versions of their products that

like the English version but whose characters translate into gibberish—“wheat,” “should,” and “labor.” Other global com- panies with short names such as IBM or Gap simply expect consumers to learn their Western names.

Today, however, with so many foreign brands entering the crowded Chinese market, most companies expect more of their Chinese brand names. If Chinese consumers can’t pronounce a name or don’t know what it stands for, they are much less likely to buy it or talk about it with others, in person or in social media. Instead, with some work, companies can come up with names that will engage and inspire buyers. In China, it’s not Subway, it’s Sai bai wei—“better than 100 tastes.” It’s not Marriott but Wan Hao, or “10,000 wealthy elites.”

However, finding the right names and characters can be a daunting challenge. Brand name development in China has become more of a science than an art, involving global branding consultants, computer software, linguistic analy- sis, and extensive consumer testing. Some global names require careful recrafting. For example, Microsoft had to rethink the introduction of its Bing search engine in China, where the most common translations of the character pro- nounced “bing” are words like “defect” or “virus,” not good

associations for a digital product. Microsoft changed the name of its product in China to Bi ying, which means “very certain to respond.” Still, the brand is having difficulty shak- ing the resemblance to the original name.

Similarly, S.C. Johnson belatedly renamed its popular Mr. Muscle line of cleaners to Mr. Powerful (Weimeng xian- sheng) in China, where Mr. Muscle had a less compelling second meaning—“Mr. Chicken Meat.” And French automaker Peugeot thought it had a winning brand name with Biao zhi, only to learn too late that it was too close to biaozi, slang for prostitute. It’s no surprise that the brand generated more off- color jokes than sales.

Sources: “Lost in Translation? Pick Your Chinese Brand Name Carefully,” Shanghalist, March 28, 2014, http://shanghaiist.com/2014/03/28/hutong-school- pick-your-chinese-brand-name-carefully.php; Michael Wines, “Picking Brand Names in China Is a Business Itself,” New York Times, November 12, 2011, p. A4; Carly Chalmers, “12 Amazing Translations of Chinese Brand Names,” todaytranslations, August 27, 2013, www.todaytranslations.com/blog/12-amazing- translations-of-chinese-brand-names/; Angela Doland, “Why Western Companies Like LinkedIn Need Chinese Brand Names,” Advertising Age, March 5, 2014, www.adage.com/print/291960/; and Alfred Maskeroni, “Can You Identify All These Famous Logos Redesigned by an Artist into Chinese?” Adweek, February 10, 2015, www.adweek.com/print/162867.

http://shanghaiist.com/2014/03/28/hutong-school-pick-your-chinese-brand-name-carefully.php

http://www.todaytranslations.com/blog/12-amazing-translations-of-chinese-brand-names/

http://www.adage.com/print/291960/

http://www.adweek.com/print/162867

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can be sold at lower prices. Others have introduced new, more affordable brands for global markets. For example, Lenovo’s Motorola division developed the ultra-cheap Moto G smartphone. Although not a flashy, high-tech gadget, the full-function device sells for only $179.99 in the United States with no contract. Motorola first introduced the phone in Brazil, one of the largest and fastest-growing emerging markets, then in other parts of South America, the Middle East, India, and more of Asia. Intended primarily for emerging markets where consumers want low-cost phones, the Moto G may also sell well to cost- conscious consumers in major developed markets, such as the United States and Europe. The Moto G phone puts pres- sure on Apple, which has focused on selling older models at reduced prices rather than developing cheaper models. The extremely affordable Moto G is now the most popular smartphone in Brazil,

where it holds a sizable 18 percent market share, making Motorola the country’s sec- ond-largest smartphone maker. The low-end phone also helped catapult a then-flagging Motorola into the number-four position in the huge Indian smartphone market.42

Recent economic and technological forces have had an impact on global pricing. For example, the Internet is making global price differences more obvious. When firms sell their wares over the Internet, customers can see how much products sell for in differ- ent countries. They can even order a given product directly from the company location or dealer offering the lowest price. This is forcing companies toward more standardized international pricing.

Distribution channels An international company must take a whole-channel view of the problem of distribut- ing products to final consumers. figure 15.4 shows the two major links between the seller and the final buyer. The first link, channels between nations, moves company products from points of production to the borders of countries within which they are sold. The second link, channels within nations, moves products from their market entry points to the final consumers. The whole-channel view takes into account the entire global supply chain and marketing channel. It recognizes that to compete well inter- nationally, the company must effectively design and manage an entire global value delivery network.

Whole-channel view Designing international channels that take into account the entire global supply chain and marketing channel, forging an effective global value delivery network.

international pricing: lenovo’s Motorola division developed the ultra-cheap Moto g smartphone intended primarily for emerging markets where consumers want low-cost phones. ChinaFotoPress/Getty Images

Final user or buyer

International seller

Channels between nations

Channels within

nations

Global value delivery network

Distribution channels can vary dramatically around the world. For example, in the U.S., Coca-Cola distributes products through sophisticated retail channels. In less-developed countries, it delivers Coke using everything from push carts to delivery donkeys

figure 15.4 Whole-channel concept for international Marketing

482 Part 4: extending Marketing

Channels of distribution within countries vary greatly from nation to nation. There are large differences in the numbers and types of intermediaries serving each country market and in the transportation infrastructure serving these intermediaries. For example, whereas large-scale retail chains dominate the U.S. scene, most of the retailing in other countries is done by small, independent retailers. In India or Indonesia, millions of retailers operate tiny shops or sell in open markets.

Even in world markets containing similar types of sellers, retailing practices can vary widely. For example, you’ll find plenty of Walmarts, Carrefours, Tescos, and other retail superstores in major Chinese cities. But whereas consumer brands sold in such stores in Western markets rely largely on self-service, brands in China hire armies of uniformed in- store promoters—called “promoter girls” or “push girls”—to dispense samples and pitch their products person to person. In a Beijing Walmart, on any given weekend, you’ll find 100 or more such promoters acquainting customers with products from Kraft, Unilever, P&G, Johnson & Johnson, and a slew of local competitors. “Chinese consumers know the brand name through media,” says the director of a Chinese retail marketing service, “but they want to feel the product and get a detailed understanding before they make a purchase.”43

When selling in emerging markets, companies must often overcome distribution infrastructure and supply challenges. For example, in Nigeria, Domino’s Pizza has had to dig wells and install water-treatment plants behind many of its restaurants to obtain clean water. And after having difficulty sourcing quality beef in South Africa, rather than buying scarce beef from scrawny cattle raised by local herdsmen, Burger King finally invested $5 million in its own local cattle ranch.44

Brazil’s northeast region is its poorest, and many residents there lack access to basics such as roads and running water. But as it happens, northeast Brazil is also the region with the greatest growth in household income. So marketers are finding innovative ways to meet the distribution challenges in these regions to capture the growing potential there. Consider Nestlé:45

To tap the potential in less-developed regions of Brazil, Nestlé developed its “até Você” (“Reaching You”) program, by which its reps go door to door with push carts—a method residents find very appealing—selling “kits” full of dairy products, cookies, yogurt, and desserts. More than just selling products, these Nestlé vendors are trained to serve as nutri- tion consultants, helping customers to develop healthier diets. To serve consumers in north- east Brazil’s Amazon River basin, which lacks a solid network of roads and highways, Nestlé has even launched a floating supermarket that takes goods directly to consumers. Setting sail from Belem, Brazil’s biggest city along the Amazon, the boat serves 1.5 million consum- ers in 27 riverside towns with 300 different Nestlé products. It spends one day at each stop. Customers can check the floating store’s schedule at nestleatevoce.com.br, call a toll- free number, or text for more information and plan their shopping accordingly. This and other innovative até Você marketing initiatives are paying off for Nestlé. “Demand for our prod- ucts has more than doubled in the north and northeast compared to other Brazilian regions,” says Nestlé’s marketing manager in Brazil.

Marketing in emerging markets: to tap the growing potential in brazil’s less developed regions, nestlé’s “ate Voce” (“reaching you”) program includes innovative distribution approaches, such as this floating supermarket that serves customers in the country’s amazon river basin. Bloomberg via Getty Images

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Deciding on the global Marketing organization Companies manage their international marketing activities in at least three different ways: Most companies first organize an export department, then create an international division, and finally become a global organization.

A firm normally gets into international marketing by simply shipping out its goods. If its international sales expand, the company will establish an export department with a sales manager and a few assistants. As sales increase, the export department can expand to include various marketing services so that it can actively go after business. If the firm moves into joint ventures or direct investment, the export department will no longer be adequate.

Many companies get involved in several international markets and ventures. A com- pany may export to one country, license to another, have a joint ownership venture in a third, and own a subsidiary in a fourth. Sooner or later it will create international divisions or subsidiaries to handle all its international activity.

International divisions are organized in a variety of ways. An international division’s corporate staff consists of marketing, manufacturing, research, finance, planning, and per- sonnel specialists. It plans for and provides services to various operating units, which can be organized in one of three ways. They can be geographical organizations, with country managers who are responsible for salespeople, sales branches, distributors, and licensees in their respective countries. Or the operating units can be world product groups, each responsible for worldwide sales of different product groups. Finally, operating units can be international subsidiaries, each responsible for their own sales and profits.

Many firms have passed beyond the international division stage and are truly global organizations. For example, as discussed in the chapter-opening story, despite its French origins, L’Oréal no longer has a clearly defined home market. Nor does it have a home-office staff. Instead, multicultural managers operate out of facilities located all around the world, bringing diverse cultural perspectives to their brands and operations.

Global organizations don’t think of themselves as national marketers that sell abroad but as global marketers. The top corporate management and staff plan worldwide manu- facturing facilities, marketing policies, financial flows, and logistical systems. The global operating units report directly to the chief executive or the executive committee of the organization, not to the head of an international division. Executives are trained in world- wide operations, not just domestic or international operations. Global companies recruit management from many countries, buy components and supplies where they cost the least, and invest where the expected returns are greatest.

Today, major companies must become more global if they hope to compete. As for- eign companies successfully invade their domestic markets, companies must move more aggressively into foreign markets. They will have to change from companies that treat their international operations as secondary to companies that view the entire world as a single borderless market.

author comment Many large companies,

regardless of their “home country,” now think of themselves as truly

global organizations. They view the entire world as a single borderless market.

For example, although headquartered in Chicago, Boeing is as comfortable

selling planes to Lufthansa or Air China as to American

Airlines.

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key terms objective 15-1 Global firm (p 461) Economic community (p 463)

objective 15-2 Exporting (p 472) Joint venturing (p 473) Licensing (p 473)

Contract manufacturing (p 473) Management contracting (p 474) Joint ownership (p 474) Direct investment (p 474)

objective 15-3 Standardized global marketing (p 475) Adapted global marketing (p 475)

Straight product extension (p 476) Product adaptation (p 476) Product invention (p 477) Communication adaptation (p 478) Whole-channel view (p 481)

chaPter reVieW anD critical thinking

Companies today can no longer afford to pay attention only to their domestic market, regardless of its size. Many industries are global industries, and firms that operate globally achieve lower costs and higher brand awareness. At the same time, global marketing is risky because of variable exchange rates, unstable governments, tariffs and trade barriers, and several other factors. Given the potential gains and risks of interna- tional marketing, companies need a systematic way to make their global marketing decisions.

objectiVe 15-1 Discuss how the international trade system and the economic, political-legal, and cultural environments affect a company’s international marketing decisions. (pp 460–472)

A company must understand the global marketing environ- ment, especially the international trade system. It should assess each foreign market’s economic, political-legal, and cultural characteristics. The company can then decide whether it wants to go abroad and consider the potential risks and benefits. It must decide on the volume of international sales it wants, how many countries it wants to market in, and which specific markets it wants to enter. These decisions call for weighing the probable returns against the level of risk.

objectiVe 15-2 Describe three key approaches to entering international markets. (pp 472–475)

The company must decide how to enter each chosen market— whether through exporting, joint venturing, or direct investment. Many companies start as exporters, move to joint ventures, and finally make a direct investment in foreign markets. In export- ing, the company enters a foreign market by sending and selling products through international marketing intermediaries (indi- rect exporting) or the company’s own department, branch, or

reVieWing anD extenDing the concePts

objectives review sales representatives or agents (direct exporting). When estab- lishing a joint venture, a company enters foreign markets by joining with foreign companies to produce or market a product or service. In licensing, the company enters a foreign market by contracting with a licensee in the foreign market and offer- ing the right to use a manufacturing process, trademark, patent, trade secret, or other item of value for a fee or royalty.

objectiVe 15-3 explain how companies adapt their marketing strategies and mixes for international markets. (pp 475–482)

Companies must also decide how much their marketing strate- gies and their products, promotion, price, and channels should be adapted for each foreign market. At one extreme, global companies use standardized global marketing worldwide. Others use adapted global marketing, in which they adjust the marketing strategy and mix to each target market, bearing more costs but hoping for a larger market share and return. However, global standardization is not an all-or- nothing proposition. It’s a matter of degree. Most international marketers suggest that companies should “think globally but act locally”—that they should seek a balance between globally standardized strategies and locally adapted marketing mix tactics.

objectiVe 15-4 identify the three major forms of international marketing organization. (p 483)

The company must develop an effective organization for inter- national marketing. Most firms start with an export department and graduate to an international division. Large companies eventually become global organizations, with worldwide mar- keting planned and managed by the top officers of the com- pany. Global organizations view the entire world as a single, borderless market.

chapter 15: the global Marketplace 485

Discussion Questions 15-1. Explain what is meant by the term global firm and list

the major decisions involved in international market- ing. (AASCB: Communication)

15-2. Discuss the four types of country industrial structures and the opportunities each offers to international mar- keters. (AACSB: Communication)

15-3. What factors do companies consider when deciding on possible global markets to enter? (AACSB: Communi- cation; Reflective Thinking)

15-4. Name and describe the four types of joint ventures as methods for entering another country. How does joint venturing differ from other methods of entering a for- eign market? (AACSB: Communication; Reflective Thinking)

15-5. Explain what is meant by a whole-channel view and why it is important in international marketing. (AACSB: Communication; Reflective Thinking)

critical thinking exercises 15-6. Visit www.transparency.org and find the most recent

Corruption Perceptions Index (CPI) report. What is the most recent CPI for the following countries: Argentina, Denmark, Jamaica, Myanmar, New Zealand, Somali, and the United States? What are the implications of this index for U.S.-based companies doing business in these countries? (AACSB: Communication; Use of IT; Reflective Thinking)

15-7. In a small group, identify and research an environmen- tal threat—such as a regulatory threat, a cultural threat, or and economic threat—posed to global marketers.

Analyze the issues related to this threat, discuss how affected companies are reacting, and make recom- mendations regarding how these companies should ad- dress the threat. (AACSB: Communication; Reflective Thinking)

15-8. One way to analyze the cultural differences among countries is to conduct a Hofstede analysis. Visit www .geert-hofstede.com/ to learn what this analysis involves. Develop a presentation explaining how three countries of your choice differ from the United States. (AACSB: Communication; Use of IT; Reflective Thinking)

Russia is emerging as the next big e-commerce frontier with a population of 143 million, 70 million of whom are Internet users. Although online sales in Russia are not has high as U.S. online sales, they have grown rapidly in the past few years. That fact has caught the attention of global e-commerce firms such as the U.S.’s Amazon and eBay and China’s equivalent of Amazon, Alibaba. The leading local online retailer in Russia is Ozon Group, often referred to as “Russia’s Amazon.” Ozon’s sales last year were close to $500 million, an almost 70 percent increase in just two years. There are obstacles to e-commerce in Russia, however. The majority of consumers do not have credit cards because many do not trust them to pay for pur- chases online or offline, making Russia a heavily cash-based marketplace. Delivery is another problem. To combat these barriers, Ozon developed its own courier system, and drivers

not only collect cash payments, they even offer style advice on apparel orders when delivered. Russian consumers order- ing items from international e-commerce sites such as Amazon may never receive their packages. In fact, officials at Moscow airport reported having 500 metric tons of unprocessed pack- ages in one month alone. Seeing an opportunity for revenue, Russia’s Customs Service is considering import duties on packages ordered from foreign Web sites.

15-9. What types of barriers are present in Russia that might slow the expansion of international e-commerce there? (AACSB: Communication; Reflective Thinking)

15-10. Suggest the best ways companies such as eBay and Amazon can enter this market. (AACSB: Communica- tion; Reflective Thinking)

Minicases anD aPPlications

online, Mobile, and social Media Marketing russian e-commerce

http://www.transparency.org

www.geert-hofstede.com/

486 Part 4: extending Marketing

Video case Monster Worldwide Monster.com is one of the most visited employment sites in the United States and one of the largest in the world. Now a part of parent company Monster Worldwide, Monster.com pioneered job recruiting on the Internet. Today, it is the only online re- cruitment provider that can service job seekers and job posters on a truly global basis. With a presence in 50 countries around the world, Monster has unparalleled international reach. Even through tough economic times, Monster continued to invest heavily in order to maintain and expand its global presence.

Monster’s international expansion included the purchase of ChinaHR.com, giving it a strong presence in the world’s largest country. Monster already gets about 45 percent of its annual revenue of $1.3 billion from outside the United States.

But it expects to become even more global in the coming years. To back that geographic expansion, Monster is also invest- ing heavily in search technologies and Web design in order to appeal to clients everywhere.

After viewing the video featuring Monster Worldwide, answer the following questions:

15-15. Which of the five strategies for adapting products and promotion for global markets does Monster employ?

15-16. Which factors in the global marketing environment have challenged Monster’s global marketing activities most? How has Monster met those challenges?

Marketing by the numbers netflix global expansion Video streaming service Netflix is expanding rapidly around the globe. It is currently available in 50 countries with the goal of expanding to 200 countries by the end of 2016. Netflix’s international slogan is “Have content, will travel.” There are challenges to international expansion for this type of service, such as inadequate disposable household income and a low percentage of households with high-speed Internet needed to stream videos. And even though almost half of France’s TV-owning households have Internet-connected TVs, cultural restrictions limit English-language program content, requiring Netflix to invest in local content for French customers. The next countries to get Netflix are Italy, Spain, and Portugal. Similar to Netflix’s other European offerings, service will be offered at a price of €7.99 per month, which converts to U.S. $8.97 during the time of expansion.

15-13. Refer to Appendix 3: Marketing by the Numbers to calculatethe annual market sales potential for Spain in

euros and U.S. dollars. There are 18,217,300 television households in Spain, with 75 percent having high-speed Internet. Assume 50 percent of the households are will- ing and able to purchase the service and would purchase one subscription at an average price of €7.99 per month ($8.97). (AACSB: Communication; Analytical Reason- ing; Reflective Thinking)

15-14. Calculate the market sales potential using the current exchange rate between euros and U.S. dollars (see www.xe.com/currencyconverter/). Is the dollar current- ly strong or weak compared with the euro? Why are U.S.-based international companies concerned when the U.S. dollar is strong compared to other curren- cies? (AACSB: Communication; Analytic Reasoning; Reflective Thinking)

Marketing ethics global safety standards India is home to some of the world’s deadliest roads. However, international automobile makers do not provide standard safety features in entry-level cars sold in India that are required in other developed countries. India’s death toll on the roads has ranked top in the world for eight straight years, exceeding 130,000 fatalities a year. Despite this, automakers strip safety features such as air bags and antilock brakes out of the cars most people in India drive. They argue that Indian consum- ers cannot afford or are not willing to pay for safety features that could increase the cost of the car by 30 percent or more. Some manufacturers have begun to offer more safety features as standard in their models. But other producers are offering

them only as an option, and some are not offering them at all to maintain price competitiveness.

15-11. Is it right for manufacturers to include product safety features that are known to save lives in countries that require them but not to include such features in a coun- try where they are not specifically required? (AACSB: Communication; Ethical Reasoning)

15-12. Discuss world organizations that assist companies in developing and abiding by global standards to protect consumers worldwide. (AACSB: Communication; Re- flective Thinking)

http://www.xe.com/currencyconverter/

chapter 15: the global Marketplace 487

company cases 15 7-eleven/14 alibaba/16 adidas See Appendix 1 for cases appropriate for this chapter. Case 15, 7-Eleven: Adapting to The World’s Many Cultures. Just a convenience store in the U.S., 7-Eleven has a strong global presence by adapting its model to fit the unique needs of con- sumers worldwide. Case 14, Alibaba: The World’s Largest E-Tailer Is Not Amazon. Alibaba quickly became the world’s

largest e-tailer by selling to the world’s largest consumer mar- ket. Now, as the company sets it sights on growth outside of China, there may be no stopping it. Case 16, Adidas: Athletic Apparel With Purpose. A strategy of sustainability may just give Adidas the global edge that it is looking for.

MyMarketingLab If assigned by your instructor, complete these writing sections from your Assignments in the MyLab.

15-17. What is the World Trade Organization? What is its purpose, and what has it accomplished? (AACSB: Communication)

15-18. Visit www.ikea.com and compare a catalog from one country to that of another. Note the prices of some of the products. Convert some of the foreign prices to U.S. dollars and compare them to the prices in the U.S. catalog. Are the prices equivalent? Are they consistently higher or lower? (AACSB: Written and Oral Communication; Reflective Thinking)

http://www.ikea.com

16 objectiVe 16-1 Define sustainable marketing and discuss its importance. Sustainable Marketing (490–492)

objectiVe 16-2 identify the major social criticisms of marketing. Social Criticisms of Marketing (492–499)

objectiVe 16-3 Define consumerism and environmen- talism and explain how they affect marketing strategies. Consumer Actions to Promote Sustainable Marketing (499–506)

sustainable Marketing social responsibility and ethics

objectiVe 16-4 Describe the principles of sustainable marketing. Business Actions Toward Sustainable Marketing (506–510)

objectiVe 16-5 explain the role of ethics in marketing. Marketing Ethics (510–513); The Sustainable Company (513)

Previewing the concepts in this final chapter, we’ll examine the concept of sustainable marketing, meeting the needs of consumers, businesses, and society—now and in the future—through socially and envi- ronmentally responsible marketing actions. We’ll start by defining sustainable marketing and then look at some common criticisms of marketing as it affects individual consumers as well as public actions that promote sustainable marketing. finally, we’ll see how companies them- selves can benefit from proactively pursuing sustainable marketing practices that bring value to not only individual customers but also society as a whole. sustainable marketing actions are more than just the right thing to do; they’re also good for business.

first, let’s look at an example of sustainable marketing in action at Patagonia, a company founded on a mission of inspiring business solutions to environmental problems. the company donates 1 percent of its revenue annually to environmental causes and adheres fiercely to a “five Rs” mantra: “reduce, repair, reuse, recycle, and reimagine.” but Patagonia recently took sustainability to a whole new level, telling its customers, “Don’t buy our products.”

chaPter roaD MaP objective outline

489

first stop Patagonia: “Conscious Consumption”—Telling Consumers to Buy Less Patagonia—the high-end outdoor clothing and gear company—was founded on a mission of using business to help save the planet. More than 40 years ago, mountain-climber entrepreneur Yvon Chouinard started the company with this enduring mission: “Build the best prod- uct, cause no unnecessary harm, use business to inspire and imple- ment solutions to the environmental crisis.” Now, Chouinard and Patagonia are taking that mission to new extremes. They’re actually telling consumers, “Don’t buy our products.”

It started a few years ago with a full-page New York Times ad on Black Friday, the day after Thanksgiving and busiest shopping day of the year, showing Patagonia’s best-selling R2 jacket and pronouncing “Don’t Buy This Jacket.” Patagonia backed the ad with messaging in its retail stores and at its Web site and social media pages. To top things off, Patagonia customers received a follow-up email prior to Cyber Monday—the season’s major online shopping day—reasserting the brand’s buy less message. Here’s part of what it said:

Because Patagonia wants to be in business for a good long time—and leave a world inhabitable for our kids—we want to do the opposite of every other business today. We ask you to buy less and to reflect before you spend a dime on this jacket or anything else.

The environmental cost of everything we make is astonishing. Consider the R2 Jacket shown, one of our best sellers. To make it required 135 liters of water, enough to meet the daily needs (three glasses a day) of 45 people. Its journey from its origin as 60% recycled polyester to our Reno warehouse generated nearly 20 pounds of car- bon dioxide, 24 times the weight of the finished product. This jacket left behind, on its way to Reno, two-thirds its weight in waste. And this is a 60% recycled polyester jacket, knit and sewn to a high standard. But, as is true of all the things we can make and you can buy, this jacket comes with an environmental cost higher than its price.

There is much to be done and plenty for us all to do. Don’t buy what you don’t need. Think twice before you buy anything. [Work with us] to reimagine a world where we take only what nature can replace.

A for-profit firm telling its customers to buy less? It sounds crazy. But that message is right on target with Patagonia’s reason for being. Founder Chouinard contends that capitalism is on an unsus- tainable path. Today’s companies and customers are wasting the world’s resources by making and buying low-quality goods that they buy mindlessly and throw away too quickly. Instead, Chouinard and his company are calling for conscious consumption, asking custom- ers to think before they buy and to stop consuming for consump- tion’s sake.

Coming from Patagonia, a company that spends almost nothing on traditional advertising, the paradoxical “Don’t Buy This Jacket” ad had tremendous impact. The Internet was soon ablaze with com- ments from online journalists, bloggers, and customers regarding the meaning and motivation behind Patagonia’s message. Analysts speculated about whether the ad would help or harm sales—whether it would engage customers and build loyalty or be perceived as little more than a cheap marketing gimmick.

But to Patagonia, far from a marketing gimmick, the cam- paign expressed the brand’s deeply held philosophy of sustainability. The pur- pose was to increase awareness of and par- ticipation in the Patagonia Common Threads Initia- tive, which urges custom- ers to take a pledge to work together with the company to consume more responsibly. Common Threads rests on five Rs of joint action toward sustainability:

Reduce: We make useful gear that lasts a long time. yoU don’t buy what you don’t need. Repair: We help you repair your Patagonia gear. yoU pledge to fix what’s broken. Reuse: We help find a home for Patagonia gear you no longer need. yoU sell or pass it on.

Patagonia was founded on a mission

of using business to help save the planet. recently, the

company has taken its sustainability mission to new extremes, actually

telling customers, “Don’t buy our products.”

sense-of-mission marketing: a for-profit company telling consumers to buy less sounds crazy. but it’s right on target with Patagonia’s conscious consumption mission. Property of Patagonia, Inc. Used with permission.

490

Recycle: We take back your Patagonia gear that is worn out. yoU pledge to keep your stuff out of the landfill and incinerator. Reimagine: together we reimagine a world where we take only what nature can replace.

So Patagonia’s conscious consumption solution seems pretty simple. Making, buying, repairing, and reusing higher-quality goods results in less consumption, which in turn uses fewer resources and lowers costs for everyone. Patagonia has always been committed to the idea of quality as a cure for overconsumption. It makes durable products with timeless designs, products that customers can keep and use for a long time. Then, through programs like its Worn Wear Initiative, Patagonia uses social media to let customers share stories about their long-lasting gear and to inspire people to keep their cloth- ing in circulation for as long as possible. In Patagonia’s words:

At the end of the day, we can tinker with our supply chain, improve sourcing, use all-recycled fabrics, and give away millions of dollars to environmental organizations until the cows come in, but nothing is more important and impactful than keeping our clothing in use for as long as possible.

So on that Black Friday weekend, while other companies were inun- dating customers with promotions that encouraged them to “buy, buy, buy,” Patagonia stood on its founding principles. It said, “Hey, look: Only purchase what you need,” explains Rob BonDurant, vice president of marketing and communications at Patagonia. “The message, ‘Don’t buy this jacket,’ is obviously super counterintuitive to what a for-profit com- pany would say, especially on a day like Black Friday, but honestly [it] is what we really were after, [communicating] this idea of evolving capital- ism and conscious consumption that we wanted to effect.”

Not just any company can pull off something like this—such a message can only work if it is real. Patagonia didn’t just suddenly stick an ad in the New York Times on Black Friday. It had been sending—and living—this message for decades. Can other compa- nies follow Patagonia’s lead? “If it is [just] a marketing campaign, no,” says BonDurant. “If it is a way they live their lives and do their business, absolutely. You can’t just apply it to your messaging or to a particular window of time. It has to be done 24 hours a day, 365 days a year.”

Pushing conscious consumption doesn’t mean that Patagonia wants customers to stop buying its products. To the contrary, like other for-profit brands, Patagonia really does care about doing well on Black Friday and the rest of the holiday season. As a company that sells products mostly for cold-weather activities, Patagonia reaps a whopping 40 percent of its revenues during the final two months of the year. But to Patagonia, business is about more than making money. And according to BonDurant, the “Don’t Buy This Jacket” campaign has more than paid for itself with the interest and involve- ment it created for the Common Threads Initiative. As an added bonus, however, the campaign also boosted sales. During the first year of the campaign, Patagonia’s sales surged by almost a third.

“It is not enough just to make good products anymore,” says Bon- Durant. “There also has to be a message that people can buy into, that people feel they are a part of, that they can be solutions-based. That is what [Patagonia’s “buy only what you need”] communication efforts are really all about.” But what’s good for customers and the planet is also good for Patagonia. Says founder Chouinard, “I know it sounds crazy, but every time I have made a decision that is best for the planet, I have made money. Our customers know that—and they want to be part of that environmental commitment.”1

esponsible marketers discover what consumers want and respond with market offerings that create value for buyers and capture value in return. The marketing concept is a philosophy of customer value and mutual gain. Its practice leads the

economy by an invisible hand to satisfy the many and changing needs of consumers. Not all marketers follow the marketing concept, however. In fact, some companies

use questionable marketing practices that serve their own rather than consumers’ interests. Moreover, even well-intentioned marketing actions that meet the current needs of some consumers may cause immediate or future harm to other consumers or the larger society. Responsible marketers must consider whether their actions are sustainable in the longer run.

This chapter examines sustainable marketing and the social and environmental effects of private marketing practices. First, we address the question: What is sustainable market- ing, and why is it important?

sustainable Marketing Sustainable marketing calls for socially and environmentally responsible actions that meet the present needs of consumers and businesses while also preserving or enhancing the ability of future generations to meet their needs. figure 16.1 compares the sustain- able marketing concept with marketing concepts we studied in earlier chapters.

The marketing concept recognizes that organizations thrive by determining the current needs and wants of target customers and fulfilling them more effectively and efficiently than competitors do. It focuses on meeting the company’s short-term sales, growth, and profit needs by engaging customers and giving them what they want now.

author comment Marketers must think

beyond immediate customer satisfaction and business performance

toward sustainable strategies that preserve the world for

future generations.

sustainable marketing Socially and environmentally responsible marketing that meets the present needs of consumers and businesses while also preserving or enhancing the ability of future generations to meet their needs.

chapter 16: sustainable Marketing 491

However, satisfying consumers’ immediate needs and desires doesn’t always serve the future best interests of either customers or the business.

For example, McDonald’s early decisions to market tasty but fat- and salt-laden fast foods created immediate satisfaction for customers as well as sales and profits for the company. However, critics assert that McDonald’s and other fast-food chains contrib- uted to a longer-term national obesity epidemic, damaging consumer health and burden- ing the national health system. In turn, many consumers began looking for healthier eating options, causing a slump in the sales and profits of the fast-food industry. Beyond issues of ethical behavior and social welfare, McDonald’s was also criticized for the sizable environmental footprint of its vast global operations, everything from waste- ful packaging and solid waste creation to inefficient energy use in its stores. Thus, McDonald’s strategy was not sustainable in the long run in terms of either consumer or company benefit.

Whereas the societal marketing concept identified in Figure 16.1 considers the future welfare of consumers and the strategic planning concept considers future company needs, the sustainable marketing concept considers both. Sustainable marketing calls for socially and environmentally responsible actions that meet both the immediate and future needs of customers and the company.

For example, for more than a dozen years, McDonald’s has responded to these chal- lenges with a more sustainable “Plan to Win” strategy of diversifying into salads, fruits, grilled chicken, low-fat milk, and other healthy fare. The company also sponsored a major multifaceted education campaign—called “it’s what i eat and what i do . . . i’m lovin’ it”—

to help consumers better understand the keys to living balanced, active lifestyles. And it recently announced a list of “Commitments to Offer Improved Nutrition Choices,” including a continuing commitment to children’s well- being, expanded and improved nutritionally balanced menu choices, and increased con- sumer and employee access to nutrition infor- mation. McDonald’s points out that 80 percent of the items on its national menu fall into its “favorites under 400 calories” category—from a basic cheeseburger to products such as Fruit & Maple Oatmeal and the Egg White Delight McMuffin, made with eight grams of whole grain, 100 percent egg whites, and extra-lean Canadian bacon.2

The McDonald’s “Plan to Win” strat- egy also addresses environmental issues. For example, it calls for food-supply sustainabil- ity, reduced and environmentally sustainable packaging, reuse and recycling, and more responsible store designs. McDonald’s has even developed an environmental scorecard that rates its suppliers’ performance in areas

figure 16.1 sustainable Marketing

sustainable marketing: Under its “Plan to Win” strategy, McDonald’s has created sustainable value for both customers and the company. now, 80 percent of the chain’s menu is under 400 calories, including this egg White Delight McMuffin, which weighs in with eight grams of whole grain against only 250 calories and five grams of fat. Michael Neelon/Alamy

492 Part 4: extending Marketing

such as water use, energy use, and solid waste management. Thus, McDonald’s is now well positioned for a sustainably profitable future.

Truly sustainable marketing requires a smooth-functioning marketing system in which consumers, companies, public policy makers, and others work together to ensure socially and environmentally responsible marketing actions. Unfortunately, however, the marketing system doesn’t always work smoothly. The following sections examine several sustainability questions: What are the most frequent social criticisms of marketing? What steps have private citizens taken to curb marketing ills? What steps have legislators and government agencies taken to promote sustainable marketing? What steps have enlight- ened companies taken to carry out socially responsible and ethical marketing that creates sustainable value for both individual customers and society as a whole?

social criticisms of Marketing Marketing receives much criticism. Some of this criticism is justified; much is not. Social critics claim that certain marketing practices hurt individual consumers, society as a whole, and other business firms.

Marketing’s impact on individual consumers Consumers have many concerns about how well the American marketing system serves their interests. Surveys usually show that consumers hold mixed or even slightly unfavor- able attitudes toward marketing practices. Consumer advocates, government agencies, and other critics have accused marketing of harming consumers through high prices, deceptive practices, high-pressure selling, shoddy or unsafe products, planned obsolescence, and poor service to disadvantaged consumers. Such questionable marketing practices are not sustainable in terms of long-term consumer or business welfare.

high Prices Many critics charge that the American marketing system causes prices to be higher than they would be under more “sensible” systems. Such high prices are hard to swallow, espe- cially when the economy gets tight. Critics point to three factors—high costs of distribu- tion, high advertising and promotion costs, and excessive markups.

A long-standing charge is that greedy marketing channel members mark up prices beyond the value of their services. As a result, distribution costs too much, and con- sumers pay for these excessive costs in the form of higher prices. Resellers respond that intermediaries do work that would otherwise have to be done by manufacturers or consumers. Their prices reflect services that consumers want—more convenience, larger stores and assortments, more service, longer store hours, return privileges, and others. In fact, they argue, retail competition is so intense that margins are actually quite low. And discounters such as Walmart, Costco, and others pressure their competitors to operate efficiently and keep their prices down.

Modern marketing is also accused of pushing up prices to finance unneeded advertising, sales promo- tion, and packaging. For example, a heavily promoted national brand sells for much more than a virtually identi- cal store-branded product. Critics charge that much of this promotion and packaging adds only psychological, not functional, value. Marketers respond that although adver- tising adds to product costs, it also adds value by informing potential buyers of the availability and merits of a brand. Brand name products may cost more, but branding assures

author comment In most ways, we all benefit

greatly from marketing activities. However, like most other human endeavors, marketing has its flaws. Here we present

both sides of some of the most common criticisms of marketing.

a heavily promoted national brand sells for much more than a virtually identical non-branded or store-branded product. critics charge that promotion adds only psychological value to the product rather than functional value. Keri Miksza

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buyers of consistent quality. Moreover, although consumers can usually buy functional ver- sions of products at lower prices, they want and are willing to pay more for products that also provide psychological benefits—that make them feel wealthy, attractive, or special.

Critics also charge that some companies mark up goods excessively. They point to the drug industry, where a pill costing five cents to make may cost the consumer $2 to buy, and to the high charges for auto repairs and other services. Marketers respond that most businesses try to price fairly to consumers because they want to build customer relation- ships and repeat business. Also, they assert, consumers often don’t understand the reasons for high markups. For example, pharmaceutical markups help cover the costs of making and distributing existing medicines plus the high costs of developing and testing new medicines. As pharmaceuticals company GlaxoSmithKline has stated in its ads, “Today’s medicines finance tomorrow’s miracles.”

Deceptive Practices Marketers are sometimes accused of deceptive practices that lead consumers to believe they will get more value than they actually do. Deceptive practices fall into three groups: promotion, packaging, and pricing. Deceptive promotion includes practices such as mis- representing the product’s features or performance or luring customers to the store for a bargain that is out of stock. Deceptive packaging includes exaggerating package contents through subtle design, using misleading labeling, or describing size in misleading terms.

Deceptive pricing includes practices such as falsely advertising “factory” or “whole- sale” prices or a large price reduction from a phony high retail list price. For example, Overstock.com was recently fined $6.8 million by a California court as a result of a fraud- ulent pricing lawsuit filed by the attorneys general of eight California counties. The suit charged that the online giant routinely advertised its prices as lower than fabricated “list prices.” It recites one example in which Overstock sold a patio set for $449 while claiming that the list price was $999. When the item was delivered, the customer found that it had a Walmart sticker stating a price of $247.3

Deceptive practices have led to legislation and other con- sumer protection actions. For example, in 1938 Congress enacted the Wheeler-Lea Act, which gave the Federal Trade Commission (FTC) power to regulate “unfair or deceptive acts or practices.” The FTC has since published several guidelines listing deceptive practices. Despite regulations, however, some critics argue that deceptive claims are still common, even for well-known brands. For example, the FTC recently charged Gerber Products with falsely advertising that its Good Start Gentle baby formula could reduce or prevent the risk of allergies, a claim that Gerber insists is backed by extensive science. The FTC also slapped Nissan’s hands for a misleading TV ad showing a Nissan Frontier pickup truck dramatically pushing a stranded dune buggy up a steep sand dune—both vehicles were dragged by cables that viewers couldn’t see. And Skechers paid $55 million in consumer refunds to resolve allegations by the FTC and attorneys general in 44 states that it made false advertising claims that its rocker-bottom Shape- ups and other toning shoes would help customers tone muscles and lose weight.4

Living Essentials, marketer of the popular caffeine-charged 5-Hour Energy drink, was recently sued by the attorneys gen- eral of three U.S. states, who alleged in separate suits that the brand’s advertising was deceptive and misleading. The suits asserted that the brand’s ads claimed that 5-Hour Energy con- tains a unique combination of ingredients to boost energy and focus, whereas the product contains only a concentrated dose of caffeine. The suits also took issue with 5-Hour Energy’s advertising and packaging claims “Hours of energy now—No crash later,” which suggested that a user would not experience a

Deceptive practices: Marketers of the popular caffeine-charged 5-hour energy drink were recently sued by the attorneys generals in three U.s. states, whose suits alleged that the brand’s advertising was deceptive and misleading ZUMA Press, Inc/Alamy

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crash like the one that often follows a caffeine high. Although the company denies any wrongdoing, it also faces civil suits claiming false and deceptive advertising.5

The toughest problem often is defining what is “deceptive.” For instance, an advertiser’s claim that its chewing gum will “rock your world” isn’t intended to be taken literally. Instead, the advertiser might claim, it is “puffery”—innocent exaggeration for effect. However, others claim that puffery and alluring imagery can harm consumers in subtle ways. Think about the popular and long-running MasterCard Priceless commercials that once painted pictures of consumers fulfilling their priceless dreams despite the costs. The ads suggested that your credit card could make it happen. But critics charge that such imagery by credit card companies encouraged a spend-now-pay-later attitude that caused many consumers to overuse their cards.

Marketers argue that most companies avoid deceptive practices. Because such prac- tices harm a company’s business in the long run, they simply aren’t sustainable. Profitable customer relationships are built on a foundation of value and trust. If consumers do not get what they expect, they will switch to more reliable products. In addition, consumers usually protect themselves from deception. Most consumers recognize a marketer’s selling intent and are careful when they buy, sometimes even to the point of not believing com- pletely true product claims.

high-Pressure selling Salespeople are sometimes accused of high-pressure selling that persuades people to buy goods they had no thought of buying. It is often said that insurance, real estate, and used cars are sold, not bought. Salespeople are trained to deliver smooth, canned talks to entice purchases. They sell hard because sales contests promise big prizes to those who sell the most. Similarly, TV infomercial pitchmen use “yell and sell” presentations that create a sense of consumer urgency that only those with strong willpower can resist.

But in most cases, marketers have little to gain from high-pressure selling. Although such tactics may work in one-time selling situations for short-term gain, most selling involves building long-term relationships with valued customers. High-pressure or decep- tive selling can seriously damage such relationships. For example, imagine a P&G account manager trying to pressure a Walmart buyer or an IBM salesperson trying to browbeat an information technology manager at GE. It simply wouldn’t work.

shoddy, harmful, or Unsafe Products Another criticism concerns poor product quality or function. One complaint is that, too often, products and services are not made well or do not perform well. A second complaint concerns product safety. Product safety has been a problem for several reasons, including company indifference, increased product complexity, and poor quality control. A third complaint is that many products deliver little benefit or may even be harmful.

For example, think about the soft drink industry. Many critics blame the plentiful sup- ply of sugar-laden, high-calorie soft drinks for the nation’s rapidly growing obesity epidemic. Studies show that more than two-thirds of American adults are either obese or overweight. In addition, almost one-third of American children are obese.6 This national weight issue continues despite repeated medical studies showing that excess weight brings increased risks for heart disease, diabetes, and other maladies, even cancer. The critics are quick to fault what they see as greedy beverage marketers cashing in on vulnerable consumers, turning us into a nation of Big Gulpers. New York City’s mayor once even tried to pass a ban on soft drinks 16 ounces and larger, and the New York City Department of Health and Mental Hygiene (NYC Health) has fielded a “Pouring on the Pounds” ad campaign highlighting the risks of drinking too many sugary drinks for both children and adults.7

Is the soft drink industry being socially irresponsible by aggressively promoting overindulgence to ill-informed or unwary consumers? Or is it simply serving the wants of customers by offering products that ping consumer taste buds while letting consumers make their own consumption choices? Is it the industry’s job to police public tastes? As in many matters of social responsibility, what’s right and wrong may be a matter of opinion. Whereas some analysts criticize the industry, others suggest that responsibility lies with consumers. “Soft drinks have unfairly become the whipping boy of most anti-obesity cam- paigns,” suggests one business reporter. “Maybe friends shouldn’t give friends Big Gulps,

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but to my knowledge, no one’s ever been forced to buy and drink one. There’s an element of personal responsibility and control that [needs to be addressed].”8

Most manufacturers want to produce quality goods. After all, the way a company deals with product quality and safety problems can harm or help its reputation. Companies selling poor-quality or unsafe products risk damaging conflicts with consumer groups and regulators. Unsafe products can result in product liability suits and large awards for damages. More fundamentally, consumers who are unhappy with a firm’s prod- ucts may avoid future purchases and talk other consumers into doing the same. In today’s social media and online review envi- ronment, word of poor quality can spread like wildfire. Thus, quality missteps are not consistent with sustainable marketing. Today’s marketers know that good quality results in customer value and satisfaction, which in turn create sustainable customer relationships.

Planned obsolescence Critics also have charged that some companies practice planned obsolescence, causing their products to become obso- lete before they actually should need replacement. They accuse some producers of using materials and components that will break, wear, rust, or rot sooner than they should. And if the products themselves don’t wear out fast enough, other companies are charged with perceived obsolescence—con- tinually changing consumer concepts of acceptable styles to encourage more and earlier buying. An obvious example is the fast-fashion industry with its constantly changing cloth-

ing fashions, which some critics claim creates a wasteful disposable clothing culture. “Too many garments end up in landfill sites,” bemoans one designer. “They are deemed aesthetically redundant and get discarded at the end of the season when there are often years of wear left.”9

Still others are accused of introducing planned streams of new products that make older models obsolete, turning consumers into “serial replacers.” Critics claim that this occurs in the consumer electronics industries. If you’re like most people, you probably have a drawer full of yesterday’s hottest technological gadgets—from mobile phones and cameras to iPods and flash drives—now reduced to the status of fossils. It seems that any- thing more than a year or two old is hopelessly out of date.

Marketers respond that consumers like style changes; they get tired of the old goods and want a new look in fashion. Or they want the latest high-tech innovations, even if older models still work. No one has to buy a new product, and if too few people like it, it will simply fail. Finally, most companies do not design their products to break down earlier because they do not want to lose customers to other brands. Instead, they seek constant improvement to ensure that products will consistently meet or exceed customer expectations.

Much of the so-called planned obsolescence is the working of the competitive and technological forces in a free society—forces that lead to ever-improving goods and services. For example, if Apple produced a new iPhone or iPad that would last 10 years, few consumers would want it. Instead, buyers want the latest technological innovations. “Obsolescence isn’t something companies are forcing on us,” confirms one analyst. “It’s progress, and it’s something we pretty much demand. As usual, the market gives us exactly what we want.”10

Poor service to Disadvantaged consumers Finally, the American marketing system has been accused of poorly serving disadvantaged consumers. For example, critics claim that the urban poor often have to shop in smaller

harmful products: nyc health asks, “are you pouring on the pounds?” is the soft drink industry being irresponsible by promoting overindulgence, or is it simply serving the wants of customers by offering products that ping their taste buds while letting them make their own consumption choices? New York Department of Health and Mental Hygiene

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stores that carry inferior goods and charge higher prices. The presence of large national chain stores in low-income neighborhoods would help to keep prices down. However, the critics accuse major chain retailers of redlining, drawing a red line around disadvantaged neighborhoods and avoiding placing stores there.

For example, the nation’s poor areas have 30 percent fewer supermar- kets than affluent areas do. As a result, many low-income consumers find themselves in food deserts, which are awash with small markets offering frozen pizzas, Cheetos, Moon Pies, and Cokes but where fruits and veg- etables or fresh fish and chicken are out of reach. Currently, some 23.5 mil- lion Americans—including 6.5 million children—live in low-income areas that lack stores selling affordable and nutritious foods. What’s more, 2.3 million households have no access to a car but live more than a mile from a supermarket, forcing them to shop at convenience stores where expen- sive processed food is the only dietary choice. In turn, the lack of access to healthy, affordable fresh foods has a negative impact on the health of underserved consumers in these areas. Many national chains, such as Walmart, Walgreens, SuperValu, and even Whole Foods Market, have recently agreed to open or expand more stores that bring nutritious and fresh foods to underserved communities. Whole Foods has recently been opening stores in disadvantaged parts of cities such as Detroit, Chicago, and New Orleans, “trying to serve the needs of communities that others ignore completely.”11

Clearly, better marketing systems must be built to service disadvan- taged consumers. In fact, many marketers profitably target such consumers with legitimate goods and services that create real value. In cases in which marketers do not step in to fill the void, the government likely will. For example, the FTC has taken action against sellers that advertise false values, wrongfully deny services, or charge disadvantaged customers too much.

serving underserved consumers: Many national food chains, such as Whole foods Market, are opening stores in underserved communities ignored by other sellers. ZUMA Press, Inc/Alamy

linking the concePts Hold up for a moment. Few marketers want to abuse or anger consumers—it’s simply not good busi- ness. Still, some marketing abuses do occur.

● Think back over the past three months or so and list any instances in which you’ve suffered a marketing abuse such as those just discussed. Analyze your list: What kinds of companies were involved? Were the abuses intentional? What did the situations have in common?

● Pick one of the instances you listed and describe it in detail. How might you go about righting this wrong? Write out an action plan and then do something to remedy the abuse. If we all took such actions when wronged, there would be far fewer wrongs to right!

Marketing’s impact on society as a Whole The American marketing system has been accused of adding to several “evils” in American society at large, such as creating too much materialism, too few social goods, and a glut of cultural pollution.

false Wants and too Much Materialism Critics have charged that the marketing system urges too much interest in material pos- sessions, and that America’s love affair with worldly possessions is not sustainable. Too often, people are judged by what they own rather than by who they are. The critics do not view this interest in material things as a natural state of mind but rather as a matter of false wants created by marketing. Marketers, they claim, stimulate people’s desires for goods and create materialistic models of the good life. Thus, marketers have created an endless

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cycle of mass consumption based on a distorted inter- pretation of the “American Dream.”

In this view, marketing’s purpose is to promote con- sumption, and the inevitable outcome of successful mar- keting is unsustainable overconsumption. According to the critics, more is not always better. Some groups have taken their concerns straight to the public. For exam- ple, the Center for a New American Dream is a nonprofit organization founded on a mission to “help Americans to reduce and shift their consumption to improve qual- ity of life, protect the environment, and promote social justice.” Through educational videos and marketing cam- paigns such as “More fun! Less stuff!” the organization works with individuals, institutions, communities, and businesses to help conserve natural resources, counter the commercialization of culture, and promote positive changes in the way goods are produced and consumed.12

Marketers respond that such criticisms overstate the power of business to create needs. They claim people have strong defenses against advertising and other marketing tools. Marketers are most effective when they appeal to existing wants rather than when

they attempt to create new ones. Furthermore, people seek information when making important purchases and often do not rely on single sources. Even minor purchases that may be affected by advertising messages lead to repeat purchases only if the product delivers the promised customer value. Finally, the high failure rate of new products shows that companies are not able to control demand.

On a deeper level, our wants and values are influenced not only by marketers but also by family, peer groups, religion, cultural background, and education. If Americans are highly materialistic, these values arose out of basic socialization processes that go much deeper than business and marketing could produce alone.

Moreover, consumption patterns and attitudes are also subject to larger forces, such as the economy. As discussed in Chapter 1, the recent Great Recession put a damper on materialism and conspicuous spending. Additionally, today’s consumers are more support- ive of environmental and social sustainability efforts by companies. As a result, instead of encouraging today’s more sensible and conscientious consumers to overspend their means or spend wastefully, most marketers are working to help them find greater value with less and to share their material prosperity with the less fortunate.

An example is the “Shwopping” movement started by British retailing giant Marks & Spencer, by which it urges customers to exchange an old item of clothing, even if it’s not from M&S, each time they buy something new. Shwopped items go to Oxfam International, a nonprofit organization that resells, recycles, or forwards them to raise money and help people around the world overcome poverty. “We hope to collect as many clothes as we sell and change the way we all shop forever,” says Marks & Spencer.13

too few social goods Business has been accused of overselling private goods at the expense of public goods. As private goods increase, they require more public services that are usually not forthcom- ing. For example, private automobile ownership (private good) requires highways, traffic control, parking spaces, and police services (public goods). The overselling of private goods results in social costs. For cars, some of the social costs include traffic congestion, gasoline shortages, and air pollution. For example, American travelers lose, on average, 38 hours a year in traffic jams, costing the United States more than $120 billion a year—$820 per commuter. In the process, they waste 2.9 billion gallons of fuel (enough to fill the New Orleans Superdome four times) and emit 56 billion tons of greenhouse gases.14

A way must be found to restore a balance between private and public goods. One option is to make producers bear the full social costs of their operations. For example, the

Materialism: a marketing campaign by the center for a new american Dream urges people to reject “buy more” messages and instead say “More fun! less stuff!” Center for a New American Dream

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government is requiring automobile manufacturers to build cars with more efficient engines and better pollution-control systems. Automakers will then raise their prices to cover the extra costs. If buyers find the price of some car models too high, however, these models will disappear. Demand will then move to those producers that can support the sum of the private and social costs.

A second option is to make consumers pay the social costs. For example, many cities around the world are now charging congestion tolls in an effort to reduce traf- fic congestion. To decrease rush hour traffic on the Bay Bridge between Oakland and San Francisco, California, the Metropolitan Transportation Commission charges a $6 toll during peak commute hours versus $4 at other times. The charge reduced the flow of drivers during peak hours, cutting the average 32-minute wait time some bridges approach in half.15

cultural Pollution Critics charge the marketing system with creating cultural pollution. They feel our senses are being constantly assaulted by marketing and advertising. Commercials interrupt

serious programs; pages of ads obscure magazines; billboards mar beautiful scenery; spam fills our email inboxes; flashing display ads intrude on our online and mobile screens. What’s more, the critics claim, these interruptions continually pollute people’s minds with messages of materialism, sex, power, or status. Some critics call for sweeping changes.

Marketers answer the charges of commercial noise with these arguments: First, they hope that their ads primarily reach the target audience. But because of mass-communication channels, some ads are bound to reach people who have no interest in the product and are therefore bored or annoyed. People who buy maga- zines they like or who opt in to email, social media, or mobile marketing programs rarely complain about the ads because they involve products and services of interest.

Second, because of ads, many television, radio, online, and social media sites are free to users. Ads also help keep down the costs of magazines and newspa- pers. Many people think viewing ads is a small price to

pay for these benefits. In addition, consumers find many television commercials entertain- ing and seek them out; for example, ad viewership during the Super Bowl usually equals or exceeds game viewership. Finally, today’s consumers have alternatives. For example, they can zip or zap TV commercials on recorded programs or avoid them altogether on many paid cable, satellite, and online channels. Thus, to hold consumer attention, advertis- ers are making their ads more entertaining and informative.

Marketing’s impact on other businesses Critics also charge that a company’s marketing practices can harm other companies and reduce competition. They identify three problems: acquisitions of competitors, marketing practices that create barriers to entry, and unfair competitive marketing practices.

Critics claim that firms are harmed and competition is reduced when companies expand by acquiring competitors rather than by developing their own new products. The large number of acquisitions and the rapid pace of industry consolidation over the past several decades have caused concern that vigorous young competitors will be absorbed, thereby reducing competition. In virtually every major industry—retailing, entertain- ment, financial services, utilities, transportation, automobiles, telecommunications, health care—the number of major competitors is shrinking.

cultural pollution: People’s senses are sometimes assaulted by a clutter of commercial messages and noise. Christian Science Monitor/Getty Images

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Acquisition is a complex subject. In some cases, acquisitions can be good for society. The acquiring company may gain economies of scale that lead to lower costs and lower prices. In addition, a well-managed company may take over a poorly managed company and improve its efficiency. An industry that was not very competitive might become more competitive after the acquisition. But acquisitions can also be harmful and therefore are closely regulated by the government.

Critics have also charged that marketing practices bar new companies from entering an industry. Large marketing companies can use patents and heavy promotion spending or tie up suppliers or dealers to keep out or drive out competitors. Those concerned with antitrust regulation recognize that some barriers are the natural result of the economic advantages of doing business on a large scale. Existing and new laws can challenge other barriers. For example, some critics have proposed a progressive tax on advertising spend- ing to reduce the role of selling costs as a major barrier to entry.

Finally, some firms have, in fact, used unfair competitive marketing practices with the intention of hurting or destroying other firms. They may set their prices below costs, threaten to cut off business with suppliers, discourage the buying of a competitor’s prod- ucts, or use their size and market dominance to unfairly damage rivals. Although various laws work to prevent such predatory competition, it is often difficult to prove that the intent or action was really predatory. It’s often difficult to differentiate predatory practices from effective competitive strategy and tactics.

In recent years, search giant Google has been accused of using predatory practices at the expense of smaller competitors. For example, the European Commission recently

accused Google of abusing its Web-search dominance, harming both competitors and consumers in European Union markets.16 The commission also began investigating antitrust issues related to Google’s Android mobile operating system. Google’s Web-search engine claims a commanding 92 percent European market share; the Android operating system dominates with a 71 percent share.

The European Commission formally accused Google of manipulating its search- engine results to favor its own shopping ser- vices at the expense of rivals. According to the commission, such “conduct may there- fore artificially divert traffic from rival com- parison shopping services and hinder their ability to compete, to the detriment of con- sumers, as well as stif ling innovation.” The commission’s future antitrust investigations could expand beyond Google’s shopping services into areas such as online and mobile searches for travel services and restaurants. For its part, however, Google contends that its Web-search and mobile operations con-

stitute fair and effective competition that serves the best interests of consumers. If the antitrust charges stand, the European Commission could hit Google with billions of dollars in fines.

consumer actions to Promote sustainable Marketing Sustainable marketing calls for more responsible actions by both businesses and consum- ers. Because some people view businesses as the cause of many economic and social ills, grassroots movements have arisen from time to time to keep businesses in line. Two major movements have been consumerism and environmentalism.

author comment Sustainable marketing isn’t

something that only businesses and governments do. Through consumerism and environmentalism, consumers themselves

can play an important role.

competitive marketing practices: the european commission recently accused google of abusing its Web-search dominance, harming both competitors and consumers in european Union markets. google claims that its practices constitute fair and effective competition. Virginia Mayo/AP Images

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consumerism Consumerism is an organized movement of citizens and government agencies to improve the rights and power of buyers in relation to sellers. Traditional sellers’ rights include the following:

● The right to introduce any product in any size and style, provided it is not hazard- ous to personal health or safety, or, if it is, to include proper warnings and controls

● The right to charge any price for the product, provided no discrimination exists among similar kinds of buyers

● The right to spend any amount to promote the product, provided it is not defined as unfair competition

● The right to use any product message, provided it is not misleading or dishonest in content or execution

● The right to use buying incentive programs, provided they are not unfair or misleading

Traditional buyers’ rights include the following:

● The right not to buy a product that is offered for sale ● The right to expect the product to be safe ● The right to expect the product to perform as claimed

In comparing these rights, many believe that the balance of power lies on the seller’s side. True, the buyer can refuse to buy. But critics feel that the buyer has too little informa- tion, education, and protection to make wise decisions when facing sophisticated sellers. Consumer advocates call for the following additional consumer rights:

● The right to be well informed about important aspects of the product ● The right to be protected against questionable products and marketing practices ● The right to influence products and marketing practices in ways that will improve

“quality of life” ● The right to consume now in a way that will preserve the world for future genera-

tions of consumers

Each proposed right has led to more specific propos- als by consumerists and consumer protection actions by the government. The right to be informed includes the right to know the true interest on a loan (truth in lending), the true cost per unit of a brand (unit pricing), the ingredients in a product (ingredient labeling), the nutritional value of foods (nutritional labeling), product freshness (open dating), and the true benefits of a product (truth in advertising).

Proposals related to consumer protection include strengthening consumer rights in cases of business fraud and financial protection, requiring greater product safety, ensuring information privacy, and giving more power to government agencies. Proposals relating to quality of life include controlling the ingredients that go into certain prod- ucts and packaging and reducing the level of advertising “noise.” Proposals for preserving the world for future con- sumption include promoting the use of sustainable ingre- dients, recycling and reducing solid wastes, and managing energy consumption.

Sustainable marketing applies not only to businesses and governments but also to consumers. Consumers have not only the right but also the responsibility to protect themselves instead of leaving this function to the government or someone else. Consumers who believe they got a bad deal have sev- eral remedies available, including contacting the company;

consumerism An organized movement of citizens and government agencies to improve the rights and power of buyers in relation to sellers.

consumer desire for more information led to package labels with useful facts, from ingredients and nutrition facts to recycling and country of origin information. Spauln/E+/Getty Images

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making their case through the media or social media; contacting federal, state, or local agencies; and going to small-claims courts. Consumers should also make good consump- tion choices, rewarding companies that act responsibly while punishing those that don’t. Ultimately, the move from irresponsible consumption to sustainable consumption is in the hands of consumers.

environmentalism Whereas consumerists consider whether the marketing system is efficiently serving con- sumer wants, environmentalists are concerned with marketing’s effects on the environment and the environmental costs of serving consumer needs and wants. Environmentalism is an organized movement of concerned citizens, businesses, and government agencies designed to protect and improve people’s current and future living environment.

Environmentalists are not against marketing and consumption; they simply want peo- ple and organizations to operate with more care for the environment. They call for doing away with what sustainability advocate and Unilever CEO Paul Polman calls “mindless consumption.” According to Polman, “The road to well-being doesn’t go via reduced con- sumption. It has to be done via more responsible consumption.”17 The marketing system’s goal, environmentalists assert, should not be to maximize consumption, consumer choice, or consumer satisfaction but rather to maximize life quality. Life quality means not only the quantity and quality of consumer goods and services but also the quality of the envi- ronment, now and for future generations.

Environmentalism is concerned with damage to the ecosystem caused by global warming, resource depletion, toxic and solid wastes, litter, the availability of fresh water, and other problems. Other issues include the loss of recreational areas and the increase in health problems caused by bad air, polluted water, and chemically treated food.

Over the past several decades, such concerns have resulted in federal and state laws and regulations governing industrial commercial practices affecting the environment. Some companies have strongly resented and resisted such environmental regulations, claiming that they are too costly and have made their industries less competitive. These companies responded to consumer environmental concerns by doing only what was required to avert new regulations or keep environmentalists quiet.

In recent years, however, most companies have accepted responsibility for doing no harm to the environment. They have shifted from protest to prevention and from regulation to responsibility. More and more companies are now adopting policies of environmental sustainability. Simply put, environmental sustainability is about generating profits while helping to save the planet. Today’s enlightened companies are taking action not because someone is forcing them to or to reap short-run profits but because it’s the right thing to do—because it’s for their customers’ well-being, the company’s well-being, and the planet’s environmental future. For example, consumer products giant Unilever has suc- cessfully built its core mission around environmental sustainability—its aim is to “make sustainable living commonplace” (see Marketing at Work 16.1).

figure 16.2 shows a grid that companies can use to gauge their progress toward environmental sustainability. It includes both internal and external greening activities that will pay off for the firm and environment in the short run and beyond greening activities that will pay off in the longer term. At the most basic level, a company can

environmentalism An organized movement of concerned citizens, businesses, and government agencies designed to protect and improve people’s current and future living environment.

environmental sustainability A management approach that involves developing strategies that both sustain the environment and produce profits for the company.

figure 16.2 environmental sustainability and sustainable Value Source: Based on Stuart L. Hart, “Sustainable Value,” www.stuartlhart.com/ sustainablevalue.html, July 2015.

http://www.stuartlhart.com/

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When Paul Polman took over as CEO of Unilever a half-dozen years ago, the foods, home, and personal care products com- pany was a slumbering giant. Despite its stable of star-studded brands—including the likes of Dove, Axe, Noxzema, Sunsilk, OMO, Hellmann’s, Knorr, Lipton, and Ben & Jerry’s— Unilever had experienced a decade of stagnant sales and prof- its. The company needed renewed energy and purpose. “To drag the world back to sanity, we need to know why we are here,” said Polman.

To answer the “why are we here” question and find a more energizing mission, Polman looked beyond the usual corpo- rate goals of growing sales, profits, and shareholder value. Instead, he asserted, growth results from accomplishing a broader social and environmental mission. Unilever exists “for consumers, not shareholders,” he said. “If we are in sync with consumer needs and the environment in which we operate, and take responsibility for our [societal impact], then the share- holder will also be rewarded.”

Evaluating and working on sustainability impact are nothing new at Unilever. Prior to Polman taking the reins, the company already had multiple programs in place to manage the impact of its products and operations. But the existing programs and results— while good—simply didn’t go far enough for Polman. So in late 2010 Unilever launched its Sustainable Living Plan—an aggres- sive long-term plan that takes capitalism to the next level. Under the plan, the company set out to “create a better future every day for people around the world: the people who work for us, those we do business with, the billions of people who use our products, and future generations whose quality of life depends on the way we protect the environment today.” According to Polman, Unilever’s long-run commercial success depends on how well it manages the social and environmental impact of its actions.

The Sustainable Living Plan sets out three major social and environmental objectives to be accomplished by 2020: “(1) To help more than one billion people take action to improve their health and well-being; (2) to halve the environmental footprint of the making and use of our products; and (3) to enhance the livelihoods of millions of people as we grow our business.” The Sustainable Living Plan pulls together all of the work Unilever had already been doing and sets ambitious new sustainability goals. These goals span the entire value chain, from how the company sources raw materials to how consumers use and dispose of its products. “Our aim is to make our activities more sustainable and also encourage our customers, suppliers, and others to do the same,” says the company.

On the “upstream supply side,” more than half of Unilever’s raw materials come from agriculture, so the company is help- ing suppliers develop sustainable farming practices that meet its own high expectations for environmental and social impact. Unilever assesses suppliers against two sets of standards. The

first is the Unilever Supplier Code, which calls for socially responsible actions regarding human rights, labor practices, product safety, and care for the environment. Second, spe- cifically for agricultural suppliers, the Unilever Sustainable Agriculture Code details Unilever’s expectations for sustain- able agriculture practices so that it and its suppliers “can com- mit to the sustainability journey together.”

But Unilever’s Sustainable Living Plan goes far beyond sim- ply creating more responsible supply and distribution chains. Approximately 68 percent of the total greenhouse gas footprint of Unilever’s products and 50 percent of the water footprint occur during consumer use. So Unilever is also working with its consumers to improve the environmental impact of its products in use. About 2 billion people in 190 markets worldwide use a Unilever product on any given day. Therefore, small everyday consumer actions can add up to a big difference. Unilever sums it up with this equation: “Unilever brands × small everyday actions × billions of consumers = big difference.”

Marketing at Work 16.1

sustainability at Unilever: creating a better future every Day

as part of its sustainable living Plan, Unilever is working with its more than 2 billion customers worldwide to improve the social and environmental impact of its products in use. “small actions. big difference.” Reproduced with kind permission of Unilever PLC and group companies.

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practice pollution prevention. This involves more than pollution control—cleaning up waste after it has been created. Pollution prevention means eliminating or minimiz- ing waste before it is created. Companies emphasizing prevention have responded with internal green marketing programs—designing and developing ecologically safer products, recyclable and biodegradable packaging, better pollution controls, and more energy-efficient operations.

For example, Nike makes shoes out of “environmentally preferred materials,” recy- cles old sneakers, and educates young people about conservation, reuse, and recycling. Its revolutionary woven Flyknit shoes are lightweight, comfortable, and durable but pro- duce 66 percent less material waste in production—the material wasted making each pair of Flyknits weighs only as much as a sheet of paper.

SC Johnson—maker of familiar household brands ranging from Windex, Pledge, Shout, and Scrubbing Bubbles to Ziploc, OFF!, and Raid—sells concentrated versions of most of its household cleaners in recyclable bottles, helping to reduce the number of empty trigger bottles from landfills. The company has undertaken ten renewable energy initiatives to help create a smaller carbon footprint. Using renewable energy sources, its largest global manufacturing facility—the size of 36 football fields—is now able to generate most of its electrical energy onsite. The company’s trademarked Greenlist process helped develop lighter weight Windex bottles that reduced consumer waste by one million pounds annually. What’s more, these Windex bottles are now made from 100 percent post-consumer-recycled plastic. SC Johnson boasts a commitment to “creating winning products, ensuring less waste, reducing our carbon footprint, and helping make life better for families around the globe.”18

For example, almost one-third of households worldwide use Unilever laundry products to do their washing—approxi- mately 125 billion washes every year. Therefore, under its Sustainable Living Plan, Unilever is both creating more eco-friendly laundry products and motivating consumers to improve their laundry habits.

Around the world, for instance, Unilever is encouraging consumers to wash clothes at lower temperatures and use the correct dosage of detergent. Unilever products such as OMO and Persil Small & Mighty concentrated laundry detergents use less packaging, making them cheaper and less polluting to transport. More important, they’ve been reformulated to wash efficiently at lower temperatures, using less energy and water. Unilever estimates that these changes have achieved a 15 percent reduction in greenhouse gas emissions. Another Unilever product, Comfort One Rinse fabric conditioner, was created for hand washing clothes in developing and emerging markets where water is often in short supply. The innovative product requires only one bucket of water for rinsing rather than three, saving consumers time, effort, and 30 liters of water per wash.

Such energy and water savings don’t show up on Unilever’s income statement, but they will be extremely important to the people and the planet. “Ultimately,” says the company, “we will only succeed if we inspire people around the world to take small, everyday actions that can add up to a big differ- ence for the world.” To meet this objective, Unilever has iden- tified “Five Levers for Change”—things that its marketers can do to inspire people to adopt specific sustainable behaviors. The model helps marketers identify the barriers and triggers for change. The levers for change are: make it understood, make it easy, make it desirable, make it rewarding, and make it a habit.

Will Unilever’s Sustainable Living Plan produce results for the company? So far, so good. Unilever is making excellent progress on its overall mission of “making sustainable living commonplace” and on its 79 aggressive Sustainable Living Plan goals. The company has already achieved 13 specific targets, is right on pace with 57 more, and is making good progress on the other nine. And despite volatility in its global markets, Unilever’s profits continue to grow.

The sustainability plan is not just the right thing to do for people and the environment, claims Polman, it’s also right for Unilever. The quest for sustainability saves money by reducing energy use and minimizing waste. It fuels innovation, resulting in new products and new consumer benefits. And it creates new market opportunities: More than half of Unilever’s sales are from developing countries, the very places that face the great- est sustainability challenges.

In all, Polman predicts, the sustainability plan will help Unilever double in size while also creating a better future for billions of people without increasing the environmental foot- print. “We do not believe there is a conflict between sustain- ability and profitable growth,” he concludes. “The daily act of making and selling consumer goods drives economic and social progress. There are billions of people around the world who deserve the better quality of life that everyday products like soap, shampoo, and tea can provide. Sustainable living is not a pipedream. It can be done, and there is very little downside.”

Sources: Based on quotes and other information from Andrew Saunders, “Paul Polman of Unilever,” Management Today, March 2011, pp. 42–47; Adi Ignatius, “Captain Planet,” Harvard Business Review, June 2012, pp. 2–8; “Unilever: Key Trends to Watch in 2015,” Forbes, March 5, 2015, www .forbes.com/sites/greatspeculations/2015/03/05/unilever-key-trends-to-watch- in-2015/; and www.unilever.com/sustainable-living/the-sustainable-living- plan/, accessed September 2015.

http://www.unilever.com/sustainable-living/the-sustainable-living-plan/

www.forbes.com/sites/greatspeculations/2015/03/05/unilever-key-trends-to-watchin-2015/

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At the next level, companies can practice product stewardship—minimizing not only pollution from pro- duction and product design but also all environmental impacts throughout the full product life cycle while at the same time reducing costs. Many companies have adopted design for environment (DFE) and cradle-to- cradle practices. This involves thinking ahead to design products that are easier to recover, reuse, recycle, or safely return to nature after usage, thus becoming part of the ecological cycle. DFE and cradle-to-cradle prac- tices not only help to sustain the environment, but they can also be highly profitable for the company.

For example, more than a decade ago, IBM started a business—IBM Global Asset Recovery Services—designed to reuse and recycle parts from returned mainframe computers and other equipment. Last year, IBM processed more than 54.3 million pounds of end-of-life products and product waste worldwide, stripping down old equipment to recover chips and valuable metals. Since 2002 it has processed more than 1.09 billion pounds of machines, parts, and material. IBM Global Asset Recovery Services finds uses for more than 99 percent of what it takes in, sending less than 1 percent to landfills and incin- eration facilities. What started out as an environmental

effort has now grown into a multibillion-dollar IBM business that profitably recycles electronic equipment at 22 sites worldwide.19

Today’s greening activities focus on improving what companies already do to pro- tect the environment. The beyond greening activities identified in Figure 16.2 look to the future. First, internally, companies can plan for new clean technology. Many organizations that have made good sustainability headway are still limited by existing technologies. To create fully sustainable strategies, they will need to develop innovative new technologies.

For example, by 2020, Coca-Cola has committed to reclaiming and recycling the equivalent of all the packaging it uses around the world. It has also pledged to dramati- cally reduce its overall environmental footprint. To accomplish these goals, the company invests heavily in new clean technologies that address a host of environmental issues, such as recycling, resource usage, and distribution:20

First, to attack the solid waste problem caused by its plastic bottles, Coca-Cola invested heavily to build the world’s largest state-of-the-art plastic-bottle-to-bottle recycling plant. As a more permanent solution, Coke is researching and testing new bottles made from aluminum, corn, or bioplastics. It has been steadily replacing its PET plastic bottles with PlantBottle packaging, which incorporates 30 percent plant-based materials. The company is also designing more eco- friendly distribution alternatives. Currently, some 10 million vending machines and refrigerated coolers gobble up energy and use potent greenhouse gases called hydrofluorocarbons (HFCs) to keep Cokes cold. To eliminate them, the company invested $40 million in research and began installing sleek new HFC-free coolers that use 30 to 40 percent less energy—so far 1 million have been installed. Coca-Cola has even developed a line of “eKOCool” solar-powered cool- ers that not only conserve energy resources but are also functional in rural areas of emerging economies such as India, where conventional power sources are often unreliable. Coca-Cola also aims to become “water neutral” by researching ways to help its bottlers add back all the fresh water they extract during the production of Coca-Cola beverages.

Finally, companies can develop a sustainability vision, which serves as a guide to the future. It shows how the company’s products and services, processes, and policies must evolve and what new technologies must be developed to get there. This vision of sustain- ability provides a framework for pollution control, product stewardship, and new environ- mental technology for the company and others to follow. It addresses not just challenges in

environmental sustainability: though sustainability initiatives such as using renewable energy sources, sc johnson is committed to “creating winning products, ensuring less waste, reducing our carbon footprint, and helping make life better for families around the globe.” Image courtesy of SC Johnson

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the natural environment but also strategic opportunities for using environmental strategies to create sustainable value for the firm and its markets.

Most companies today focus on the upper-left quadrant of the grid in Figure 16.2, investing most heavily in pollution prevention. Some forward-looking companies practice product stewardship and are developing new environmental technologies. However, empha- sizing only one or two quadrants in the environmental sustainability grid can be shortsighted. Investing only in the left half of the grid puts a company in a good position today but leaves it vulnerable in the future. In contrast, a heavy emphasis on the right half suggests that a company has good environmental vision but lacks the skills needed to implement it. Thus, companies should work at developing all four dimensions of environmental sustainability.

The North Face, for example, is doing just that through its own environmental sus- tainability actions and its impact on the actions of suppliers and consumers:21

The North Face’s new headquarters building in Alameda, California, comes complete with solar panels and wind turbines that generate more electricity than the building uses. The building employs an evaporating cooling system that eliminates the need for emissions- heavy coolants. The company’s other regional head- quarters and distribution centers also incorporate solar or water-saving features. In manufacturing, The North Face works closely with suppliers to achieve its goal to use polyester—which makes up 80 percent of its clothing lines—from 100 percent recycled content by 2016. The North Face also partners with suppliers to reduce waste and chemical, water, and energy usage in their mills. Since 2010, The North Face’s suppliers have removed more than 100 tanker trucks of chemicals and more than 230 Olympic swimming pools of water from their manufacturing processes.

In addition, The North Face has dedicated itself to inspiring customers to reduce the waste generated by today’s fast-fashion era. The company’s lifetime apparel and gear warranty results in the return and repair of more than 80,000 products annually. The North Face also runs a program called “Clothes the Loop,” by which it collects worn-out or unwanted used clothing of any brand from customers for recycling or renewal. Items dropped in its collection bins are sent to a recycling center where they are carefully sorted, then repurposed for reuse to extend their life or recycled into raw materials for use in making other products. Proceeds from the program benefit the Conservation Alliance, which funds community-based campaigns to protect shared wilderness and recreation areas.

For The North Face, being environmentally sustainable is about more than just doing the right thing. It also makes good business sense. More efficient operations and less wasteful products not only are good for the environment but also save The North Face money, helping it to deliver more value to customers. It’s a winning combination. “At the heart of The North Face is a mission to inspire a global movement of outdoor exploration and conservation,” says The North Face’s president. We believe the success of our business is fundamentally linked to having a healthy planet.”22

Public actions to regulate Marketing Citizen concerns about marketing practices will usually lead to public attention and leg- islative proposals. Many of the laws that affect marketing were identified in Chapter 3. The task is to translate these laws into a language that marketing executives understand

sustainability vision: at the north face, sustainability is about more than just doing the right thing—it also makes good business sense. sustainability efforts such as its “clothes the loop” program are good for the company, its customers, and the planet. VF Corporation

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as they make decisions about competitive relations, products, price, promotion, and distribution channels. figure 16.3 illustrates the major legal issues facing marketing management.

business actions toward sustainable Marketing At first, many companies opposed consumerism, environmentalism, and other elements of sustainable marketing. They thought the criticisms were either unfair or unimport- ant. But by now, most companies have grown to embrace sustainability principles as a way to create both immediate and future customer value and strengthen customer relationships.

sustainable Marketing Principles Under the sustainable marketing concept, a company’s marketing should support the best long-run performance of the marketing system. It should be guided by five sustainable marketing principles: consumer-oriented marketing, customer value marketing, innovative marketing, sense-of-mission marketing, and societal marketing.

consumer-oriented Marketing Consumer-oriented marketing means that the company should view and organize its marketing activities from the consumer’s point of view. It should work hard to sense, serve, and satisfy the needs of a defined group of customers—both now and in the future. The good marketing companies that we’ve discussed throughout this text have had this in common: an all-consuming passion for delivering superior value to carefully chosen customers. Only by seeing the world through its customers’ eyes can the company build sustainable and profitable customer relationships.

customer Value Marketing According to the principle of customer value marketing, the company should put most of its resources into customer value-building marketing investments. Many things marketers

author comment In the end, marketers

themselves must take responsibility for sustainable marketing. That means operating in a responsible and ethical

way to bring both immediate and future value to customers.

consumer-oriented marketing A company should view and organize its marketing activities from the consumer’s point of view.

customer value marketing A company should put most of its resources into customer value-building marketing investments.

figure 16.3 Major Marketing Decision areas that May be called into Question under the law Source: (photo) Wavebreakmedia/ Shutterstock

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do—one-shot sales promotions, cosmetic product changes, direct-response advertising— may raise sales in the short run but add less value than would actual improvements in the product’s quality, features, or convenience. Enlightened marketing calls for building long- run consumer engagement, loyalty, and relationships by continually improving the value consumers receive from the firm’s market offering. By creating value for consumers, the company can capture value from consumers in return.

innovative Marketing The principle of innovative marketing requires that the company continuously seek real product and marketing improvements. The company that overlooks new and better ways to do things will eventually lose customers to another company that has found a better way. Think back to the Nike story in Chapter 1:23

For nearly 50 years, through innovative marketing, Nike has built the ever-present swoosh into one of the world’s best-known brand symbols. When sales languished in the late 1990s and new competitors made gains, Nike knew it had to reinvent itself via product and marketing innova- tion. “One of my fears is being this big, slow, constipated, bureaucratic company that’s happy with its success,” says Nike CEO Mark Parker. Instead, over the past few years, a hungry Nike has unleashed a number of highly suc- cessful new products. For example, with the relatively recent launch of the Nike Flyknit Racer, Nike has now reinvented the very way that shoes are manufactured. The featherweight Flyknit feels more like a sock with a sole. Woven not sewn, the Flyknit is super comfortable and du- rable, more affordable to make, and more environmentally friendly than traditional sneakers. Top off Nike’s new prod- ucts with a heavy investment in social media content and Nike remains the world’s largest sports apparel company, 44 percent larger than closest rival adidas. Both Forbes and Fast Company recently anointed Nike as the world’s number-one most innovative company.

sense-of-Mission Marketing Sense-of-mission marketing means that the company should define its mission in broad social terms rather than narrow product terms. When a company defines a social mission, employees feel better about their work and have a clearer sense of direction. Brands linked with broader missions can serve the best long-run interests of both the brand and consumers.

For example, successful home furnishings retailer IKEA has a deeply ingrained sense of mission—called The IKEA Way—to create a better everyday life for people by “offering well- designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them.” Johnson & Johnson’s flagship Johnson’s Baby brand dedicates itself to a mission of understanding babies and the special nurturing they require, then uses that knowledge to provide parents with safe and effective baby care products. The company’s recently launched “Our Promise” advertising and social media campaign—which will include some 40 videos featuring and shared by Johnson’s Baby brand employees—assures parents that “It’s a responsibility we take seriously as we continue to apply our knowledge and research to bring you safe, innovative products that live up to our pure, mild, and gentle promise.” The first “Our Promise” states that “We are moms and dads just like you. We’ll always listen and be here for you. Promise.” Sense-of-mission marketing has made Johnson’s Baby the world’s leading baby care brand, with a nearly 25 percent worldwide market share.24

Some companies define their overall corporate missions in broad societal terms. For example, under its buy-one-give-one model, TOMS seeks both profits and to make the world a better place. Thus, at TOMS, “doing good” and “doing well” go hand in hand. To achieve its social-change mission, TOMS has to make money. At the same time, the brand’s social mission gives customers a powerful reason to buy (see Marketing at Work 16.2).

innovative marketing A company should seek real product and marketing improvements.

sense-of-mission marketing A company should define its mission in broad social terms rather than narrow product terms.

innovative marketing: new products, such as the nike fuelband and flyknit racer, along with its innovative social media marketing efforts recently earned nike the title as Fast Company’s number-one most innovative marketer. Rodrigo Reyes Marin/AFLO/Newscom

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If the world were a village of 100 people, 14 of the 100 would be illiterate, 20 would be malnourished, 23 would drink polluted water, 25 would have no shelter, 33 would have no electricity, and 40 would have no shoes. About a decade ago, these stark facts, especially the last one, struck Blake Mycoskie up close and per- sonally as he visited Argentina to learn how to play polo, practice his tango, and do some community service work. While there, the sight of barefooted children, too poor to have shoes, stunned him.

So Mycoskie launched TOMS Shoes with $300,000 of his own money. The founding concept was this: For every pair of TOMS shoes that customers bought, the company would donate another pair of shoes to a child in need around the world. Mycoskie had previously started five successful strictly for-profit businesses. “But I was ready to do something more meaningful,” says Mycoskie. “I always knew I wanted to help others. Now, it was time to do something that wasn’t just for profit.” Mycoskie remembered Mahatma Gandhi’s saying: “Be the change you want to see in the world.”

“Doing good” is an important part of TOMS’s mission. But so is “doing well”—the company is very much a for-profit venture. At TOMS, the two missions go hand in hand. Beyond being socially admirable, the buy-one-give-one-away concept is also a good business proposition. To achieve social change, TOMS has to make money—lots of it. At the same time, the social mission gives customers a powerful reason to buy.

With all these “do good” and “do well” goals swirling in his head, Mycoskie returned home from his Argentina trip, hired an intern, and set about making 250 pairs of shoes in the loft of his Santa Monica, California, home. Stuffing the shoes into three duffel bags, he made the fledgling company’s first of many “Shoe Drop” tours, returning to the Argentine village and giving one pair of shoes to each child. Mycoskie arrived back home to find an article about his project on the front page of the Los Angeles Times Calendar section. TOMS had been in business for only two weeks, but by that very after- noon, he had orders for 2,200 pairs of shoes on his Web site.

True to the company’s one-for-one promise, Mycoskie undertook a second TOMS Shoe Drop tour. Consistent with his new title, “Chief Shoe Giver of TOMS Shoes,” he led 15 employees and volunteers back to Argentina, where they went from school to school, village to village, and gave away another 10,000 pairs of shoes. “We [didn’t] just drop the shoes off, as the name might imply,” says Mycoskie. “We [placed] the shoes on each child’s feet so that we [could] establish a connection, which is such an important part of our brand. We want to give the children the feeling of love, and warmth, and experience. But we also get those feelings as we give the shoes.”

Today, TOMS Shoes is, in fact, both “doing good” and “doing well.” TOMS has given away more than 35 million

pairs of shoes in more than 70 countries. Under its one-for-one model, that means TOMS has also sold more than 35 million pairs of shoes, ringing up an estimated $300 million in annual revenues. Retailers such as Nordstrom, Neiman-Marcus, Urban Outfitters, Amazon.com, and even Whole Foods Market now offer TOMS shoes in locations across America. And the com- pany just keeps growing. Says an optimistic Mycoskie, “I had no idea it would ever get this big.”

TOMS’s rapid growth is the result of purchases by caring cus- tomers who then tell the TOMS story to their friends. Although strongly represented on Facebook, Twitter, Pinterest, Instagram, YouTube, and other social media, TOMS spends almost nothing on traditional advertising and promotion. Instead, loyal TOMS disciples promote the brand with evangelical zeal. “Ultimately, it is our customers who drive our success,” says Mycoskie. “Giving not only makes you feel good, but it actually is a very good business strategy, especially in this day and age. Your cus- tomers become your marketers.”

Riding this success, TOMS and Mycoskie are now looking for even more ways to make the world a better place. Beyond the one-for-one shoes program (The Gift of Shoes), TOMS has already expanded its lines to include TOMS-branded eyewear and coffee. For each pair of TOMS glasses purchased, the company donates a free pair (The Gift of Sight); for each bag of TOMS coffee bought, the company donates a week of clean water to a person in need (The Gift of Water).

