business marketing case study

Full-Circle Learning MyLab™: Learning Full Circle for Marketing,

Management, Business Communication, and Intro to Business

BEFORE CLASS

AFTER CLASS DURING

CLASS

Decision Sims, Videos, and Learning

Catalytics

DSMs, pre-lecture homework,

eText

Writing Space, Video

Cases, Quizzes/ Tests

MyLab

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MyMarketingLab: Improves Student Engagement Before, During, and After Class

• NEW! VIDEO LIBRARY – Robust video library with over 100 new book-specific videos that include easy-to-assign assessments, the ability for instructors to add YouTube or other sources, the ability for students to upload video submissions, and the ability for polling and teamwork.

• Decision-making simulations – NEW and improved feedback for students. Place your students in the role of a key decision-maker! Simulations branch based on the decisions students make, providing a variation of scenario paths. Upon completion students receive a grade, as well as a detailed report of the choices and the associated consequences of those decisions.

• Video exercises – UPDATED with new exercises. Engaging videos that bring business concepts to life and explore business topics related to the theory students are learning in class. Quizzes then assess students’ comprehension of the concepts covered in each video.

• Learning Catalytics – A “bring your own device” student engagement, assessment, and classroom intelligence system helps instructors analyze students’ critical-thinking skills during lecture.

• Dynamic Study Modules (DSMs) – UPDATED with additional questions. Through adaptive learning, students get personalized guidance where and when they need it most, creating greater engagement, improving knowledge retention, and supporting subject-matter mastery. Also available on mobile devices.

• Writing Space – UPDATED with new commenting tabs, new prompts, and a new tool for students called Pearson Writer. A single location to develop and assess concept mastery and critical thinking, the Writing Space offers automatic graded, assisted graded, and create your own writing assignments, allowing you to exchange personalized feedback with students quickly and easily.

Writing Space can also check students’ work for improper citation or plagiarism by comparing it against the world’s most accurate text comparison database available from Turnitin.

• Additional Features – Included with the MyLab are a powerful homework and test manager, robust gradebook tracking, Reporting Dashboard, comprehensive online course content, and easily scalable and shareable content.

http://www.pearsonmylabandmastering.com

BREAKTHROUGH

Prep and Engagement

BREAK THRO

UGH

To better resultsTo better results

Critical Thinking

Decision Making

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Marketing An Introduction Thirteenth Edition

GAry ArmstronG University of North Carolina

PhIlIP Kotler Northwestern University

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to Kathy, Betty, mandy, matt, KC, Keri, Delaney, molly, macy, and Ben; nancy, Amy, melissa, and Jessica

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vii

About the Authors As a team, Gary Armstrong and Philip Kotler provide a blend of skills uniquely suited to writing an introductory marketing text. Professor Armstrong is an award-winning teacher of undergraduate business students. Professor Kotler is one of the world’s leading authorities on marketing. Together they make the complex world of marketing practical, approachable, and enjoyable.

GAry ArmstronG is Crist W. Blackwell Distinguished Professor Emeritus of Undergraduate Education in the Kenan-Flagler Business School at the University of North Carolina at Chapel Hill. He holds undergraduate and master’s degrees in business from Wayne State University in Detroit, and he received his Ph.D. in marketing from North- western University. Dr.  Armstrong has contributed numerous articles to leading business journals. As a consultant and researcher, he has worked with many companies on market- ing research, sales management, and marketing strategy.

But Professor Armstrong’s first love has always been teaching. His long-held Black- well Distinguished Professorship is the only permanent endowed professorship for distinguished undergraduate teaching at the University of North Carolina at Chapel Hill. He has been very active in the teaching and administration of Kenan-Flagler’s undergraduate program. His administrative posts have included Chair of Marketing, Associate Director of the Undergraduate Business Program, Director of the Business Honors Program, and many others. Through the years, he has worked closely with business student groups and has received several UNC campuswide and Business School teaching awards. He is the only repeat recipient of the school’s highly regarded Award for Excellence in Undergraduate Teaching, which he received three times. Most recently, Professor Armstrong received the UNC Board of Governors Award for Excellence in Teaching, the highest teaching honor bestowed by the 16-campus University of North Carolina system.

PhIlIP Kotler is S. C. Johnson & Son Distinguished Professor of International Mar- keting at the Kellogg School of Management, Northwestern University. He received his master’s degree at the University of Chicago and his Ph.D. at M.I.T., both in economics. Dr. Kotler is author of Marketing Management (Pearson), now in its 15th edition and the most widely used marketing textbook in graduate schools of business worldwide. He has authored dozens of other successful books and has written more than 50 books and 150 articles in leading journals. He is the only three-time winner of the coveted Alpha Kappa Psi award for the best annual article in the Journal of Marketing.

Professor Kotler was named the first recipient of four major awards: the Distinguished Marketing Educator of the Year Award and the William L. Wilkie “Marketing for a Bet- ter World” Award, both given by the American Marketing Association; the Philip Kotler Award for Excellence in Health Care Marketing presented by the Academy for Health Care Services Marketing; and the Sheth Foundation Medal for Exceptional Contribution to Mar- keting Scholarship and Practice. He is a charter member of the Marketing Hall of Fame, was voted the first Leader in Marketing Thought by the American Marketing Associa- tion, and was named the Founder of Modern Marketing Management in the Handbook of Management Thinking. His numerous other major honors include the Sales and Marketing Executives International Marketing Educator of the Year Award; the European Association of Marketing Consultants and Trainers Marketing Excellence Award; the Charles Coolidge Parlin Marketing Research Award; and the Paul D. Converse Award, given by the Ameri- can Marketing Association to honor “outstanding contributions to science in marketing.” A recent Forbes survey ranks Professor Kotler in the top 10 of the world’s most influential business thinkers. And in a recent Financial Times poll of 1,000 senior executives across

viii About the Authors

the world, Professor Kotler was ranked as the fourth “most influential business writer/ guru” of the twenty-first century.

Dr. Kotler has served as chairman of the College of Marketing of the Institute of Man- agement Sciences, a director of the American Marketing Association, and a trustee of the Marketing Science Institute. He has consulted with many major U.S. and international companies in the areas of marketing strategy and planning, marketing organization, and international marketing. He has traveled and lectured extensively throughout Europe, Asia, and South America, advising companies and governments about global marketing practices and opportunities.

ix

Brief Contents PArt 1 DefInInG mArKetInG AnD the mArKetInG ProCess 2

1 Marketing: Creating Customer Value and Engagement 2 2 Company and Marketing Strategy: Partnering to Build Customer Engagement, Value,

and Relationships 38

PArt 2 UnDerstAnDInG the mArKetPlACe AnD CUstomer VAlUe 66

3 Analyzing the Marketing Environment 66 4 Managing Marketing Information to Gain Customer Insights 98 5 Understanding Consumer and Business Buyer Behavior 132

PArt 3 DesIGnInG A CUstomer VAlUe-DrIVen strAteGy AnD mIx 168

6 Customer Value-Driven Marketing Strategy: Creating Value for