In fact, Mycoskie asserts, TOMS isn’t just a shoe seller anymore—the company has even detached the word “Shoes” from its brand. Instead, he envisions TOMS as a lifestyle brand

Marketing at Work 16.2

toMs: “Be the change you Want to see in the World”

founder blake Mycoskie launched toMs on a “one for one” model and a mission that seeks both company profits and to make the world a better place. at toMs, “doing well” and “doing good” go hand in hand. ZUMA Press, Inc./Alamy

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However, having a double bottom line of values and profits isn’t easy. Over the years, brands such as Ben & Jerry’s, Timberland, The Body Shop, and Burt’s Bees—all known and respected for putting “principles before profits”—have at times struggled with less- than-stellar financial returns. In recent years, however, a new generation of social entrepre- neurs has emerged, well-trained business managers who know that to do good, they must first do well in terms of profitable business operations. Moreover, today, socially respon- sible business is no longer the sole province of small, socially conscious entrepreneurs. Many large, established companies and brands—from Walmart and Nike to Starbucks and Coca-Cola—have adopted substantial social and environmental responsibility missions.

societal Marketing Following the principle of societal marketing, a company makes marketing decisions by considering consumers’ wants, the company’s requirements, consumers’ long-run interests, and society’s long-run interests. Companies should be aware that neglecting consumer and societal long-run interests is a disservice to consumers and society. Alert companies view societal problems as opportunities.

Sustainable marketing calls for products that are not only pleasing but also beneficial. The difference is shown in figure 16.4. Products can be classified according to their degree of immediate consumer satisfaction and long-run consumer benefit.

Deficient products, such as bad-tasting and ineffective medicine, have neither immedi- ate appeal nor long-run benefits. Pleasing products give high immediate satisfaction but may hurt consumers in the long run. Examples include cigarettes and junk food. Salutary products have low immediate appeal but may benefit consumers in the long run, for instance, bicycle helmets or some insurance products. Desirable products give both high immediate satisfaction and high long-run benefits, such as a tasty and nutritious breakfast food.

societal marketing A company should make marketing decisions by considering consumers’ wants, the company’s requirements, consumers’ long-run interests, and society’s long-run interests.

Deficient products Products that have neither immediate appeal nor long-run benefits.

Pleasing products Products that give high immediate satisfaction but may hurt consumers in the long run.

salutary products Products that have low immediate appeal but may benefit consumers in the long run.

Desirable products Products that give both high immediate satisfaction and high long-run benefits.

that sells many different products and uses the proceeds to fund social initiatives. “I want to show people that one-for-one is not just for the lifestyle-fashion space,” Mycoskie says. “It can even be for everyday products.”

How far might TOMS expand? Mycoskie isn’t telling yet, but in addition to trademarking the term “One for One” for the shoe, eyewear, and coffee categories, TOMS has also sought to extend that trademark to a host of other beverages, from beer and mineral water to fruit drinks. And TOMS’s parent company, Mycoskie LLC, has registered more than 200 Internet domain names, including tomswine.com, tomscreditcard.com, ticket- togive.com, and tomsmortgage.com. Mycoskie even envisions a chain of TOMS café-stores where people can not only buy TOMS shoes, glasses, or a bag of whole bean coffee, they can order a coffee beverage Starbucks style.

All this sounds pretty far-reaching. But, Mycoskie explains, TOMS’s target customers are already seeking ways to con- sume responsibly. They’re shopping at farmers markets, buy- ing organic food and clothing, giving up their birthdays to raise money for charity, and buying TOMS shoes. Through expansion, TOMS is “taking them along this path where they can integrate giving,” says Mycoskie. Customers who buy TOMS products are buying into doing something positive with their consumer dollars. Confirms the head of retail market- ing for TOMS, “We’re about empowering people, inspiring people, helping them to see the life they could live differently.”

More than affecting how consumers buy and see life, TOMS is also out to change the way companies do business. “I believe

what we’re doing is affecting the way businesses will be built for hundreds of years to come,” says Mycoskie grandly. If the number of copycats is any indication, that change is already underway. Dozens of companies have now adopted the one- for-one model pioneered by TOMS, from Warby Parker (eye- wear), KNO Clothing (clothes for the homeless), and LSTN (headphones for hearing restoration) to One World Futbol (soccer balls), Smile Squared (toothbrushes), Soapbox Soaps (bar and liquid soaps), and Open Happiness (baby outfits and blankets—“one to love, one to give”).

“My thinking was that TOMS would show that entrepre- neurs no longer had to choose between earning money or mak- ing a difference in the world,” says Mycoskie. “Business and charity or public service don’t have to be mutually exclusive. In fact, when they come together, they can be very powerful.”

Sources: Stephanie Strom, “Turning Coffee into Water to Expand Business Model,” New York Times, March 12, 2014, B3; Stacy Perman, “Making a Do- Gooder’s Business Model Work,” BusinessWeek Online, January 26, 2009, www .businessweek.com/smallbiz/content/jan2009/sb20090123_ 264702.htm; Cotton Timberlake, “Compassionate Consumerism Draws Copycats,” Businessweek, August 2, 2012, www.businessweek.com/articles/2012-08-02/compassionate- consumerism-draws-copycats; Jeff Chu and Jessica Weiss, “The Cobbler’s Conundrum,” Fast Company, July/August 2013, pp. 98–112; Christopher Marquis and Andrew Park, “Inside the Buy-One Give-One Model,” Stanford Social Innovation Review, Winter 2014, pp. 28–33; Marco della Cava, “Toms Uses Instagram to Give Away a Million Shoes,” USA Today, May 5, 2015, www .usatoday.com/story/tech/2015/05/04/toms-using-instagram-to-try-and-give- away-a-million-shoes/26892739/; and www.toms.com/about-toms#companyInfo and www.toms.com/one-for-one-en, accessed September 2015.

http://www.businessweek.com/articles/2012-08-02/compassionate-consumerism-draws-copycats

http://www.toms.com/about-toms#companyInfo

http://www.toms.com/one-for-one-en

www.businessweek.com/smallbiz/content/jan2009/sb20090123_ 264702.htm

www.usatoday.com/story/tech/2015/05/04/toms-using-instagram-to-try-and-giveaway-a-million-shoes/26892739/

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Examples of desirable products abound. For example, Vapur makes a line of reusable, lightweight, collapsible water bottles that are highly functional and also more convenient, stylish, and environmentally friendly than either the disposable plastic bottles or rigid water bottles they replace. When full, pliable Vapur Anti-Bottles can be easily stuffed in pockets or backpacks; when empty, they can be rolled, folded, or flattened and easily tucked away. At

the same time, the bottles require less energy to make and transport than rigid bottles, and unlike disposable plastic bottles, they don’t clog land- fills or require recycling. Vapur also donates por- tions of its sales to organizations such as Leave No Trace and The Conservation Alliance, and its Drops of Hope program annually donates thou- sands of Vapur bottles to charitable organizations around the world.25

Companies should try to turn all of their products into desirable products. The challenge posed by pleasing products is that they sell very well but may end up hurting the consumer. The product opportunity, therefore, is to add long-run benefits without reducing the product’s pleasing qualities. The challenge posed by salutary prod- ucts is to add some pleasing qualities so that they will become more desirable in consumers’ minds.

For example, PepsiCo hired a team of “idealistic scientists,” headed by a former director of the World Health Organization, to help the company create attractive new healthy product options while “making the bad stuff less bad.” PepsiCo wants healthy products to be a $30 billion business for the company by 2020. The group of physicians, PhDs, and other health advocates, under the direction of PepsiCo’s vice president for global health policy, looks for healthier ingredients that can go into multiple products as well as reductions of sugar, salt, and fat while maintaining the same flavor in its familiar products. For example, since forming the team, PepsiCo’s Frito-Lay unit has cut the salt in all of its potato chips by 25 percent. To help cut calories, the company now uses a zero-calorie sweetener, Pure Via, in its Tropicana Trop50 orange juice and Gatorade G2 brands. And it recently replaced artificial sweetener aspartame in its Diet Pepsi with natural, no-calorie sucralose. PepsiCo’s nutrition business revenue now represents 20 percent of its annual net revenue—more than $13 billion a year.26

Marketing ethics Good ethics are a cornerstone of sustainable marketing. In the long run, unethical market- ing harms customers and society as a whole. Further, it eventually damages a company’s reputation and effectiveness, jeopardizing its very survival. Thus, the sustainable mar- keting goals of long-term consumer and business welfare can be achieved only through ethical marketing conduct.

Conscientious marketers face many moral dilemmas. The best thing to do is often unclear. Because not all managers have fine moral sensitivity, companies need to develop

figure 16.4 societal classification of Products

Desirable products: Vapur anti-bottles’ reusable, collapsible water bottles are highly functional and also more convenient, stylish, and environmentally friendly than either the disposable plastic bottles or rigid water bottles they replace. Vapur, Inc.

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corporate marketing ethics policies—broad guidelines that everyone in the organization must follow. These policies should cover distributor relations, advertising standards, cus- tomer service, pricing, product development, and general ethical standards.

The finest guidelines cannot resolve all the difficult ethical situations the marketer faces. table 16.1 lists some difficult ethical issues marketers could face during their careers. If marketers choose immediate-sales-producing actions in all of these cases, their marketing behavior might well be described as immoral or even amoral. If they refuse to go along with any of the actions, they might be ineffective as marketing managers and unhappy because of the constant moral tension. Managers need a set of principles that will help them figure out the moral importance of each situation and decide how far they can go in good conscience.

But what principle should guide companies and marketing managers on issues of eth- ics and social responsibility? One philosophy is that the free market and the legal system should decide such issues. Under this principle, companies and their managers are not responsible for making moral judgments. Companies can in good conscience do whatever the market and legal systems allow.

However, history provides an endless list of examples of company actions that were legal but highly irresponsible. A second philosophy puts responsibility not on the system but in the hands of individual companies and managers. This more enlightened philoso- phy suggests that a company should have a social conscience. Companies and managers should apply high standards of ethics and morality when making corporate decisions, regardless of “what the system allows.”

Each company and marketing manager must work out a philosophy of socially responsible and ethical behavior. Under the societal marketing concept, each manager must look beyond what is legal and allowed and develop standards based on personal integrity, corporate conscience, and long-run consumer welfare.

Dealing with issues of ethics and social responsibility in a proactive, open, and forth- right way helps to build and maintain strong customer relationships based on honesty and trust. For example, think again about SC Johnson, maker of familiar home-products

table 16.1 some Morally Difficult situations in Marketing

1. your r&D department has slightly changed one of your company’s products. it is not really “new and improved,” but you know that putting this statement on the package and in advertising will increase sales. What would you do?

2. you have been asked to add a stripped-down model to your line that could be advertised to pull customers into the store. the product won’t be very good, but salespeople will be able to switch buyers who come into the store up to higher-priced units. you are asked to give the green light for the stripped-down version. What would you do?

3. you are thinking of hiring a product manager who has just left a competitor’s company. she would be more than happy to tell you all the competitor’s plans for the coming year. What would you do?

4. one of your top dealers in an important territory recently has had family troubles, and his sales have slipped. it looks like it will take him a while to straighten out his family troubles. Meanwhile, you are losing many sales. legally, on performance grounds, you can terminate the dealer’s franchise and replace him. What would you do?

5. you have a chance to win a big account in another country that will mean a lot to you and your company. the purchasing agent hints that a “gift” would influence the decision. such gifts are common in that country, and some of your competitors will probably make one. What would you do?

6. you have heard that a competitor has a new product feature that will make a big difference in sales. the competitor will demonstrate the fea- ture in a private dealer meeting at the annual trade show. you can easily send a snooper to this meeting to learn about the new feature. What would you do?

7. you have to choose between three advertising and social media campaigns outlined by your agency. the first (a) is a soft-sell, honest, straight-information campaign. the second (b) uses sex-loaded emotional appeals and exaggerates the product’s benefits. the third (c) involves a noisy, somewhat irritating commercial that is sure to gain audience attention. Pretests show that the campaigns are effective in the following order: c, b, and a. What would you do?

8. you are interviewing a capable female applicant for a job as salesperson. she is better qualified than the men who have been interviewed. nevertheless, you know that in your industry some important customers prefer dealing with men, and you will lose some sales if you hire her. What would you do?

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brands such as Pledge, Shout, Windex, Ziploc, and Saran Wrap. SC Johnson believes deeply that “Integrity is part of our DNA. It’s been our family way since 1886.” Based on that belief, the company has a long tradition of doing what’s right, even at the expense of sales. Just one example involves Saran Wrap, a longtime market leader and one of SC Johnson’s best-known and biggest brands:27

For more than 50 years, Saran Wrap was made with polyvinylidene chloride (PVDC), an ingre- dient responsible for the product’s two major differentiating features: impenetrable odor barrier qualities and superior microwavability. Without PVDC, Saran Wrap would have been no better than competing wraps by Glad and Reynolds, which did not contain PVDC. In the early 2000s, however, regulators, environmentalists, and consumers began to voice concerns about materials containing chlorine, specifically polyvinyl chloride (PVC). In fact, SC Johnson’s own Greenlist analysis—by which it rates product ingredients based on their impact on environmental and human health—confirmed the hazards of PVCs, and the company quickly pledged to eliminate them from its products and packaging.

But SC Johnson took things a step further. In 2004, it also eliminated PVDCs, even though that important ingredient had not yet come under scrutiny. The company developed a PVDC- free polyethylene version of Saran Wrap, an admittedly less effective product. Sure enough, Saran Wrap’s market share dropped from 18 percent in 2004 to only 11 percent today. Over the years, however, even though such decisions have sometimes hurt sales, they have helped SC Johnson to earn and keep the trust of customers. “I don’t regret the decision,” says SC Johnson’s CEO. “Despite the cost, it was the right thing to do, and . . . I sleep better at night be- cause of it. We gained a surer sense of who we are as a company and what we want SC Johnson to represent.”

As with environmentalism, the issue of ethics presents special challenges for interna- tional marketers. Business standards and practices vary a great deal from one country to the next. For example, bribes and kickbacks are illegal for U.S. firms, and various treaties against bribery and corruption have been signed and ratified by more than 60 countries. Yet these are still standard business practices in many countries. The World Bank esti- mates that bribes totaling more than $1 trillion per year are paid out worldwide. One study showed that the most flagrant bribe-paying firms were from Indonesia, Mexico, China, and Russia. Other countries where corruption is common include Sierra Leone, Kenya, and Yemen. The least corrupt were companies from Australia, Denmark, Finland, and Japan.28 The question arises as to whether a company must lower its ethical standards to compete effectively in countries with lower standards. The answer is no. Companies should make a commitment to a common set of shared standards worldwide.

Many industrial and professional associations have suggested codes of ethics, and many companies are now adopting their own codes. For example, the American Marketing Association, an international association of marketing managers and scholars, developed a code of ethics that calls on marketers to adopt the following ethical norms:29

● Do no harm. This means consciously avoiding harmful actions or omissions by embodying high ethical standards and adhering to all applicable laws and regula- tions in the choices we make.

● Foster trust in the marketing system. This means striving for good faith and fair dealing so as to contribute toward the efficacy of the exchange process as well as avoiding deception in product design, pricing, communication, and delivery or distribution.

● Embrace ethical values. This means building relationships and enhancing con- sumer confidence in the integrity of marketing by affirming these core values: honesty, responsibility, fairness, respect, transparency, and citizenship.

Companies are also developing programs to teach managers about important ethical issues and help them find the proper responses. They hold ethics workshops and seminars and create ethics committees. Furthermore, most major U.S. companies have appointed high- level ethics officers to champion ethical issues and help resolve ethics problems and concerns facing employees. And most companies have established their own codes of ethical conduct.

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Google is a good example. Its official Google Code of Conduct is the mechanism by which the company puts its well-known “Don’t be evil” motto into practice. The detailed code’s core message is simple: Google employees (known inside as “Googlers”) must earn users’ faith and trust by holding themselves to the highest possible standards of ethical business conduct. The Google Code of Conduct is “about providing our users unbiased access to information, focusing on their needs, and giving them the best products and ser- vices that we can. But it’s also about doing the right thing more generally—following the law, acting honorably, and treating each other with respect.”

Google requires all Googlers—from board members to the newest employee—to take per- sonal responsibility for practicing both the spirit and letter of the code and encouraging other Googlers to do the same. It urges employees to report violations to their managers, to human resources representatives, or using an Ethics &

Compliance hotline. “If you have a question or ever think that one of your fellow Googlers or the company as a whole may be falling short of our commitment, don’t be silent,” states the code. “We want—and need—to hear from you.”30

Still, written codes and ethics programs do not ensure ethical behavior. Ethics and social responsibility require a total corporate commitment. They must be a component of the overall corporate culture. As the Google Code of Conduct concludes: “It’s impossible to spell out every possible ethical scenario we might face. Instead, we rely on one anoth- er’s good judgment to uphold a high standard of integrity for ourselves and our company. Remember . . . don’t be evil. If you see something that isn’t right, speak up!”

the sustainable company At the foundation of marketing is the belief that companies that fulfill the needs and wants of customers will thrive. Companies that fail to meet customer needs or that intentionally or unintentionally harm customers, others in society, or future generations will decline.

Says one observer, “Sustainability is an emerging business megatrend, like electrifi- cation and mass production, that will profoundly affect companies’ competitiveness and even their survival.” Says another, “increasingly, companies and leaders will be assessed not only on immediate results but also on . . . the ultimate effects their actions have on soci- etal wellbeing. This trend has been coming in small ways for years but now is surging. So pick up your recycled cup of fair-trade coffee, and get ready.”31

Sustainable companies are those that create value for customers through socially, environmentally, and ethically responsible actions. Sustainable marketing goes beyond caring for the needs and wants of today’s customers. It means having concern for tomor- row’s customers in ensuring the survival and success of the business, shareholders, employees, and the broader world in which they all live. It means pursuing the mission of a triple bottom line: people, planet, profits. Sustainable marketing provides the context in which companies can build profitable customer relationships by creating value for cus- tomers in order to capture value from customers in return—now and in the future.

Marketing ethics: google’s code of conduct is the mechanism by which the company puts its well-known “Don’t be evil” motto into practice. Pearson Education

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chaPter reVieW anD critical thinking

In this chapter, we addressed many of the important sustainable marketing concepts related to marketing’s sweeping impact on individual consumers, other businesses, and society as a whole. Sustainable marketing requires socially, environmentally, and ethically responsible actions that bring value to not only pres- ent-day consumers and businesses but also future generations and society as a whole. Sustainable companies are those that act responsibly to create value for customers in order to capture value from customers in return—now and in the future.

objectiVe 16-1 Define sustainable marketing and discuss its importance. (pp 490–492)

Sustainable marketing calls for meeting the present needs of con- sumers and businesses while preserving or enhancing the ability of future generations to meet their needs. Whereas the marketing con- cept recognizes that companies thrive by fulfilling the day-to-day needs of customers, sustainable marketing calls for socially and environmentally responsible actions that meet both the immediate and future needs of customers and the company. Truly sustain- able marketing requires a smooth-functioning marketing system in which consumers, companies, public policy makers, and others work together to ensure responsible marketing actions.

objectiVe 16-2 identify the major social criticisms of marketing. (pp 492–499)

Marketing’s impact on individual consumer welfare has been criticized for its high prices, deceptive practices, high-pressure selling, shoddy or unsafe products, planned obsolescence, and poor service to disadvantaged consumers. Marketing’s impact on society has been criticized for creating false wants and too much materialism, too few social goods, and cultural pollu- tion. Critics have also denounced marketing’s impact on other businesses for harming competitors and reducing competition through acquisitions, practices that create barriers to entry, and unfair competitive marketing practices. Some of these concerns are justified; some are not.

objectiVe 16-3 Define consumerism and environmen- talism and explain how they affect marketing strategies. (pp 499–506)

Concerns about the marketing system have led to citizen action movements. Consumerism is an organized social movement

reVieWing anD extenDing the concePts

objectives review intended to strengthen the rights and power of consumers relative to sellers. Alert marketers view it as an opportunity to serve consumers better by providing more consumer infor- mation, education, and protection. Environmentalism is an organized social movement seeking to minimize the harm done to the environment and quality of life by marketing practices. Most companies are now accepting responsibility for doing no environmental harm. They are adopting policies of environ- mental sustainability—developing strategies that both sustain the environment and produce profits for the company. Both consumerism and environmentalism are important components of sustainable marketing.

objectiVe 16-4 Describe the principles of sustainable marketing. (pp 506–510)

Many companies originally resisted these social movements and laws, but most now recognize a need for positive consumer information, education, and protection. Under the sustainable marketing concept, a company’s marketing should support the best long-run performance of the marketing system. It should be guided by five sustainable marketing principles: consumer-oriented marketing, customer value marketing, inno- vative marketing, sense-of-mission marketing, and societal marketing.

objectiVe 16-5 explain the role of ethics in marketing. (pp 510–513)

Increasingly, companies are responding to the need to provide company policies and guidelines to help their managers deal with questions of marketing ethics. Of course, even the best guidelines cannot resolve all the difficult ethical decisions that individuals and firms must make. But there are some principles from which marketers can choose. One principle states that the free market and the legal system should decide such issues. A second and more enlightened principle puts responsibility not on the system but in the hands of individual companies and managers. Each firm and marketing manager must work out a philosophy of socially responsible and ethical behavior. Under the sustainable marketing concept, managers must look beyond what is legal and allowable and develop standards based on personal integrity, corporate conscience, and long-term con- sumer welfare.

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key terms objective 16-1 Sustainable marketing (p 490)

objective 16-3 Consumerism (p 500) Environmentalism (p 501) Environmental sustainability (p 501)

objective 16-4 Consumer-oriented marketing (p 506) Customer value marketing (p 506) Innovative marketing (p 507) Sense-of-mission marketing (p 507)

Societal marketing (p 509) Deficient products (p 509) Pleasing products (p 509) Salutary products (p 509) Desirable products (p 509)

Discussion Questions 16-1. What is sustainable marketing? Explain how the sus-

tainable marketing concept differs from the marketing concept and the societal marketing concept. (AASCB: Communication)

16-2. What is planned obsolescence? How do marketers respond to this criticism? (AACSB: Communication; Reflective Thinking)

16-3. How can marketers respond to the criticism that mar- keting creates false wants and encourages materialism? (AACSB: Communication)

16-4. How can marketing practices create barriers to entry that potentially harm other firms? Are these barriers helpful or harmful to consumers? (AACSB: Commu- nication; Reflective Thinking)

16-5. What is environmental sustainability? How should companies gauge their progress toward achieving it? (AACSB: Communication)

critical thinking exercises 16-6. The chapter discusses McDonald’s responses to social

responsibility criticisms. Find other examples of how marketers have responded to social criticisms of their products or marketing practices. (AACSB: Communi- cation; Reflective Thinking)

16-7. Deceptive advertising hurts consumers and competitors alike, and the Federal Trade Commission has stepped up efforts to combat it. Discuss a recent example of decep-

tive advertising investigated by the FTC and one investi- gated by the industry self-regulatory body, the National Advertising Division (NAD). (AACSB: Communication; Use of IT; Reflective Thinking)

16-8. In a small group, discuss each of the morally difficult situations in marketing presented in Table 16.1. Which ethics philosophy is guiding your decision in each situ- ation? (AACSB: Communication; Ethical Reasoning)

Facebook changed its policy and now allows teens’ posts to become public. Before the change, Facebook would allow 13- to 17-year-old users’ posts to be seen only by their “friends” and “friends of friends.” Now, however, their posts can be seen by anyone on the network if teens choose to make their posts “public.” Twitter, another social medium gaining popularity with teens, has always let users, including teens, share Tweets publicly. But because of Facebook’s vast reach, privacy advo- cates are very concerned about this latest development, particu- larly when it comes to children’s safety. Online predators and bullying are real safety issues facing youth. Other criticisms of Facebook’s decision boil down to money—some argue that the change was just about monetizing kids. Facebook can offer a younger demographic to advertisers wanting to reach them.

Facebook defended its actions, saying the change in policy is due to teenagers wanting the ability to post publicly, primarily for fundraising and promoting extracurricular activities such as sports and other school student organizations. Facebook has added precautions, such as a pop-up warning before teens can post publicly and making “seen only by friends” as the default that must be changed if the teen desires posts to be public.

16-9. Is Facebook acting responsibly or merely trying to monetize kids as critics claim? (AACSB: Communica- tion; Ethical Reasoning)

16-10. Come up with creative ways marketers can reach this demographic on Facebook without alienating parents. (AACSB: Communication; Reflective Thinking)

Minicases anD aPPlications

online, Mobile, and social Media Marketing teens and social Media

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Marketing ethics Pricey Deal? Kmart offers a lease-to-own program targeted to low-income con- sumers and is taking some heat over it. Rent-to-own is not new— chains such as Aaron’s and Rent-A-Center have been around for years—but it is new that a mainstream retailer has moved into this market. Kmart’s parent corporation, Sears Holdings, launched a similar program, and according to a company executive, it is satisfying the unmet needs of new customers. Some critics say that it is just encouraging instant gratification and exploit- ing disadvantaged consumers. These types of customers don’t qualify for credit and don’t have enough cash to purchase desired products outright, such as televisions and other big-ticket items. However, a $300 TV purchased through Kmart’s program ends up costing consumers $415 if purchased at the end of the lease. If customers make just minimum payments over the course of the lease, one expert calculated, that it is equivalent to charging a

117 percent annual interest rate. Sears spokespeople defend their service as being better for consumers compared with other rent- to-own options because the retailer does not mark up the price of the product beyond the normal retail markup and limits the lease period to 18 months, whereas other national rental chains’ prices are much higher and leases can run two to four years.

16-11. Are Sears and Kmart exploiting disadvantaged con- sumers? Explain why or why not. (AACSB: Commu- nication; Ethical Reasoning)

16-12. Low-income consumers often don’t have bank ac- counts and credit cards. Describe how some financial institutions are trying to meet the needs of these “un- banked” consumers. (AACSB: Communication; Re- flective Thinking)

Marketing by the numbers the cost of sustainability Kroger, the country’s leading grocery-only chain, added a line of private-label organic and natural foods call Simple Truth to its stores. If you’ve priced organic foods, you know they are more expensive. For example, a dozen conventionally farmed Grade A eggs at Kroger costs consumers $1.70, whereas Simple Truth eggs are priced at $3.50 per dozen. One study found that, overall, the average price of organic foods is 85 per- cent more than that of conventional foods. However, if prices get too high, consumers will not purchase the organic options. One element of sustainability is organic farming, which costs much more than conventional farming, and those higher costs are passed on to consumers. Suppose that a conventional egg farmer’s average fixed costs per year for conventionally farmed eggs are $1 million, but an organic egg farmer’s fixed costs

are three times that amount. Further assume that the organic farmer’s variable costs of $1.80 per dozen are twice as much as a conventional farmer’s variable costs. Refer to Appendix 3: Marketing by the Numbers to answer the following questions.

16-13. Most large egg farmers sell eggs directly to retailers. Using Kroger’s prices, what is the farmer’s price per dozen to the retailer for conventional and organic eggs if Kroger’s margin is 20 percent based on its retail price? (AACSB: Communication; Analytical Reasoning)

16-14. How many dozen eggs does a conventional farmer need to sell to break even? How many does an organic farm- er need to sell to break even? (AACSB: Communica- tion; Analytical Reasoning)

Video case: honest tea Honest Tea, the Coca-Cola brand that produced $130 million in global revenues last year, got its start because cofounder Seth Goldman didn’t like the options in the beverage coolers at convenience stores. So with the help of a former profes- sor, he launched Honest Tea—the nation’s first fully organic bottled tea.

But the company’s drive for success was not based not as much on profits as on a desire to change the world. With social responsibility steeped deep into its business model, Honest Tea set out to help develop the economic structure of impov- erished nations. Honest Tea purchased raw ingredients from Native American and South African farmers and invested in its

supplier-farmers to help them become self-reliant. Although Honest Tea has been a wholly owned subsidiary of the Coca- Cola Company since 2011, it continues to operate on the prin- ciples of social responsibility established by its founders.

After viewing the video featuring Honest Tea, answer the following questions:

16-15. List as many examples as you can showing how Honest Tea defies the common social criticisms of marketing.

16-16. How does Honest Tea practice sustainable marketing? 16-17. With all its efforts to do good, can Honest Tea continue

to do well? Explain.

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company cases 16 adidas/5 goldieblox See Appendix 1 for cases appropriate for this chapter. Case 16, Adidas: Athletic Apparel With Purpose. While it has been fighting for global dominance in athletic footwear and apparel, adidas has been quietly establishing itself as one of the most sustainable corporations in the world. Case 5, GoldieBlox:

Swimming Upstream Against Consumer Perceptions. A new toy company, GoldieBlox is out to change how people think of toys for girls with the message that success comes not from playing with dollhouses, but from building them.

MyMarketingLab If assigned by your instructor, complete these writing sections from your Assignments in the MyLab.

16-18. What is consumerism? What rights do consumers have, and why do some critics feel buyers need more protection? (AACSB: Communication)

16-19. Discuss the philosophies that might guide marketers facing ethical issues. (AACSB: Written and Oral Communication)

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Company Case 1 FedEx: Making Every Customer Experience Outstanding When you have a package that absolutely must arrive at a distant location within 24 hours, what’s the first company that comes to mind? More than likely, it’s FedEx. Just as Google is used as a verb for Internet search, FedEx is often synonymous with overnight shipping, as in “I’ll FedEx it to you.” From its humble beginnings in 1971, FedEx has grown into a $46-billion-a-year global giant. Every day, 325,000 FedEx employees deliver 11 million packages via 673 aircraft and 100,000 motor vehicles, connecting more than 99 percent of world’s GDP. How did FedEx become so successful? Through its single-minded focus on the customer experience.

Starting with a Customer Need Even in this era when Internet start-ups get all the press for amaz- ing entrepreneurial stories, FedEx still stands as one of the great- est business success stories of the past 40 years. It all started in the 1960s when Fred Smith, FedEx’s founder and current chairman and CEO, was an undergraduate student at Yale, paying his way through school working as a charter pilot. As he crossed paths with corporate pilots, the young Smith saw a trend emerging. Computers and other high-tech components were rapidly finding their way into the business world. But when those things broke down, companies had difficulty getting urgently needed parts to the right places quickly. There were no services for regional or national overnight shipping. In fact, companies often used their own corporate planes as internal courier systems—at great expense—to cart around parts in an effort to minimize downtime.

Smith wrote a paper for an economics class at Yale, pro- posing the idea of a national overnight-delivery service (report- edly, the professor gave him a C on the paper, calling the idea infeasible). But it wasn’t until after college and a tour of duty in the Marine Corps that Smith decided to actually do something about the idea. Smith knew that the need for businesses to move packages fast would only grow with time. With that insight, the FedEx Corporation (Federal Express back then) was born, with eight aircraft providing overnight delivery service to 35 cities.

Putting the Customer First More than just a good idea at the right time, one thing has kept FedEx growing and thriving over the past four decades. From the beginning, FedEx was built on a foundation of obsessive

customer focus. “If people were going to use FedEx in lieu of having incalculable amounts of money tied up in inventories, it ‘absolutely, positively’ had to be there when promised,” said Smith in a recent interview. Hence came FedEx’s first position- ing slogan—FedEx: When it absolutely, positively has to be there overnight.

To ensure that FedEx could deliver on that promise, Smith pursued the goal with a “no holds barred” vigor. He began FedEx with a nationwide clearinghouse infrastructure and its own fleet of planes and trucks, giving the company complete control. But while complex and expensive, those attributes were conventional. It was the unconventional elements that charac- terized the boundless pursuit of customer service that formed the core of the FedEx brand.

For example, when FedEx first started shipping packages, no one had ever printed “multiform, sequentially numbered” labels that could be attached to items and machine-read. And no other shipper had even contemplated using small, hand-held computers with barcode-scanning capabilities to communicate shipping information on a real-time basis. No company was tracking inventory on the move, let alone coordinating it with stationary inventory. It was these kinds of innovative capabili- ties that allowed Smith and FedEx to reliably move packages from one city to another in such a short time. These technolo- gies not only made FedEx’s service possible, they also gave rise to companies such as Walmart, Dell, and countless others.

The tenacious pursuit of fulfilling customer needs in FedEx’s early days led to what is known at the company today as the “Purple Promise,” a promise committed to memory by every FedEx employee: “I will make every FedEx experience outstanding.” Fulfilling this promise requires elements of good service, such as treating “customers in a professional, compe- tent, polite, and caring manner” and handling “every customer transaction with the precision required to achieve the highest quality service.” But the Purple Promise goes far beyond tra- ditional service. It requires all employees, regardless of their job titles, to recognize that what they do affects how customers perceive the FedEx brand.

Consider how FedEx fixed the problem of its “leaning tower of packages.” For years, FedEx management thought of the majority of customers at its World Service Centers and FedEx Office locations as “Frisbees”—customers who step in, drop off packages, and step back out as quickly as possible. Management also thought it was doing a good job of serving these customers. However, recently, company satisfaction sur- veys began to reveal that not all customers were pleased with their experiences when dropping off packages.

FedEx quickly commissioned a study, which revealed that only about 10 percent of its drop-off customers were, in fact,

Appendix 1 Company Cases

520 Appendix 1: Company Cases

them all over the world to my customers. I know that I can get something from India and to my house in the middle of Maine in three days. That’s amazing!” Snow is now a huge FedEx fan and advocate. She shares stories of excellent FedEx support every- where she goes.

Chinks in the Armor Despite FedEx’s obsessive customer focus, with 11 million packages flying all over the planet every day, there are bound to be some glitches now and then. And while social media have been a tremendous blessing, they can also be a curse. In the past few years, FedEx has had its share of videos go viral showing employees mishandling packages. For example, there’s the one of a Maryland FedEx driver, captured by the resident’s security camera, throwing a package onto a front porch from a distance of about 20 feet. Then there’s the FedEx truck driving down a Colorado highway two days before Christmas with its rear door wide open and packages falling out onto the highway. And who can forget the FedEx driver who tossed a package containing a Samsung computer monitor over a six-foot iron fence onto a customer’s driveway, with the FedEx truck clearly visible in the background.

As if employees caught on video aren’t bad enough, a Phil- adelphia FedEx driver was caught stealing iPhones out of cus- tomers’ packages. He was charged, tried, and found guilty to the tune of $40,000 worth of stolen merchandise. On a corporate level, FedEx was caught overcharging some business custom- ers by as much as $3 per package over a three-year period. The company settled the ensuing lawsuit for $21.5 million.

Although none of these actions are justifiable, the fallout would have been far worse had it not been for similar bad press for competitor UPS, including videos of drivers throwing pack- ages, making obscene gestures at a security camera, and even stealing iPads off porches (delivered by FedEx, no less). In FedEx’s case, the company took responsibility when it needed to, fired offending employees, and made restitution for dam- ages. In the case of the Samsung monitor–throwing incident, the aggrieved customer even received a personal visit and apol- ogy from FedEx’s senior vice president of operations. “This goes directly against all FedEx values,” declared the executive.

Today, FedEx continues to focus on its goal to “make every FedEx experience outstanding.” According to one recent com- pany statement, “Everyone at FedEx is committed to placing customer needs at the center of everything we do.” The pledge seems to receive more than just lip service. FedEx routinely ranks among the top 10 of both MSN Money’s “Customer Ser- vice Hall of Fame” and Fortune’s “World’s Most Admired Companies.” With founder Fred Smith still at the helm after more than 40 years, it appears that FedEx intends to be around for the long haul by putting customers first.

Questions for Discussion 1. Give examples of needs, wants, and demands that FedEx

customers demonstrate, differentiating these three concepts.

2. Describe FedEx in terms of the value it provides custom- ers. How does FedEx engage customers?

“Frisbees.” The other 90 percent fell evenly into three differ- ent behavioral groups. The most intriguing of these groups was the “Confirmers.” In a word, Confirmers were “uneasy.” They entered a FedEx location well-prepared, with packages wrapped and ready to go. They had a clear sense of how much shipments would cost and how long they would take to deliver. Still, as they dropped off packages, they were filled with worry that something could go wrong with the shipment. That worry was compounded by the “leaning tower of packages”—FedEx-speak for the piles of packages already stacked behind the counter. For employees, there was no concern in the world that these packages would reach their destination on time. For the Confirmers, however, seemingly haphazard piles of packages sent a visual cue that something in the process was broken, increasing the chances that their packages might get lost. These uneasy customers were on the verge of taking their shipping business elsewhere.

FedEx’s Purple Promise drove the company to make a simple, system-wide change that put the minds of Confirmers at ease. The company placed a wall behind the counter with five presort windows. Employees were then trained to thank the customer, turn around, and slip the package through the win- dow that corresponded to the type of service the customer had purchased. For the Confirmers, this careful and organized pro- cessing of packages was a visible confirmation that packages were safely on their way.

The Purple Promise Today A customer-centric culture requires that a company be flexible and dynamic, modifying its strategies and tactics to fit consumer trends. One example of how FedEx remains open to customer- centered change is the degree to which it has embraced social media. At FedEx, the customer service function is responsible for delighting customers through excellent and timely service. Given the omnipresence of mobile devices and social media in consumers’ lives these days, the customer service function at FedEx often pursues the goal of delighting customers through social channels, including social networks such as Facebook and Twitter, blogs, and live chat.

Marketing through social and mobile media is all the rage these days. But at FedEx, it’s more action than talk. And FedEx goes beyond just listening to customers; it engages them and helps solve their problems. Take the example of Nicole Snow, a now-loyal FedEx customer who owns a small business in Maine called “Darn Good Yarn.”

[Nicole Snow] is in a remote area with few shipping options, and extreme weather makes running her home business more difficult. One day she reached out to FedEx on social networks and asked for help in getting her supply chain set up. The team responded immediately and helped her solve the problem.

Snow’s story is fascinating. She hires women in India and Nepal to make yarn out of reclaimed materials like silk. She is nurturing a supply chain that reaches halfway across the globe as well as sourcing from local businesses in Maine. She is highly engaged in the community through activities like teaching knit- ting classes. “I take materials that otherwise would be thrown out in India and Nepal and import them into Maine and then FedEx

Appendix 1: Company Cases 521

delivery-man-to-packages-spilling-from-open-truck/; Karen Aho, “2013 Customer Service Hall of Fame,” MSN Money, http://money.msn.com/ investing/2013-customer-service-hall-of-fame; Ekaterina Walter, “The Big Brand Theory: How FedEx Achieves Social Customer Service Success,” Social Media Today, May 27, 2013, www.socialmediatoday.com/ ekaterinawalter/1494726/big-brand-theory-how-fedex-achieves-social- customer-service-success; Harley Manning and Kerry Bodine, “How FedEx Revamped Its Brand by Fixing Its ‘Leaning Tower of Packages,’” Fast Company, August 21, 2012, www.fastcompany.com/3000554/how-fedex- revamped-its-brand-fixing-its-leaning-tower-packages; “Online Extra: Fred Smith on the Birth of FedEx,” Business Week, September 19, 2004, www.businessweek.com/stories/2004-09-19/online-extra-fred-smith-on- the-birth-of-fedex; and http://about.van.fedex.com, September 2015.

3. Evaluate FedEx’s performance relative to customer expec- tations. What is the outcome of this process?

4. Which of the five marketing management orientations best applies to FedEx?

5. With increased competition today, how can FedEx continue to be competitive?

Sources: Christopher Tkaczyk, “World’s Most Admired Companies,” Fortune, March 1, 2015, pp. 97–104; “Driver Alerts FedEx Delivery Man to Packages Spilling from Open Truck,” CBS Local, December 23, 2014, http://denver.cbslocal.com/2014/12/22/driver-alerts-fedex-

Company Case 2 Samsung: A Strategic Plan for Success You’re probably familiar with Samsung. Maybe you have one of the company’s hot new Galaxy smartphones or tablets that track your eye movements to help you navigate the screen. You might be doing your homework on one of its cutting-edge laptops. Or perhaps you’ve seen one of its dazzling new ultra- high-definition curved-screen smart TVs with Nano-crystal technology.

Chances are good that you or someone you know owns a Samsung product. After all, Samsung is the world’s largest consumer electronics manufacturer, producing “gotta have” products in just about every electronics category, including TVs, DVD players, home theaters, digital cameras and camcorders, mobile devices, smartwatches, home appliances, laptops, print- ers, and LED lighting.

But only 20 years ago, Samsung was little known, and it was anything but cutting-edge. Back then, Samsung was a Korean copycat brand that you bought off a shipping pallet at Costco if you couldn’t afford a Sony, then the world’s most cov- eted consumer electronics brand. However, in 1993 Samsung made an inspired decision. It turned its back on cheap knock- offs and set out to overtake rival Sony. At the time, no one out- side of Samsung believed that was possible. But the Korean manufacturer passed Sony in just 10 years, and Samsung has been widening the gap that separates it from the former market leader ever since.

The New Management Strategy How did Samsung move so far so fast? The dramatic shift came about as a result of a top-down mandate to reform Sam- sung’s business model and culture. In 1993, CEO Lee Kun- hee unveiled a new strategy. The goal: Dethrone Sony as the biggest and most desirable consumer electronics brand in the world. Turn Samsung into a premier brand and a trailblazing

product leader. To that end, the company hired a crop of fresh, young designers and managers who unleashed a torrent of new products—not humdrum, me-too products, but sleek, bold, and beautiful products targeted to high-end users. Samsung called them “lifestyle works of art.” Every new product had to pass the “Wow!” test: If it didn’t get a “Wow!” reaction during market testing, it went straight back to the design studio.

Beyond just seeking cutting-edge technology and stylish designs, Samsung put the customer at the core of this innova- tion movement. “Put simply, our differentiation is centered on producing innovative technology that brings genuine change to people’s lives,” said Sue Shim, Samsung’s chief marketing officer. “We do this by bringing a relentless focus on consumer experience and product innovation in everything we do.”

With its fresh customer-centered focus, Samsung made quick work of surpassing Sony. Today, Samsung’s annual revenues of $196 billion are more than two and a half times Sony’s $75 billion. And over the past five years, as Samsung’s sales and profits have seen double-digit growth, Sony’s reve- nues have declined and losses have compounded. According to brand tracker Interbrand, Samsung is now the world’s seventh most valuable brand—ahead of megabrands like Disney, Pepsi, Nike, and Toyota—and one of the fastest-growing brands in the world. And Sony? It has fallen from grace as the value of its brand has declined as dramatically as Samsung’s has risen.

But more than growth, Samsung has achieved the new prod- uct Wow! factor it sought. As evidence, Samsung is a dominant force at the annual International Design Excellence Awards (IDEA) presentations—the Academy Awards of the design world—which judge new products based on appearance, func- tionality, and inspirational thinking. Year after year, Samsung emerges as the top corporate winner. Last year, Samsung claimed 10 awards, more than three times as many as the runners-up.

When New Becomes Old Good companies achieve their strategic goals. Great companies modify their strategic plans as goals are met, always looking to the future and positioning themselves to remain in front. After Lee was named top CEO of the Decade by Fortune Korea, he announced that the “new management” plan was old news. After 17 years of

http://money.msn.com/investing/2013-customer-service-hall-of-fame

http://www.socialmediatoday.com/ekaterinawalter/1494726/big-brand-theory-how-fedex-achieves-socialcustomer-service-success

http://www.fastcompany.com/3000554/how-fedex-revamped-its-brand-fixing-its-leaning-tower-packages

http://www.businessweek.com/stories/2004-09-19/online-extra-fred-smith-on-the-birth-of-fedex

http://about.van.fedex.com

http://denver.cbslocal.com/2014/12/22/driver-alerts-fedex-delivery-man-to-packages-spilling-from-open-truck/

http://money.msn.com/investing/2013-customer-service-hall-of-fame

http://www.socialmediatoday.com/ekaterinawalter/1494726/big-brand-theory-how-fedex-achieves-socialcustomer-service-success

522 Appendix 1: Company Cases

In recent years, Samsung has quietly gone about creating a foundation for establishing an interconnective web between all of its products and linking them with the rest of the world. It already makes products in just about every imaginable category of home devices. Not many years ago, it dove into semiconduc- tors, a business that has been growing rapidly for the company in terms of size, innovation, and profitability. And last year, it purchased SmartThings, a smart-home start-up company.

But at the recent Internet of Things World event in San Fran- cisco, Young Sohn, Samsung’s chief strategy officer, blew things wide open. He unveiled a plan that makes Samsung’s intentions clear. The company is committing a funding pool of $100 million to start-ups that want to help build the ecosystem. Committing to a policy of openness and collaboration, Sohn unveiled a new line of semiconductor chips—state-of-the-art processors that combine hardware and software—that are now available for sale, help- ing companies large and small quickly and easily build Internet- connected devices. And to meet what it expects will be enormous demand for these and future chips, Samsung is investing $14 billion in a massive semiconductor manufacturing complex.

To accomplish its goal of becoming a leader in the Internet of Things market, Samsung is taking on its biggest challenge yet. For starters, this shift in strategy broadens Samsung’s list of competitors from an already daunting set to one that includes just about every company in every field of high technology and even some beyond that. Adding to that challenge, there are no common standards for technologies required to connect the many devices of the world—technologies that involve network- ing, software, and hardware. As a result, there are thousands of companies—from Google and Apple to myriad start-ups— trying to move their products toward interconnectivity but not getting much closer to a state of universal compatibility.

To add to this challenge, the many participants in the Inter- net of Things game don’t see eye to eye, a competitive dynamic that makes the process much more difficult. As the many play- ers work toward compatibility, they employ numerous and often incompatible approaches. And whereas Samsung and many others have committed to collaboration and an open ecosystem, others intend to go it alone and develop their own systems. For example, Apple is developing its HomeKit platform—a propri- etary system that allows users to command the devices in their homes through Apple TV using Siri. Remember “Intel Inside”? Picture a “Made for iPhone” logo on devices that would ensure shoppers of interoperability under the Apple system.

But these challenges are not dousing Samsung’s fire. The company’s motivations go beyond greater financial performance. According to Alex Hawkinson, CEO for SmartThings, Samsung is trying to lead by example and trying to “do what is right by the cus- tomers” by giving them more choice and flexibility. “We will focus on creating amazing experiences in both software and hardware, and win through the power of our innovation rather than trying to win by locking others out or limiting choice,” Hawkinson says.

So far as the Internet of Things goes, the ultimate goal is to build artificial intelligence technology that can gather data from smart homes, cars, and wearable devices and turn them into useful insights. That might sounds just a little too Big Brother-ish, but the wheels are already in motion. According to

remarkable success, Lee admitted that Samsung’s main products would likely become obsolete within the next 10 years. He then unveiled the underpinnings of a new strategic direction based on the Chinese axiom mabuljungje—meaning “horse that does not stop.” In a memo to Samsung employees, Lee said, “The ‘new management’ doctrine for the past 17 years helped catapult the company into being one of the world’s best electronics makers. Now is not a time to be complacent but a time to run.”

Although Samsung doesn’t claim to know what will replace today’s products as they become obsolete, it is investing heavily to ensure that it is the company that develops them. Even with its new product systems in place, CEO Lee stresses the need for Samsung to completely overhaul its business model or risk losing market share. Fortunately for Samsung, profits have been so good that it has the funds to support its quest to remain at the top of the innovation heap. Year after year, Samsung boosts its innovation investment budget to record highs, even as its competition makes cuts. Its most recent research and develop- ment expense of $13.4 billion was second only to Volkswagen’s $13.5 billion and more than double that of Amazon, IBM, or Cisco. Sony, Toshiba, Sharp, and Hitachi—Samsung’s more traditional competitors in the past—didn’t even come close.

The folks at Samsung know that future success will require much more than flashy hardware gadgets. For that reason, Sam- sung isn’t really paying attention to Sony anymore. Samsung knows that it cannot thrive in the long term by merely offering sharper colors, better sound quality, or even “Wow!” designs. Over the past half-decade, Samsung has focused on compet- ing with the likes of Apple for dominance of the mobile device market and for the content and advertising that go along with such devices.

That focus has paid off, and Samsung has surged to the top of the smartphone market. Just a few years ago, Samsung’s goal was to double its share of the smartphone market from 5 percent to 10 percent. But the success of the Galaxy line catapulted Samsung into the position of market leader, besting Apple with a global market share of more than 30 percent. And although Apple has the jump on controlling content with more than 100 billion downloads through its App Store, Samsung’s Galaxy App Store is holding its own.

The Internet of Things Despite its indisputable success in smartphones, Samsung knows that that success can be short-lived. Although it still maintains the lead in the market, Samsung’s fortunes have waned in the past year as the latest rendition of the iPhone cut its market share in China in half, reducing its global market share to 25 percent. In a saturated and cut-throat market, Sam- sung knows that future growth will not come from a bigger, better smartphone.

Rather, Samsung is again shifting its strategic direction. Samsung wants to take the lead in “the Internet of Things”— a global environment where all electronic devices, appliances, vehicles, and even static items such as clothing will be digitally connected with each other, with the people who use them, and with the companies that make them.

Appendix 1: Company Cases 523

3. What challenges does Samsung face with such a diverse product portfolio? What benefits?

4. Is Samsung’s current and future strategy customer focused? Why or why not?

5. Will Samsung be successful in achieving its goal of becom- ing a leader in the Internet of Things market?

Sources: Jared Newman, “Samsung’s $100 Million Internet of Things Bet Is Even Crazier Than You Think,” Fast Company, January 28, 2015, www.fastcompany.com/3041104/app-economy/samsungs-100- million-internet-of-things-bet-is-even-crazier-than-you-think; Parmy Olson, “Samsung Set to Unveil New Chips to Power Internet of Things,” Forbes, May 12, 2015, www.forbes.com/sites/parmyolson/ 2015/05/12/samsung-artik-system-on-a-chip-internet-of-things/; Brian X. Chen, “Samsung Emerges as a Potent Rival to Apple’s Cool,” New York Times, February 11, 2013, p. B1; Laurie Burkitt, “Samsung Courts Consumers, Marketers,” Forbes, June 7, 2010, p. 27; Choi He-suk, “Samsung Renews Resolve to Reform,” Korea Herald, June 8, 2010, www.koreaherald.com/view.php?ud=20100607001598; Max Chafkin, “Samsung: For Elevating Imitation to an Art Form,” Fast Company, March 2013, p. 108; Shara Tibken, “Samsung Launches Artik Chips for the Internet of Things,” CNet, May 12, 2015, www .cnet.com/news/samsung-launches-artik-chips-for-internet-of-things/; and information from www.samsung.com, accessed September 2015.

one conservative estimate, the number of networked devices will surge from about a billion today to 26 billion by 2020, repre- senting a $3 trillion market. By that time, Samsung claims that 100 percent of the products it makes will be Internet-connected.

Twenty years ago, few people would have predicted that Samsung could have transformed itself so quickly and completely from a low-cost copycat manufacturer into a world- leading innovator of stylish, high-performing, premium products. But through savvy strategic planning, that’s exactly what Samsung has done. And not so long ago, few if any would have predicted that Samsung would be one of the driving forces behind creat- ing a world that is entirely interconnected. Yet, while that much remains to be seen, Samsung certainly seems to have all the right ingredients. And, based on it record of success, Yoon may have waxed prophetic as he unveiled Samsung’s new strategic direc- tion: “We have to show consumers what’s in it for them and what the Internet of Things can achieve—to transform our economy, society, and how we live our lives.”

Questions for Discussion 1. How was Samsung able to go from a copycat brand to an

innovation leader?

2. In recent years, how has Samsung achieved its goals in markets where it had little presence, such as smartphones?

Company Case 3 Sony: Battling the Marketing Environment’s “Perfect Storm” With all the hype these days about companies such as Apple, Google, Amazon, and Samsung, it’s hard to remember that com- panies like Sony once ruled. In fact, not all that long ago, Sony was a high-tech rock star, a veritable merchant of cool. Not only was it the world’s largest consumer electronics company, its his- tory of innovative products—such as Trinitron TVs, Walkman portable music players, Handycam video recorders, and PlaySta- tion video game consoles—had revolutionized entire industries. Sony’s innovations drove pop culture, earned the adoration of the masses, and made money for the company. The Sony brand was revered as a symbol of innovation, style, and high quality.

Today, however, Sony is more a relic than a rock star, lost in the shadows of today’s high-fliers. While Sony is still an enormous company with extensive global reach, Samsung overtook the former market leader as the world’s largest con- sumer electronics company more than a decade ago and has been pulling away ever since. Likewise, Apple has pounded Sony with one new product after another. “When I was young, I had to have a Sony product,” summarizes one analyst, “but for the younger generation today it’s Apple.” The company’s latest slogan is “Be Moved.” But that seems only to be pointing to the migration of Sony’s customers to other brands.

Sony’s declining popularity among consumers is reflected in its financial situation. For the most recent year, Samsung and Apple each tallied revenues exceeding $180 billion—more than double Sony’s top line. Samsung’s profits have surged in recent years while Sony’s losses reached catastrophic levels. And whereas stock prices and brand values have skyrocketed for competitors, Sony’s have reached new lows. Adding insult to injury, Moody’s Investors Service recently cut Sony’s credit rating to “junk” status.

How did Sony fall so hard so fast? The answer is a complex one. Sony never lost the capabilities that made it great. In fact, throughout the past decade, Sony was poised to sweep the mar- kets for mp3 players, smartphones, online digital stores, and many other hit products that other companies have marketed successfully. But Sony was caught in the middle of a perfect storm of environmental forces that inhibited its growth and suc- cess. Some factors were beyond Sony’s control. However, at the core of it all, Sony took its eye off the market, losing sight of the future by failing to adapt to important changes occurring all around it.

Hit on All Sides For starters, Sony fell behind in technology. The company built its once-mighty empire based on the innovative engineering and design of standalone electronics—TVs, CD players, and video game consoles. However, as Internet and digital tech- nologies surged, creating a more connected and mobile world, standalone hardware was rapidly replaced by new connecting

http://www.fastcompany.com/3041104/app-economy/samsungs-100-million-internet-of-things-bet-is-even-crazier-than-you-think

http://www.forbes.com/sites/parmyolson/2015/05/12/samsung-artik-system-on-a-chip-internet-of-things/

http://www.koreaherald.com/view.php?ud=20100607001598

http://www.samsung.com

http://www.forbes.com/sites/parmyolson/2015/05/12/samsung-artik-system-on-a-chip-internet-of-things/

www.cnet.com/news/samsung-launches-artik-chips-for-internet-of-things/

524 Appendix 1: Company Cases

The Turnaround As Sony awoke to the reality of flattening revenues and plum- meting profits, it made efforts to turn things around. In 2005, then-CEO Stringer moved in to put Sony back on track. To his credit, Stringer made a credible effort to reignite company, developing a turnaround plan aimed at changing the Sony mind- set and moving the company into the new connected and mobile digital age. Stringer’s efforts were slow to take root, meeting resistance within Sony’s hardware-worshipping culture. “When- ever I mentioned content,” he says, “people would roll their eyes because, ‘This is an electronics company, and content is sec- ondary.’” But even with its rigid structure and inflexible culture working against it, Sony’s strengths kept it in the game. In fact, just a few years into Stringer’s tenure, the once-great consumer electronics giant began to show signs of life, as Sony’s profits jumped 200 percent to $3.3 billion on rising revenue.

But if Sony didn’t already have enough challenges, this uptick occurred just as the Great Recession hit. A year later, Sony was right back where it started with a billion-dollar loss. Stringer was quick to point out that if not for the global finan- cial collapse and the yen trading near a post-war high, Sony would have been comfortably profitable. After a few more years of negative profits, Sony was again poised for success. Its best batch of new products in more than a decade was heading for store shelves. Perhaps more important, the company was ready to launch the Sony Entertainment Network—an iTunes-like global network that would finally combine Sony’s strengths in movies, music, and video games with all its televisions, PCs, phones, and tablets. Analysts forecasted a profit of $2 billion.

But on March 11, 2011, Stringer received a text message at 4:30 am, after having just arrived in New York City. East- ern Japan had been devastated by an earthquake and tsunami. Nobody at Sony was hurt. In fact, Sony’s employees dove into rescue efforts, fashioning rescue boats from foam shipping con- tainers to assist in saving victims and ferrying supplies. But in the aftermath of the destruction, Sony shuttered 10 plants, disrupting the flow of Blu-ray discs, batteries, and many other Sony items.

In the wake of the extreme economic and natural disasters, Sony’s miseries had only just begun. A month later, a hacking attack invaded the company’s Internet entertainment services. In what was determined to be the second-largest online data breach in U.S. history, Sony was forced to shut down the Play- Station Network. A short four months later, fires set by riot- ers in London destroyed a Sony warehouse and an estimated 25 million CDs and DVDs, gutting the inventory of 150 inde- pendent labels. And to round out the year, floods in Thailand shut down component plants, disrupting production and distri- bution of Sony cameras.

Sony’s big comeback turned out to be big all right, but for all the wrong reasons. The projected $2 billion profit ended up as a $3.1 billion loss, marking a three-year losing streak. As Stringer prepared to fade away into retirement, Kazuo Hirai, Sony’s emerging CEO, began speaking publicly of Sony’s “sense of crisis.” Indeed, Sony entered the record books the fol- lowing year with a net loss of $6 billion—its biggest ever.

technologies, media, and content. As the world of consumer entertainment gave way to digital downloads and shared con- tent accessed through PCs, iPods, smartphones, tablets, and Internet-ready TVs, Sony was late to adapt.

Behaving as though its market leadership could never be challenged, an arrogant Sony clung to successful old technolo- gies rather than embracing new ones. For example, for three years prior to the launch of Apple’s first iPod in 2001, Sony had been selling devices that could download and play digital music files. Sony had everything it needed to create an iPod/iTunes-type world, including its own recording company. But it passed up that idea in favor of continued emphasis on its then-highly suc- cessful CD business. “[Apple’s] Steve Jobs figured it out, we fig- ured it out, we didn’t execute,” said Sir Howard Stringer, former Sony CEO. “The music guys didn’t want to see the CD go away.”

Similarly, as the world’s largest TV producer, Sony clung to its cherished Trinitron cathode-ray-tube technology. Mean- while, Samsung, LG, and other competitors were moving rap- idly ahead with flat screens. Sony eventually responded. But today, both Samsung and LG sell more TVs than Sony. Sony’s TV business, once its main profit center, has lost $8 billion over the last 11 years. In an effort to get back on its feet, Sony spun off its TV division into a standalone unit. But it faces a daunt- ing uphill battle in a competitive landscape that is far different from the one in Sony’s heyday. Not only does Sony continue to lose market share to Samsung and LG, but Chinese TV makers such as Haier, Hisense, and TCL are producing cutting-edge flat-panel offerings with a cost advantage that significantly undercuts Sony.

It was a similar story for Sony’s PlayStation consoles, once the undisputed market leader and accounting for one-third of Sony’s profits. Sony yawned when Nintendo introduced its innovative motion-sensing Nintendo Wii, dismissing it as a “niche game device.” Instead, Sony engineers loaded up the PS3 with pricey technology that produced a loss of $300 per unit sold. Wii became a smash hit and the best-selling game console; the PS3 lost billions for Sony, dropping it from first place to third.

Even as a money loser, the PlayStation system, with its elegant blending of hardware and software, had all the right ingredients to make Sony a leader in the new world of digital entertainment distribution and social networking. Executives inside Sony even recognized the PlayStation platform as the “epitome of convergence,” with the potential to create “a fusion of computers and entertainment.” In other words, Sony could have made a strong competitive response to Apple’s iTunes. But that vision never materialized, and Sony has lagged in the bur- geoning business of connecting people to digital entertainment.

There are plenty of other examples of Sony’s failure to capitalize on market trends despite the fact that it had the prod- ucts to do so. Consider the Sony MYLO (or MY Life Online), a clever device released a year before the first iPhone that had the essence of everything that would eventually define the smart- phone—a touch screen, Skype, a built-in camera, even apps. Or how about the long line of Sony Reader devices, the first of which was released a year before Amazon took the world by storm with its first Kindle.

Appendix 1: Company Cases 525

in today’s connected market. But so far, Sony doesn’t seem to be making the kinds of changes needed to bring those ingredi- ents together. And even if it does, can the Sony brand regain the allure that will bring consumers calling?

Questions for Discussion 1. What microenvironmental factors have affected Sony’s

performance since 2000?

2. What macroenvironmental factors have affected Sony’s performance during that period?

3. What stands in the way of Sony’s success today?

4. Given Sony’s current situation, what recommendations would you make to Hirai for the future of the company?

Sources: Ewan Spence, “Sony’s Lost Confidence Will Doom the Xperia Z4,” Forbes, April 24, 2015, www.forbes.com/sites/ewanspence/2015/ 04/24/sony-xperia-z4-pr-fail/; Will Ripley and Charles Riley, “Can Any- thing Save Sony?” CNNMoney, October 31, 2014, http://money.cnn .com/2014/10/30/technology/sony/; James McQuivey, “Sony Should Have Been a Digital Contender,” Forbes, February 6, 2014, www .forbes.com/sites/forrester/2014/02/06/sony-should-have-been-a-digital- contender/; Cliff Edwards and Mariko Yasu, “Sony’s Search for Cool. The Old-Fashioned Way,” Bloomberg Businessweek, February 24, 2013, pp. 20–21; and information from www.sony.net, accessed September 2015.

Assessing the Damage So, in the end, just what is it that has caused Sony’s dramatic fall from grace? Was it an addiction to hardware, an uncompeti- tive cost structure, the global financial crisis, natural disasters, computer hacking, or riots? In retrospect, all these elements of the marketing environment combined to deliver blow after blow. Sony’s encounter with a perfect storm of environmental forces illustrates the havoc such forces can wreak—whether unforeseeable natural and economic events or more predictable turns in technology.

Throughout Sony’s recent turbulent existence, a few things remain clear. Sony is a company with a long history and strong legacy that refuses to give up. Even now, CEO Hirai and others at Sony are firmly resolved to save the company. In addition to spinning off the TV division, Hirai sold Sony’s Vaio PC opera- tion and cut thousands of jobs as part of a restructuring plan with the purpose of cutting costs and making Sony profitable again. But as revenues continue to slide and seven-figure annual losses continue to mount, there are few lifelines in sight. Sony hasn’t had a breakout product in more than a decade. Even now, the most innovative items in development are a mobile payment device and smart glasses, products that competitors have already brought to the market. With its existing portfolio of products and the Sony Entertainment Network, the company still has all the ingredients needed to become a total entertainment provider

Company Case 4 Campbell Soup Company: Watching What You Eat You might think that a well-known, veteran consumer products company like the Campbell Soup Company has it made. After all, when people think of soup, they think of Campbell’s. Selling products under such an iconic brand name should be a snap. But if you ask Denise Morrison, CEO of Campbell, she’ll tell you a different story. Just a few years ago, when Morrison took over as head of the world’s oldest and best-known soup company, she faced a big challenge—reverse the declining market share of a 144-year-old brand in a mature, low-growth, and fickle market characterized by shifting consumer preferences, ever-expanding tastes, and little tolerance for price increases. Turning things around would require revitalizing the company’s brands in a way that would attract new customers without alienating the faithful who had been buying Campbell products for decades.

Morrison had a plan. A core element of that plan was to maintain a laser-like focus on consumers. “The consumer is our boss,” Morrison said. “[Maintaining a customer focus] requires a clear, up-to-the-minute understanding of consumers in order to create more relevant products.” Morrison’s plan involved transforming the traditional stagnant culture of a corporate dinosaur into one that embraces creativity and flexibility. But it

also involved employing innovative methods that would allow brand managers and product developers to establish the cus- tomer understanding that was so desperately needed. In other words, marketing research at the Campbell Soup Company was about to change.

Reading Consumers’ Minds Soup is a well-accepted product found in just about everyone’s pantry in the United States. However, not long ago, Campbell researchers discovered that marketing soups presents unique problems. People don’t covet soup. Sure, a steaming bowl of savory soup really hits the spot after coming in out of a bitingly cold rain. But soup is not a top-of-mind meal or snack choice, and it’s typically a prelude to a more interesting main course. The bottom line—consumers don’t really think much about soup, making meaningful marketing research difficult.

For years, Campbell researchers relied on good old paper- and-pencil surveys and traditional interviews to gain consumer insights for making ads, labels and packaging, and the products themselves more effective. But Campbell’s experience with such traditional marketing research showed that traditional methods failed to capture important subconscious thoughts, emotions, and behaviors that consumers experience when shop- ping for soup.

So instead, to get closer to what was really going on inside consumers’ hearts and minds, Campbell researchers began employing state-of-the-art neuroscience methods. They outfitted

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the changing nature of consumer food tastes and preferences. Additionally, the Campbell Soup Company makes and markets much more than just soup these days. Over the years, the com- pany has added or created such brands as Pepperidge Farms, Swanson, Pace, Prego, V8, Bolthouse Farms, and Plum Organ- ics. Today, Campbell’s house of packaged food brands includes something for just about everyone. With that kind of product portfolio, maintaining and creating relevant products based on a clear, up-to-the-minute understanding of consumers is an espe- cially daunting proposition.

To capture clear and contemporary customer insights, Campbell’s researchers turn to deep dive marketing research— qualitative methods employed in the fields of anthropology and other social sciences for up-close-and-personal study. Camp- bell’s researchers and marketers dive in and spend time with consumers on their own turf. “We’re in their homes,” says Charles Vila, Campbell’s vice president of consumer and cus- tomer insights. “We are cooking with them; we’re eating with them; we’re shopping with them.” By spending hours at a time with consumers and observing them in their natural environ- ments, researchers can unlock deep consumer insights of which customers themselves are often not aware.

By employing deep dive marketing research methods, Campbell researchers have identified six different consumer groups, each with an extensive profile. For each of these groups, Campbell has created six fully equipped kitchens at its Camden, New Jersey, headquarters, each designed to mirror the homes of consumers in the six groups. Each kitchen has a unique design, with different appliances, different features, and, most impor- tantly, different food in the cabinets and refrigerators.

At one end of the spectrum is the group called “Uninvolved Quick Fixers.” These are individuals and families who are not acquainted with or into cooking. Their kitchens are strewn with pizza boxes, and collections of takeout menus adorn their fridges. Their stoves and ovens often look like they’ve never been touched. “They’re doing a lot of microwaving and frozen foods,” explains the manager of Campbell’s test facilities.

At the other end of the spectrum is group six, the “Pas- sionate Kitchen Masters.” Their kitchens tend to be filled with well-used, high-end appliances. Their refrigerators are stuffed with fresh produce, dairy, and meats. Gourmet sauces and arti- sanal breads and pastas are complemented by a wide variety of spices.

Such levels of detail help Campbell marketers discover and understand existing and developing trends in each consumer group as well as in the general market. For example, ginger is in. Only a few years ago, this herb was something found only in ethnic restaurants or in obscure recipes. But now its popularity is soaring. Campbell expects that it will soon be an important ingredient for each of the six consumer segments, a valuable insight for developing new products.

Another conclusion from Campbell’s deep dive is that although Passionate Kitchen Masters consume far fewer pre- pared and packaged foods than other consumers, they still buy a lot of ingredients—such as broth. Broth flies under the radar of most consumers. But for people who like to cook, it’s a sturdy component of soups, sauces, and braised meats.

shoppers with special vests that measured skin-moisture levels, heart rates, depth and pace of breathing, and postures. Sensors tracked eye movements and pupil width. Then, to aid interpre- tation, such biometric data was combined with interviews and videos that captured each shopper’s experiences.

The high-tech research produced some startling insights. Campbell knew that people hold strong emotions associated with eating soup. After all, who doesn’t remember getting a hot bowl of soup from Mom when they were sick or cold? But the new biometric testing revealed that all that warmth and those positive emotions evaporated when consumers confronted the sea of nearly identical red and white Campbell’s cans found on a typical grocery store soup aisle.

In the past, the top of a typical store shelf display fea- tured a large Campbell’s logo with a bright-red background. But the new research showed that such signs made all varieties of Campbell’s Soup blend together, creating an overwhelming browsing situation and causing shoppers to spend less time at the aisle. The biometric research methods also revealed that the soup can labels themselves were lacking—the big bowl of soup on a Campbell’s label was not perceived warmly, and the large spoon filled with soup provoked no emotional response.

Bases on these research insights, in an attempt to prompt and preserve important consumer emotions surrounding soup consumption, Campbell’s began evaluating specific aspects of its displays, labels, and packaging. This led to seemingly small but important changes. For starters, the Campbell’s logo is now smaller and lower on the shelf, minimizing the overwhelm- ing “sea of cans” effect. To further encourage browsing, can labels now fall into different categories, each with distinguish- ing visual cues. Varieties like Beef Broth and Broccoli Cheese, which are typically used as ingredients in recipes, feature a nar- row blue swath across the middle of the can with a “Great for Cooking” label. A green swath and the label “98% Fat Free” characterize reduced-fat varieties. Tomato Chipotle & Olive Oil, part of Campbell’s “Latin Inspired” line, features a black background rather than the traditional white. And top-sellers such as Chicken Noodle, Tomato, and Cream of Mushroom feature the plain traditional label with the center medallion, immortalized by Andy Warhol’s larger-than-life recreations of Campbell’s soup cans. As for bringing out those warm emo- tions, Campbell’s labels are now adorned with steam rising off a larger, more vibrant picture of the featured soup in a more modern white bowl. The nonemotional spoons are gone as well.

Can such minor label changes make a real difference? Yes, they can. Campbell’s claims that its sales of condensed soups are up by 2 percent since making the changes. That may not sound like much, but even a small sales bump applied to a $2 billion consumer brand means real money. The sales jump also indicates that consumers are receiving greater value through a more fulfilling shopping experience.

Diving Deeper for Insights Although the insights from Campbell’s biometric marketing research have proven valuable, it will take more to capture the attention of a new generation of customers and stay attuned to

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a 5.1 percent increase the year before. Net profits are steady at 8 to 10 percent. Campbell’s stock price has also increased by nearly 50 percent in the past few years. As the company Web site states, “For generations, people have trusted Campbell to pro- vide authentic, flavorful, and readily available foods and bever- ages that connect them to each other, to warm memories, and to what’s important today.” With the help of Campbell’s marketing research program, it looks like consumers will continue to trust Campbell for generations to come.

Questions for Discussion 1. What are the strengths and weaknesses of the Campbell

Soup Company’s marketing information system?

2. What objectives does Campbell have for the marketing research efforts described in this case?

3. Compare the effectiveness of Campbell’s biometric research with its deep dive research.

4. Describe how traditional marketing research could be inte- grated with Campbell’s research efforts from this case.

Sources: Mark Garrison, “How Food Companies Watch What You Eat,” Marketplace, December 2, 2013, www.marketplace.org/topics/ business/how-food-companies-watch-what-you-eat; Ilan Brat, “The Emotional Quotient of Soup Shopping,” Wall Street Journal, February 17, 2010, p. B1; Bonnie Marcus, “Campbell Soup CEO Denise Morrison Stirs the Pot to Create Cultural Change,” Forbes, April 25, 2015, www.forbes.com/sites/bonniemarcus/2014/04/25/campbell-soup- ceo-denise-morrison-stirs-the-pot-to-create-cultural-change/; and infor- mation from www.campbellsoupcompany.com/about-campbell/, accessed September 2015.

Under both the Campbell’s and Swanson brands, broth is also a $400 million business for the Campbell Soup Company. Applying the 2 percent sales boost resulting from the label changes discussed earlier translates to $8 million sales gains in broth alone. That’s why Campbell’s researchers are so inter- ested in consumer trends, big and small.

The main goal is to enhance the customer’s food experience. For example, Thai dishes are becoming more popular for foodies. But coming up with key ingredients like lemongrass is both time consuming and expensive. “Even for confident cooks, to bring those together, to go and purchase them, and actually blend them in such a way that it actually works, that’s not easy,” says Camp- bell’s vice president Dale Clemiss, who oversees the Swanson and other Campbell brands. Add that to other insights that Campbell’s research has uncovered, and a new broth is born—Swanson Thai Ginger, a broth “infused with flavors of lime, soy sauce, coconut, lemongrass, cilantro, and ginger—a simple way to make delicious restaurant inspired global dishes at home.”

Every marketing research method has pitfalls. So Camp- bell combines multiple research methods. In addition to neu- roscience and deep dive research, the company still employs traditional methods of surveys and interviews. The triangula- tion of data across methods allows for greater accuracy as well as the ability to cover larger consumer samples.

In the packaged foods business, every little bit helps. It’s all about staying in tune with consumers and keeping up with the changes—large and small—in consumer preferences. That philosophy has worked well for the Campbell Soup Company in the past. And as Campbell has dug deeper through multiple mar- keting research methods, the proof is in the pudding. Last year, Campbell’s corporate revenues were up 2.4 percent, following

Company Case 5 GoldieBlox: Swimming Upstream against Consumer Perceptions When Debbie Sterling was in high school, her math teacher recognized her quantitative talent and suggested she pursue engineering as a college major. At the time, Sterling couldn’t figure out why her teacher thought she should drive trains for a living. But the suggestion was enough to get her started down the right path. After four years at Stanford, Sterling graduated with a degree in mechanical engineering. But throughout the course of her studies, Sterling noticed the lack of women in her engineering program—a characteristic phenomenon in field where men outnumber women 86 percent to 14 percent. This observation ignited an obsession in Sterling. She set out on a mission to inspire a future generation of female engineers by disrupting the pink aisle in toy stores.

During the past few years, Sterling has been named Time’s “Person of the Moment” and one of Business Insider’s “30 Women Who Are Changing the World” among other accolades. Why?

Because Sterling is the founder and CEO of GoldieBlox, a toy company that is making Sterling’s mission a reality.

A Different Kind of Toy Company After graduating, Sterling started researching everything from childhood development to gender roles. One of her findings was that in order to gain interest in and pursue a given field, a person must be exposed to the right inputs at an early age. This fact became particularly bothersome as Sterling became more and more familiar with the contents of the average toy aisle in stores. Toys for girls are in the pink aisle, dominated by dolls, stuffed animals, and princesses, whereas toys for boys are found in the blue aisle, filled with macho action figures, various toy weapons, and a huge variety of building block sets. Most experts agree that the toys served up to young girls do little to encourage an interest in science, technology, engineering, and math (STEM) subjects. This knowledge led Sterling to develop a plan to create a different kind of toy for girls.

As she began developing ideas for toys, another research finding struck her—girls possess stellar verbal skills and tend to learn better by interacting with stories. That insight was instru- mental in the creation of the GoldieBlox line of construction

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sell our girls short.” Additionally, while the toys are designed to stir interest in girls by having them build and create, critics have raised concerns that GoldieBlox toys are too simplistic.

But Sterling is quick to respond to all such arguments and show that GoldieBlox isn’t just trying to hook parents with a gimmick that doesn’t deliver. “There’s nothing wrong with being a princess,” says the 32-year-old entrepreneur. “We just think girls can build their own castles too.” This idea is backed by many advocates who recognize that to disrupt the pink aisle, you can’t start out by trying to obliterate it.

To influence through play the types of hobbies and academic fields that women pursue, a company first must penetrate a very competitive market. Creating toys that are void of things that girls find appealing will only send girls scrambling for the nearest Bratz doll or Disney princess. GoldieBlox toys may incorporate traditional gender stereotypes, but they tweak and reframe them. GoldieBlox spent years researching gender differences, seeking significant input from Harvard neuroscientists, and observing children’s play patterns. “Our stories leverage girls’ advanced verbal skills to help develop and build self-confidence in their spatial skills,” says Sterling with confidence.

Whether or not these two sides will resolve their differ- ences in trying to achieve the same goal, there is no question that GoldieBlox has taken the toy industry by storm. And Ster- ling is far from finished. While clearly motivated to put an end to the stereotypes that have been generated by the toy and entertainment industries, she makes it clear that the goal is to become a multi-platform character brand à la Disney. “We want to be the brand that kids are whining for.”

If the next three years are anything like GoldieBlox’s first three, it’s easy to envision a new kind of toy aisle at the local supercenter—one that heavily features Goldieblox’s multi- platform brand.

Questions for Discussion 1. Of the factors that influence consumer behavior, which

category or categories (cultural, social, personal, or psy- chological) best explain the existence of a blue toy aisle and a pink toy aisle? Why?

2. Choose the specific factor (for example, culture, family, occu- pation, attitudes) that you think most accounts for the blue/ pink toy aisle phenomenon. Explain the challenges faced by GoldieBlox in attempting to market toys that “swim against the stream” or push back against the forces of that factor.

3. To what degree is GoldieBlox bucking the blue/pink toy aisle system?

4. If GoldieBlox succeeds at selling lots of its toys, will that accomplish the mission of increasing the presence of females in the field of engineering?

Sources: Lisa Wirthman, “4 Innovation Lessons Entrepreneurs Can Learn from GoldieBox,” Forbes, March 2, 2015, www.forbes.com/ sites/northwesternmutual/2015/03/02/disrupting-pink-how-goldieblox- changes-the-way-girls-think-about-toys/; Katy Waldman, “GoldieBlox: Great for Girls? Terrible for Girls? Or Just Selling Toys?” Slate,

sets. Part Erector Set and part storybook, the combination was designed to engage girls through their verbal skills and encour- age them to build through narratives that feature the adventures of Goldie, a freckled-faced blonde girl donning overalls and a tool belt. Although Goldie comes off as a bit of a tomboy, she’s still girlish. Skinny, blonde, and cute, she favors pinks and purples. The toys and stories feature animals and ribbons, and characters are more likely to help others than to succeed on their own.

After her innovative toy sets received little interest at the American International Toy Fair in New York City, Sterling started her own company. That decision sparked more interest than she could have ever imagined. To raise the $150,000 needed for the first round of production, Sterling launched a Kickstarter crowd-sourced funding campaign. Her funding goal was reached in just four days, and the funding topped out at $285,000.

With little to spend on traditional advertising, Sterling first promoted her inventive toys with some YouTube ads, includ- ing “Princess Machine,” featuring young girls who take their stereotypically girly toys and create a sophisticated Rube Gold- berg device. That video went viral to the tune of 8 million views in little more than a week. Shortly thereafter, GoldieBlox’s first two products became Amazon’s top two selling toys during the industry’s busiest month of December. And if all that wasn’t enough, GoldieBlox beat out 15,000 contenders in Intuit’s “Small Business Big Game” Super Bowl ad contest, winning a $4 million spot during the big game.

Today, less than three years after the launch of its first product, GoldieBlox’s toys are sold at Target, Toys “R” Us, Amazon, and 6,000 other retailers worldwide. The brand fea- tures more than a dozen play sets, the Bloxtown interactive Web site and app, a Goldie action figure, a “More Than Just a Prin- cess” line of T-shirts and hoodies, and an original music video. GoldieBlox has won numerous industry awards, and its toys have succeeded in raising awareness about the lack of women in technical and scientific fields as well as the issues associated with the traditional pink aisle.

All That Glitters Is Not Goldie With all this success, you would think that GoldieBlox would be heralded by anyone and everyone wanting to change gender- based stereotypes in toys. But GoldieBlox has sparked substan- tial debate over whether it is really helping the cause it claims to be serving. The opposition, led by many feminist voices, claims that GoldieBox’s approach is little more than window dressing. The debate got really ugly after the launch of GoldieBlox and the Parade Float, a construction set based on a new challenge faced by Goldie and her friends—to create a float to trans- port the winner of a beauty pageant. “You cannot create a toy meant to break down stereotypes when you start off with the ideal that ‘we know all girls love princesses,’” argues author Melissa Atkins Wardy. Those in the opposition camp call for toys that are gender-neutral. “When we use princess culture, pinkification, and beauty norms to sell STEM toys to girls and fool ourselves that we are amazing and progressive and raising an incredible generation of female engineers, we continue to

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goldieblox-toy-startup/; “Meet the Toymaker Who Is Disrupting the Pink Aisle,” American Association of University Women, February 26, 2015, www.nccwsl.org/2015/02/26/debbie-sterling/; and information from www.goldieblox.com, accessed September 2015.

November 26, 2013, www.slate.com/blogs/xx_factor/2013/11/26/ goldieblox_disrupting_the_pink_aisle_or_just_selling_toys.html; Jen- nifer Reingold, “Watch Out Disney: This Toy Startup’s Coming for You,” Fortune, November 26, 2014, http://fortune.com/2014/11/26/

Company Case 6 Virgin America: Flight Service for the Tech Savvy After an exceptionally frustrating day at the office, Jessica set out to unwind in one of her favorite third places. The mood lighting immediately brought her blood pressure down as she walked in and took a deep, relaxing breath. She was happy that her favorite spot was available—a comfy leather chair in the back corner of the room, where she used the touchscreen at the table in front of her to order her favorite drink. Then, putting on a set of noise-canceling headphones, Jessica began catching up on her favorite TV show with her own personal entertain- ment portal.

If this sounds like a local Starbucks or trendy nightclub, think again. Jessica had just boarded a flight on Virgin America, one of the youngest airlines in the United States. It’s also the hottest airline, besting all competition in various industry and customer surveys. And after just six years in business, Virgin America is also profitable—one of the fastest launch-to-profitability post- ings in all of airdom.

How does a start-up airline break into one of the most com- petitive industries in the world, notorious for barriers to entry? For Virgin America, the answer is twofold—by putting custom- ers first and by targeting the right customer segment.

Targeting the Right Customers Virgin America first took to the skies in 2007. This wouldn’t be the first shot at starting an airline for Richard Branson—founder of parent company Virgin Group. Virgin’s international airline, Virgin Atlantic, had been crossing the pond between the United States and Europe since 1984. But Virgin America would be an entirely independent enterprise. And while Branson and other Virgin Group executives make no day-to-day decisions at Virgin America, the unorthodox Virgin culture—fun, creative, even whacky—is unmistakable.

One of Branson’s core values that permeates Virgin America is this: Take care of your people first and profits will follow. In an industry characterized by customer complaints about service, it would seem that a customer-centric approach would be enough to gain a foothold in the market. But when Virgin started air service in the United States, at least a few other airlines had already established themselves based on a “customer first” man- tra, including industry leader Southwest Airlines. And Virgin America knew that it could not expect to succeed by playing the low-price game. Not only was Southwest the reigning champion

on value, but the bulk of airline competitors were already beating each other up for low-price dominance.

Virgin America found a different competitive hook. It targeted a segment of frequent fliers who were young, savvy, influential, and willing to pay just a little bit more for an airline that would take care of them—the Silicon Valley faction. By providing exceptional service and amenities that appeal to this particular slice of airline customers, Virgin America has been able to charge slightly higher fares and still establish a growing base of fiercely loyal patrons.

Honing In on the Details Offering unique amenities in the airline business is a challenge for any company. But from the beginning, the Virgin America experience was designed with its target customer in mind. Its fleet consists of 53 Airbus A320s, each brand new when it went into service, minimizing the unexpected delays due to mainte- nance and repairs. Custom-designed leather seats are roomier and more comfortable than average coach seating. And that mood lighting? Not only does it bathe the aircraft cabin in an appealing purplish glow, it automatically adjusts to one of 12 different shades based on outside light.

To appeal to tech gurus, Virgin America focused on equip- ping its planes with the latest hardware and software. From day one, Virgin was the only domestic carrier to offer fleetwide in- flight WiFi—a distinction that it maintains to this day, even as it has stayed ahead of the competition by upgrading the network to ensure the fastest in-flight speeds available. Every seat has its own power outlet, USB port, and nine-inch video touchscreen with a QWERTY keyboard/remote control.

That touchscreen provides access to the most advanced entertainment and information system in U.S. skies. Virgin America’s proprietary Red system allows each guest to choose on-demand movies, TV programs, music, or video games. Red also allows patrons to track their flight on interactive Google Maps, engage in seat-to-seat chat with other customers, and order food and drinks for themselves or anyone else on board. It’s a system designed to give passengers a feeling of control dur- ing an experience that is otherwise mostly out of their control.

Many of these ideas came by way of Virgin America’s techy clientele. It’s no accident that the company’s headquar- ters are located in Burlingame, California, just a few short miles from the San Francisco airport. In fact, Virgin America is the only airline based in Silicon Valley. Not only is the company constantly experimenting with every aspect of the business, it has made strong efforts to involve Silicon Valley entrepreneurs and executives in the process, helping Virgin to think like its disruptive clientele. “We see ourselves as more of an incubator,” says Luanne Calvert, Virgin America’s chief marketing officer.

http://www.nccwsl.org/2015/02/26/debbie-sterling/

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Playing the features and amenities game is also problematic. Things that delight customers today become ho hum tomorrow, especially when competitors are constantly trying to improve their offerings.

That’s why Virgin America views its operations as a work in progress, continually changing and improving, no matter how good current operations are. “If we stand still, they’ll catch us,” says David Cush, Virgin America’s CEO. And Virgin America sees all those Tweeting customers as an opportunity to address customer service issues in real time, not to mention a powerful source of word of mouth.

With all its success, after six years, Virgin America still had not achieved an annual profit. With still-skeptical experts look- ing on, however, the company has now crossed that threshold, posting net profits for the past two years. For the most recent year, Virgin America achieved $84 million in profit—the high- est ever for a young airline—on $1.5 billion in revenues. The company also went public in the second-largest airline IPO in history. Although the company is far from being out of the woods, Virgin America will continue to slowly expand its ser- vices by doing what it has done for its first eight years—wow every customer with exceptional service while giving the tech community a little something extra. It’s a formula that Virgin aims to keep applying, even after it grows up.

Questions for Discussion 1. Using the full spectrum of segmentation variables, describe

how Virgin America segments and targets the market for airline services.

2. Which market targeting strategy is Virgin America follow- ing? Justify your answer.

3. Write a positioning statement for Virgin America.

4. Will Virgin America succeed in the long run? Why or why not?

Sources: Lauren Schwartzberg, “Most Innovative Companies: 2015, Virgin America,” Fast Company, March, 2015, pp. 135–137; Joe Berkowitz, “Silicon Valley Celebs Star in New Virgin America Campaign,” Fast Company, September 5, 2012, www.fastcocreate .com/1681551/silicon-valley-celebs-star-in-new-virgin-america- campaign; Grant Martin, “America’s Best Airlines,” Forbes, April 15, 2015, www.forbes.com/sites/grantmartin/2015/04/15/americas-best- airlines/; Matt Richtel, “At Virgin America, a Fine Line between Pizazz and Profit,” New York Times, September 8, 2013, p. BU1; Charisse Jones, “Virgin America Posts Record Profit for 2014,” USA Today, February 18, 2015, www.usatoday.com/story/money/2015/02/18/ virgin-america-posts-record-profit/23608205/; and information from www.virginamerica.com/cms/about-our-airline/corporate-facts.html, accessed September 2015.

Take VX Next, for example—a group of 30 or so frequent fliers who act as a brain trust for Virgin America, generating ideas for the company at no charge. Among other winning ideas, this group was instrumental in developing the company’s recent interactive promotional campaign. At the center of the campaign is a slick cinematic site that provides viewers with a virtual tour of a Virgin America flight. Demonstrating the air- line’s in-flight perks are founders and CEOs of companies such as Pandora, Gilt, and Pitchfork. As part of the tour, visitors to the site discover that several of the passengers on board are Vir- gin America frequent fliers and Silicon Valley celebrities who have made creative contributions to the airline’s services with things such as curating in-flight music and menu items.

Virgin America’s home-brewed tech panel was also instru- mental in creating the company’s latest safety video. When the company started operations, it delighted customers with a safety video like none other—an animated short featuring a techie nun and a matador with his bull. Posted online as well, the video racked up millions of views and cemented Virgin America’s image as a company that could find creative alternatives to just about anything, even a federally mandated reminder to wear seat- belts. That image has carried over to Virgin America’s new safety video—one created by a top Hollywood director and world-class choreographers that features 10 So You Think You Can Dance alums, two former Olympians, and one American Idol finalist. Debuting in Times Square and getting plenty of coverage from the press, the new safety video racked up 6 million views in less than two weeks.

Above the Clouds Although there is plenty of anecdotal evidence that Virgin America’s customers are thrilled with its service, it’s the indus- try quality ratings that count. Virgin America is coming through with flying colors there as well. In the most recent annual Airline Quality Report—a survey that ranks airlines based on mishandled baggage, customer complaints, denied boardings, and on-time percent—Virgin America was number one. Vir- gin America is also in the top spot for customer satisfaction on Consumer Reports. In fact, Virgin America came away with the highest score achieved by any U.S. airline in many years.

Not to get too cocky, Virgin knows that maintaining such high rankings will be a challenge. In the coming years, the air- line will expand service to more cities with cold climates, a factor that will increase the likelihood of canceled or delayed flights. It will also increase the number of passengers on flights, which will lead to longer boarding and deplaning times, affecting multiple customer service metrics. And with Vir- gin’s techy and connected clientele, any screwup is likely to be texted, Tweeted, or otherwise broadcast for all the world to see.

http://www.fastcocreate

http://www.forbes.com/sites/grantmartin/2015/04/15/americas-best-airlines/

http://www.usatoday.com/story/money/2015/02/18/virgin-america-posts-record-profit/23608205/

http://www.virginamerica.com/cms/about-our-airline/corporate-facts.html

http://www.usatoday.com/story/money/2015/02/18/virgin-america-posts-record-profit/23608205/

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agreements, from Graves’s housewares line to Mulberry for Target handbags to Isaac Mizrahi’s lines of clothing, accesso- ries, bedding, and pet products. In the last year alone, Target introduced collections by Adam Lippes (plaid apparel, acces- sories, home furnishings, and pet goods), Eddie Borgo (jewelry and wall art), and Lilly Pulitzer (outdoor and beach apparel, shoes, and accessories).

With these alliances, everybody benefits. The designers get tremendous exposure, a large customer base, and the power and deep pockets of a mass retailer. Target gets brand cachet that enhances the chicness of its image, and customers get style at affordable prices. As products with a designer label that might normally adorn goods with a three- or four-figure price tag, Tar- get’s designer items have been huge hits. Tales have circulated of Target customers fighting over apparel items and filling their carts to the brim on days when new items go on sale. Sellouts are common, and Target’s designer labels have been known to show up on eBay with significantly higher prices.

Setting a High Bar for Store Brands As popular as Target’s designer lines have been, they repre- sent the smaller portion of the company’s exclusive store brand efforts. Rather, Target has applied its value philosophy and design expertise to creating more than a dozen store brands. The most pervasive of these is “Up & Up,” which replaced the main “Target” store brand a few years ago. Instead of the famil- iar bull’s-eye, the Up & Up lines come in white packages with big, colorful, upward-pointing arrows. With more than 800 dif- ferent products in more than 50 different categories, the Up & Up brand can be found in every department of a Target store.

While Up & Up follows the more traditional approach of store brands that provide budget-friendly basics, Target has taken great care to match the quality levels of national brands wherever possible. For certain basics such as hand sanitizer ($1.74 versus $2.69 for Purell), napkins ($2.66 versus $2.99 for Bounty), and cotton swabs ($2.99 versus $4.79 for Q-tips), it’s tough to tell the difference. And even when customers can see a difference, the savings are worth it. On average, Up & Up products are priced about 30 percent lower than comparable name-brand products.

But as with its designer labels, Target does not pursue a singularly low-price positioning for its store brands. This is perhaps most evident in grocery aisles, where Target now has not one but three distinct in-house food brands. Like Up & Up, Target’s own Market Pantry brand covers basic staples such as cheese, milk, eggs, baking ingredients, juices, snacks, and pre- pared meal options. And like Up & Up, the positioning is also similar to national brands—the same quality and taste but for a lot less money.

Target’s other two food brands, however, go beyond just offering customers a lower-priced option. Archer Farms is a “healthier” choice that promises no artificial flavors, artificial sweeteners, or trans fats. And although it is a “budget-friendly” brand, that budget friendliness is relative only to the types of foods that carry the Archer Farms label—items that would

Company Case 7 Target: Where Store Brands Offer More Than Low Prices When it comes to discount retailing, Target doesn’t need to make many excuses. In little more than 50 years, the Minne- sota-based company has dotted the United States and Canada with more than 1,800 stores bearing the famous red-and-white bull’s-eye. With $72 billion in annual sales, Target plays second fiddle in the U.S. discount retail market only to Walmart—the world’s biggest corporation. And although it is only one- seventh Walmart’s size, Target has managed to keep its much larger rival on its toes with a “cheap chic” image that has revolution- ized discount retailing with heavy doses of style and fashion.

Throughout the past decade, however, Target has experi- enced its share of ups and downs. Whereas it outpaced Walmart in growth during the early 2000s, that growth has cooled as even the trendiest value shoppers have been drawn to the more-low- price positioning of Walmart and dollar stores. Through several years of changes that have included cost-cutting, store remod- eling, and inventory restructuring, Target has better positioned itself strategically to fulfill its mission to deliver “outstanding value, continuous innovation and exceptional guest experiences by consistently fulfilling our ‘Expect More. Pay Less.’ brand promise.”

One of the ways Target is carrying out this mission is through a strong portfolio of private brands. Although store brands are nothing new for Target, it has sought not only to expand its portfolio of store brands but also to raise the per- ceived value of those brands in the minds of consumers. Target still sells plenty of national brands. But as customers snatch up dozens of owned and exclusive brands that can be found only in Target stores, the chain has set a benchmark for retailers of every stripe to follow when it comes to executing a store-brand strategy.

Bringing Designer Labels to Discount Retail Not that long ago, store brands everywhere carried a “low qual- ity” and “bland” stigma. With those less-than-attractive percep- tions, such brands were purchased primarily because they were priced much lower than comparable name-brand products. Per- haps more than any other retailer, Target has fought to establish its exclusive brands as anything but traditional. In fact, Target has clung to two mission-supporting corporate values to guide store brand development: “design and innovation” and “value as more for less.”

As part its private-brand strategy, Target is forging col- laborative relationships with high-end designers to create exclusive product lines. Since 1999, when it introduced design partners Michael Graves and Sonia Kashuk, Target has covered just about every category of goods with designer labels. It has signed more than 50 different designers to Target-exclusive

532 Appendix 1: Company Cases

categories as well. Target’s Cherokee brand offers “classically cool kidswear at prices that make moms and dads everywhere smile.” The Xhilaration brand helps juniors to “stay on top of the latest trends.” Mossimo Supply Co. “boasts funkier, more laid-back casual looks for both women and men,” and Merona is “Modern classic style . . . shoes, accessories, and separates.” Circo covers infants and children, and Gilligan & O’Malley has women’s sleepwear and lingerie covered. When it comes to furniture and household accessories, RE (Room Essentials) appeals to the needs of young adults, whereas Threshold’s claim of “quality & design” is more for the established household.

In many ways, Target’s store-brand strategy is paying off. About one-third of Target’s sales volume comes from its pri- vate brands, and that number is rising. “We’ve grown our own brand foods faster than our total food growth over the past five years, as we’ve continued to expand our product offering into new product categories that we hadn’t developed before,” says Target’s Miller. Additionally, 10 of Target’s private-label brands generate more than $1 billion a year. Not one to rest on its lau- rels, Target recently extended the return window for many of its private-label brands from 90 days to one year, a bold move that signals confidence in brand quality.

But Target continues to face a tough battle in the highly competitive discount retail sector. Net revenues have remained flat over the past few years, while Walmart’s have been increas- ing by low single digits. Target’s net profits have languished as well. This tepid financial performance seems to be despite Tar- get’s store-brand efforts rather than because of them. As Target deals with various factors in the marketing environment in its struggles to get financials back on track, its store brands have staved off higher losses and provide promise for the future. If general growth trends of store brands continue, you will likely see more and more Target brands on the retailer’s shelves. For- tunately for Target, it is far better prepared for such develop- ments than many of its competitors.

Questions for Discussion 1. What benefits does Target receive from its store brands?

2. Is Target’s store brand strategy working? Explain.

3. What could Target do in the future to further develop its strengths in store brands?

4. What potential problems does Target face in continuing its focus on store brands?

Sources: Paul Ziobro, “Target Extends Return Window for Private- Label Brands,” Wall Street Journal, March 18, 2015, www.wsj .com/articles/target-extends-return-window-for-private-label- brands-1426692941; Brad Tuttle, “The Rise of the Swanky No-Name Brand,” Time, June 11, 2013, http://business.time.com/2013/06/11/the- rise-of-the-swanky-no-name-brand/; Martin Moylan, “Target Benefits from Popularity of Store Brands,” MPR News, November 19, 2010, www.mprnews.org/story/2010/11/19/store-brands; and additional information from www.corporate.target.com/about/design-innovation/ owned-brands/# and www.corporate.target.com/about/mission-values, accessed September 2015.

typically interest food snobs and gourmets. To that end, Archer Farms products are noticeably fancier.

For example, why settle for a basic variety of trail mix from Planters when you can get Caramel Cashew, Sunny Cran- berry, Tex Mex, or Cinnamon Raisin Nut Breakfast from Archer Farms? As with many Archer Farms categories, Target offers far more varieties with its store brands than it does with national brands. It also focuses on flavors that consumers won’t find anywhere else. “One of the best-selling Archer Farms’ chips is a blue corn chip with flax seed,” says Annette Miller, who over- sees Target’s grocery business. “One of our best-selling Archer Farms pizzas is a goat cheese, potato, and spinach pizza.” Priced 10 to 30 percent lower than name brands, Archer Farms products are still cheaper. And with options such as Key Lime Cookie Straws and organic milk, Archer Farms is very much in keeping with Target’s “cheap chic” image.

If Archer Farms products still aren’t fancy enough for some shoppers, Target has them covered with its third and latest food brand, Simply Balanced—a mostly organic line of more than 250 products originally launched as an Archer Farms sub- brand. Claiming 40 percent organic content, Simply Balanced also claims to be mostly free of genetically modified organisms. This newest Target brand is hardly cheap, but its prices compare favorably with those of other organic upscale brands that Target doesn’t even stock.

With its food brands, Target focuses on products that cus- tomers are more inclined to try, such as snacks, coffee, and dairy. Especially with its two upper-tier brands, Target’s store brand foods are expected to be at least as good if not better than those made by national brands. To keep costs down and maintain qual- ity, Target focuses on developing its own food products rather than sourcing them out to other companies. In its Minneapo- lis test kitchens, Target employees prepare, cook, and taste-test every product before it makes it onto Target’s grocery shelves.

Capitalizing on Trends The fact that Target pushes three separate in-house food brands clearly indicates that store brands have come a long way. Sim- ilar to trends for store brands in general, Target’s brands are benefiting from—if not contributing to—a national trend in acceptance and consumption of private-label foods. According to recent studies, store brands are increasingly found in U.S. kitchens. Fewer consumers feel that they are sacrificing when they purchase store food brands, and fewer consumers indicate an intention to purchase fewer store brands in the future. In fact, a surprisingly high 80 percent of all shoppers believe that pri- vate-label brands are equal to or better than national brands in terms of quality. “I’ll buy Target brand and not have any qualms about the product,” said one budget-minded college student. “It is a bit cheaper, and it’s still really good quality.” And it’s not just lower-income consumers who are turning to store brands. Fortunately for Target, the greatest surge in store-brand pur- chases is among more affluent shoppers.

Similar to the path that Target has pursued with its private- label food brands, the company has covered many other product

http://www.wsj.com/articles/target-extends-return-window-for-private-labelbrands-1426692941

http://business.time.com/2013/06/11/the-rise-of-the-swanky-no-name-brand/

http://www.mprnews.org/story/2010/11/19/store-brands

http://www.corporate.target.com/about/design-innovation/owned-brands/#

http://www.corporate.target.com/about/mission-values

http://www.wsj.com/articles/target-extends-return-window-for-private-labelbrands-1426692941

http://www.corporate.target.com/about/design-innovation/owned-brands/#

Appendix 1: Company Cases 533

products have at times created entirely new industries. 3M has sustained this type of innovation decade after decade by fos- tering a deep culture of innovation, encouraging collaboration, and maintaining a dedication to research and development.

Culture of Innovation From its earliest days, 3M created a culture of innovation by allowing team members to take risks in a protected environ- ment. 3M knows that it must try thousands of product ideas to hit the new product jackpot. One well-worn slogan at 3M is “You have to kiss a lot of frogs to find a prince.” “Kissing frogs” often means making mistakes, but 3M accepts blunders and dead ends as a normal part of creativity and innovation. In fact, its philosophy seems to be “If you aren’t making mistakes, you probably aren’t doing anything.”

As it turns out, “blunders” have turned into some of 3M’s most successful products. Old-timers at 3M love to tell the story about the chemist who accidentally spilled a new chemical on her sneakers. Some days later, she noticed that the spots hit by the chemical had not gotten dirty—an attractive benefit. It was that discovery that eventually led to the creation of Scotchgard fabric protector. They tell about the early 3M scientist who had a deathly fear of shaving with a straight razor. So he invented a very fine, waterproof sandpaper, which he used to sand the stubble from his face each morning. Although this invention never caught on as a shaving solution, it became one of 3M’s best-selling products—wet-dry sandpaper, now used for a wide variety of commercial and industrial applications.

And then there’s the one about 3M scientist Spencer Silver. Silver started out to develop a super-strong adhesive; instead he came up with one that didn’t stick very well at all. He sent the apparently useless substance on to other 3M researchers to see whether they could find something to do with it. Nothing hap- pened for several years. Then 3M scientist Arthur Fry had an idea. As a choir member in a local church, Mr. Fry was having trouble marking places in his hymnal—the little scraps of paper he used kept falling out. He tried dabbing some of Mr. Silver’s weak glue on one of the scraps. It stuck nicely and later peeled off without damaging the book. Thus were born 3M’s Post-it Notes, a product that is now one of the top-selling office supply products in the world.

One of the ways 3M fosters a culture of innovation is by encouraging everyone to look for new products. The company’s renowned “15 percent rule” allows all employees to spend up to 15 percent of their time “bootlegging”—working on projects of personal interest whether those projects directly benefit the company or not. And yet there is a vibe throughout the com- pany regarding these precious six hours a week. Who knows where the next Post-it Note will come from? “It’s one of the things that sets 3M apart as an innovative company . . . giving every one of our employees the ability to follow their instincts to take advantage of opportunities for the company,” says Kurt Beinlich, a technical director who oversees a 70-person lab team. “It’s really shaped what and who 3M is.”

Company Case 8 3M: Where Innovation Is a Way of Life In recent years, companies topping the world’s “most innova- tive” lists are typically high-tech leaders such as Google, Apple, Samsung, and Amazon. When thinking of companies that set the world on fire with one revolutionary product after another, the image of a stodgy company that originated in the mining industry more than 100 years ago is hardly the icon. But while 3M may not be as flashy as today’s high-tech headliners, it’s anything but stodgy.

3M—the Minnesota Mining and Manufacturing Company— is a multinational powerhouse with more than $31 billion in annual sales. Year after year, with machine-like precision, 20 percent of 3M’s sales filter down as operating profits, allowing the company to increase its dividend to shareholders—something it has done every year for the past 57 years.

3M sells more than 50,000 products in nearly 200 countries across dozens of industries, including office products, construc- tion, telecommunications, electronics, health care, aerospace, and automotive. Among its products are some of the world’s most recognizable consumer brands, such as Scotch Tape, Nex- care first aid products, Filtrete home filtration products, Com- mand mounting products, and Post-it Notes. But 3M’s portfolio is also packed with hundreds of brands that most people have never heard of—like Peltor hearing protection equipment or Pruven waste bags for picking up dog poop.

The unusual breadth of 3M’s product portfolio is both a blessing and a curse for the company. Having a hand in so many industries shields the company from overreliance on any given market. Even when multiple industries are down, many more are doing just fine. That explains 3M’s financial strength. But it also explains why 3M has a hard time thrilling Wall Street. Even a hit new product doesn’t make much of a difference in 3M’s steady but unspectacular growth rate—one that is consis- tently in the low single digits.

Like 3M, the company’s current CEO, Inge Thulin, is methodical and understated. He keeps a long-term focus and places strong emphasis on maintaining 3M’s reliable profitabil- ity. But Thulin is also interested in stoking the fire just a bit, to put a little more heat under sales growth. One of the first things Thulin did when he took over as CEO a few years ago was to trim 3M’s annual sales growth goal from 7 or 8 percent—a goal the company consistently missed—to between 4 and 6 percent. Then, as the world watched, 3M’s organic sales growth grew to 5.8 percent. And under Thulin’s leadership, 3M is now on track to maintain that stronger growth rate.

How did Thulin do it? By doing the same thing 3M has been doing it for decades. At the core of 3M’s success is its busi- ness model—organic growth comes from innovation and the creation of market-changing products. Such market-changing

534 Appendix 1: Company Cases

more priority on the 3M technologies that have the most poten- tial for growth. Among these technologies are films designed to protect everything from smartphones to kitchen appliances and a construction wrap that will outperform DuPont’s Tyvek as a weather-resistant barrier for homes and buildings.

But Thulin’s plan for allocating R&D funds also includes eliminating 3M units with poor financial performance or those that aren’t a good fit with the company’s core strengths. For Thulin, it’s nothing personal; it’s strictly business. Over the past two years, 3M sold Scientific Anglers—which makes fishing line and other related products—and its Static Control business. Thulin believed there was little symbiosis between develop- ments in the product lines of these two divisions and other 3M technologies.

Although Thulin’s plan focuses on high-tech areas, it also recognizes the importance of a broad portfolio that includes low-tech items—such as doggie doo bags. In fact, 3M is com- mitted to a broad range of pet care supplies. “You cannot have only high-tech in every category because then you will not get space in the shops,” says Thulin, recognizing that mass retail- ers want to purchase full lines of products within and across categories from manufacturers.

This is all reflected in 3M’s first promotional campaign in more than 25 years, “3M Science. Applied to Life.” This global campaign is a fully digital promotional effort designed to showcase 3M’s technologies and the ways that they improve everyday life. The company hopes that the campaign will bring greater exposure to many of its products that have become ubiq- uitous. “Like any great company, we’re looking at how we can improve and continue to invest in our strengths,” says Jesse Singh, 3M’s senior VP of marketing and sales. “We are con- tinuing to invest in R&D, and likewise we felt it important that we continue to take steps to emphasize the brand.”

3M will likely never have growth rates matching those of Apple, Facebook, or even Microsoft in its heyday. But it will also likely never experience the potential downturns that even the biggest companies eventually face. That’s why 3M’s net profits hum along at about 15 percent of sales year after year. It’s also why 3M’s stock price has doubled over the past four years. 3M’s long-term dedication to innovative new products and technologies has sustained the company for decades, and there’s no reason to expect that this will change. Who knows— the next “big thing” may just have “3M” stamped on it instead of “Apple.”

Questions for Discussion 1. Based on concepts discussed in Chapter 8, describe the

factors that have contributed to 3M’s new product success.

2. Is 3M’s product development process customer centered? Why or why not?

3. Considering the product life cycle, what challenges does 3M face in managing its product portfolio?

4. Are there limits to how broad 3M’s product portfolio can grow? Explain.

5. Is it possible for 3M to maintain steady growth and profit- ability and raise that growth to much higher levels?

Encouraging Collaboration Although 3M’s 15 percent program has inspired other compa- nies to follow suit (both Google and HP apply their own ver- sions), it’s a rare perk in the corporate world. Not only is it an expense, but to be successful it takes a lot more than simply giving employees the time. Experts suggest that this kind of program works best at companies where there is a high level of collaboration across employees and departments.

3M has created that collaboration in spades. One example is an annual event that is simple but has a huge impact. The event resembles a middle school science fair, as employees from dozens of 3M divisions make cardboard posters describing their 15-percent-time project. Employees hang out next to their post- ers, await feedback, and look for potential collaborators. Wayne Maurer, an R&D manager in 3M’s abrasives division, refers to it as a chance for people to unhinge their “inner geek.” “For technical people, it’s the most passionate and engaged event we have at 3M.”

The event is more than just an opportunity to show off; it has actually moved projects through the development phase to commercialization. Past projects that have made it to mar- ket include clear bandages, optical films that reflect light, and painter’s tape that prevents bleeding. The event has even put new life in projects that have sat on a back burner for years.

One employee had an idea for creating a sandpaper with reshaped grit particles that wouldn’t dull so quickly. But after playing around with the idea for a while, he shelved it and moved on to other things. Fifteen years later, the employee resurrected the project during his 15 percent time and made a poster in hopes of getting some ideas that would move the proj- ect along. With the help of new employees and new technol- ogy, 3M discovered that a particle’s sharp, pyramid-like shape became more durable with a change in the mixing order of the ingredients. That discovery led to the launch of Cubitron II, sandpaper that acts more like a cutting tool. On the market since 2009, it still stumps other companies trying to create copycat products.

Emphasis on R&D Few companies provide more support for research and develop- ment than 3M. For years, 3M invested 6 percent of sales every year in R&D. But in recent years, that spending had been cut to just 5.5 percent—a small difference on paper, but one that Thulin believes is significant. “Those long-term investments are needed to get the growth engine up and going.” If such investments are reduced, Thulin believes, “you will kill the business.” That’s why 3M’s R&D expenditures are once again up to 6 percent. Thulin believes R&D “is the heartbeat of this company and it’s a com- petitive advantage for us.” By comparison, the average of R&D expenses across corporations is about 3 percent. For the most recent year, Apple spent $4.5 billion on R&D, a company record that still amounted to only 2.6 percent of sales.

But it isn’t just the amount of money invested that is impor- tant for a successful R&D program. It’s how the money is used. In addition to increasing 3M’s R&D allotment, Thulin is putting

Appendix 1: Company Cases 535

but 3M Still Searching for Growth,” Wall Street Journal, November 18, 2013, p. B1; Kaomi Goetz, “How 3M Gave Everyone Days Off and Created an Innovation Dynamo,” Fast Company, February 1, 2011, www .fastcodesign.com/1663137/how-3m-gave-everyone-days-off-and-cre ated-an-innovation-dynamo; and additional information from www.3m .com/3M/en_US/company-us/, accessed September, 2015.

Sources: Jennifer Rooney, “Inside 3M’s First Global Brand Campaign in More than 25 Years,” Forbes, March 11, 2015, www.forbes.com/sites/ jenniferrooney/2015/03/11/inside-3ms-first-global-brand-campaign-in- more-than-25-years/; “Here Is Why We Think 3M Is Worth $140,” Forbes, March 6, 2014, www.forbes.com/sites/greatspeculations/2014/03/06/here- is-why-we-think-3m-is-worth-140/; James R. Hagerty, “50,000 Products

Company Case 9 Coach: Riding the Wave of Premium Pricing Victor Luis stood looking out the window of his office on 34th Street in Manhattan’s Hell’s Kitchen neighborhood. It had been just over a year since he had taken over as CEO of Coach, Inc., a position that had previously been held by Lewis Frankfort for 28 years. Under Frankfort’s leadership, it seemed Coach could do no wrong. Indeed, over the previous decade, the 73-year- old company had seen its revenues skyrocket from about $1 billion to more than $5 billion as its handbags became one of the most coveted luxury items for women in the United States and beyond. On top of that, the company’s $1 billion bottom line—a 20 percent net margin—was a common annual out- come. Coach’s revenues made it the leading handbags seller in the nation. The brand’s premium price and profit margins made the company a Wall Street darling.

Right around the time Luis took over, however, Coach’s fortunes had begun to stumble. Although the company had experienced promising results with expansion into men’s lines and international markets, it had just recorded the fourth straight quarter of declining revenues in the United States, a market that accounts for 70 percent of its business. North Amer- ican comparable sales were down by a whopping 21 percent over the previous year. Once the trendsetter, Coach lost market share to younger and more nimble competitors for two years in a row. Investors were jittery, causing Coach’s stock price to drop nearly 50 percent during that time. After years of success, it now seemed that Coach could do little right.

Artisanal Origins In a Manhattan loft in 1941, six artisans formed a partnership called Gail Leather Products and ran it as a family-owned busi- ness. Employing skills handed down from generation to gen- eration, the group handcrafted a collection of leather goods, primarily wallets and billfolds. Five years later, the company hired Miles and Lillian Cahn—owners of a leather handbag manufacturing firm—and by 1950, Miles was running things.

As the business grew, Cahn took particular interest in the distinctive properties of the leather in baseball gloves. The gloves were stiff and tough when new, but with use they became soft and supple. Cahn developed a method that mim- icked the wear-and-tear process, making a leather that was

stronger, softer, and more flexible. As an added benefit, the worn leather also absorbed dye to a greater degree, producing deep, rich tones. When Lillian Cahn suggested that the com- pany add women’s handbags to the company’s low-margin line of wallets, the Coach brand was born.

Over the next 20 years, Coach’s uniquely soft and femi- nine cowhide bags developed a reputation for durability. Coach bags also became known for innovative features and bright col- ors rather than the usual browns and tans. As the Coach brand expanded into shoes and accessories, it also became known for attractive integrated hardware pieces—particularly the silver toggle that remains an identifying feature of the Coach brand today. In 1985, the Cahns sold Coach to the Sara Lee Corpora- tion, which housed the brand within its Hanes Group. Frankfort became Coach’s director and took the brand into a new era of growth and development.

Under Frankfort’s leadership, Coach grew from a relatively small company to a widely recognized global brand. This growth included not only new designs for handbags and new product lines but a major expansion of outlets as well. When Frankfort assumed the top position, Coach had only six boutiques located within department stores and a flagship Coach store on Madison Avenue. By the time Frankfort stepped down, there were more than 900 Coach stores in North America, Asia, and Europe, with hundreds of Coach boutiques in department stores throughout those same markets as well as in Latin America, the Middle East, and Australia. In addition to the brick-and-mortar outlets, Coach had developed a healthy stream of online sales through its Web sites.

High Price Equals High Sales With the expansion in Coach’s product lines and distribution outlets, women everywhere were drawn to the brand’s quality and style. But perhaps more than anything, they were attracted to the brand as a symbol of luxury, taste, and success. Over the years, Coach had taken great care to find an optimal price point, well above that of ordinary department store brands. Whereas stores that carried Coach products also sold mid-tier handbag brands for moderate prices, Coach bags were priced as much as five times higher.

It might seem that such a high price would scare buyers off. To the contrary. As Coach’s reputation grew, women aspired to own its products. And although the price of a Coach bag is an extravagance for most buyers, it is still within reach for even middle-class women who want to splurge once in a while. And with comparable bags from Gucci, Fendi, or Prada priced five to ten times higher, a Coach bag is a relative bargain.

http://www.3m.com/3M/en_US/company-us/

http://www.forbes.com/sites/jenniferrooney/2015/03/11/inside-3ms-first-global-brand-campaign-inmore-than-25-years/

http://www.forbes.com/sites/greatspeculations/2014/03/06/here-is-why-we-think-3m-is-worth-140/

www.fastcodesign.com/1663137/how-3m-gave-everyone-days-off-and-cre

http://www.3m.com/3M/en_US/company-us/

http://www.forbes.com/sites/jenniferrooney/2015/03/11/inside-3ms-first-global-brand-campaign-inmore-than-25-years/

536 Appendix 1: Company Cases

that sales by comparably priced competitors rose. Additionally, while Coach’s North American revenues were down last year, sales of its high-end handbags (priced above $400) actually increased.

Some analysts have also questioned the effect of Coach’s popularity on its image of exclusivity. A luxury brand’s image and customer aspirations often rest on the fact that not every- one can afford it. But Coach has become so accessible, anyone that wants a Coach product can usually find a way to buy one. This availability has been fostered by Coach’s outlet stores— company-owned stores that carry prior season merchandise, seconds, and lower-quality lines at much lower prices. With the number of customers drawn in by low prices, Coach’s outlet stores now account for a sizable 60 percent of revenues and an even higher percentage of unit sales. Outlet sales, combined with a healthy secondary market through eBay and other Web sites, mean that Coach products are no longer as exclusive as they once were.

Although new as CEO, Luis has been with Coach for the past eight years and oversaw Coach’s international expansion. And although Frankfort has stepped down, he is still involved as chairman of the board. Led by these seasoned fashion execu- tives, Coach has a turnaround plan. For starters, the company hired a new creative director. Stuart Vevers brings to Coach the same magic that he worked for brands like Louis Vuitton, Givenchy, Bottega Veneta, and Mulberry. According to Luis, Vevers is “providing a fashion relevance for the brand like we have never had.”

In addition to the creative and design changes, Coach is rebalancing its product portfolio. To win back shoppers, Coach will be positioned as a lifestyle brand with greater expansion into footwear, clothing, and accessories. Additionally, the com- pany will increase the number of handbag offerings priced at $400 or more, a move that could raise the average price point of Coach’s handbags.

The initial fruit of Coach’s turnaround plan appears prom- ising. The first lines under Vevers’s direction show evidence of a complete transformation while still remaining true to the core elements of the brand. Bold new shapes and colors abound in the handbag lines. But the real changes are apparent in Coach’s other lines—black leather biker jackets festooned with pins and zippers, suede coats and parkas, and urban hiker boots, all accented liberally with shearling pieces. Vevers was going for “a Coach approach to luxury, even an American approach to luxury—not too precious . . . not too perfect.” Based on reviews from the fashion world and the public, Vevers seems to have dialed in the right combination. “Coach is cool again, and not in a way that’s appealing only to fashion insiders,” says Lauren Indvik, editor in chief of Fashionista.

Every company gets things wrong now and then. What dis- tinguishes good companies from bad ones is the fact that good companies are able to see their mistakes and correct them. It’s clear that those in charge at Coach have recognized their mis- takes. But it remains to be seen if the turnaround plan is the antidote. With all that Coach has at stake, Luis, Frankfort, and the others will not give up easily. The question is, will the new strategy restore Coach to its former glory days?

With its image as an accessible status symbol, Coach was one of the few luxury brands that maintained steady growth and profits throughout the Great Recession. And it did so without discounting its prices. Fearing that price cuts would damage the brand’s image, Coach instead introduced its “Poppy” line at prices about 30 percent lower than regular Coach bags. Coach concentrated on its factory stores in outlet malls. And it main- tained an emphasis on quality to drive perceptions of value. As a result, Coach’s devoted customer base remained loyal throughout the tough times.

At about the same time, Coach also invested in new cus- tomers. It opened its first men’s-only store, stocked with small leather goods, travel accessories, footwear, jewelry, and swim- suits. Coach also expanded men’s collections in other stores. As a result, its revenue from men’s products doubled in one year. The company saw similar success with international customers, pressing hard into Europe, China, and other Asian markets.

But just as it seemed that Coach was untouchable, the brand showed signs of frailty. Coach’s U.S. handbag busi- ness started slowing down. During Luis’s first year on the job, Coach’s share of the U.S. handbag market fell from 19 percent to 17.5 percent—the second straight year for such a loss. Dur- ing that same period, Michael Kors, Coach’s biggest competi- tive threat, saw its market share increase from 4.5 percent to 7 percent. Up-and-comers Kate Spade and Tory Burch also saw increases. Because the U.S. market accounted for such a large portion of the company’s business, overall revenue took a dip despite the brand’s growth in new markets.

What’s the Problem? Many factors could be blamed for Coach’s U.S. decline. Dur- ing the most recent holiday season, Coach had to contend with the same problem many other retailers faced—less traf- fic in shopping malls. But Kate Spade and Michael Kors, which operate their own stores and sell through department stores in malls just as Coach does, experienced double-digit gains during the same period. Coach’s performance also ran counter to the dynamics of the handbag and accessory market as a whole, which grew by nearly 10 percent over the previ- ous year.

The differences in sales trends between Coach and its com- petitors have led some analysts to speculate that the long-time leader has lost its eye for fashion. “These guys are definitely losing share,” said analyst Brian Yarbrough. “Fashion-wise, they’re missing the beat.” Yarbrough isn’t alone. Many oth- ers assert that, under the same creative direction for 17 years, Coach’s designs have grown stale.

Then there is the issue of Coach’s price structure—in short, Coach may have taken the premium price point too far. “Coach tried to eliminate coupon promotions tied directly to its discount outlets, which are the company’s biggest source of revenue, and which attract customers looking to stretch their dollars,” said one luxury retail expert. “The number of people willing and able to pay a premium for luxury brands, like Coach, is getting small as this weak economy continues.” However, price alone would not explain why Coach’s business slid at the same time

Appendix 1: Company Cases 537

Sources: Lauren Indvik, “Stuart Vevers Is Creating Luxury That’s ‘Not Too Precious’ for Coach,” Fashionista, February 13, 2015, http://fashionista .com/2015/02/coach-fall-2015; Andrew Marder, “Coach, Inc. Can’t Get It Together,” Motley Fool, April 30, 2014, www.fool.com/investing/ general/2014/04/30/coach-inc-cant-get-it-together.aspx; Phil Wahba, “Coach Sales in North America Plummet as Market Share Erodes,” Reuters, January 22, 2014, http://in.reuters.com/article/2014/01/22/ coach-results-idINL3N0KW3V920140122; and additional information taken from www.coach.com/aboutus?contentObject=about-us, accessed September, 2015.

Questions for Discussion 1. What challenges does Coach face in pricing its vast prod-

uct line?

2. Based on principles from the chapter, explain how price affects customer perceptions of the Coach brand.

3. How has increased competition at Coach’s price points affected the brand’s performance?

4. Will the plan proposed by current Coach’s leadership be successful in reversing the brand’s slide in market share? Why or why not?

5. What recommendations would you make to Coach?

Company Case 10 Apple Pay: Taking Mobile Payments Mainstream After leaving his office in Manhattan, Tag stopped at a nearby Panera to grab a Frontega Chicken Panini and Green Passion Power Smoothie as a quick dinner on his way to see some friends in Soho. Upon ordering, he held his Apple Watch to the contactless reader near the register, gently pressed his finger to the TouchID fingerprint sensor on the small screen, and let Apple Pay do the rest.

Wanting to get across town as soon as possible, Tag used his Uber app to summon an UberX car. During the car ride, he remembered that he needed a couple of new dress shirts. With a few quick clicks on his watch, he selected the shirts through his Macy’s app. With a simple tap, he used Apple Pay to seam- lessly complete the transaction. As he neared his destination, Tag added a tip to the bill for the ride through the Uber app, which he’d already configured to use Apple Pay as the default. With one simple press of his finger to TouchID on his watch, he exited the cab.

Three purchases—offline, online, and, well, sort of in between—no wallet required. No traditional wallet, that is. This new reality—one that many early adopters are already living—is rapidly expanding toward what some experts predict will become the future for everyone. Folks like Tag don’t even carry tradi- tional wallets anymore, only their mobile devices and perhaps an ID and a backup credit card for retailers that don’t accept mobile payments—yet. After years of predictions that mobile payments would replace cash and credit cards, there are finally signs that it might actually be happening. And Apple is leading the way.

Hardly New The ability to pay for transactions with a mobile device is hardly new. In fact, the first technology for mobile payments was invented by Sony way back in 1989. It was first put into use in Hong Kong’s subway system in 1997 and began taking

root in Japan in 2001. The tech-savvy Japanese warmed to the idea quickly, and mobile wallet apps were being used on mobile phones throughout Japan by 2004. Ever since, more than 245 million Japanese mobile phones have been equipped with the capability to make mobile payments, and Japanese consum- ers use mobile payments for everything from transportation to food and household purchases.

So it seems odd that a similar system has not taken root in the United States, although it hasn’t been for lack of trying. Companies have been experimenting with different approaches for years. PayPal was the first to take advantage of the smart- phone revolution by creating a payment app that gave just about every smartphone the potential for mobile payments. About a year later, Google entered the mobile payment game with the launch of Google Wallet. In the past five years, numer- ous other companies, from small start-ups to electronics and retailing giants, have tried to gain market acceptance in mobile payments. They include the likes of Samsung, Square, and CurrentC, a mobile wallet app backed by a consortium of U.S. retailers (with Walmart leading the way) that hope to cut credit card companies and their fees out of the buying loop.

But none of these players—individually or together—have made much of a dent in replacing traditional credit cards and cash as a form of payment in the multi-trillion-dollar U.S. retail market. Although the mobile payments concept may seem like a no-brainer for convenience-loving American consumers, numerous barriers on both the buyer and seller sides have kept the concept from gaining momentum. With its recent launch of Apple Pay, Apple is clearly a market follower. But it’s a feat that the innovative company has performed to perfection time and again—take a new technology, make it better than any of the initial offerings, then watch the market explode as the Apple version becomes the runaway market leader.

Overcoming Negative Consumer Perceptions As with every new technology that involves paying for things, consumers have concerns about the security of mobile pay- ments. Paypal, Google, and the others took significant mea- sures to design secure systems. However, most consumers just weren’t comfortable with the idea that their phone might be used as a portal to their credit cards and bank accounts if it fell

http://fashionista.com/2015/02/coach-fall-2015

http://www.fool.com/investing/general/2014/04/30/coach-inc-cant-get-it-together.aspx

http://in.reuters.com/article/2014/01/22/coach-results-idINL3N0KW3V920140122

http://www.coach.com/aboutus?contentObject=about-us

http://fashionista.com/2015/02/coach-fall-2015

http://www.fool.com/investing/general/2014/04/30/coach-inc-cant-get-it-together.aspx

http://in.reuters.com/article/2014/01/22/coach-results-idINL3N0KW3V920140122

538 Appendix 1: Company Cases

But thanks to Apple, that situation is changing rapidly. It may be because of Apple’s clout or because of the company’s massive and loyal user base. But in less than a year, Apple has signed up far more retailers than all the previous mobile pay- ment providers combined. “You need so many points of accep- tance to make mobile payments work,” says a mobile payments analyst for Forrester Research. “Apple has made that happen, striking partnerships with top national brands across a variety of categories that will give consumers plenty of opportunity to use the service.” Apple has also signed up enough credit card issuing banks and credit unions to cover 83 percent of charge volume. In fact, Apple Pay has gained enough steam that Best Buy and Meijer will soon be accepting the payment app, despite having signed exclusivity agreements as part of the CurrentC consortium.

But Apple still faces many challenges. For example, even though Apple Pay is now technically accepted at more than 700,000 U.S. retail outlets, many of those outlets don’t yet have the hardware installed that will recognize Apple’s app. That fact can be discouraging to early adopters, hurting repeat usage. One recent survey showed that 66 percent of iPhone 6 owners had signed up for Apple Pay, but nearly half of them had visited a store listed as an Apple Pay merchant only to find that the location wasn’t set up yet to process mobile payments through the app. Additionally, although Apple’s penetration of the market far exceeds that of the competition and continues to grow each month, the mobile payments leader has a long way to go before reaching critical mass with 8 million retail outlets. And this doesn’t even take into account online and in- app payments.

Still, Apple remains confident. “We are more convinced than ever that 2015 will be the year of Apple Pay,” says Tim Cook, Apple’s CEO. While there are still plenty of doubters that mobile payments will replace plastic as the go-to method for purchasing goods and services, there are also plenty of believ- ers. And while Apple is clearly ahead in this game, its success also bodes well for the competition. As the concept catches on and technologies become more compatible, demand among non-Apple users will increase as well.

There is no shortage of options in the mobile payments field. And improvements designed to make the apps more con- venient are being made continually, including the integration of loyalty cards and other promotional mechanisms. But even as other companies’ offerings get better, expect Apple to be more competitive than ever. After all, nothing is stopping it from cre- ating Apple Pay for Android devices.

Questions for Discussion 1. As completely as possible, sketch the value delivery net-

work for Apple Pay.

2. With respect to Apple Pay, is Apple a producer, a consumer, or an intermediary? Explain.

3. Identify all the reasons why Apple’s partnerships are essen- tial to the success of Apple Pay.

4. With respect to marketing channels, what are some threats to Apple Pay’s future?

into the wrong hands. Never mind that the same could be said of a wallet or handbag, far less secure devices.

Recognizing consumer reluctance to place digital versions of their financial devices in one app, Apple took security to a higher level. Requiring a fingerprint makes the process much more secure than the more common safeguard of entering a passcode. And if a mobile device is ever lost or stolen, the owner can use its Find My iPhone feature to immediately lock down Apple Pay or even wipe the device completely clean.

Additionally, every compatible Apple device is assigned a unique Device Account Number. This is encrypted and securely stored in a dedicated security chip on the device. That and a transaction-specific security code are the only numbers that Apple transmits to merchants. In fact, the merchant doesn’t even need to know the customer’s name. Credit and debit card numbers are stored only on the local device, not on Apple serv- ers. This makes Apple Pay even more secure and more private than paying by credit card.

Beyond consumer security concerns, previous adoption of mobile payment apps has been slowed by perceptions of a clunky user experience. If convenience is the biggest draw for consumers, then anything more arduous than the already con- venient swipe of a credit card simply won’t cut it. Setting up any of the existing mobile payment apps takes time and effort. Using such apps at the point of purchase is far from seamless, especially if the technology isn’t working quite right. “I don’t want to be that guy holding up the line while we fumble around to get it all to work,” says one business columnist, “just like I don’t want to be the guy who holds up the line boarding an air- plane because his mobile boarding pass can’t be read.” Mobile apps that hit the market prior to Apple Pay required entering a passcode and—in some cases—hitting multiple buttons. That took longer than the traditional swipe of the card, even if every- thing worked as intended.

With Apple Pay, users still need to configure the app. But Apple already has 800 million credit cards on file with its exist- ing iTunes store. Not only can this facilitate a set up that is already streamlined compared with existing apps, it’s a sign that iTunes users may be more comfortable with using the app given that they have already given their credit card information to Apple. And with the TouchID sensor, Apple has the transac- tion down to a one-touch process. That’s quicker than swip- ing a card and going through the typical menu, not to mention quicker than inputting a passcode.

Establishing Points of Acceptance For mobile payments to penetrate the market, consumer accep- tance is necessary. But companies face a twofold challenge in making such a technology successful. Consumers won’t adopt it if retailers don’t accept it, and retailers won’t invest the resources necessary to accept it unless there is sufficient con- sumer demand. And the lack of consumer demand is the big- gest factor that has kept retailers from jumping onto the mobile payments bandwagon. As a result, there are currently too few retailers that accept mobile payments to convince people that they can leave their credit cards at home.

Appendix 1: Company Cases 539

keeps-growing-despite-challenges-in-stores/; Cade Metz, “How Apple Pay Will Destroy the Online-Offline Shopping Divide,” Wired, September 10, 2014, www.wired.com/2014/09/how-apple-pay-will-become-the- easy-way-to-buy-everything/; and information from www.apple.com/ apple-pay/, accessed September 2015.

Sources: Robert Hof, “Apple Pay Starts to Take Off, Leaving Com- petition in the Dust,” Forbes, January 27, 2015, www.forbes.com/ sites/roberthof/2015/01/27/apple-pay-starts-to-take-off-leaving- competition-in-the-dust/; Robert Hof, “Apple Pay Momentum Keeps Growing Despite Challenges in Stores,” Forbes, April 27, 2015, www .forbes.com/sites/roberthof/2015/04/27/apple-pay-momentum-

Company Case 11 Sears: Why Should You Shop There? After working late one evening, Joan stopped off at Sears to return some items she had purchased online from Lands’ End—a Sears-affiliated brand since 2002. She couldn’t remem- ber the last time she’d set foot in a Sears store, instead usually shopping at other department stores or discount retailers. As she walked in, she noticed that the store felt old and a bit run-down. She also noticed that she was one of few people in the entire store. The store seemed to stock a hodgepodge of products and brands, arranged in a pedestrian way. On her way out of the store, she wondered to herself, “Who shops at Sears? Why?”

Younger shoppers might find it hard to believe, but until the 1980s, Sears was America’s largest retailer—the Walmart of its day. It’s once-famous slogan, “Where America Shops,” wasn’t just a clever tagline conjured up by Madison Avenue. It was a position- ing statement with power. Sears catered to all, selling merchandise in just about every category to just about every customer segment.

But the once-dominant Sears has since fallen so hard and fast that some analysts are now predicting its complete demise within the next few years. Its once-famous slogan seems almost comical now, as its stores are often deserted, even during peak times. What caused this decline? Sears lost its focus. Whereas many retail brands have forged strong positioning strategies targeting specific segments, Sears no longer stands for much of anything. Mention Walmart and people think “Save money. Live better.” Bring up Target and they know to “Expect more. Pay less.” At Macy’s you get “the magic of Macy’s,” and Nordstrom promises to “take care of customers no matter what it takes.” But say Sears and most customers draw a blank. The chain has neither an image nor an apparent value proposition that gives people a compelling reason to shop at its stores.

The Fall of an Icon Founded in 1886, during the next century, Sears grew to become America’s iconic retailer. It began as a mail-order catalog com- pany in the 1880s, grew into a national chain of urban department stores during the early to mid-1900s, and became an important anchor store in the fast-growing suburban malls of the 1960s and 1970s. Through the 1980s, Sears was the nation’s largest retail chain. Almost every American relied on Sears for everything from basic apparel and home goods to appliances and tools. But

during the past two decades, as the retail landscape has shifted, once-mighty Sears has lost its way. Sears has failed to refresh its positioning to make itself relevant in today’s marketplace.

A look at Sears advertising or a visit to the Sears Web site testifies to the retailer’s almost complete lack of current positioning. Headlines scream “Buy more, save more on appli- ances,” “50% off your favorite apparel brands,” “Lowest prices on Craftsman lawn and garden,” and “Big brand sale: great val- ues, top brands.” It seems that about the only thing Sears has going for it these days is that everything it sells is always on sale. However, price is not a convincing value proposition for Sears, which has trouble matching the low prices of competitors such as Walmart, Target, or Kohl’s.

In 2005, a struggling Sears merged with an even more dis- tressed Kmart to become Sears Holding Corporation. The merger of the two failing retailers left analysts scratching their heads and customers even more confused about the value propositions of the respective chains. Following the merger, the corporation jumped from one questionable tactic to another. For example, Kmart stores began carrying well-known Sears brands such as Craftsman tools, Kenmore appliances, and Diehard batteries, diluting one of Sears’s only remaining differentiating assets.

Sears Holding has also tried a variety of store formats. For instance, it converted 400 Kmart stores to Sears Essentials stores, which it later changed to Sears Grand stores—Walmart- like outlets that carry regular Sears merchandise plus every- thing from health and beauty brands, toys, and baby products to party supplies and groceries. It has also dabbled with a confus- ing assortment of other formats carrying the Sears name, such as Sears Hometown stores (a franchised smaller version of full- sized Sears stores), Sears Hardware stores, Sears Home Appli- ance Showrooms, Sears Outlet stores, and Sears Auto Centers.

Despite the variety of store formats, Sears has done little to refresh its positioning. “A lot of traditional department stores have reinvigorated themselves through merchandising. You haven’t seen that from Sears,” says one analyst. To make matters worse, whereas most competing retailers have invested heavily to spruce up their stores, Sears has spent less than one-quarter of the industry average on store maintenance and renovation, leaving many of its outlets looking old and shabby. “There’s no reason to shop at Sears,” concludes a retailing expert. “It offers a depressing shopping experience and uncompetitive prices.”

Once a Retailer, Now a Hedge Fund Many critics place the blame for Sears’s lack of sound mar- keting and positioning on Sears Holding Company chairman Edward Lampert, a hedge fund manager and the driving force behind the Sears/Kmart merger. Lampert and his funds own

http://www.wired.com/2014/09/how-apple-pay-will-become-the-easy-way-to-buy-everything/

http://www.apple.com/apple-pay/

http://www.forbes.com/sites/roberthof/2015/01/27/apple-pay-starts-to-take-off-leavingcompetition-in-the-dust/

www.forbes.com/sites/roberthof/2015/04/27/apple-pay-momentum-keeps-growing-despite-challenges-in-stores/

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540 Appendix 1: Company Cases

also facilitated the sale of a portion of Sears’s stake in Sears Canada. Most recently, the company sold Lands’ End—now an independent company, although still located within Sears— in a transaction that put more than $1 billion in Sears’s cof- fers. Lampert is eying similar deals for other Sears businesses. Although some see this as a way to strengthen the company by focusing on its core business, others see it as little more than “continuing to burn the furniture to stay warm.”

One potential bright spot for Sears is online sales. As the company’s revenues continued to drop, its online sales have been on the uptick. With a strategy to become a fully inte- grated omni-channel retailer, revenue from e-commerce has been growing by an average of 10 percent over the past few years. In fact, Sears is the sixth-largest online retailer in the United States. This is no accident. Lampert is a believer in sell- ing online. In a recent statement that accompanied a financial update to the press, Lampert came as close as he ever has to issuing a statement of corporate strategy. “We are transition- ing from a business that has historically focused on running a store network into a business that provides and delivers value by serving its members in the manner most convenient for them: whether in stores, at home, or through digital devices.”

To support this assertion, Sears has developed the Shop Your Way loyalty program—a hybrid between Amazon and Facebook that allows customers to accumulate and spend rewards online or off. Sears has also experimented with a store pickup service, MyGofer—an initiative that essentially turns Kmart stores into a same-day pickup location for all Sears and Kmart brands and merchandise ordered online. With the omni-channel model very much in vogue, this strategy seems to put Sears right on target in terms of where the retail industry is headed.

But while Sears is apparently investing in the digital side of its business, it is neglecting the brick-and-mortar side. The chain hasn’t opened a new store in years. In fact, it’s selling off locations—235 this year alone. “Our stores are often in the wrong place and are often too large for our needs” was all that Lampert could say when questioned about the high rate of store closures. And Sears’s remaining stores are progressively becoming less appealing. One retail analyst, once a big Sears fan, remembers growing up in Chicago at a time when his family wouldn’t think of shopping anywhere but Sears. Now things are different. “I shopped for back-to-school clothes at a store [that’s] now so dark and depressing, I can’t bear to go in,” he says, “even though it’s [just] blocks from my home—a home that sits on a street that shares a name with an iconic Sears brand.”

Although Lampert and his team continue to claim that turn- around efforts will soon bear fruit, things don’t look promising for Sears. The lack of customer thinking and marketing strategy has taken a devastating toll. Sears Holding Corporation’s rev- enues have fallen for 29 consecutive quarters. Total sales for the most recent year were $31.2 billion, down 14 percent from the previous year and a far cry from a peak of $53 billion just eight years prior. Profits also paint a grim picture—the company lost $1.7 billion last year, more than it made from selling off Lands’ End. As a result, Sears’s stock price has fallen nearly 80 percent since 2007.

about 60 percent of Sears Holding’s stock. Critics claim that since the 2005 merger, Lampert has run the company more as a portfolio of financial assets than as a retail chain. A fierce advocate of free-market economics, Lampert restructured Sears into approximately 40 business units, each set up to operate as an independent business with its own set of c-suite officers, boards of directors, and profit-and-loss statements. The inten- tion was for the decentralized structure to foster independence and competitiveness and to make each part of the corporation more accountable.

It had other, less appealing effects. For example, because the appliance unit could make more money selling products manufactured by outside brands, it began featuring brands like LG over Sears’s own Kenmore. A similar problem arose when the Sears Craftsman brand unit proposed a tool co-branded with the Sears DieHard brand. But under the new structure, Craftsman would have had to pay DieHard royalties, making the cost of the item prohibitive. Craftsman tools and Kenmore appliances still lead their categories, and the DieHard brand of automotive batteries remains strong. But the infighting has had a negative effect on the market positions and fortunes of these and other Sears brands.

The decentralized structure also created barriers to pricing Sears and Kmart products competitively relative to competing chains. After studying the company’s prices, a newly appointed president of retail services surmised that Kmart’s food and drugs were more expensive than those at Walmart and Target. He proposed reducing prices on these product lines, bringing them in line with competitors. The presidents of various busi- ness units agreed with the proposal. But no unit was willing to cough up the $2 million needed to fund the project. Corporate headquarters rejected a request for a loan. So prices remained at uncompetitive levels.

As day-to-day operations played out, cooperation and col- laboration gave way to a “warring tribes” culture that made the lack of a solid marketing message even worse. As chief marketing officers fought over advertising space in the weekly Sears circu- lar, the circular turned into what one former executive referred to as a “Frankenstein” promotion—a hodgepodge of product com- binations with no overall cohesion. Screwdrivers were advertised next to lingerie, and lawnmowers sat next to ladies’ shoes. For the cover of one Mother’s Day circular, the sporting-goods unit purchased space for a Doodle Bug minibike—an item popular with young boys.

All of this speaks to a lack of leadership at the top. Since the 2005 merger, Lampert has hired four CEOs, not a single one with any retailing experience. After the last CEO left more than a year ago, Lampert assumed CEO responsibilities himself. But “being a successful hedge fund manager doesn’t make you a good retailer,” says one Sears watcher.

The Only Hope? There are a few signs of a prosperous future for the nation’s once-greatest retailer. To streamline operations and free up cash, Sears is selling off parts of the company. Last year, Sears Hold- ings spun off Sears Hometown and Sears Outlet stores. Lampert

Appendix 1: Company Cases 541

3. What is the relationship between the current Sears corpo- rate strategy and its marketing struggles?

4. Assess Sears’ efforts to become a true bricks-and-clicks retailer.

5. Can anything save Sears? Support your position.

Sources: James Covert, “Sears Posts $548 million loss, Plans to Close 235 Stores,” New York Post, December 4, 2014, http://nypost .com/2014/12/04/sears-posts-wider-q3-loss-on-13-revenue-drop/; Phil Wahba, “Eddie Lampert’s Incredible Shrinking Empire,” Fortune, Feb- ruary 26, 2015, http://fortune.com/2015/02/26/sears-earnings/; Lauren Coleman-Lochner and Carol Hymowitz, “A Money Man’s Trials in Retailing,” Bloomberg Businessweek, January 5, 2012, pp. 24–25; and various pages at www.sears.com, accessed September 2015.

In a letter to shareholders after the release of the most recent year’s financials, Lampert boasted of his e-commerce plan, saying that otherwise, “we would be stuck on the same path that has claimed Circuit City, Borders, Radio Shack, and others,” all iconic retailers that have gone out of business. And yet, with no cogent marketing plan and seemingly no way out of its financial tailspin, many analysts predict that once-dominant Sears will soon follow the same fate and disappear entirely.

Questions for Discussion 1. According to the principles of retail strategy, how did Sears

once become the nation’s biggest retailer?

2. According to those same principles, how did Sears lose its once-commanding market position?

Company Case 12 Allstate: Bringing Mayhem to the Auto Insurance Advertising Wars In the spring of 1950, the teenage daughter of Allstate general sales manager Davis Ellis was stricken with hepatitis shortly before she was to graduate from high school. The worried executive arrived home from work one evening just as his wife returned from the hospital where their daughter was admitted. As he met her at the front door, his wife reported, “The hospital said not to worry . . . we’re in good hands with the doctor.”

Later that year, Ellis became part of a team charged with developing the first major national advertising campaign for the Allstate Insurance Company. As the team discussed the mes- sage they wanted the brand to convey, Ellis recalled his wife’s “we’re in good hands” remark and how good it made him feel. The phrase projected security, reassurance, and responsibility, exactly the traits the team wanted customers to associate with Allstate. Thus was born the slogan “You’re in good hands with Allstate.”

By the early 2000s, a study by Northwestern University found that the long-standing Allstate catchphrase was the most recognized slogan in the United States. For years, Allstate held the position as the second-largest personal lines insurer, trailing only State Farm. In 2003, Allstate hired actor Dennis Haysbert as the brand’s spokesperson. After starring in dozens of Allstate commercials—each culminating with the question “Are you in good hands?—Haysbert’s deep voice became a comforting familiarity to television viewers. Today, the “Good Hands” slo- gan is the oldest surviving slogan for a paid campaign.

An Advertising Shakeup Although Allstate’s advertising served it well for decades, by the late 1990s, the company had fallen into the same routine as the rest of its industry. Big auto insurance companies were

spending modestly on sleepy ad campaigns featuring touchy- feely, reassuring messages such as Allstate’s “You’re in good hands” or State Farm’s “Like a good neighbor.” In an indus- try characterized by low budgets and even lower-key ads, no brand’s marketing stood out.

However, the advertising serenity ended with the first appearance of the now-iconic GEICO Gecko in 1999, backed by a big budget and pitching direct sales and low prices. That single GEICO ad campaign sparked a frenzy of ad spending and creativity in the insurance industry that quickly escalated into a full-scale advertising war. Once-conservative car insur- ance ads became creative showstoppers, as edgy and creative as ads found in any industry. Here are a few highlights:

●● GEICO: GEICO got the auto insurance advertising wars rolling when it was acquired by billionaire Warren Buffet’s Berkshire-Hathaway company in 1996 and given a blank check to aggressively increase market share. That led to an onslaught of advertising the likes of which the auto insur- ance industry had never seen. A string of creative GEICO campaigns featured everything from civilized cavemen to cash with googly eyes. But it was the GEICO Gecko that had the biggest impact. With his signature English accent, the Gecko made GEICO’s simple message clear—“15 min- utes can save you 15 percent or more on car insurance.” More than any other industry spokesperson, the Gecko lent personality and pizzazz to the previously sleepy insurance industry and its staid brands.

●● Progressive: Following GEICO’s lead, in 2008 Progressive created its own perky and endearing personality—Flo. Progressive created the ever-upbeat, ruby-lipped salesclerk to help convince consumers who are already in the market that they can get an even better price deal from Progressive. Flo helped put Progressive hot on the heels of rising GEICO as the fourth-largest auto insurer. Flo assists people when they are ready to shop. Progressive later introduced a com- plementary campaign featuring the Messenger—the mus- tachioed, leather-jacket-wearing stranger—and Brad—the easy-going, self-assured man with an absurdly funny sense of self-esteem who refers to himself only in the third person.

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an engagement score nearly eight times that of Progres- sive’s perky spokeswoman. And when the character’s creator recently saw a Mayhem-costumed trick-or-treater walking down her street, she called it “a career highlight that gave her chills.”

More than just popular, Mayhem is right on message. At the end of each ad, he warns, “If you’ve got cut-rate insur- ance, you could be paying for this yourself.” Then a reassuring Haysbert provides the solution: “Are you in good hands?” he asks. “Get Allstate. You can save money and be better protected from Mayhem.” This “worth-paying-a-little-more” message puts Allstate back at the top in terms of customer value.

Mayhem Redux Allstate’s ads were not only creative, they were effective. After a few years of Mayhem ads complementing Haysbert’s Good Hands ads, Allstate’s unaided brand awareness of 74 percent trailed State Farm’s by only a slight margin, despite State Farm’s 60 percent greater ad spending. And for a time, the May- hem campaign halted Allstate’s market share slide. According to Allstate CEO Thomas Wilson, “It’s working. If you look at our quotes and our new business, it’s way up.” All this prompted Allstate to extend the campaign, including the introduction of Mayhem’s Hispanic cousin, Mala Suerte (bad luck), aimed at Hispanic consumers.

In extending the campaign, Allstate took Mayhem to the next level, giving the character his own Twitter account. Seem- ingly late to the Twitter party, Allstate executives indicated that the delay was intentional. “We’ve been very careful about not overdoing Mayhem and not overexposing [him],” said Jennifer Egeland, Allstate’s director of advertising. “[We wanted] the right idea for launching him in the Twitter space.”

The right idea was to conform to Mayhem’s persona. As a recent football season dawned, Mayhem polled followers about what he should portray in the next ad—a charcoal grill or a cheap bungee cord. Consumers voted for the cord. Mayhem disobeyed, Tweeting: “Too bad I’m a tailgate grill. Who’s got a light?” He followed that up with Vine videos of a car set on fire from a grill mishap. Allstate then released two new Mayhem ads—“Tailgate Grill Fire” and “Cheap Bungee Cord,” making everyone happy. Similar antics ensued for the ensuing March Madness kickoff of the NCAA playoffs, helping drive more than 61,000 followers to the @Mayhem Twitter account.

With all this activity and public response, Allstate thought it had a surefire weapon for maintaining its market position. But the all-out auto insurance advertising war illustrates just how critical it is to stay one step ahead of the competition. For the most recent year, Allstate increased its ad budget to $887 million, outdoing even market leader State Farm’s $802 million effort. However, both companies were eclipsed by GEICO’s eye-popping $1.1 billion advertising spending. Today, no fewer than 11 car insurance brands are running national TV advertis- ing campaigns. Combined, the auto insurers now spend more than $6 billion each year to get their messages out. That makes things confusing for consumers, who struggle under the deluge of clever ads for the respective brands.

Like the GEICO Gecko, Flo, the Messenger, and Brad pitch price savings as their primary appeal.

●● State Farm: As GEICO and Progressive shook up the industry with their direct, low-price, high-profile selling models, conventional agent-based auto insurers were forced to respond. Ninety-year-old State Farm, the long-time in- dustry leader, was hardly a stranger to advertising. Like Allstate, State Farm had a long-standing, widely recognized slogan—“Like a good neighbor, State Farm is there”—a jingle written by pop music icon Barry Manilow in 1971. Sensing the threat from the rising newcomers, State Farm fought back vigorously with a new campaign centered on its enduring jingle. In its “magic jingle” campaign, State Farm agents magically appear when summoned with the jingle by young drivers in trouble—including the likes of LeBron James. The campaign’s goal—to convince consumers that they still need the services of one of State Farm’s 18,000 agents. To help make the point more forcefully, State Farm doubled its ad budget.

“Good Hands” Meets Mayhem Amid this surge in competition and advertising creativity, All- state struggled just to hold its own, let alone to grow. In the wake of the Gecko and Flo, Allstate had lost market share for two years running, even with Haysbert’s presence as company pitchman. The brand needed its own over-the-top personality. So Allstate brought mayhem to life—literally. With the new creepy Mayhem character played by actor Dean Winters, All- state created a villainous counterpart to Haysbert’s soothing hero. The campaign’s goal: to convince consumers that there is more to buying car insurance than just price. Put more bluntly, says an ad agency executive involved with the campaign, “We wanted to kick Flo’s ass.”

Mayhem portrays all of the unlikely events that can lead to a major auto insurance claim. As a deer, he jumps into the path of a moving car at night “because that’s what we deer do.” As a torrential downpour, he loves leaky sunroofs. As a malfunction- ing GPS, he sends a driver swerving into another car. As snow, he weighs down the roof of a garage until it collapses, smash- ing the car within. Each quirky ad ends with the statement and question “If you have cut-rate insurance, you could be paying for this yourself. Are you in good hands?”

Through such clever ads, Allstate’s creative and award- winning “Mayhem. It’s Everywhere.” campaign has put a contemporary, attention-grabbing twist on the company’s long- standing “You’re in good hands with Allstate” slogan, helping to position the brand as a superior alternative to price-oriented competitors. Even with its long-standing “Good Hands” cam- paign, Allstate needed something unconventional. In fact, mayhem didn’t just describe the Allstate campaign—it charac- terized the entire world of auto insurance advertising.

The Mayhem campaign quickly won many top ad indus- try awards. But perhaps a bigger indication of the campaign’s impact is the extent to which the character has become ingrained in the pop culture. Although Mayhem has just more than a third of Flo’s 4.9 million Facebook fans, he commands

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3. Discuss issues of selecting advertising media for the May- hem campaign. How might this process differ from that of campaigns for other companies?

4. Based on the information in this case, how might Allstate measure the effectiveness of the Mayhem campaign?

5. Has the Mayhem campaign been effective? Support your answer.

Sources: Ashley Rodriguez, “How Allstate’s Mayhem Disrupted the Chatter around Insurance,” Advertising Age, June 10, 2015, http:// adage.com/print/298779; Steve Daniels, “GEICO Overtakes Allstate as No. 2 Auto Insurer,” Advertising Age, March 3, 2014, http://adage.com/ print/291947; E.J. Schultz, “Allstate’s Mayhem Joins Twitter . . . Now What,” Advertising Age, October 14, 2013, p. 28; Anthony Crup, “All- state’s Marketing Boss Talks Up ‘March Mayhem,’” Ad Week, March 25, 2014, www.adweek.com/print/156471; and advertisements and other information accessed at www.allstatenewsroom.com and www .allstate.com/mayhem-is-everywhere.aspx, accessed September 2015.

The intense competition, big budgets, and focus on con- sumer advertising have kept industry market share dynamic. In fact, in the last year, GEICO moved into the number-two spot behind State Farm and is pulling away with a 10.8 percent share of the auto insurance market to Allstate’s 10.0 percent. Allstate has grown its auto insurance business in recent years. But GEICO’s growth has been consistently stronger. With that development, Allstate is left to reconsider the value that it is getting out of its advertising investments and just how it might slow GEICO down GEICO and retake its number-two market position.

Questions for Discussion 1. Why has Allstate’s “good hands” slogan withstood the test

of time to become advertising’s longest-running slogan?

2. Analyze Mayhem ads based on the process of creating an advertising message as outlined in the text (for Mayhem ads, check out www.allstate.com/mayhem-is-everywhere.aspx).

Company Case 13 SunGard: Building Sustained Growth by Selling the SunGard Way If asked what company topped the most recent Selling Power magazine list of “50 Best Companies to Sell For,” you’d prob- ably guess IBM, P&G, or maybe Xerox, companies long known for their outstanding sales forces. But number one on this year’s list is a company you probably know less about—software and technology services company SunGard.

What makes SunGard such a good place to work as a sales- person? For starters, SunGard has strong name recognition and a solid reputation in its industry. SunGard has long provided excellent compensation and training to its salespeople. And the company has consistently delivered strong customer growth and retention. However, although SunGard has long been good in these areas, what has made it outstanding and put it at the top of Selling Power’s list is a recent complete transformation of SunGard’s sales force model.

Pioneering a New Industry In the late 1970s, the computer services division of the Sun Oil Company (today Sunoco) pioneered a service now considered indispensable by virtually every company in the world. Sun and 20 other Philadelphia-area companies entered an agree- ment to act as backups for each others’ data systems. To create the needed capacity, the group developed a designated disas- ter recovery backup center. But when member companies were slow to pay their shares of the expenses, Sun Oil took over the backup operation and began selling computer services. In 1983, Sun Oil spun off the computer division and SunGard was born.

Since then, with the help of a few acquisitions, SunGard has grown steadily. It’s now one of the world’s leading software and technology services companies, with nearly $3 billion in annual revenues. SunGard now provides processing solutions for the financial services industry, K–12 education, and public sector organizations. It serves 16,000 customers in more than 70 countries. As a business-to-business service provider, that requires a substantial sales force.

Good, but Not Great When Russell Fradin took over as the CEO of SunGard in 2011, business was good. But the company faced some issues of concern. For starters, the Internet increasingly provided SunGard clients and potential clients with the information they needed to solve their own problems. For both its private and public sector businesses, compliance with government regula- tions was also increasing. And increasing globalization made it more and more challenging for SunGard’s sales reps to meet client needs. SunGard was not alone in facing these issues. But that just added to the pressure—any company finding effec- tive ways to meet these challenges would gain considerable strategic advantage.

SunGard also faced plenty of internal issues. The company sold multiple product lines, and Fradin felt that the SunGard sales force wasn’t achieving its potential in terms of selling the optimal mix of products. The company’s thousands of sales reps spent most of their time and effort selling licensed software rather than developing broader solutions to customer problems. Moreover, with multiple divisions and product lines and a frag- mented go-to-market approach, SunGard often had multiple sales reps pursuing the same clients, sapping productivity and even driving some customers away.

Based on these assessments, Fradin asked himself, “How can SunGard make its sales force—one of the company’s biggest

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functions, including recruiting, training, managing, and com- pensating sales force personnel.

This transformation would take time and effort, and it would cost millions. But by the time the plan was revealed, there was support throughout the company. “The whole orga- nization gravitated toward change,” said Powell. “[Everyone] knew it had to happen.” To help cover costs, the company shifted budgets, reallocating funds from ineffective programs to the transformation project.

On the recruiting front, SunGard adopted a new talent- assessment tool that defined ideal job profiles and evaluated skills and performance patterns of potential hires. The company also hired a team of sales development managers, charged with increasing the productivity of first-year sales reps. It was their job to make sure that new sales reps received all the training and exposure necessary to understand the company’s structure, strategic plans, products, and sales tools. That relieved front- line sales managers of these tasks, letting them focus more on selling. Sales development manager compensation hinged on the performance of first-year sales reps.

For existing sales personnel, SunGard revised procedures, metrics, training, and tools to make them consistent across the organization. It also made major revisions to its Salesforce CRM and sales management tool, with an eye toward provid- ing salespeople with all the information they needed for every aspect of the sales process. The important tool now provided easy and immediate access to content such as case studies, customer information, and market data. Additional tools were made available to guide people through the necessary steps of effectively closing a sale.

But to improve effectiveness for both new and existing sales personnel, SunGard needed to make even more changes in how performance was measured and tracked. For example, prior to the transformation, the company tracked incentives and commissions manually, and they were not readily accessible by relevant stakeholders. Under the new scheme, metrics such as individual goals and forecasts, as well as how often sales were made or lost, became part of an automated system, accessible by sales reps and managers via mobile interface at any time. They could even run “what-if” scenarios to determine potential earn- ings of different situations. This capability motivated sales reps by increasing accountability and promoting a competitive spirit.

From Transformation to Results As the new sales structure and tools took root, it wasn’t long before they began to bear fruit. “There was a tremendous prod- uct suite that had yet to capture its full market share,” says Todd Albright, who joined SunGard as senior vice president of sales for the Americas after the transformation was under way. That market share will soon be achieved. “There were tremendous assets locked up at SunGard,” Neve summarizes. “We put a road map in place to unlock those assets, translating them into new sales and revenue growth.”

With its billion-dollar sales plan now in place, SunGard is on target. As one example, consider the productivity improve- ments for first-year reps. Prior to the transformation, about

and most important investments—perform more effectively?” SunGard had decent systems in place for recruiting, hiring, and training its salespeople. And SunGard’s sales executives did a reasonable job of making incremental changes. But Fradin felt that the company needed to do more in order to improve its growth and performance. If more drastic changes weren’t made, the mounting challenges would likely limit future sales and profits. To Fradin’s thinking, SunGard needed a complete sales force transformation.

According to a report by global sales consulting firm ZA Associates, companies that move sales force effectiveness from good to excellent by virtue of a sales force transformation can increase profitable growth by as much as 20 percent. But that kind of transformation would require a major effort, many months to plan and execute, and even longer to take hold. It would demand nothing less than a total commitment from every- one in the organization—those at the lowest rung on the corpo- rate ladder up to senior management and executives. It would also require that everyone have a clear vision of the benefits, for both themselves and for the organization as a whole. Disruptions from implementing such a sweeping change would likely mean losing good people and clients. It might also result in a short- term dip in performance before the benefits began to kick in.

Setting Transformation in Motion In early 2012, Fradin hired Jim Neve and Ken Powell to head up SunGard’s global sales efforts. The two-person team had worked on other successful large-scale sales force transformations, and they planned to carry out the same process at SunGard. “We needed to maximize our channels, sell the broadest set of solu- tions possible, and go to market in a coordinated manner,” said Powell. “We needed to build a sustainable growth engine.”

Neve and Powell branded the sales force transformation initiative as “Selling the SunGard Way.” More than just a fancy title, “Selling the SunGard Way” was a philosophy defined by specific goals and characteristics. First and foremost, the trans- formation would shift the basic sales approach from selling based on meeting customer needs to selling based on insights. SunGard reps needed to thoroughly understand the client buy- ing decision process, anticipate needs before even customers themselves were aware of them, and tailor the client relation- ship to meet shifting concerns. Focusing on product functional- ity and price just wouldn’t cut it anymore. And sales interactions would need to draw from technology and services across all SunGard business units, not just within specific divisions or product lines. In order to achieve these skills, SunGard’s sales personnel would need greater knowledge and expertise of the full line of company products as well as the nature of each cli- ent’s business.

After thoroughly surveying the needs of SunGard sales associates, Neve and Powell drafted a detailed transformation plan. Sales reps needed better training, detailed competitive analyses, and more effective sales campaigns. They needed bet- ter data, fewer administrative tasks, and a simplified interface for its Salesforce CRM sales management tool. To achieve such goals, Neve and Powell set out to overhaul SunGard’s core sales

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Questions for Discussion 1. Compare SunGard’s sales force structure before and after

the transformation.

2. What are the positive and negative aspects of SunGard’s new sales force structure?

3. How would the challenges faced by SunGard have affected sales productivity had the company not initiated its trans- formational plan?

4. Identify specific ways SunGard’s transformational plan addresses the different steps of managing the sales force.

5. Will “Selling the SunGard Way” really work? Why or why not?

Sources: Henry Canaday, “Selling the New SunGard Way,” Selling Power, www.sellingpower.com/content/article/?a=10217/selling-the- new-sungard-way&page=1, accessed June 2015; “50 Companies to Sell For in 2014,” Selling Power, www.sellingpower.com/2014/50- best-companies-to-sell-for/, accessed June 2015; Andris Zoltners, P. K. Sinha, and Sally Lorimer, “Improving Your Sales Force: Fine-tune or Transform?” Harvard Business Review, November 13, 2012, http:// blogs.hbr.org/2012/11/improving-your-sales-force-fin/; and informa- tion from www.sungard.com/about-us and www.sungard.com/finan- cials, accessed September 2015.

75 percent of new reps booked their first sale before the end of their first year at an average of about $400,000. Through the new policies, that sales productivity will soon double, adding an incremental $30 to $40 million to annual sales.

If boosting sales force effectiveness was easy, every com- pany would achieve optimal sales force productivity. SunGard was willing to pay the price. In the first year following the implementation of the transformation, as expected, SunGard revenues decreased over the previous year—down by about 16 percent. However, profits rose by nearly 35 percent, thanks in part to reduced costs from more efficient operations. By the end of the second year, revenues were back on the rise. Fradin was notably pleased. “Clients are responding positively to these initiatives, knowing that our offerings help their businesses be more competitive. We [are] particularly pleased with our sales momentum and our organic revenue growth.”

Importantly, SunGard’s sales force is now much more coor- dinated and collaborative. It’s better trained and equipped to sell based on insights. Its products and services are bundled across product lines rather than within lines. And reps are developing partnerships with customers, assisting them in streamlining opera- tions, accelerating growth, and complying with regulations. By transforming its sales force to “Selling the SunGard Way,” Sun- Gard is on a path to sustainable, organic growth for years to come.

Company Case 14 Alibaba: The World’s Largest E-tailer Is Not Amazon There’s a new king of e-commerce, and it dwarfs Amazon. Introducing Alibaba, the China-based behemoth that racked up $420 billion in revenues last year and is rapidly building an online empire that will include businesses ranging from a traditional online marketplace to online investment services. With annual sales that already place it much closer to Walmart ($487 billion) than to Amazon ($89 billion), Alibaba is growing so rapidly that by the end of the year it will comfortably pass Walmart to become the world’s largest company. How is this Chinese upstart pulling off such a startling Internet feat? Let’s start by taking a look at Alibaba’s founder, Jack Ma.

Unlikely Beginnings Jack Ma is an unlikely figure to be atop of one of the world’s most powerful companies. Time and again, U.S. tech start-ups have emerged from California garages. However, perhaps none of those start-ups were founded by individuals as seemingly unprepared as Ma. Growing up in Shanghai, Ma did poorly in school. He failed the college entrance exam twice before get- ting in and completing a teaching degree. He learned to speak English by hanging out around tourists and listening to radio broadcasts. Ma was rejected for a number of jobs—including

being a manager for KFC—before finally landing a job teach- ing English for $12 a month.

But Ma was animated and energetic, and he had lofty goals and ambitions, a combination that earned him the nickname “Crazy Jack.” During China’s export boom in the 1990s, Ma started a translation company. On a business trip to the United States, he was exposed to the World Wide Web and was sur- prised to find almost no Chinese content. After a failed attempt at starting an Internet company in China, Ma corralled 17 friends in his apartment in 1999 and set out to build an online marketplace. Substituting vision and charisma for coding skills, Ma started Alibaba.com, only a few years after legendary e-commerce marketers Amazon and eBay got their starts.

Feeding the Masses It’s difficult to examine Alibaba without making comparisons to the more globally familiar online sellers. In fact, Alibaba is often referred to as the “Amazon of China.” But it’s the dif- ferences between Alibaba and the Amazons, eBays, Googles, Walmarts, Costcos, Sears, and thousands of other successful e-tailers that explain how the Chinese company has grown so big and will grow so much bigger in the future.

For starters, consider the respective domestic markets. Amazon and the others got their starts in the United States, home to roughly 320 million people. This market serves up the most developed retail industry and the highest standard of liv- ing in the world. As the tech boom took off, numerous ambi- tious upstarts competed fiercely to transfer America’s retail businesses into the quickly developing space. Tech-savvy U.S.

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advertised promotion. From a shopping standpoint, Alibaba’s Tmall.com is more similar Amazon, pairing customers with big corporations, including many global corporations such as Nike, P&G, Apple, and even retailers like Costco.

But Alibaba’s development has taken it down numerous other paths as well. And although it may seem that the surging Chinese conglomerate is simply playing copycat, Ma’s vision plays out creatively in every case. For example, Alipay is simi- lar to PayPal. But starved for investment opportunities in an environment dominated by state-run banks, Alipay customers have access to financial products that pay attractive returns. In the first year of making such options available, Alipay custom- ers tucked away $82 billion.

In another example of “follow-the-Silicon-Valley-guru,” the soon-to-be-launched Tmall Box Office—or TBO—“aims to become [the equivalent] of Netflix in the U.S.,” including plans to run original content produced by Alibaba’s own Alibaba Pictures. But in an environment where TV viewers aren’t accustomed to the pay-to-watch model, Alibaba is a true pioneer. And that pio- neering effort extends to a crowd-sourced film investment fund, a model that threatens to upend traditional film financing in China by allowing regular folks to become producers with less risk.

During the past six months alone, Alibaba has spent $8 billion investing in start-up firms. Today, the Alibaba Group spreads out over a constellation of services, including music, gaming, blogs, social networks (the company just dropped $200 million on Snap- chat), event ticket sales, shipping, ridesharing, and smartphones.

As Alibaba’s list of businesses grows, Ma’s vision and inno- vation seem unbounded. After all, how many U.S. Internet veter- ans can say they started their own holiday? Just six years ago, Ma enthusiastically launched Singles Day on November 11. What started as a sort of anti-Valentine’s Day for single people is now one of the biggest blockbuster sales holidays in the world. Last year, it resulted in $9.3 billion in sales in a 24-hour period, almost double what fanatical U.S. residents spent during the five-day Thanksgiving shopping spree across all companies combined.

As Alibaba continues to grow, one frontier looms large— global expansion. Although China’s biggest dot.com success certainly has global ambitions, it has so far chosen to focus on the massive potential of its home market. That will certainly change. “We plan to invest more in [the U.S. and U.K. markets] to get more traffic and . . . build brand awareness,” says Joe Yan, director of international B2C at Alibaba’s export division. “Our biggest advantage is abundance, with 100 million products, we have more options for customers who can buy our products cheaper and at high quality.” And while it remains to be seen how Alibaba will attack global markets, one analyst recently predicted a future marriage down the road of Alibaba and eBay.

At the same time, U.S. companies like Netflix and Ama- zon are exploring ways to expand their small presence in China. However, although the massive markets on both sides of the pond represent opportunities too tempting to pass up, only time will tell whether any of these successful U.S. companies can export the models they have applied so successfully in their home markets.

As U.S. competitors try to counter Alibaba, they will face one more particularly big hurdle. The Chinese love Jack Ma. For their own part, U.S. tech founders such as Bezos, Zuck- erberg, Brin and Page, and certainly the late Steve Jobs are

consumers scrambled to convert some of their buying from brick-and-mortar stores to online purchases.

Contrast this with China. With 1.3 billion people and the fastest-growing economy in the world, the Chinese market has tremendous power and potential. But perhaps more important, China’s retail sector was still in the Dark Ages when Alibaba got its start. “E-commerce in the U.S. is like a dessert. It’s just supplementary to your main business,” Ma said recently. “In China, because the infrastructure of [traditional retail] com- merce is [so] bad, e-commerce becomes the main course.”

As many Chinese move from poverty to middle-class status, their exposure to buying online coincided with their exposure to any kind of buying. Relative to the U.S. market, there were rel- atively few competitors. The size and nature of China’s market have Alibaba boasting of 300 million registered customers, a base that comfortably exceeds the size of the entire purchasing popula- tion of the United States. And Internet penetration in China is still only 47 percent, compared with the much more saturated 87 per- cent in the United States, providing enormous growth potential.

In adapting traditional retail to an online environment, Ama- zon and the other U.S. e-tailers operate a “managed market- place”—they own their own distribution centers, sell a majority of their products directly, and even market their own brands, all characteristics that mimic traditional retail structures. This allows U.S. e-tailers to benefit from established distribution channels and to maintain a great deal of control over their operations. But it also requires massive investments in infrastructure and armies of employees, both of which result in wafer-thin profit margins. In fact, for two of the past four years, Amazon has lost money. For the other two years, the biggest profit it could muster was only 1.3 percent of sales. Walmart’s profit margin percentages for both online and offline sales are typically in the low single digits.

But Alibaba does not own or operate massive distribution centers. It doesn’t own the items sold on its sites. And it only employs about 25,000 people, a fraction of Amazon’s 132,000 employees. Instead, Alibaba’s open market platform simply con- nects buyers with sellers. That might sound like an eBay approach, but Ma insists that it is not. “Amazon and eBay are e-commerce companies, and Alibaba is not an e-commerce company,” Ma said recently. “Alibaba helps others to do e-commerce. We do not sell things.” While this gives Alibaba less control over the cus- tomer experience, Ma sleeps easier at night without the burden of obsessing over keeping prices low. As market forces work to set price points, Alibaba sits back and watches the cash pour in. Its profit margin over the past two years averaged almost 40 percent.

A Little of Everything The continuous influx of cash has allowed Alibaba to invest in just about every kind of business imaginable. In its infancy, Ali- baba.com primarily matched Chinese exporters with businesses throughout the rest of the world. But the company quickly shifted focus, catering to the growing purchase power of its domestic market. Unlike its Western counterparts, Alibaba developed and acquired different online sites and established major divisions. For example, Taobao.com is a site that helps small businesses and private parties sell merchandise to customers. But unlike eBay’s commission structure, Taobao sellers pay only for the

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Sources: Aaron Back, “Alibaba Dreams of E-commerce Globally but Acts Locally,” Wall Street Journal (Eastern Edition), June 24, 2015, p. C12; “Alibaba Plans Subscription Video Service,” Wall Street Journal, June 14, 2015, www.wsj.com/articles/alibaba-plans-subscription-video- service-1434310742; Jillian D’Onfro, “How Jack Ma Went from Being a Poor School Teacher to Turning Alibaba into a $160 Billion Behemoth,” Business Insider, September 14, 2014, www.businessinsider.com/the- story-of-jack-ma-founder-of-alibaba-2014-9#ixzz3dqFm4M9B; Angela Doland, “Five Takeaways from Alibaba’s Record-Busting $9.3 Bil- lion Shopping Fest,” Advertising Age, November 11, 2014, http://adage .coverleaf.com/advertisingage/20141117?pg=42#pg42; Julie Makinen, “Alibaba: For Helping Consumers Save, Spend, and Be Entertained,” www .fastcompany.com/3039571/most-innovative-companies-2015/alibaba; Charles Riley, “Alibaba Is Not the Amazon of China,” CNNMoney, September 16, 2014, http://money.cnn.com/2014/09/15/investing/alibaba- amazon-china/; and Mohanbir Sawhney and Sanjay Khosla, “Alibaba vs. Amazon: Who Will Win the Global E-commerce War?” Forbes, Septem- ber 22, 2014, www.forbes.com/sites/forbesleadershipforum/2014/09/22/ alibaba-vs-amazon-who-will-win-the-global-e-commerce-war/.

considered visionaries who have shaped the world’s digital eco- system. But the Chinese revere Mr. Ma, the man who turned a local underdog into a dominant giant with revenues bigger than Amazon, Facebook, Google, and Apple combined. Those kinds of patriotic emotions will be tough to crack.

Questions for Discussion 1. As a digital retailer, how does Alibaba provide value to

Chinese consumers? What sets of values are unique to the Chinese market?

2. Given that Alibaba does not own or distribute any of the merchandise exchanged on its sites, describe what factors had to develop for the company to succeed.

3. Analyze Alibaba’s business model relative to all the different forms of digital and online marketing covered in this chapter.

4. Can Alibaba succeed in countries outside of China? Why or why not?

Company Case 15 7-Eleven: Adapting to the World’s Many Cultures Americans love convenience stores. There’s one on every cor- ner, or so it seems. They open early and stay open late. And while you can’t get everything at a convenience store, you can get what matters most—gas, beer, cigarettes . . . and lots of snack foods! Snickers, Twinkies, Mountain Dew, Funyuns, Slim Jim, or Good Humor—the list goes on. Although new con- venience store designs are serving up made-to-order hot meals for breakfast, lunch, and dinner, the presentation of America’s favorite snack foods has risen to shrine-like status.

In an age of national brands, convenience store chains remain somewhat regional in the United States. At the same time, the top chains represent some of the country’s biggest retailers—Circle K, Speedway, Casey’s, QuikTrip, and Sheetz. Or maybe you prefer the small chains like Nebraska-based Bucky’s, Moto-Mart in Illinois, or Minnesota’s own Pump ‘N Munch. While there is still no U.S. convenience store chain that comes close to covering all 50 states, there are hundreds of chains and more than 150,000 convenience store locations. Given the regional nature of domestic convenience store chains, it’s hard to imagine any of them as global brands akin to Nike, McDonald’s, or Coca-Cola. And because nearly all U.S.-based convenience stores adhere so closely to a prescribed formula, it’s hard to imagine a convenience store being anything else.

But one convenience store chain is sweeping the planet. 7-Eleven, America’s largest convenience store chain with more than 10,000 U.S. stores in 34 states, is also the world’s big- gest, with more than 55,000 stores in 16 countries, including North America, Asia, and Europe. That number grows every year. And as 7-Eleven expands, it provides a great example of how to adapt a successful business model to differences across global markets.

It All Started with Ice In 1927, “Uncle Johnny” Jefferson Green started selling milk, bread, and eggs from the dock of the Southland Ice Company where he worked, often on Sundays and evenings when regular grocery stores were closed. Trying to make a little extra money, Uncle Johnny had no idea that he was inventing what would become one of the biggest and longest-standing retail concepts. His boss, Joe C. Thompson Jr., took notice. Within 10 years, Thompson’s Southland Ice Company had 60 such retail outlets that sold the basic staples—everything from canned goods to cold watermelon. As the chain slowly grew, the convenience store concept took root—a small store (2,000 to 3,000 square feet) carrying 2,500 high-demand products, convenient loca- tions, fair prices, speedy transactions, and friendly service.

Thompson’s chain continued to grow and innovate. In 1946, the chain boldly established longer business hours than any other store had yet dared. Open from 7 a.m. to 11 p.m., the company changed its name to cement the convenience of its long hours into its brand image. In 1963, the first 7-Eleven open 24/7 emerged, and another revolution began. When the chain reached 1,500 locations in the mid-1960s, it unleashed a brain-freeze plague on the nation with the introduction of the Slurpee. Coffee-to-go, the 32-ounce Big Gulp, and the larger- than-normal Big Bite hot dog are among other innovations that would quickly become convenience store staples. But in 1969, 7-Eleven would launch another first that would become the template for its future. It was the first convenience store chain to begin opening outlets in other countries—first Canada, then Mexico, and soon Japan and other Asian markets.

Keeping up with such rapid expansion is challenging for any company. Shortly before it opened its first international store, 7-Eleven adopted a franchise model that would allow it to grow at a breakneck pace by requiring franchisees to shoulder some of the financial and operational burdens. The company also gave franchisees flexibility, within certain parameters, to customize product offerings in any given store in order to cater to local tastes, what 7-Eleven today refers to as “retailer

http://www.wsj.com/articles/alibaba-plans-subscription-video-service-1434310742

http://www.businessinsider.com/the-story-of-jack-ma-founder-of-alibaba-2014-9#ixzz3dqFm4M9B

http://adage.coverleaf.com/advertisingage/20141117?

http://money.cnn.com/2014/09/15/investing/alibaba-amazon-china/

http://www.forbes.com/sites/forbesleadershipforum/2014/09/22/alibaba-vs-amazon-who-will-win-the-global-e-commerce-war/

http://adage.coverleaf.com/advertisingage/20141117?

http://www.forbes.com/sites/forbesleadershipforum/2014/09/22/alibaba-vs-amazon-who-will-win-the-global-e-commerce-war/

www.fastcompany.com/3039571/most-innovative-companies-2015/alibaba

http://www.forbes.com/sites/forbesleadershipforum/2014/09/22/alibaba-vs-amazon-who-will-win-the-global-e-commerce-war/

548 Appendix 1: Company Cases

distribution and logistics systems, and information systems. What 7-Eleven Japan had mastered over the previous 40 years was used to strengthen “retailer initiative” in the U.S. division.

The Third Place of Convenience Stores While it wouldn’t be the first time that a Japanese company took a U.S. business concept, perfected it, then brought it back to the United States (think Honda automobiles, Sony televi- sions, or Toshiba computers), the core strategy remained the same—give the people what they want in every market. Many features established in 7-Eleven Japan worked well in other rapidly expanding Asian markets, including Taiwan, Singapore, China, and the Philippines. But the new parent company contin- ues to adapt the model masterfully.

Nowhere is that more apparent than in one of 7-Eleven’s newest markets, Indonesia. Picture this—on a Saturday night, thousands of young Indonesians gather at one of 200 7-Eleven stores to sip coffee or beer at sidewalk tables, listen to live music, and engage in their newest passion—the Internet. If that sounds more like Starbucks, it’s no accident. As Seven & I Holdings analyzed the Indonesian market, certain insights became apparent.

For starters, Indonesia has a growing economy and a popu- lation of 240 million people. Until a few years ago, however, the country had largely been overlooked by global corporations. This meant that as consumer buying power began to increase, there were few options to satisfy local needs. That made Indo- nesia one of the world’s most attractive international growth opportunities.

Although certain things in the Indonesian culture were common to other countries, the market also exhibited unique traits. For starters, hanging out and doing nothing—something the locals refer to as “nongkrong”—is a favorite pastime. Peo- ple gather at street markets, roadside food stalls, and Western fast-food outlets simply to pass the time and share stories. But the demand for hangouts exceeded the supply, and few options provided wireless connectivity, an ever-increasing need.

In response, the concept for 7-Eleven stores in Indonesia focused more on the “third place” concept pioneered by Star- bucks than on the convenience store concept found elsewhere. The chain still offers basic convenience store products, such as inexpensive ready-made food, snacks, and a variety of popular beverages. And 24-hour operations are perfect for a culture not bound by time. But to drive traffic into stores, 7-Eleven Indo- nesia also provides hassle-free parking (a premium feature in the traffic-choked island nation), a venue for local bands (the bands sometimes pay a fee for the privilege of playing), air-con- ditioning, free wireless connectivity, and lots of space to hang out. The target customer is between 18 and 35. And rather than putting stores on every corner, the target for locations is on big hubs in the country that consists of 17,000 islands.

The 7-Eleven local initiative formula is working once again. Even as the company strategically applies the 7-Eleven concept to each global market, franchisees and managers cus- tomize the offerings in each store to get even closer to fulfilling local consumer needs. As the company Website points out, “At 7-Eleven, our purpose and mission is to make life a little easier

initiative.” The chain considers local initiative to be an impor- tant competitive advantage.

That idea of catering to local tastes would become the cor- nerstone of 7-Eleven’s international expansion. Certain aspects of the corporate marketing mix would remain standard—such as the small-store format and the concept of selling products and services that local customers want most and most often. But as the company opened more international stores, it became obvious that each market possessed differences that changed the meaning of convenience.

The Japanese Invasion Consider Japan, one of 7-Eleven’s first international mar- kets. U.S. tourists visiting Japan today notice a stark contrast between 7-Eleven stores in the Land of the Rising Sun and those they are familiar with at home. For starters, the stores are everywhere. There are more than 17,000 7-Eleven stores in Japan, 2,300 in Tokyo alone. That makes Japan by far the company’s largest market.

But the large number of stores is only the beginning. The reason there are so many 7-Elevens in Japan is that the chain has become the country’s most popular eatery. Around mealtime, the aisles at every 7-Eleven are packed and the lines are long. But the Japanese aren’t lining up for potato chips and Slurpees. Instead, in Japan, 7-Eleven patrons are treated to some of the finest prepared foods in the world. Typical offerings include salmon on rice with butter and soy sauce, hashed beef doria in a red wine demi-glace, and ground chicken with ginger and a side of spinach coleslaw. Fresh sushi abounds, the ongiri (rice balls with seaweed) is wrapped in a way that keeps the seaweed crispy and the rice moist, and a perfectly cooked unshelled boiled egg somehow has an already salted yoke. 7-Eleven also offers a wide selection of beverages, including soft drinks, beer, sake, champagne, single-malt scotch, wine, and more than 20 varieties of iced coffee. This is not your typical U.S. 7-Eleven.

But it isn’t just the selection of food that sets Japan’s 7-Elev- ens apart. Stores receive two to five deliveries of food goods per day, keeping shelves stocked, making the food fresh, and ensur- ing that everything is made locally. Open display cases—both cold and hot—serve food in a manner that is more Trader Joe’s than convenience store. And if all those stores aren’t convenient enough, Japanese customers can order food and groceries online and have them delivered by a single-seat electric car.

If all this sounds too good to be true, there’s more. Japan’s number-one convenience store chain is also designed to meet the service needs of locals. At 7-Eleven, customers can pay their phone or utility bills, pick up their mail and parcel deliver- ies, and even buy baseball tickets from the copy machine.

For 7-Eleven, Japan represents far more than just a boom- ing international market. Since the early 1990s, Japan has become 7-Eleven’s domestic market. That’s right. When Dallas-based 7-Eleven, Inc. went bankrupt in 1991, its own Japanese subsidiary bailed it out, buying a majority stake, debt and all. In 2005, Seven & I Holdings was created and the remaining shares of 7-Eleven, Inc. were acquired. Then, in a case of the student becoming the master, the directives were reversed as the new parent corpora- tion increased investment in merchandising, store renovation,

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4. Will 7-Eleven continue to succeed in Indonesia? How about the rest of the markets where it does business? Why or why not?

Sources: Taryn Stenvei, “What 7-Elevens in Tokyo Taught Me about Japan,” AWOL, September 11, 2014, http://awol.com.au/what-7-elevens- in-tokyo-taught-me-about-japan/98; Justin Moyer, “In Honor of 7/11: How Japan Slurped Up 7-Eleven,” Washington Post, July 11, 2014, www.washingtonpost.com/news/morning-mix/wp/2014/07/11/in- honor-of-711-how-japan-slurped-up-7-eleven/; Margot Huber, “Hang- out Haven,” Business Today, May 26, 2013, http://businesstoday.intoday .in/story/london-business-school-case-study-on-7-eleven/1/194769 .html; and information from http://corp.7-eleven.com/corp/7-eleven- profile, accessed September 2015.

for our guests by being where they need us, whenever they need us.” While it still has a way to go before conquering the world, 7-Eleven is accomplishing its mission well in markets where it does business.

Questions for Discussion 1. Of the five global product and communications strategies,

which best describes 7-Eleven’s approach?

2. On a scale of one to five, to what degree does 7-Eleven adapt its offering in each global market? Support your answer.

3. Which strategy does 7-Eleven employ for entering a new market? How does the company benefit from this approach?

Company Case 16 Adidas: Athletic Apparel with Purpose As CEO of the adidas Group for the past 14 years, Herbert Hainer has made quite a mark. Although the global athletic footwear and apparel giant has established itself as a leader in just about every sport, Hainer’s legacy might stand in an area that has little to do with basketball, baseball, or even soccer. Under Hainer’s influence, adidas has emerged as one of the global leaders in sustainable practices. Last year, the Germany- based sports giant ranked third among the Global 100 Most Sustainable Corporations.

A Marathon, Not a Sprint Some companies have sustainability built in to their DNA. Companies such as Patagonia, Ben & Jerry’s, and Method were founded by folks who were more driven to created socially responsible products, companies, and business practices than to make money. But companies such as Unilever, BMW, and adidas—all current sustainability leaders—discovered over time that they could succeed financially in their respective industries while at the same time being kind to the environment and provid- ing better working conditions. In fact, these companies contend that a sound strategic plan built on sustainable practices makes them better financial performers than they might be otherwise.

Adidas came to that realization nearly 20 years ago. In 1998, the company issued its first official environmental statement. In the years that followed, it tracked its performance against social and environmental goals and made its progress transparent in an annual report. But in 2008, the company revised its sustainability strategy, making it more comprehensive and ambitious than ever before.

These days, just about every company makes claims about reducing its carbon footprint. But adidas’s sustainability path stands as a model to any company that truly wants to make a difference. In short, making a difference when it comes to the health and well-being of the planet and its inhabitants takes

more than just lip service. For a company to make an impact, sustainability must be ingrained in its organizational culture.

At adidas, such a cultural commitment is apparent in the degree to which the company has woven sustainability into its core business. Using a sports analogy, adidas’s sustainability statement describes its efforts to become more sustainable and socially responsible as a marathon, not a sprint. “It’s about pre- paredness and setting the right pace, having both the drive and the stamina to make it the distance. And most of all, it is about endurance: overcoming setbacks and difficulties, keeping the finishing line always in the forefront of our minds.”

Some time ago, adidas established a set of core values that have shaped its corporate culture: performance, passion, integ- rity, and diversity. If these were just words on the wall at corpo- rate headquarters, they wouldn’t amount to much. But at adidas, these values “commit us to playing by the rules that society expects of a responsible company.” Such values create the cultural infrastructure that drives “designing products that are environmentally sound . . . reducing the environmental impacts of our day-to-day operations and in our supply chain . . . setting workplace standards for our suppliers to meet . . . looking after the well-being and careers of our employees . . . and making a positive contribution to the communities where we operate.”

The Four Ps of Sustainability To translate this culture into action, adidas sticks to the four Ps—but not the same four Ps that make up the marketing mix. Rather, adidas frames and reviews its sustainability goals and performance within the context of four pillars—people, prod- uct, planet, and partnership. It’s what adidas calls its “Fair Play Framework.”

People. “We positively influence the lives of our employ- ees, factory workers, and people living in the communities where we have a business presence.” To achieve a more positive impact on the lives of people, adidas involves itself in hundreds of community projects either with finan- cial support or by providing employees as volunteers. But the “people” pillar also teaches common sense in doing the right thing.

http://awol.com.au/what-7-elevens-in-tokyo-taught-me-about-japan/98

http://www.washingtonpost.com/news/morning-mix/wp/2014/07/11/in-honor-of-711-how-japan-slurped-up-7-eleven/

http://businesstoday.intoday.in/story/london-business-school-case-study-on-7-eleven/1/194769.html

http://corp.7-eleven.com/corp/7-eleven-profile

http://businesstoday.intoday.in/story/london-business-school-case-study-on-7-eleven/1/194769.html

550 Appendix 1: Company Cases

trade association that has worked to develop an index for measuring and tracking the comprehensive environmental and social impact of products across the value chain.

Doing Well by Doing Good? These are just a few examples of how adidas is putting sustain- able concepts into action and achieving sustainability results. Not only is adidas achieving results, it is being recognized for them. Its recent third-place ranking is not its first time on the Global 100 Index list—it the company’s 10th appearance. Adidas has also garnered Gold Class status and Sector Leader awards from RobecoSam—a well-known investment firm that focuses on sustainability investing. And adidas has been included in the Dow Jones Sustainability Indexes for each of the past 14 years.

Although adidas is clearly succeeding at implementing sustainable practices, one big question remains: Does all this do-gooding translate into sound financial performance as many companies claim? Many adidas stakeholders have asked that question. During Hainer’s watch, superstar Nike has risen to such global dominance that adidas’s financial performance is suffering. While Nike’s revenues have shown strong gains year over year, adidas’s have flattened. In fact, last year its sales dropped by 10 percent. Not only has Nike been outperforming adidas in the United States, last year Nike bested adidas in sales growth on its home turf in Europe by a factor of two. Nike is even stealing adidas’s thunder in soccer, a sport where the Ger- man company has long been the leader.

But adidas continues to press forward in its efforts to make the company and the world better places. In Hainer’s own words, “We are not perfect and we do not always get it right. But as we go about our work, we aim to honor the spirit of ‘fair play’ in everything we do. Therefore, let me assure you that we continue to take serious responsibility for our actions. And we continue to integrate sustainability into our business strategy.”

Questions for Discussion 1. Give as many examples as you can for how adidas defies

the common social criticisms of marketing.

2. Of the five sustainable marketing principles discussed in the text, which one best describes adidas’s approach?

3. Analyze adidas’s business according to the societal clas- sification of products (Figure 16.4).

4. Would Adidas be more financially successful if it were not so focused on social responsibility? Explain.

Sources: Andrew Burger, “’Fair Play’: Adidas Reports Progress across Four Pillars of Sustainability,” Triplepundit.com, May 6, 2014, www .triplepundit.com/2014/05/fair-play-adidas-reports-progress-across-four- pillars-sustainability/; Michael Yow, “2015 Global 100 Results,” Cor- porate Knights, January 21, 2015, www.corporateknights.com/reports/ global-100/2015-global-100-results-14218559/; and information from www.adidas-group.com/en/sustainability/managing-sustainability/ general-approach/#/our-sustainability-strategy/, accessed September 2015.

When the owners of an apparel factory in Indonesia promptly closed and abandoned the factory just six months after being unable to resolve differences with adidas regarding its operations, hundreds of workers were left without jobs. Adidas was there to ensure the workers were taken care of. This included millions of dollars in humani- tarian aid, placement services, and direct advocacy with the Indonesian government to improve workers’ rights. These efforts had a direct and positive impact on the lives of people who had been working to make adidas products.

Product. “We find better ways to create our products— mainly through efficiencies, increased use of more sustain- able materials, and innovation.” Among the product targets are specific goals, such as reducing the number of colors used in products by 50 percent, reducing product samples to intermediaries through virtualization, and increasing the use of sustainable materials in footwear and apparel. As the company focuses on these and other initiatives, com- pliance can be tracked, as can the impact on such factors as water usage, carbon emissions, and volume of product being disposed of in landfills.

For example, adidas’s virtualization project has reduced the demand for samples by 1.5 million items over a three-year period. Its initiative to source 100 percent of its cotton as “sustainable cotton” takes into account the use of water, health of the soil, and quality of the fiber. Adidas is 23 percent of the way to its goal and ahead of schedule. And increasing the use of innovative fabrics has saved 50 million liters of water by reducing the amount needed to launder such items.

Planet. “We reduce the environmental footprint of both our own operations and our suppliers’ factories.” In addi- tion to product actions that reduce environmental impact, adidas also sets goals targeting operational facilities and human behavior. One of the main initiatives for this pillar is the ISO 14001 certification of company and supplier facilities. To move office buildings, factories, and distribu- tion plants toward the international standards for certifica- tion, adidas sets specific goals and provides employees with specific directives.

For example, the company has a goal to reduce energy consumption by 20 percent. Some directives include turning off computers when they are not in use and turning off lights when people leave a room or their office. To achieve a goal of 50 percent reduction in paper use, employees are encour- aged to “think before printing” and “reuse paper for notes.”

Partnership. “We engage with critical stakeholders and collaborate with partners to improve our industry.” The partnership pillar provides direction and motivation to seek out supplier, distributor, and relationships with other orga- nizations that are trying to achieve the same sustainability goals as adidas. This includes working with partners to help them develop strategies whereby they can get on track and make progress. As one example, the Adidas Group is an active participant of the Sustainable Apparel Coalition, a

http://www.corporateknights.com/reports/global-100/2015-global-100-results-14218559/

http://www.adidas-group.com/en/sustainability/managing-sustainability/general-approach/#/our-sustainability-strategy/

www.triplepundit.com/2014/05/fair-play-adidas-reports-progress-across-fourpillars-sustainability/

http://www.corporateknights.com/reports/global-100/2015-global-100-results-14218559/

http://www.adidas-group.com/en/sustainability/managing-sustainability/general-approach/#/our-sustainability-strategy/

The Marketing Plan: An Introduction As a marketer, you will need a good marketing plan to provide direction and focus for your brand, product, or company. With a detailed plan, any business will be better pre- pared to launch a new product or build sales for existing products. Nonprofit organizations also use marketing plans to guide their fundraising and outreach efforts. Even government agencies put together marketing plans for initiatives such as building public awareness of proper nutrition and stimulating area tourism.

The Purpose and Content of a Marketing Plan Unlike a business plan, which offers a broad overview of the entire organization’s mission, objectives, strategy, and resource allocation, a marketing plan has a more limited scope. It serves to document how the organization’s strategic objectives will be achieved through specific marketing strategies and tactics, with the customer as the starting point. It is also linked to the plans of other departments within the organization. Suppose, for example, a mar- keting plan calls for selling 200,000 units annually. The production department must gear up to make that many units, the finance department must arrange funding to cover the expenses, the human resources department must be ready to hire and train staff, and so on. Without the appropriate level of organizational support and resources, no marketing plan can succeed.

Although the exact length and layout will vary from company to company, a market- ing plan usually contains the sections described in Chapter 2. Smaller businesses may cre- ate shorter or less formal marketing plans whereas corporations frequently require highly structured marketing plans. To guide implementation effectively, every part of the plan must be described in considerable detail. Sometimes a company will post its marketing plans on an intranet site, which allows managers and employees in different locations to consult specific sections and collaborate on additions or changes.

The Role of Research Marketing plans are not created in a vacuum. To develop successful strategies and action programs, marketers need up-to-date information about the environment, the competition, and the market segments to be served. Often, analysis of internal data is the starting point for assessing the current marketing situation, supplemented by marketing intelligence and research investigating the overall market, the competition, key issues, and threats and opportunities. As the plan is put into effect, marketers use a variety of research techniques to measure progress toward objectives and identify areas for improvement if results fall short of projections.

Finally, marketing research helps marketers learn more about their customers’ require- ments, expectations, perceptions, and satisfaction levels. This deeper understanding pro- vides a foundation for building competitive advantage through well-informed segmenting, targeting, differentiating, and positioning decisions. Thus, the marketing plan should out- line what marketing research will be conducted and how the findings will be applied.

The Role of Relationships The marketing plan shows how the company will engage customers and build profitable customer relationships. In the process, however, it also shapes a number of internal and external relationships. First, it affects how marketing personnel work with each other and with other departments to deliver value and satisfy customers. Second, it affects how the

551

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company works with suppliers, distributors, and strategic alliance partners to achieve the objectives listed in the plan. Third, it influences the company’s dealings with other stake- holders, including government regulators, the media, and the community at large. All of these relationships are important to the organization’s success, so they should be consid- ered when a marketing plan is being developed.

From Marketing Plan to Marketing Action Companies generally create yearly marketing plans, although some plans cover a longer period. Marketers start planning well in advance of the implementation date to allow time for marketing research, thorough analysis, management review, and coordination between departments. Then, after each action program begins, marketers monitor ongoing results, compare them with projections, analyze any differences, and take corrective steps as needed. Some marketers also prepare contingency plans for implementation if certain conditions emerge. Because of inevitable and sometimes unpredictable environmental changes, marketers must be ready to update and adapt marketing plans at any time.

For effective implementation and control, the marketing plan should define how prog- ress toward objectives will be measured. Managers typically use budgets, schedules, and per- formance standards for monitoring and evaluating results. With budgets, they can compare planned expenditures with actual expenditures for a given week, month, or other period. Sched- ules allow management to see when tasks were supposed to be completed—and when they were actually completed. Performance standards track the outcomes of marketing programs to see whether the company is moving toward its objectives. Some examples of performance standards are market share, sales volume, product profitability, and customer satisfaction.

Sample Marketing Plan: Chill Beverage Company Executive Summary The Chill Beverage Company is preparing to launch a new line of vitamin-enhanced water called NutriWater. Although the bottled water market is maturing, the vitamin-enhanced water category is still growing. NutriWater will be positioned by the slogan “Expect more”—indicating that the brand offers more in the way of desirable product features and benefits at a competitive price. Chill Beverage is taking advantage of its existing experi- ence and brand equity among its loyal current customer base of Millennials who consume its Chill Soda soft drink. NutriWater will target similar Millennials who are maturing and looking for an alternative to soft drinks and high-calorie sugared beverages.

The primary marketing objective is to achieve first-year U.S. sales of $35 million, roughly 2 percent of the enhanced water market. Based on this market share goal, the company expects to sell more than 20 million units the first year and break even in the final period of the year.

Current Marketing Situation The Chill Beverage Company was founded in 2007 by an entrepreneur who had suc- cessfully built a company that primarily distributed niche and emerging products in the beverage industry. Its Chill Soda soft drink brand hit the market with six unique flavors in glass bottles. A few years later, the Chill Soda brand introduced an energy drink as well as a line of natural juice drinks. The company now markets dozens of Chill Soda flavors, many unique to the brand. Chill Beverage has grown its business every year since it was founded. In the most recent year, it achieved $185 million in revenue and net profits of $14.5 million. As part of its future growth strategy, Chill Beverage is currently preparing to enter a new beverage category with a line of vitamin-enhanced waters.

For years, U.S. consumers drank more carbonated soft drinks than any other beverage. But recently, water once again became the number-one beverage of choice as concerns over health and obesity caused the soda market to go flat. On average, people in the U.S. drink 58 gallons of water each year compared with 44 gallons of soda. While those water

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numbers include tap water, bottled water consumption has grown tremendously since the 1990s. Currently, the average person in the United States consumes more than 34 gallons of bottled water every year, more than double the figure just 15 years prior. Bottled water consumption is second only to soft drink consumption, ahead of milk, beer, and coffee. As a beverage category, bottled water is growing at a robust rate of 5 to 7 percent annually, a figure that is expected to increase in years to come. Most other beverage categories have experienced declines. In the most recent year, 10.8 billion gallons of bottled water were sold in the United States with a value of approximately $13 billion.

Competition is more intense now than ever as demand slows, industry consolidation continues, and new types of bottled water emerge. The U.S. market is dominated by three global corporations. With a portfolio of 12 brands (including Poland Spring, Nestlé Pure Life, Arrowhead, Deer Park, and Ice Mountain), Nestlé leads the market for “plain” bottled water. However, when all subcategories of bottled water are included (enhanced water, flavored water, and so on), Coca-Cola leads the U.S. market with a 22.9 percent share. Nestlé markets only plain waters but is number two at 21.5 percent of the total bottled water market. PepsiCo is third with 16.2 percent of the market.

To break into this market, dominated by huge global corporations and littered with dozens of other small players, Chill Beverage must carefully target specific segments with features and benefits valued by those segments.

Market Description The bottled water market consists of many different types of water. Varieties of plain water include spring, purified, mineral, and distilled. Although these different types of water are sold as consumer products, they also serve as the core ingredient for other types of bottled waters including enhanced water, flavored water, sparkling water, or any combination of those categories.

Although some consumers may not perceive much of a difference between brands, others are drawn to specific product features and benefits provided by different brands. For example, some consumers may perceive spring water as healthier than other types of water. Some may look for water that is optimized for hydration. Others seek additional nutritional benefits claimed by bottlers that enhance their brands with vitamins, minerals, herbs, and other additives. Still other consumers make selections based on flavor. The industry as a whole has positioned bottled water of all kinds as a low-calorie, healthy alternative to soft drinks, sports drinks, energy drinks, and other types of beverages.

Bottled water brands also distinguish themselves by size and type of container, mul- tipacks, and refrigeration at point-of-sale. Chill Beverage’s market for NutriWater con- sists of consumers of single-serving-sized bottled beverages who are looking for a healthy yet flavorful alternative. “Healthy” in this context means both low-calorie and enhanced nutritional content. This market includes traditional soft drink consumers who want to improve their health as well as non-soft-drink consumers who want an option other than plain bottled water. Specific segments that Chill Beverage will target during the first year include athletes, the health conscious, the socially responsible, and Millennials who favor independent corporations. The Chill Soda brand has established a strong base of loyal customers, primarily among Millennials. This generational segment is becoming a prime target as it matures and seeks alternatives to full-calorie soft drinks. Table A2.1 shows how NutriWater addresses the needs of targeted consumer segments.

Product Review Chill Beverage’s new line of vitamin-enhanced water—called NutriWater—offers the following features:

● Six new-age flavors including Peach Mango, Berry Pomegranate, Kiwi Dragonfruit, Mandarin Orange, Blueberry Grape, and Key Lime.

● Single-serving size, 20-ounce, PET recyclable bottles. ● Formulated for wellness, replenishment, and optimum energy. ● Full Recommended Daily Allowance (RDA) of essential vitamins and minerals (in-

cluding electrolytes).

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● Higher vitamin concentration—vitamin levels are two to ten times higher than market- leading products, with more vitamins and minerals than any other brand.

● Additional vitamins—vitamins include A, E, and B2 as well as folic acid—none of which are contained in the market-leading products.

● All natural—no artificial flavors, colors, or preservatives. ● Sweetened with pure cane sugar and Stevia, a natural zero-calorie sweetener. ● Twenty-five cents from each purchase will be donated to Vitamin Angels, a nonprofit

organization with a mission to prevent vitamin deficiency in at-risk children.

Competitive Review As sales of bottled waters entered a strong growth phase in the 1990s, the category began to expand. In addition to the various types of plain water, new categories emerged. These included flavored waters—such as Aquafina’s Flavorsplash—as well as enhanced waters. Enhanced waters emerged to bridge the gap between soft drinks and waters, appealing to people who knew they should drink more water and fewer soft drinks but still wanted flavor. Initially, development of brands for this product variation occurred primarily in start-up and boutique beverage companies like Sobe and Glacéau, creator of Vitaminwater. In the 2000s, major beverage corporations acquired the most successful smaller brands, providing the big- ger firms with a solid market position in this category and diversification in bottled waters in general. At that point, enhanced waters grew at a rate that exceeded that of plain water.

To demonstrate the strength of the enhanced water segment, Coca-Cola’s Vitaminwa- ter became the fourth-largest bottled water brand, behind plain water brands Nestlé Pure Life, Coca-Cola’s Dasani, and Pepsi’s Aquafina. In recent years, vitamin-enhanced waters have taken a hit in the wake of some bad press focusing on the low amount of vitamins and high amount of sugar contained in most brands. Nonetheless, enhanced water sales account for approximately 13 percent of the total bottled water market, and industry insiders expect sales to return to a growth trajectory in coming years.

The fragmentation of this category, combined with domination by the market leaders, has created a severely competitive environment. Although there is indirect competition posed by all types of bottled waters and even other types of beverages (soft drinks, energy drinks, juices, teas, and flavor drops), this competitive analysis focuses on direct com- petition from enhanced water brands. For the purposes of this analysis, enhanced water is bottled water with additives that are intended to provide health and wellness benefits. The most common additives include vitamins, minerals (including electrolytes), and herbs. Most commonly, enhanced waters are sweetened, flavored, and colored. This definition

Table A2.1 Segment Needs and Corresponding Features/Benefits of NutriWater

Targeted Segment Customer Need Corresponding Features/Benefits

Athletes ● Hydration and replenishment of essential minerals ● Energy to maximize performance

● Electrolytes and carbohydrates ● B vitamins, carbohydrates

Health conscious ● Maintain optimum weight ● Optimize nutrition levels ● Avoid harmful chemicals and additives ● Desire to consume a tastier beverage

than water

● Half the calories of fully sugared beverages ● Higher levels of vitamins A, B, C, E, Zinc, Chromium,

and Folic Acid than other products; vitamins unavail- able in other products

● All natural ingredients ● Six new-age flavors

Socially conscious ● Support causes that help solve world’s social problems

● 25-cent donation from each purchase to Vitamin Angels

Millennials ● Aversion to mass-media advertising/ technologically savvy

● Counter-culture attitude ● Diet enhancement due to fast-paced lifestyle

● Less-invasive online and social networking promo- tional tactics

● Small, privately held company ● Full RDA levels of essential vitamins and minerals

Appendix 2: Marketing Plan 555

distinguishes enhanced water from sports drinks that have the primary purpose of maxi- mizing hydration by replenishing electrolytes.

Enhanced water brands are typically sweetened with a combination of some kind of sugar and a zero-calorie sweetener, resulting in about half the sugar content, carbohydrates, and calories of regular soft drinks and other sweetened beverages. The types of sweeteners used create a point of differentiation. Many brands, including the market leaders, sell both regular and zero-calorie varieties.

Pricing for this product is consistent across brands and varies by type of retail out- let, with convenience stores typically charging more than grocery stores. The price for a 20-ounce bottle ranges from $1.00 to $1.89, with some niche brands costing slightly more. Key competitors to Chill Beverage’s NutriWater line include the following:

● Vitaminwater: Created in 2000 as a new product for Energy Brands’ Glacéau, which was also the developer of Smartwater (distilled water with electrolytes). Coca-Cola purchased Energy Brands for $4.1 billion in 2007. Vitaminwater is sold in regular and zero-calorie versions. With 19 bottled varieties—11 regular and 8 zero-calorie—as well as availability in fountain form and drops, Vitaminwater offers more options than any brand on the market. Whereas Vitaminwater varieties are distinguished by flavor, they are named to evoke perceptions of benefits such as Essential, Defense, Focus, and Revive. The brand’s current slogan is “Hydrate the Hustle.” Vitaminwater is vapor dis- tilled, deionized, and/or filtered and is sweetened with crystalline fructose (corn syrup) and erythritol all-natural sweetener. Vitaminwater exceeds $700 million in annual sales and commands 63 percent of the enhanced water market.

● Propel: Gatorade created Propel in 2000, just one year prior to PepsiCo’s purchase of this leading sports drink marketer. Marketed as “The Workout Water,” Propel was origi- nally available in regular and zero-calorie varieties. However, it is now available only as a zero-calorie beverage. Propel comes in nine flavors, each containing the same blend of B vitamins, vitamin C, vitamin E, antioxidants, and electrolytes. It is sweetened with su- cralose. Propel is available in a wide variety of sizes, with 16.9-, 20-, and 24-ounce PET bottles and multipacks. Propel is also marketed in powder form and as a liquid enhancer to be added to bottled water. With $171 million in revenues, Propel is the number-two enhanced water brand with a 15 percent share of the enhanced water market.

● SoBe Lifewater: PepsiCo bought SoBe in 2000. SoBe introduced Lifewater in 2008 with a hit Super Bowl ad as an answer to Coca-Cola’s Vitaminwater. The Lifewater line includes 13 regular and zero-calorie varieties. Each variety is infused with a formulation of vitamins, minerals, and herbs designed to provide a claimed benefit. Sweetened with a combination of sugar and erythritol, Lifewater makes the claim to be “all natural.” It contains no artificial flavors or colors. However, some analysts debate the “natural” designation for erythritol. Lifewater is sold in 20-ounce PET bottles and multipacks as well as one-liter PET bottles. With more than $200 million in annual revenues, Lifewater is the number-three enhanced water brand with a 12 percent share.

● Niche brands: The market for enhanced waters includes at least four companies that market their wares on a small scale through independent retailers: Assure, Ex Aqua Vitamins, Ayala Herbal Water, and Skinny Water. Some brands feature exotic additives and/or artistic glass bottles.

Despite the strong competition, NutriWater believes it can create a relevant brand image and gain recognition among the targeted segments. The brand offers strong points of differentiation with higher and unique vitamin content, all-natural ingredients, and sup- port for a relevant social cause. With other strategic assets, Chill Beverage is confident that it can establish a competitive advantage that will allow NutriWater to grow in the market.

Table A2.2 shows a sample of competing products.

Channels and Logistics Review With the three main brands now owned by Coca-Cola and PepsiCo, there is a huge hole in the independent distributor system. NutriWater will be distributed through an independent distributor to a network of retailers in the United States. This strategy will avoid some of the head-on competition for shelf space with the Coca-Cola and PepsiCo brands and will

556 Appendix 2: Marketing Plan

also directly target likely NutriWater customers. As with the rollout of the core Chill Soda brand, this strategy will focus on placing coolers in retail locations that will exclusively hold NutriWater. These retailers include:

● Grocery chains: Regional grocery chains such as HyVee in the Midwest, Wegman’s in the East, and WinCo in the West.

● Health and natural food stores: Chains such as Whole Foods Market as well as local health food co-ops.

● Fitness centers: National fitness center chains such as 24 Hour Fitness, Gold’s Gym, and other regional chains.

As the brand gains acceptance, channels will expand into larger grocery chains, conve- nience stores, and unique locations relevant to the target customer segment.

Strengths, Weaknesses, Opportunities, and Threats Analysis NutriWater has several powerful strengths on which to build, but its major weakness is lack of brand awareness and image. Major opportunities include a growing market and con- sumer trends targeted by NutriWater’s product traits. Threats include barriers to entry posed by limited retail space as well as image issues for the bottled water industry. Table A2.3 summarizes NutriWater’s main strengths, weaknesses, opportunities, and threats.

Strengths NutriWater can rely on the following important strengths:

1. Superior quality: NutriWater boasts the highest levels of added vitamins of any enhanced water, including full RDA levels of many vitamins. It is all natural with no artificial flavors, colors, or preservatives. It is sweetened with both pure cane sugar and the natural zero-calorie sweetener Stevia.

2. Expertise in alternative beverage marketing: The Chill Soda brand went from nothing to a successful and rapidly growing soft drink brand with fiercely loyal customers in a matter of only one decade. This success was achieved by starting small and focusing on gaps in the marketplace.

3. Social responsibility: Every customer will have the added benefit of helping malnourished children throughout the world. Although the price of NutriWater is in line with other competitors, low promotional costs allow for the substantial charitable donation of 25 cents per bottle while maintaining profitability.

4. Antiestablishment image: The big brands have decent products and strong distribution relationships. But they also carry the image of the large, corporate establishments. Chill Beverage has achieved success with an underdog image while remaining privately held. Vitaminwater and SoBe were built on this same image, but both are now owned by major multinational corporations.

Table A2.2 Sample of Competitive Products

Competitor Brand Features

Coca-Cola Vitaminwater Regular and zero-calorie versions; 15 varieties; each flavor provides a different function based on blend of vitamins and minerals; vapor distilled, deionized, and/or filtered; sweetened with crystalline fructose and erythritol; 20-ounce single-serve or multipack, fountain, and drops.

PepsiCo Propel Zero-calorie only; seven flavors; fitness positioning based on “Replenish + Energize + Protect”; B vitamins, vitamin C, vitamin E, antioxidants, and electrolytes; sweetened with sucralose; 16.9-ounce, 20-ounce, and 24-ounce PET bottles and multipacks; powdered packets; liquid enhancer.

PepsiCo SoBe Lifewater Regular and zero-calorie versions; 15 varieties; six different functional categories; vitamins, miner- als, and herbs; Pure—mildly flavored, unsweetened water; sweetened with sugar and erythritol; “all natural”; 20-ounce single-serve and multipacks as well as one-liter bottles.

Appendix 2: Marketing Plan 557

Weaknesses 1. Lack of brand awareness: As an entirely new brand, NutriWater will enter the

market with limited or no brand awareness. The affiliation with Chill Soda will be kept at a minimum in order to prevent associations between NutriWater and soft drinks. This issue will be addressed through promotion and distribution strategies.

2. Limited budget: As a smaller company, Chill Beverage has much smaller funds available for promotional and research activities.

Opportunities 1. Market growth: Bottled water as a category is growing at a rate of about 7 percent

annually. While the enhanced water subcategory has decreased in overall sales, that is expected to reverse as the enhanced water brands move past the negative asso- ciations of the past. Of the top six beverage categories, soft drinks, beer, milk, and fruit drinks experienced declines. The growth for coffee was less than 1 percent.

2. Gap in the distribution network: The market leaders distribute directly to retail- ers. This gives them an advantage in large national chains. However, no major enhanced water brands are currently being sold through independent distributors.

3. Health trends: Weight and nutrition continue to be issues for consumers in the United States. The country has the highest obesity rate for developed countries at 34 percent, with well over 60 percent of the population officially “overweight.” Those numbers continue to rise. Additionally, Americans get 21 percent of their daily calories from beverages, a number that has tripled in the last three decades. Consumers still desire flavored beverages but look for lower-calorie alternatives.

4. Antiestablishment image: Millennials (born between 1977 and 2000) maintain a higher aversion to mass marketing messages and global corporations than do Gen Xers and baby boomers.

Threats 1. Limited shelf space: Whereas competition is generally a threat for any type of

product, competition in retail beverages is particularly high because of limited retail space. Carrying a new beverage product requires retailers to reduce shelf or cooler space already occupied by other brands.

2. Image of enhanced waters: The image of enhanced waters took a hit as Coca- Cola recently fought a class-action lawsuit accusing it of violating FDA regula- tions by promoting the health benefits of Vitaminwater. The lawsuit exposed the number-one bottled water brand as basically sugar water with minimal nutritional value. Each of the major brands is strengthening its zero-calorie lines. They no longer promote health benefits on the labels. While this is potentially a threat, it is also an opportunity for Chill to exploit.

Table A2.3 NutriWater’s Strengths, Weaknesses, Opportunities, and Threats

Strengths Weaknesses

● Superior quality ● Expertise in alternative beverage marketing ● Social responsibility ● Antiestablishment image

● Lack of brand awareness ● Limited budget

Opportunities Threats

● Market growth ● Gap in the distribution network ● Health trends ● Antiestablishment image

● Limited shelf space ● Image of enhanced waters ● Environmental issues

558 Appendix 2: Marketing Plan

3. Environmental issues: Environmental groups continue to educate the public on the environmental costs of bottled water, including landfill waste, carbon emissions from production and transportation, and harmful effects of chemicals in plastics.

Objectives and Issues Chill Beverage has set aggressive but achievable objectives for NutriWater for the first and second years of market entry.

First-Year Objectives During the initial year on the market, Chill Beverage aims for NutriWater to achieve a 2 percent share of the enhanced water market, or approximately $35 million in sales, with break-even achieved in the final period of the year. With an average retail price of $1.69, that equates with a sales goal of 20,710,059 bottles.

Second-Year Objectives During the second year, Chill Beverage will unveil additional NutriWater flavors, includ- ing zero-calorie varieties. The second-year objective is to double sales from the first year, to $70 million.

Issues In launching this new brand, the main issue is the ability to establish brand awareness and a meaningful brand image based on positioning that is relevant to target customer segments. Chill Beverage will invest in nontraditional means of promotion to accomplish these goals and to spark word of mouth. Establishing distributor and retailer relationships will also be critical in order to make the product available and provide point-of-purchase communications. Brand awareness and knowledge will be measured in order to adjust marketing efforts as necessary.

Marketing Strategy NutriWater’s marketing strategy will involve developing a “more for the same” positioning based on extra benefits for the price. The brand will also establish channel differentiation, as it will be available in locations where major competing brands are not. The primary target segment is Millennials. This segment is composed of late teens (15 to 18) and young adults (19 to 38). NutriWater will focus specifically on the young adult market. Subsets of this generational segment include athletes, the health conscious, and the socially responsible.

Positioning NutriWater will be positioned on an “Expect more” value proposition. This will allow for differentiating the brand based on product features (expect more vitamin content and all- natural ingredients), desirable benefits (expect greater nutritional benefits), and values (do more for a social cause). Marketing will focus on conveying that NutriWater is more than just a beverage: It gives customers much more for their money in a variety of ways.

Product Strategy NutriWater will be sold with all the features described in the Product Review section. As awareness takes hold and retail availability increases, more varieties will be made avail- able. A zero-calorie version will be added to the product line, providing a solid fit with the health benefits sought by consumers. Chill Beverage’s considerable experience in brand building will be applied as an integral part of the product strategy for NutriWater. All aspects of the marketing mix will be consistent with the brand.

Pricing There is little price variation in the enhanced waters category, particularly among lead- ing brands. For this reason, NutriWater will follow a competition-based pricing strategy. Given that NutriWater claims superior quality, it must be careful not to position itself as a lower-cost alternative. Manufacturers do not quote list prices on this type of beverage, and

Appendix 2: Marketing Plan 559

prices vary considerably based on type of retail outlet and whether the product is refriger- ated. Regular prices for single 20-ounce bottles of competing products are as low as $1.00 in discount-retailer stores and as high as $1.89 in convenience stores. Because NutriWater will not be targeting discount retailers and convenience stores initially, this will allow Chill Beverage to set prices at the average to higher end of the range for similar products in the same outlets. For grocery chains, this should be approximately $1.49 per bottle, with that price rising to $1.89 at health food stores and fitness centers, where prices tend to be higher.

Distribution Strategy NutriWater will employ a selective distribution strategy with well-known regional gro- cers, health and natural food stores, and fitness centers. This distribution strategy will be executed through a network of independent beverage distributors, as there are no other major brands of enhanced water following this strategy. Chill Beverage gained success for its core Chill Soda soft drink line using this method. It also placed coolers with the brand logo in truly unique venues such as skate, surf, and snowboarding shops; tattoo and pierc- ing parlors; fashion stores; and music stores—places that would expose the brand to target customers. Then the soft drink brand expanded by getting contracts with retailers such as Panera, Barnes & Noble, Target, and Starbucks. This same approach will be taken with NutriWater by starting small, then expanding into larger chains. NutriWater will not target all the same stores used originally by Chill Soda, as many of those outlets were unique to the positioning and target customer for the Chill Soda soft drink brand.

Marketing Communication Strategy As with the core Chill Soda brand, the marketing communication strategy for NutriWater will not follow a strategy based on traditional mass-communication advertising. Initially, there will be no broadcast or print advertising. Promotional resources for NutriWater will focus on three areas:

● Online and mobile marketing: The typical target customer for NutriWater spends more time online than with traditional media channels. A core component for this strategy will be building Web and mobile brand sites and driving traffic to those sites by creating a presence on social networks, including Facebook, Google+, and Twitter. The NutriWater brand will also incorporate location-based services by Foursquare and Facebook to help drive traffic to retail locations. A mobile phone ad campaign will pro- vide additional support to the online efforts.

● Trade promotions: Like the core Chill Soda brand, NutriWater’s success will rely on relationships with retailers to create product availability. Primary incentives to retailers will include point-of-purchase displays, branded coolers, and volume incentives and contests. This push marketing strategy will combine with the other pull strategies.

● Event marketing: NutriWater will deploy teams in brand-labeled RVs to distribute product samples at events such as skiing and snowboarding competitions, golf tourna- ments, and concerts.

Marketing Research To remain consistent with the online promotional approach as well as using research meth- ods that will effectively reach target customers, Chill Beverage will monitor online dis- cussions via services such as Radian6. In this manner, the company will gauge customer perceptions of the brand, the products, and general satisfaction. For future development of the product and new distribution outlets, crowdsourcing methods will be utilized.

Action Programs NutriWater will be introduced in February. The following are summaries of action programs that will be used during the first six months of the year to achieve the stated objectives.

January: Chill Beverage representatives will work with both independent distribu- tors and retailers to educate them on the trade promotional campaign, incentives, and advantages for selling NutriWater. Representatives will also ensure that distributors

560 Appendix 2: Marketing Plan

and retailers are educated on product features and benefits as well as instructions for displaying point-of-purchase materials and coolers. The brand Web site and other sites such as Facebook will present teaser information about the product as well as availability dates and locations. Buzz will be enhanced by providing product samples to selected product reviewers, opinion leaders, influential bloggers, and celebrities.

February: On the date of availability, product coolers and point-of-purchase displays will be placed in retail locations. The full brand Web site and social network campaign will launch with full efforts on Facebook, Google+, and Twitter. This campaign will drive the “Expect more” slogan as well as illustrate the ways that NutriWater delivers more than expected on product features, desirable benefits, and values by donating to Vitamin Angels and the social cause of battling vitamin deficiency in children.

March: To enhance the online and social marketing campaign, location-based services Foursquare and Facebook Places will be employed to drive traffic to retailers. Point-of- purchase displays and signage will be updated to support these efforts and to continue sup- porting retailers. The message of this campaign will focus on all aspects of “Expect more.”

April: A mobile phone ad campaign will provide additional support, driving Web traf- fic to the brand Web site and social network sites as well as driving traffic to retailers.

May: A trade sales contest will offer additional incentives and prizes to the distribu- tors and retailers that sell the most NutriWater during a four-week period.

June: An event marketing campaign will mobilize a team of NutriWater representa- tives in NutriWater RVs to concerts and sports events. This will provide additional visibility for the brand as well as give customers and potential customers the opportu- nity to sample products.

Budgets Chill Beverage has set a first-year retail sales goal of $35 million with a projected average retail price of $1.69 per unit for a total of 20,710,059 units sold. With an average wholesale price of 85 cents per unit, this provides revenues of $17.6 million. Chill Beverage expects to break even during the final period of the first year. A break-even analysis assumes per-unit wholesale revenue of 85 cents per unit, a variable cost per unit of 14 cents, and estimated first- year fixed costs of $12,500,000. Based on these assumptions, the break-even calculation is:

+12,500,000 +0.85>unit - +0.14>unit = 17,605,634

Controls Chill Beverage is planning tight control measures to closely monitor product quality, brand awareness, brand image, and customer satisfaction. This will enable the company to react quickly in correcting any problems that may occur. Other early warning signals that will be monitored for signs of deviation from the plan include monthly sales (by segment and channel) and monthly expenses. Given the market’s volatility, contingency plans are also in place to address fast-moving environmental changes such as shifting consumer preferences, new products, and new competition.

Sources: “Channel Check,” Bevnet, January/February 2015, p. 18; “Channel Check,” Bevnet, July/ August 2015, p. 26; “The Heat Is On for U.S. Bottled Water Market,” PR Newswire, July 21, 2015, www .prnewswire.com/news-releases/report-the-heat-is-on-for-us-bottled-water-market-300115888 .html; Jeffrey Klineman, “Restoring an Icon,” Beverage Spectrum Magazine, December 2010, pp. 16–18; Matt Casey, “Enhanced Options Divide a Category,” Beverage Spectrum Magazine, December 2008, p. 74; “Water Becomes America’s Favorite Drink Again,” USA Today, March 11, 2013, www .usatoday.com/story/news/nation/2013/03/11/water-americas-favorite-drink/1978959/; and product and market information obtained from www.sobe.com, www.vitaminwater.com, and www.nestle-waters .com, accessed September 2015.

http://www.sobe.com

http://www.vitaminwater.com

http://www.nestle-waters.com

www.prnewswire.com/news-releases/report-the-heat-is-on-for-us-bottled-water-market-300115888 .html

http://www.nestle-waters.com

www.usatoday.com/story/news/nation/2013/03/11/water-americas-favorite-drink/1978959/

Marketing managers are facing increased accountability for the financial implications of their actions. This appendix provides a basic introduction to measuring marketing finan- cial performance. Such financial analysis guides marketers in making sound marketing decisions and in assessing the outcomes of those decisions.

The appendix is built around a hypothetical manufacturer of consumer electronics products—HD. The company is introducing a device that plays videos and television programming streamed over the Internet on multiple devices in a home, including high- definition televisions, tablets, and mobile phones. In this appendix, we will analyze the various decisions HD’s marketing managers must make before and after the new product launch.

The appendix is organized into three sections. The first section introduces pricing, break-even, and margin analysis assessments that will guide the introduction of HD’s new product. The second section discusses demand estimates, the marketing budget, and mar- keting performance measures. It begins with a discussion of estimating market potential and company sales. It then introduces the marketing budget, as illustrated through a pro forma profit-and-loss statement followed by the actual profit-and-loss statement. Next, we discuss marketing performance measures, with a focus on helping marketing managers to better defend their decisions from a financial perspective. In the third section, we analyze the financial implications of various marketing tactics.

Each of the three sections ends with a set of quantitative exercises that provide you with an opportunity to apply the concepts you learned to situations beyond HD.

Pricing, Break-Even, and Margin Analysis Pricing Considerations Determining price is one of the most important marketing mix decisions. The limiting factors are demand and costs. Demand factors, such as buyer-perceived value, set the price ceiling. The company’s costs set the price floor. In between these two factors, mar- keters must consider competitors’ prices and other factors such as reseller requirements, government regulations, and company objectives.

Most current competing Internet streaming products sell at retail prices between $100 and $500. We first consider HD’s pricing decision from a cost perspective. Then we con- sider consumer value, the competitive environment, and reseller requirements.

Determining Costs Recall from Chapter 9 that there are different types of costs. Fixed costs do not vary with production or sales level and include costs such as rent, interest, depreciation, and clerical and management salaries. Regardless of the level of output, the company must pay these costs. Whereas total fixed costs remain constant as output increases, the fixed cost per unit (or average fixed cost) will decrease as output increases because the total fixed costs are spread across more units of output. Variable costs vary directly with the level of pro- duction and include costs related to the direct production of the product (such as costs of goods sold—COGS) and many of the marketing costs associated with selling it. Although these costs tend to be uniform for each unit produced, they are called variable because their total varies with the number of units produced. Total costs are the sum of the fixed and variable costs for any given level of production.

Fixed costs Costs that do not vary with production or sales level.

Variable costs Costs that vary directly with the level of production.

Total costs The sum of the fixed and variable costs for any given level of production.

561

Appendix 3 Marketing by the Numbers

562 Appendix 3: Marketing by the Numbers

HD has invested $10 million in refurbishing an existing facility to manufacture the new video streaming product. Once production begins, the company estimates that it will incur fixed costs of $20 million per year. The variable cost to produce each device is estimated to be $125 and is expected to remain at that level for the output capacity of the facility.

Setting Price Based on Costs HD starts with the cost-based approach to pricing discussed in Chapter 9. Recall that the simplest method, cost-plus pricing (or markup pricing), simply adds a standard markup to the cost of the product. To use this method, however, HD must specify expected unit sales so that total unit costs can be determined. Unit variable costs will remain constant regardless of the output, but average unit fixed costs will decrease as output increases.

To illustrate this method, suppose HD has fixed costs of $20 million, variable costs of $125 per unit, and expects unit sales of 1 million players. Thus, the cost per unit is given by:

Unit cost = variable cost + fixed costs unit sales

= +125 + +20,000,000 1,000,000

= +145

Note that we do not include the initial investment of $10 million in the total fixed cost figure. It is not considered a fixed cost because it is not a relevant cost. Relevant costs are those that will occur in the future and that will vary across the alternatives being consid- ered. HD’s investment to refurbish the manufacturing facility was a one-time cost that will not reoccur in the future. Such past costs are sunk costs and should not be considered in future analyses.

Also notice that if HD sells its product for $145, the price is equal to the total cost per unit. This is the break-even price—the price at which total revenue equals total cost and profit is zero.

Suppose HD does not want to merely break even but rather wants to earn a 25% markup on sales. HD’s markup price is:i

Markup price = unit cost

(1 - desired return on sales) =

+145 1 - .25

= +193.33

This is the price at which HD would sell the product to resellers such as wholesalers or retailers to earn a 25% profit on sales.

Another approach HD could use is called return on investment (ROI) pricing (or target-return pricing). In this case, the company would consider the initial $10 million investment, but only to determine the dollar profit goal. Suppose the company wants a 30% return on its investment. The price necessary to satisfy this requirement can be determined by:

ROI price = unit cost + ROI * investment

unit sales = +145 +

0.3 * +10,000,000 1,000,000

= +148

That is, if HD sells its product for $148, it will realize a 30% return on its initial investment of $10 million.

In these pricing calculations, unit cost is a function of the expected sales, which were estimated to be 1 million units. But what if actual sales were lower? Then the unit cost would be higher because the fixed costs would be spread over fewer units, and the realized percentage markup on sales or ROI would be lower. Alternatively, if sales are higher than the estimated 1 million units, unit cost would be lower than $145, so a lower price would produce the desired markup on sales or ROI. It’s important to note that these cost-based pricing methods are internally focused and do not consider demand, competitors’ prices, or reseller requirements. Because HD will be selling this product to consumers through wholesalers and retailers offering competing brands, the company must consider markup pricing from this perspective.

Cost-plus pricing (or markup pricing) A standard markup to the cost of the product.

Relevant costs Costs that will occur in the future and that will vary across the alternatives being considered.

Break-even price The price at which total revenue equals total cost and profit is zero.

Return on investment (ROI) pricing (or target-return pricing) A cost-based pricing method that determines price based on a specified rate of return on investment.

Appendix 3: Marketing by the Numbers 563

Setting Price Based on External Factors Whereas costs determine the price floor, HD also must consider external factors when setting price. HD does not have the final say concerning the final price of its product to consumers—retailers do. So it must start with its suggested retail price and work back. In doing so, HD must consider the markups required by resellers that sell the product to consumers.

In general, a dollar markup is the difference between a company’s selling price for a product and its cost to manufacture or purchase it. For a retailer, then, the markup is the difference between the price it charges consumers and the cost the retailer must pay for the product. Thus, for any level of reseller:

Dollar markup = selling price - cost

Markups are usually expressed as a percentage, and there are two different ways to compute markups—on cost or on selling price:

Markup percentage on cost = dollar markup

cost

Markup percentage on selling price = dollar markup

selling price

To apply reseller margin analysis, HD must first set the suggested retail price and then work back to the price at which it must sell the product to a wholesaler. Suppose retailers expect a 30% margin and wholesalers want a 20% margin based on their respective sell- ing prices. And suppose that HD sets a manufacturer’s suggested retail price (MSRP) of $299.99 for its product.

HD selected the $299.99 MSRP because it is lower than most competitors’ prices but is not so low that consumers might perceive it to be of poor quality. And the company’s research shows that it is below the threshold at which more consumers are willing to pur- chase the product. By using buyers’ perceptions of value and not the seller’s cost to deter- mine the MSRP, HD is using value-based pricing. For simplicity, we will use an MSRP of $300 in further analyses.

To determine the price HD will charge wholesalers, we must first subtract the retailer’s margin from the retail price to determine the retailer’s cost ($300 – ($300 * 0.30) = $210). The retailer’s cost is the wholesaler’s price, so HD next subtracts the wholesaler’s margin ($210 - ($210 * 0.20) = $168). Thus, the markup chain representing the sequence of markups used by firms at each level in a channel for HD’s new product is:

Suggested retail price: $300 minus retail margin (30%): -$ 90 Retailer’s cost/wholesaler’s price: $210 minus wholesaler’s margin (20%): -$ 42 Wholesaler’s cost/HD’s price: $168

By deducting the markups for each level in the markup chain, HD arrives at a price for the product to wholesalers of $168.

Break-Even and Margin Analysis The previous analyses derived a value-based price of $168 for HD’s product. Although this price is higher than the break-even price of $145 and covers costs, that price assumed a demand of 1 million units. But how many units and what level of dollar sales must HD achieve to break even at the $168 price? And what level of sales must be achieved to realize various profit goals? These questions can be answered through break-even and margin analysis.

Markup The difference between a company’s selling price for a product and its cost to manufacture or purchase it.

Value-based pricing Offering just the right combination of quality and good service at a fair price.

Markup chain The sequence of markups used by firms at each level in a channel.

564 Appendix 3: Marketing by the Numbers

Determining Break-Even Unit Volume and Dollar Sales Based on an understanding of costs, consumer value, the competitive environment, and reseller requirements, HD has decided to set its price to wholesalers at $168. At that price, what sales level will be needed for HD to break even or make a profit on its product? Break- even analysis determines the unit volume and dollar sales needed to be profitable given a particular price and cost structure. At the break-even point, total revenue equals total costs and profit is zero. Above this point, the company will make a profit; below it, the company will lose money. HD can calculate break-even volume using the following formula:

Break@even volume = fixed costs

price - unit variable cost

The denominator (price – unit variable cost) is called unit contribution (sometimes called contribution margin). It represents the amount that each unit contributes to covering fixed costs. Break-even volume represents the level of output at which all (variable and fixed) costs are covered. In HD’s case, break-even unit volume is:

Break@even volume = fixed cost

price - variable cost =

+20,000,000 +168 - +125

= 465,116.2 units

Thus, at the given cost and pricing structure, HD will break even at 465,117 units. To determine the break-even dollar sales, simply multiply unit break-even volume by

the selling price:

BE sales = BEvol * price = 465,117 * +168 = +78,139,656

Another way to calculate dollar break-even sales is to use the percentage contribution margin (hereafter referred to as contribution margin), which is the unit contribution divided by the selling price:

Contribution margin = price - variable cost

price =

+168 - +125 +168

= 0.256 or 25.6,

Then,

Break@even sales = fixed costs

contribution margin =

+20,000,000 0.256

= +78,125,000

Note that the difference between the two break-even sales calculations is due to rounding. Such break-even analysis helps HD by showing the unit volume needed to cover costs.

If production capacity cannot attain this level of output, then the company should not launch this product. However, the unit break-even volume is well within HD’s capacity. Of course, the bigger question concerns whether HD can sell this volume at the $168 price. We’ll address that issue a little later.

Understanding contribution margin is useful in other types of analyses as well, particu- larly if unit prices and unit variable costs are unknown or if a company (say, a retailer) sells many products at different prices and knows the percentage of total sales variable costs represent. Whereas unit contribution is the difference between unit price and unit variable costs, total contribution is the difference between total sales and total variable costs. The overall contribution margin can be calculated by:

Contribution margin = total sales - total variable costs

total sales

Regardless of the actual level of sales, if the company knows what percentage of sales is represented by variable costs, it can calculate contribution margin. For example, HD’s

Break-even analysis Analysis to determine the unit volume and dollar sales needed to be profitable given a particular price and cost structure.

Unit contribution The amount that each unit contributes to covering fixed costs—the difference between price and variable costs.

Contribution margin The unit contribution divided by the selling price.

Appendix 3: Marketing by the Numbers 565

unit variable cost is $125, or 74% of the selling price ($125 , $168 = 0.74). That means for every $1 of sales revenue for HD, $0.74 represents variable costs, and the difference ($0.26) represents contribution to fixed costs. But even if the company doesn’t know its unit price and unit variable cost, it can calculate the contribution margin from total sales and total variable costs or from knowledge of the total cost structure. It can set total sales equal to 100% regardless of the actual absolute amount and determine the contribution margin:

Contribution margin = 100% - 74%

100% =

1 - 0.74 1

= 1 - 0.74 = 0.26 or 26,

Note that this matches the percentage calculated from the unit price and unit variable cost information. This alternative calculation will be very useful later when analyzing various marketing decisions.

Determining “Break-even” for Profit Goals Although it is useful to know the break-even point, most companies are more interested in making a profit. Assume HD would like to realize a $5 million profit in the first year. How many must it sell at the $168 price to cover fixed costs and produce this profit? To determine this, HD can simply add the profit figure to fixed costs and again divide by the unit contribution to determine unit sales:

Unit volume = fixed cost + profit goal price - variable cost

= +20,000,000 + +5,000,000

+168 - +125 = 581,395.3 units

Thus, to earn a $5 million profit, HD must sell 581,396 units. Multiply by price to deter- mine dollar sales needed to achieve a $5 million profit:

Dollar sales = 581,396 units * +168 = +97,674,528

Or use the contribution margin:

Sales = fixed cost + profit goal

contribution margin =

+20,000,000 + +5,000,000 0.256

= +97,656,250

Again, note that the difference between the two break-even sales calculations is due to rounding.

As we saw previously, a profit goal can also be stated as a return on investment goal. For example, recall that HD wants a 30% return on its $10 million investment. Thus, its absolute profit goal is $3 million ($10,000,000 * 0.30). This profit goal is treated the same way as in the previous example:ii

Unit volume = fixed cost + profit goal price - variable cost

= +20,000,000 + +3,000,000

+168 - +125 = 534,884 units

Dollar sales = 534,884 units * +168 = +89,860,512

Dollar sales = fixed cost + profit goal

contribution margin =

+20,000,000 + +3,000,000 0.256

= +89,843,750

Finally, HD can express its profit goal as a percentage of sales, which we also saw in previous pricing analyses. Assume HD desires a 25% return on sales. To determine the unit and sales volume necessary to achieve this goal, the calculation is a little different from the previous two examples. In this case, we incorporate the profit goal into the unit

566 Appendix 3: Marketing by the Numbers

contribution as an additional variable cost. Look at it this way: If 25% of each sale must go toward profits, that leaves only 75% of the selling price to cover fixed costs. Thus, the equation becomes:

Unit volume = fixed cost

price - variable cost - 10.25 * price2 or fixed cost

10.75 * price2 - variable cost

So,

Unit volume = +20,000,000

(0.75 * +168) - +125 = 20,000,000 units

Dollar sales necessary = 20,000,000 units * +168 = +3,360,000,000

Thus, HD would need more than $3 billion in sales to realize a 25% return on sales given its current price and cost structure! Could it possibly achieve this level of sales? The major point is this: Although break-even analysis can be useful in determining the level of sales needed to cover costs or to achieve a stated profit goal, it does not tell the company whether it is possible to achieve that level of sales at the specified price. To address this issue, HD needs to estimate demand for this product.

Before moving on, however, let’s stop here and practice applying the concepts covered so far. Now that you have seen pricing and break-even concepts in action as they relate to HD’s new product, here are several exercises for you to apply what you have learned in other contexts.

Marketing by the Numbers Exercise Set One Now that you’ve studied pricing, break-even, and margin analysis as they relate to HD’s new product launch, use the following exercises to apply these concepts in other contexts.

1.1 Elkins, a manufacturer of ice makers, realizes a cost of $250 for every unit it pro- duces. Its total fixed costs equal $5 million. If the company manufactures 500,000 units, compute the following: a. unit cost b. markup price if the company desires a 10% return on sales c. ROI price if the company desires a 25% return on an investment of $1 million

1.2 A gift shop owner purchases items to sell in her store. She purchases a chair for $125 and sells it for $275. Determine the following: a. dollar markup b. markup percentage on cost c. markup percentage on selling price

1.3 A consumer purchases a coffee maker from a retailer for $90. The retailer’s markup is 30%, and the wholesaler’s markup is 10%, both based on selling price. For what price does the manufacturer sell the product to the wholesaler?

1.4 A lawn mower manufacturer has a unit cost of $140 and wishes to achieve a margin of 30% based on selling price. If the manufacturer sells directly to a retailer who then adds a set margin of 40% based on selling price, determine the retail price charged to consumers.

1.5 Advanced Electronics manufactures DVDs and sells them directly to retailers who typically sell them for $20. Retailers take a 40% margin based on the retail selling price. Advanced’s cost information is as follows:

DVD package and disc $2.50/DVD Royalties $2.25/DVD Advertising and promotion $500,000 Overhead $200,000

Appendix 3: Marketing by the Numbers 567

Calculate the following: a. contribution per unit and contribution margin b. break-even volume in DVD units and dollars c. volume in DVD units and dollar sales necessary if Advanced’s profit goal is 20%

profit on sales d. net profit if 5 million DVDs are sold

Demand Estimates, the Marketing Budget, and Marketing Performance Measures Market Potential and Sales Estimates HD has now calculated the sales needed to break even and to attain various profit goals on its new product. However, the company needs more information regarding demand in order to assess the feasibility of attaining the needed sales levels. This information is also needed for production and other decisions. For example, production schedules need to be developed, and marketing tactics need to be planned.

The total market demand for a product or service is the total volume that would be bought by a defined consumer group in a defined geographic area in a defined time period in a defined marketing environment under a defined level and mix of industry marketing effort. Total market demand is not a fixed number but a function of the stated conditions. For example, next year’s total market demand for this type of product will depend on how much other producers spend on marketing their brands. It also depends on many envi- ronmental factors, such as government regulations, economic conditions, and the level of consumer confidence in a given market. The upper limit of market demand is called market potential.

One general but practical method that HD might use for estimating total market demand uses three variables: (1) the number of prospective buyers, (2) the quantity purchased by an average buyer per year, and (3) the price of an average unit. Using these numbers, HD can estimate total market demand as follows:

Q = n * q * p

where Q = total market demand n = number of buyers in the market q = quantity purchased by an average buyer per year p = price of an average unit

A variation of this approach is the chain ratio method. This method involves multi- plying a base number by a chain of adjusting percentages. For example, HD’s product is designed to stream high-definition video on high-definition televisions as well as play other video content streamed from the Internet to multiple devices in a home. Thus, consumers who do not own a high-definition television will not likely purchase this player. Addi- tionally, only households with broadband Internet access will be able to use the product. Finally, not all HDTV-owning Internet households will be willing and able to purchase this product. HD can estimate U.S. demand using a chain of calculations like the following:

Total number of U.S. households * The percentage of HDTV-owning U.S. households with broadband Internet access * The percentage of these households willing and able to buy this device

The U.S. Census Bureau estimates that there are approximately 115 million households in the United States.iii HD’s research indicates that 60 percent of U.S. households own at least one HDTV and have broadband Internet access. Finally, the company’s research also reveals that 30 percent of households possess the discretionary income needed and are

Total market demand The total volume that would be bought by a defined consumer group in a defined geographic area in a defined time period in a defined marketing environment under a defined level and mix of industry marketing effort.

Market potential The upper limit of market demand.

Chain ratio method Estimating market demand by multiplying a base number by a chain of adjusting percentages.

568 Appendix 3: Marketing by the Numbers

willing to buy a product such as this. Then the total number of households willing and able to purchase this product is:

115 million households * 0.60 * 0.30 = 20.7 million households

Households need to purchase only one device because it can stream content to other devices throughout the household. Assuming the average retail price across all brands is $350 for this product, the estimate of total market demand is as follows:

20.7 million households * 1 device per household * +350 = +7,245,000,000

This simple chain of calculations gives HD only a rough estimate of potential demand. However, more detailed chains involving additional segments and other qualifying factors would yield more accurate and refined estimates. Still, these are only estimates of market potential. They rely heavily on assumptions regarding adjusting percentages, average quan- tity, and average price. Thus, HD must make certain that its assumptions are reasonable and defendable. As can be seen, the overall market potential in dollar sales can vary widely given the average price used. For this reason, HD will use unit sales potential to determine its sales estimate for next year. Market potential in terms of units is 20.7 million (20.7 million households * 1 device per household).

Assuming that HD forecasts it will have a 3.6% market share in the first year after launch- ing this product, then it can forecast unit sales at 20.7 million units * 0.036 = 745,200 units. At a selling price of $168 per unit, this translates into sales of $125,193,600 (745,200 units * $168 per unit). For simplicity, further analyses will use forecasted sales of $125 million.

This unit volume estimate is well within HD’s production capacity and exceeds not only the break-even estimate (465,117 units) calculated earlier but also the volume neces- sary to realize a $5 million profit (581,396 units) or a 30% return on investment (534,884 units). However, this forecast falls well short of the volume necessary to realize a 25% return on sales (20 million units!) and may require that HD revise expectations.

To assess expected profits, we must now look at the budgeted expenses for launching this product. To do this, we will construct a pro forma profit-and-loss statement.

The Profit-and-Loss Statement and Marketing Budget All marketing managers must account for the profit impact of their marketing strategies. A major tool for projecting such profit impact is a pro forma (or projected) profit-and-loss statement (also called an income statement or operating statement). A pro forma state- ment shows projected revenues less budgeted expenses and estimates the projected net profit for an organization, product, or brand during a specific planning period, typically a year. It includes direct product production costs, marketing expenses budgeted to attain a given sales forecast, and overhead expenses assigned to the organization or product. A profit-and-loss statement typically consists of several major components (see Table A3.1):

● Net sales—gross sales revenue minus returns and allowances (for example, trade, cash, quantity, and promotion allowances). HD’s net sales for 2016 are estimated to be $125 million, as determined in the previous analysis.

● Cost of goods sold—(sometimes called cost of sales)—the actual cost of the mer- chandise sold by a manufacturer or reseller. It includes the cost of inventory, pur- chases, and other costs associated with making the goods. HD’s cost of goods sold is estimated to be 50% of net sales, or $62.5 million.

● Gross margin (or gross profit)—the difference between net sales and cost of goods sold. HD’s gross margin is estimated to be $62.5 million.

● Operating expenses—the expenses incurred while doing business. These include all other expenses beyond the cost of goods sold that are necessary to conduct

Pro forma (or projected) profit-and- loss statement (or income statement or operating statement) A statement that shows projected revenues less budgeted expenses and estimates the projected net profit for an organization, product, or brand during a specific planning period, typically a year.

Appendix 3: Marketing by the Numbers 569

business. Operating expenses can be presented in total or broken down in detail. Here, HD’s estimated operating expenses include marketing expenses and general and administrative expenses.

Marketing expenses include sales expenses, promotion expenses, and distribution expenses. The new product will be sold through HD’s sales force, so the company budgets $5 million for sales salaries. However, because sales representatives earn a 10% commission on sales, HD must also add a variable component to sales expenses of $12.5 million (10% of $125 million net sales), for a total budgeted sales expense of $17.5 million. HD sets its advertising and promotion to launch this product at $10 million. However, the company also budgets 4% of sales, or $5 million, for cooperative advertising allowances to retailers who promote HD’s new product in their advertising. Thus, the total budgeted advertising and promotion expenses are $15 million ($10 million for advertising plus $5 million in co-op allowances). Finally, HD budgets 10% of net sales, or $12.5 million, for freight and delivery charges. In all, total marketing expenses are estimated to be $17.5 million + $15 million + $12.5 million = $45 million.

General and administrative expenses are estimated at $5 million, broken down into $2 million for managerial salaries and expenses for the marketing function and $3 million of indirect overhead allocated to this product by the corporate accountants (such as deprecia- tion, interest, maintenance, and insurance). Total expenses for the year, then, are estimated to be $50 million ($45 million marketing expenses + $5 million in general and administra- tive expenses).

● Net profit before taxes—profit earned after all costs are deducted. HD’s estimated net profit before taxes is $12.5 million.

In all, as Table A3.1 shows, HD expects to earn a profit on its new product of $12.5 mil- lion in 2016. Also note that the percentage of sales that each component of the profit-and-loss statement represents is given in the right-hand column. These percentages are determined by dividing the cost figure by net sales (that is, marketing expenses represent 36% of net sales determined by $45 million ÷ $125 million). As can be seen, HD projects a net profit return on sales of 10% in the first year after launching this product.

Table A3.1 Pro Forma Profit-and-Loss Statement for the 12-Month Period Ended December 31, 2016

Percent of Sales

Net Sales $125,000,000 100%

Cost of Goods Sold 62,500,000 50%

Gross Margin $ 62,500,000 50%

Marketing Expenses

Sales expenses $17,500,000

Promotion expenses 15,000,000

Freight 12,500,000 45,000,000 36%

General and Administrative Expenses

Managerial salaries and expenses $2,000,000

Indirect overhead 3,000,000 5,000,000 4%

Net Profit before Income Tax $12,500,000 10%

570 Appendix 3: Marketing by the Numbers

Marketing Performance Measures Now let’s fast-forward a year. HD’s product has been on the market for one year, and management wants to assess its sales and profit performance. One way to assess this per- formance is to compute performance ratios derived from HD’s profit-and-loss statement (or income statement or operating statement).

Whereas the pro forma profit-and-loss statement shows projected financial per- formance, the statement given in Table A3.2 shows HD’s actual financial perfor- mance based on actual sales, cost of goods sold, and expenses during the past year. By comparing the profit-and-loss statement from one period to the next, HD can gauge performance against goals, spot favorable or unfavorable trends, and take appropriate corrective action.

The profit-and-loss statement shows that HD lost $1 million rather than making the $12.5 million profit projected in the pro forma statement. Why? One obvious reason is that net sales fell $25 million short of estimated sales. Lower sales translated into lower vari- able costs associated with marketing the product. However, both fixed costs and the cost of goods sold as a percentage of sales exceeded expectations. Hence, the product’s contri- bution margin was 21% rather than the estimated 26%. That is, variable costs represented 79% of sales (55% for cost of goods sold, 10% for sales commissions, 10% for freight, and 4% for co-op allowances). Recall that contribution margin can be calculated by subtract- ing that fraction from one (1 - 0.79 = 0.21). Total fixed costs were $22 million, $2 million more than estimated. Thus, the sales that HD needed to break even given this cost structure can be calculated as:

Break@even sales = fixed costs

contribution margin =

+22,000,000 0.21

= +104,761,905

If HD had achieved another $5 million in sales, it would have earned a profit. Although HD’s sales fell short of the forecasted sales, so did overall industry sales for

this product. Overall industry sales were only $2.5 billion. That means that HD’s market share was 4% ($100 million , $2.5 billion = 0.04 = 4%), which was higher than forecasted. Thus, HD attained a higher-than-expected market share, but the overall market sales were not as high as estimated.

Profit-and-loss statement (or income statement or operating statement) A statement that shows actual revenues less expenses and net profit for an organization, product, or brand during a specific planning period, typically a year.

Market share Company sales divided by market sales.

Table A3.2 Profit-and-Loss Statement for the 12-Month Period Ended December 31, 2016

Percent of Sales

Net Sales $100,000,000 100%

Cost of Goods Sold 55,000,000 55%

Gross Margin $ 45,000,000 45%

Marketing Expenses

Sales expenses $15,000,000

Promotion expenses 14,000,000

Freight 10,000,000 39,000,000 39%

General and Administrative Expenses

Managerial salaries and expenses $2,000,000

Indirect overhead 5,000,000 7,000,000 7%

Net Profit before Income Tax -$1,000,000 -1%

Appendix 3: Marketing by the Numbers 571

Analytic Ratios The profit-and-loss statement provides the figures needed to compute some crucial operating ratios—the ratios of selected operating statement items to net sales. These ratios let marketers compare the firm’s performance in one year to that in previous years (or with industry stan- dards and competitors’ performance in that year). The most commonly used operating ratios are the gross margin percentage, the net profit percentage, and the operating expense percent- age. The inventory turnover rate and return on investment (ROI) are often used to measure managerial effectiveness and efficiency.

The gross margin percentage indicates the percentage of net sales remaining after cost of goods sold that can contribute to operating expenses and net profit before taxes. The higher this ratio, the more a firm has left to cover expenses and generate profit. HD’s gross margin ratio was 45%:

Gross margin percentage = gross margin

net sales =

+45,000,000 +100,000,000

= 0.45 = 45%

Note that this percentage is lower than estimated, and this ratio is seen easily in the percentage of sales column in Table A3.2. Stating items in the profit-and-loss statement as a percent of sales allows managers to quickly spot abnormal changes in costs over time. If there was previous history for this product and this ratio was declining, management should examine it more closely to determine why it has decreased (that is, because of a decrease in sales volume or price, an increase in costs, or a combination of these). In HD’s case, net sales were $25 million lower than estimated, and cost of goods sold was higher than estimated (55% rather than the estimated 50%).

The net profit percentage shows the percentage of each sales dollar going to profit. It is calculated by dividing net profits by net sales:

Net profit percentage = net profit

net sales =

-+1,000,000 +100,000,000

= -0.01 = -1.0%

This ratio is easily seen in the percent of sales column. HD’s new product generated negative profits in the first year, not a good situation given that before the product launch net profits before taxes were estimated at more than $12 million. Later in this appendix, we will discuss further analyses the marketing manager should conduct to defend the product.

The operating expense percentage indicates the portion of net sales going to oper- ating expenses. Operating expenses include marketing and other expenses not directly related to marketing the product, such as indirect overhead assigned to this product. It is calculated by:

Operating expense percentage = total expenses

net sales =

+46,000,000 +100,000,000

= 0.46 = 46%

This ratio can also be quickly determined from the percent of sales column in the profit-and-loss statement by adding the percentages for marketing expenses and general and administrative expenses (39% + 7%). Thus, 46 cents of every sales dollar went for operations. Although HD wants this ratio to be as low as possible, and 46% is not an alarm- ing amount, it is of concern if it is increasing over time or if a loss is realized.

Another useful ratio is the inventory turnover rate (also called stockturn rate for resellers). The inventory turnover rate is the number of times an inventory turns over or is sold during a specified time period (often one year). This rate tells how quickly a business is moving inventory through the organization. Higher rates indicate that lower investments in inventory are made, thus freeing up funds for other investments. It may be computed on a cost, selling price, or unit basis. The formula based on cost is:

Inventory turnover rate = cost of goods sold

average inventory at cost

Operating ratios The ratios of selected operating statement items to net sales.

Gross margin percentage The percentage of net sales remaining after cost of goods sold—calculated by dividing gross margin by net sales.

Net profit percentage The percentage of each sales dollar going to profit—calculated by dividing net profits by net sales.

Operating expense percentage The portion of net sales going to operating expenses—calculated by dividing total expenses by net sales.

Inventory turnover rate (or stockturn rate) The number of times an inventory turns over or is sold during a specified time period (often one year)—calculated based on costs, selling price, or units.

572 Appendix 3: Marketing by the Numbers

Assuming HD’s beginning and ending inventories were $30 million and $20 million, respectively, the inventory turnover rate is:

Inventory turnover rate = +55,000,000

(+30,000,000 + +20,000,000)/2 =

+55,000,000 +25,000,000

= 2.2

That is, HD’s inventory turned over 2.2 times in 2016. Normally, the higher the turn- over rate, the higher the management efficiency and company profitability. However, this rate should be compared with industry averages, competitors’ rates, and past performance to determine if HD is doing well. A competitor with similar sales but a higher inventory turnover rate will have fewer resources tied up in inventory, allowing it to invest in other areas of the business.

Companies frequently use return on investment (ROI) to measure managerial effec- tiveness and efficiency. For HD, ROI is the ratio of net profits to total investment required to manufacture the new product. This investment includes capital investments in land, build- ings, and equipment (here, the initial $10 million to refurbish the manufacturing facility) plus inventory costs (HD’s average inventory totaled $25 million), for a total of $35 million. Thus, HD’s ROI for this product is:

Return on investment = net profit before taxes

investment =

-+1,000,000 +35,000,000

= - .0286 = -2.86%

ROI is often used to compare alternatives, and a positive ROI is desired. The alternative with the highest ROI is preferred to other alternatives. HD needs to be concerned with the ROI realized. One obvious way HD can increase ROI is to increase net profit by reducing expenses. Another way is to reduce its investment, perhaps by investing less in inventory and turning it over more frequently.

Marketing Profitability Metrics Given the above financial results, you may be thinking that HD should drop this new product. But what arguments can marketers make for keeping or dropping this product? The obvious arguments for dropping the product are that first-year sales were well below expected levels and the product lost money, resulting in a negative return on investment.

So what would happen if HD did drop this product? Surprisingly, if the company drops the product, the profits for the total organization will decrease by $4 million! How can that be? Marketing managers need to look closely at the numbers in the profit-and-loss statement to determine the net marketing contribution for this product. In HD’s case, the net market- ing contribution for the product is $4 million, and if the company drops this product, that contribution will disappear as well. Let’s look more closely at this concept to illustrate how marketing managers can better assess and defend their marketing strategies and programs.

Net Marketing Contribution Net marketing contribution (NMC), along with other marketing metrics derived from it, measures marketing profitability. It includes only components of profitability that are controlled by marketing. Whereas the previous calculation of net profit before taxes from the profit-and-loss statement includes operating expenses not under marketing’s control, NMC does not. Referring back to HD’s profit-and-loss statement given in Table A3.2, we can calculate net marketing contribution for the product as:

NMC = net sales - cost of goods sold - marketing expenses

= +100 million - +55 million - +41 million = +4 million

The marketing expenses include sales expenses ($15 million), promotion expenses ($14 million), freight expenses ($10 million), and the managerial salaries and expenses of the marketing function ($2 million), which total $41 million.

Return on investment (ROI) A measure of managerial effectiveness and efficiency—net profit before taxes divided by total investment.

Net marketing contribution (NMC) A measure of marketing profitability that includes only components of profitability controlled by marketing.

Appendix 3: Marketing by the Numbers 573

Thus, the product actually contributed $4 million to HD’s profits. It was the $5 million of indirect overhead allocated to this product that caused the negative profit. Further, the amount allocated was $2 million more than estimated in the pro forma profit-and-loss statement. Indeed, if only the estimated amount had been allocated, the product would have earned a profit of $1 million rather than losing $1 million. If HD drops the product, the $5 million in fixed overhead expense will not disappear—it will simply have to be allocated elsewhere. However, the $4 million in net marketing contribution will disappear.

Marketing Return on Sales and Investment To get an even deeper understanding of the profit impact of marketing strategy, we’ll now examine two measures of marketing efficiency—marketing return on sales (marketing ROS) and marketing return on investment (marketing ROI).iv

Marketing return on sales (or marketing ROS) shows the percent of net sales attrib- utable to the net marketing contribution. For our product, ROS is:

Marketing ROS = net marketing contribution

net sales =

+4,000,000 +100,000,000

= 0.04 = 4%

Thus, out of every $100 of sales, the product returns $4 to HD’s bottom line. A high mar- keting ROS is desirable. But to assess whether this is a good level of performance, HD must compare this figure to previous marketing ROS levels for the product, the ROSs of other products in the company’s portfolio, and the ROSs of competing products.

Marketing return on investment (or marketing ROI) measures the marketing pro- ductivity of a marketing investment. In HD’s case, the marketing investment is represented by $41 million of the total expenses. Thus, marketing ROI is:

Marketing ROI = net marketing contribution

marketing expenses =

+4,000,000 +41,000,000

= 0.0976 = 9.76%

As with marketing ROS, a high value is desirable, but this figure should be compared with previous levels for the given product and with the marketing ROIs of competitors’ products. Note from this equation that marketing ROI could be greater than 100%. This can be achieved by attaining a higher net marketing contribution and/or a lower total marketing expense.

In this section, we estimated market potential and sales, developed profit-and-loss statements, and examined financial measures of performance. In the next section, we discuss methods for analyzing the impact of various marketing tactics. However, before moving on to those analyses, here’s another set of quantitative exercises to help you apply what you’ve learned to other situations.

Marketing by the Numbers Exercise Set Two 2.1 Determine the market potential for a product that has 20 million prospective buyers

who purchase an average of two per year and price averages $50. How many units must a company sell if it desires a 10% share of this market?

2.2 Develop a profit-and-loss statement for the Westgate division of North Indus- tries. This division manufactures light fixtures sold to consumers through home- improvement and hardware stores. Cost of goods sold represents 40% of net sales. Marketing expenses include selling expenses, promotion expenses, and freight. Selling expenses include sales salaries totaling $3 million per year and sales com- missions (5% of sales). The company spent $3 million on advertising last year, and freight costs were 10% of sales. Other costs include $2 million for managerial salaries and expenses for the marketing function and another $3 million for indi- rect overhead allocated to the division. a. Develop the profit-and-loss statement if net sales were $20 million last year. b. Develop the profit-and-loss statement if net sales were $40 million last year. c. Calculate Westgate’s break-even sales.

Marketing return on sales (or marketing ROS) The percent of net sales attributable to the net marketing contribution— calculated by dividing net marketing contribution by net sales.

Marketing return on investment (or marketing ROI) A measure of the marketing productivity of a marketing investment—calculated by dividing net marketing contribution by marketing expenses.

574 Appendix 3: Marketing by the Numbers

2.3 Using the profit-and-loss statement you developed in question 2.2b and assuming that Westgate’s beginning inventory was $11 million, ending inventory was $7 million, and total investment was $20 million including inventory, determine the following: a. gross margin percentage b. net profit percentage c. operating expense percentage d. inventory turnover rate e. return on investment (ROI) f. net marketing contribution g. marketing return on sales (marketing ROS) h. marketing return on investment (marketing ROI) i. Is the Westgate division doing well? Explain your answer.

Financial Analysis of Marketing Tactics Although the first-year profit performance for HD’s new product was less than desired, management feels that this attractive market has excellent growth opportunities. Although the sales of HD’s product were lower than initially projected, they were not unreasonable given the size of the current market. Thus, HD wants to explore new marketing tactics to help grow the market for this product and increase sales for the company.

For example, the company could increase advertising to promote more awareness of the new product and its category. It could add salespeople to secure greater product distri- bution. HD could decrease prices so that more consumers could afford its product. Finally, to expand the market, HD could introduce a lower-priced model in addition to the higher- priced original offering. Before pursuing any of these tactics, HD must analyze the finan- cial implications of each.

Increase Advertising Expenditures HD is considering boosting its advertising to make more people aware of the benefits of this device in general and of its own brand in particular. What if HD’s marketers recom- mend increasing national advertising by 50% to $15 million (assume no change in the variable cooperative component of promotional expenditures)? This represents an increase in fixed costs of $5 million. What increase in sales will be needed to break even on this $5 million increase in fixed costs?

A quick way to answer this question is to divide the increase in fixed cost by the con- tribution margin, which we found in a previous analysis to be 21%:

Increase in sales = increase in fixed cost contribution margin

= +5,000,000

0.21 = +23,809,524

Thus, a 50% increase in advertising expenditures must produce a sales increase of almost $24 million to just break even. That $24 million sales increase translates into an almost 1 percentage point increase in market share (1% of the $2.5 billion overall market equals $25 million). That is, to break even on the increased advertising expenditure, HD would have to increase its market share from 4% to 4.95% ($123,809,524 , $2.5 billion = 0.0495, or 4.95% market share). All of this assumes that the total market will not grow, which might or might not be a reasonable assumption.

Increase Distribution Coverage HD also wants to consider hiring more salespeople in order to call on new retailer accounts and increase distribution through more outlets. Even though HD sells directly to wholesal- ers, its sales representatives call on retail accounts to perform other functions in addition to selling, such as training retail salespeople. Currently, HD employs 60 sales reps who earn an average of $50,000 in salary plus 10% commission on sales. The product is currently sold to consumers through 1,875 retail outlets. Suppose HD wants to increase that number

Appendix 3: Marketing by the Numbers 575

of outlets to 2,500, an increase of 625 retail outlets. How many additional salespeople will HD need, and what sales will be necessary to break even on the increased cost?

One method for determining what size sales force HD will need is the workload method. The workload method uses the following formula to determine the salesforce size:

NS = NC * FC * LC

where NS = number of salespeople NC = number of customers FC = average frequency of customer calls per customer LC = average length of customer call TA = time an average salesperson has available for selling per year

HD’s sales reps typically call on accounts an average of 20 times per year for about two hours per call. Although sales reps work 2,000 hours per year (50 weeks per year * 40 hours per week), they spent about 15 hours per week on nonselling activities such as administrative duties and travel. Thus, the average annual available selling time per sales rep per year is 1,250 hours (50 weeks * 25 hours per week). We can now calculate how many sales reps HD will need to cover the anticipated 2,500 retail outlets:

NS = 2,500 * 20 * 2

1,250 = 80 salespeople

Therefore, HD will need to hire 20 more salespeople. The cost to hire these reps will be $1 million (20 salespeople * $50,000 salary per salesperson).

What increase in sales will be required to break even on this increase in fixed costs? The 10% commission is already accounted for in the contribution margin, so the contribu- tion margin remains unchanged at 21%. Thus, the increase in sales needed to cover this increase in fixed costs can be calculated by:

Increase in sales = increase in fixed cost contribution margin

= +1,000,000

0.21 = +4,761,905

That is, HD’s sales must increase almost $5 million to break even on this tactic. So, how many new retail outlets will the company need to secure to achieve this sales increase? The average revenue generated per current outlet is $53,333 ($100 million in sales divided by 1,875 outlets). To achieve the nearly $5 million sales increase needed to break even, HD would need about 90 new outlets ($4,761,905 , $53,333 = 89.3 outlets), or about 4.5 outlets per new rep. Given that current reps cover about 31 outlets apiece (1,875 outlets , 60 reps), this seems very reasonable.

Decrease Price HD is also considering lowering its price to increase sales revenue through increased volume. The company’s research has shown that demand for most types of consumer electronics products is elastic—that is, the percentage increase in the quantity demanded is greater than the percentage decrease in price.

What increase in sales would be necessary to break even on a 10% decrease in price? That is, what increase in sales will be needed to maintain the total contribution that HD realized at the higher price? The current total contribution can be determined by multiply- ing the contribution margin by total sales:v

Current total contribution = contribution margin * sales = .21 * $100 million = $21 million

Price changes result in changes in unit contribution and contribution margin. Recall that the contribution margin of 21% was based on variable costs representing 79% of sales.

Workload method An approach to determining sales force size based on the workload required and the time available for selling.

576 Appendix 3: Marketing by the Numbers

Therefore, unit variable costs can be determined by multiplying the original price by this percentage: $168 * 0.79 = $132.72 per unit. If price is decreased by 10%, the new price is $151.20. However, variable costs do not change just because price decreased, so the contri- bution and contribution margin decrease as follows:

Old New (Reduced 10%)

Price $168 $151.20

- Unit variable cost $132.72 $132.72 = Unit contribution $35.28 $18.48 Contribution margin $35.28/$168 = 0.21 or 21% $18.48/$151.20 = 0.12 or 12%

So a 10% reduction in price results in a decrease in the contribution margin from 21% to 12%.vi To determine the sales level needed to break even on this price reduction, we calculate the level of sales that must be attained at the new contribution margin to achieve the original total contribution of $21 million:

New contribution margin * new sales level = original total contribution

So,

New sales level = original contribution

new contribution margin =

+21,000,000 0.12

= +175,000,000

Thus, sales must increase by $75 million ($175 million - $100 million) just to break even on a 10% price reduction. This means that HD must increase market share to 7% ($175 mil- lion , $2.5 billion) to achieve the current level of profits (assuming no increase in the total market sales). The marketing manager must assess whether or not this is a reasonable goal.

Extend the Product Line As a final option, HD is considering extending its product line by offering a lower-priced model. Of course, the new, lower-priced product would steal some sales from the higher- priced model. This is called cannibalization—the situation in which one product sold by a company takes a portion of its sales from other company products. If the new product has a lower contribution than the original product, the company’s total contribution will decrease on the cannibalized sales. However, if the new product can generate enough new volume, it is worth considering.

To assess cannibalization, HD must look at the incremental contribution gained by having both products available. Recall that in the previous analysis we determined that unit variable costs were $132.72 and unit contribution was just over $35. Assuming costs remain the same next year, HD can expect to realize a contribution per unit of approxi- mately $35 for every unit of the original product sold.

Assume that the first model offered by HD is called HD1 and the new, lower-priced model is called HD2. HD2 will retail for $250, and resellers will take the same markup percentages on price as they do with the higher-priced model. Therefore, HD2’s price to wholesalers will be $140 as follows:

Retail price: $250 minus retail margin (30%): –$ 75 Retailer’s cost/wholesaler’s price: $175 minus wholesaler’s margin (20%): –$ 35 Wholesaler’s cost/HD’s price $140

If HD2’s variable costs are estimated to be $120, then its contribution per unit will equal $20 ($140 - $120 = $20). That means for every unit that HD2 cannibalizes from HD1, HD will lose $15 in contribution toward fixed costs and profit (that is, contributionHD2

Cannibalization The situation in which one product sold by a company takes a portion of its sales from other company products.

Appendix 3: Marketing by the Numbers 577

– contributionHD1 = $20 - $35 = -$15). You might conclude that HD should not pursue this tactic because it appears as though the company will be worse off if it introduces the lower-priced model. However, if HD2 captures enough additional sales, HD will be better off even though some HD1 sales are cannibalized. The company must examine what will happen to total contribution, which requires estimates of unit volume for both products.

Originally, HD estimated that next year’s sales of HD1 would be 600,000 units. How- ever, with the introduction of HD2, it now estimates that 200,000 of those sales will be cannibalized by the new model. If HD sells only 200,000 units of the new HD2 model (all cannibalized from HD1), the company would lose $3 million in total contribution (200,000 units * -$15 per cannibalized unit = -$3 million)—not a good outcome. However, HD estimates that HD2 will generate the 200,000 of cannibalized sales plus an additional 500,000 unit sales. Thus, the contribution on these additional HD2 units will be $10 mil- lion (i.e., 500,000 units * $20 per unit = $10 million). The net effect is that HD will gain $7 million in total contribution by introducing HD2.

The following table compares HD’s total contribution with and without the introduc- tion of HD2:

HD1 only HD1 and HD2

HD1 contribution 600,000 units * $35 400,000 units * $35 = $21,000,000 = $14,000,000

HD2 contribution 0 700,000 units * $20 = $14,000,000

Total contribution $21,000,000 $28,000,000

The difference in the total contribution is a net gain of $7 million ($28 million - $21 million). Based on this analysis, HD should introduce the HD2 model because it results in a positive incremental contribution. However, if fixed costs will increase by more than $7 million as a result of adding this model, then the net effect will be negative and HD should not pursue this tactic.

Now that you have seen these marketing tactic analysis concepts in action as they relate to HD’s new product, here are several exercises for you to apply what you have learned in this section in other contexts.

Marketing by the Numbers Exercise Set Three 3.1 Alliance, Inc. sells gas lamps to consumers through retail outlets. Total industry sales

for Alliance’s relevant market last year were $100 million, with Alliance’s sales rep- resenting 5% of that total. Contribution margin is 25%. Alliance’s sales force calls on retail outlets and each sales rep earns $50,000 per year plus 1% commission on all sales. Retailers receive a 40% margin on selling price and generate average revenue of $10,000 per outlet for Alliance. a. The marketing manager has suggested increasing consumer advertising by

$200,000. By how much would dollar sales need to increase to break even on this expenditure? What increase in overall market share does this represent?

b. Another suggestion is to hire two more sales representatives to gain new con- sumer retail accounts. How many new retail outlets would be necessary to break even on the increased cost of adding two sales reps?

c. A final suggestion is to make a 10% across-the-board price reduction. By how much would dollar sales need to increase to maintain Alliance’s current contribu- tion? (See endnote 6 to calculate the new contribution margin.)

d. Which suggestion do you think Alliance should implement? Explain your recommendation.

3.2 PepsiCo sells its soft drinks in approximately 400,000 retail establishments, such as supermarkets, discount stores, and convenience stores. Sales representatives call on each retail account weekly, which means each account is called on by a sales rep 52 times per year. The average length of a sales call is 75 minutes (or 1.25 hours).

578 Appendix 3: Marketing by the Numbers

An average salesperson works 2,000 hours per year (50 weeks per year * 40 hours per week), but each spends 10 hours a week on nonselling activities, such as administra- tive tasks and travel. How many salespeople does PepsiCo need?

3.3 Hair Zone manufactures a brand of hairstyling gel. It is considering adding a modified version of the product—a foam that provides stronger hold. Hair Zone’s variable costs and prices to wholesalers are:

Current Hair Gel New Foam Product

Unit selling price 2.00 2.25 Unit variable costs .85 1.25

Hair Zone expects to sell 1 million units of the new styling foam in the first year after introduction, but it expects that 60% of those sales will come from buyers who normally purchase Hair Zone’s styling gel. Hair Zone estimates that it would sell 1.5 million units of the gel if it did not introduce the foam. If the fixed cost of launching the new foam will be $100,000 during the first year, should Hair Zone add the new product to its line? Why or why not?

You may have decided you want to pursue a marketing career because it offers constant challenge, stimulating problems, the opportunity to work with people, and excellent advancement opportunities. But you still may not know which part of marketing best suits you—marketing is a very broad field offering a wide variety of career options.

This appendix helps you discover what types of marketing jobs best match your spe- cial skills and interests, shows you how to conduct the kind of job search that will get you the position you want, describes marketing career paths open to you, and suggests other information resources.

Marketing Careers Today The marketing field is booming, with nearly a third of all working Americans now employed in marketing-related positions. Marketing salaries may vary by company, posi- tion, and region, and salary figures change constantly. In general, entry-level marketing salaries usually are only slightly below those for engineering and chemistry but equal or exceed starting salaries in economics, finance, accounting, general business, and the lib- eral arts. Moreover, if you succeed in an entry-level marketing position, it’s likely that you will be promoted quickly to higher levels of responsibility and salary. In addition, because of the consumer and product knowledge you will gain in these jobs, marketing positions provide excellent training for the highest levels in an organization.

Overall Marketing Facts and Trends In conducting your job search, consider the following facts and trends that are changing the world of marketing:

Focus on customers. More and more, companies are realizing that they win in the marketplace only by creating superior value for customers. To capture value from customers, they must first find new and better ways to solve customer problems and improve customer brand experiences. This increasing focus on the customer puts mar- keters at the forefront in many of today’s companies. As the primary customer-facing function, marketing’s mission is to get all company departments to “think customer.”

Technology. Technology is changing the way marketers work. For example, Internet, social media, mobile, and other digital technologies are rapidly changing the ways marketers interact with and service customers. They are also changing everything from the ways marketers create new products and advertise them to how marketers access information and recruit personnel. Whereas advertising firms have tradition- ally recruited “generalists” in account management, generalist has now taken on a whole new meaning—advertising account executives must now have both broad and specialized knowledge.

Diversity. The number of women and minorities in marketing continues to grow, and women and minorities also are advancing rapidly into marketing management. For example, women now outnumber men by nearly two to one as advertising account executives. As marketing becomes more global, the need for diversity in marketing positions will continue to increase, opening new opportunities.

Global. Companies such as Coca-Cola, McDonald’s, Google, IBM, Walmart, and Procter & Gamble have become multinational, with manufacturing and marketing

579

Appendix 4 Careers in Marketing

580 Appendix 4: Careers in Marketing

operations in hundreds of countries. Indeed, such companies often make more profit from sales outside the United States than from within. And it’s not just the big com- panies that are involved in international marketing. Organizations of all sizes have moved into the global arena. Many new marketing opportunities and careers will be directly linked to the expanding global marketplace. The globalization of business also means that you will need more cultural, language, and people skills in the mar- keting world of the twenty-first century.

Not-for-profit organizations. Increasingly, colleges, arts organizations, libraries, hospitals, and other not-for-profit organizations are recognizing the need for effec- tively marketing their “products” and services to various publics. This awareness has led to new marketing positions—with these organizations hiring their own marketing directors and marketing vice presidents or using outside marketing specialists.

Looking for a Job in Today’s Marketing World To choose and find the right job, you will need to apply the marketing skills you’ve learned in this course, especially marketing analysis and planning. Follow these eight steps for marketing yourself: (1) conduct a self-assessment and seek career counseling; (2) examine job descriptions; (3) explore the job market, follow up, and assess opportunities; (4) develop search strategies; (5) prepare résumés; (6) write a cover letter and assemble supporting documents; (7) interview for jobs; and (8) take a follow-up interview.

Conduct a Self-Assessment and Seek Career Counseling If you’re having difficulty deciding what kind of marketing position is the best fit for you, start out by doing some self-testing or seeking career counseling. Self-assessments require that you honestly and thoroughly evaluate your interests, strengths, and weaknesses. What do you do well (your best and favorite skills) and not so well? What are your favorite interests? What are your career goals? What makes you stand out from other job seekers?

The answers to such questions may suggest which marketing careers you should seek or avoid. For help in completing an effective self-assessment, look for the following books in your local bookstore or online: Nicholas Lore, The Pathfinder: How to Choose or Change Your Career for a Lifetime of Satisfaction and Success (Touchstone, 2012), and Richard Bolles, What Color Is Your Parachute? 2016 (Ten Speed Press, 2015; also see www.eparachute.com). Many online sites also offer self-assessment tools, such as the K eirsey Temperament Theory and the Temperament Sorter, a free but broad assessment available at Keirsey.com. For a more specific evaluation, CareerLeader.com offers a com- plete online business career self-assessment program designed by the Directors of MBA Career Development at Harvard Business School. You can use this for a fee.

For help in finding a career counselor to guide you in making a career assessment, Richard Bolles’s What Color Is Your Parachute? 2016 contains a useful state-by-state sam- pling. CareerLeader.com also offers personal career counseling. (Some counselors can help you in your actual job search, too.) You can also consult the career counseling, testing, and placement services at your college or university.

Examine Job Descriptions After you have identified your skills, interests, and desires, you need to see which market- ing positions are the best match for them. Two U.S. Labor Department publications avail- able in your local library or online—the Occupation Outlook Handbook (www.bls.gov/ ooh) and the Dictionary of Occupational Titles (www.occupationalinfo.org)—describe the duties involved in various occupations, the specific training and education needed, the availability of jobs in each field, possibilities for advancement, and probable earnings.

Your initial career shopping list should be broad and flexible. Look for different ways to achieve your objectives. For example, if you want a career in marketing management,

http://www.eparachute.com

http://www.bls.gov/ooh

http://www.occupationalinfo.org)%E2%80%94

Appendix 4: Careers in Marketing 581

consider the public as well as the private sector, and local and regional as well as national and international firms. Be open initially to exploring many options, then focus on specific industries and jobs, listing your basic goals as a way to guide your choices. Your list might include “a job in a start-up company, near a big city on the West Coast, doing new-product planning with a computer software firm.”

Explore the Job Market, Follow Up, and Assess Opportunities At this stage, you need to look at the market and see what positions are actually available. You do not have to do this alone. Any of the following may assist you.

Career Development Centers Your college’s career development center and its Web site are excellent places to start. For example, the Web sites of the undergraduate career services center provide lists of career links that can help to focus your job search. Most schools also provide career coaches and career education courses. Also check the National Association of Colleges and Employers Web site (www.naceweb.org). It publishes a national forecast of hiring intentions of employers as they relate to new college graduates (search “job outlook”).

In addition, find out everything you can about the companies that interest you by consulting company Web sites, business magazine articles and online sites, annual reports, business reference books, faculty, career counselors, and others. Try to analyze the indus- try’s and the company’s future growth and profit potential, advancement opportunities, salary levels, entry positions, travel time, and other factors of significance to you.

Job Fairs Career development centers often work with corporate recruiters to organize on-campus job fairs. You might also use the Internet to check on upcoming career fairs in your region. For example, visit National Career Fairs at www.nationalcareerfairs.com or Coast to Coast Career Fairs listings at www.coasttocoastcareerfairs.com.

Networking Networking—asking for job leads from friends, family, people in your community, and career centers—is one of the best ways to find a marketing job. Studies estimate that 60 to 90 percent of jobs are found through networking. The idea is to spread your net wide, contacting anybody and everybody.

Internships An internship is filled with many benefits, such as gaining experience in a specific field of interest and building up a network of contacts. The biggest benefit: the potential of being offered a job shortly before or soon after graduation. According to a recent survey by the National Association of Colleges and Employers, employers converted 51.2 percent of last year’s interns into full-time hires. In addition, 63 percent of the seniors who had paid internship experience and applied for a job received at least one job offer. Conversely, only 35.2 percent of seniors without internship experience who applied for a job received an offer. In addition, survey results show that the median accepted salary offer for seniors with a paid internship was 40 percent higher than the median accepted salary offered to non-intern seniors.

Many company Internet sites have separate internship areas. For example, check out Internships.com, InternshipPrograms.com, MonsterCollege (college.monster.com/ education), CampusCareerCenter.com, InternJobs.com, and GoAbroad.com (www.goabroad .com/intern-abroad). If you know of a company for which you wish to work, go to that com- pany’s corporate Web site, enter the human resources area, and check for internships. If none are listed, try emailing the human resources department, asking if internships are offered.

Job Hunting on the Internet A constantly increasing number of sites on the Internet deals with job hunting. You can also use the Internet to make contacts with people who can help you gain information on and research companies that interest you. The Riley Guide offers a great introduction

http://www.naceweb.org

http://www.nationalcareerfairs.com

http://www.coasttocoastcareerfairs.com

http://www.goabroad.com/intern-abroad

582 Appendix 4: Careers in Marketing

to what jobs are available (www.rileyguide.com). CareerBuilder.com and Monster.com are good general sites for seeking job listings. Other helpful sites are Disability.gov and Diversity.com, which contain information on opportunities for African Americans, Hispanic Americans, Asian Americans, and Native Americans.

Most companies have their own online sites on which they post job listings. This may be helpful if you have a specific and fairly limited number of companies that you are keep- ing your eye on for job opportunities. But if this is not the case, remember that to find out what interesting marketing jobs the companies themselves are posting, you may have to visit hundreds of corporate sites.

Professional Networking Sites Many companies have now begun to take advantage of social networking sites to find tal- ented applicants. From LinkedIn to Facebook to Google+, social networking has become professional networking. For example, companies ranging from P&G to BASF have career pages on LinkedIn (www.linkedin.com/company/procter-&-gamble/careers and www .linkedin.com/company/basf/careers) to find potential candidates for entry-level positions. And companies ranging from Walmart (www.facebook.com/walmartcareers) to Marriott (www.facebook.com/marriottjobsandcareers) have career listings pages on Facebook in addition to LinkedIn. For job seekers, online professional networking offers more efficient job targeting and reduces associated costs as compared with traditional interaction meth- ods such as traveling to job fairs and interviews, printing résumés, and other expenses.

However, although the Internet offers a wealth of resources for searching for the per- fect job, be aware that it’s a two-way street. Just as job seekers can search the Internet to find job opportunities, employers can search for information on job candidates. Jobs searches can sometimes be derailed by information mined by potential employers from online social networking sites that reveals unintended or embarrassing anecdotes and pho- tos. Internet searches can sometimes also reveal inconsistencies and résumé inflation. A recent study found that more than half of recruiters surveyed have reconsidered a candidate based on his or her social profile.

Develop Search Strategies Once you’ve decided which companies you are interested in, you need to contact them. One of the best ways is through on-campus interviews. However, not every company you are interested in will visit your school. In such instances, you can write, email, or phone the company directly or ask marketing professors or school alumni for contacts.

Prepare Résumés A résumé is a concise yet comprehensive written summary of your qualifications, includ- ing your academic, personal, and professional achievements, that showcases why you are the best candidate for the job. Because an employer will spend on average only 15 to 20 seconds reviewing your résumé, you want to be sure that you prepare a good one.

In preparing your résumé, remember that all information on it must be accurate and complete. Résumés typically begin with the applicant’s full name, telephone number, and mail and email addresses. A simple and direct statement of career objectives generally appears next, followed by work history and academic data (including awards and intern- ships), and then by personal activities and experiences applicable to the job sought.

The résumé sometimes ends with a list of references the employer may contact (at other times, references may be listed separately). If your work or internship experience is limited, nonexistent, or irrelevant, then it is a good idea to emphasize your academic and nonacademic achievements, showing skills related to those required for excellent job performance.

There are three main types of résumés. Reverse chronological résumés, which empha- size career growth, are organized in reverse chronological order, starting with your most recent job. They focus on job titles within organizations, describing the responsibilities and accomplishments for each job. Functional résumés focus less on job titles and work history

http://www.rileyguide.com

http://www.linkedin.com/company/procter-&-gamble/careersandwww.linkedin.com/company/basf/careers

http://www.facebook.com/walmartcareers

http://www.facebook.com/marriottjobsandcareers

Appendix 4: Careers in Marketing 583

and more on assets and achievements. This format works best if your job history is scanty or discontinuous. Mixed, or combination, résumés take from each of the other two formats. First, the skills used for a specific job are listed, then the job title is stated. This format works best for applicants whose past jobs are in other fields or seemingly unrelated to the position. For further explanation and examples of these types of résumés, see the Résumé Resource format page (www.resume-resource.com/format.html).

Many books can assist you in developing your résumé. A popular guide is Martin Yate, Knock ’Em Dead: Secrets and Strategies for First-Time Job Seekers (Adams Media: 2013). Software programs such as RésuméMaker (www.ResumeMaker.com) provide hundreds of sample résumés and ready-to-use phrases while guiding you through the résumé preparation process. CareerOneStop (www.careeronestop.org/resumeguide/introduction.aspx) offers a step-by-step résumé tutorial, and Monster (http://career-advice.monster.com) offers résumé advice and writing services. Finally, you can even create your own personalized online résumé at sites such as optimalresume.com.

Online Résumés The Internet is now a widely used job-search environment, so it’s a good idea to have your résumé ready for the online environment. You can forward it to networking contacts or recruiting professionals through email. You can also post it in online databases with the hope that employers and recruiters will find it.

Successful Internet-ready résumés require a different strategy than that for paper résumés. For instance, when companies search résumé banks, they search key words and industry buzz words that describe a skill or the core work required for each job, so nouns are much more important than verbs. Two good resources for preparing Internet-ready résumés are Susan Ireland’s Résumé Site (www.gcflearnfree.org/resumewriting/9/print) and the Riley Guide (www.rileyguide.com/eresume.html).

After you have written your Internet-ready résumé, you need to post it. The follow- ing sites may be good locations to start: Monster (www.monster.com), LinkedIn (www .linkedin.com/job/home), and CareerBuilder.com (www.careerbuilder.com/jobseeker/ postnewresume.aspx). However, use caution when posting your résumé on various sites. In this era of identity theft, you need to select sites with care so as to protect your privacy. Limit access to your personal contact information, and don’t use sites that offer to “blast” your résumé into cyberspace.

Résumé Tips ● Communicate your worth to potential employers in a concrete manner, citing examples

whenever possible. ● Be concise and direct. ● Use active verbs to show you are a doer. ● Do not skimp on quality or use gimmicks. Spare no expense in presenting a profes-

sional résumé. ● Have someone critique your work. A single typo can eliminate you from being

considered. ● Customize your résumé for specific employers. Emphasize your strengths as they per-

tain to your targeted job. ● Keep your résumé compact, usually one page. ● Format the text to be attractive, professional, and readable. Times New Roman is often

the font of choice. Avoid too much “design” or gimmicky flourishes.

Write a Cover Letter, Follow Up, and Assemble Supporting Documents Cover Letter You should include a cover letter informing the employer that a résumé is enclosed. But a cover letter does more than this. It also serves to summarize in one or two paragraphs the contents of the résumé and explains why you think you are the right person for the

http://www.resume-resource.com/format.html

http://www.ResumeMaker.com

http://www.careeronestop.org/resumeguide/introduction.aspx

http://career-advice.monster.com

http://www.gcflearnfree.org/resumewriting/9/print

http://www.rileyguide.com/eresume.html

http://www.monster.com

http://www.careerbuilder.com/jobseeker/postnewresume.aspx

www.usatoday.com/story/news/nation/2013/03/11/water-americas-favorite-drink/1978959/

www.linkedin.com/job/home

www.usatoday.com/story/news/nation/2013/03/11/water-americas-favorite-drink/1978959/

584 Appendix 4: Careers in Marketing

position. The goal is to persuade the employer to look at the more detailed résumé. A typi- cal cover letter is organized as follows: (1) the name and position of the person you are contacting; (2) a statement identifying the position you are applying for, how you heard of the vacancy, and the reasons for your interest; (3) a summary of your qualifications for the job; (4) a description of what follow-ups you intend to make, such as phoning in two weeks to confirm that the résumé has been received; and (5) an expression of gratitude for the opportunity of being a candidate for the job. CareerOneStop (www.careeronestop .org/ResumeGuide/Writeeffectivecoverletters.aspx) offers a step-by-step tutorial on how to create a cover letter, and Susan Ireland’s Web site contains more than 50 cover letter samples (susanireland.com/ letter/cover-letter-examples). Another popular guide is Jeremy Schifeling, Get It Done: Write a Cover Letter (Jeremy Schifeling, 2012).

Follow Up Once you send your cover letter and résumé to prospective employers via the method they prefer—email, their Web site, or regular mail—it’s often a good idea to follow up. In today’s market, job seekers can’t afford to wait for interviews to find them. A quality résumé and an attractive cover letter are crucial, but a proper follow-up may be the key to landing an interview. However, before you engage your potential employer, be sure to research the company. Knowing about the company and understanding its place in the industry will help you shine. When you place a call, send an email, or mail a letter to a company contact, be sure to restate your interest in the position, check on the status of your résumé, and ask employers about any questions they may have.

Letters of Recommendation Letters of recommendation are written references by professors, former and current employ- ers, and others that testify to your character, skills, and abilities. Some companies may request letters of recommendation, to be submitted either with the résumé or at the interview. Even if letters of recommendation aren’t requested, it’s a good idea to bring them with you to the interview. A good reference letter tells why you would be an excellent candidate for the position. In choosing someone to write a letter of recommendation, be confident that the per- son will give you a good reference. In addition, do not assume the person knows everything about you or the position you are seeking. Rather, provide the person with your résumé and other relevant data. As a courtesy, allow the reference writer at least a month to complete the letter and enclose a stamped, addressed envelope with your materials.

In the packet containing your résumé, cover letter, and letters of recommendation, you may also want to attach other relevant documents that support your candidacy, such as academic transcripts, graphics, portfolios, and samples of writing.

Interview for Jobs As the old saying goes, “The résumé gets you the interview; the interview gets you the job.” The job interview offers you an opportunity to gather more information about the organization while at the same time allowing the organization to gather more information about you. You’ll want to present your best self. The interview process consists of three parts: before the interview, the interview itself, and after the interview. If you pass through these stages successfully, you will be called back for the follow-up interview.

Before the Interview In preparing for your interview, do the following:

1. Understand that interviewers have diverse styles, including the “chitchat,” let’s-get- to-know-each-other style; the interrogation style of question after question; and the tough-probing “why, why, why” style, among others. So be ready for anything.

2. With a friend, practice being interviewed and then ask for a critique. Or make a video of yourself in a practice interview so that you can critique your own per- formance. Your college placement service may also offer “mock” interviews to help you.

http://www.careeronestop.org/ResumeGuide/Writeeffectivecoverletters.aspx

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3. Prepare at least five good questions whose answers are not easily found in the com- pany literature, such as “What is the future direction of the firm?” “How does the firm differentiate itself from competitors?” or “Do you have a new-media division?”

4. Anticipate possible interview questions, such as “Why do you want to work for this company?” or “Why should we hire you?” Prepare solid answers before the interview. Have a clear idea of why you are interested in joining the company and the industry to which it belongs.

5. Avoid back-to-back interviews—they can be exhausting, and it is unpredictable how long each will last.

6. Prepare relevant documents that support your candidacy, such as academic tran- scripts, letters of recommendation, graphics, portfolios, and samples of writing. Bring multiple copies to the interview.

7. Dress conservatively and professionally. Be neat and clean. 8. Arrive 10 minutes early to collect your thoughts and review the major points you

intend to cover. Check your name on the interview schedule, noting the name of the interviewer and the room number. Be courteous and polite to office staff.

9. Approach the interview enthusiastically. Let your personality shine through.

During the Interview During the interview, do the following:

1. Shake hands firmly in greeting the interviewer. Introduce yourself, using the same form of address that the interviewer uses. Focus on creating a good initial impression.

2. Keep your poise. Relax, smile when appropriate, and be upbeat throughout. 3. Maintain eye contact and good posture, and speak distinctly. Don’t clasp your

hands or fiddle with jewelry, hair, or clothing. Sit comfortably in your chair. 4. Along with the copies of relevant documents that support your candidacy, carry

extra copies of your résumé with you. 5. Have your story down pat. Present your selling points. Answer questions di-

rectly. Avoid both one-word and too-wordy answers. 6. Let the interviewer take the initiative, but don’t be passive. Find an opportunity to

direct the conversation to things about yourself that you want the interviewer to hear. 7. To end on a high note, make your most important point or ask your most perti-

nent question during the last part of the interview. 8. Don’t hesitate to “close.” You might say, “I’m very interested in the position, and

I have enjoyed this interview.” 9. Obtain the interviewer’s business card or address and phone number so that you

can follow up later.

A tip for acing the interview: Before you open your mouth, find out what it’s like to be a brand manager, sales representative, market researcher, advertising account executive, or other position for which you’re interviewing. See if you can find a “mentor”—someone in a position similar to the one you’re seeking, perhaps with another company. Talk with this mentor about the ins and outs of the job and industry.

After the Interview After the interview, do the following:

1. Record the key points that arose. Be sure to note who is to follow up and when a decision can be expected.

2. Analyze the interview objectively, including the questions asked, the answers to them, your overall interview presentation, and the interviewer’s responses to specific points.

3. Immediately send a thank-you letter or email, mentioning any additional items and your willingness to supply further information.

4. If you do not hear from the employer within the specified time, call, email, or write the interviewer to determine your status.

586 Appendix 4: Careers in Marketing

Follow-Up Interview If your first interview takes place off-site, such as at your college or at a job fair, and if you are successful with that initial interview, you will be invited to visit the organization. The in-company interview will probably run from several hours to an entire day. The organization will examine your interest, maturity, enthusiasm, assertiveness, logic, and company and functional knowledge. You should ask questions about issues of importance to you. Find out about the working environment, job role, responsibilities, opportunities for advancement, current industrial issues, and the company’s personality. The company wants to discover if you are the right person for the job, whereas you want to find out if it is the right job for you. The key is to determine if the right fit exists between you and the company.

Marketing Jobs This section describes some of the key marketing positions.

Advertising Advertising is one of the most exciting fields in marketing, offering a wide range of career opportunities.

Job Descriptions Key advertising positions include copywriter, art director, production manager, account executive, account planner, and media planner/buyer.

● Copywriters write advertising copy and help find the concepts behind the written words and visual images of advertisements.

● Art directors, the other part of the creative team, help translate the copywriters’ ideas into dramatic visuals called “layouts.” Agency artists develop print layouts, package designs, television and video layouts (called “storyboards”), corporate logotypes, trade- marks, and symbols.

● Production managers are responsible for physically creating ads, either in-house or by contracting through outside production houses.

● Account development executives research and understand clients’ markets and custom- ers and help develop marketing and advertising strategies to affect them.

● Account executives serve as liaisons between clients and agencies. They coordinate the plan- ning, creation, production, and implementation of an advertising campaign for the account.

● Account planners serve as the voice of the consumer in the agency. They research con- sumers to understand their needs and motivations as a basis for developing effective ad campaigns.

● Media planners (or buyers) determine the best mix of television, radio, newspaper, magazine, digital, and other media for the advertising campaign.

Skills Needed, Career Paths, and Typical Salaries Work in advertising requires strong people skills in order to interact closely with an often- difficult and demanding client base. In addition, advertising attracts people with strong skills in planning, problem solving, creativity, communication, initiative, leadership, and presentation. Advertising involves working under high levels of stress and pressure cre- ated by unrelenting deadlines. Advertisers frequently have to work long hours to meet deadlines for a presentation. But work achievements are very apparent, with the results of creative strategies observed by thousands or even millions of people.

Positions in advertising sometimes require an MBA. But most jobs only require a business, graphic arts, or liberal arts degree. Advertising positions often serve as gateways to higher-level management. Moreover, with large advertising agencies opening offices all over the world, there is the possibility of eventually working on global campaigns.

Appendix 4: Careers in Marketing 587

Starting advertising salaries are relatively low compared with those of some other marketing jobs because of strong competition for entry-level advertising jobs. Compensa- tion will increase quickly as you move into account executive or other management posi- tions. For more facts and figures, see the online pages of Advertising Age, a key ad industry publication (www.adage.com, click on the Jobs link), and the American Association of Advertising Agencies (www.aaaa.org).

Brand and Product Management Brand and product managers plan, direct, and control business and marketing efforts for their products. They are involved with research and development, packaging, manufactur- ing, sales and distribution, advertising, promotion, market research, and business analysis and forecasting.

Job Descriptions A company’s brand management team consists of people in several positions:

● Brand managers guide the development of marketing strategies for a specific brand. ● Assistant brand managers are responsible for certain strategic components of the brand. ● Product managers oversee several brands within a product line or product group. ● Product category managers direct multiple product lines in the product category. ● Market analysts research the market and provide important strategic information to the

project managers. ● Project directors are responsible for collecting market information on a marketing or

product project. ● Research directors oversee the planning, gathering, and analyzing of all organizational

research.

Skills Needed, Career Paths, and Typical Salaries Brand and product management requires high problem-solving, analytical, presentation, communication, and leadership skills as well as the ability to work well in a team. Product management requires long hours and involves the high pressure of running large projects. In consumer goods companies, the newcomer—who usually needs an MBA—joins a brand team as an assistant and learns the ropes by doing numerical analyses and assisting senior brand people. This person eventually heads the team and later moves on to manage a larger brand, then several brands.

Many industrial goods companies also have product managers. Product management is one of the best training grounds for future corporate officers. Product management also offers good opportunities to move into international marketing. Product managers com- mand relatively high salaries. Because this job category encourages or requires a master’s degree, starting pay tends to be higher than in other marketing categories such as advertis- ing or retailing.

Sales and Sales Management Sales and sales management opportunities exist in a wide range of profit and not-for-profit organizations and in product and service organizations, including financial, insurance, consulting, and government organizations.

Job Descriptions Key jobs include consumer sales, industrial sales, national account managers, service sup- port, sales trainers, and sales management

● Consumer sales involves selling consumer products and services through retailers. ● Industrial sales involves selling products and services to other businesses. ● National account managers (NAMs) oversee a few very large accounts. ● Service support personnel support salespeople during and after the sale of a product.

http://www.adage.com

http://www.aaaa.org

588 Appendix 4: Careers in Marketing

● Sales trainers train new hires and provide refresher training for all sales personnel. ● Sales management includes a sequence of positions ranging from district manager to

vice president of sales.

Salespeople enjoy active professional lives, working outside the office and interacting with others. They manage their own time and activities. And successful salespeople can be very well paid. Competition for top jobs can be intense. Every sales job is different, but some positions involve extensive travel, long workdays, and working under pressure. You can also expect to be transferred more than once between company headquarters and regional offices. However, most companies are now working to bring good work–life bal- ance to their salespeople and sales managers.

Skills Needed, Career Paths, and Typical Salaries Selling is a people profession in which you will work with people every day, all day long. In addition to people skills, sales professionals need sales and communication skills. Most sales positions also require strong problem-solving, analytical, presentation, and leadership abilities as well as creativity and initiative. Teamwork skills are increasingly important.

Career paths lead from salesperson to district, regional, and higher levels of sales man- agement and, in many cases, to the top management of the firm. Today, most entry-level sales management positions require a college degree. Increasingly, people seeking selling jobs are acquiring sales experience in an internship capacity or from a part-time job before graduating. Sales positions are great springboards to leadership positions, with more CEOs starting in sales than in any other entry-level position. This might explain why competition for top sales jobs is intense.

Starting base salaries in sales may be moderate, but compensation is often supple- mented by significant commission, bonus, or other incentive plans. In addition, many sales jobs include a company car or car allowance. Successful salespeople are among most com- panies’ highest paid employees.

Other Marketing Jobs Retailing Retailing provides an early opportunity to assume marketing responsibilities. Key jobs include store manager, regional manager, buyer, department manager, and salesperson. Store managers direct the management and operation of an individual store. Regional managers manage groups of stores across several states and report performance to head- quarters. Buyers select and buy the merchandise that the store carries. The department manager acts as store manager of a department, such as clothing, but on the department level. The salesperson sells merchandise to retail customers. Retailing can involve reloca- tion, but generally there is little travel, unless you are a buyer. Retailing requires high peo- ple and sales skills because retailers are constantly in contact with customers. Enthusiasm, willingness, and communication skills are very helpful for retailers, too.

Retailers work long hours, but their daily activities are often more structured than in some types of marketing positions. Starting salaries in retailing tend to be low, but pay increases as you move into management or a retailing specialty job.

Marketing Research Marketing researchers interact with managers to define problems and identify the informa- tion needed to resolve them. They design research projects, prepare questionnaires and samples, analyze data, prepare reports, and present their findings and recommendations to management. They must understand statistics, consumer behavior, psychology, and sociol- ogy. As more and more marketing research goes digital, they must also understand the ins and outs of obtaining and managing online information. A master’s degree helps. Career opportunities exist with manufacturers, retailers, some wholesalers, trade and industry associations, marketing research firms, advertising agencies, and governmental and pri- vate nonprofit agencies.

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New Product Planning People interested in new product planning can find opportunities in many types of orga- nizations. They usually need a good background in marketing, marketing research, and sales forecasting; they need organizational skills to motivate and coordinate others; and they may need a technical background. Usually, these people work first in other marketing positions before joining the new product department.

Marketing Logistics (Physical Distribution) Marketing logistics, or physical distribution, is a large and dynamic field, with many career opportunities. Major transportation carriers, manufacturers, wholesalers, and retail- ers all employ logistics specialists. Increasingly, marketing teams include logistics spe- cialists, and marketing managers’ career paths include marketing logistics assignments. Coursework in quantitative methods, finance, accounting, and marketing will provide you with the necessary skills for entering the field.

Public Relations Most organizations have a public relations staff to anticipate problems with various pub- lics, handle complaints, deal with media, and build the corporate image. People interested in public relations should be able to speak and write clearly and persuasively, and they should have a background in journalism, communications, or the liberal arts. The chal- lenges in this job are highly varied and very people-oriented.

Not-for-Profit Services The key jobs in not-for-profits include marketing director, director of development, event coordinator, publication specialist, and intern/volunteer. The marketing director is in charge of all marketing activities for the organization. The director of development organizes, manages, and directs the fundraising campaigns that keep a not-for-profit in existence. An event coordinator directs all aspects of fundraising events, from initial plan- ning through implementation. The publication specialist oversees publications designed to promote awareness of the organization.

Although typically an unpaid position, the intern/volunteer performs various market- ing functions, and this work can be an important step to gaining a full-time position. The not-for-profit sector is typically not for someone who is money-driven. Rather, most not- for-profits look for people with a strong sense of community spirit and the desire to help others. Therefore, starting pay is usually lower than in other marketing fields. However, the bigger the not-for-profit, the better your chance of rapidly increasing your income when moving into upper management.

Other Resources Professional marketing associations and organizations are another source of information about careers. Marketers belong to many such societies. You may want to contact some of the following in your job search:

Advertising Women of New York, 28 West 44th Street, Suite 912, New York, NY 10036. (212) 221-7969 (www.awny.org)

American Advertising Federation, 1101 Vermont Avenue, NW, Washington, DC 20005. (202) 898-0089 (www.aaf.org)

American Marketing Association, 311 South Wacker Drive, Suite 5800, Chicago, IL 60606. (800) AMA-1150 (www.marketingpower.com)

The Association of Women in Communications, 3337 Duke Street, Alexandria, VA 22314. (703) 370-7436 (www.womcom.org)

Market Research Association, 1156 15th Street NW, Suite 302, Washington, DC 20005. (202) 800-2545 (www.marketingresearch.org)

http://www.awny.org

http://www.aaf.org

http://www.marketingpower.com

http://www.womcom.org

http://www.marketingresearch.org

590 Appendix 4: Careers in Marketing

National Association of Sales Professionals, 555 Friendly Street, Bloomfield Hills, MI 48341. (866) 365-1520 (www.nasp.com)

National Management Association, 2210 Arbor Boulevard, Dayton, OH 45439. (937) 294-0421 (www.nma1.org)

National Retail Federation, 1101 New York Ave NW, Washington, DC 20005. (800) 673-4692 (www.nrf.com)

Product Development and Management Association, 330 Wabash Avenue, Suite 2000, Chicago, IL 60611. (312) 321-5145 (www.pdma.org)

Public Relations Society of America, 33 Maiden Lane, Eleventh Floor, New York, NY 10038. (212) 460-1400 (www.prsa.org)

Sales and Marketing Executives International, PO Box 1390, Sumas, WA, 98295. (312) 893-0751 (www.smei.org)

591

Adapted global marketing A global marketing approach that adjusts the marketing strategy and mix elements to each international target market, which creates more costs but hopefully produces a larger mar- ket share and return.

Administered VMS A vertical marketing system that coordinates successive stages of production and distribution through the size and power of one of the parties.

Adoption process The mental process through which an individual passes from first hearing about an innovation to final adoption.

Advertising Any paid form of nonpersonal presentation and promo- tion of ideas, goods, or services by an identified sponsor.

Advertising agency A marketing services firm that assists compa- nies in planning, preparing, implementing, and evaluating all or por- tions of their advertising programs.

Advertising budget The dollars and other resources allocated to a product or a company advertising program.

Advertising media The vehicles through which advertising mes- sages are delivered to their intended audiences.

Advertising objective A specific communication task to be accom- plished with a specific target audience during a specific period of time.

Advertising strategy The strategy by which a company accom- plishes its advertising objectives. It consists of two major elements: creating advertising messages and selecting advertising media.

Affordable method Setting the promotion budget at the level man- agement thinks the company can afford.

Age and life-cycle segmentation Dividing a market into different age and life-cycle groups.

Agent A wholesaler who represents buyers or sellers on a relatively permanent basis, performs only a few functions, and does not take title to goods.

Allowance Promotional money paid by manufacturers to retailers in return for an agreement to feature the manufacturer’s products in some way.

Approach The sales step in which a salesperson meets the customer for the first time.

Attitude A person’s relatively consistent favorable or unfavorable evaluations, feelings, and tendencies toward an object or idea.

Baby boomers The 78 million people born during the years follow- ing World War II and lasting until 1964.

Behavioral segmentation Dividing a market into segments based on consumer knowledge, attitudes, uses of a product, or responses to a product.

Behavioral targeting Using online consumer tracking data to target advertisements and marketing offers to specific consumers.

Belief A descriptive thought that a person holds about something. Benefit segmentation Dividing a market into segments according to the different benefits that consumers seek from the product.

Big data The huge and complex data sets generated by today’s sophisticated information generation, collection, storage, and analysis technologies.

Blogs Online forums where people and companies post their thoughts and other content, usually related to narrowly defined topics.

Brand A name, term, sign, symbol, design, or a combination of these that identifies the products or services of one seller or group of sellers and differentiates them from those of competitors.

Brand equity The differential effect that knowing the brand name has on customer response to the product and its marketing.

Brand extension Extending an existing brand name to new product categories.

Brand value The total financial value of a brand.

Branded community Web site A Web site that presents brand con- tent that engages consumers and creates customer community around a brand.

Break-even analysis Analysis to determine the unit volume and dollar sales needed to be profitable given a particular price and cost structure.

Break-even pricing (target return pricing) Setting price to break even on the costs of making and marketing a product or setting price to make a target return.

Broker A wholesaler who does not take title to goods and whose function is to bring buyers and sellers together and assist in negotiation.

Business analysis A review of the sales, costs, and profit projections for a new product to find out whether these factors satisfy the com- pany’s objectives.

Business buyer behavior The buying behavior of organizations that buy goods and services for use in the production of other products and services that are sold, rented, or supplied to others.

Business buying process The process by which business buyers determine which products and services their organizations need to pur- chase and then find, evaluate, and choose among alternative suppliers and brands.

Business portfolio The collection of businesses and products that make up the company.

Business promotions Sales promotion tools used to generate busi- ness leads, stimulate purchases, reward customers, and motivate salespeople.

Buying center All the individuals and units that play a role in the purchase decision-making process.

By-product pricing Setting a price for by-products in order to make the main product’s price more competitive.

Cannibalization The situation in which one product sold by a com- pany takes a portion of its sales from other company products.

Captive-product pricing Setting a price for products that must be used along with a main product, such as blades for a razor and games for a video-game console.

Catalog marketing Direct marketing through print, video, or digital catalogs that are mailed to select customers, made available in stores, or presented online.

Category killer A giant specialty store that carries a very deep assortment of a particular line.

Causal research Marketing research to test hypotheses about cause- and-effect relationships.

Chain ratio method Estimating market demand by multiplying a base number by a chain of adjusting percentages.

Glossary

592 Glossary

Convenience store A small store, located near a residential area, that is open long hours seven days a week and carries a limited line of high- turnover convenience goods.

Conventional distribution channel A channel consisting of one or more independent producers, wholesalers, and retailers, each a sepa- rate business seeking to maximize its own profits, perhaps even at the expense of profits for the system as a whole.

Corporate chains Two or more outlets that are commonly owned and controlled.

Corporate VMS A vertical marketing system that combines succes- sive stages of production and distribution under single ownership— channel leadership is established through common ownership.

Cost-based pricing Setting prices based on the costs of producing, distributing, and selling the product plus a fair rate of return for effort and risk.

Cost-plus pricing (markup pricing) Adding a standard markup to the cost of the product.

Creative concept The compelling “big idea” that will bring an adver- tising message strategy to life in a distinctive and memorable way.

Crowdsourcing Inviting broad communities of people-customers, employees, independent scientists and researchers, and even the public at large-into the new product innovation process.

Cultural environment Institutions and other forces that affect a society’s basic values, perceptions, preferences, and behaviors.

Culture The set of basic values, perceptions, wants, and behav- iors learned by a member of society from family and other important institutions.

Customer-perceived value The customer’s evaluation of the differ- ence between all the benefits and all the costs of a marketing offer relative to those of competing offers.

Customer (or market) sales force structure A sales force organi- zation in which salespeople specialize in selling only to certain cus- tomers or industries.

Customer equity The total combined customer lifetime values of all of the company’s current and potential customers.

Customer insights Fresh marketing information-based understand- ings of customers and the marketplace that become the basis for creat- ing customer value, engagement, and relationships.

Customer lifetime value The value of the entire stream of purchases a customer makes over a lifetime of patronage.

Customer relationship management The overall process of build- ing and maintaining profitable customer relationships by delivering superior customer value and satisfaction.

Customer relationship management (CRM) Managing detailed information about individual customers and carefully managing cus- tomer touch points to maximize customer loyalty.

Customer satisfaction The extent to which a product’s perceived performance matches a buyer’s expectations.

Customer value marketing A company should put most of its resources into customer value-building marketing investments.

Customer value-based pricing Setting price based on buyers’ per- ceptions of value rather than on the seller’s cost.

Customer-centered new product development New product devel- opment that focuses on finding new ways to solve customer problems and create more customer-satisfying experiences.

Customer-engagement marketing Making the brand a meaningful part of consumers’ conversations and lives by fostering direct and con- tinuous customer involvement in shaping brand conversations, experi- ences, and community.

Channel conflict Disagreements—among marketing channel mem- bers on goals, roles, and rewards—who should do what and for what rewards.

Channel level A layer of intermediaries that performs some work in bringing the product and its ownership closer to the final buyer.

Closing The sales step in which a salesperson asks the customer for an order.

Co-branding The practice of using the established brand names of two different companies on the same product.

Cognitive dissonance Buyer discomfort caused by postpurchase conflict.

Commercialization Introducing a new product into the market. Communication adaptation A global communication strategy of fully adapting advertising messages to local markets.

Competition-based pricing Setting prices based on competitors’ strategies, prices, costs, and market offerings.

Competitive advantage An advantage over competitors gained by offering greater customer value, either by having lower prices or pro- viding more benefits that justify higher prices.

Competitive marketing intelligence The systematic monitoring, collection, and analysis of publicly available information about con- sumers, competitors, and developments in the marketplace.

Competitive-parity method Setting the promotion budget to match competitors’ outlays.

Concentrated (niche) marketing A market-coverage strategy in which a firm goes after a large share of one or a few segments or niches.

Concept testing Testing new product concepts with a group of target consumers to find out if the concepts have strong consumer appeal.

Consumer buyer behavior The buying behavior of final consumers—individuals and households that buy goods and ser- vices for personal consumption.

Consumer market All the individuals and households that buy or acquire goods and services for personal consumption.

Consumer product A product bought by final consumers for per- sonal consumption.

Consumer promotions Sales promotion tools used to boost short- term customer buying and engagement or enhance long-term customer relationships.

Consumer-generated marketing Brand exchanges created by con- sumers themselves-both invited and uninvited-by which consumers are playing an increasing role in shaping their own brand experiences and those of other consumers.

Consumer-oriented marketing A company should view and orga- nize its marketing activities from the consumer’s point of view.

Consumerism An organized movement of citizens and government agencies to improve the rights and power of buyers in relation to sellers.

Content marketing Creating, inspiring, and sharing brand mes- sages and conversations with and among consumers across a fluid mix of paid, owned, earned, and shared channels.

Contract manufacturing A joint venture in which a company con- tracts with manufacturers in a foreign market to produce its product or provide its service.

Contractual VMS A vertical marketing system in which inde- pendent firms at different levels of production and distribution join together through contracts.

Contribution margin The unit contribution divided by the selling price.

Convenience product A consumer product that customers usually buy frequently, immediately, and with minimal comparison and buying effort.

Glossary 593

Dynamic pricing Adjusting prices continually to meet the charac- teristics and needs of individual customers and situations.

E-procurement Purchasing through electronic connections between buyers and sellers-usually online.

Economic community A group of nations organized to work toward common goals in the regulation of international trade.

Economic environment Economic factors that affect consumer pur- chasing power and spending patterns.

Email marketing Sending highly targeted, tightly personalized, relationship-building marketing messages via email.

Environmental sustainability Developing strategies and prac- tices that create a world economy that the planet can support indefinitely.

Environmental sustainability A management approach that involves developing strategies that both sustain the environment and produce profits for the company.

Environmentalism An organized movement of concerned citizens, businesses, and government agencies designed to protect and improve people’s current and future living environment.

Ethnographic research A form of observational research that involves sending trained observers to watch and interact with consum- ers in their “natural environments.”

Event marketing (or event sponsorships) Creating a brand-market- ing event or serving as a sole or participating sponsor of events created by others.

Exchange The act of obtaining a desired object from someone by offering something in return.

Exclusive distribution Giving a limited number of dealers the exclusive right to distribute the company’s products in their territories.

Execution style The approach, style, tone, words, and format used for presenting an advertising message.

Experimental research Gathering primary data by selecting matched groups of subjects, giving them different treatments, control- ling related factors, and checking for differences in group responses.

Exploratory research Marketing research to gather preliminary information that will help define problems and suggest hypotheses.

Exporting Entering foreign markets by selling goods produced in the company’s home country, often with little modification.

Factory outlet An off-price retailing operation that is owned and operated by a manufacturer and normally carries the manufacturer’s surplus, discontinued, or irregular goods.

Fad A temporary period of unusually high sales driven by consumer enthusiasm and immediate product or brand popularity.

Fashion A currently accepted or popular style in a given field. Fixed costs (overhead) Costs that do not vary with production or sales level.

Focus group interviewing Personal interviewing that involves invit- ing small groups of people to gather for a few hours with a trained interviewer to talk about a product, service, or organization. The inter- viewer “focuses” the group discussion on important issues.

Follow-up The sales step in which a salesperson follows up after the sale to ensure customer satisfaction and repeat business.

Franchise A contractual association between a manufacturer, whole- saler, or service organization (a franchisor) and independent business- people (franchisees) who buy the right to own and operate one or more units in the franchise system.

Franchise organization A contractual vertical marketing system in which a channel member, called a franchisor, links several stages in the production-distribution process.

Customer-perceived value The customer’s evaluation of the differ- ence between all the benefits and all the costs of a market offering relative to those of competing offers.

Decline stage The PLC stage in which a product’s sales fade away.

Deficient products Products that have neither immediate appeal nor long-run benefits.

Demand curve A curve that shows the number of units the market will buy in a given time period at different prices that might be charged.

Demands Human wants that are backed by buying power.

Demographic segmentation Dividing the market into segments based on variables such as age, life-cycle stage, gender, income, occu- pation, education, religion, ethnicity, and generation.

Demography The study of human populations in terms of size, den- sity, location, age, gender, race, occupation, and other statistics.

Department store A retail store that carries a wide variety of prod- uct lines, each operated as a separate department managed by specialist buyers or merchandisers.

Derived demand Business demand that ultimately comes from (derives from) the demand for consumer goods.

Descriptive research Marketing research to better describe market- ing problems, situations, or markets, such as the market potential for a product or the demographics and attitudes of consumers.

Desirable products Products that give both high immediate satisfac- tion and high long-run benefits.

Differentiated (segmented) marketing A market-coverage strategy in which a firm decides to target several market segments and designs separate offers for each.

Differentiation Actually differentiating the market offering to create superior customer value.

Direct and digital marketing Engaging directly with carefully tar- geted individual consumers and customer communities to both obtain an immediate response and build lasting customer relationships.

Direct investment Entering a foreign market by developing foreign- based assembly or manufacturing facilities.

Direct marketing channel A marketing channel that has no inter- mediary levels.

Direct-mail marketing Marketing that occurs by sending an offer, announcement, reminder, or other item directly to a person at a par- ticular address.

Direct-response television (DRTV) marketing Direct marketing via television, including direct-response television advertising (or infomercials) and interactive television (iTV) advertising.

Discount A straight reduction in price on purchases during a stated period of time or of larger quantities.

Discount store A retail operation that sells standard merchandise at lower prices by accepting lower margins and selling at higher volume.

Disintermediation The cutting out of marketing channel intermedi- aries by product or service producers or the displacement of traditional resellers by radical new types of intermediaries.

Diversification Company growth through starting up or acquiring businesses outside the company’s current products and markets.

594 Glossary

Interactive marketing Training service employees in the fine art of interacting with customers to satisfy their needs.

Intermarket (cross-market) segmentation Forming segments of consumers who have similar needs and buying behaviors even though they are located in different countries.

Internal databases Collections of consumer and market informa- tion obtained from data sources within the company network.

Internal marketing Orienting and motivating customer-contact employees and supporting service employees to work as a team to pro- vide customer satisfaction.

Introduction stage The PLC stage in which a new product is first distributed and made available for purchase.

Joint ownership A cooperative venture in which a company creates a local business with investors in a foreign market who share owner- ship and control.

Joint venturing Entering foreign markets by joining with foreign companies to produce or market products or services.

Learning Changes in an individual’s behavior arising from experience.

Licensing Entering foreign markets through developing an agree- ment with a licensee in the foreign market.

Lifestyle A person’s pattern of living as expressed in his or her activ- ities, interests, and opinions.

Line extension Extending an existing brand name to new forms, col- ors, sizes, ingredients, or flavors of an existing product category.

Local marketing Tailoring brands and marketing to the needs and wants of local customer segments-cities, neighborhoods, and even spe- cific stores.

Macroenvironment The larger societal forces that affect the micro- environment-demographic, economic, natural, technological, political, and cultural forces.

Management contracting A joint venture in which the domestic firm supplies the management know-how to a foreign company that supplies the capital; the domestic firm exports management services rather than products.

Manufacturers’ and retailers’ branches and offices Wholesaling by sellers or buyers themselves rather than through independent wholesalers.

Market The set of all actual and potential buyers of a product or service.

Market development Company growth by identifying and develop- ing new market segments for current company products.

Market offerings Some combination of products, services, informa- tion, or experiences offered to a market to satisfy a need or want.

Market penetration Company growth by increasing sales of current products to current market segments without changing the product.

Market potential The upper limit of market demand.

Market segment A group of consumers who respond in a similar way to a given set of marketing efforts.

Market segmentation Dividing a market into distinct groups of buyers who have different needs, characteristics, or behaviors and who might require separate marketing strategies or mixes.

Gender segmentation Dividing a market into different segments based on gender.

Generation X The 49 million people born between 1965 and 1976 in the “birth dearth” following the baby boom.

Generation Z People born after 2000 (although many analysts include people born after 1995) who make up the kids, tweens, and teens markets.

Geographic segmentation Dividing a market into different geo- graphical units, such as nations, states, regions, counties, cities, or even neighborhoods.

Global firm A firm that, by operating in more than one coun- try, gains R&D, production, marketing, and financial advantages in its costs and reputation that are not available to purely domestic competitors.

Good-value pricing Offering just the right combination of quality and good service at a fair price.

Gross margin percentage The percentage of net sales remaining after cost of goods sold—calculated by dividing gross margin by net sales.

Group Two or more people who interact to accomplish individual or mutual goals.

Growth stage The PLC stage in which a product’s sales start climb- ing quickly.

Growth-share matrix A portfolio-planning method that evaluates a company’s strategic business units (SBUs) in terms of market growth rate and relative market share.

Handling objections The sales step in which a salesperson seeks out, clarifies, and overcomes any customer objections to buying.

Horizontal marketing system A channel arrangement in which two or more companies at one level join together to follow a new market- ing opportunity.

Idea generation The systematic search for new product ideas.

Idea screening Screening new product ideas to spot good ones and drop poor ones as soon as possible.

Income segmentation Dividing a market into different income segments.

Independent off-price retailer An off-price retailer that is indepen- dently owned and operated or a division of a larger retail corporation.

Indirect marketing channel A marketing channel containing one or more intermediary levels.

Individual marketing Tailoring products and marketing programs to the needs and preferences of individual customers.

Industrial product A product bought by individuals and organiza- tions for further processing or for use in conducting a business.

Innovative marketing A company should seek real product and marketing improvements.

Inside sales force Salespeople who conduct business from their offices via telephone, online and social media interactions, or visits from buyers.

Integrated logistics management The logistics concept that empha- sizes teamwork-both inside the company and among all the marketing channel organizations-to maximize the performance of the entire dis- tribution system.

Integrated marketing communications (IMC) Carefully integrat- ing and coordinating the company’s many communications channels to deliver a clear, consistent, and compelling message about the orga- nization and its brands.

Intensive distribution Stocking the product in as many outlets as possible.

Glossary 595

Marketing return on sales (or marketing ROS) The percent of net sales attributable to the net marketing contribution—calculated by dividing net marketing contribution by net sales.

Marketing strategy The marketing logic by which the company hopes to create customer value and achieve profitable customer relationships.

Marketing strategy development Designing an initial marketing strategy for a new product based on the product concept.

Marketing Web site A Web site that engages consumers to move them closer to a direct purchase or other marketing outcome.

Maturity stage The PLC stage in which a product’s sales growth slows or levels off.

Merchant wholesaler An independently owned wholesale business that takes title to the merchandise it handles.

Microenvironment The actors close to the company that affect its ability to engage and serve its customers-the company, suppliers, mar- keting intermediaries, customer markets, competitors, and publics.

Micromarketing Tailoring products and marketing programs to the needs and wants of specific individuals and local customer segments; it includes local marketing and individual marketing.

Millennials (or Generation Y) The 83 million children of the baby boomers born between 1977 and 2000.

Mission statement A statement of the organization’s purpose-what it wants to accomplish in the larger environment.

Mobile marketing Marketing messages, promotions, and other marketing content delivered to on-the-go consumers through mobile phones, smartphones, tablets, and other mobile devices.

Modified rebuy A business buying situation in which the buyer wants to modify product specifications, prices, terms, or suppliers.

Motive (drive) A need that is sufficiently pressing to direct the per- son to seek satisfaction.

Multichannel distribution system A distribution system in which a single firm sets up two or more marketing channels to reach one or more customer segments.

Multimodal transportation Combining two or more modes of transportation.

Natural environment The physical environment and the natural resources that are needed as inputs by marketers or that are affected by marketing activities.

Needs States of felt deprivation.

Net marketing contribution (NMC) A measure of marketing prof- itability that includes only components of profitability controlled by marketing.

Net profit percentage The percentage of each sales dollar going to profit—calculated by dividing net profits by net sales.

New product A good, service, or idea that is perceived by some potential customers as new.

New product development The development of original products, product improvements, product modifications, and new brands through the firm’s own product development efforts.

New task A business buying situation in which the buyer purchases a product or service for the first time.

Objective-and-task method Developing the promotion budget by (1) defining specific promotion objectives, (2) determining the tasks needed to achieve these objectives, and (3) estimating the costs of performing these tasks. The sum of these costs is the proposed promotion budget.

Observational research Gathering primary data by observing relevant people, actions, and situations.

Market share Company sales divided by market sales.

Market targeting (targeting) Evaluating each market segment’s attractiveness and selecting one or more segments to serve.

Market-penetration pricing Setting a low price for a new product in order to attract a large number of buyers and a large market share.

Marketing The process by which companies engage customers, build strong customer relationships, and create customer value in order to capture value from customers in return.

Marketing analytics The analysis tools, technologies, and pro- cesses by which marketers dig out meaningful patterns in big data to gain customer insights and gauge marketing performance.

Marketing channel (distribution channel) A set of interdependent organizations that help make a product or service available for use or consumption by the consumer or business user.

Marketing channel design Designing effective marketing channels by analyzing customer needs, setting channel objectives, identifying major channel alternatives, and evaluating those alternatives.

Marketing channel management Selecting, managing, and moti- vating individual channel members and evaluating their performance over time.

Marketing concept A philosophy in which achieving organizational goals depends on knowing the needs and wants of target markets and delivering the desired satisfactions better than competitors do.

Marketing control Measuring and evaluating the results of market- ing strategies and plans and taking corrective action to ensure that the objectives are achieved.

Marketing environment The actors and forces outside marketing that affect marketing management’s ability to build and maintain suc- cessful relationships with target customers.

Marketing implementation Turning marketing strategies and plans into marketing actions to accomplish strategic marketing objectives.

Marketing information system (MIS) People and procedures dedi- cated to assessing information needs, developing the needed informa- tion, and helping decision makers to use the information to generate and validate actionable customer and market insights.

Marketing intermediaries Firms that help the company to promote, sell, and distribute its products to final buyers.

Marketing logistics (physical distribution) Planning, implement- ing, and controlling the physical flow of goods, services, and related information from points of origin to points of consumption to meet customer requirements at a profit.

Marketing management The art and science of choosing target markets and building profitable relationships with them.

Marketing mix The set of tactical marketing tools-product, price, place, and promotion-that the firm blends to produce the response it wants in the target market.

Marketing myopia The mistake of paying more attention to the spe- cific products a company offers than to the benefits and experiences produced by these products.

Marketing research The systematic design, collection, analysis, and reporting of data relevant to a specific marketing situation facing an organization.

Marketing return on investment (or marketing ROI) The net return from a marketing investment divided by the costs of the market- ing investment.

596 Glossary

Positioning statement A statement that summarizes company or brand positioning using this form: To (target segment and need) our (brand) is (concept) that (point of difference).

Preapproach The sales step in which a salesperson learns as much as possible about a prospective customer before making a sales call.

Presentation The sales step in which a salesperson tells the “value story” to the buyer, showing how the company’s offer solves the cus- tomer’s problems.

Price The amount of money charged for a product or service, or the sum of the values that customers exchange for the benefits of having or using the product or service.

Price elasticity A measure of the sensitivity of demand to changes in price.

Primary data Information collected for the specific purpose at hand.

Product Anything that can be offered to a market for attention, acquisition, use, or consumption that might satisfy a want or need.

Product adaptation Adapting a product to meet local conditions or wants in foreign markets.

Product bundle pricing Combining several products and offering the bundle at a reduced price.

Product concept A detailed version of the new product idea stated in meaningful consumer terms.

Product development Company growth by offering modified or new products to current market segments.

Product development Developing the product concept into a physi- cal product to ensure that the product idea can be turned into a work- able market offering.

Product invention Creating new products or services for foreign markets.

Product life cycle (PLC) The course of a product’s sales and profits over its lifetime.

Product/market expansion grid A portfolio-planning tool for iden- tifying company growth opportunities through market penetration, market development, product development, or diversification.

Product mix (or product portfolio) The set of all product lines and items that a particular seller offers for sale.

Product position How a product is defined by consumers on impor- tant attributes—the place a product occupies in consumers’ minds rela- tive to competing products.

Product quality The characteristics of a product or service that bear on its ability to satisfy stated or implied customer needs.

Product sales force structure A sales force organization in which salespeople specialize in selling only a portion of the company’s prod- ucts or lines.

Occasion segmentation Dividing a market into segments according to occasions when buyers get the idea to buy, actually make their pur- chase, or use the purchased item.

Off-price retailer A retailer that buys at less-than-regular wholesale prices and sells at less than retail.

Omni-channel retailing Creating a seamless cross-channel buying experience that integrates in-store, online, and mobile shopping.

Online advertising Advertising that appears while consumers are browsing online, including display ads and search-related ads.

Online focus groups Gathering a small group of people online with a trained moderator to chat about a product, service, or orga- nization and gain qualitative insights about consumer attitudes and behavior.

Online marketing Marketing via the Internet using company Web sites, online ads and promotions, email, online video, and blogs.

Online marketing research Collecting primary data online through Internet surveys, online focus groups, Web-based experiments, or tracking of consumers’ online behavior.

Online social networks Online communities-blogs, social network- ing Web sites, and other online communities-where people socialize or exchange information and opinions.

Operating expense percentage The portion of net sales going to operating expenses—calculated by dividing total expenses by net sales.

Operating ratios The ratios of selected operating statement items to net sales.

Opinion leader A person within a reference group who, because of special skills, knowledge, personality, or other characteristics, exerts social influence on others.

Optional-product pricing The pricing of optional or accessory products along with a main product.

Outside sales force (or field sales force) Salespeople who travel to call on customers in the field.

Packaging The activities of designing and producing the container or wrapper for a product.

Partner relationship management Working closely with partners in other company departments and outside the company to jointly bring greater value to customers.

Percentage-of-sales method Setting the promotion budget at a cer- tain percentage of current or forecasted sales or as a percentage of the unit sales price.

Perception The process by which people select, organize, and inter- pret information to form a meaningful picture of the world.

Personal selling Personal customer interactions by the firm’s sales force for the purpose of engaging customers, making sales, and build- ing customer relationships.

Personality The unique psychological characteristics that distin- guish a person or group.

Pleasing products Products that give high immediate satisfaction but may hurt consumers in the long run.

Political environment Laws, government agencies, and pressure groups that influence or limit various organizations and individuals in a given society.

Portfolio analysis The process by which management evaluates the products and businesses that make up the company.

Positioning Arranging for a market offering to occupy a clear, dis- tinctive, and desirable place relative to competing products in the minds of target consumers.

Glossary 597

Sales quota A standard that states the amount a salesperson should sell and how sales should be divided among the company’s products.

Salesperson An individual who represents a company to customers by performing one or more of the following activities: prospecting, communicating, selling, servicing, information gathering, and rela- tionship building.

Salutary products Products that have low immediate appeal but may benefit consumers in the long run.

Sample A segment of the population selected for marketing research to represent the population as a whole.

Secondary data Information that already exists somewhere, having been collected for another purpose.

Segmented pricing Selling a product or service at two or more prices, where the difference in prices is not based on differences in costs.

Selective distribution The use of more than one but fewer than all of the intermediaries that are willing to carry the company’s products.

Selling concept The idea that consumers will not buy enough of the firm’s products unless the firm undertakes a large-scale selling and promotion effort.

Selling process The steps that salespeople follow when selling, which include prospecting and qualifying, preapproach, approach, presentation and demonstration, handling objections, closing, and follow-up.

Sense-of-mission marketing A company should define its mission in broad social terms rather than narrow product terms.

Service An activity, benefit, or satisfaction offered for sale that is essentially intangible and does not result in the ownership of anything.

Service inseparability Services are produced and consumed at the same time and cannot be separated from their providers.

Service intangibility Services cannot be seen, tasted, felt, heard, or smelled before they are bought.

Service perishability Services cannot be stored for later sale or use.

Service profit chain The chain that links service firm profits with employee and customer satisfaction.

Service retailer A retailer whose product line is actually a service; examples include hotels, airlines, banks, colleges, and many others.

Service variability The quality of services may vary greatly depending on who provides them and when, where, and how they are provided.

Share of customer The portion of the customer’s purchasing that a company gets in its product categories.

Shopper marketing Focusing the entire marketing process on turn- ing shoppers into buyers as they approach the point of sale, whether during in-store, online, or mobile shopping.

Shopping center A group of retail businesses built on a site that is planned, developed, owned, and managed as a unit.

Shopping product A consumer product that the customer, in the process of selecting and purchasing, usually compares on such attri- butes as suitability, quality, price, and style.

Showrooming The shopping practice of coming into retail store showrooms to check out merchandise and prices but instead buying from an online-only rival, sometimes while in the store.

Social class Relatively permanent and ordered divisions in a society whose members share similar values, interests, and behaviors.

Social marketing Using traditional business marketing concepts and tools to create behaviors that will create individual and societal well-being.

Production concept The idea that consumers will favor prod- ucts that are available and highly affordable; therefore, the organization should focus on improving production and distribution efficiency.

Pro forma (or projected) profit-andloss statement (or income statement or operating statement) A statement that shows pro- jected revenues less budgeted expenses and estimates the projected net profit for an organization, product, or brand during a specific planning period, typically a year.

Promotion mix (marketing communications mix) The specific blend of promotion tools that the company uses to engage custom- ers, persuasively communicate customer value, and build customer relationships.

Promotional pricing Temporarily pricing products below the list price, and sometimes even below cost, to increase short-run sales.

Prospecting The sales step in which a salesperson or company iden- tifies qualified potential customers.

Psychographic segmentation Dividing a market into different seg- ments based on social class, lifestyle, or personality characteristics.

Psychological pricing Pricing that considers the psychology of prices and not simply the economics; the price is used to say some- thing about the product.

Public Any group that has an actual or potential interest in or impact on an organization’s ability to achieve its objectives.

Public relations (PR) Building good relations with the company’s various publics by obtaining favorable publicity, building up a good corporate image, and handling or heading off unfavorable rumors, sto- ries, and events.

Reference prices Prices that buyers carry in their minds and refer to when they look at a given product.

Relevant costs Costs that will occur in the future and that will vary across the alternatives being considered.

Retailer A business whose sales come primarily from retailing.

Retailing All the activities involved in selling products or services directly to final consumers for their personal, nonbusiness use.

Return on advertising investment The net return on advertising investment divided by the costs of the advertising investment.

Return on investment (ROI) A measure of managerial effec- tiveness and efficiency—net profit before taxes divided by total investment.

Return on investment (ROI) pricing (or target-return pricing) A cost-based pricing method that determines price based on a specified rate of return on investment.

Sales force management Analyzing, planning, implementing, and controlling sales force activities.

Sales promotion Short-term incentives to encourage the purchase or sale of a product or a service.

598 Glossary

Target costing Pricing that starts with an ideal selling price, then targets costs that will ensure that the price is met.

Target market A set of buyers sharing common needs or character- istics that the company decides to serve.

Team selling Using teams of people from sales, marketing, engi- neering, finance, technical support, and even upper management to service large, complex accounts.

Team-based new product development New product development in which various company departments work closely together, over- lapping the steps in the product development process to save time and increase effectiveness.

Technological environment Forces that create new technologies, creating new product and market opportunities.

Telemarketing Using the telephone to sell directly to customers.

Territorial sales force structure A sales force organization that assigns each salesperson to an exclusive geographic territory in which that salesperson sells the company’s full line.

Test marketing The stage of new product development at which the product and its proposed marketing program are tested in realistic mar- ket settings.

Third-party logistics (3PL) provider An independent logistics pro- vider that performs any or all of the functions required to get a client’s product to market.

Total costs The sum of the fixed and variable costs for any given level of production.

Total market strategy Integrating ethnic themes and cross-cul- tural perspectives within a brand’s mainstream marketing, appeal- ing to consumer similarities across subcultural segments rather than differences.

Trade promotions Sales promotion tools used to persuade resellers to carry a brand, give it shelf space, promote it in advertising, and push it to consumers.

Undifferentiated (mass) marketing A market-coverage strategy in which a firm decides to ignore market segment differences and go after the whole market with one offer.

Unit contribution The amount that each unit contributes to covering fixed costs—the difference between price and variable costs.

Unsought product A consumer product that the consumer either does not know about or knows about but does not normally consider buying.

Value-added pricing Attaching value-added features and services to differentiate a company’s offers and charging higher prices.

Value-based pricing Offering just the right combination of quality and good service at a fair price.

Value chain The series of internal departments that carry out value- creating activities to design, produce, market, deliver, and support a firm’s products.

Value delivery network A network composed of the company, sup- pliers, distributors, and, ultimately, customers who partner with each other to improve the performance of the entire system in delivering customer value.

Social media Independent and commercial online social networks where people congregate to socialize and share messages, opinions, pictures, videos, and other content.

Social selling Using online, mobile, and social media to engage customers, build stronger customer relationships, and augment sales performance.

Societal marketing A company should make marketing decisions by considering consumers’ wants, the company’s requirements, con- sumers’ long-run interests, and society’s long-run interests.

Societal marketing concept The idea that a company’s marketing decisions should consider consumers’ wants, the company’s require- ments, consumers’ long-run interests, and society’s long-run interests.

Spam Unsolicited, unwanted commercial email messages.

Specialty product A consumer product with unique characteristics or brand identification for which a significant group of buyers is will- ing to make a special purchase effort.

Specialty store A retail store that carries a narrow product line with a deep assortment within that line.

Standardized global marketing A global marketing strategy that basically uses the same marketing strategy and mix in all of the com- pany’s international markets.

Store brand (or private brand) A brand created and owned by a reseller of a product or service.

Straight product extension Marketing a product in a foreign mar- ket without making significant changes to the product.

Straight rebuy A business buying situation in which the buyer rou- tinely reorders something without any modifications.

Strategic planning The process of developing and maintaining a strategic fit between the organization’s goals and capabilities and its changing marketing opportunities.

Style A basic and distinctive mode of expression. Subculture A group of people with shared value systems based on common life experiences and situations.

Supermarket A large, low-cost, low-margin, high-volume, self-service store that carries a wide variety of grocery and household products.

Superstore A store much larger than a regular supermarket that offers a large assortment of routinely purchased food products, non- food items, and services.

Supplier development Systematic development of networks of sup- plier-partners to ensure a dependable supply of products and materials for use in making products or reselling them to others.

Supply chain management Managing upstream and downstream value-added flows of materials, final goods, and related information among suppliers, the company, resellers, and final consumers.

Survey research Gathering primary data by asking people questions about their knowledge, attitudes, preferences, and buying behavior.

Sustainable marketing Socially and environmentally responsible marketing that meets the present needs of consumers and businesses while also preserving or enhancing the ability of future generations to meet their needs.

SWOT analysis An overall evaluation of the company’s strengths (S), weaknesses (W), opportunities (O), and threats (T).

Systems selling (or solutions selling) Buying a complete solution to a problem from a single seller, thus avoiding all the separate decisions involved in a complex buying situation.

Glossary 599

Warehouse club An off-price retailer that sells a limited selection of brand name grocery items, appliances, clothing, and other goods at deep discounts to members who pay annual membership fees.

Whole-channel view Designing international channels that take into account the entire global supply chain and marketing channel, forging an effective global value delivery network.

Wholesaler A firm engaged primarily in wholesaling activities.

Wholesaling All the activities involved in selling goods and services to those buying for resale or business use.

Word-of-mouth influence The impact of the personal words and recommendations of trusted friends, family, associates, and other con- sumers on buying behavior.

Workload method An approach to determining sales force size based on the workload required and the time available for selling.

Value proposition The full positioning of a brand-the full mix of benefits on which it is differentiated and positioned.

Value-added pricing Attaching value-added features and services to differentiate a company’s offers and charging higher prices.

Variable costs Costs that vary directly with the level of production.

Vertical marketing system (VMS) A channel structure in which producers, wholesalers, and retailers act as a unified system. One chan- nel member owns the others, has contracts with them, or has so much power that they all cooperate.

Viral marketing The digital version of word-of-mouth marketing: videos, ads, and other marketing content that is so infectious that cus- tomers will seek it out or pass it along to friends.

Wants The form human needs take as they are shaped by culture and individual personality.

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Chapter 1 1. Mark Fidelman, “Nike Is Dominating the World Cup—Here’s Why,” Forbes, July 1,

2014, www.forbes.com/sites/markfidelman/2014/07/01/nike-is-dominating- the-world-cup-heres-why/; Grace Chung, “Non-Sponsor Nike Trounces Adidas for World Cup Video Views,” Advertising Age, July 14, 2014, http:// adage.com/print/294114/; Scott Cendrowski, “Nike’s New Marketing Mojo,” Fortune, February 13, 2012, http://fortune.com/2012/02/13/nikes- new-marketing-mojo/; Mary Lisbeth D’Amico, “Report Sends Nike and Adidas to Head of Digital Marketing Class,” Clickz, September 25, 2012, www.clickz.com/clickz/news/2208172/report-sends-nike-and-adidas-to- head-of-digital-marketing-class; Daniel Newman, “Risk Everything: Nike Does for World Cup 2014, and Wins!” Forbes, June 9, 2014, www.forbes .com/sites/danielnewman/2014/06/09/risk-everything-nike-does-for-world- cup-2014-and-wins/; “Top Ad Campaigns of the 21st Century: 2—Nike+,” Advertising Age, http://adage.com/lp/top15/#nikeplus, accessed June 2015; and http://investors.nikeinc.com/Investors and https://secure-nikeplus.nike .com/plus/, accessed September 2015.

2. See “Leading Social Networks Worldwide,” www.statista.com/ statistics/272014/global-social-networks-ranked-by-number-of-users/, accessed June 2015; Justin Fox, “Still Sweet on Coke and Pepsi?” Bloomberg View, January 15, 2015, www.bloombergview.com/articles/2015-01-21/ still-sweet-on-coke-and-pepsi; and “Top 250 Global Retailers, 2015,” National Retail Federation, https://nrf.com/2015/global250-table.

3. See Philip Kotler and Kevin Lane Keller, Marketing Management, 15th ed. (Hoboken, NJ: Pearson Education, 2016), p. 5.

4. The American Marketing Association offers the following definition: “Marketing is the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large.” See www.marketingpower .com/_layouts/Dictionary.aspx?dLetter=M, accessed September 2015.

5. See Daniel P. Smith, “Keep in Touch,” QSR Magazine, July 2013, www .qsrmagazine.com/executive-insights/keep-touch; and Phil Wahba, “Back on Target,” Fortune, March 1, 2015, p. 86–94.

6. See Samantha Shankman, “The Simple Message behind San Diego’s $9 Million Ad Campaign,” Skift, February 5, 2015, http://skift.com/2015/ 02/05/the-simple-message-behind-san-diegos-9-million-ad-campaign/; and http://stoptextsstopwrecks.org/#home, accessed September 2015.

7. See Theodore Levitt’s classic article, “Marketing Myopia,” Harvard Business Review, July–August 1960, pp. 45–56. For more recent discussions, see Minette E. Drumright and Mary C. Gentile, “The New Marketing Myopia,” Journal of Public Policy & Marketing, Spring 2010, pp. 4–11; Roberto Friedmann, “What Business Are You In?” Marketing Management, Summer 2011, pp. 18–23; and Al Ries, “‘Marketing Myopia’ Revisited: Perhaps a Narrow Vision Is Better Business,” Advertising Age, December 4, 2013, http://adage.com/print/245511.

8. See www.americangirl.com/stores/, accessed September 2015. 9. See https://play.google.com/store/apps/details?id=co.vine.android, accessed

September 2015. 10. “The Difference in Creating Companies and Categories,” happycustomer,

March 4, 2014, http://happycustomer.stellaservice.com/2014/03/04/column- the-difference-in-creating-companies-and-categories/.

11. See Michael E. Porter and Mark R. Kramer, “Creating Shared Value, “Harvard Business Review, January–February 2011, pp. 63–77; Marc Pfitzer, Valerie Bockstette, and Mike Stamp, “Innovating for Shared Value,” Harvard Business Review, September 2013, pp. 100–107; “About Shared Value,” Shared Value Initiative, http://sharedvalue.org/about-shared-value, accessed September 2015; and “Shared Value,” www.fsg.org, accessed September 2015.

12. Michael Krauss, “Evolution of an Academic: Kotler on Marketing 3.0, “Marketing News, January 30, 2011, p. 12; and Simon Mainwaring, “Marketing 3.0 Will Be Won by Purpose-Driven, Social Brands,” Forbes, July 16, 2013, www.forbes.com/sites/ simonmainwaring/2013/07/16/ marketing-3-0-will-be-won-by-purpose-driven-social-brands-infographic/.

13. See Scott Campbell, “Lush Defies the Christmas Retail Slump,” The Telegraph, January 6, 2014, www.telegraph.co.uk/finance/ newsbysector/

retailandconsumer/10554068/Lush-defies-the-Christmas-retail-slump .html; and “Lush Life: We Believe,” www.lushusa.com/on/demandware .store/Sites-Lush-Site/en_US/AboutUs-OurStoryShow?cid=we-believe, accessed September 2015.

14. Based on information from Keenan Mayo, “A Cooler Fit for the Apocalypse,” Bloomberg Businessweek, October 28–November 3, 2013, p. 62, and http://store.yeticoolers.com/, accessed September 2015.

15. See Stuart Elliott, “Putting on the Ritz, Six Words at a Time,” New York Times, May 29, 2015, p. B11; Michael Bush, “Why You Should Be Putting on the Ritz,” Advertising Age, June 21, 2010, p. 1; http://corporate.ritzcarlton.com/ en/About/Awards.htm, accessed June 2015; and “Stories That Stay with You,” www.ritzcarlton.com/en/StoriesThatStay.htm, accessed September 2015.

16. “Delighting the Customer Doesn’t Pay,” Sales & Marketing Management, November 11, 2013, http://salesandmarketing.com/content/delighting- customers-doesnt-pay.

17. See www.walgreens.com/Balance, accessed September 2015. 18. For more information, see www.apple.com/usergroups/ and www

.webernation.com, accessed September 2015. 19. See Gordon Wyner, “Getting Engaged,” Marketing Management, Fall 2012,

pp. 4–9; David Aponovich, “Powered by People, Fueled by Optimism,” Fast Company, July 18, 2012, www.fastcompany.com/1842834/life-good-powered- people-fueled-optimism; Celia Brown, “Life is good Redefines Retailing through Joy,” Forbes, January 17, 2014, www.forbes.com/sites/sap/2014/01/17/ life-is-good-redefines-retail-through-joy/; and www.lifeisgood.com and www.lifeisgood.com/good-vibes/, accessed September 2015.

20. See http://mystarbucksidea.force.com, accessed September 2015. 21. “2014 USA Today Ad Meter,” http://admeter.usatoday.com/, accessed

February 2015; “How a $2,000 Doritos Super Bowl Ad Became a Million- Dollar Sensation,” Washington Post, February 4, 2015, www.washingtonpost .com/news/grade-point/wp/2015/02/04/how-a-2000-doritos-super-bowl- ad-became-a-million-dollar-sensation/; and www.doritos.com/, accessed September 2015.

22. See “#Bashtag: Avoiding User Outcry in Social Media,” WordStream, March 8, 2013, www.wordstream.com/blog/ws/2013/03/07/bashtag-avoiding-social- media-backlash; and “What Is Hashtag Hijacking?” Small Business Trends, August 18, 2013, http://smallbiztrends.com/2013/08/what-is-hashtag- hijacking-2.html.

23. See www.stewleonards.com/about-us/company-story, accessed September 2015.

24. See Mai Erne, “Calculating Customer Lifetime Value,” HaraPartners, www .harapartners.com/blog/calculating-lifetime-value/, accessed September 2015.

25. See Timothy Stenovec, “Amazon Prime Members Spend an Astonishing $1,500 a Year, Survey Says,” Huffington Post, January 27, 2015, www .huffingtonpost.com/2015/01/27/amazon-prime-spending_n_6556374 .html; Brad Stone, “What’s in the Box? Instant Gratification, Bloomberg Businessweek, November 29–December 5, 2010, pp. 39–40; and www .amazon.com/gp/prime/ref=footer_prime, accessed September 2015.

26. For more discussions on customer equity, see Roland T. Rust, Valerie A. Zeithaml, and Katherine N. Lemon, Driving Customer Equity (New York: Free Press, 2000); Roland T. Rust, Katherine N. Lemon, and Valerie A. Zeithaml, “Return on Marketing: Using Customer Equity to Focus Marketing Strategy,” Journal of Marketing, January 2004, pp. 109–127; Christian Gronroos and Pekka Helle, “Return on Relationships: Conceptual Understanding and Measurement of Mutual Gains from Relational Business Engagements,” Journal of Business & Industrial Marketing, Vol. 27, No. 5, 2012, pp. 344–359; and Peter C. Verhoef and Katherine N. Lemon, “Successful Customer Value Management: Key Lessons and Emerging Trends,” European Management Journal, February 2013, p. 1.

27. This example is based on one found in Rust, Lemon, and Zeithaml, “Where Should the Next Marketing Dollar Go?” Marketing Management, September–October 2001, pp. 24–28; with information from Grant McCracken, “Provocative Cadillac, Rescuing the Brand from Bland,” Harvard Business Review, March 4, 2014, http://blogs.hbr.org/2014/03/ provocative-cadillac-rescuing-the-brand-from-bland/; Robert Klara. “Cadillac’s Image Gets a Tune-Up,” Adweek, February 23, 2015, p. 13; and www.dare-greatly.com, accessed September 2015.

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2. The NASA mission statement is from www.nasa.gov/about/highlights/ what_does_nasa_do.html, accessed June 2015.

3. For more discussion of mission statements and examples, both good and bad, see Jack and Suzy Welch, “State Your Business; Too Many Mission Statements Are Loaded with Fatheaded Jargon. Play It Straight,” BusinessWeek, January 14, 2008, p. 80; Setayesh Sattari et al., “How Readable Are Mission Statements? An Exploratory Study,” Corporate Communications,” 2011, p. 4; and www.missionstatements.com/fortune_ 500_mission_statements.html, accessed September 2015.

4. Based on information from Demitrios Kalogeropoulos, “3 Reasons Buffalo Wild Wings Can Keep Soaring in 2015,” The Motley Fool, January 9, 2015, www.fool.com/investing/general/2015/01/09/3-reasons-why-buffalo-wild- wings-can-keep-soaring.aspx; “Buffalo Wild Wings,” a 22SQUARED case study, www.22squared.com/work/project/buffalo-wild-wings, accessed June 2015; Brandon Southward, “The Crowd Goes Wild,” Fortune, July 22, 2013, p. 18; Tanya Dua, “The Buffalo Wild Wings Recipe for the “Ultimate Sports Experience,” Digiday, August 4, 2015, http://digiday.com/ brands/buffalo-wild-wings-recipe-ultimate-sports-experience/; and www .buffalowildwings.com, accessed September 2015.

5. Information about CVS Health and its mission and activities from www.cvshealth.com/about-us, www.cvshealth.com/about-us/our-story- building-bridge-better-health, and www.cvshealth.com/our-businesses, accessed September 2015.

6. See “General Electric Co.,” Reuters, www.reuters.com/finance/stocks/ companyProfile?symbol=GE.N, accessed June 2015; and www.ge.com/ ar2014/assets/pdf/GE_AR14.pdf and www.ge.com/products, accessed September 2015.

7. The following discussion is based in part on information found at www .bcg.com/documents/file13904.pdf, accessed September 2015.

8. See http://corporate.disney.go.com/investors/annual_reports.html, accessed September 2015.

9. H. Igor Ansoff, “Strategies for Diversification,” Harvard Business Review, September–October 1957, pp. 113–124.

10. Information about Under Armour in this section is from Sarah Meehan, “Here’s How Much Under Armour Spent on Marketing Last Year,” Business Journal, February 24, 2015, www.bizjournals.com/baltimore/ news/2015/02/24/heres-how-much-under-armour-spent-on-marketing .html?page=all; Bradley Seth McNew, “2 Ways Under Armour Inc Can Continue to Soar in 2015,” The Motley Fool, December 15, 2014, www .fool.com/investing/general/2014/12/15/2-ways-under-armour-can- continue-soaring-in-2015.aspx; Nick Gardetto, “Under Armour: Growth at an Expensive Price,” Seeking Alpha, July 31, 2014, http://seekingalpha .com/article/2364655; and various pages at www.underarmour.com and http://investor.underarmour.com, accessed September 2015.

11. See Michael E. Porter, Competitive Advantage: Creating and Sustaining Superior Performance (New York: Free Press, 1985); and Michael E. Porter, “What Is Strategy?” Harvard Business Review, November–December 1996, pp. 61–78. Also see “The Value Chain,” www.quickmba.com/strategy/ value-chain, accessed June 2015; and Philip Kotler and Kevin Lane Keller, Marketing Management, 15th ed. (Hoboken, NJ: Prentice Hall, 2016), Chapter 2.

12. Nirmalya Kumar, “The CEO’s Marketing Manifesto,” Marketing Management, November–December 2008, pp. 24–29; and Tom French and others, “We’re All Marketers Now,” McKinsey Quarterly, July 2011, www.mckinseyquarterly.com/Were_all_marketers_now_2834.

13. See www.gapinc.com/content/gapinc/html/aboutus/ourbrands/gap.html, accessed September 2015.

14. “100 Leading National Advertisers,” Advertising Age, June 23, 2014, p. 16. 15. The four Ps classification was first suggested by E. Jerome McCarthy, Basic

Marketing: A Managerial Approach (Homewood, IL: Irwin, 1960). The four As are discussed in Jagdish Sheth and Rajendra Sisodia, The 4 A’s of Marketing: Creating Value for Customer, Company and Society (New York: Routledge, 2012); and Kotler and Keller, Marketing Management, p. 26.

16. Tim Dunn, “Is the Era of CMO Over?” Adweek, March 2, 2015, p. 14. 17. “Study Finds Marketers Don’t Practice ROI They Preach,” Advertising Age,

March 11, 2012, http://adage.com/article/233243/; “Accountability Remains Senior Marketers’ Top Concern,” Marketing Charts, March 7, 2013, www .marketingcharts.com/wp/topics/branding/accountability-remains-senior- marketers-top-concern-27565/; “Quantitative Proof of Marketing Spend’s ROI Still Eludes CMOs,” Marketing Charts, February 21, 2014, www .marketingcharts.com/wp/traditional/quantitative-proof-of-marketing- spends-impact-still-eludes-cmos-40005/; and Christine Moorman, “From Marketing Spend to Marketing Accountability,” Marketing News, May 2014, pp. 24–25.

28. Based on Werner Reinartz and V. Kumar, “The Mismanagement of Customer Loyalty,” Harvard Business Review, July 2002, pp. 86–94. Also see Chris Lema, “Not All Customers Are Equal—Butterflies & Barnacles,” April 18, 2013, http://chrislema.com/not-all-customers-are-equal-butterflies-barnacles/; Jill Avery, Susan Fournier, and John Wittenbraker, “Unlock the Mysteries of Your Customer Relationships,” Harvard Business Review, July–August 2014, pp. 72–81, and “Telling Customers ‘You’re Fired,’” Sales and Marketing.com, September/October 2014, p. 8.

29. See “Internet Usage Statistics, Inernet World Stats, www.internetworldstats .com/stats.htm; accessed June 2015; and “Mobile Technology Fact Sheet,” www.pewinternet.org/fact-sheets/mobile-technology-fact-sheet/, accessed September 2015.

30. “Digital Set to Surpass TV in Time Spent with US Media,” eMarketer, August 1, 2013, www.emarketer.com/Article/Digital- Set-Surpass-TV- Time-Spent-with-US-Media/1010096; and Marla Schimke, “Mobile as Marketing’s Savior,” Adweek, December 15, 2014, p. 19.

31. Chris Gayomali, “Brands Are Wasting Their Time and Money on Facebook and Twitter, Report Says,” Fast Company, November 19, 2014, www .fastcompany.com/3038801; “Greatness Awaits: Sony PlayStation PS4 Launch,” Empowered, http://groundswelldiscussion.com/groundswell/ awards/detail.php?id=1174, accessed June 2015; Roger Katz, “2015 Will Be the Year of the Brand Community—Here’s Why,” ClickZ, January 23, 2015, www.clickz.com/clickz/column/2391666/2015-will-be-the-year- of-the-brand-community-here-s-why; and https://community.petco.com/, http://community.sephora.com/, and http://greatnessawaits.playstation .com/en-us/, accessed September 2015.

32. See Stuart Feil, “How to Win Friends and Influence People,” Adweek, September 12, 2013, pp. S1–S7; and Salesforce.com “Just Published: 2015 State of Marketing Report,” January 13, 2015, http://blogs.salesforce.com/ company/2015/01/2015-state-of-marketing.html.

33. See Calla Cofield, “Social Media: NASA’s Not So Secret Weapon for the Orion Test Flight,” Space, December 3, 2014, www.space.com/27912-nasa- orion-spacecraft-social-media-blitz.html; Laura Nichols, “NASA Soars on Social Media with Orion Spacecraft,” PRWeek, December 18, 2015, www.prweek.com/article/1327011; “By the Letters EFT: Sesame Street Muppets Count Down to NASA Launch,” Collect Space, November 24, 2014, www.collectspace.com/news/news-112514a-orion-eft1-muppets- countdown.html; and www.nasa.gov, accessed September 2015.

34. Michael Applebaum, “Mobile Magnetism,” Adweek, June 25, 2012, pp. S1–S9; and Bill Briggs, “M-Commerce Is Saturating the Globe,” Internet Retailer, February 20, 2014, www.internetretailer.com/2014/02/ 20/m-commerce-saturating-globe.

35. “Mobile Marketing: How Redbox Drove 1.5 Million Texts and Added 200,000 Mobile Participants in 10 Days,” Marketing Sherpa, October 6, 2011, www.marketingsherpa.com/article/case-study/how-redbox-drove- 15-million; www.youtube.com/watch?v=c1nLbQeXAXc and www .redbox.com/textclub, accessed September 2015.

36. See John Gerzema, “How U.S. Consumers Are Steering the Spend Shift,” Advertising Age, October 11, 2010, p. 26; Gregg Fairbrothers and Catalina Gorla, “The Decline and Rise of Thrift,” Forbes, April 23, 2012, www.forbes .com/sites/greggfairbrothers/2012/04/23/the-decline-and-rise-of-thrift/.

37. See “Our Mission,” https://corporate.target.com/about/mission-values, accessed June 2015.

38. See Lisa Wirthman, “How a Lemonade Stand Sparked a Movement to Cure Pediatric Cancer,” Forbes, January 15, 2014; Jennifer Aaker and Andy Smith, “The Dragonfly Effect,” Stanford Social Innovation Review,” Winter 2011, pp. 31–35; and www.alexslemonade.org, accessed September 2015.

39. “100 Leading National Advertisers,” Advertising Age, July 13, 2015, p. 15. 40. www.aboutmcdonalds.com/mcd and www.nikeinc.com, accessed

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Chapter 2 1. David Kaplan, “Starbucks: The Art of Endless Transformation,” Inc., June,

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13. See Greg Petro, “Millennial Engagement and Loyalty—Make Them Part of the Process,” Forbes, March 21, 2013, www.forbes.com/sites/ gregpetro/2013/03/21/millennial-engagement-and-loyalty-make-them- part-of-the-process/; and “AT&T’s Catherine Borda Spills the Secrets to Millennial Marketing,” Adweek, March 3, 2015, www.adweek.com/ print/163219.

14. Ellen Byron, “Marketing Decoder: Kitchen Appliances for 20-somethings,” Wall Street Journal, June 25, 2013; Alan Wolf, “GE Develops Kitchen Line for Millennials,” Twice, July 8, 2013, p. 44; and www.geappliances .com/products/artistry/, accessed September 2015.

15. See “Moxy Milan Malpensa Set to Open in September Followed by a Further Five Hotels in Europe by End of 2015,” Marriott New Center, March 3, 2014, http://news.marriott.com/moxy-hotels/; “Moxy Hotels Looks to the Future in Europe,” Marriott News Center, March 3, 2015, http://news.marriott.com/2015/03/moxy-hotels-looks-to-the-future-in- europe-150-hotels-and-25000-rooms-expected-by-2020.html; and http:// moxy-hotels.marriott.com/, accessed September 2015.

16. See Julia Glum, “Marketing to Generation Z,” International Business Times, January 13, 2015, www.ibtimes.com/marketing-generation-z- millennials-move-aside-brands-shift-focus-under-18-customers-1782220; and Ruth Bernstein, “Move Over Millennials—Here Comes Gen Z,” Advertising Age, January 21, 2015, www.adage.com/article/cmo-strategy/ move-millennials-gen-z/296577/.

17. See “GenZ: Digital in Their DNA”; Shannon Bryant, “‘Generation Z’ Children More Tech-Savvy; Prefer Gadgets, Not Toys,” Marketing Forecast, April 3, 2013, www.ad-ology.com/tag/tech-savvy-children/#.U5d9avldV8E; and Brett Relander, “How to Market to Gen Z,” Entrpreneuer, November 4, 2014, www.entrepreneur.com/article/238998.

18. Robert Klara, “It’s Not Easy Being Tween,” Adweek, June 27, 2012, www .adweek.com/print/141378; Tim Feran, “Retailer Justice Shedding Brothers Brand,” The Columbus Dispatch, February 19, 2015, www.dispatch.com/ content/stories/business/2015/02/18/justice-shedding-brothers-brand .html; and www.shopjustice.com, accessed September 2015.

19. For statistics on family composition, see U.S. Census Bureau, “Family Households,” Table F1, www.census.gov/hhes/families/data/cps2014F .html; and U.S. Census Bureau, “Households by Type, Age of Members, Region of Residence, and Age of Householder: 2014,” Table H2, www .census.gov/hhes/families/data/cps2014F.html, accessed September 2015.

20. See U.S. Census Bureau, “America’s Families and Living Arrangements: 2013,” Table FG1, www.census.gov/hhes/families/data/cps2014F.html, accessed June 2015; Claire Cain Miller and Liz Alderman, “The Flexibility Gap,” New York Times, December 14, 2015, p. BU1; Bruce Horovitz, “Diversity Reaches New Levels in Honey Maid Ads,” USA Today, March 10, 2014, www.usatoday.com/story/money/business/2014/03/10/honey- maid-mondelez-coca-cola-cheerios-diversity-commercials/6131151/; and U.S. Census Bureau, “Parents and Children in Stay at Home Parent Family Groups: 1994 to Present,” Table SHP-1, www.census.gov/hhes/ families/files/shp1.xls, accessed September 2015.

21. Based on information from Bruce Horovitz, “Diversity Reaches New Levels in Honey Maid Ads,” USA Today, March 10, 2014, www.usatoday .com/story/money/business/2014/03/10/honey-maid-mondelez-coca- cola-cheerios-diversity-commercials/6131151/; and www.youtube.com/ watch?v=2xeanX6xnRU, accessed September 2015.

22. U.S. Census Bureau, “Geographical Mobility/Migration,” www.census .gov/population/www/socdemo/migrate.html, accessed September 2015.

23. See U.S. Census Bureau, “Metropolitan and Micropolitan Statistical Areas,” www.census.gov/population/metro/data/index.html/, accessed June 2015; U.S. Census Bureau, “Census Estimates Show New Patterns of Growth Nationwide,” April 5, 2012, www.census.gov/newsroom/ releases/archives/population/cb12-55.html; and “The 536 Micropolitan Statistical Areas of the United States of America,” Wikipedia, http:// en.wikipedia.org/wiki/List_of_Micropolitan_Statistical_Areas, accessed September 2015.

24. Mary C. Noonan and Jennifer L. Glass, “The Hard Truth about Telecommuting,” Monthly Labor Review, June 2012, www.bls.gov/opub/ mlr/2012/06/art3full.pdf; and “It’s Unclearly Defined, but Telecommuting Is Fast on the Rise,” New York Times, March 8, 2014, p. B5.

25. See “About WebEx,” www.webex.com/why-webex/overview.html, accessed June 2015; www.gotomeeting.com, accessed June 2015; and “What Is Cloud Computing?” www.salesforce.com/cloudcomputing, accessed September 2015.

26. See http://nextspace.us/, http://grindspaces.com, and www.regus.com, accessed September 2015.

27. U.S. Census Bureau, “Educational Attainment,” www.census.gov/hhes/ socdemo/education/data/cps/2014/tables.html, accessed June 2015.

18. For more on marketing dashboards and financial measures of marketing performance, see Ofer Mintz and Imran S. Currim, “What Drives Managerial Use of Marketing Financial Metrics and Does Metric Use Affect Performance of Marketing-Mix Activities?” Journal of Marketing, March 2013, pp. 17–40; and http://marketingnpv.com/dashboard- platform, accessed September 2015.

19. For a full discussion of this model and details on customer-centered measures of marketing return on investment, see Roland T. Rust, Katherine N. Lemon, and Valerie A. Zeithaml, “Return on Marketing: Using Customer Equity to Focus Marketing Strategy,” Journal of Marketing, January 2004, pp. 109–127; Roland T. Rust, Katherine N. Lemon, and Das Narayandas, Customer Equity Management (Upper Saddle River, NJ: Prentice Hall, 2005); Roland T. Rust, “Seeking Higher ROI? Base Strategy on Customer Equity,” Advertising Age, September 10, 2007, pp. 26–27; Andreas Persson and Lynette Ryals, “Customer Assets and Customer Equity: Management and Measurement Issues,” Marketing Theory, December 2010, pp. 417–436; and Kirsten Korosec, “‘Toma- to, Tomäto’? Not Exactly,” Marketing News, January 13, 2012, p. 8.

Chapter 3 1. Devin Leonard, “Bad News in Cereal City,” Bloomberg Businessweek,

March 2–8, 2015, pp. 42-47; John Kell, “Decline In Cereal Sales Bites Into Kellogg’s Results,” Fortune, October 30, 2014, http://fortune .com/2014/10/30/kellogg-breakfast-sales-drop/; Jack Lanshi, “These 2 Charts Show the Biggest Change in America’s Breakfast,” Time, February 12, 2015, http://time.com/3705987/skipping-breakfast-cereal-kellogg/; and http://investor.kelloggs.com/investor-relations/annual-reports/default .aspx and www.kellogg.com, accessed September 2015.

2. Ginger Christ, “Supplier Relationships Key to Honda’s Healthy Profit Margins,” Industry Week, May 23, 2012, www.industryweek.com/blog/ supplier-relationships-key-hondas-healthy-profit-margins; “2014 Annual Automotive OEM-Supplier Relations Study Shows Toyota and Honda on Top,” PR Newswire, May 12, 2014; and www.hondainamerica.com/parts- and-suppliers and http://world.honda.com/profile/philosophy/, accessed September 2015.

3. Information from Robert J. Benes, Abbie Jarman, and Ashley Williams, “2007 NRA Sets Records,” www.chefmagazine.com, accessed September 2007; “Thought Leadership Begins with Experience,” fishbowl, www .fishbowl.com/coca-cola-offers-restaurant-customers-new-digital- marketing-solutions-powered-by-fishbowl/, accessed September 2015; and www.cokesolutions.com, accessed September 2015.

4. See http://officedepotfoundation.org/, http://officedepotfoundation. org/?page_id=428, http://officedepotfoundation.org/?page_id=164, and http://officedepotfoundation.org/?page_id=196, accessed June 2015. Listen Learn Care® is a registered trademark of Office Depot, Inc.

5. World POPClock, U.S. Census Bureau, at www.census.gov/popclock/, accessed June 2015. This Web site provides continuously updated projections of the U.S. and world populations.

6. U.S. Census Bureau projections and POPClock Projection, at www.census .gov/main/www/popclock.html, accessed September 2015.

7. Charles Kenny, “The Reproductive Recession,” Bloomberg Businessweek, February 11, 2014, pp. 4–5.

8. See Tracy Sestili, “5 Reasons Why You Should Market to Baby Boomers,” Social Media Today, January 27, 2014, http://socialmediatoday.com/tracy- sestili/2115511/5-reasons-why-you-should-market-baby-boomers-45-65- year-olds; and “50+ Facts and Fiction: Size, Wealth and Spending of 50+ Consumers,” Immersion Active, March 9, 2015, www.immersionactive .com/resources/size-wealth-spending-50-consumers/.

9. “50+ Facts and Fiction: Mature Consumers Online,” Immersive Action, March 8, 2015, www.immersionactive.com/resources/50-consumers-online/.

10. See “50+ Active & Healthy Living,” www.amazon.com/gp/browse .html/?node=5856180011, accessed June 2015; and http://www.boomnc .com/wp-content/uploads/BOOM-media-kit.pdf, accessed September 2015.

11. For more discussion, see Penney Fox, “Gen X and Social Media: Stuck in the Middle,” Business 2 Community, July 9, 2014, www.business2community.com/ social-media/gen-x-social-media-stuck-middle-0939476; and “Generations Divided on Device Preferences,” February 6, 2015, www.millwardbrown .com/global-navigation/news/press-releases/full-release/2015/02/06/ generations-divided-on-device-preferences;

12. See Joe Ruiz, “How Lowe’s Is Sustaining Customer Relationships,” Maximize Social Business, January 27, 2014, http://maximizesocial business.com/ lowes-sustaining-customer-relationships-12506/; and www.lowes.com/ mobile, www.lowes.com, www.youtube.com/watch?v=zbFX7p6ZGTk, and www.pinterest.com/lowes/, accessed September 2015.

www.forbes.com/sites/gregpetro/2013/03/21/millennial-engagement-and-loyalty-make-thempart-of-the-process/

www.adweek.com/print/163219

www.geappliances.com/products/artistry

http://news.marriott.com/moxy

http://news.marriott.com/2015/03/moxy-hotels-looks-to-the-future-in-europe-150-hotels-and-25000-rooms-expected-by-2020.html

http://moxy-hotels.marriott.com

www.adage.com/article/cmo-strategy/move

www.adage.com/article/cmo-strategy/move-millennials-gen-z/296577/

www.ad-ology.com/tag/tech

www.entrepreneur.com/article

www.adweek.com/print/141378

www.dispatch.com/content/stories/business/2015/02/18/justice-shedding-brothers-brand.html

www.shopjustice.com

www.census.gov/hhes/families/data/cps2014F.html

census.gov/hhes/families/data/cps2014F.html

www.census.gov/hhes/families/data/cps2014F.html

www.usatoday.com/story/money/business/2014/03/10/honey-maid-mondelez-coca-cola-cheerios-diversity-commercials/6131151/

www.census.gov/hhes/families/files/shp1.xls

www.usatoday.com/story/money/business/2014/03/10/honey-maid-mondelez-cocacola-cheerios-diversity-commercials/6131151/

www.census.gov/population/www/socdemo/migrate.html

www.census.gov/population/metro/data/index.html

www.census.gov/newsroom/releases/archives/population/cb12-55.html

http://en.wikipedia.org/wiki/List_of_Micropolitan_Statistical_Areas

www.bls.gov/opub/mlr/2012/06/art3full.pdf

www.webex.com/why-webex/overview.html

www.gotomeeting.com

www.salesforce.com/cloudcomputing

http://nextspace.us

http://grindspaces.com

www.regus.com

www.census.gov/hhes/socdemo/education/data/cps/2014/tables.html

http://marketingnpv.com/dashboard--proof-of-marketingspends-impact-still-eludes-cmos-40005/

http://investor.kelloggs.com/investor-relations/annual-reports/default.aspx

www.kellogg.com

www.industryweek.com/blog/supplier-relationships-key-hondas-healthy-profit-margins

www.hondainamerica.com/parts

http://world.honda.com/profile/philosophy

www.chefmagazine.com

www.fishbowl.com/coca-cola-offers-restaurant-customers-new-digitalmarketing-solutions-powered-by-fishbowl/

www.cokesolutions.com

http://officedepotfoundation.org

www.census.gov/popclock

www.census.gov/main/www/popclock.html

http://socialmediatoday.com/tracy-sestili/2115511/5-reasons-why-you-should-market-baby-boomers-45-65-year-olds

www.immersionactive.com/resources/size-wealth-spending-50-consumers/

www.amazon.com/gp/browse.html/?node=5856180011

http://www.boomnc.com/wp-content/uploads/BOOM-media-kit.pdf

www.business2community.com/social-media/gen-x-social-media-stuck-middle-0939476

brown.com/global-navigation/news/press-releases/full-release/2015/02/06/generations-divided-on-device-preferences

business.com/lowes-sustaining-customer-relationships-12506/

www.lowes.com/mobile

www.lowes.com

www.pinterest.com/lowes

http://news.marriott.com/moxy-hotels/

http://www.ibtimes.com/marketing-generation-z-millennials-move-aside-brands-shift-focus-under-18-customers-1782220

http://www.ad-ology.com/tag/tech-savvy-children/#.U5d9avldV8E

http://www.entrepreneur.com/article/238998

http://fortune.com/2014/10/30/kellogg-breakfast-sales-drop/

http://time.com/3705987/skipping-breakfast-cereal-kellogg/

http://officedepotfoundation.org

http://officedepotfoundation.org/?page_id=164

http://officedepotfoundation.org/?page_id=196

http://www.immersionactive.com/resources/50-consumers-online/

http://maximizesocial

http://www.youtube.com/watch?v=zbFX7p6ZGTk

http://marketingnpv.com/dashboard--proof-of-marketingspends-impact-still-eludes-cmos-40005/

http://investor.kelloggs.com/investor-relations/annual-reports/default.aspx

http://fortune.com/2014/10/30/kellogg-breakfast-sales-drop/

www.fishbowl.com/coca-cola-offers-restaurant-customers-new-digitalmarketing-solutions-powered-by-fishbowl/

http://officedepotfoundation.org

www.census.gov/main/www/popclock.html

http://socialmediatoday.com/tracy-sestili/2115511/5-reasons-why-you-should-market-baby-boomers-45-65-year-olds

www.immersionactive.com/resources/size-wealth-spending-50-consumers/

www.amazon.com/gp/browse.html/?node=5856180011

http://www.boomnc.com/wp-content/uploads/BOOM-media-kit.pdf

business.com/lowes-sustaining-customer-relationships-12506/

www.forbes.com/sites/gregpetro/2013/03/21/millennial-engagement-and-loyalty-make-thempart-of-the-process/

www.adweek.com/print/141378

www.dispatch.com/content/stories/business/2015/02/18/justice-shedding-brothers-brand.html

www.usatoday.com/story/money/business/2014/03/10/honey-maid-mondelez-coca-cola-cheerios-diversity-commercials/6131151/

www.usatoday.com/story/money/business/2014/03/10/honey-maid-mondelez-cocacola-cheerios-diversity-commercials/6131151/

www.census.gov/population/www/socdemo/migrate.html

604 References

44. John Biggs, “Three Things Warby Parker Did to Launch a Successful Lifestyle Brand,” TechCrunch, May 7, 2013, http://techcrunch .com/2013/05/07/the-three-things-warby-parker-did-to-launch-a- successful-lifestyle-brand/.

45. See “Statistics Every Cause Marketer Should Know,” www .causemarketingforum.com/site/c.bkLUKcOTLkK4E/b.6448131/k.262B/ Statistics_Every_Cause_Marketer_Should_Know.htm, accessed September 2015.

46. See www.yogiproducts.com/ and www.yogiproducts.com/our-story/our- story/, accessed September 2015.

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48. See Brent Snavely, “Chrysler Keeps ‘Imported from Detroit’ Tagline,” USA Today, April 24, 2013; and “Apple Kicks Off ‘Made in USA’ Marketing Push with High-End Mac Pro,” Advertising Age, December 19, 2013, http://adage.com/print/245765/.

49. See “Natural and Organic Foods and Beverages in the U.S., 4th Edition,” PR Newswire, December 22, 2014, www.prnewswire.com/ news-releases/natural-and-organic-foods-and-beverages-in-the-us-4th- edition-300013041.html.

50. Based on information from various pages at www.annies.com, accessed September 2015.

51. The Pew Forum on Religion & Public Life, “Nones on the Rise,” www .pewforum.org/Unaffiliated/nones-on-the-rise.aspx, accessed October 9, 2012; and http://religions.pewforum.org/, accessed September 2015.

52. For more discussion, see Diana Butler Bass, “The End of Church,” Huffington Post, February 18, 2012, www.huffingtonpost.com/diana- butler-bass/the-end-of-church_b_1284954.html.

53. See Brad Tuttle, “McDonald’s Made the Right Move in Response to Gross ‘Pink Slime,’” Time, February 5, 2014, http://time.com/4680/ mcdonalds-made-the-right-move-in-response-to-gross-pink-slime/; www.youtube.com/watch?v=Ua5PaSqKD6k, accessed September 2015; Bruce Horovitz, “McDonald’s to Customers: Ask about Food Quality,” USA Today, October 13, 2014, www.usatoday.com/story/ money/business/2014/10/13/mcdonalds-fast-food-food-quality- restauants/17213145/; and www.mcdonalds.com/us/en/your_questions/ our_food.html, accessed September 2015.

Chapter 4 1. Jonathon Ringen, “When It Clicks, It Clicks,” Fast Company, February

2015, pp. 72–78+; Jacob Davidson, “LEGO Is Now the Largest Toy Company in the World,” Money, September 4, 2014, http://time.com/ money/3268065/lego-largest-toy-company-mattel/; Katarina Gustafsson, “Rebuilding LEGOs for Today’s Kids,” Businessweek, November 7, 2013, www.businessweek.com/printer/articles/166234; Andrew Jack, “How LEGO Took to Anthropology,” Financial Times, February 26, 2014, www.ft.com/cms/s/0/b071990c-9d4c-11e3-a599-00144feab7de .html#axzz3N8u6XIPH; Roar Rude Trangbaek, “LEGO Friends Doubled Expectations for Sales in 2012,” February 21, 2013, www.lego .com/en-us/aboutus/news-room/2013/february/lego-friends-doubled- expectations-for-sales-in-2012; Christian Madsbjerg and Mikkel B. Rasmussen, “An Anthropologist Walks into a Bar…,” Harvard Business Review, March, 2014, pp. 80–88; Nicole Lee, “Lego Fusion Lets You Build Virtual Playground with Real-World Bricks,” engadget, June 19, 2014, www.engadget.com/2014/06/19/lego-fusion/; and www.lego.com, September 2015. LEGO, MINDSTORMS, NINJAGO, and LEGENDS OF CHIMA are Trademarks of the LEGO Group of Companies, used here by permission. © 2015 The LEGO Group. All rights reserved.

2. See Craig Smith, “By the Numbers: 175 Amazing Pinterest Statistics,” Digital Marketing Ramblings, January 2, 2015, http://expandedramblings .com/index.php/pinterest-stats/; and Kerry Flynn, “Get Ready to See More Ads on Pinterest in 2015,” Huffington Post, December 29, 2014, www .huffingtonpost.com/2014/12/29/pinterest-ads_n_6390662.html.

3. See “Big Data,” Wikipedia, http://en.wikipedia.org/wiki/Big_data, accessed February 2015; and Michael Lev-Ram, “What’s the Next Big Thing in Big Data? Bigger Data,” Fortune, June 16, 2014, pp. 233–240.

4. See a detailed description at “Customer Insights Analyst,” http://jobs .geico.com/geico/customer-insights-analyst, accessed September 2015.

5. See www.walmartstores.com/Suppliers/248.aspx, accessed February 2015; and “Retail Link 2.0,” 8th & Walton, http://blog.8thandwalton .com/2014/08/retail-link-2-0/, accessed September 2015.

6. Based on information from “Macy’s: 150+ Years of Customer Centricity,” Slideshare, February 22, 2013, www.slideshare.net/imediaconnection/2013-

28. See U.S. Census Bureau, “The 2012 Statistical Abstract: Education,” Tables 229 and 276, www.census.gov/compendia/statab/cats/education .html; and U.S. Department of Labor, “Employment Projections: 2012– 2022 Summary,” December 19, 2013, www.bls.gov/news.release/ecopro .nr0.htm.

29. See U.S. Census Bureau, “Projections of the Size and Composition of the U.S. Population: 2014 to 2060,” March 2015, www.census.gov/ content/dam/Census/library/publications/2015/demo/p25-1143.pdf; and “Multicultural Consumers by the Numbers,” Advertising Age, April 6, 2015, p. 20.

30. See “Ads Targeting Asian Americans in the U.S., Multicultural Marketing Resources, http://multicultural.com/multicultural_markets/asian-american, accessed June 2015; Marilyn Much, “More Firms Reach Out To Asian Americans,” Investors.com, September 29, 2003, http://news.investors .com; and www.chineseparade.com/, www.southwest.com/asianoutreach/, access September 2015.

31. Witeck Communications, “America’s LGBT 2013 Buying Power Estimated at $830 Billion,” November 18, 2013, www.witeck.com/pressreleases/ lgbt-2013-buying-power.

32. For more discussion, see Stuart Elliott, “Commercials with a Gay Emphasis Are Moving to Mainstream Media,” New York Times, June 26, 2013, p. B3; “Ad Campaigns Are Finally Reflecting Diversity of U.S.,” Advertising Age, March 10, 2014, http://adage.com/print/292023; Kristina Monllos, “This Is Tiffany’s First Engagement Ad to Feature a Same-Sex Couple,” Adweek, January 12, 2015, www.adweek.com/print/162310; and www.aa.com/rainbow, www.facebook.com/AARainbowTeam, and http:// toddallthetime.com/Allstate-LGBT, accessed September 2015.

33. Witeck-Combs Communications, “America’s Disability Market at a Glance,” www.witeck.com/wp/files/Americas-Disability-Market-at-a-Glance- FINAL-5-25-2006.pdf; U.S. Census Bureau, “Nearly 1 in 5 People Have a Disability in the U.S., Census Bureau Reports,” press release, July 25, 2012, www.census.gov/newsroom/releases/archives/miscellaneous/cb12-134 .html; and Christina Ng, “Huge Demographic Virtually Invisible in Media Wants to Be Seen,” ABC News, May 29, 2013, http://abcnews.go.com/ Business/disabled-community-media-marketing/story?id=19143489.

34. “Ad of the Day: Paralympic Snowboarder Amy Purdy Perseveres in Toyota’s Super Bowl Spot,” Adweek, January 26, 2015, www.adweek.com/ print/162542.

35. See Rob Walker, “Tiffany & Co: At What Point Does Affordable Luxury Prove Costly?” Euromonitor International, June 25, 2014, http://blog .euromonitor.com/2014/06/tiffany-co-at-what-point-does-affordable- luxury-prove-costly.html; and “Tiffany Moves Down Market and Makes a Mint,” Bloomberg Businessweek, May 21, 2014, www.bloomberg.com/ bw/articles/2014-05-21/tiffany-moves-down-market-and-makes-a-mint.

36. See U.S. Census Bureau, “Income and Poverty in the United States: 2013,” Table 2, p. 17, September 2014, www.census.gov/content/dam/ Census/library/publications/2014/demo/p60-249.pdf.

37. Drew Harwell, “Meet the Secret Army of Meteorologists Who Keep Your Holiday Deliveries on Time,” The Washington Post,” December 8, 2014, www.washingtonpost.com/business/economy/meet-the-secret-army- of-meteorologists-who-keep-your-holiday-deliveries-on-time/2014/12/08/ 2d9d3c82-759d-11e4-9d9b-86d397daad27_story.html.

38. The 2030 Water Resources Group, www.2030wrg.org, accessed June 2015; and “The World’s Water,” Pacific Institute, www.worldwater.org/ data.html, accessed September 2015.

39. Information from www.timberland.com, http://responsibility.timberland. com/, and http://community.timberland.com/earthkeeping/earthkeepers- collection, accessed June 2015.

40. See “Burberry Introduces Smart Personalization for Shoppers,” Integer, March 25, 2013, http://shopperculture.integer.com/2013/03/ burberry-introduces-smart-personalization-for-shoppers.html; and “Tracking Customers’ Shopping Data: RFIDs, Barcodes or QR Codes?” April 6, 2015, www.bigdata-madesimple.com/tracking-customers- shopping-data-rfids-barcodes-or-qr-codes/.

41. See “A $1 Billion Project to Remake the Disney World Experience, Using RFID,” www.fastcodesign.com/1671616/a-1-billion-project-to- remake-the-disney-world-experience-using-rfid#1; Brooks Barnes, “At Disney Parks, a Bracelet Meant to Build Loyalty (and Sales), New York Times, January 7, 2013, p. B1; and Claire Swedberg, “MagicBands Bring Convenience, New Services to Walt Disney World,” RFID Journal, June 16, 2014, www.rfidjournal.com/articles/view?11877.

42. See www.shakeshack.com/tag/great-american-shake-sale/ and www .itcanwait.com, accessed September 2015.

43. See “Warby Parker: Do Good,” www.warbyparker.com/do-good/#home, accessed June 2015.

http://techcrunch.com/2013/05/07/the-three-things-warby-parker-did-to-launch-asuccessful-lifestyle-brand/

www.causemarketingforum.com/site/c.bkLUKcOTLkK4E/b.6448131/k.262B/Statistics_Every_Cause_Marketer_Should_Know.htm

www.yogiproducts.com

www.yogiproducts.com/our-story/ourstory/

http://adage.com/print/245765

www.prnewswire.com/news-releases/natural-and-organic-foods-and-beverages-in-the-us-4th-edition-300013041.html

www.annies.com

pewforum.org/Unaffiliated/nones-on-the-rise.aspx

http://religions.pewforum.org

www.huffingtonpost.com/diana-butler-bass/the-end-of-church_b_1284954.html

http://time.com/4680/mcdonalds-made-the-right-move-in-response-to-gross-pink-slime/

www.usatoday.com/story/money/business/2014/10/13/mcdonalds-fast-food-food-qualityrestauants/17213145/

www.mcdonalds.com/us/en/your_questions/our_food.html

http://time.com/money/3268065/lego-largest-toy-company-mattel/

www.lego.com/en-us/aboutus/news-room/2013/february/lego-friends-doubledexpectations-for-sales-in-2012

www.lego.com

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euromonitor.com/2014/06/tiffany-co-at-what-point-does-affordable-luxury-prove-costly.html

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www.forbes.com/sites/hbsworkingknowledge/2013/02/01/neuromarketing- tapping-into-the-pleasure-center-of-consumers/. For other examples and discussion, see Roger Dooley, “Is Starbucks Coffee Too Cheap?” Forbes, October 14, 2013, www.forbes.com/sites/rogerdooley/2013/10/14/is- starbucks-coffee-too-cheap/; and Thomas Zoega Ramsey, Neuromarketing & Consumer Neuroscience (Rorvig, Denmark: Neurons Inc, 2014).

23. See Jennifer Alsever, “Technology Is the Best Policy,” Fortune, November 18, 2013; “Built in Record Time, the MetLife Wall Knocks Down Barriers to Great Customer Service,” October 23, 2013, www.metlifegto.com/ news/Built-in-record-time–the-MetL; and “5 Lessons Learned from the MetLife Wall,” Insurance Networking News, www.insurancenetworking .com/gallery/5-lessons-learned-from-the-metlife-wall-34261-1.html, accessed September 2015.

24. Andrew Nusca, “Despite High Tech, the Future of Marketing Is Exactly the Same: Focus on Customers,” Fortune, July 15, 2014, http://fortune.com/2014/07/15/ big-data-future-marketing-customer-focus/; and Phani Nagarjuna, “Seven Steps to Understanding Your Business and Monetizing Analytics,” Sales & Marketing Management, January 9, 2015, http://salesandmarketing.com/ content/seven-steps-understanding-your-business-and-monetizing-analytics.

25. For more discussion, see Elizabeth A. Sullivan, “Analytics in Action,” Marketing News, December 2014, pp. 24-33; and Jayson DeMers, “2014 Is the Year of Digital Marketing Analytics: What It Means for Your Company,” Forbes, February 2, 2014, www.forbes.com/sites/jaysondemers/ 2014/02/10/2014-is-the-year-of-digital-marketing-analytics-what-it- means-for-your-company/.

26. Avi Dan, “How Data Nourishes Agile Marketing at Kraft,” Forbes, October 26, 2014, www.forbes.com/sites/avidan/2014/10/26/how-data- nourishes-agile-marketing-at-kraft-foods/; and Jack Neff, “Kraft Says Content Delivers Four Times Better ROI than Ads,” Advertising Age, September 15, 2014, p. 8.

27. “1-800-Flowers.com Customer Connection Blooms with SAS Business Analytics,” www.sas.com/success/1800flowers.html, accessed September 2015.

28. See Daryl Travis, “The Best Omni-Channel Brands Look More Like a Cause than a Business,” The Hub, August 2014, www.hubmagazine.com/ the-hub-magazine/zappos-omnivalues-082014/; and https://zuul.zappos .com/zuul/login, accessed September 2015.

29. Based on information in Ann Zimmerman, “Small Business; Do the Research,” Wall Street Journal, May 9, 2005, p. R3; with additional information and insights from John Tozzi, “Market Research on the Cheap,” BusinessWeek, January 9, 2008, www.businessweek.com/smallbiz/content/ jan2008/sb2008019_352779.htm; “Understanding the Basics of Small Business Market Research,” All Business, www.allbusiness.com/marketing/ market-research/2587-1.html#axzz2K8T92eOR, accessed February 2015; and www.bibbentuckers.com, accessed September 2015.

30. For some good advice on conducting market research in a small business, search “conducting market research” at www.sba.gov or see “Researching Your Market,” Entrepreneur, www.entrepreneur.com/article/43024-1, accessed September 2015.

31. See “The 2015 AMA Gold Global Top 25 Report,” Marketing News, August 2015, pp. 34+; and www.nielsen.com/us/en/about-us.html and www.nielsen .com/us/en.html?worldWideSelected=true, accessed August 2015.

32. For these and other examples, see “From Tactical to Personal: Synovate’s Tips for Conducting Marketing Research in Emerging Markets,” Marketing News, April 30, 2011, pp. 20–22. Internet stats are from http://data .worldbank.org/indicator/IT.NET.USER.P2, accessed September 2015.

33. Subhash C. Jain, International Marketing Management, 3rd ed. (Boston: PWS-Kent, 1990), p. 338. For more discussion on international marketing research issues and solutions, see Warren J. Keegan and Mark C. Green, Global Marketing, 8th ed. (Upper Saddle River, NJ: Prentice Hall, 2015), pp. 170–201.

34. Zach Miners, “Your Control of Your Personal Info Is All but Dead, Pew Respondents Fear,” PCWorld, November 12, 2014, www.pcworld.com/ article/2846855.

35. Based on information from Charles Duhigg, “Psst, You in Aisle 5,” New York Times, February 19, 2012, p. MM30; and Kashmir Hill, “How Target Figured Out a Teen Girl Was Pregnant before Her Father Did,” Forbes, February 16, 2012, www.forbes.com/sites/kashmirhill/2012/02/16/ how-target-figured-out-a-teen-girl-was-pregnant-before-her-father-did/.

36. See Andrew Roberts, “In Some Stores, All Eyes Are on You,” Bloomberg Businessweek, December 10, 2012, pp. 32–33; and “EyeSee Mannequin,” www.almax-italy.com/en-US/ProgettiSpeciali/EyeSeeMannequin.aspx, accessed September 2014.

37. “ICC/ESOMAR International Code of Marketing and Social Research Practice,” www.esomar.org/index.php/codes-guidelines.html, accessed

2brandmacys; Allison Schiff, “Macy’s CMO Shares Loyalty Insights at NRF Big Show,” Direct Marketing News, January 16, 2012, www.dmnews .com/macys-cmo-shares-loyalty-insights-at-nrf-big-show/article/223344/; Emily Heitkamp, “Macy’s Strategic Customer Focus: Love Your Loyals,” loyalty360, September 19, 2013, http://loyalty360.org/resources/article/ macys-strategic-customer-focus-love-your-loyals; and “Macy’s Focuses on the Customer; Builds Comprehensive View Across Touch Points,” Acxiom Case Study, www.acxiom.com/resources/macys-focuses-customer-builds- comprehensive-view-across-touch-points/, accessed September 2015.

7. Example based on information from Michal Lev-Ram, “Samsung’s Road to Mobile Domination,” Fortune, February 4, 2013, pp. 99–101; Jason Gilbert, “Samsung Mocks iPhone 5, Apple Fanboys Again in New Galaxy S3 Commercial,” Huffington Post, September 1, 2012, www.huffingtonpost .com/2012/09/20/samsung-mocks-iphone-5-commercial_n_1898443 .html; Suzanne Vranica, “Tweets Spawn Ad Campaigns,” Wall Street Journal, October 22, 2012, p. B5; and Luke Villapaz, “Samsung Mocks Apple iPhone 6 and Apple Watch in New Series of Ads,” International Business Times, September 11, 2014, www.ibtimes.com/samsung-mocks- apple-iphone-6-apple-watch-new-series-ads-video-1685 612.

8. George Chidi, “Confessions of a Corporate Spy,” Inc., February 2013, pp. 72–77.

9. For more on research firms that supply marketing information, see Laurence N. Gold, “The 2015 AMA Gold Global Top 50 Report,” Marketing News, August 2015. Other information from www.nielsen .com/us/en/solutions/measurement/retail-measurement.html and http:// thefuturescompany.com/what-we-do/us-yankelovich-monitor, accessed February 2015.

10. See www.iriworldwide.com/SolutionsandServices/Detail.aspx?ProductID= 181, accessed September 2015.

11. See www.fisher-price.com/en_US/ourstory/research-at-the-heart/index .html, accessed September 2015.

12. E. J. Schultz, “Tapping into the Secret Town,” Advertising Age, June 17, 2013, pp. 12–13. For other discussions and examples of ethnographic research in marketing, see Madsbjerg and Rasmussen, “An Anthopologist Walks into a Bar…”; and Christine Birkner, “C’est La Vie,” Marketing News, June 2014, pp. 23-27.

13. See Birkner, “C’est La Vie”; and “Landor Families,” http://landor.com/#!/ talk/articles-publications/articles/landor-families/, accessed September 2015.

14. See Rebecca Greenfield, “How the Deepest, Darkest Secrets of Moms Shape the Products in Aisle 6,” Fast Company, December 19, 2014, www.fastcompany.com/3039798/most-creative-people/how-the-deepest- darkest-secrets-of-moms-shape-the-products-in-aisle-6?utm_source; and www.momcomplex.com, accessed September 2015.

15. Molly Soat, “Everything in Moderation,” Marketing News, April 2014, pp. 36–46, here p. 38.

16. See “Pew Research Internet Project,” Pew Internet, February 27, 2014, www .pewinternet.org/2014/02/27/part-1-how-the-internet-has-woven-itself- into-american-life/; and “Internet World Stats,” www.internetworldstats .com/stats.htm, accessed September 2015.

17. For more information, see www.focusvision.com and www.youtube.com/ watch?v=PG8RZl2dvNY, accessed September 2015.

18. See www.lexusadvisoryboard.com and www.nascarfancouncil.com, accessed September 2015.

19. For more discussion, see “Do-Not-Track Online Act of 2013,” www .congress.gov/bill/113th-congress/senate-bill/418; Fred B. Campbell, Jr., “The Slow Death of ‘Do Not Track,’” New York Times, December 27, 2014, p. A17; and “Do Not Track Legislation,” http://en.wikipedia.org/ wiki/Do_Not_Track_legislation, accessed September 2015.

20. See Clint Boulton, “Snack Maker Modernizes the Impulse Buy,” Wall Street Journal, October 17, 2013, p. B4; Aaron Taube, “The Maker of Oreos Has Invented a Store Shelf that Spies on You While You’re Shopping,” Business Insider, October 18, 2013, www.businessinsider .com/mondelez-smart-shelf-technology-2013-10; and “Mondelez Smart Shelf,” http://vimeo.com/96148396, accessed September 2015.

21. Based on information from Amy Chozick, “These Lab Specimens Watch 3-D Television,” New York Times, January 25, 2012, p. B3; Sam Thielman, “Time Warner’s Media Lab Knows What You Like to Watch,” Adweek, February 4, 2013, www.adweek.com/news/technology/time-warner-s- media-lab-knows-what-you-watch-147045; and www.timewarnermedialab .com, accessed September 2015.

22. See Adam L. Penenberg, “NeuroFocus Uses Neuromarketing to Hack Your Brain,” Fast Company, August 8, 2011, www.fastcompany.com/magazine/158/ neuromarketing-intel-paypal; and Carmen Nobel, “Neuromarketing: Tapping into the ‘Pleasure Center’ of Consumers,” Forbes, February 2, 2013,

www.forbes.com/sites/hbsworkingknowledge/2013/02/01/neuromarketing-tapping-into-the-pleasure-center-of-consumers/

www.forbes.com/sites/rogerdooley/2013/10/14/is-starbucks-coffee-too-cheap/

www.metlifegto.com/news/Built-in-record-time%E2%80%93the-MetL

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http://fortune.com/2014/07/15/big-data-future-marketing-customer-focus/

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1-800-Flowers.com

www.sas.com/success/1800flowers.html

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https://zuul.zappos.com/zuul/login

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www.allbusiness.com/marketing/market-research/2587-1.html

www.bibbentuckers.com

www.sba.gov

www.nielsen.com/us/en/about-us.html

www.nielsen.com/us/en.html

http://data.worldbank.org/indicator/IT.NET.USER.P2

www.pcworld.com/article/2846855

www.forbes.com/sites/kashmirhill/2012/02/16/how-target-figured-out-a-teen-girl-was-pregnant-before-her-father-did/

www.almax-italy.com/en-US/ProgettiSpeciali/EyeSeeMannequin.aspx

www.esomar.org/index.php/codes-guidelines.html

www.dmnews

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www.huffingtonpost.com/2012/09/20/samsung-mocks-iphone-5-commercial_n_1898443.html

www.ibtimes.com/samsungmocksapple-iphone-6-apple-watch-new-series-ads-video-1685 612

www.nielsen.com/us/en/solutions/measurement/retail-measurement.html

http://thefuturescompany.com/what-we-do/us-yankelovich-monitor

www.iriworldwide.com/SolutionsandServices/Detail.aspx

www.fisher-price.com/en_US/ourstory/research-at-the-heart/index.html

www.momcomplex.com

www.pewinternet.org/2014/02/27/part-1-how-the-internet-has-woven-itselfinto-american-life/

www.focusvision.com

www.lexusadvisoryboard.com

www.nascarfancouncil.com

www.congress.gov/bill/113th-congress/senate-bill/418

http://en.wikipedia.org/wiki/Do_Not_Track_legislation

www.businessinsider.com/mondelez-smart-shelf-technology-2013-10

http://vimeo.com/96148396

www.timewarnermedialab.com

www.fastcompany.com/magazine/158/neuromarketing-intel-paypal

http://www.entrepreneur.com/article/43024-1

http://www.acxiom.com/resources/macys-focuses-customer-builds-comprehensive-view-across-touch-points/

http://www.iriworldwide.com/SolutionsandServices/Detail.aspx?ProductID=181

http://landor.com/#!/talk/articles-publications/articles/landor-families/

http://www.fastcompany.com/3039798/most-creative-people/how-the-deepest-darkest-secrets-of-moms-shape-the-products-in-aisle-6?utm_source

http://www.adweek.com/news/technology/time-warner-s-media-lab-knows-what-you-watch-147045

http://www.slideshare.net/imediaconnection/2013-2brandmacys

www.huffingtonpost.com/2012/09/20/samsung-mocks-iphone-5-commercial_n_1898443.html

www.ibtimes.com/samsungmocksapple-iphone-6-apple-watch-new-series-ads-video-1685 612

http://www.iriworldwide.com/SolutionsandServices/Detail.aspx?ProductID=181

www.fisher-price.com/en_US/ourstory/research-at-the-heart/index.html

http://landor.com/#!/talk/articles-publications/articles/landor-families/

www.pewinternet.org/2014/02/27/part-1-how-the-internet-has-woven-itselfinto-american-life/

www.congress.gov/bill/113th-congress/senate-bill/418

www.businessinsider.com/mondelez-smart-shelf-technology-2013-10

www.timewarnermedialab.com

www.forbes.com/sites/hbsworkingknowledge/2013/02/01/neuromarketing-tapping-into-the-pleasure-center-of-consumers/

www.forbes.com/sites/rogerdooley/2013/10/14/is-starbucks-coffee-too-cheap/

www.insurancenetworking.com/gallery/5-lessons-learned-from-the-metlife-wall-34261-1.html

www.forbes.com/sites/jaysondemers/2014/02/10/2014-is-the-year-of-digital-marketing-analytics-what-itmeans-for-your-company/

www.forbes.com/sites/avidan/2014/10/26/how--datanourishes-agile-marketing-at-kraft-foods/

https://zuul.zappos.com/zuul/login

606 References

“U.S. Population Projections,” www.census.gov/population/projections, accessed September 2015.

9. See Liang Guo, “Crowdsourcing—AT&T and Wong Fu Productions ‘Away We Happened,’” Voices, November 4, 2013, http://liyangnewmedia .wordpress.com/2013/11/04/crowdsourcing-att-and-wong-fu-productions- away-we-happened/; “Multicultural Media: Rezonate Media, AT&T, Away We Happened,” December 28, 2012, www.mediapost.com/publications/ article/190095/multicultural-media-rezonate-media-att-away-we.html; and AT&T “Away We Happened,” www.effie.org/case_studies/case/2237, accessed September 2015.

10. See Don Ricker, “Swiffer Makes Sweeping Statement about What Makes a Family,” Huffington Post, January 1, 2014, www.huffingtonpost .com/2014/01/22/swiffer-interracial-amputee-ad-inclusive_n_4639794.html; Stuart Elliott, “New Ad Organization to Promote Cross-Cultural Marketing,” New York Times, August 30, 2013, www.nytimes.com/2013/08/31/business/ media/new-ad-organization-to-promote-cross-cultural-marketing.html?_ r=2&; and www.youtube.com/watch?v=Z01qH-jqGBY and www.youtube .com/watch?v=LKuQrKeGe6g, accessed September 2015.

11. Kimberly A. Whitler, “Why Word of Mouth Marketing Is the Most Important Social Media,” Forbes, July 12, 2014, www.forbes.com/sites/ kimberlywhitler/2014/07/17/why-word-of-mouth-marketing-is-the-most- important-social-media.

12. “Mercedes-Benz: Take the Wheel,” http://industry.shortyawards.com/ nominee/6th_annual/It/mercedes-benz-take-the-wheel, accessed March 2015; and “Take the Wheel,” www.wommapedia.org/#section8, accessed September 2015.

13. Kate Taylor, “For McRib Fans, Search for the Sandwich Is Worth the Effort,” Entrepreneur, November 21, 2013, www.entrepreneur.com// article/230063#; and http://mcriblocator.com, accessed September 2015.

14. Chris Slocumb, “Women Outspend Men 3 to 2 on Technology Purchases,” ClarityQuest, January 3, 2013, www.clarityqst.com/women-outspend- men-3-to-2-on-technology-purchases/; Bryce Covert, “More Men Go Shopping and Do the Cooking,” October 24, 2013, http://thinkprogress .org/economy/2013/10/24/2830121; Sarwant Singh, “Women in Cars: Overtaking Men on the Fast Lane,” Forbes, May 23, 2014, www.forbes .com/sites/sarwantsingh/2014/05/23/women-in-cars-overtaking-men-on- the-fast-lane/; and D’Vera Cohn and Andrea Caumont, “7 Key Findings about Stay-at-Home Moms,” Fact Tank, April 8, 2014, www.pewresearch .org/fact-tank/2014/04/08/7-key-findings-about-stay-at-home-moms/.

15. See E. J. Schultz, “Tale of Two Ads: Cheerios ‘How to Dad’ Campaign Makes U.S. Debut,” Advertising Age, December 29, 2014, www.adage .com/print/296429; Jack Neff, “Move Over Mom, It’s Dad’s Turn,” Advertising Age, January 26, 2014, p. 6; and www.youtube.com/ watch?v=6GYxH2-WeZY, accessed September 2015.

16. See Bill Goodwin, “The Undeniable Influence of Kids,” Packaging Design, October 16, 2013, www.packagingdigest.com/packaging-design/undeniable- influence-kids; “Kids Spending and Influencing Power: $1.2 Trillion Says Leading Ad Firm,” Center for Digital Democracy, November 1, 2012, www .democraticmedia.org/kids-spending-and-influencing-power-12-trillion- says-leading-ad-firm; and Michael R. Solomon, Consumer Behavior, 10th ed. (Upper Saddle River, NJ: Pearson Publishing, 2013), Chapter 10.

17. For more on the Nielsen PRIZM, visit www.mybestsegments.com, accessed February 2015.

18. See “Microsoft-Nokia Launches Cheap Lumia Phones for Price Sensitive Consumers,” Forbes, January 15, 2015, www.forbes.com/sites/ greatspeculations/2015/01/15/microsoft-nokia-launches-cheap-lumia- phones-for-price-sensitive-consumers/; and “Apple Expected to Increase Marketing Presence Abroad with Low-Cost iPhone,” Advertising Age, September 10, 2013, www.adage.com/print/244072.

19. See Christopher Heine, “Appliance Brands Are Diving into Digital This Summer,” Adweek, July 12, 2013, www.adweek.com/news/ technology/appliance-brands-are-diving-digital-summer-150989; “KitchenAid ‘So Much More’ TV Commercial,” www.youtube.com/ watch?v=tr9KQQL5lgQ, accessed March 2015; and http://blog.kitchenaid .com/, www.pinterest.com/kitchenaidusa/, and www.kitchenaid.com/about- kitchenaid/, accessed September 2015.

20. See Jennifer Aaker, “Dimensions of Measuring Brand Personality,” Journal of Marketing Research, August 1997, pp. 347–356; and Philip Kotler and Kevin Lane Keller, Marketing Management, 15th ed. (Upper Saddle River, New Jersey: Pearson Publishing, 2016), Chapter 6.

21. See “Air on the Side of Humanity,” September 17, 2013, www.mullen. com/air-on-the-side-of-humanity/; Shubhodeep Pal, “Inspiration for 2015: The Best Airline Marketing Campaigns from Last Year, SimpliFlying, January 8, 2015, http://simpliflying.com/2015/inspiration-2015-best-airline- marketing-2014/; and www.jetblue.com/corporate-social-responsibility/, accessed September 2015.

February 2015. Also see “Respondent Bill of Rights,” www.mra-net.org/ ga/billofrights.cfm, accessed September 2015.

38. “FTC Complaint Charges Deceptive Advertising by POM Wonderful,” September 27, 2010, www.ftc.gov/opa/2010/09/pom.shtm; Ashley Post, “FTC Issues Final Ruling against POM Wonderful,” Inside Counsel. Break News, January 17, 2013; and Brent Kendall, “Appeals Court Likely to Uphold FTC Ruling on Juice Maker Pom,” Wall Street Journal, May 2, 2014, www.wsj.com/articles/SB10001424052702303678404579538123 825242670.

39. Information at www.casro.org/?page=TheCASROCode&hhSearchTerms =%22code+and+standards%22, accessed September 2015.

Chapter 5 1. Quotes and other information from Ben Popkin, “How Harley-Davidson,

Inc. Hopes to Gain Market Share,” The Motley Fool, February 5, 2014, www .fool.com/investing/general/2014/02/05/how-harley-davidson-inc-hopes- to-gain-market-share.aspx; Susanna Hamner, “Harley, You’re Not Getting Any Younger,” New York Times, March 22, 2009, p. BU1; “Thousands of Thundering Motorcycles Rumble through Milwaukee for Harley- Davidson 110th Anniversary Parade,” PRNewswire, August 31, 2013, www .prnewswire.com/news-releases/thousands-of-thundering-motorcycles- rumble-through-milwaukee-for-harley-davidson-110th-anniversary- parade-221946591.html; “Harley Owners Group,” www.harley-davidson .com/content/h-d/en_US/home/owners/hog.html, accessed March 2014; and various pages at www.harley-davidson.com, accessed September 2015.

2. Consumer expenditure figures from www.cia.gov/library/publications/ the-world-factbook/geos/us.html and “Household Final Consumption Expenditure,” The World Bank, http://data.worldbank.org/indicator/ NE.CON.PRVT.CD, accessed September 2015. Population figures from the World POPClock, U.S. Census Bureau, www.census.gov/main/ www/popclock.html, accessed September 2015. This Web site provides continuously updated projections of U.S. and world populations.

3. See Danielle Britni, “African Americans Have $1.1 Trillion in Buying Power,” Clutch, February 2014, www.clutchmagonline.com/2014/02/ african-americans-1-1-trillion-dollars-buying-power-putting-good-use; U.S. Census Bureau, “U.S. Population Projections,” www.census.gov/population/ projections, accessed February 2015; and information from “Reaching Black Consumers,” www.reachingblackconsumers.com, accessed September 2015.

4. “U.S. Forest Service and Ad Council Launch New Multimedia Public Service Advertising Effort to Encourage African American Families to Discover Nature,” June 7, 2012, www.multivu.com/mnr/62047-us- forest-service-ad-council-psa-african-american-families-discover-nature; “US Forest Service Discover the Forest,” National Environmental Justice Conference and Training Program, April 4, 2013, www.scribd .com/doc/134213528/US-Forest-Service-Discover-The-Forest#scribd; “Discovering Nature (African-American Market),” www.adcouncil. org/Our-Campaigns/Family-Community/Discovering-Nature-African- American-Market, accessed February 2015; and www.discovertheforest .org, accessed September 2015.

5. Advertising Age Hispanic Fact Pack, July 28, 2014, pp. 33–37; and “Population Projections,” www.census.gov/population/projections/, accessed September 2015.

6. Lisa Gevelber, “Your Next Big Opportunity: The U.S. Hispanic Market,” thinkwithGoogle, July 2014, www.thinkwithgoogle.com/articles/us- hispanic-market-digital.html; and Lee Vann, “5 Predictions for Hispanic Online Marketing in 2015,” MediaPost, November 13, 2014, www .mediapost.com/publications/article/238136.

7. Based on information from Dale Buss, “Ram Redoubles Reach-Out to Hispanic Pickup-Truck Buyers,” Forbes, October 23, 2012, www.forbes .com/sites/dalebuss/2012/10/23/ram-redoubles-reach-out-to-hispanic- pickup-truck-buyers/; Tanya Irwin, “Ram Truck Hispanic Effort ‘Most Comprehensive,’” Marketing Daily, September 28, 2011, www.mediapost .com/publications/article/159482/?print; Michael D. Hernandez, “Big Brands Target Hispanic Consumers,” USA Today, September 23, 2013, www.usatoday.com/story/money/business/2013/09/22/big-brands- target-hispanic-consumers/2845009/; and www.youtube.com/watch?v=- q3Ia1BXAg0 and www.ramtrucks-la.com/, accessed September 2015.

8. See Christine Birkner, “Asian-Americans in Focus,” Marketing News, March 2013, p. 14; “Significant, Sophisticated and Savvy: The Asian American Consumer,” December 3, 2013, www.nielsen.com/us/en/insights/ reports/2013/significant-sophisticated-and-savvy-the-asian-american- consumer-report-2013.html; U.S. Census Bureau, “Facts for Features: Asian/Pacific American Heritage Month: May 2014,” www.census.gov/ newsroom/facts-for-features/2014/cb14-ff13.html; and U.S. Census Bureau,

www.census.gov/population/projections

www.mediapost.com/publications/article/190095/multicultural-media-rezonate-media-att-away-we.html

www.huffingtonpost.com/2014/01/22/swiffer-interracial-amputee-ad-inclusive_n_4639794.html

www.nytimes.com/2013/08/31/business/media/new-ad-organization-to-promote-cross-cultural-marketing.html

www.youtube.com/watch?v=LKuQrKeGe6g

www.forbes.com/sites/kimberlywhitler/2014/07/17/why-word-of-mouth-marketing-is-the-mostimportant-social-media

http://industry.shortyawards.com/nominee/6th_annual/It/mercedes-benz-take-the-wheel

www.entrepreneur.com//article/230063#

http://mcriblocator.com

www.clarityqst.com/women-outspendmen-3-to-2-on-technology-purchases/

www.forbes.com/sites/sarwantsingh/2014/05/23/women-in-cars-overtaking-men-onthe-fast-lane/

www.pewresearch.org/fact-tank/2014/04/08/7-key-findings-about-stay-at-home-moms/

www.adage.com/print/296429

www.packagingdigest.com/packaging-design/undeniableinfluence-kids

www.democraticmedia.org/kids-spending-and-influencing-power-12-trillionsays-leading-ad-firm

www.mybestsegments.com

www.forbes.com/sites/greatspeculations/2015/01/15/microsoft-nokia-launches-cheap-lumiaphones-for-price-sensitive-consumers/

www.adweek.com/news/technology/appliance-brands-are-diving-digital-summer-150989

http://blog.kitchenaid.com

www.pinterest.com/kitchenaidusa

www.kitchenaid.com/about-kitchenaid/

www.mullen.com/air-on-the-side-of-humanity/

www.jetblue.com/corporate

www.mra-net.org/ga/billofrights.cfm

www.ftc.gov/opa/2010/09/pom.shtm

www.wsj.com/articles/SB

www.fool.com/investing/general/2014/02/05/how-harley-davidson-inc-hopes-to-gain-market-share.aspx

www.prnewswire.com/news-releases/thousands-of-thundering-motorcycles-rumble-through-milwaukee-for-harley-davidson-110th-anniversary-parade-221946591.html

www.harley-davidson.com

www.cia.gov/library/publications/the-world-factbook/geos/us.html

http://data.worldbank.org/indicator/NE.CON.PRVT.CD

www.census.gov/main/www/popclock.html

www.clutchmagonline.com/2014/02/african-americans-1-1-trillion-dollars-buying-power-putting-good-use

www.census.gov/population/projections

www.reachingblackconsumers.com

www.scribd.com/doc/134213528/US-Forest-Service-Discover-The-Forest#scribd

www.adcouncil.org/Our-Campaigns/Family-Community/Discovering-Nature-African-American-Market

www.discovertheforest.org

www.census.gov/population/projections

www.thinkwithgoogle.com/articles/us-hispanic-market-digital.html

www.mediapost.com/publications/article/238136

www.forbes.com/sites/dalebuss/2012/10/23/ram-redoubles-reach-out-to-hispanicpickup-truck-buyers/

www.mediapost.com/publications/article/159482/?print

www.usatoday.com/story/money/business/2013/09/22/big-brandstarget-hispanic-consumers/2845009/

www.nielsen.com/us/en/insights/reports/2013/significant-sophisticated-and-savvy-the-asian-american-consumer-report-2013.html

www.ramtrucks-la.com

www.census.gov/newsroom/facts-for-features/2014/cb14-ff13.html

http://liyangnewmedia.wordpress.com/2013/11/04/crowdsourcing-att-and-wong-fu-productionsaway-we-happened/

http://www.effie.org/case_studies/case/2237

http://www.youtube.com/watch?v=Z01qH-jqGBY

http://www.wommapedia.org/#section8

http://thinkprogress.org/economy/2013/10/24/2830121

http://www.adage.com/print/244072

http://simpliflying.com/2015/inspiration-2015-best-airline-marketing-2014/

http://www.jetblue.com/corporate-social-responsibility/

http://www.wsj.com/articles/SB10001424052702303678404579538123825242670

http://www.casro.org/?page=TheCASROCode&hhSearchTerms=%22code+and+standards%22

http://www.harley-davidson.com/content/h-d/en_US/home/owners/hog.html

http://www.multivu.com/mnr/62047-us-forest-service-ad-council-psa-african-american-families-discover-nature

http://www.youtube.com/watch?v=-q3Ia1BXAg0

http://www.wsj.com/articles/SB10001424052702303678404579538123825242670

http://www.casro.org/?page=TheCASROCode&hhSearchTerms=%22code+and+standards%22

www.prnewswire.com/news-releases/thousands-of-thundering-motorcycles-rumble-through-milwaukee-for-harley-davidson-110th-anniversary-parade-221946591.html

http://www.harley-davidson.com/content/h-d/en_US/home/owners/hog.html

www.scribd.com/doc/134213528/US-Forest-Service-Discover-The-Forest#scribd

www.adcouncil.org/Our-Campaigns/Family-Community/Discovering-Nature-African-American-Market

www.discovertheforest.org

www.mediapost.com/publications/article/238136

www.forbes.com/sites/dalebuss/2012/10/23/ram-redoubles-reach-out-to-hispanicpickup-truck-buyers/

www.mediapost.com/publications/article/159482/?print

www.usatoday.com/story/money/business/2013/09/22/big-brandstarget-hispanic-consumers/2845009/

http://liyangnewmedia.wordpress.com/2013/11/04/crowdsourcing-att-and-wong-fu-productionsaway-we-happened/

www.huffingtonpost.com/2014/01/22/swiffer-interracial-amputee-ad-inclusive_n_4639794.html

www.youtube.com/watch?v=LKuQrKeGe6g

www.forbes.com/sites/kimberlywhitler/2014/07/17/why-word-of-mouth-marketing-is-the-mostimportant-social-media

www.entrepreneur.com//article/230063#

www.clarityqst.com/women-outspendmen-3-to-2-on-technology-purchases/

http://thinkprogress.org/economy/2013/10/24/2830121

www.forbes.com/sites/sarwantsingh/2014/05/23/women-in-cars-overtaking-men-onthe-fast-lane/

www.pewresearch.org/fact-tank/2014/04/08/7-key-findings-about-stay-at-home-moms/

www.adage.com/print/296429

www.packagingdigest.com/packaging-design/undeniableinfluence-kids

www.democraticmedia.org/kids-spending-and-influencing-power-12-trillionsays-leading-ad-firm

www.forbes.com/sites/greatspeculations/2015/01/15/microsoft-nokia-launches-cheap-lumiaphones-for-price-sensitive-consumers/

http://blog.kitchenaid.com

www.kitchenaid.com/about-kitchenaid/

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2. Susan Berfield, “Can Target Find Its Place in the Big City?” Bloomberg Businessweek, January 13, 2014, pp. 18–20; and Rebecca Cooper, “Target Aiming TargetExpress Format at Washington, D.C. Area,” Washington Business Journal, January 21, 2015, www.bizjournals.com/twincities/ news/2015/01/21/target-targetexpress-washington-dc-arlington.html.

3. See “Macy’s—Set for Healthy Performance in 2015,” Seeking Alpha, January 21, 2015, http://seekingalpha.com/article/2836036; Cotton Timberlake, “With Stores Nationwide, Macy’s Goes Local,” Bloomberg BusinessWeek, October 4–10, 2010, pp. 21–22; and Jim Tierney, “Macy’s Confident in My Macy’s, Magic Selling Customer Engagement Strategies,” Loyalty 360, August 15, 2013, http://loyalty360.org/ resources/article/macys-confident-in-my-macys-magic-selling-customer- engagement-strategies.

4. See www.amazon.com/gp/feature.html?ie=UTF8&docId=1000863021, accessed March 2015.

5. See www.dovemencare.com/, accessed September 2015. 6. See Oliver Wainwright, “Meet GoldieBlox: The Toy Designed to Get

Girls Interested in Engineering,” The Guardian, October 16, 2012, www .theguardian.com/artanddesign/architecture-design-blog/2012/oct/16/ goldieblox-toy-girls-engineering-gender; Caroline Bologna, “GoldieBlox Video Tells Parents to Encourage Daughters to Take Risks, Not Fear Failure,” Huffington Post, December 17, 2014, www.huffingtonpost .com/2014/12/17/goldieblox-music-video-_n_6340660.html; and www .goldieblox.com/, accessed September 2015.

7. “Inside a Department Store’s Secret Shopping Service,” Wall Street Journal, August 11, 2011, www.wsj.com/articles/SB1000142405311190 4140604576498733634049992; Alanna Greco, “A Day at Saks: Getting Personal with Their Personal Stylists,” Luxe Me Now, March 12, 2014, http://lmnonline.com/saks-interview/; and www.saksfifthavenue.com/ Saks-Stylist, accessed September 2015.

8. See www.vfc.com/brands, accessed September 2015. 9. For more on brand tribes, see Tina Sharkey, “What’s Your Tribe?” Forbes,

January 25, 2012, www.forbes.com/sites/tinasharkey/2012/01/25/whats- your-tribe-tap-into-your-core-consumers-aspirations-like-nike-gatorade- babycenter-and-rei-do/; Seth Godin, Tribes: We Need You to Lead Us (Portfolio, 2008); “Brand Tribalism,” Wikipedia, http://en.wikipedia.org/ wiki/Brand_tribalism, accessed September 2015.

10. Lisa Fleisher, “Pumpkin Spice Latte, the Drink That Almost Wasn’t,” Wall Street Journal, August 30, 2013, http://blogs.wsj.com/corporate- intelligence/2013/08/30/pumpkin-spice-latte-the-drink-that-almost-wasnt/; “Everything You Need to Know about the Return of Starbucks Pumpkin Spice Latte,” August 20, 2014, http://news.starbucks.com/news/everything- you-need-to-know-about-the-return-of-starbucks-pumpkin-spice-lat; and www.starbucks.com/menu/drinks/espresso/pumpkin-spice-latte, accessed September 2015.

11. See Lisa Jennings, “CKE: Advertising, Turkey Burgers Drive Sales,” Restaurant News, April 12, 2013, http://nrn.com/latest-headlines/cke- advertising-turkey-burgers-drive-sales; and “Introducing the New Big, Bold Texas BBQ Thickburger from Carl’s Jr. and Hardee’s,” Yahoo! Finance, July 21, 2014, http://finance.yahoo.com/news/introducing-big- bold-texas-bbq-120000118.html.

12. See www.patagonia.com/us/ambassadors, accessed September 2015. 13. For this and other information on Experian’s Mosaic USA system, see

www.experian.com/marketing-services/consumer-segmentation.html and www.experian.com/assets/marketing-services/brochures/mosaic-brochure- october-2014.pdf, accessed September 2015.

14. See www.starbucksfs.com and http://starbucksocs.com/, accessed September 2015.

15. See Jay Moy, “Every Song Has a Place: Coca-Cola, Spotify Launch Groundbreaking Social Music App,” June 11, 2013, www.coca-colacompany .com/coca-cola-music/every-song-has-a-place-coca-cola-spotify-launch- groundbreaking-social-music-app; “Coke Retools Teen Campaign in Second Year TV, Packaging Promotion Added to ‘The Aah Effect,’” Advertising Age, March 26, 2014, www.adage.com/print/292314; and www.coca-cola.com/ music, accessed September 2015.

16. See Michael Porter, Competitive Advantage (New York: Free Press, 1985), pp. 4–8, 234–236. For a more recent discussion, see Philip Kotler and Kevin Lane Keller, Marketing Management, 15th ed. (Upper Saddle River, NJ: Pearson, 2016), p. 221.

17. See Jack Neff, “Laundry Bounces Back by Playing Both Ends Against the Middle,” Advertising Age, March 23, 2015, p. 28; Serena Ng, “New Tide Churns the Laundry Market,” Wall Street Journal, September 26, 2013, http://online.wsj.com/news/articles/SB1000142405270230452620 4579099390487182058; Lauren Coleman-Lochner, “Laundry Detergent Maker Want More Suds,” Bloomberg Businessweek, October 23, 2014, www.businessweek.com/articles/2014-10-23/laundry-detergent-sales-hurt-

22. See Abraham H. Maslow, “A Theory of Human Motivation,” Psychological Review, 50 (1943), pp. 370–396. Also see Maslow, Motivation and Personality, 3rd ed. (New York: HarperCollins Publishers, 1987); and Michael R. Solomon, Consumer Behavior, 11th ed. (Upper Saddle River, NJ: Prentice Hall, 2014), pp. 132–134.

23. See Ellen Moore, “Letter to My Colleague: We Can Do Better,” Adweek, December 22, 2010, www.adweek.com/news/advertising-branding/letter- my-colleagues-we-can-do-better-104084; and Kelsey Libert and Kristin Tynski, “Research: The Emotions That Make Marketing Campaigns Go Viral,” Harvard Business Review, October 24, 2013, http://blogs.hbr.org/2013/10/ research-the-emotions-that-make-marketing-campaigns-go-viral/.

24. Example based on information found in John Berman, “Shrek Boosts Vidalia Onion Sales,” June 29, 2010, http://abcnews.go.com/WN/shrek-boosts- vidalia-onion-sales/story?id=11047273; and “Vidalia Onion Committee Cinches Triple Crown of National Marketing Awards,” October 20, 2011, www.vidaliaonion.org/news/vidalia_onion_committee_cinches_triple_ crown_of_national_-marketing_awards. Vidalia® is a registered certification mark of Georgia Department of Agriculture.

25. The following discussion draws from the work of Everett M. Rogers. See his Diffusion of Innovations, 5th ed. (New York: Free Press, 2003).

26. Based on Rogers, Diffusion of Innovation, p. 281. For more discussion, see http://en.wikipedia.org/wiki/Everett_Rogers, accessed September 2015.

27. See “Electric Car Use by Country,” Wikipedia, http://en.wikipedia.org/ wiki/Electric_car_use_by_country, accessed March 2015; and “Plug-In Vehicle Tracker: What’s Coming, When,” www.pluginamerica.org/vehicles, accessed September 2015.

28. See Corning Gorilla Glass 3 Featured in Micromax Smartphones,” Yahoo! Finance, August 13, 2014, http://finance.yahoo.com/news/corning-gorilla- glass-3-featured-123101319.html; David Matthews, “Coming in 2015: A Stronger Gorilla Glass for Smartphone Screens,” Fast Company, November 20, 2014, www.fastcompany.com/3038850; and www.corning.com/ AdvancedGlass/GorillaGlass.aspx, accessed September 2015.

29. See “CSX Transportation Takes Delivery of 300th Evolution Series Locomotive from GE,” Bloomberg, July 19, 2007, www.bloomberg.com/apps/ news?pid=newsarchive&sid=a79WICjr0_RI; and www.getransportation .com/locomotives, accessed September 2015.

30. This classic categorization was first introduced in Patrick J. Robinson, Charles W. Faris, and Yoram Wind, Industrial Buying Behavior and Creative Marketing (Boston: Allyn & Bacon, 1967). Also see Kotler and Keller, Marketing Management, Chapter 7.

31. Based on information from “Six Flags Entertainment Corporation: Improving Business Efficiency with Enterprise Asset Management,” July 12, 2012, www-01.ibm.com/software/success/cssdb.nsf/CS/LWIS-8W5 Q84?OpenDocument&Site=default&cty=en_us; and www-01.ibm.com/ software/tivoli/products/maximo-asset-mgmt/, accessed September 2015.

32. See Kate Maddox, “Seven B-to-B Marketing Trends That Will Shape 2015,” Advertising Age, January 13, 2015, www.adage.com/print/296518; and “USG ‘It’s Your World. Build it,’” www.pinterest.com/gyroideasshop/ usg-its-your-world-build-it/, accessed September 2015.

33. Robinson, Faris, and Wind, Industrial Buying Behavior, p. 14. Also see Kotler and Keller, Marketing Management, pp. 198–204.

34. For more ads in this series, see www.accenture.com/us-en/company/ overview/advertising/Pages/brand-print-advertising.aspx, accessed Sep- tember 2015.

35. See www.makino.com, www.youtube.com/user/MakinoMachineTools, www.facebook.com/MakinoMachine, and https://twitter.com/Makino Machine, accessed September 2015.

Chapter 6 1. Quotes and other information from Christine Champagne and Teressa

Iezzi, “Dunkin’ Donuts and Starbucks: A Tale of Two Coffee Marketing Giants,” Fast Company, August 21, 2014, www.fastcocreate.com/3034572; Leslie Patton, “Dunkin’ Donuts Adds Jazz to Get Less Pit and More Stop,” Bloomberg Businessweek, June 7, 2013, www.bloomberg.com/news/2013- 06-07/dunkin-donuts-adds-jazz-to-get-less-pit-and-more-stop.html; Janet Adamy, “Battle Brewing: Dunkin’ Donuts Tries to Go Upscale, but Not Too Far,” Wall Street Journal, April 8, 2006, p. A1; “Dunkin’ Donuts’ Great Eight: Brand Keys Ranks Dunkin’ Donuts Number One in Coffee Customer Loyalty for Eighth Straight Year,” Dunkin’ Donuts Newsroom, February 4, 2014, http://news.dunkindonuts.com; Khushbu Shah, “Starbucks or Dunkin’ Donuts? Where America’s Coffee Loyalty Lies,” Eater, January 15, 2015, www.eater.com/2015/1/15/7551497/starbucks- dunkin-donuts-peets-coffee-spending-percent; and www.dunkindonuts .com and www.dunkinbrands.com, accessed March 2015.

www.bizjournals.com/twincities/news/2015/01/21/target-targetexpress-washington-dc-arlington.html

http://seekingalpha.com/article/2836036

http://loyalty360.org/resources/article/macys-confident-in-my-macys-magic-selling-customerengagement-strategies

http://loyalty360.org/resources/article/macys--confident-in-my-macys-magic-selling-customerengagement-strategies

www.dovemencare.com

www.theguardian.com/artanddesign/architecture-design-blog/2012/oct/16/goldieblox-toy-girls-engineering-gender

www.huffingtonpost.com/2014/12/17/goldieblox-music-video-_n_6340660.html

www.goldieblox.com

www.saksfifthavenue.com/Saks-Stylist

www.vfc.com/brands

www.forbes.com/sites/tinasharkey/2012/01/25/whats-your-tribe-tap-into-your-core-consumers-aspirations-like-nike-gatoradebabycenter-and-rei-do/

http://en.wikipedia.org/wiki/Brand_tribalism

http://blogs.wsj.com/corporate-intelligence/2013/08/30/pumpkin-spice-latte-the-drink-that-almost-wasnt/

http://news.starbucks.com/news/everything-you-need-to-know-about-the-return-of-starbucks-pumpkin-spice-lat

www.starbucks.com/menu/drinks/espresso/pumpkin

http://nrn.com/latest-headlines/cke-advertising-turkey-burgers-drive-sales

http://finance.yahoo.com/news/introducing-big-bold-texas-bbq-120000118.html

www.patagonia.com/us/ambassadors

www.experian.com/marketing-services/consumer-segmentation.html

www.experian.com/assets/marketing-services/brochures/mosaic-brochure-october-2014.pdf

www.starbucksfs.com

http://starbucksocs.com

www.coca-cola.com/music

http://online.wsj.com/news/articles/SB10001424052702304526204579099390487182058

www.businessweek.com/articles/2014-10-23/laundry

www.adweek.com/news/advertising-branding/letter-my-colleagues-we-can-do-better-104084

http://blogs.hbr.org/2013/10/research-the-emotions-that-make-marketing-campaigns-go-viral/

http://abcnews.go.com/WN/shrek-boosts-vidalia-onion-sales/story?id=11047273

http://en.wikipedia.org/wiki/Everett_Rogers

http://en.wikipedia.org/wiki/Electric_car_use_by_country

www.pluginamerica.org/vehicles

http://finance.yahoo.com/news/corning-gorilla-glass-3-featured-123101319.html

www.corning.com/AdvancedGlass/GorillaGlass.aspx

www.bloomberg.com/apps/news

www.getransportation.com/locomotives

www-01.ibm.com/software/success/cssdb.nsf/CS/LWIS-8w5Q84?OpenDocument&Site=default&cty=en_us

www-01.ibm.com/software/tivoli/products/maximo-asset-mgmt/

www.pinterest.com/gyroideasshop/usg-its-your-world-build-it/

www.accenture.com/us-en/companyoverview/advertising/Pages/brand-print-advertising.aspx

www.makino.com

www.youtube.com/user/MakinoMachineTools

www.facebook.com/MakinoMachine

https://twitter.com/Makino

www.fastcocreate.com

www.bloomberg.com/news/2013-06-07/dunkin-donuts-adds-jazz-to-get-less-pit-and-more-stop.html

http://news.dunkindonuts.com

www.eater.com/2015/1/15/7551497/starbucks-dunkin-donuts-peets-coffee-spending-percent

www.dunkindonuts.com

www.dunkinbrands.com

http://www.amazon.com/gp/feature.html?ie=UTF8&docId=1000863021

http://www.wsj.com/articles/SB10001424053111904140604576498733634049992

http://lmnonline.com/saks-interview/

http://www.starbucks.com/menu/drinks/espresso/pumpkin-spice-latte

http://www.coca-colacompany.com/coca-cola-music/every-song-has-a-place-coca-cola-spotify-launchgroundbreaking-social-music-app

http://www.adage.com/print/292314

http://www.businessweek.com/articles/2014-10-23/laundry-detergent-sales-hurt-by-water-saving-washing-machines

http://www.vidaliaonion.org/news/vidalia_onion_committee_cinches_triple_crown_of_national_-marketing_awards

http://www.fastcompany.com/3038850

http://www.adage.com/print/296518

http://www.fastcocreate.com/3034572

www.adweek.com/news/advertising-branding/letter-my-colleagues-we-can-do-better-104084

http://www.vidaliaonion.org/news/vidalia_onion_committee_cinches_triple_crown_of_national_-marketing_awards

www.getransportation.com/locomotives

www-01.ibm.com/software/success/cssdb.nsf/CS/LWIS-8w5Q84?OpenDocument&Site=default&cty=en_us

www.pinterest.com/gyroideasshop/usg-its-your-world-build-it/

www.accenture.com/us-en/companyoverview/advertising/Pages/brand-print-advertising.aspx

www.eater.com/2015/1/15/7551497/starbucks-dunkin-donuts-peets-coffee-spending-percent

http://loyalty360.org/resources/article/macys-confident-in-my-macys-magic-selling-customerengagement-strategies

www.theguardian.com/artanddesign/architecture-design-blog/2012/oct/16/goldieblox-toy-girls-engineering-gender

www.huffingtonpost.com/2014/12/17/goldieblox-music-video-_n_6340660.html

www.goldieblox.com

http://www.wsj.com/articles/SB10001424053111904140604576498733634049992

www.forbes.com/sites/tinasharkey/2012/01/25/whats-your-tribe-tap-into-your-core-consumers-aspirations-like-nike-gatoradebabycenter-and-rei-do/

http://news.starbucks.com/news/everything-you-need-to-know-about-the-return-of-starbucks-pumpkin-spice-lat

http://nrn.com/latest-headlines/cke-advertising-turkey-burgers-drive-sales

http://www.coca-colacompany.com/coca-cola-music/every-song-has-a-place-coca-cola-spotify-launchgroundbreaking-social-music-app

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3. See “The B to B Best Awards 2015,” Advertising Age, January 26, 2015, p. 28; and “Childlike Imagination—What My Mom Does at GE,” www .ge.com/news/advertising, September 2015.

4. See www.neworleansonline.com and www.australia.com/campaigns/ nothinglike/us/index.html, accessed September 2015.

5. For more on social marketing, see Philip Kotler and Nancy Lee, Social Marketing: Influencing Behaviors for Good, 4th ed. (Thousand Oaks, CA: Sage Publications, 2011); and www.adcouncil.org and www.i-socialmarketing .org, accessed March 2015.

6. Quotes and definitions from Philip Kotler, Marketing Insights from A to Z (Hoboken, NJ: Wiley, 2003), p. 148; and www.asq.org/glossary/q.html, accessed September 2015.

7. See “Thumbs Up for Chick-fil-A,” http://press.chick-fil-a.com/Pressroom/ Factsheets/Detail/thumbsup, accessed March 2015.

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9. Based on information from Gene Weingarten, “Pearls before Breakfast,” Washington Post, April 8, 2007, www.washingtonpost.com/wp-dyn/ content/article/2007/04/04/AR2007040401721.html; Jessica Contrera, “Joshua Bell’s Metro Encore Draws a Crowd,” Washington Post, September 30, 2014, www.washingtonpost.com/lifestyle/style/joshua- bells-metro-encore-draws-a-crowd/2014/09/30/c28b6c50-48d5-11e4- a046-120a8a855cca_story.html; and “Stop and Hear the Music,” www .youtube.com/watch?v=hnOPu0_YWhw, accessed September 2015.

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MarketingCharts, May 15, 2012, www.marketingcharts.com/direct/3- in-4-grocery-purchase-decisions-being-made-in-store-22094; “FMI— Supermarket Facts,” www.fmi.org/research-resources/supermarket-facts, accessed April 2015; and “Our Retail Divisions,” http://news.walmart .com/news-archive/2005/01/07/our-retail-divisions, accessed September 2015.

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14. Based on information from “Company Values,” www.llbean.com/ customerService/aboutLLBean/company_values.html; www.llbean.com/ customerService/aboutLLBean/company_history.html?nav=s1-ln; and other pages at www.llbean.com, accessed September 2015.

15. See Anna Rose Welch, “Lowe’s Leverages Mobile Initiatives to Improve Customer Experience,” Integrated Solutions for Retailers, November 21, 2013, www.retailsolutionsonline.com/doc/lowe-s-leverages-mobile- initiatives-to-improve-customer-experience-0001; Vauhini Vara, “The Lowe’s Robot and the Future of Service Work,” The New Yorker, October 29, 2014, www.newyorker.com/business/currency/lowes-robot- future-service-work; and www.lowes.com/webapp/wcs/stores/servlet/ ContactUsLandingPageView, www.lowes.com/how-to-library, and https://twitter.com/LowesCares, accessed March 2015.

16. Information on The Clorox Company’s product mix from www .thecloroxcompany.com/products/our-brands/, accessed September 2015.

17. Devika Krishna Kumar, “”P&G to Sell Up to 100 Brands to Revive Sales, Cut Costs,” Reuters, August 1, 2014, www.reuters.com/ article/2014/08/01/procter-gamble-results-idUSL4N0Q745T20140801; and “All Eyes on P&G’s Brand Consolidation Strategy as Currency Headwinds Weigh on Q2 Results,” Forbes, January 26, 2015, www .forbes.com/sites/greatspeculations/2015/01/26/all-eyes-on-pgs-brand- consolidation-strategy-as-currency-headwinds-weigh-on-q2-results/; and Kevin Orland, “Coty Agrees to Buy P&G Beauty Brands for $12.5 Billion,” BloombergBusiness, July 9, 2015, www.bloomberg.com/news/ articles/2015-07-09/p-g-accepts-coty-s-12-5-billion-offer-for-43-beauty- brands.

by-water-saving-washing-machines; and www.pg.com/en_US/investors/ financial_reporting/annual_reports.shtml and www.pg.com/en_US/brands/ index.shtml, accessed September 2015.

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19. Sapna Maheshwari, “Stitch Fix and the New Science behind What Women Want to Wear,” BuzzFeed, September 24, 2014, www.buzzfeed .com/sapna/stitch-fix-and-the-new-science-behind-what-women-want- to-wea#.jcA81lEoW; Bridget Brennan, “The Retailer Redefining Personal Service in Ecommerce,” Forbes, December 4, 2014, www.forbes.com/ sites/bridgetbrennan/2014/12/04/the-retailer-redefining-personal-service- in-ecommerce/; and www.stitchfix.com/referral/4097702 and www .stitchfix.com, accessed September 2015.

20. See Jay Moye, “The Next Big Thing: How Coke’s Venturing & Emerging Brands Team Stays Ahead of Tomorrow’s Thirsts,” March 6, 2013, www.coca-colacompany.com/innovation/the-next-big-thing-how-cokes- venturing-emerging-brands-team-stays-a-step-ahead-of-tomorrows-thirsts.

21. See Joan Voight, “Marriott Chain Adds Some Local Flavor,” Adweek, January 7, 2013, p. 9; “Renaissance Hotels Launches New Navigator Program to Help Guests Discover ‘Hidden Gems’ of Various Cities around the World,” January 8, 2013, www.adweek.com/print/146321; and http:// renaissance-hotels.marriott.com/r-navigator, accessed September 2015.

22. See www.shopkick.com/partners and www.shopkick.com/about, accessed September 2015.

23. See www.mymms.com, www.jhaudio.com, http://factory.puma.com/en, and www.harley-davidson.com/content/h-d/en_US/home/hd1-customization .html, accessed September 2015.

24. Mike Shields, “Nike and AKQA Turn People’s Running Data into 100,000 Unique Videos,” Wall Street Journal, January 7, 2015, http://blogs .wsj.com/cmo/2015/01/07/nike-and-akqa-turn-peoples-running-data-into- 100000-unique-videos/.

25. See Carolyn Kellogg, “McDonald’s Brings Back Happy Meals with Books,” Los Angeles Time, January 8, 2015, www.latimes.com/books/ jacketcopy/la-et-jc-mcdonalds-happy-meals-with-books-20150108-story .html.

26. Lucia Moses, “Kids and Ads,” Adweek, March 18, 2014, p. 13. 27. Examples based on information from www.barbie.com/activities/fun_

games/#whats-hot and www.nick.com/club/, accessed September 2015. 28. See “IC3 2013 Internet Crime Report Released,” May 2014, www.ic3

.gov/media/annualreports.aspx. 29. SUV sales data furnished by www.WardsAuto.com, accessed March

2015. Price data from www.edmunds.com, accessed September 2015. 30. See “Zappos Family Core Values,” http://about.zappos.com/our-unique-

culture/zappos-core-values; and http://about.zappos.com/, accessed September 2015.

31. David Rohde, “The Anti-Walmart: The Secret Sauce of Wegmans Is People,” The Atlantic, March 23, 2012, www.theatlantic.com/business/ archive/2012/03/the-anti-walmart-the-secret-sauce-of-wegmans-is- people/254994/; and www.wegmans.com, accessed September 2015.

32. See www.heartsonfire.com/Learn-About-Our-Diamonds.aspx, accessed September 2015.

33. See Bobby J. Calder and Steven J. Reagan, “Brand Design,” in Dawn Iacobucci, ed., Kellogg on Marketing (New York: John Wiley & Sons, 2001), p. 61. For more discussion, see Kotler and Keller, Marketing Management, Chapter 10.

Chapter 7 1. Based on information found in Leo Sun, “Will GoPro Stock Pop or Flop

in 2015?” The Motley Fool, January 5, 2015, www.fool.com/investing/ general/2015/01/05/will-gopro-stock-pop-or-flop-in-2015.aspx; Marty Biancuzzo, “Why GoPro Is Set for a Strong Wall Street Debut,” May 21, 2014, www.wallstreetdaily.com/2014/05/21/gopro-ipo/; Tom Foster, “The GoPro Army,” Inc., January 26, 2012, www.inc.com/magazine/201202/ the-gopro-army.html; Ryan Mac, “The Mad Billionaire behind GoPro: The World’s Hottest Camera Company,” Forbes, March 3, 2013, www .forbes.com/sites/ryanmac/2013/03/04/the-mad-billionaire-behind- gopro-the-worlds-hottest-camera-company/; Gregory S. McNeal, “GoPro CEO Talks Drones, Innovation and the Future at CES,” Forbes, January 8, 2015, www.forbes.com/sites/gregorymcneal/2015/01/08/gopro-ceo- talks-drones-innovation-and-the-future-at-ces/; and www.gopro.com and http://-gopro.com/about-us/, accessed September 2015.

2. Based on information from Joshua Brustein, “Verizon Has a Class for You,” Bloomberg Businessweek, November 20, 2013, www.businessweek .com/articles/2013-11-20/verizon-has-a-class-for-you; Paul Macchia,

www.verizonwireless.com/news/article/2014/09/verizon-wireless-smart-stores-enhancing-the-customer-experience-and-mobile-lifestyle-through-the-reinvention-of-retail.html

www.verizonwireless.com/news/article/2015/01/seattles-u-village-showcases-verizons-next-gen-retail.html

www.ge.com/news/advertising

www.neworleansonline.com

www.australia.com/campaigns/nothinglike/us/index.html

www.adcouncil.org

www.asq.org/glossary/q.html

http://press.chick-fil-a.com/Pressroom/Factsheets/Detail/thumbsup

www.ft.com/cms/s/0/bcf5add4-7ab0-11e4-8646-00144feabdc0.html

www.sonos.com

www.washingtonpost.com/wp-dyn/content/article/2007/04/04/AR2007040401721.html

www.washingtonpost.com/lifestyle/style/joshua-bells-metro-encore-draws-a-crowd/2014/09/30/c28b6c50-48d5-11e4-a046-120a8a855cca_story.html

www.youtube.com/watch?v=hnOPu0_YWhw

http://cutieskids.com/what

http://news.walmart.com/news-archive/2005/01/07/our-retail-divisions

www.triplepundit.com/2013/12/amazon-continues-battle-against-wrap-rage/

www.amazon.com/b/?&node=5521637011

www.tiffany.com/WorldOfTiffany/TiffanyStory/Legacy/BlueBox.aspx

www.llbean.com/customerService/aboutLLBean/company_values.html

www.llbean.com/customerService/aboutLLBean/company_history.html

www.llbean.com

www.newyorker.com/business/currency/lowes-robotfuture-service-work

www.lowes.com/webapp/wcs/stores/servlet/ContactUsLandingPageView

https://twitter.com/LowesCares

www.thecloroxcompany.com/products/our-brands/

www.reuters.com/article/2014/08/01/procter-gamble-results-idUSL4N0Q745T20140801

www.forbes.com/sites/greatspeculations/2015/01/26/all-eyes-on-pgs-brandconsolidation-strategy-as-currency-headwinds-weigh-on-q2-results/

www.bloomberg.com/news/articles/2015-07-09/p-g-accepts-coty-s-12-5-billion-offer-for-43-beautybrands

www.pg.com/en_US/investors/financial_reporting/annual_reports.shtml

www.pg.com/en_US/brands/index.shtml

www.walmartstores.com

www.wholefoods

market.com

www.kroger.com

www.buzzfeed.com/sapna/stitch-fix-and-the-new-science-behind-what-women-wantto-wea#.jcA81lEoW

www.forbes.com/sites/bridgetbrennan/2014/12/04/the-retailer-redefining-personal-servicein-ecommerce/

www.stitchfix.com

http://renaissance-hotels.marriott.com

www.shopkick.com/partners

www.shopkick.com/about

www.mymms.com

www.jhaudio.com

http://factory.puma.com/en

http://blogs.wsj.com/cmo/2015/01/07/nike-and-akqa-turn-peoples-running-data-into-100000-unique-videos/

www.latimes.com/books/jacketcopy/la-et-jc-mcdonalds-happy-meals-with-books-20150108-story.html

www.barbie.com/activities/fun-games/#whats-hot

www.nick.com/club

www.ic3.gov/media/annualreports.aspx

www.WardsAuto.com

www.edmunds.com

http://about.zappos.com/our-unique-culture/zappos-core-values

http://about.zappos.com

www.theatlantic.com/business/archive/2012/03/the-anti-walmart-the-secret-sauce-of-wegmans-ispeople/254994/

www.wegmans.com

www.heartsonfire.com/Learn-About-Our-Diamonds.aspx

www.fool.com/investing/general/2015/01/05/will-gopro-stock-pop-or-flop-in-2015.aspx

www.inc.com/magazine/201202/the-gopro-army.html

www.forbes.com/sites/ryanmac/2013/03/04/the-mad-billionaire-behindgopro-the-worlds-hottest-camera-company/

www.forbes.com/sites/gregorymcneal/2015/01/08/gopro-ceotalks-drones-innovation-and-the-future-at-ces/

www.gopro.com

http://-gopro.com/about-us/

www.businessweek.com/articles/2013-11-20/verizon-has-a-class-for-you

http://www.i-socialmarketing.org

http://online.barrons.com/articles/sonos-the-best-wireless-speakers-1420260626

http://cutieskids.com/what-is-a-cutie/

http://www.marketingcharts.com/direct/3-in-4-grocery-purchase-decisions-being-made-in-store-22094

http://www.fmi.org/research-resources/supermarket-facts

http://www.retailsolutionsonline.com/doc/lowe-s-leverages-mobile-initiatives-to-improve-customer-experience-0001

http://www.lowes.com/how-to-library

http://www.stitchfix.com/referral/4097702

http://www.coca-colacompany.com/innovation/the-next-big-thing-how-cokes-venturing-emerging-brands-team-stays-a-step-ahead-of-tomorrows-thirsts

http://www.adweek.com/print/146321

http://www.harley-davidson.com/content/h-d/en_US/home/hd1-customization.html

http://www.wallstreetdaily.com/2014/05/21/gopro-ipo/

http://www.businessweek.com/articles/2014-10-23/laundry-detergent-sales-hurt-by-water-saving-washing-machines

www.buzzfeed.com/sapna/stitch-fix-and-the-new-science-behind-what-women-wantto-wea#.jcA81lEoW

www.forbes.com/sites/bridgetbrennan/2014/12/04/the-retailer-redefining-personal-servicein-ecommerce/

www.stitchfix.com

http://www.harley-davidson.com/content/h-d/en_US/home/hd1-customization.html

www.latimes.com/books/jacketcopy/la-et-jc-mcdonalds-happy-meals-with-books-20150108-story.html

http://blogs.wsj.com/cmo/2015/01/07/nike-and-akqa-turn-peoples-running-data-into-100000-unique-videos/

www.barbie.com/activities/fun-games/#whats-hot

www.ic3.gov/media/annualreports.aspx

www.theatlantic.com/business/archive/2012/03/the-anti-walmart-the-secret-sauce-of-wegmans-ispeople/254994/

www.forbes.com/sites/ryanmac/2013/03/04/the-mad-billionaire-behindgopro-the-worlds-hottest-camera-company/

www.forbes.com/sites/gregorymcneal/2015/01/08/gopro-ceotalks-drones-innovation-and-the-future-at-ces/

www.businessweek.com/articles/2013-11-20/verizon-has-a-class-for-you

www.verizonwireless.com/news/article/2015/01/seattles-u-village-showcases-verizons-next-gen-retail.html

www.ge.com/news/advertising

http://www.i-socialmarketing.org

www.youtube.com/watch?v=hnOPu0_YWhw

www.amazon.com/b/?&node=5521637011

www.newyorker.com/business/currency/lowes-robotfuture-service-work

www.thecloroxcompany.com/products/our-brands/

www.forbes.com/sites/greatspeculations/2015/01/26/all-eyes-on-pgs-brandconsolidation-strategy-as-currency-headwinds-weigh-on-q2-results/

www.bloomberg.com/news/articles/2015-07-09/p-g-accepts-coty-s-12-5-billion-offer-for-43-beautybrands

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35. See Evan Clark, “UBS Sees Private-Label Goods Diminishing,” WWD, November 26, 2013, www.wwd.com/retail-news/trends-analysis/ubs- sees-private-label-goods-diminishing-7291838; “Private Label Foods & Beverages in the U.S., 8th Edition,” PR Newswire, October 29, 2014; and http://plma.com/storeBrands/marketprofile14a.html, accessed September 2015.

36. See Bonnie S. Benwick, “Store Brands, the (Now) Welcome Option,” Washington Post, February 25, 2014, www.washingtonpost.com/lifestyle/ food/store-brands-the-now-welcome-option/2014/02/24/be4808c6-99b0- 11e3-80ac-63a8ba7f7942_story.html; Alexander Coolidge, “Kroger Using House Brands to Power Growth,” Cincinnati.com, September 20, 2014, www.cincinnati.com/story/money/2014/09/20/kroger-using-house-brands- power-growth/15955797/; and Thad Rueter, “Amazon Powers Ahead to 2015,” Internet Retailer, December 31, 2014, www.internetretailer .com/2014/12/31/amazon-powers-ahead-2015.

37. Stephanie Strom, “Groceries Are Cleaning Up in Store-Brand Aisles,” New York Times, October 2, 2013, p. B1; and Deloitte, The 2014 American Pantry Study, www2.deloitte.com/content/dam/Deloitte/us/Documents/ consumer-business/us-cp-aps-brochure.pdf.

38. See “Private Labels Use Branding to Increase Sales,” FHC Marketing, January 29, 2014, www.fhcmarketing.com/private-labels-use-branding- increase-sales.

39. Lauren Coleman-Lochner, “Laundry Detergent Maker Want More Suds,” Bloomberg Businesseeek, October 23, 2014, www.businessweek.com/ articles/2014-10-23/laundry-detergent-sales-hurt-by-water-saving- washing-machines.

40. Matthew Daneman, “Kodak Brand Is Returning to Store Shelves,” USA Today, December 26, 2014, www.usatoday.com/story/tech/2014/12/26/ kodak-branding/20910231/.

41. “Top 150 Global Licensors,” Global License, May 1, 2014, www .licensemag.com/license-global/top-150-global-licensors-0; and Felix Gillette, “SpongeBob Muscles Up,” Bloomberg Businessweek, January 20, 2015, pp. 63–65.

42. See Devin Liddell, “3 Reasons Why Co-Making Is the Future of Branding,” Fast Company, March 7, 2014, www.fastcodesign.com/3027047/3-reasons- why-co-making-is-the-future-of-branding; and www.tacobell.com/food/ menuitem/Doritos-Locos-Tacos-Supreme, accessed September 2015.

43. Haley Peterson, “McDonald’s Is Reportedly Cutting These Items from the Menu,” Business Insider, January 23, 2015, www.businessinsider.com/ mcdonalds-menu-cuts-2015-1.

44. See “The Brand That Launched 1000 Chips,” Bloomberg Businessweek, October 3–9, 2011, p. 30; and www.fritolay.com/our-snacks/doritos.html, accessed September 2015.

45. See Michael Brown, “‘Works with Nest’ Program Gains Traction with 15 New Smart Device Integrations,” TechHive, January 5, 2015, www .techhive.com/article/2864067/works-with-nest-program-explodes-with- 15-new-smart-device-integrations.html.

46. For interesting lists of good and bad brand extension candidates, see Christina Austin, “See the 10 Worst Brand Extensions Currently on the Market,” Business Insider, February 9, 2013, www.businessinsider .com/the-10-worst-brand-extensions-2013-2?op=1; and Brad Tuttle, “Why Some Brand Extensions Are Brilliant and Others Are Just Awkward,” Time, February 7, 2013, http://business.time.com/2013/02/07/ why-some-brand-extensions-are-brilliant-and-others-are-just-awkward/.

47. “100 Largest Global Marketers,” Advertising Age, December 8, 2014, p. 26. 48. Stephen Cole, “Value of the Brand,” CA Magazine, May 2005, pp. 39–40.

Also see “The Power of Customer Service,” Fortune, December 3, 2012, www.timeincnewsgroupcustompub.com/sections/121203_Disney.pdf; and “Customer Engagement,” http://thewaltdisneycompany.com/citizenship/ community/consumer-engagement, accessed September 2015.

Chapter 8 1. Based on information found in Jon Gertner, “The X Factor,” Fast Company,

May 2014, pp. 67–72; Miguel Helft, “The Most Ambitious CEO in the Universe,” Fortune, December 1, 2014, pp. 140–150; Brad Stone, “Inside the Moonshot Factory,” Bloomberg Businessweek, May 22, 2013, pp. 56–61; Chuck Salter, “Google: The Faces and Voices of the World’s Most Innovative Company,” Fast Company, March 2008, pp. 74–88; “The World’s 50 Most Innovative Companies,” Fast Company, www.fastcompany.com/section/ most-innovative-companies-2015, accessed October 2015; “Google’s U.S. Search Ex-Mobiles Drops Below 75% as Yahoo Makes More Firefox Gains,” TechCrunch, February 15, 2015, http://techcrunch.com/2015/02/02/ googles-u-s-search-ex-mobiles-drops-below-75-as-yahoo-makes-more- firefox-gains/; Nathan Ingraham, “YouTube abd Mobile Ads Drove Strong

18. See CIA World FactBook, www.cia.gov/library/publications/the-world- factbook, accessed March 2015; and “List of Countries by GDP Sector Composition,” http://en.wikipedia.org/wiki/List_of_countries_by_GDP_ sector_composition, accessed September 2015.

19. Based on information from Leonard Berry and Neeli-Bendapudi, “Clueing In Customers,” Harvard Business Review, February 2003, pp. 100–106; Jeff Hansel, “Mayo Hits the Blogosphere,” McClatchy-Tribune Business News, January 22, 2009; “Mayo Clinic Model of Care,” www.mayo.edu/ pmts/mc4200-mc4299/mc4270.pdf, accessed September 2014; and www .mayoclinic.org, accessed September 2015.

20. See James L. Heskett, W. Earl Sasser, Jr., and Leonard A. Schlesinger, The Service Profit Chain: How Leading Companies Link Profit and Growth to Loyalty, Satisfaction, and Value (New York: Free Press, 1997); and Heskett, Sasser, and Schlesinger, The Value Profit Chain: Treat Employees Like Customers and Customers Like Employees (New York: Free Press, 2003). Also see John Marshall and Dave Mayer, “Activate a Brand Internally,” Marketing Management, Winter 2012, pp. 37–44.

21. David Rohde, “The Anti-Walmart: The Secret Sauce of Wegmans Is People,” The Atlantic, March 23, 2012, www.theatlantic.com/business/ archive/2012/03/the-anti-walmart-the-secret-sauce-of-wegmans-is- people/254994/. Also see Carmine Gallo, “How Wegmans, Apple Store, and Ritz-Carlton Win Loyal Customers,” Forbes, December 11, 2012, www.forbes.com/sites/carminegallo/2012/12/11/how-wegmans-apple- store-and-the-ritz-carlton-wins-loyal-customers/; and www.wegmans .com/careers, accessed September 2015.

22. See “United States: Prescription Drugs,” www.statehealthfacts.org/profileind .jsp?sub=66&rgn=1&cat=5, accessed March 2015; and “Postal Facts,” http:// about.usps.com/who-we-are/postal-facts/welcome.htm, accessed September 2015.

23. See Terry Maxon, “Horrible Flight? Airlines’ Apology Experts Will Make It Up to You,” McClatchy-Tribune News Service, August 24, 2010; Katie Morell, “Lessons from Southwest Airlines’ Stellar Customer Service,” ehotelier.com, August 29, 2012, http://ehotelier.com/hospitality-news/ item.php?id=23931_0_11_0M_C; and Micah Solomon, “Customer Service: What Southwest Knows and You Don’t (Hint: Being Nice Isn’t Enough),” Forbes, September 22, 2013, www.forbes.com/sites/ micahsolomon/2013/09/22/not-hiring-jerks-isnt-enough-your-systems- have-to-love-your-customers-too/.

24. See Micah Solomon, “5 Social Media Customer Service Best Practices to Handle (or Prevent) Customer Complaints,” Forbes, January 28, 2015, www.forbes.com/sites/micahsolomon/2015/01/28/5-best-practices-for- social-media-customer-service-how-to-handle-and-avoid-customer- complaints/.

25. See “McAtlas Shrugged,” Foreign Policy, May–June 2001, pp. 26–37; and Philip Kotler and Kevin Lane Keller, Marketing Management, 15th ed. (Upper Saddle River: Pearson Publishing, 2016), p. 316.

26. See “For Sale: Hessian, A Brand without a Product,” Fast Company, February 12, 2013, www.fastcodesign.com/1671819/for-sale-hessian-a-brand- without-a-product.

27. Pete Pachal, “Love Your Vespa? Now You Can Do It Officially on Social Media,” Mashable, August 21, 2012, http://mashable.com/2012/08/21/la- vespa-vita/; and www.lavespavita.com/, accessed September 2015.

28. For more on BrandAsset Valuator, see Kotler and Keller, Marketing Management, Chapter 11; and “BrandAsset Valuator,” www.yr.com/BAV, accessed September 2015.

29. See Millward Brown Optimor, “BrandZ Top 100 Most Valuable Global Brands,” www.millwardbrown.com/docs/default-source/global-brandz- downloads/global/2014_BrandZ_Top100_Chart.pdf, accessed September 2015. Also see “Best Global Brands,” www.bestglobalbrands.com/2014/ ranking/, accessed September 2015.

30. See Scott Davis, Brand Asset Management, 2nd ed. (San Francisco: Jossey-Bass, 2002). For more on brand positioning, see Kotler and Keller, Marketing Management, Chapter 10.

31. See “For P&G, Success Lies in More Than Merely a Dryer Diaper,” Advertising Age, October 15, 2007, p. 20; Jack Neff, “Just How Well- Defined Is Your Brand’s Ideal?” Advertising Age, January 16, 2012, p. 4; and www.pampers.com, accessed September 2015.

32. See Aaron Ahuvia Rajeev and Richard P. Bagozzi, “Brand Love,” Journal of Marketing, March 2012, pp. 1–16; Doug Grisaffe, “Feeling the Brand Love,” Marketing News, February 2014, pp. 26-27; and www.saatchi .com/the_lovemarks_company and www.lovemarks.com, accessed October 2015.

33. See “Bing,” Wikipedia, http://en.wikipedia.org/wiki/Bing, accessed March 2015.

34. “New Pricing Study Highlights Savings for Store Brands while the Winter Drags On,” PR Newswire, February 19, 2014.

www.wwd.com/retail-news/trends-analysis/ubs-sees-private-label-goods-diminishing-7291838

http://plma.com/storeBrands/marketprofile14a.html

www.washingtonpost.com/lifestyle/food/store-brands-the-now-welcome-option/2014/02/24/be4808c6-99b0-11e3-80ac-63a8ba7f7942_story.html

Cincinnati.com

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www2.deloitte.com/content/dam/Deloitte/us/Documents/consumer-business/us-cp-aps-brochure.pdf

www.businessweek.com/articles/2014-10-23/laundry-detergent-sales-hurt-by-water-savingwashing-machines

www.usatoday.com/story/tech/2014/12/26/kodak-branding/20910231/

www.licensemag.com/license-global/top-150-global-licensors-0;

www.tacobell.com/food/menuitem/Doritos-Locos-Tacos-Supreme

www.businessinsider.com/mcdonalds-menu-cuts-2015-1

www.fritolay.com/our-snacks/doritos.html

www.techhive.com/article/2864067/works-with-nest-program-explodes-with-15-new-smart-device-integrations.html

www.businessinsider.com/the-10-worst-brand-extensions-2013-2?op=1

http://business.time.com/2013/02/07/why-some-brand-extensions-are-brilliant-and-others-are-just-awkward/.

www.timeincnewsgroupcustompub.com/sections/121203_Disney.pdf

http://thewaltdisneycompany.com/citizenship/community/consumer-engagement

www.fastcompany.com/section/most

www.fastcompany.com/section/most-innovative-companies-2015

http://techcrunch.com/2015/02/02/googles-u-s-search-ex-mobiles-drops-below-75-as-yahoo-makes-morefirefox-gains/

www.cia.gov/library/publications/the-world factbook

http://en.wikipedia.org/wiki/List_of_countries_by_GDP_sector_composition

www.mayo.edu/pmts/mc4200-mc4299/mc4270.pdf

www.mayoclinic.org

www.theatlantic.com/business/archive/2012/03/the-anti-walmart-the-secret-sauce-of-wegmans-ispeople/254994/

www.wegmans.com/careers

www.statehealthfacts.org/profileind.jsp?sub=66&rgn=1&cat=5

http://about.usps.com/who-we-are/postal-facts/welcome.htm

ehotelier.com

http://ehotelier.com/hospitality-news/item.php?id=23931_0_11_0M_C

www.forbes.com/sites/micahsolomon/2013/09/22/not-hiring-jerks-isnt-enough-your-systemshave-to-love-your-customers-too/

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www.fastcodesign.com/1671819/for

http://mashable.com/2012/08/21/la-vespa-vita/

www.lavespavita.com

www.yr.com/BAV

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www.bestglobalbrands.com/2014/ranking

www.pampers.com

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www.lovemarks.com

http://en.wikipedia.org/wiki/Bing

http://www.cincinnati.com/story/money/2014/09/20/kroger-using-house-brands-power-growth/15955797/

http://www.fhcmarketing.com/private-labels-use-branding-increase-sales

http://www.fastcodesign.com/3027047/3-reasons-why-co-making-is-the-future-of-branding

http://www.forbes.com/sites/carminegallo/2012/12/11/how-wegmans-apple-store-and-the-ritz-carlton-wins-loyal-customers/

http://www.fastcodesign.com/1671819/for-sale-hessian-a-brand-without-a-product

www.cia.gov/library/publications/the-world factbook

www.mayoclinic.org

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www.statehealthfacts.org/profileind.jsp?sub=66&rgn=1&cat=5

http://business.time.com/2013/02/07/why-some-brand-extensions-are-brilliant-and-others-are-just-awkward/.

http://mashable.com/2012/08/21/la-vespa-vita/

www.saatchi.com/the_lovemarks_company

http://techcrunch.com/2015/02/02/googles-u-s-search-ex-mobiles-drops-below-75-as-yahoo-makes-morefirefox-gains/

www.wwd.com/retail-news/trends-analysis/ubs-sees-private-label-goods-diminishing-7291838

www.internetretailersees.com/2014/12/31/amazon-powers-ahead-2015

www.businessweek.com/articles/2014-10-23/laundry-detergent-sales-hurt-by-water-savingwashing-machines

www.licensemag.com/license-global/top-150-global-licensors-0;

www.techhive.com/article/2864067/works-with-nest-program-explodes-with-15-new-smart-device-integrations.html

610 References

17. See Jack Neff, “P&G Reinvents Laundry with $150 Million Tide Pods Launch,” Advertising Age, April 26, 2011, www.adage.com/print/227208/; and Sheila Shayon, “Microsoft Unleashes Global Marketing Blitz for Windows 8, New Devices,” BrandChannel, October 25, 2012, www .brandchannel.com/home/post/2012/10/25/Microsoft-Global-Windows- 8-Launch-102512.aspx.

18. “iPhone 6 & iPhone 6 Plus Arrive in 36 More Countries and Territories This Month,” Apple press information, October 13, 2014, www.apple .com/pr/library/2014/10/13iPhone-6-iPhone-6-Plus-Arrive-in-36-More- Countries-and-Territories-This-Month.html.

19. See Robert G. Cooper, “Formula for Success,” Marketing Management, March–April 2006, pp. 19–23; Christoph Fuchs and Martin Schreier, “Customer Empowerment in New Product Development,” Product Innovation Management, January 2011, pp. 17–32; and Robert Safien, “The Lessons of Innovation,” Fast Company, March 2012, p. 18.

20. See Chris O’Brien, “How Intuit became a Pioneer of ‘Delight,’” Los Angeles Times, May 10, 2013; Brad Smith, “Intuit’s CEO on Building a Design-Driven Company,” Harvard Business Review, January–February 2015, pp. 35–38; and http://investors.intuit.com/financial-information/ annual-reports/default.aspx and intuitlabs.com/innovation.html, accessed October 2015.

21. Based in part on information from Min-Jeong Lee, “Samsung Chases ‘Wow’ Moment,” Wall Street Journal, March 12, 2013, http://online.wsj .com/news/articles/SB100014241278873240964045783557819398050 00; Max Chafkin, “Samsung: For Elevating Imitation to an Art Form,” Fast Company, March 2013, p. 108; Adam Lashinski, “The Uncrowned King of Tech,” Fortune, August 1, 2015, pp. 134-143; and information from www.sony.com, www.apple.com, and www.samsung.com, accessed October 2015.

22. This definition is based on one found in Bryan Lilly and Tammy R. Nelson, “Fads: Segmenting the Fad-Buyer Market,” Journal of Consumer Marketing, Vol. 20, No. 3, 2003, pp. 252–265.

23. See Katya Kazakina and Robert Johnson, “A Fad’s Father Seeks a Sequel,” New York Times, May 30, 2004, www.nytimes.com; John Schwartz, “The Joy of Silly,” New York Times, January 20, 2008, p. 5; “Drew Guarini, “11 Surprising Product Fads,” Huffington Post, August 8, 2012, www.huffingtonpost.com/2012/08/22/product-fads_n_1819710 .html#slide=1410262; and www.crazyfads.com, accessed October 2015.

24. Based on information from Stuart Elliott, “3M Says, ‘Go Ahead, Make Something of It,’” New York Times, January 28, 2013, www.nytimes .com/2013/01/28/business/mutfund/3m-says-go-ahead-make-something- of-it.html?pagewanted=2&tntemail0=y&_r=3&emc=tnt; and “Post-it Brand. Go Ahead,” www.youtube.com/watch?v=j_zUZb4EJTk, accessed October 2015.

25. See www.crayola.com/fashionshow/, accessed April 2015. 26. Tanzina Vega, “Quaker Oats Prepares to Court Younger, More Diverse

Moms,” New York Times, December 21, 2012, p. B3; E. J. Schultz, “The Quaker Man Is Growing a Milk Mustache,” Advertising Age, September 8, 2014, www.adage.com/print/294857; and www.quakerup.com and www.quakeroats.com, accessed October2015.

27. See P&G Brand Divestitures Will Be Bigger Than Original Targets,” Advertising Age, February 19, 2015, www.adage.com/print/297240.

28. For a more comprehensive discussion of marketing strategies over the course of the PLC, see Philip Kotler and Kevin Lane Keller, Marketing Management, 15th ed. (Upper Saddle River, NJ: Pearson Education, 2016), pp. 358+.

29. Jaclyn Trop, “Toyota Will Pay $1.6 Billion over Faulty Accelerator Suit,” New York Times, July 20, 2013, p. 3B.

30. Based on information from “How PepsiCo Dreams Up New Products in China,” Advertising Age, December 9, 2013, http://adage.com/ print/245558; Louise Ho, “PepsiCo’s Strategy Wins Market Share,” Global Times, December 4, 2013, www.globaltimes.cn/content/829870 .shtml#.Uu_5Q_ldV8F; Laurie Burkett, “PepsiCo Chips Away at China,” Wall Street Journal, July 11, 2012, p. B3; and “PepsiCo’s Greater China Region: Driving Growth and Innovation,” AmCahm China, January 2014, www.amchamchina.org/article/12224.

31. Information from www.db.com, accessed October 2015. 32. Information from www.interpublic.com and www.mccann.com, accessed

October 2015. 33. See “Global Powers of Retailing 2015,” http://www2.deloitte.com/th/

en/pages/consumer-business/articles/global-powers-retailing-2015.html; “Walmart Corporate International,” http://corporate.walmart.com/our- story/locations, accessed October 2015; and information from www .walmart.com and www.carrefour.com, accessed October 2015.

Revenue Growth for Google Last Quarter,” The Verge, July 16, 2015, www .theverge.com/2015/7/16/8981461/google-q2-2015-earnings; and www .google.com and http://investor.google.com/financial/tables.html, accessed October 2015.

2. Andrew Cunningham, “Apple’s Q1 2015: Ridiculously High iPhone Sales, 18% Drop in iPad Sales,” ars technica, January 27, 2015, http://arstechnica .com/apple/2015/01/apples-q1-2015-ridiculously-high-iphone-sales- 18-drop-in-ipad-sales/.

3. David Meer, Edward C. Landry, and Samrat Sharma, “Creating What Consumers Want,” Forbes, January 26, 2015, www.forbes.com/sites/ strategyand/2015/01/26/creating-what-consumers-want/.

4. See Michael Martinez, “Ford Opens Silicon Valley Innovation Center,” The Detroit News, January 22, 2015, www.detroitnews.com/story/business/ autos/ford/2015/01/22/ford-silicon-valley/22165837/; and “Chick-fil-A Innovation,” Matchistic, http://matchstic.com/work/case-studies/chick- fil-a-innovation, accessed October 2015.

5. For these and other examples, see Dan Schawbel, “Why Companies Want You to Become an Intrapreneur,” Forbes, September 9, 2013, www .forbes.com/sites/danschawbel/2013/09/09/why-companies-want-you-to- become-an-intrapreneur/; and “Time to Think,” http://solutions.3m.com/ innovation/en_US/stories/time-to-think, accessed October 2015.

6. Kevin Scott, “The LinkedIn [in]cubator,” December 7, 2012, http://blog .linkedin.com/2012/12/07/linkedin-incubator/; and www.linkedin.com/ static?key=what_is_linkedin, accessed October 2015.

7. See Jonathan Ringen, “How LEGO Became the Apple of Toys,” Fast Company, January 8, 2015, www.fastcompany.com/3040223/when-it- clicks-it-clicks; and https://ideas.lego.com, accessed October 2015.

8. “Samsung Is Fueling Its Future with Open Innovation,” InnoCentive, October 23, 2103, www.innocentive.com/blog/2013/10/23/samsung-is- fueling-its-future-with-open-innovation/; and www.samsung.com/global/ business/semiconductor/aboutus/business/open-innovation/overview, accessed October 2015.

9. See “Victorinox Success!” September 2012, www.jovoto.com/blog/2012/09/ success-story-victorinox/; Bastian Unterberg et al., Crowdstorm: The Future of Ideas, Innovation, and Problem Solving Is Collaboration (Somerset, NJ: Wiley, 2013), pp. 175–177; and http://victorinox.jovoto.com and www .jovoto.com/clients, accessed October 2015.

10. Guido Jouret, “Inside Cisco’s Search for the Next Big Idea,” Harvard Business Review, September 2009, pp. 43–45; Geoff Livingston, “Real Challenges to Crowdsourcing for Social Good,” Mashable, October 12, 2010, http://mashable.com/2010/10/12/social-good-crowdsourcing; and “Creating Business Opportunities to the Tune of $1 Billion Plus,” Brightidea, www.brightidea.com/Brightidea-Case-Studies-Cisco.bix, accessed October 2015.

11. See George S. Day, “Is It Real? Can We Win? Is It Worth Doing?” Harvard Business Review, December 2007, pp. 110–120.

12. This example is based on Tesla Motors and information obtained from www.teslamotors.com, accessed April 2015, and Daniel Cooper, “Tesla’s Long-Delayed Model X SUV Is Testing in California,” engadget, January 13, 2015, www.engadget.com/2015/01/30/tesla-model-x-footage/. Also see Ryan Bradley, “Full Charge Ahead,” Fortune, February 4, 2013, pp. 10–13; Leah Hunter, “How Tesla Protects the Romance of Driving while Disrupting the Industry,” Co.Design, November 7, 2013, www .fastcodesign.com/3021312; “The Future of EV,” www.chevrolet.com/ culture/article/bolt-ev-concept-car.html, accessed October 2015; and “Electric Car,” Wikipedia, http://en.wikipedia.org/wiki/Electric_car, accessed October 2015.

13. See www.carharttgroundbreakers.com and www.carhartt.com/Ground BreakersSignUpView?storeId=10201&langId=-1&catalogId=10551, accessed October 2015.

14. See Maureen Morrison, “Marketer of the Year: Taco Bell,” Advertising Age, September 2, 2013, pp. 15–16; Susan Berfield, “Baristas, Patrons Steaming over Starbucks VIA,” Bloomberg BusinessWeek, November 13, 2009; and Tamara Walsh, “Starbucks Makes a Big Bet on New Product Mix in 2014,” The Motley Fool, January 8, 2014, www.fool .com/investing/general/2014/01/08/starbucks-makes-a-big-bet-on-new- product-mix-in-20.aspx.

15. Austin Carr, “Starbucks Leap of Faith,” Fast Company, June 2013, pp. 46–48; and John Heggestuen, “An Inside Look at the Starbucks App, the Most Successful Mobile Payments System in the US,” Business Insider, October 17, 2014, www.businessinsider.com/ starbucks-mobile-payments-app-2014-9.

16. For information on BehaviorScan Rx, see www.iriworldwide.com/ default.aspx?TabId=159&productid=75, accessed October 2015.

www.brandchannel.com/home/post/2012/10/25/Microsoft-Global-Windows-8-Launch-102512.aspx

www.apple.com/pr/library/2014/10/13iPhone-6-iPhone-6-Plus-Arrive-in-36-More-Countries-and-Territories-This-Month.html

http://investors.intuit.com/financial-information/annual-reports/default.aspx

intuitlabs.com/innovation.html

http://online.wsj.com/news/articles/SB10001424127887324096404578355781939805000

www.nytimes.com/2013/01/28/business/mutfund/3m-says-go-ahead-make-somethingof-it.html?

www.crayola.com/fashionshow

http://adage.com/print/245558

www.globaltimes.cn/content/829870.shtml

www.db.com

www.interpublic.com

www.mccann.com

http://www2.deloitte.com/th/en/pages/consumer-business/articles/global-powers-retailing-2015.html

http://corporate.walmart.com/our-story/locations

www.walmart.com

www.carrefour.com

www.theverge.com/2015/7/16/8981461/google-q2-2015-earnings

www.google.com

http://investor.google.com/financial/tables.html

http://arstechnica.com/apple/2015/01/apples-q1-2015-ridiculously-high-iphone-sales-18-drop-in-ipad-sales/

www.forbes.com/sites/strategyand/2015/01/26/creating-what-consumers-want/

www.detroitnews.com/story/business/autos/ford/2015/01/22/ford-silicon-valley/22165837/

http://matchstic.com/work/case-studies/chick-fil-a-innovation

www.forbes.com/sites/danschawbel/2013/09/09/why-companies-want-you-tobecome-an-intrapreneur/

http://solutions.3m.com/innovation/en_US/stories/time-to-think

www.linkedin.com/static

www.fastcompany.com/3040223/when-itclicks-it-clicks;

https://ideas.lego.com

www.innocentive.com/blog/2013/10/23/samsung-is-fueling-its-future-with-open-innovation/

www.samsung.com/global/business/semiconductor/aboutus/business/open-innovation/overview

www.jovoto.com/blog/2012/09/success-story-victorinox/

http://victorinox.jovoto.com

www.jovoto.com/clients

http://mashable.com/2010/10/12/social

www.brightidea.com/Brightidea-Case-Studies-Cisco.bix

www.teslamotors.com

Co.Design

www.fastcodesign.com/3021312

www.chevrolet.com/culture/article/bolt-ev-concept-car.html

http://en.wikipedia.org/wiki/Electric_car

www.carharttgroundbreakers.com

www.carhartt.com/GroundBreakersSignUpView

www.fool.com/investing/general/2014/01/08/starbucks-makes-a-big-bet-on-newproduct-mix-in-20.aspx

www.businessinsider.com/starbucks-mobile-payments-app-2014-9

www.iriworldwide.com/default.aspx

http://www.adage.com/print/227208/

http://www.huffingtonpost.com/2012/08/22/product-fads_n_1819710.html#slide=1410262

http://www.youtube.com/watch?v=j_zUZb4EJTk

http://www.adage.com/print/294857

http://www.adage.com/print/297240

http://www.amchamchina.org/article/12224

http://blog.linkedin.com/2012/12/07/linkedin-incubator/

http://mashable.com/2010/10/12/social-good-crowdsourcing

http://www.engadget.com/2015/01/30/tesla-model-x-footage/

www.theverge.com/2015/7/16/8981461/google-q2-2015-earnings

www.google.com

http://arstechnica.com/apple/2015/01/apples-q1-2015-ridiculously-high-iphone-sales-18-drop-in-ipad-sales/

http://matchstic.com/work/case-studies/chick-fil-a-innovation

www.forbes.com/sites/danschawbel/2013/09/09/why-companies-want-you-tobecome-an-intrapreneur/

http://blog.linkedin.com/2012/12/07/linkedin-incubator/

www.fastcompany.com/3040223/when-itclicks-it-clicks;

www.innocentive.com/blog/2013/10/23/samsung-is-fueling-its-future-with-open-innovation/

www.jovoto.com/clients

www.fastcodesign.com/3021312

www.fool.com/investing/general/2014/01/08/starbucks-makes-a-big-bet-on-newproduct-mix-in-20.aspx

www.brandchannel.com/home/post/2012/10/25/Microsoft-Global-Windows-8-Launch-102512.aspx

www.apple.com/pr/library/2014/10/13iPhone-6-iPhone-6-Plus-Arrive-in-36-More-Countries-and-Territories-This-Month.html

http://online.wsj.com/news/articles/SB10001424127887324096404578355781939805000

http://www.huffingtonpost.com/2012/08/22/product-fads_n_1819710.html#slide=1410262

www.nytimes.com/2013/01/28/business/mutfund/3m-says-go-ahead-make-somethingof-it.html?

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Chapter 9 1. Based on information from Mike Shields, “Amazon Drives More Holiday

Web Retail Traffic Than Biggest TV Ad Spender,” Wall Street Journal, December 10, 2014, http://blogs.wsj.com/cmo/2014/12/10/amazon- drives-more-holiday-web-retail-traffic-than-biggest-tv-ad-spender/; Tom Gara, “When Elephants Fight: The Great Wal-Mart-Amazon War of 2013,” Wall Street Journal, March 28, 2013, http://blogs.wsj.com/ corporate-intelligence/2013/03/28/when-elephants-fight-the-great-wal- mart-amazon-war-of-2013; Shelly Banjo, “Walmart’s E-Stumble with Amazon,” Wall Street Journal, June 19, 2013, http://online.wsj.com/news/ articles/SB10001424127887323566804578553301017702818; Sally Banjo, Suzanne Kapner, and Paul Ziobro, “Can Wal-Mart Clerks Ship as Fast as Amazon Robots?,” Wall Street Journal, December 18, 2014, www.wsj.com/articles/can-wal-mart-clerks-ship-as-fast-as-amazon- robots-1418930087; “Walmart vs. Amazon Prime,” Advertising Age, May 15, 2015, p. 6; and www.walmart.com and www.amazon.com, accessed October 2015.

2. For more on the importance of sound pricing strategy, see Thomas T. Nagle, John Hogan, and Joseph Zale, The Strategy and Tactics of Pricing: A Guide to Growing More Profitably, 5th ed. (Upper Saddle River, NJ: Prentice Hall, 2011), Chapter 1.

3. See Megan Willett, “How Swiss Watchmaker Patek Philippe Handcrafts Its Famous $500,000 Watches,” Business Insider, July 12, 2013, www .businessinsider.com/how-a-patek-philippe-watch-is-made-2013-7; Stacy Perman, “Patek Philippe Crafts Its Future,” Fortune, June 16, 2014, pp. 37–44; and www.patek.com/contents/default/en/values.html, accessed October 2015.

4. See Michael Johnsen, “Walmart Prepares to Expand Price First Launch,” Retailing Today, August 21, 2014, www.retailingtoday.com/article/ walmart-prepares-expand-price-first-nationwide; and www.mbusa.com/ mercedes/vehicles/class/class-CLA/bodystyle-CPE, accessed October 2015.

5. See Maria Puente, “Theaters Turn Up the Luxury,” USA Today, March 12, 2010, p. 1A; Dan Strack. “AMC Entertainment Set to Capitalize on a Strong 2015,” Seeking Alpha, February 18, 2015, http://seekingalpha.com/ article/2929046-amc-entertainment-set-to-capitalize-on-a-strong-2015; and information from http://dinein.amctheatres.com, accessed October 2015.

6. See www.traderjoes.com/our-story and www.traderjoes.com, accessed October 2015.

7. See Stan Schroeder, “Vertu’s Luxury Android Smartphone Costs $10,000, Mashable, February 12, 2013, http://mashable.com/2013/02/12/vertu-ti/; Matt Vella, “The Ulter-Luxe Phone,” Fortune, April 29, 2013, pp. 10–12; Lara O’Reilly, “Vertu Seeks to Broaden Appeal with Marketing,” Marketing Week, October 13, 2013, www.marketingweek.co.uk/news/vertu-seeks-to- broaden-appeal-with-marketing/4008105.article; and www.vertu.com/us/ en/discover-vertu/creating-extraordinary/ and www.vertu.com, accessed October 2015.

8. Based on information found in Joseph Weber, “Over a Buck for Dinner? Outrageous,” BusinessWeek, March 9, 2009, p. 57; Tom Mulier and Matthew Boyle, “Dollar Dinners from ConAgra’s Threatened by Costs,” Bloomberg Businessweek, August 19, 2010, www.businessweek.com; and Barbara Soderlin, “ConAgra Tries to Change Consumers’ Perceptions about Frozen Foods,” Omaha World-Herald, May 20, 2013, www.omaha .com/money/conagra-tries-to-change-consumers-perceptions-about- frozen-foods/article_c9697b1b-e14a-5f31-a0a7-2675961eb70f.html.

9. For more information, see Annie Gasparro, “Whole Foods Aims to Alter ‘Price Perception’ as It Expands,” Wall Street Journal, February 15, 2012; Julie Jargon, “Whole Foods’ Battle for the Organic Shopper,” Wall Street Journal, August 13, 2013, p. B1, http://online.wsj.com/news/articles/SB1000142412 7887323455104579015162135676136; and www.wholefoodsmarket.com/ about-our-products/whole-deal, accessed October 2014.

10. See Stuart Elliott, “Whole Foods Asks Shoppers to Consider a Value Proposition,” New York Times, October 20, 2014, p. B5; and Brad Stone, “Whole Foods, Half Off,” Bloomberg Businessweek, January 25, 2015, pp. 45-49.

11. “Lower Cost Samsung GALAXY Unveiled in Kenya,” BiztechAfrica, May 23, 2014, www.biztechafrica.com/article/lower-cost-samsung- samsung-galaxy-unveiled-kenya/2967/#.Uvo4bfldV8F; Bruce Einhorn and others, “Samsung’s China Problems Come to India,” Bloomberg Businessweek, October 23, 2104, pp. 44–45; and “Samsung Galaxy Pocket Neo,” www.mysmartprice.com/mobile/samsung-galaxy-pocket- neo-msp2810, accessed October 2015.

12. Karis Hustad, “Kindle Fire HDX Keeps Amazon’s Low Price, Adds Extra Features,” Christian Science Monitor, September 26, 2013, www.csmonitor.com/Innovation/2013/0926/Kindle-Fire-HDX-keeps- Amazon-s-low-price-adds-extra-features.

13. See information found at http://investor.keuriggreenmountain.com/ annuals-proxies.cfm, accessed October 2015.

14. See Oliver Strand, “With Coffee, the Price of Individualism Can Be High,” New York Times, February 8, 2012, p. D6; and “$51 per Pound: The Deceptive Cost of Single-Serve Coffee,” New York Times, www.thekitchn .com/51-per-pound-the-deceptive-cost-of-single-serve-coffee-the-new- york-times-165712, accessed October 2015.

15. See Bill Campbell, “Cheese to the Rescue: Surprising Spray Melts Road Ice,” NPR, January 21, 2014, www.npr.org/blogs/thetwo-way/ 2014/01/21/264562529/cheese-to-the-rescue-surprising-spray-melts-road- ice; and “Four Foods That Help Prevent Slippery Roads,” AccuWeater.com, January 22, 2015, www.accuweather.com/en/weather-news/beet-cheese- and-potatoes-roads/22447484.

16. For this and other examples, see Peter Coy, “Why the Price Is Rarely Right,” Bloomberg Businessweek, February 1 & 8, 2010, pp. 77–78.

17. See Anthony Allred, E. K. Valentin, and Goutam Chakraborty, “Pricing Risky Services: Preference and Quality Considerations,” Journal of Product and Brand Management, Vol. 19, No. 1, 2010, p. 54; Kenneth C. Manning and David E. Sprott, “Price Endings, Left-Digit Effects, and Choice,” Journal of Consumer Research, August 2009, pp. 328–336; Travis Nichols, “A Penny Saved: Psychological Pricing,” Gumroad, October 18, 2013, http://blog .gumroad.com/post/64417917582/a-penny-saved-psychological-pricing; and Bouree Lam, “The Phychological Difference between $12.00 and $11.67,” The Atlantic, January 30, 2015, www.theatlantic.com/business/archive/2015/01/ the-psychological-difference-between-1200-and-1167/384993/.

18. See John Kell, “JCPenney to Close 33 Stores, Cut 2,000 Jobs,” Wall Street Journal, January 14, 2014, p. B2; Kyle Stock, “Is JC Penney Giving Away the Store?,” Bloomberg Businessweek, December 4, 2013, www.businessweek .com/articles/2013-12-04/is-jc-penney-giving-away-the-store; Brad Tuttle, “JCPenney Reintroduces Fake Prices,” Time, May 2, 2013, http://business .time.com/2013/05/02/jc-penney-reintroduces-fake-prices-and-lots-of- coupons-too-of-course/; Natalie Zmuda, “JC Penney Reinvention Is Bold Bet, but Hardly Fail-Safe,” Advertising Age, January 30, 2012, pp. 1, 22; Steve Denning, “JCPenney: Was Ron Johnson’s Strategy Wrong?,” Forbes, April 9, 2013, www.forbes.com/sites/stevedenning/2013/04/09/j-c-penney- was-ron-johnsons-strategy-wrong/; and http://ir.jcpenney.com/phoenix .zhtml?c=70528&p=irol-irHome, accessed October 2015.

19. See Justin D. Martin, “Dynamic Pricing: Internet Retailers Are Treating Us Like Foreign Tourists in Egypt,” Christian Science Monitor, January 7, 2011; Patrick Rishe, “Dynamic Pricing: The Future of Ticket Pricing in Sports,” Forbes, January 6, 2012, www.forbes.com/sites/ prishe/2012/01/06/dynamic-pricing-the-future-of-ticket-pricing-in- sports/; and Mike Southon, “Time to Ensure the Price Is Right,” Financial Times, January 21, 2012, p. 30.

20. See Natalie Zmuda, “Best Buy Tries to Co-Opt ‘Showrooming’ This Holiday Season,” Advertising Age, October 29, 2013, http://adage.com/ print/244993/; and Meredith Derby Berg, “Is Best Buy’s ‘Showrooming’ Campaign Working?” Advertising Age, December 26, 2013, http://adage .com/print/245831/.

21. Liza Lin, “Shhh…Luxury Goods Are Discounted in China,” Bloomberg Businessweek, August 21, 2014, pp. 28–29.

22. Matthew Boyle, “Unilever: Taking on the World, One Stall at a Time,” Bloomberg Businessweek, January 7, 2013, pp. 18–20; and Martinne Geller, “Unilever Sticks with Emerging Markets as Sales Rebound,” Reuters, January 21, 2014, http://uk.reuters.com/article/2014/01/21/uk- unilever-results-idUKBREA0K09A20140121.

23. See Serena Ng, “Toilet-Tissue ‘Desheeting’ Shrinks Rolls, Plumps Margins,” Wall Street Journal, July 24, 2013, http://online.wsj.com/ news/articles/SB10001424127887323971204578626223494483866; and Serena Ng, “At P&G, New Tide Comes In, Old Price Goes Up,” Wall Street Journal, February 10, 2014, http://online.wsj.com/news/articles/SB 10001424052702304450904579368852980301572.

24. For discussions of these issues, see Dhruv Grewel and Larry D. Compeau, “Pricing and Public Policy: A Research Agenda and Overview of the Special Issue,” Journal of Public Policy and Marketing, Spring 1999, pp. 3–10; Walter L. Baker, Michael V. Marn, and Craig C. Zawada, The Price Advantage (Hoboken, NJ: John Wiley & Sons, 2010), Appendix 2; and Nagle, Hogan, and Zale, The Strategy and Tactics of Pricing.

25. See Tim Worstall, “Apple Fined $670,000 in Taiwan for Price Fixing,” Forbes, December 25, 2013, www.forbes.com/sites/

http://blogs.wsj.com/cmo/2014/12/10/amazon-drives-more-holiday-web-retail-traffic-than-biggest-tv-ad-spender/

http://blogs.wsj.com/corporate-intelligence/2013/03/28/when-elephants-fight-the-great-walmart-amazon-war-of-2013

http://online.wsj.com/news/articles/SB10001424127887323566804578553301017702818

www.walmart.com

www.amazon.com

www.businessinsider.com/how-a-patek-philippe-watch-is-made-2013-7

www.patek.com/contents/default/en/values.html

www.retailingtoday.com/article/walmart-prepares-expand-price-first-nationwide

www.mbusa.com/mercedes/vehicles/class/class-CLA/bodystyle-CPE

http://seekingalpha.com/article/2929046-amc-entertainment-set-to-capitalize-on-a-strong-2015

http://dinein.amctheatres.com

www.traderjoes.com/our

www.traderjoes.com

www.marketingweek.co.uk/news/vertu-seeks-to-broaden-appeal-with-marketing/4008105.article

www.vertu.com/us/en/discover-vertu/creating-extraordinary/

www.vertu.com

www.businessweek.com

www.omaha.com/money/conagra-tries-to-change-consumers-perceptions-aboutfrozen-foods/article_c9697b1b-e14a-5f31-a0a7-2675961eb70f.html

http://online.wsj.com/news/articles/SB10001424127887323455104579015162135676136

www.wholefoodsmarket.com/about-our-products/whole-deal

http://investor.keuriggreenmountain.com/annuals-proxies.cfm

www.thekitchn.com/51-per-pound-the-deceptive-cost-of-single-serve-coffee-the-newyork-times-165712

AccuWeater.com

www.accuweather.com/en/weather-news/beet-cheeseand-potatoes-roads/22447484

www.theatlantic.com/business/archive/2015/01/the-psychological-difference-between-1200-and-1167/384993/

www.businessweek.com/articles/2013-12-04/is-jc-penney-giving-away-the-store

http://ir.jcpenney.com/phoenix.zhtml?c=70528&p=irol-irHome

www.forbes.com/sites/prishe/2012/01/06/dynamic-pricing-the-future-of-ticket-pricing-in-sports/

http://adage.com/print/244993

http://uk.reuters.com/article/2014/01/21/uk-unilever-results-idUKBREA0K09A20140121

http://online.wsj.com/news/articles/SB10001424127887323971204578626223494483866

http://online.wsj.com/news/articles/SB10001424052702304450904579368852980301572

www.forbes.com/sites/timworstall/2013/12/25/apple-fined-670000-in-taiwan-for-price-fixing

http://www.wsj.com/articles/can-wal-mart-clerks-ship-as-fast-as-amazon-robots-1418930087

http://www.traderjoes.com/our-story

http://mashable.com/2013/02/12/vertu-ti/

http://www.biztechafrica.com/article/lower-cost-samsung-samsung-galaxy-unveiled-kenya/2967/#.Uvo4bfldV8F

http://www.mysmartprice.com/mobile/samsung-galaxy-pocket-neo-msp2810

http://www.csmonitor.com/Innovation/2013/0926/Kindle-Fire-HDX-keeps-Amazon-s-low-price-adds-extra-features

http://www.npr.org/blogs/thetwo-way/2014/01/21/264562529/cheese-to-the-rescue-surprising-spray-melts-roadice

http://blog.gumroad.com/post/64417917582/a-penny-saved-psychological-pricing

http://business.time.com/2013/05/02/jc-penney-reintroduces-fake-prices-and-lots-ofcoupons-too-of-course/

http://www.forbes.com/sites/stevedenning/2013/04/09/j-c-penney-was-ron-johnsons-strategy-wrong/

http://adage.com/print/245831/

http://blogs.wsj.com/cmo/2014/12/10/amazon-drives-more-holiday-web-retail-traffic-than-biggest-tv-ad-spender/

http://blogs.wsj.com/corporate-intelligence/2013/03/28/when-elephants-fight-the-great-walmart-amazon-war-of-2013

www.businessinsider.com/how-a-patek-philippe-watch-is-made-2013-7

www.omaha.com/money/conagra-tries-to-change-consumers-perceptions-aboutfrozen-foods/article_c9697b1b-e14a-5f31-a0a7-2675961eb70f.html

www.thekitchn.com/51-per-pound-the-deceptive-cost-of-single-serve-coffee-the-newyork-times-165712

http://www.npr.org/blogs/thetwo-way/2014/01/21/264562529/cheese-to-the-rescue-surprising-spray-melts-roadice

www.accuweather.com/en/weather-news/beet-cheeseand-potatoes-roads/22447484

http://blog.gumroad.com/post/64417917582/a-penny-saved-psychological-pricing

www.theatlantic.com/business/archive/2015/01/the-psychological-difference-between-1200-and-1167/384993/

www.businessweek.com/articles/2013-12-04/is-jc-penney-giving-away-the-store

http://business.time.com/2013/05/02/jc-penney-reintroduces-fake-prices-and-lots-ofcoupons-too-of-course/

http://ir.jcpenney.com/phoenix.zhtml?c=70528&p=irol-irHome

www.forbes.com/sites/prishe/2012/01/06/dynamic-pricing-the-future-of-ticket-pricing-in-sports/

http://adage.com/print/245831/

http://uk.reuters.com/article/2014/01/21/uk-unilever-results-idUKBREA0K09A20140121

612 References

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12. See http://new.pamperedchef.com/company-facts and www.stelladot .com/trunkshow, accessed October 2015.

13. See Grace Lavigne, “China Unveils Six-Year Plan to Cut Logistics,” Journal of Commerce, October 7, 2014, www.joc.com/international-logistics/ global-sourcing/china-unveils-six-year-plan-cut-logistics-costs_ 20141007.html; and Steven Butler, “Walmart China: Hitting Headwinds,” CNNMoney, January 22, 2015, http://money.cnn.com/2015/01/22/news/ economy/ozy-china-walmart/.

14. Based on information from Julie Jargon, “Asia Delivers for McDonald’s,” Wall Street Journal, December 13, 2011, http://online.wsj.com/article/SB 10001424052970204397704577074982151549316.html; “Feel Like a Burger? Dial M for McDonald’s Japan,” Asia Pulse, January 23, 2012; and McDonald’s annual reports, www.aboutmcdonalds.com/mcd/investors/ annual_reports.html, accessed October 2015.

15. See Stephanie Strom, “CVS Vows to Quit Selling Tobacco Products,” New York Times, February 5, 2014, p. B1; Bruce Japson, “CVS Health Kicks Smoking Habit and Still Has Record Sales,” Forbes, February 20, 2015, www.forbes.com/sites/brucejapsen/2015/02/10/even-without-tobacco- revenue-cvs-reports-sales/; and http://info.cvscaremark.com/cvs-insights/ cvs-quits, accessed October 2015.

16. See Rosalyn Wilson, “25th Annual State of Logistics Report: It’s Complicated,” July 1, 2014, www.logisticsmgmt.com/article/25th_annual_ state_of_logistics_its_complicated.

17. William B. Cassidy, “Walmart Squeezes Costs from Supply Chain,” Journal of Commerce, January 5, 2010; “Walmart to Save $150 Million Thanks to Sustainability Programs,” Triple Pundit, October 16, 2012, www.triplepundit.com/2012/10/walmart-save-150-million-sustainability- programs/; and Phalguni Soni, “Walmart’s Supply Chain and Distribution Model,” Market Realist, February 18, 2015, http://marketrealist .com/2015/02/managing-walmarts-supply-chain-cross-docking-tools/.

18. Andy Brack, “Piggly Wiggly Center Offers Info-Packed Field Trip,” Charleston Currents, January 4, 2010, www.charlestoncurrents.com/ issue/10_issues/10.0104.htm; and information from http://en.wikipedia .org/wiki/Piggly_wiggly and http://news.walmart.com/news-archive/ 2005/01/07/our-retail-divisions, accessed October 2015.

19. Jessica Stillman, “Green Cred: Sustainability a Cost-Cutting Move for Suppliers,” Forbes, December 11, 2012, www.forbes.com/sites/ups/2012/ 12/11/green-cred-sustainability-a-cost-cutting-move-for-suppliers/; and www.apparelcoalition.org/higgindex/, www.nikeresponsibility.com/, and www.nikeresponsibility.com/report/content/chapter/manufacturing, accessed October 2015.

20. Andrew S. Ross, “Forget the Elves; Amazon Turns to Robots This Holiday Season,” SFGATE, December 21, 2014, www.sfgate.com/business/ bottomline/article/Forget-the-elves-Amazon-turns-to-robots-this-5928294 .php; and “Working at Amazon,” January 2015, www.amazon.com/gp/help/ customer/display.html?nodeId=200787540&view-type=stand-alone.

21. See Ross, “Forget the Elves”; Scott Kirsner, “Amazon Acquisition Puts Amazon Rivals in Awkward Spot,” Boston Globe, December 1, 2013, www .bostonglobe.com/business/2013/12/01/will-amazon-owned-robot-maker- sell-tailer-rivals/FON7bVNKvfzS2sHnBHzfLM/story.html; Donna Tam, “Meet Amazon’s Busiest Employee—the Kiva Robot,” CNET, November 30, 2014, www.cnet.com/news/meet-amazons-busiest-employee-the-kiva- robot/; and www.kivasystems.com, accessed October 2015.

22. Bureau of Transportation Statistics, “Pocket Guide to Transportation 2015,” January 2015, www.rita.dot.gov/bts/sites/rita.dot.gov.bts/files/publications/ pocket_guide_to_transportation/2015; and American Trucking Association, www.trucking.org/News_and_Information_Reports_Industry_Data.aspx, accessed October 2015.

23. See Walmart’s supplier requirements at http://corporate.walmart.com/ suppliers, accessed April 2015.

24. For this and other UPS examples and information, see “Toshiba Laptop Repair,” accessed at http://pressroom.ups.com/Video/Toshiba+Laptop+ Repair, May 2013; and www.thenewlogistics.com and www.ups.com/ content/us/en/about/facts/worldwide.html, accessed October 2015.

25. “3PL Customers Report Identifies Service Trends, 3PL Market Segment Sizes and Growth Rates,” Armstrong & Associates, Inc., July 11, 2013, www.3plogistics.com/PR_3PL_Customers-2013.htm. Also see Robert C. Lieb, “25 Years of Third-Party Logistics Research & Studies,” Supply Chain 247, December 31, 2014, http://www.supplychain247.com/ article/25_years_of_third-party_logistics_research.

26. See John Langley Jr., “2014 Third-Party Logistics Study: The State of Logistics Outsourcing,” Capgemini Consulting, www.capgemini.com/ resource-file-access/resource/pdf/3pl_study_report_web_version.pdf., accessed May 2015.

timworstall/2013/12/25/apple-fined-670000-in-taiwan-for-price-fixing; and Lina Chan, “The Age of Amazon Is Upon Us,” Salon, January 16, 2015, www.salon.com/2015/01/16/the_age_of_amazon_is_upon_us_ how_one_court_battle_reveals_the_growing_threat_of_monopoly/.

26. Based on information found in Lynn Leary, “Publishers and Booksellers See a ‘Predatory’ Amazon,” NPR Books, January 23, 2012, www.npr .org/2012/01/23/145468105; and Andrew Albanese, “At Apple Hearing, Amazon Called a ‘Monopolist’” Publishers Weekly, December 15, 2014, www.publishersweekly.com/pw/by-topic/digital/content-and-e-books/ article/65063-at-hearing-second-circuit-questions-e-book-case-against- apple.html.

27. “FTC Guides against Deceptive Pricing,” www.ecfr.gov/cgi-bin/text-idx ?c=ecfr&sid=dfafb89837c306cf5b010b5bde15f041&rgn=div5&view=te xt&node=16:1.0.1.2.16&idno=16, accessed October 2015.

Chapter 10 1. Jim Edwards, “Uber Has Changed My Life and as God Is My Witness

I Will Never Take a Taxi Again” Business Insider, January 22, 2014, www.businessinsider.com/uber-has-changed-my-life-and-as-god- is-my-witness-i-will-never-take-a-taxi-again-where-available-2014- 1#ixzz3TYF7ZY29; Brad Stone, “Invasion of the Taxi Snatchers: Uber Leads an Industry’s Disruption,” Businessweek, February 20, 2014, pp. 38–42; Om Malik, “Uber Is the New Google,” Fast Company, June 2014, p. 50; Rebecca Borison, “Report: Uber Generates 12X More Revenue Than Lyft, Despite Charging More per Ride,” Business Insider, September 11, 2014, www.businessinsider.com/uber-12x-revenue-over- lyft-2014-9; Douglas MacMillan, “How Sharp-Elbowed Uber Is Trying to Make Nice,” Wall Street Journal, January 29, 2015, www.wsj.com/ articles/hard-driving-uber-gives-compromise-a-try-1422588782; Alan Murray, “Uber-nomics,” Fortune, January 2015, p. 6.

2. Based on information from Joe Cahill, “Mind Your Franchisees, Mayor McCheese,” Crain’s Chicago Business, April 26, 2013, www .chicagobusiness.com/article/20130426/BLOGS10/130429841; “McDonald’s Customer Service Push Irritates Some Franchisees,” Chicago Business Journal, April 17, 2014, www.bizjournals.com/ chicago/news/2013/04/17/mcdonalds-riding-fine-line-franchisees.html; and “Is McDonald’s Broken? Franchisees Are Furious,” Yahoo! Finance, April 15, 2015, http://finance.yahoo.com/news/mcdonalds-broken- franchisees-furious-133644537.html.

3. See http://investors.sherwin-williams.com/; and “The Kroger Co. Fact Book,” http://ir.kroger.com/CorporateProfile.aspx?iid=4004136, accessed October 2015.

4. See the Inditex Press Dossier, www.inditex.com/en/media/press_dossier, accessed April 2015.

5. Franchising facts from “The State of the Franchise Economy in 2013,” http://franchiseeconomy.com/wp-content/uploads/2013/09/The-State- Of-The-Franchise-Economy-In-2013-9-17-13.pdf; www.azfranchises .com/franchisefacts.htm, accessed May 2013; and company sources, accessed June 2015. Also see “Franchise Business Economic Outlook for 2015,” January 2015, http://emarket.franchise.org/ FranchiseBizOutlook2015.pdf.

6. See “Two Men and a Truck Wraps Up Successful 2014, Fuels Future Expansion in 2015,” January 29, 2015, www.twomenandatruck.com/ details.aspx?p=1EC0C69A41A54054&ppid=59896&naid=C0CACB36 C71828B8; and www.twomenandatruck.com/history-of-two-men-and-a- truck, accessed October 2015.

7. See Eric Platt, “22 Companies That Are Addicted to Walmart,” June 13, 2012, Business Insider, www.businessinsider.com/22-companies-who- are-completely-addicted-to-walmart-2012-6#; and Dan Mitchell, “Say Goodbye to Your Supermarket,” Fortune, March 14, 2014, http://fortune .com/2014/03/14/say-goodbye-to-your-supermarket/.

8. See “General Mills: Joint Ventures,” www.generalmills.com/en/Company/ Businesses/International/Joint_ventures.aspx, accessed October 2015.

9. “Barnes & Noble Abandons Plan to Spin Off Nook Business,” New York Post, February 24, 2015, http://nypost.com/2015/02/26/barnes-noble- abandons-plan-to-spin-off-nook-business/.

10. Lawrence Frost, “Volvo to Launch Online Car Sales in Marketing Shift,” Reuters, December 15, 2014, www.reuters.com/article/2014/12/15/us- volvo-internet-idUSKBN0JT0D020141215; and Diana Kuryiko, “Volvo Dealers Are Hungry for the Redesigned XC90,” Automotive News, January 25, 2015, www.autonews.com/article/20150123/RETAIL06/301249995/ volvo-dealers-are-hungry-for-the-redesigned-xc90.

11. See “Ace Town & Country Hardware: Recommended Reviews,” Yelp, www.yelp.com/biz/ace-town-and-country-hardware-chapel-hill-2,

www.acehardware.com/corp/index.jsp

www.stelladot.com/trunkshow

http://money.cnn.com/2015/01/22/news/economy/ozy-china-walmart/

http://online.wsj.com/article/SB10001424052970204397704577074982151549316.html

www.aboutmcdonalds.com/mcd/investors/annual_reports.html

http://info.cvscaremark.com/cvs-insights/cvs-quits

www.charlestoncurrents.com/issue/10_issues/10.0104.htm

http://en.wikipedia.org/wiki/Piggly_wiggly

www.apparelcoalition.org/higgindex

www.nikeresponsibility.com

www.nikeresponsibility.com/report/content/chapter/manufacturing

www.sfgate.com/business/bottomline/article/Forget-the-elves-Amazon-turns-to-robots-this-5928294.php

www.amazon.com/gp/help/customer/display.html

www.bostonglobe.com/business/2013/12/01/will-amazon-owned-robot-maker-sell-tailer-rivals/FON7bVNKvfzS2sHnBHzfLM/story.html

www.kivasystems.com

www.rita.dot.gov/bts/sites/rita.dot.gov.bts/files/publications/pocket_guide_to_transportation/2015

www.trucking.org/News_and_Information_Reports_Industry_Data.aspx

http://corporate.walmart.com/suppliers

www.thenewlogistics.com

www.ups.com/content/us/en/about/facts/worldwide.html

www.3plogistics.com/PR_3PL_Customers-2013.htm

http://www.supplychain247.com/article/25_years_of_third-party_logistics_research

www.capgemini.com/resource-file-access/resource/pdf/3pl_study_report_web_version.pdf

www.forbes.com/sites/timworstall/2013/12/25/apple-fined-670000-in-taiwan-for-price-fixing

www.npr

www.publishersweekly.com/pw/by-topic/digital/content-and-e-books/article/65063-at-hearing-second-circuit-questions-e-book-case-against-apple.html

www.wsj.com/articles/hard-driving-uber-gives-compromise-a-try-1422588782

www.chicagobusiness.com/article/20130426/BLOGS10/130429841

www.bizjournals.com/chicago/news/2013/04/17/mcdonalds-riding-fine-line-franchisees.html

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www.yelp.com/biz/ace

http://www.acehardware.com/corp/index.jsp?page=

http://new.pamperedchef.com/company-facts

http://www.joc.com/international-logistics/global-sourcing/china-unveils-six-year-plan-cut-logistics-costs_20141007.html

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http://pressroom.ups.com/Video/Toshiba+Laptop+

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http://www.businessinsider.com/uber-has-changed-my-life-and-as-god-is-my-witness-i-will-never-take-a-taxi-again-where-available-2014-1#ixzz3TYF

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www.chicagobusiness.com/article/20130426/BLOGS10/130429841

www.azfranchises.com/franchisefacts.htm

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13. Company and franchising information from “2014 Franchise Times Top 200 Franchise Systems,” Franchise Times, October 2014, www.franchisetimes .com/pdf/2014/Top200-2014.pdf, www.score.org/resources/should-i-buy- franchise; and http://www.aboutmcdonalds.com/mcd/our_company.html and www.subway.com/subwayroot/About_Us/default.aspx, accessed October 2015.

14. Numbers from “Top 200 Franchise Systems,” Franchise Times, October 2014, www.franchisetimes.com/pdf/2014/Top200-2014.pdf. See also www.whichwich.com and www.whichwich.com/about_us, accessed October 2015.

15. Based on information from “How Do You See This Experiential Retailing Trend Working Its Way across Retail?” Integrated Retailing, www .integratedretailing.com/?p=131, accessed September 2014; and www .llbean.com, www.llbean.com/llb/shop/1000001692?nav=ftlink, and www.llbean.com/llb/shop/1000001704?page=campus-lander#, accessed October 2015.

16. See Justine Sharrock, “How Manufactured Smells Are Making People Shop Longer and Kill Better,” BuzzFeed, March 15, 2013, www.buzzfeed .com/justinesharrock/how-manufactured-smells-are-making-people- shop-longer-and-ki; Alexandra Sifferlin, “My Nose Made Me Buy It,” Time, December 16, 2013, http://healthland.time.com/2013/12/16/my- nose-made-me-buy-it-how-retailers-use-smell-and-other-tricks-to-get- you-to-spend-spend-spend/; Sarah Nassauer, “Using Scent as a Marketing Tool, Stores Hope It—and Shoppers—Will Linger,” Wall Street Journal, May 20, 2014, www.wsj.com/articles/SB1000142405270230346870457 9573953132979382; and www.scentair.com/why-scentair-scent-studies/, accessed October 2015.

17. See various social media sites for Walmart and Fairway, accessed October 2015.

18. “CVS/pharmacy Revolutionizes the Way Customers Experience the Sales Circular with Launch of myWeekly Ad,” October 17, 2013, http://info .cvscaremark.com/newsroom/press-releases/cvspharmacy-revolutionizes- way-customers-experience-sales-circular-launch; Stuart Elliott, “For CVS Regulars, Ads Tailored Just to Them,” New York Times, October 10, 2013, www.nytimes.com/2013/10/11/business/media/for-cvs-regulars-ads- tailored-just-to-them.html?_r=0; and www.cvs.com, accessed June 2015.

19. For definitions of these and other types of shopping centers, see “Dictionary,” American Marketing Association, www.marketingpower .com/_layouts/Dictionary.aspx, accessed October 2015.

20. See “Brick by Brick: The State of the Shopping Center,” Nielsen, May 17, 2013, http://nielsen.com/us/en/reports/2013/brick-by-brick-the-state- of-the-shopping-center.html; “It’s the End of the Mall as We Know It,” Real Estate Weekly, February 22, 2013, www.rew-online.com/2013/02/22/ its-the-end-of-the-mall-as-we-know-it/; Judy Keen, “As Enclosed Malls Decline, ‘Lifestyle Centers’ Proliferate,” MINNPOST, August 30, 2013, www.minnpost.com/cityscape/2013/08/enclosed-malls-decline- lifestyle-centers-proliferate; www.cvs.com/weeklyad/browse/browse- home.jsp#Browse; Jennifer Duell Popovec, “Existing Lifestyle Centers Thrive, but Developers Prefer Mixed-Use for New Projects,” December 11, 2014, National Real Estate Investor, http://nreionline.com/retail/existing- lifestyle-centers-thrive-developers-prefer-mixed-use-new-projects.

21. Nelson D. Schwartz, “The Economics (and Naiostalgia) of Dead Malls,” New York Times, January 3, 2015, www.nytimes.com/2015/01/04/ business/the-economics-and-nostalgia-of-dead-malls.html.

22. Jennifer Reingold and Phil Wahba, “Where Have All the Shopper Gone?” Fortune, September 3, 2014, http://fortune.com/2014/09/03/ where-have-all-the-shoppers-gone/.

23. See Rick Brockmann, “Nike to Open Pop-Up Shop Near Barclays for NBA’s All-Star Weekend,” The Real Deal, February 9, 2015.

24. See www.gilt.com and www.zulily.com, accessed October 2015. 25. See www.rpminc.com/leading-brands/consumer-brands, accessed October

2015. 26. Thad Rueter, “The Web’s Influence on U.S. Retail Grows,” Internet

Retailer, July 25, 2014, www.internetretailer.com/2014/07/25/webs- influence-us-retail-grows; and U.S. Census Bureau News, “Quarterly Retail E-Commerce Sales, 4rd Quarter 2014,” February 17, 2015, www .census.gov/retail/mrts/www/data/pdf/ec_current.pdf.

27. See Greg Sterling, “Mobile Devices: 30 Percent of Traffic, 15 Percent of Sales,” Marketing Land, February 28, 2014, http://marketingland.com/mobile- devices-generate-30-pct-traffic-15-pct-e-sales-75498; and Thad Rueter, “The Web’s Influence on U.S. Retail Grows,” Internet Retailer, July 25, 2014, www.internetretailer.com/2014/07/25/webs-influence-us-retail-grows.

28. Lauren Johnson, “Target Turns Its Stores into One Big Mobile Game for the Holidays,” Adweek, December 2, 2014, www.adweek.com/ print/161727.

Chapter 11 1. Based on information from “Fortune Global 500,” Fortune, August 1, 2015,

pp. F1-F6; Ashley Lutz and Mike Nudelman, “14 Facts about Wal-Mart That Will Blow Your Mind,” Business Insider, October 17, 2013, www .businessinsider.com/facts-about-wal-mart-to-blow-your-mind-2013-10; John Huey, “Wal-Mart: Will It Take over the World?” Fortune, January 30, 1998, pp. 52–61; Michael Barbano and Stuart Elliott, “Clinging to Its Roots, Wal-Mart Steps Back from an Edgy, New Image,” New York Times, December 10, 2006, www.nytimes.com/2006/12/10/business/ worldbusiness/10iht-walmart.3845671.html; “Top 250 Global Retailers, 2015,” National Retail Federation, https://nrf.com/2015/global250- table; and annual reports and other information found at http://corporate .walmart.com/our-story/heritage/sam-walton, http://news.walmart.com/ walmart-facts/corporate-financial-fact-sheet, and www.walmartstores .com, accessed October 2015.

2. See “Monthly and Annual Retail Trade,” U.S. Census Bureau, www .census.gov/retail/, accessed October 2015.

3. See “Just Released: P&G 2014 Annual Report,” P&G Corporate Newsroom, August 20, 2014, http://news.pg.com/blog/company-strategy/ just-released-pg-2014-annual-report; and “Procter & Gamble,” Growth Champions, March 2015, http://growthchampions.org/growth-champions/ procter-gamble/.

4. For more on digital aspects of shopper marketing and omni-channel retailing, see Tim Simmons, “The Keys to Unlocking the Retail Omni- Channel Advantage,” Forbes, January 1, 2015, www.forbes.com/sites/ teradata/2015/01/02/the-keys-to-unlocking-the-retail-omni-channel- advantage/print/; Lisa R. Melsted, “Retailers Turn to Omnichannel Strategies to Remain Competitive,” Forbes, February 9, 2015, www.forbes .com/sites/samsungbusiness/2015/02/09/retailers-turn-to-omnichannel- strategies-to-remain-competitive/print/; and www.shoppermarketingmag .com/home/, accessed May 2015; and “ZMOT,” Google Digital Services, www.zeromomentoftruth.com/, accessed October 2015.

5. John Russell, “Grocery Wars Certain to Flair Up on North Side,” IndyStar, January 27, 2015, www.indystar.com/story/news/2015/01/25/ grocery-wars-certain-flare-north-side/22125353/.

6. Jon Springer, “Pricing: WinCo Keeps Costs Down and Velocity High,” Supermarket News, April 29, 2013, http://supermarketnews.com/ retail-amp-financial/pricing-winco-keeps-costs-down-and-velocity- high#ixzz2uLcJzlvN; Brad Tuttle, “Meet the Low-Key, Low-Cost Grocery Chain Being Called ‘Walmart’s Worst Nightmare,’” Time, August 7, 2013, http://business.time.com/2013/08/07/meet-the-low-key-low-cost-grocery- chain-being-called-wal-marts-worst-nightmare/; Justin Corr, “Learning about Retirement from WinCo’s Millionaire Checkers,” KTVB.com, February 3, 2015, www.ktvb.com/story/news/local/2015/02/03/winco- checkers-retirement/22793933/; and www.wincofoods.com, accessed October 2015.

7. See Jonathon Berr, “7-Eleven Goes on a Healthy Kick,” MSN Money, September 13, 2013, http://money.msn.com/now/post-7-eleven-goes-on- a-health-kick; and http://corp.7-eleven.com, accessed October 2015.

8. http://corporate.walmart.com/our-story/our-business/locations/#/united- states, accessed June 2015; and “Supermarket Facts,” www.fmi.org/ research-resources/supermarket-facts, accessed October 2015.

9. See “Dollar General Reports Record Fourth Quarter and Full Year 2014 Financial Results,” March 12, 2015, http://newscenter.dollargeneral.com/ news/dollar-general-reports-record-fourth-quarter-and-full-year-2014- financial-results.htm; Christopher Matthews, “Will Dollar Stores Rule the Retail World?” Time, April 1, 2013, http://business.time.com/2013/04/01/ will-dollar-stores-rule-the-retail-world/; and http://investor.shareholder .com/dollar/financials.cfm, accessed October 2015.

10. Beth Kowitt, “Is T.J. Maxx the Best Retail Sore in the Land,” Fortune, August 11, 2014, pp. 93-96; and “How We Do It,” http://tjmaxx.tjx.com/ store/jump/topic/how-we-do-it/2400087, accessed October 2015.

11. Phil Wahba, “Macy’s Mull Taking on T.J. Maxx, Nordstrom Rack in “Off- Price” Wars,” Fortune, January 8, 2015, http://fortune.com/2015/01/08/ macys-outlet-off-price/.

12. Based on information from “Top 250 Global Retailers, 2015,” National Retail Federation, https://nrf.com/2015/global250-table; Stan Laegreid, “The Choreography of Design, Treasure Hunts, and Hot Dogs That Have Made Costco So Successful,” Fast Company, January 24, 2014, www .fastcompany.com/3025312; Susanna Kim, “7 Reasons Why People Can’t Get Enough of Costco,” ABC News, January 6, 2015, http://abcnews .go.com/Business/reasons-people-costco/story?id=26046572; and www .costco.com and http://www.costco.com/insider-guide-amazing-facts .html, accessed October 2015.

www.franchisetimes.com/pdf/2014/Top200-2014.pdf

http://www.aboutmcdonalds.com/mcd/our_company.html

www.subway.com/subwayroot/About_Us/default.aspx

www.franchisetimes.com/pdf/2014/Top200-2014.pdf

www.whichwich.com

www.integratedretailing.com

www.llbean.com

www.llbean.com/llb/shop

www.buzzfeed.com/justinesharrock/how-manufactured-smells-are-making-peopleshop-longer-and-ki

http://healthland.time.com/2013/12/16/my

http://info.cvscaremark.com/newsroom/press-releases/cvspharmacy-revolutionizesway-customers-experience-sales-circular-launch

www.nytimes.com/2013/10/11/business/media/for-cvs-regulars-ads-tailored-just-to-them.html

www.cvs.com

www.marketingpower.com/_layouts/Dictionary.aspx

http://nielsen.com/us/en/reports/2013/brick-by-brick-the-state-of-the-shopping-center.html

www.rew-online.com/2013/02/22/its-the-end-of-the-mall-as-we-know-it/

www.cvs.com/weeklyad/browse/browse-home.jsp#Browse

http://nreionline.com/retail/existing-lifestyle-centers-thrive-developers-prefer-mixed-use-new-projects

www.nytimes.com/2015/01/04/business/the-economics-and-nostalgia-of-dead-malls.html

http://fortune.com/2014/09/03/where-have-all-the-shoppers-gone/

www.gilt.com

www.zulily.com

www.internetretailer.com/2014/07/25/webs-influence-us-retail-grows

www.census.gov/retail/mrts/www/data/pdf/ec_current.pdf

http://marketingland.com/mobile-devices-generate-30-pct-traffic-15-pct-e-sales-75498

www.adweek.com/print

www.businessinsider.com/facts-about-wal-mart-to-blow-your-mind-2013-10

www.nytimes.com/2006/12/10/business/worldbusiness/10iht-walmart.3845671.html

http://news.walmart.com/walmart-facts/corporate-financial-fact-sheet

www.walmartstores

www.census.gov/retail/

http://news.pg.com/blog/company-strategy/just-released-pg-2014-annual-report

http://growthchampions.org/growth-champions/procter-gamble/

www.forbes.com/sites/teradata/2015/01/02/the-keys-to-unlocking-the-retail-omni-channel-advantage/print

www.forbes.com/sites/samsungbusiness/2015/02/09/retailers-turn-to-omnichannelstrategies-to-remain-competitive/print/

www.shoppermarketingmag.com/home

www.zeromomentoftruth.com

www.indystar.com/story/news/2015/01/25/grocery-wars-certain-flare-north-side/22125353/

http://supermarketnews.com/retail-amp-financial/pricing-winco-keeps-costs-down-and-velocityhigh#ixzz2uLcJzlvN

KTVB.com

www.ktvb.com/story/news/local/2015/02/03/wincocheckers-retirement/22793933/

www.wincofoods.com

http://corp.7-eleven.com

www.fmi.org/research-resources/supermarket-facts

http://newscenter.dollargeneral.com/news/dollar-general-reports-record-fourth-quarter-and-full-year-2014-financial-results.htm

http://business.time.com/2013/04/01/will-dollar-stores-rule-the-retail-world/

http://investor.shareholder.com/dollar/financials.cfm

http://tjmaxx.tjx.com/store/jump/topic/how-we-do-it/2400087

http://fortune.com/2015/01/08/macys-outlet-off-price/

https://nrf.com/2015/global250

www.fastcompany.com/3025312

http://abcnews.go.com/Business/reasons-people-costco/story?id=26046572

www.costco.com

http://www.costco.com/insider-guide-amazing-facts.html

http://www.score.org/resources/should-i-buy-franchise

http://www.whichwich.com/about_us

http://www.llbean.com/llb/shop/1000001692?nav=ftlink

http://www.llbean.com/llb/shop/1000001704?page=campus-lander#

http://www.wsj.com/articles/SB10001424052702303468704579573953132979382

http://www.scentair.com/why-scentair-scent-studies/

http://www.minnpost.com/cityscape/2013/08/enclosed-malls-decline-lifestyle-centers-proliferate

http://www.rpminc.com/leading-brands/consumer-brands

http://www.internetretailer.com/2014/07/25/webs-influence-us-retail-grows

http://corporate.walmart.com/our-story/heritage/sam-walton

http://business.time.com/2013/08/07/meet-the-low-key-low-cost-grocery-chain-being-called-wal-marts-worst-nightmare/

http://money.msn.com/now/post-7-eleven-goes-on-a-health-kick

http://corporate.walmart.com/our-story/our-business/locations/#/united-states

www.businessinsider.com/facts-about-wal-mart-to-blow-your-mind-2013-10

http://corporate.walmart.com/our-story/heritage/sam-walton

www.census.gov/retail/

http://news.pg.com/blog/company-strategy/just-released-pg-2014-annual-report

www.forbes.com/sites/samsungbusiness/2015/02/09/retailers-turn-to-omnichannelstrategies-to-remain-competitive/print/

http://supermarketnews.com/retail-amp-financial/pricing-winco-keeps-costs-down-and-velocityhigh#ixzz2uLcJzlvN

www.ktvb.com/story/news/local/2015/02/03/wincocheckers-retirement/22793933/

http://corporate.walmart.com/our-story/our-business/locations/#/united-states

http://investor.shareholder.com/dollar/financials.cfm

www.fastcompany.com/3025312

www.costco.com

www.franchisetimes.com/pdf/2014/Top200-2014.pdf

http://www.score.org/resources/should-i-buy-franchise

www.integratedretailing.com

www.llbean.com

www.buzzfeed.com/justinesharrock/how-manufactured-smells-are-making-peopleshop-longer-and-ki

http://www.wsj.com/articles/SB10001424052702303468704579573953132979382

http://info.cvscaremark.com/newsroom/press-releases/cvspharmacy-revolutionizesway-customers-experience-sales-circular-launch

www.cvs.com/weeklyad/browse/browse-home.jsp#Browse

http://nreionline.com/retail/existing-lifestyle-centers-thrive-developers-prefer-mixed-use-new-projects

www.census.gov/retail/mrts/www/data/pdf/ec_current.pdf

www.internetretailer.com/2014/07/25/webs-influence-us-retail-grows

http://marketingland.com/mobile-devices-generate-30-pct-traffic-15-pct-e-sales-75498

614 References

“P&G’s Pritchard on Where Marketing, Media, and Metrics Are Going,” Advertising Age, March 16, 2015, www.adage.com/print/297592; and Jack Neff and E. J. Schultz, “Overdose?,” Advertising Age, February 9, 2015, pp. 14–15.

4. See Andrew Adam Newman, “With a French Accent, a Soap Brand Tells a Tale of Well-Scrubbed Lovers,” New York Times, March 21, 2014, p. B4; Stuart Elliott, “Ad for Method Celebrates the Madness,” New York Times, March 12, 2012, p. B1; and www.methodhome.com/cleanhappy/ and www.youtube.com/user/peopleagainstdirty, accessed October 2015.

5. See “Advertisers Blend Digital and TV for Well-Rounded Campaigns,” eMarketer, March 12, 2014, www.emarketer.com/Article/Advertisers- Blend-Digital-TV-Well-Rounded-Campaigns/1010670.

6. See Troy Dreier, “How Lowe’s and Vine Build Social Video Success,” Streaming Media, May 2014, www.streamingmedia.com/Articles/ Editorial/Featured-Articles/How-Lowes-and-Vine-Build-Social-Video- Success-96585.aspx; Alexxis Letozoa, “Lowe’s Fix in Six,” –Ation, December 1, 2014, http://ation.digitalmediauconn.org/lowes-fix-in-six/; https://vine.co/Lowes, www.youtube.com/user/Lowes, https://instagram .com/loweshomeimprovement/, www.pinterest.com/lowes/, and other Lowe’s social media sites, accessed October 2015.

7. See Scott Collins, “Super Bowl 2015: Sunday’s Game a Ratings Winner for NBC,” LA Times, February 3, 2015; www.latimes.com/entertainment/ tv/la-et-st-super-bowl-2015-ratings-20150203-story.html; Rick Kissell, “‘NCIS’ Has Become the World’s Most-Watched TV Drama,” Variety, June 11, 2014, http://variety.com/2014/tv/news/ncis-most-popular- drama-in-worldwatched-tv-drama-1201218492/; and www.youtube.com/ watch?v=qaOvHKG0Tio, accessed October 2015.

8. See discussions at Mike Ishmael, “The Cost of a Sales Call,” October 22, 2012, http://4dsales.com/the-cost-of-a-sales-call/; Jeff Green, “The New Willy Loman Survives by Staying Home,” Bloomberg Businessweek, January 14–20, 2013, pp. 16–17; and “What Is the Real Cost of a B2B Sales Call?” www.marketing-playbook.com/sales-marketing-strategy/ what-is-the-real-cost-of-a-b2b-sales-call, accessed October 2015.

9. “100 Largest Global Marketers,” Advertising Age, December 8, 2014, p. 26. 10. For these and other advertising spending facts, see Advertising Age

Marketing Fact Pack 2015, December 29, 2014, and “200 Leading National Advertisers,” Advertising Age, July 13, 2015, pp. 14-23.

11. See “200 Leading National Advertisers,” Advertising Age, July 13, 2015, p. 16; and “The CDC’s Anti-Smoking Ads Now Include E-Cigarettes,” Bloomberg Businessweek, March 26, 2015, www.bloomberg.com/news/ articles/2015-03-26/the-cdc-s-anti-smoking-ads-now-include-e-cigarettes.

12. Bruce Horovitz, “Taco Bell Still Giving Ronald McDonald Grief,” USA Today, April 3, 2014.

13. See “Microsoft Flips Famed PC vs. Mac Ads to Pitch Smartphones, Tablets,” Advertising Age, August 12, 2014, www.adage.com/print/294551; and www.youtube.com/watch?v=yYC5dkQlQLA, accessed October 2015.

14. See Jean Halliday, “Thinking Big Takes Audi from Obscure to Awesome,” Advertising Age, February 2, 2009, http://adage.com/print?article_ id=134234; and “Audi U.S. Sales in February 2015 Rise to Record Level for 50th Consecutive Month,” Yahoo! Finance, April 17, 2015, http:// finance.yahoo.com/news/audi-u-sales-february-2015-170012501.html.

15. “Number of Magazines in the United States from 2002 to 2013,” Statistica, www.statista.com/statistics/238589/number-of-magazines-in- the-united-states/, accessed June 2015; and Andrew Burger, “Nielsen: Despite Hundreds of Choices, Average Number of TV Channels Watched Is 17,” Telecompetitor, May 9, 2014, www.telecompetitor.com/ nielsen-average-number-of-tv-channels-watched-is-17/.

16. Kelsey Libert and Kristen Tynski, “Research: The Emotions That Make Marketing Campaigns Go Viral,” HBR Blog Network, October 24, 2013, http://blogs.hbr.org/2013/10/research-the-emotions-that-make-marketing- campaigns-go-viral/; and data from YouTube, Facebook, Instagram, and Twitter from October 2015.

17. Steve McClellan, “4As Scraps Annual Ad Production Cost Survey,” Media Post, February 11, 2014, www.mediapost.com/publications/article/ 219371/4as-scraps-annual-ad-production-cost-survey.html; Sam Thielman, “The New Hour Is 43 Minutes Long,” Adweek, June 24, 2013, p. 12; Jeanine Poggi, “Football and ‘Big Bang’ Are Broadcast TV’s Most Expensive Ad Buys,” AdAge, September 25, 2014, http://adage.com/print/295130; and “What It Costs,” Advertising Age, April 6, 2014, pp. 14–18.

18. See Anthony Grupi, “Are Nets Beating Back the Devil in the DVR?” Advertising Age, September 29, 2014, pp. 16–17; and Jeff Baumgartner, “76% of Homes Have DVR, Netflix or Use VOD: Study,” Multichannel News, January 2, 2015, www.multichannel.com/news/ technology/76-homes-have-dvr-netflix-or-use-vod-study/386584.

19. See Michael Sebastian, “Madison & Vine at 10,” Advertising Age, May 12, 2014, pp. 18–19.

29. “Store-Based Retailers Take the Early Lead among Top 500 Retailers in Online Sales Growth,” Internet Retailer, February 18, 2014, www .internetretailer.com/2014/02/18/store-based-retailers-take-early- lead-among-top-500; and “Top 500 Guide,” Internet Retailer, www .internetretailer.com/top500/top10/, accessed October 2015.

30. Paul Demery, “E-Commerce Becomes More Dominant at Williams- Sonoma,” Internet Retailer, August 20, 2013, www.internetretailer .com/2013/08/30/e-commerce-becomes-more-dominant-williams- sonoma; Adam Blair, “Williams-Sonoma Invests $75M in Fast- Growing, Profitable E-Commerce,” RIS, March 22, 2011, http:// risnews.edgl.com/retail-best-practices/Williams-Sonoma-Invests-$75M- in-Fast-Growing,-Profitable-E-Commerce71523; and Laura Alber, “The CEO of Williams-Sonoma on Blending Instinct with Analysis,” Harvard Business Review, September 2014, https://hbr.org/2014/09/ the-ceo-of-williams-sonoma-on-blending-instinct-with-analysis.

31. Brad Tuttle, “The Creepy New Way Macy’s Tempts You to Make Impulse Purchases,” Time, September 26, 2015, http://time.com/money/3432693/ macys-shopkick-ibeacon/.

32. See Lauren Johnson, “This $473 Billion Retailer Wants to Be the Next Ad- Tech Star,” Adweek, November 18, 2014, www.adweek.com/print/161471; “Our Strategy: Winning in Global E-Commerce,” Walmart 2012 Annual Report, www.walmartstores.com/sites/annual-report/2012/WalMart_AR.pdf, March 2013, pp. 12–13; and www.walmartlabs.com, accessed October 2015.

33. “Green MashUP: 7 Trends Transforming Retail Sustainability,” The Fifth Estate, February 17, 2015, www.thefifthestate.com.au/business/trends/green- mashup-7-trends-transforming-retail-sustainability/71455; and “The IKEA Group Sustainability Report,” www.ikea.com/ms/en_US/pdf/sustainability_ report/sustainability_report_2014.pdf accessed October 2015.

34. See www.staples.com/sbd/cre/marketing/easy-on-the-planet/recycling-and- eco-services.html, accessed October 2015.

35. See http://news.walmart.com/walmart-facts/corporate-financial-fact-sheet, accessed October 2015.

36. See “Global Powers of Retailing 2015,” Deloitte, January 2015, accessed at http://www2.deloitte.com/content/dam/Deloitte/global/Documents/ Consumer-Business/gx-cb-global-powers-of-retailing.pdf.

37. Grainger facts and other information are from the “Grainger: Beyond the Box Fact Book,” accessed at http://invest.grainger.com/phoenix .zhtml?c=76754&p=irol-irFactBook and www.grainger.com, accessed October 2015.

38. “Top 500 Guide,” Internet Retailer, www.top500guide.com/top-500/the- top-500-list, accessed March 2014; and www.grainger.com, accessed October 2014.

39. Information from “About Us,” www.mckesson.com; and “Supply Management Online,” http://mckessonbop.com/solutions-services/ mckesson-connect/, accessed October 2015.

40. Facts from “2014 Power 50,” http://supermarketnews.com/2014-power- 50-clickable-list, accessed June 2015; and www.supervalu.com, accessed October 2015.

Chapter 12 1. Quotes and other information from Dominique Mosbergen, “GEICO

Creates ‘Unskippable’ Preroll YouTube Ads That You’ll Want to Watch till the End,” Huffington Post, March 2, 2015, www.huffingtonpost .com/2015/03/02/geico-unskippable-ad-youtube-preroll_n_6788894 .html; E. J. Schultz, “Muscling Past Mayhem: GEICO Rides Giant Ad Budget Past Allstate,” Advertising Age, July 8, 2013, www.adage.com/ print/242980; “10 Most-Advertised Brands,” Advertising Age Marketing Fact Pack 2015, December 29, 2014, pp. 7, 10; Michele Miller, “‘Hump Day’ GEICO Commercial: Creators Dish on Ad’s Success, Its Development,” CBS News, September 18, 2013, www.cbsnews.com/ news/hump-day-geico-commercial-creators-dish-on-ads-success-its- development/; Andrea Paton-Ash, “Camels Return to the Spotlight in GEICO’s Latest ‘It’s What You Do’ Commercial,” December 23, 2014, http://blog.geico.com/2014/12/23/camels-return-to-the-spotlight-in- geicos-latest-its-what-you-do-commercial/; and www.geico.com and www.youtube.com/user/GEICO, accessed October 2015.

2. For other definitions, see www.ama.org/resources/Pages/Dictionary.aspx, accessed October 2015.

3. “Ad Spending by Medium,” Advertising Age Marketing Fact Pack 2015, December 29, 2014, p. 16; “Digital to Overtake TV Ad Spending in Two Years,” Advertising Age, November 4, 2014, www.adage.com/ print/295694; Natalie Tadena, “Magna Global: TV Will Remain Soft in 2015,” Wall Street Journal, February 25, 2015, http://blogs.wsj.com/ cmo/2015/02/25/magna-global-tv-ad-spending-will-remain-soft-in-2015;

www.methodhome.com/cleanhappy

www.youtube.com/user/peopleagainstdirty

www.emarketer.com/Article/Advertisers-Blend-Digital-TV-Well-Rounded-Campaigns/1010670

www.streamingmedia.com/Articles/Editorial/Featured-Articles/How-Lowes-and-Vine-Build-Social-Video-Success-96585.aspx

https://vine.co/Lowes

www.youtube.com/user/Lowes

www.pinterest.com/lowes

www.latimes.com/entertainment/tv/la-et-st-super-bowl-2015-ratings-20150203-story.html

www.marketing-playbook.com/sales-marketing-strategy/what-is-the-real-cost-of-a-b2b-sales-call

http://4dsales.com/the

www.bloomberg.com/news/articles/2015-03-26/the-cdc-s-anti-smoking-ads-now-include-e-cigarettes

http://adage.com/print?article_id=134234

http://finance.yahoo.com/news/audi-u-sales-february-2015-170012501.html

www.telecompetitor.com/nielsen-average-number-of-tv-channels-watched-is-17/

www.mediapost.com/publications/article/219371/4as-scraps-annual-ad-production-cost-survey.html

http://adage.com/print/295130

www.multichannel.com/news/technology/76-homes-have-dvr-netflix-or-use-vod-study/386584

www.internetretailer.com/2014/02/18/store-based-retailers-take-earlylead-among-top-500

www.internetretailer.com/top500/top10/

www.internetretailer.com/2013/08/30/e-commerce-becomes-more-dominant-williamssonoma

http://risnews.edgl.com/retail-best-practices/Williams-Sonoma-Invests-$75Min-Fast-Growing,-Profitable-E-Commerce71523

https://hbr.org/2014/09/the-ceo-of-williams-sonoma-on-blending-instinct-with-analysis

http://time.com/money/3432693/macys-shopkick-ibeacon/

www.walmartstores.com/sites/annual-report/2012/WalMart_AR.pdf

www.walmartlabs.com

www.thefifthestate.com.au/business/trends/green-mashup-7-trends-transforming-retail-sustainability/71455

www.ikea.com/ms/en_US/pdf/sustainability_report/sustainability_report_2014.pdf

www.staples.com/sbd/cre/marketing/easy-on-the-planet/recycling-and-eco-services.html

http://news.walmart.com/walmart-facts/corporate

http://www2.deloitte.com/content/dam/Deloitte/global/Documents/Consumer-Business/gx-cb-global-powers-of-retailing.pdf

http://invest.grainger.com/phoenix.zhtml?c=76754&p=irol-irFactBook

www.grainger.com

www.top500guide.com/top-500/the-top-500-list

www.grainger.com

www.mckesson.com

http://mckessonbop.com/solutions-services/mckesson-connect/

www.supervalu.com

www.huffingtonpost.com/2015/03/02/geico-unskippable-ad-youtube-preroll_n_6788894.html

www.adage.com/print/242980

www.cbsnews.com/news/hump-day-geico-commercial-creators-dish-on-ads-success-itsdevelopment/

www.geico.com

www.youtube.com/user/GEICO

www.ama.org/resources/Pages/Dictionary.aspx

www.adage.com/print/295694

http://blogs.wsj.com/cmo/2015/02/25/magna-global-tv-ad-spending-will-remain-soft-in-2015

http://www.adage.com/print/297592

http://ation.digitalmediauconn.org/lowes-fix-in-six/

https://instagram

http://variety.com/2014/tv/news/ncis-most-popular-drama-in-worldwatched-tv-drama-1201218492/

http://4dsales.com/the-cost-of-a-sales-call/

http://www.adage.com/print/294551

http://www.youtube.com/watch?v=yYC5dkQlQLA

http://www.statista.com/statistics/238589/number-of-magazines-in-the-united-states/

http://blogs.hbr.org/2013/10/research-the-emotions-that-make-marketing-campaigns-go-viral/

http://www.adweek.com/print/161471

http://news.walmart.com/walmart-facts/corporate-financial-fact-sheet

http://supermarketnews.com/2014-power-50-clickable-list

http://blog.geico.com/2014/12/23/camels-return-to-the-spotlight-in-geicos-latest-its-what-you-do-commercial/

www.internetretailer.com/2014/02/18/store-based-retailers-take-earlylead-among-top-500

www.internetretailer.com/2013/08/30/e-commerce-becomes-more-dominant-williamssonoma

http://risnews.edgl.com/retail-best-practices/Williams-Sonoma-Invests-$75Min-Fast-Growing,-Profitable-E-Commerce71523

www.thefifthestate.com.au/business/trends/green-mashup-7-trends-transforming-retail-sustainability/71455

http://invest.grainger.com/phoenix.zhtml?c=76754&p=irol-irFactBook

www.top500guide.com/top-500/the-top-500-list

www.huffingtonpost.com/2015/03/02/geico-unskippable-ad-youtube-preroll_n_6788894.html

www.cbsnews.com/news/hump-day-geico-commercial-creators-dish-on-ads-success-itsdevelopment/

www.emarketer.com/Article/Advertisers-Blend-Digital-TV-Well-Rounded-Campaigns/1010670

www.mediapost.com/publications/article/219371/4as-scraps-annual-ad-production-cost-survey.html

References 615

34. Information on advertising agency revenues from “Agency Report,” Advertising Age, April 28, 2014, pp. 8+; and Advertising Age Marketing Fact Pack 2015,” December 29, 2014, p. 26–29.

35. Stuart Elliott, “Visa Trims Slogan to Expand Meaning,” New York Times, January 13, 2014, p. B6.

36. See E. J. Schultz, “Behind the Snickers Campaign That Launched a Global Comeback,” Advertising Age, October 4, 2013, http://adage.com/ print/244593; and http://adsoftheworld.com/media/outdoor/snickers_ running and http://cargocollective.com/mirceaandronescu/SNICKERS- OOH, accessed September 2014.

37. Based on Glen Broom and Bey-Ling Sha, Cutlip & Center’s Effective Public Relations, 11th ed. (Upper Saddle River, NJ: Prentice Hall, 2013), Chapter 1.

38. See Mark Fidelman, “8 of the Best Influencer Marketing Campaigns from 8 Hot Agencies,” Forbes, August 6, 2013, www.forbes.com/sites/ markfidelman/2013/08/06/8-of-the-best-influencer-marketing-campaigns- from-the-8-hottest-agencies; Melissa Malcolm, “Success Is Built with Chocolate Milk,” Dairy Foods, February 2014, pp. 15–17; Polly Elmore, “Promoting Chocolate Milk as an Energy Drink,” PR Works, February 3, 2014, http://prwrks.com/promoting-chocolate-milk-as-an-energy-drink; and http://gotchocolatemilk.com and http://gotmilksales.org/milk-sales- strategies/built-with-chocolate-milk/, accessed October 2015.

39. See Geoffrey Fowler and Ben Worthen, “Buzz Powers iPad Launch,” Wall Street Journal, April 2, 2010; “Apple iPad Sales Top 2 Million since Launch,” Tribune-Review (Pittsburgh), June 2, 2010; “PR Pros Must Be Apple’s iPad as a True Game-Changer,” PRweek, May 2010, p. 23; and “Apple Launches New iPad,” March 7, 2012, www.apple.com/pr/ library/2012/03/07Apple-Launches-New-iPad.html.

40. Quotes from Sarah Skerik, “An Emerging PR Trend: Content PR Strategy and Tactics,” PR Newswire, January 15, 2013, http://blog .prnewswire.com/2013/01/15/an-emerging-pr-trend-content-pr-strategy- tactics/; and Mary Teresa Bitti, “The New Mad Men: How Publics Relations Firms Have Emerged from the Shadows,” Financial Post, December 28, 2014, http://business.financialpost.com/entrepreneur/ the-changing-role-of-public-relations-firms.

Chapter 13 1. Based on information from David Whitford, “Salesforce.com: The

Software and the Story,” Inc., September 2014, pp. 113–117; Whitford, “Selling, the Story: Four Strategies Salesforce.com Uses to Stay on Top,” Inc., September 2014, p. 116; Heather Clancy, “Best Buyer for Salesforce?” Fortune, April 29, 2015, http://fortune.com/2015/04/29/ best-buyer-for-salesforce/; “The World’s Most Innovative Companies,” Forbes, www.forbes.com/innovative-companies/list/, accessed June 2015; and www.salesforce.com and www.salesforce.com/company/, accessed September 2015.

2. See Chanin Ballance, “End Your Sales and Marketing Tug-of-War,” Sales & Marketing Management, September 26, 2014, http://salesandmarketing .com/content/end-your-sales-and-marketing-tug-war; and Philip Kotler and Kevin Lane Keller, Marketing Management, 15th ed. (Hoboken, NJ: Prentice Hall, 2016), p. 644.

3. “Selling Power 500 Largest Sales Forces (2014),” Selling Power, www .sellingpower.com/content/article/index.php?a=10430/selling-power-500/ largest-sales-forces/2014.

4. See discussions in Mike Ishmael, “The Cost of a Sales Call,” October 22, 2012, http://4dsales.com/the-cost-of-a-sales-call/; Jeff Green, “The New Willy Loman Survives by Staying Home,” Bloomberg Businessweek, January 14–20, 2013, pp. 16–17; and “What Is the Real Cost of a B2B Sales Call?” www.marketing-playbook.com/sales-marketing-strategy/ what-is-the-real-cost-of-a-b2b-sales-call, accessed September 2015.

5. Green, “The New Willy Loman Survives by Staying Home”; Dave Stein, “The Evolution of Social Selling,” Sales & Marketing Management, May/ June 2013, p. 14; and Andris A. Zoltners, PK Sinha, and Sally E. Lorimer, “The Growing Power of Inside Sales.” Harvard Business Review, July 29, 2013, https://hbr.org/2013/07/the-growing-power-of-inside-sa/.

6. Quote and facts from Jim Domanski, “Special Report: The 2012 B@B Tele-Sales Trend Report,” www.salesopedia.com/downloads/2012%20 B2B%20Tele-Sales%20Trend%20Special%20Reportl.pdf, accessed July 2013; and Kurt Shaver, “Why Inside Salespeople Make Great Social Sellers,” November 12, 2014, http://blog.sellingpower.com/gg/2014/11/ why-inside-salespeople-make-great-social-sellers.html.

7. See “Case Study: Climax Portable Machine Tools,” www.selltis.com/ productCaseStudiesClimaxPortableMachineTools.aspx, accessed June 2014; and www.climaxportable.com, accessed September 2015.

20. “Real Beauty Shines Through: Dove Wins Titanium Grand Prix, 163 Million Views on YouTube,” Google: Think Insights, June2013, www .thinkwithgoogle.com/case-studies/dove-real-beauty-sketches.html; Nina Bahadur, “Dove ‘Real Beauty’ Campaign Turns 10: How a Brand Tried to Change the Conversation about Female Beauty,” Huffington Post, February 6, 2014, www.huffingtonpost.com/2014/01/21/dove-real-beauty- campaign-turns-10_n_4575940.tml; “Powerful Dove Experiment Shows How Women Can Choose to Feel Beautiful,” Mashable, April 7, 2015, http://mashable.com/2015/04/07/dove-video-doors-beautiful-average/; and www.youtube.com/watch?v=XpaOjMXyJGk, accessed October 2014.

21. See Seth Fiegerman, “The New Way Brands Like Hostess Use Social Media: Playing Dumb,” Mashable, April 6, 2015, http://mashable.com/ 2015/04/06/brands-play-dumb/.

22. See Danny Sullivan, “Product Placement: The TV Ads Consumers Can’t Skip or Hop,” Marketing Land, May 28, 2013, http://marketingland .com/product-placement-tv-ads-45729; Jonathan Welsh, “Can ‘Captain America’ Help Harley-Davidson Sell Motorcycles?” Wall Street Journal, April 1, 2014, http://blogs.wsj.com/speakeasy/2014/04/01/can-captain- america-help-harley-davidson-sell-motorcycles/; and Jason Lynch, “‘Modern Family’s’ Apple-centric Integration Is Product Integration at Its Best,” Quartz, February 25, 2015, http://qz.com/350518/modern-familys- apple-centric-episode-is-product-placement-at-its-best-and-great-tv/.

23. Abe Sauer, “Announcing the 2015 Brandcameo Product Placement Awards,” BrandChannel, February 20, 2015, www.brandchannel.com/ home/post/150220-2015-Brandcameo-Product-Placement-Awards.aspx.

24. “Why The Lego Movie Is the Perfect Piece of Product Placement,” A.V. Club, February 11, 2014, http://www.avclub.com/article/why-the lego-movie-is-the-perfect-piece-of-product-201102; and Abe Sauer, “Announcing the 2015 Brandcameo Product Placement Awards,” BrandChannel, February 20, 2015, http://brandchannel.com/2015/02/20/ announcing-the-2015-brandcameo-product-placement-awards/.

25. Michael Sebastionm “Nearly Two-Thirds of Marketers Plan to Increase Native-Ad Spending in 2015,” January 29, 2015, Advertising Age, www .adage.com/print/296887.

26. For these and other examples, see David Gianatasio, “Ad of the Day: Cute, Quirky Chevy Commercial on the Oscars Was Made for $4,000,” Adweek, March 3, 2014, www.adweek.com/print/156071; “Purina Pro Plan Debuts New Consumer-Generated Ad during Westminster Kennel Club Dog Show,” PRNewswire, February 11, 2013; “Taco Bell Commissions User-Generated YouTube Ads to Promote New Fiery Doritos Locos Taco,” Viral Gains, www.viralgains.com/2013/08/taco- bell-commissions-user-generated-youtube-ads-promote-fiery-doritos- locos-taco/; and www.youtube.com/watch?v=g9EU1Fw-D2s and www .youtube.com/watch?v=swFZ3QJmqu8#t=20, accessed October 2015.

27. Quotes and other information from Lauren Drell, “User Generated Content: Lessons from 4 Killer Ad Campaigns,” American Express Open Forum, January 28, 2013, www.openforum.com/articles/lessons-from-4- killer-ugc-campaigns/; and http://thesweatlife.lululemon.com/, accessed October 2015.

28. Lauren Johnson, “How Social and Email Helped Mazda’s Limited- Edition Preorders Sell Out Crazy Fast,” Adweek, May 28, 2014, www .adweek.com/print/157985.

29. See Anna Rudenko, “Coca-Cola USA Prompting Youngsters to Contribute Their “Ahh’ Moments,” POPSOP, March 24, 2014, http:// popsop.com/2014/03/coca-cola-usa-prompting-youngsters-to-contribute- their-ahh-coke-moments/; and “Coca-Cola: The AHH Efect,” All Things Digital, March 11, 2015, https://digitalcasestudies.wordpress .com/2015/03/11/coca-cola-the-ahh-effect/.

30. See Wayne Friedman, “Most Second-Screeners Don’t Follow Ads,” Media Post, December 16, 2014, www.mediapost.com/publications/ article/240250/.

31. Forbes and Bloomberg Businessweek cost and circulation data found online at www.bloombergmedia.com/magazine/businessweek/rates/ and www.forbesmedia.com/forbes-magazine-rates/, accessed October 2015.

32. Natalie Tadena, “With the New Year Approaching, Weight Loss Ad Barrage Has Commenced,” Wall Street Journal, December 30, 2014, http://blogs.wsj.com/cmo/2014/12/30/with-the-new-year-approaching- weight-loss-ad-barrage-has-commenced/.

33. For these and other examples, see Christopher Heine, “Lexus Nabs 100K Video Views on Facebook—in 10 Minutes,” Adweek, January 23, 2013, www.adweek.com/news/technology/print/146726; Matt McGee, “Oreo, Audi, and Walgreens Newsjack Super Bowl ‘Blackout Bowl,’” Marketing Land, February 3, 2013, http://marketingland.com/oreo-audi-walgreens- market-quickly-during-super-bowl-blackout-32407; and “Arby’s Slayed the Grammys with This Tweet about Pharrell Williams’ Hat,” Adweek, January 27, 2014, www.adweek.com/print/155237.

http://adage.com/print/244593

http://adsoftheworld.com/media/outdoor/snickers_running

http://cargocollective.com/mirceaandronescu/SNICKERS

www.forbes.com/sites/markfidelman/2013/08/06/8-of-the-best-influencer-marketing-campaignsfrom-the-8-hottest-agencies

http://gotchocolatemilk.com

http://gotmilksales.org/milk-sales-strategies/built-with-chocolate-milk/

www.apple.com/pr/library/2012/03/07Apple-Launches-New-iPad.html

http://blog.prnewswire.com/2013/01/15/an-emerging-pr-trend-content-pr-strategytactics/

http://business.financialpost.com/entrepreneur/the-changing-role-of-public-relations-firms

Salesforce.com

http://fortune.com/2015/04/29/best-buyer-for-salesforce/

www.forbes.com/innovative-companies/list

www.salesforce.com

www.salesforce.com/company

www.sellingpower.com/content/article/index.php

http://4dsales.com/the

www.marketing-playbook.com/sales-marketing-strategy/what-is-the-real-cost-of-a-b2b-sales-call

https://hbr.org/2013/07/the

http://blog.sellingpower.com/gg/2014/11/why-inside-salespeople-make-great-social-sellers.html

www.selltis.com/productCaseStudiesClimaxPortableMachineTools.aspx

www.climaxportable.com

www.thinkwithgoogle.com/case-studies/dove-real-beauty-sketches.html

www.huffingtonpost.com/2014/01/21/dove-real-beauty-campaign-turns-10_n_4575940.tml

http://mashable.com/2015/04/06/brands-play-dumb/

http://blogs.wsj.com/speakeasy/2014/04/01/can-captainamerica-help-harley-davidson-sell-motorcycles/

http://qz.com/350518/modern-familysapple-centric-episode-is-product-placement-at-its-best-and-great-tv/

www.brandchannel.com/home/post/150220-2015-Brandcameo-Product-Placement-Awards.aspx

http://brandchannel.com/2015/02/20/announcing-the-2015-brandcameo-product-placement-awards/

www.adage.com/print/296887

www.viralgains.com/2013/08/taco-bell-commissions-user-generated-youtube-ads-promote-fiery-doritoslocos-taco/

http://thesweatlife.lululemon.com

www.adweek.com/print/157985

http://popsop.com/2014/03/coca-cola-usa-prompting-youngsters-to-contributetheir-ahh-coke-moments/

https://digitalcasestudies.wordpress.com/2015/03/11/coca-cola-the-ahh-effect/

www.mediapost.com/publications/article/240250/

www.bloombergmedia.com/magazine/businessweek/rates

www.forbesmedia.com/forbes

www.adweek.com/news/technology/print

www.adweek.com/print

http://prwrks.com/promoting-chocolate-milk-as-an-energy-drink

http://salesandmarketing.com/content/end-your-sales-and-marketing-tug-war

http://4dsales.com/the-cost-of-a-sales-call/

https://hbr.org/2013/07/the-growing-power-of-inside-sa/

http://www.salesopedia.com/downloads/2012%20B2B%20Tele-Sales%20Trend%20Special%20Reportl.pdf

http://mashable.com/2015/04/07/dove-video-doors-beautiful-average/

http://www.youtube.com/watch?v=XpaOjMXyJGk

http://marketingland.com/product-placement-tv-ads-45729

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22. Kantar Retail, Making Connections: Trade Promotion Integration across the Marketing Landscape (Wilton, CT: Kantar Retail, July 2012), p. 5.

23. Ibid., p. 6. 24. See “Top 10 Retail Loyalty Programs,” BigDoor, http://bigdoor.com/

blog/2013/12/11/top-10-retail-loyalty-programs/, accessed June 2015; and www.bloomingdales.com/loyallist?cm_sp=FOOTER-_-BOTTOM_ NAV-_-LOYALLIST, accessed September 2015.

25. Laura Petrecca, “Food Marketers Offer Super Samples before Super Bowl,” USA Today, January 25, 2014, www.usatoday.com/story/money/ business/2014/01/25/super-bowl-food-samples/4808625/.

26. NCH Marketing Services, “NCH Annual Topline U.S. CPG Coupon Facts Report for Year-End 2014,” February 2015, www2.nchmarketing.com/ ResourceCenter/assets/0/22/28/76/226/457/4bfe051da14f4f8f9e8bc7e48 d9e510a.pdf.

27. See NCH Marketing Services, “NCH Annual Topline View: CPG Coupon Facts Report for Year-End 2014, https://www2.nchmarketing.com/ resourcecenter/,” accessed September 2015; and “One-Click Savings: A Quick Look at 2015 Mobile Coupon Statistics,” TrueShip, March 24, 2015, www.trueship.com/blog/2015/03/24/one-click-savings-a-quick- look-at-2015-mobile-coupon-statistics/#.VS8RL2a-h5A.

28. Hilary Milnes, “Walgreens Uses Mobile Apps to Solve In-Store Headaches,” Digiday, May 4, 2015, https://digiday.com/brands/walgreens-uses-mobile- apps-solve-store-headaches/; “Entering the New Era of Digital Coupons,” Adweek, June 16, 2014, p. S7; and www.walgreens.com/topic/apps/ learn_about_mobile_browser_app.jsp and www.walgreens.com/coupons, accessed September 2015.

29. See www.happymeal.com/en_US/, accessed September 2015. 30. See “The 2013 Estimate of Promotion Products Distributor Sales,” PPAI,

www.ppai.org/inside-ppai/research/Documents/2013%20SalesVolume%20 Sheet.pdf; and “PPAI Distributor Quarterly Sales Barometer,” www.ppai .org/inside-ppai/research/Documents/14SalesBarometerD-Q4.pdf, accessed September 2015.

31. Based on information found in Patrick Hanlon, “Face Slams: Event Marketing Takes Off,” Forbes, May 9, 2012, www.forbes.com/sites/ patrickhanlon/2012/05/09/face-slams-event-marketing-takes-off/; and www .redbull.com/us/en/events and www.redbull.com/cs/Satellite/en_INT/ RedBull/HolyShit/011242745950125, accessed September 2015. The referenced wing suit flying video can be found at http://player.vimeo.com/ video/31481531?autoplay=1.

32. Kantar Retail, Making Connections, p. 10. 33. See “CES Attendee Audit Summary Results,” www.cesweb.org/Why-

CES/2014-Attendee-Audit, accessed June 2015; “New Logo for Bauma Ahead of 2016 Trade Fair,” World Cement, July 5, 2015, www.worldcement .com/europe-cis/07052014/Bauma_new_look_ahead_of_2016_show_145/.

Chapter 14 1. See Michael Ausien, “Cyber Monday Is Amazon’s Busiest Day

of the Year,” Indianapolis Star, December 1, 2015, www.indystar. com/story/money/2014/12/01/cyber-monday-amazons-busiest-day- year/19749775/; Morten T. Hansen, Herminia Ibarra, and Urs Peyer, “The Best-Performing CEOs in the World,” Harvard Business Review, January–February 2013, pp. 81–86; George Anders, “Jeff Bezos’s Top 10 Leadership Lessons,” Forbes, April 4, 2012, www.forbes.com/sites/ georgeanders/2012/04/04/bezos-tips/; “Walmart vs. Amazon Prime,” Advertising Age, May 15, 2015, p. 6; “Benchmarks by Company: Amazon,” ACSI, www.theacsi.org/?option=com_content&view=article&id=149& catid=&Itemid=214&c=Amazon, accessed June 2015; “Number of Worldwide Active Amazon Customer Accounts from 1997 to 2014 (in Millions),” Statistica, www.statista.com/statistics/237810/number-of- active-amazon-customer-accounts-worldwide/, accessed June 2015; and annual reports and other information found at www.amazon.com, accessed September 2015.

2. Stan Phelps, “Three Lessons from Mountain Dew on Leveraging Events to Create an Authentic Brand Experience,” Forbes, October 18, 2014, www.forbes.com/sites/stanphelps/2014/10/18/three-lessons-from- mountain-dew-on-leveraging-events-to-create-an-authentic-brand- experience/; Natalie Tadena, “Mountain Dew Ads Go Global with Return of ‘Do the Dew,’” Wall Street Journal, March 29, 2015, http://blogs.wsj .com/cmo/2015/03/29/mountain-dew-ads-go-global-with-return-of-do- the-dew/; and www.mountaindew.com, accessed September 2015.

3. See “Priceline Profit Tops Estimates as Bookings Rise,” Reuters, February 20, 2014, www.reuters.com/article/2014/02/21/us-priceline-results- idUSBREA1J26X20140221; and http://ir.pricelinegroup.com/financials .cfm, accessed September 2015.

8. “Customer Business Development,” http://we.experiencepg.com/home/ customer_business_development_cbd_sales.html, accessed September 2015.

9. Scott Fuhr, “Good Hiring Makes Good Cents,” Selling Power, July/ August/September 2012, pp. 20–21; and “How Sales Rep Turnover Costs Your Company More Than You Think,” Insight Squared, July 15, 2014, www.insightsquared.com/2014/07/how-sales-rep-turnover-costs- your-company-more-than-you-think/.

10. For this and more information and discussion, see www.gallupaustralia .com.au/consulting/118729/sales-force-effectiveness.aspx, accessed July 2012; Lynette Ryals and Iain Davies, “Do You Really Know Who Your Best Salespeople Are?” Harvard Business Review, December 2010, pp. 34–35; and Donal Daly, “6 Things Successful Salespeople Do,” Salesforce.com, April 17, 2015, www.salesforce.com/blog/2015/04/6- things-successful-sellers-do-cso-gp.html.

11. See Steve Denning, “The One Thing the Greatest Salespeople All Have,” Forbes, November 29, 2012, www.forbes.com/sites/stevedenning/2012/ 11/29/the-one-thing-the-greatest-salespeople-all-have/.

12. “Strengths Based Selling,” www.gallup.com/press/176651/strengths- based-selling.aspx, accessed September 2015.

13. Corporate Visions, Inc., “ADP Case Study,” http://corporatevisions.com/ v5/documents/secure_downloads/CVI_caseStudy_ADP.pdf, accessed June 2015; and V. Kumar, Sarang Sundder, and Robert P. Leone, “Who’s Your Most Valuable Salesperson?” Harvard Business Review, April 2015, pp. 62–66.

14. Based on information found in Sara Donnelly, “Staying in the Game,” Pharmaceutical Executive, May 2008, pp. 158–159; Bayer Healthcare Pharmaceuticals, Inc., “Improving Sales Force Effectiveness: Bayer’s Experiment with New Technology,” 2008, www.icmrindia.org/casestudies/ catalogue/Marketing/MKTG200.htm; Tanya Lewis, “Concentric,” Medical Marketing and Media, July 2008, p. 59, www.hydraframe.com/mobile/ project_reprace.htm, accessed July 2012; Andrew Tolve, “Pharma Sales: How Simulation Can Help Reps Sell,” Eye for Pharma, March 28, 2012, http://social.eyeforpharma.com/sales/pharma-sales-how-simulation-can- help-reps-sell; and Krishna Depura, “Online Sales Training for Busy Sales Representatives,” MindTickle, www.mindtickle.com/blog/online-sales- training-for-busy-sales-representative/#more-1474, accessed September 2015.

15. For more discussion, see Mark Roberge, “The Right Way to Use Compensation,” Harvard Business Review, April 2015, pp. 70–75; and “Getting Beyond ‘Show Me the Money,’” Harvard Business Review, April 2015, pp. 77–81.

16. See Louis Columbus, “Top-Five Focus Areas for Improving Sales Effectiveness Initiatives,” Accenture, 2013, www.accenture.com/ SiteCollectionDocuments/PDF/Accenture-Top-Five-Improvements- Sales-Effectiveness.pdf; and “2014 Sales Performance Optimization Study,” CSO Insights, www.csoinsights.com/Publications/.

17. Lain Chroust Ehmann, “Sales Up!” Selling Power, January/February 2011, p. 40. Also see Pisello, “Death of a Salesman?”; Tony J. Hughes, “Back to the Future of Sales in 2015,” LinkedIn, December 27, 2014, www.linkedin .com/pulse/back-future-sales-2015-tony-j-hughes; and “Getting Beyond ‘Show Me the Money.”

18. See Scott Gillum, “The Disappearing Sales Process,” Forbes, January 7, 2013, www.forbes.com/sites/gyro/2013/01/07/the-disappearing-sales- process/; and Paul Nolan, “Mapping the Buyer’s Journey,” Sales & Marketing Management, March/April 2015, pp. 32–34.

19. NeilDavey, “Using Social Media Marketing in B2B Markets,” Smart Insights, February 16, 2015, www.smartinsights.com/b2b-digital-marketing/ b2b-social-media-marketing/b2bsocialmediamarketing/.

20. See “GE’s Social Story,” www.salesforcemarketingcloud.com/resources/ videos/ges-social-story/, accessed June 2014; David Moth, “How General Electric Uses Facebook, Twitter, Pinterest and Google+,” Velocify, May 2013, https://econsultancy.com/blog/62684-how-general-electric-uses- facebook-twitter-pinterest-and-google; and “GE Social Media,” www .ge .com/news/social, accessed September 2015.

21. Example based on information from James C. Anderson, Nirmalya Kumar, and James A. Narus, “Become a Value Merchant,” Sales & Marketing Management, May 6, 2008, pp. 20–23; and “Business Market Value Merchants,” Marketing Management, March/April 2008, pp. 31+. For more discussion and examples, see Heather Baldwin, “Deeper Value Delivery,” Selling Power, September/October 2010, p. 16; Thomas P. Reilly, “Value-Added Selling Is Smart,” Selling Power, June 27, 2012, www.sellingpower.com/content/article.php?a=8917; and Ron Shapiro, “Selling While Holding Your Price,” Sales & Marketing Management, January 5, 2015, www.salesandmarketing.com/content/ selling-while-holding-your-price.

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www.amazon.com

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www.mountaindew.com

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com.au/consulting/118729/sales-force-effectiveness.aspx

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4. For these and other direct marketing statistics in this section, see Direct Marketing Association, The DMA Statistical Fact Book 2015, 37th ed., May 2015; Dave Erlandson, “Direct Mail Ad Spending Forecast to Grow 1.1% in 2014,” PODi Insights, January 23, 2014, http://blog.podi.org/direct-mail- ad-spending-forecast-to-grow-1-1-in-2014; Ginger Conlin, “Where Will Marketing Grow in 2015?” Direct Marketing News, January 9, 2015, www .dmnews.com/where-will-marketing-grow-in-2015/printarticle/391699/; and other information at www.thedma.org, accessed September 2015.

5. See “Worldwide Ad Spending,” eMarketer, www.emarketer.com/ adspendtool, accessed June 2015; “Total US Ad Spending to See Largest Increase Since 2004,” eMarketer, July 2, 2014, www .emarketer.com/Article/Total-US-Ad-Spending-See-Largest-Increase- Since-2004/1010982; Erlandson, “Direct Mail Ad Spending Forecast to Grow 1.1% in 2014”; and Ginger Conlin, “Where Will Marketing Grow in 2015?” Direct Marketing News, January 9, 2015, .dmnews.com/ where-will-marketing-grow-in-2015/printarticle/391699/.

6. See Pew Research Center’s Internet & American Life Project, “Internet User Demographics,” www.pewinternet.org/data-trend/internet-use/ latest-stats/, accessed April 2015; “Mobile Continues to Steal Share of US Adults’ Day Time Spent with Media,” eMarketer, April 22, 2014, www .emarketer.com/Article/Mobile-Continues-Steal-Share-of-US-Adults- Daily-Time-Spent-with-Media/1010782; Aaron Smith, “U.S. Smartphone Use in 2015,” Pew Research Center, April 1, 2015, www.pewinternet .org/2015/04/01/us-smartphone-use-in-2015/; “ITU Releases Annual Global ICT Data and ICT Development Index Country Rankings,” November 24, 2014, www.itu.int/net/pressoffice/press_releases/2014/68 .aspx#.VTRtbUthveI; “2 Billion Consumers Worldwide to Get Smartphones by 2016,” eMarketer, December 11, 2014, www .emarketer.com/Article/2-Billion-Consumers-Worldwide-Smartphones- by-2016/1011694.

7. See “Retail Sales Worldwide Will Top $22 Trillion This Year,” eMarketer, December 23, 2014, www.emarketer.com/Article/Retail-Sales-Worldwide- Will-Top-22-Trillion-This-Year/1011765; and “60% of U.S. Retail Sales Will Involve the Web by 2017,” Internet Retailer, October 30, 2013, www .internetretailer.com/2013/10/30/60-us-retail-sales-will-involve-web-2017.

8. See “Internet Retailer: Top 500 Guide,” www.top500guide.com/top- 500/the-top-500-list, accessed June 2015; and “Amazon’s Online Sales Dwarf the Competition,” Statista, May 7, 2014, www.statista.com/ chart/2214/10-largest-online-retailers/.

9. See “Staples Aims to Change Image with New Slogan,” Boston Globe, January 3, 2014; Matt Linder, “Online Sales at Staples Grow 4.8% in Fiscal 2014, Internet Retailer, March 6, 2015, www.internetretailer .com/2015/03/06/online-sales-staples-grow-48-fiscal-2014; and annual reports and other information found at www.staples.com, accessed September 2015.

10. See Roger Katz. “2015 Will Be the Year of the Brand Community— Here’s Why,” ClickZ, January 23, 2015, www.clickz.com/clickz/ column/2391666/2015-will-be-the-year-of-the-brand-community-here- s-why; ComBlu, “The State of Online Branded Communities,” http:// comblu.com/downloads/ComBlu_StateOfOnlineCommunities_2012.pdf, November 2012, p. 19; and www.espn.com, accessed September 2015.

11. For these and other examples of rich media ads, see “Rising Starts: Display,” Jivox, www.jivox.com/ad-gallery.php, accessed June 2015; and “Best Rich Media Online Ad,” www.iacaward.org/iac/winners_ detail .asp?yr=all&award_level=best&medium=Rich%20media%20 Online%20Ad, accessed September 2015.

12. Conlin, “Where Will Marketing Grow in 2015”; and Google annual reports, http://investor.google.com/proxy.html, accessed September 2015.

13. “Social Media Is the Hot New Thing, but Email Is Still the King,” Advertising Age, September 30, 2013, p. 18.

14. See Greg Sterling, “Report: 66 Percent of Email Opens on Mobile, Mostly iOS Devices,” Marketing Land, November 19, 2014, http://marketingland .com/report-66-percent-email-opens-mobile-devices-108420; Nora Aufreiter et al., “Why Marketers Should Keep Sending You Emails,” McKinsey & Company, January 2014, www.mckinsey.com/insights/marketing_sales/ why_marketers_should_keep_sending_you_emails; Suzanne Vranica, “You’ve Got Mail and More Is Coming,” Wall Street Journal, November 14, 2014, http://blogs.wsj.com/cmo/2014/11/14/youve-got-mail-and- more-is-coming/, and “5 Ways to Optimize Email Marketing ROI,” CMO Essentials, March 10, 2015, www.cmoessentials.com/5-ways-optimize- email-marketing-roi/#sthash.OjGWLbE0.dpbs.

15. Carol Stott, “2014 Estimated Global Email Spam Rate Is 64%,” Business2Community, May 7, 2014, www.business2community.com/ email-marketing/2014-estimated-global-email-spam-rate-64-thats- almost-2-3-emails-0875585; and “Email: Unloved, Unbreakable,” Fortune, May 1, 2015, pp. 54–55.

16. Linda Moses, “Online Video Ads Have Higher Impact Than TV Ads,” Adweek, May 1, 2013, www.adweek.com/print/148982; and “comScore Releases December 2013 U.S. Online Video Rankings,” January 10, 2014, www.comscore.com/Insights/Press_Releases/2014/1/ comScore_Releases_December_2013_US_Online_Video_Rankings.

17. For these and other examples, see “Samsung, Wieden & Kennedy Rule Ad Age’s 2013 Viral Video Awards,” Advertising Age, April 16, 2013, http://adage.com/article/240900/; and Alexandra Jardine, “Always Viral Ad ‘Like a Girl’ Cleans Up at Webby Awards,” Advertising Age, April 27, 2015, http://adage.com/print/298258.

18. See “Top 10 Branded Videos: Adidas Racks Up 21 Million YouTube Views in One Week,” Adweek, February 25, 2015, www.adweek.com/ print/163145; and www.youtube.com/watch?v=uiQVkoDlBbQ, accessed September 2015.

19. Troy Dreier, “The Force Was Strong with This One,” Streaming Media Magazine, April/May 2011, pp. 66–68; also see Thales Teixeira, “The New Science of Viral Ads,” Harvard Business Review, March 2012, pp. 25–28; and Hilary Masell Oswald, “The Biology of a Marketplace Sensation,” Marketing News, September 2013, pp. 31–35.

20. Based on information found in Keith O’Brien, “How McDonald’s Came Back Bigger Than Ever,” New York Times, May 6, 2012, p. MM44. Also see Jayson DeMers, “How to Get Mommy Bloggers to Bring Customers to Your Brand,” Huffington Post, November 6, 2014, www.huffingtonpost .com/jayson-demers/how-to-get-mommy-bloggers_b_6109064.html.

21. Jason DeMers, “The Top 10 Benefits of Social Media Marketing,” Forbes, August 11, 2014, www.forbes.com/sites/jaysondemers/2014/08/11/ the-top-10-benefits-of-social-media-marketing.

22. See http://newsroom.fb.com/company-info; www.youtube.com/yt/press/ statistics.html and www.statisticbrain.com/twitter-statistics/, accessed September 2015.

23. For these and other examples, see www.kaboodle.com, www.farmersonly .com, www.birdpost.com, and www.cafemom.com, all accessed September 2015.

24. See http://nikeinc.com/news/nike-coach-feature-motivates-runners-with- customized-training-plans and www.nikeplus.com, accessed September 2015.

25. “3 Brands That Are Doing Live Chat on Twitter Right,” Adly.com, January 28, 2014, http://adly.com/blog/3-brands-doing-live-chat-right/; and https://twitter.com/hashtag/wfmdish, accessed September 2015.

26. See www.instagram.com/etsy/, www.pinterest.com/etsy/, and www.etsy .com/about, accessed September 2015.

27. Example and quotes from “Meme Watch: Lay’s ‘Do Us a Flavor’ Crowdsourcing Hilariously Backfires,” Uproxx, February 5, 2014, http://uproxx.com/gammasquad/2014/02/best-of-lays-do-us-a-flavor- parodies/?showall=true; Michael Bourne, “Sailing of 14 Social Cs,” Mullen Advertising, February, 13, 2012, www.mullen.com/sailing-the-14-social-cs/; and Jenna Mullins, “The Submissions for New Lay’s Chip Flavors Are Getting Out of Control (but We Love It),” EOnline, February 6, 2014, www .eonline.com/news/508137/the-submissions-for-new-lays-chip-flavors-are- getting-out-of-control-but-we-love-it; and www.dousaflavor.com/, accessed June 2015.

28. Melissa Allison, “Re-Creating the Coffee Klatch Online,” Raleigh News & Observer,” May 6, 2013, p. 1D; Todd Wassermann, Mashable, December 13, 2013, http://mashable.com/2013/12/05/starbuckss-tweet- a-coffee-180000/; and www.facebook.com/Starbucks and https://twitter .com/Starbucks, accessed June 2015.

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30. Jonathan Nelson, “Voice: One Screen to Rule Them All,” Adweek, February 13, 2013, p. 15; Stephen Willard, “Study: People Check Their Cell Phones Every Six Minutes, 150 Times a Day,” Elite Daily, February 11, 2013, http://elitedaily.com/news/world/study-people-check-cell- phones-minutes-150-times-day/; and “Mobile Continues to Steal Share of US Adults’ Daily Time Spent with Media,” eMarketer.com, April 22, 2014, www.emarketer.com/Article/Mobile-Continues-Steal-Share-of- US-Adults-Daily-Time-Spent-with-Media/1010782.

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11. Jack Ewing, “European Banks Feel Heat in Crimea Crisis, with Austria Bearing Brunt,” New York Times, March 28, 2014, p. B6; “France’s Sapin: Euro’s Weakening Phase Has Run Its Course,” Wall Street Journal, April 17, 2015, www.wsj.com/articles/frances-sapin-euros-weakening-phase- has-run-its-course-1429300555; and “European Union: The Euro,” http:// europa.eu/about-eu/basic-information/money/euro/, accessed September 2015.

12. CIA, The World Factbook, https://www.cia.gov/library/publications/the- world-factbook, accessed September 2015.

13. Statistics and other information from CIA, The World Factbook; and NAFTANow.org, accessed May 2015.

14. See “Explainer: What Is UNASUR?” www.as-coa.org/articles/explainer- what-unasur and http://en.wikipedia.org/wiki/Union_of_South_ American_Nations, accessed September 2015.

15. See Zeenat Moorad, “The Coca-Cola Company: Tapping Africa’s Fizz,” Financial Mail, May 4, 2015, www.financialmail.co.za/ coverstory/2015/04/30/the-coca-cola-company-tapping-africas-fizz; Annaleigh Vallie, “Coke Turns 125 and Has Much Life Ahead,” Business Day, May 16, 2011, www.businessday.co.za/articles/Content .aspx?id_142848; Andrew Cave, “Glaxo and Unilever Take Note: How General Electric and Coca-Cola Are Winning in Africa,” Forbes, April 2, 2014, www.forbes.com/sites/andrewcave/2014/04/02/glaxo-and- unilever-take-note-how-general-electric-and-coca-cola-are-winning-in- africa/; and Coca-Cola annual reports and other information from www .thecoca-colacompany.com, accessed September 2015.

16. See “2014 Investment Climate Statement—Russia,” U.S. Bureau of Economic and Business Affairs, June 2014, www.state.gov/e/eb/rls/othr/ ics/2014/227933.htm; and “Welcome to the U.S. Commercial Service in Russia,” http://export.gov/russia/, accessed September 2015.

17. Laurent Belsie, “What Will Venezuela Do with Its Oil?” Christian Science Monitor, March 6, 2013, www.csmonitor.com/Environment/2013/0307/ What-will-Venezuela-do-with-its-oil-Top-five-energy-challenges-after- Chavez/Oil-bartering; John Paul Rathbone, “Venezuela: In Search of a Solution,” Financial Times, March 2, 2014, www.ft.com/intl/cms/ s/2/45c3cae4-a049-11e3-8557-00144feab7de.html#axzz2xgjEix7Y; and International Reciprocal Trade Association, www.irta.com/index.php/ about/modern-trade-barter, accessed September 2015.

18. For these and other examples, see Emma Hall, “Do You Know Your Rites? BBDO Does,” Advertising Age, May 21, 2007, p. 22.

19. Jamie Bryan, “The Mintz Dynasty,” Fast Company, April 2006, pp. 56–61; Viji Sundaram, “Offensive Durga Display Dropped,” India-West, February 2006, p. A1; and Emily Bryson York and Rupal Parekh, “Burger King’s MO: Offend, Earn Media, Apologize, Repeat,” Advertising Age, July 8, 2009, http://adage.com/print?article_id=137801. For other examples, see Chris Isidore, “Chevy Pulls Ad Offensive to Chinese,” CNNMoney, May 1, 2013, www.money.cnn.com/2013/05/01/news/ companies/offensive-chevy-ad/; Julia Lynn Rubin, “4 Offensive Ads You Won’t Believe Are Real,” Contently, September 5, 2014, http://contently .com/strategist/2014/09/05/4-of-the-most-offensive-ads-of-the-last- decade/; and “Misinterpretation or Culturally Insensitive,” IMC Hawk, April 30, 2015, http://imcclass.com/.

20. For these and other examples, see Bill Chappell, “Bill Gates’ Handshake with South Korea’s Park Sparks Debate,” NPR, April 23, 2013, www.npr.org/blogs/thetwo-way/2013/04/23/178650537/bill-gates- handshake-with-south-koreas-park-sparks-debate; “Managing Quality across the (Global) Organization, Its Stakeholders, Suppliers, and Customers,” Chartered Quality Institute, www.thecqi.org/Knowledge- Hub/Knowledge-portal/Corporate-strategy/Managing-quality-globally, accessed September 2015.

21. Quotes and other information found in David Pierson, “Beijing Loves IKEA—but Not for Shopping,” Los Angeles Times, August 25, 2009, http:// articles.latimes.com/2009/aug/25/business/fi-china-ikea25; Michael Wei, “In IKEA’s China Stores, Loitering Is Encouraged,” Bloomberg Businessweek, November 1, 2010, pp. 22–23; Pan Kwan Yuk, “IKEA in China: Turning Gawkers into Customers,” BeyondBrics, April 4, 2013,

http://blogs.ft.com/beyond-brics/2013/04/04/ikea-in-china-turning- gawkers-into-consumers/?#axzz2SobYFh98; Emily Raulhala, “No, IKEA Hasn’t Banned Customers from Sleeping in Its Chinese Stores,” Time, April 10. 2015, http://time.com/3814935/ikea-china-customers- sleeping/; and “IKEA Group Yearly Summary FY2014,” www.ikea.com/ ms/en_US/pdf/yearly_summary/ikea-group-yearly-summary-fy14.pdf, accessed September 2015.

22. Andres Martinez, “The Next American Century,” Time, March 22, 2010, p. 1.

23. Thomas L. Friedman, The Lexus and the Olive Tree: Understanding Globalization (New York: Anchor Books, 2000); and Michael Wei and Margaret Conley, “Global Brands: Some Chinese Kids’ First Word: Mickey,” Bloomberg Businessweek, June 19, 2011, pp. 24–25.

24. Adam Chandler, “How McDonald’s Became a Target for Protest,” The Atlantic, April 16, 2015, www.theatlantic.com/business/archive/2015/04/ setting-the-symbolic-golden-arches-aflame/390708/.

25. “2015 BrandZ Top 100 Global Brands,” Millward Brown, www .millwardbrown.com/mb-global/brand-strategy/brand-equity/brandz/ top-global-brands/2015.

26. See Rachael Tepper, “Yum! Brands’ International Product Strategy: How the Double Down Went Global,” Huffington Post, March 11, 2013, www.huffingtonpost.com/2013/03/11/yum-brands-international- product-strategy_n_2814360.html; Molly Osberg, “How Colonel Sanders Became Father Christmas in Japan,” TPM, December 23, 2014, http:// talkingpointsmemo.com/theslice/kfc-christmas-in-japan-colonel- sanders-history-12-23-2014; and Jason Johnson, “KFC Christmas Tradition in Japan,” Brain Skewer, May 2015, http://brainskewer.com/ bs/20150506/kfc-christmas-tradition-japan.

27. See annual reports and other financial and review data from www.coca- colacompany.com/our-company/, accessed September 2015.

28. This Netflix example is based on information found in Sam Schechner, “Europe’s Media Giants Prep for Netflix Landing,” Wall Street Journal, January 29, 2014, http://online.wsj.com/news/articles/SB200 01424052702303277704579348774128548520; and Joan E. Solsman, “Netflix Invades Europe: Why Expansion beyond the US Is So Critical,” CNET, September 19, 2014, www.cnet.com/news/netflix-invades-europe- why-international-expansion-is-so-critical/.

29. See www.olc.co.jp/en/ and www.coca-colahellenic.com/aboutus/, accessed September 2015.

30. See “Škoda and Volkswagen Group Russia: One Year of Successful Production in Nizhny Novgorod,” December 11, 2013, www .volkswagenag.com/content/vwcorp/info_center/en/news/2013/12/ Nizhny_Novgorod.html; and www.pg.com/en_IN/company/pg-india .shtml, accessed September 2015.

31. See http://en.wikipedia.org/wiki/Doubletree, accessed September 2015. 32. Christina Larson, “Intel Buys Its Way Deeper into China,” Bloomberg

Businessweek, March 8, 2015, pp. 33–34. 33. “Intel in China,” iLook China, May 28, 2010, http://ilookchina

.net/2010/05/page/2/; and Christina Larson, “Intel Buys Its Way Deeper into China,” Bloomberg Businessweek, March 8, 2015, pp. 33–34.

34. “A Tale of Two Countries: Starbucks in India and China,” Starbucks Newsroom, March 27, 2014, http://news.starbucks.com/news/a-tale-of- two-countries-starbucks-growth-in-india-and-china; Anita Chong Beattie, “Can Starbucks Make China Love Joe?” Advertising Age, November 5, 2012, pp. 20–21; Bruce Horovitz, “China to Become No. 2 Marketing for Starbucks,” USA Today, September 16, 2013, www.usatoday.com/story/ money/business/2013/09/16/starbucks-china-flagship-stores/2820885/; and Rachael Lerman, “All the Tea in China: Starbucks’ Biggest Market Isn’t Where You Think,” Puget Sound Business Journal, March 20, 2015, www.bizjournals.com/seattle/blog/2015/03/all-the-tea-in-china- starbucks-biggest-market-isnt.html?page=all.

35. See Warren J. Keegan and Mark C. Green, Global Marketing, 7th ed. (Upper Saddle River, NJ: Prentice Hall, 2013), pp. 303–308.

36. Toshiro Wakayama, Junjiro Shintaku, and Tomofumi Amano, “What Panasonic Learned in China,” Harvard Business Review, December 2012, pp. 109–113.

37. Information on McDonald’s menus and operations found in Lucy Fancourt, Bredesen Lewis, and Nicholas Majka, “Born in the USA, Made in France: How McDonald’s Succeeds in the Land of Michelin Stars,” Knowledge@ Wharton, January 3, 2012, http://knowledge.wharton.upenn.edu/article .cfm?articleid=2906; Richard Vines and Caroline Connan, “McDonald’s Wins Over French Chef with McBaguette Sandwich,” Bloomberg, January 15, 2013, www.bloomberg.com/news/2013-01-15/mcdonald-s- wins-over-french-chef-with-mcbaguette-sandwich.html; Rob Wile, “The True Story of How McDonald’s Conquered France,” Business Insider, August 22, 2014, www.businessinsider.com/how-mcdonalds-conquered-

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620 References

3. Tony T Liu, “Overstock.com Receives $6.8 Million Fine for False Advertising,” Orange Country Business Attorney Blog, February 11, 2014, www.orangecountybusinessattorneyblog.com/2014/02/11/overstock- com-receives-6-8-million-fine-false-advertising/.

4. See “Challenging Deceptive Advertising and Marketing,” www.ftc .gov/reports/annual-report-standard/ftc-2013/challenging-deceptive- advertising-and-marketing, accessed November 2013; Katy Bachman, “FTC Says ‘No Way’ to Nissan Frontier-Pushing Dune Buggy Ad,” Adweek, January 23, 2014, www.adweek.com/print/155151; and Tennille Tracy, “FTC Says Gerber Falsely Advertised Baby Formula as Reducing Allergies,” Wall Street Journal, October 30, 2015, www.wsj.com/ articles/ftc-says-gerber-falsely-advertised-baby-formula-as-reducing- allergies-1414690530.

5. See Patience Haggin, “Three U.S. States Sue 5-Hour Energy Drink over Advertising,” Reuters, July 17, 2014, www.reuters.com/article/2014/07/18/ us-usa-energy-drink-lawsuit-idUSKBN0FN06N20140718; and Caroline Simson, “5-Hour Energy Makers Can’t Dump False Ad MDL,” Law360, January 23, 2015, www.law360.com/articles/614361/5-hour- energy-makers-can-t-dump-false-ad-mdl.

6. See “Overweight and Obesity in the U.S.,” FRAC, http://frac.org/ initiatives/hunger-and-obesity/obesity-in-the-us/, accessed September 2015; and “Overweight and Obesity,” Centers for Disease Control and Prevention, www.cdc.gov/obesity/data/index.html, accessed September 2015.

7. See Chris Dolmetsch, “New York Big-Soda Ban Rejected by State’s Highest Court,” Bloomberg Businessweek, June 26, 2014, www .businessweek.com/news/2014-06-26/new-york-big-soda-ban-rejected- by-state-s-highest-court; and “Pouring on the Pounds Ad Campaign,” NYC Health, www.nyc.gov/html/doh/html/living/sugarydrink-media .shtml, accessed September 2015.

8. Elena Ferretti, “Soft Drinks Are the Whipping Boy of Anti-Obesity Campaigns,” Fox News, June 1, 2012, www.foxnews.com/leisure/2012/06/01/ soda-ban/. Also see Natalie Zmuda and others, “Coca-Cola Would Like to Teach the World to Move,” Advertising Age, September 11, 2013, http://adage .com/print/244077; and Mike Esterl, “Soda Producers Set Goals on Cutting U.S. Beverage Calories,” Wall Street Journal, September 23, 2014, www.wsj .com/articles/soda-companies-set-goals-on-beverage-calories-1411493446.

9. Brian Clark Howard, “Planned Obsolescence: 8 Products Designed to Fail,” Popular Mechanics, www.popularmechanics.com/technology/ planned-obsole scence-460210#slide-5, accessed September 2015.

10. Rob Walker, “Replacement Therapy,” Atlantic Monthly, September 2011, p. 38. For another interesting discussion, see Homa Khaleeli, “End of the Line for Stuff That’s Built to Die?” The Guardian, March 3, 2015, www.theguardian.com/technology/shortcuts/2015/mar/03/has- planned-obsolesence-had-its-day-design.

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12. See www.newdream.org/, www.newdream.org/about/mission, and www .newdream.org/blog/more-fun-less-stuff-photos, accessed September 2015.

13. See www.marksandspencer.com/s/plan-a-shwopping, accessed September 2015.

14. See Texas Transportation Institute, “Annual Urban Mobility Report,” http://mobility.tamu.edu/ums/report/, accessed September 2015.

15. See Michael Cabanatuan, “Tolls Thin Traffic in Bay Bridge Carpool Lanes,” San Francisco Chronicle, November 7, 2011, www.sfgate.com/ news/article/Tolls-thin-traffic-in-Bay-Bridge-carpool-lanes-2323670 .php#photo-1829296; and http://bata.mtc.ca.gov/tolls/schedule.htm, accessed September 2015. Also see “What Is Congestion Pricing?” http:// ops.fhwa.dot.gov/publications/congestionpricing/sec2.htm, accessed September 2015.

16. For this and more information about the Google antitrust example, see Nathan Newman, “EU Antitrust Action Today Is Just the Beginning of Google’s Troubles in Europe,” Huffington Post, April 15, 2015, www.huffingtonpost.com/nathan-newman/eu-antitrust-action- today_b_7070568.html; and James Kanter and Mark Scott, “Europe Challenges Google, Seeing Violations of Its Antitrust Law,” New York Times, April 16, 2015, p. B1.

france-2014-8; and “McDonald’s Food You Can’t Get Here,” Chicago Tribune, www.chicagotribune.com/business/ct-biz-mcdonalds-food- around-the-world,0,5168632.photogallery, accessed September 2015.

38. See Normandy Madden, “In China, Multinationals Forgo Adaptation for New-Brand Creation,” Advertising Age, January 17, 2011, p. 10; Susan Adams, “The 10 Companies Considered ‘Best for the World,’” Forbes, March 31, 2014, www.forbes.com/sites/susanadams/2014/03/31/ 10-companies-considered-best-for-the-world/; Meg Cichon, “Solar Making Big Strides to Power the Developing World,” Renewable Energy World, May 7, 2014, www.renewableenergyworld.com/rea/news/article/2014/05/solar- making-big-strides-to-power-the-developing-world; and www.dlightdesign .com/, accessed September 2015.

39. Jeffrey N. Ross, “Chevrolet Will ‘Find New Roads’ as Brand Grows Globally: Aligns around the World behind Singular Vision,” January 8, 2013, http://media.gm.com/media/us/en/gm/news.detail.html/content/ Pages/news/us/en/2013/Jan/0107-find-new-roads.html; and Dale Buss, “Chevy Wins at Sochi by Giving Dimension to ‘Find New Roads,’” Forbes, February 24, 2014, www.forbes.com/sites/dalebuss/2014/02/24/ chevrolet-wins-at-sochi-as-find-new-roads-theme-gets-traction/.

40. “Nike Faces Ultimate Marketing Challenge in China: Make Running Cool,” Advertising Age, October 31, 2011, pp. 1+; “Firms Help Spur a Running Craze in China,” China Sports News, December 30, 2013, www .chinasportsbeat.com/2013/12/firms-help-spur-running-craze-in-china .html; and “Nike Faces Tough Competition in Europe and China,” Forbes, March 4, 2014, www.forbes.com/sites/greatspeculations/2014/03/04/ nike-faces-tough-competition-in-europe-and-china/.

41. See George E. Belch and Michael A. Belch, Advertising and Promotion: An Integrated Marketing Communications Perspective, 8th ed. (New York: McGraw Hill, 2011), Chapter 20; Shintero Okazaki and Charles R. Taylor, “What Is SMS Advertising and Why Do Multinationals Adopt It?” Journal of Business Research, January 2008, pp. 4–12; and Warren J. Keegan and Mark C. Green, Global Marketing, 7th ed. (Upper Saddle River, NJ: Prentice Hall, 2013), pp. 398–400.

42. See Brian X. Chen, “Motorola to Offer Moto G Smartphone Aimed at Emerging Markets,” New York Times, November 14, 2013, p. B5; Nikhil Subramaniam, “Motorola Beats Nokia in India Smartphone Sales Thanks to Moto G, Moto E,” Tech 2, August 4, 2014, http://tech.firstpost.com/ news-analysis/motorola-beats-nokia-in-india-smartphone-sales-thanks-to- moto-g-moto-e-228420.html; and Luke Jones, “Motorola Moto G Brazil’s Best-Selling Smartphone,” Mobile Burn, March 29, 2015, www.mobileburn .com/24405/news/motorola-moto-g-brazils-best-selling-smartphone.

43. Anita Chang Beattie, “Catching the Eye of a Chinese Shopper,” Advertising Age, December 10, 2013, pp. 20–21.

44. Drew Hinshaw, “Burgers Face a Tough Slog in Africa,” Wall Street Journal, December 10, 2013, www.wsj.com/articles/SB1000142405270 2304607104579214133498585594.

45. See Claudia Penteado, “Brazil’s Northeast Goes from ‘Land of Laziness’ to Next China,” Advertising Age, June 13, 2011, http://adage.com/ print/228070/; Richard Wallace, “Middle-Classes on the Up: Why Brazil Is Growing,” IGD, September 15, 2011, www.igd.com/our-expertise/Retail/ retail-outlook/4713/Middle-classes-on-the-up-why-Brazil-is-growing/; and www.nestle.com.br/portalnestle/nestleatevoce/abordo_sobre_projeto .aspx and http://nestleatevoce.com.br, accessed September 2015.

Chapter 16 1. Based on information from Danielle Sacks, “Any Fight Worth Fighting—

That’s the Attitude We Take,” Fast Company, February 2015, pp. 34-36; Katherine Ling, “Walking the Talk,” Marketing News, March 15, 2012, p. 24; Kyle Stock, “Patagonia’s ‘Buy Less’ Plea Spurs More Buying,” Bloomberg Businessweek, August 28, 2013, www.businessweek.com/ printer/articles/147326-patagonias-buy-less-plea-spurs-more-buying; Daniela Walker, “Patagonia Truck Has Been Traveling across 50 States Mending Clothes,” PSFK, May 6, 2015, www.psfk.com/2015/05/ patagonia-truck-traveling-across-the-country-worn-wear-initiative.html; and www.patagonia.com/email/11/112811.html, www.patagonia.com/us/ common-threads?src=112811_mt1, http://wornwear.patagonia.com/, and www.patagonia.com/us/environmentalism, accessed September 2015.

2. See “McDonald’s Introduces Fresh, Whole Fruit Option in Happy Meals,” December 1, 2014, http://news.mcdonalds.com/US/ releases/McDONALD%E2%80%99S-INTRODUCES-FRESH,- WHOLE-FRUIT-OPTION-IN; and www.aboutmcdonalds.com/mcd/ sustainability.html and www.mcdonalds.com/us/en/food/meal_bundles/ favoritesunder400.html, accessed September 2015.

Overstock.com

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www.adweek.com/print/155151

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17. See Philip Kotler, “Reinventing Marketing to Manage the Environmental Imperative,” Journal of Marketing, July 2011, pp. 132–135; and Kai Ryssdal, “Unilever CEO: For Sustainable Business, Go against ‘Mindless Consumption,’” Marketplace, June 11, 2013, www.marketplace.org/topics/ sustainability/consumed/unilever-ceo-paul-polman-sustainble-business.

18. See Matt Townsend, “Is Nike’s Flyknit the Swoosh of the Future?” Bloomberg Businessweek, March 19, 2012, pp. 31–32; “Sustainability,” http://about.nike.com/pages/sustainability, accessed September 2015; and “SC Johnson Integrity,” www.scjohnson.com/en/commitment/overview .aspx, accessed September 2015.

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Appendix 3 i. This is derived by rearranging the following equation and solving for

price: Percentage markup = (price - cost) , price. ii. Again, using the basic profit equation, we set profit equal to ROI * I: ROI

* I = (P * Q) - TFC - (Q * UVC). Solving for Q gives Q = (TFC + (ROI * I)) , (P - UVC).

iii. U.S. Census Bureau, available at http://quickfacts.census.gov/qfd/ states/00000.html, June 13, 2014.

iv. See Roger J. Best, Market-Based Management, 4th ed. (Upper Saddle River, NJ: Prentice Hall, 2005).

v. Total contribution can also be determined from the unit contribution and unit volume: Total contribution = unit contribution * unit sales. Total units sold in 2016 were 595,238 units, which can be determined by dividing total sales by price per unit ($100 million , $168). Total contribution = $35.28 contribution per unit * 595,238 units = $20,999,996.64 (difference due to rounding).

vi. Recall that the contribution margin of 21% was based on variable costs representing 79% of sales. Therefore, if we do not know price, we can set it equal to $1.00. If price equals $1.00, 79 cents represents variable costs and 21 cents represents unit contribution. If price is decreased by 10%, the new price is 90 cents. However, variable costs do not change just because price decreased, so the unit contribution and contribution margin decrease as follows:

Old New (Reduced 10%)

Price $1.00 $0.90

- Unit variable cost $0.79 $0.79 = Unit contribution $0.21 $0.11 Contribution margin $0.21/$1.00 = $0.11/$0.90 =

0.21 or 21% 0.12 or 12%

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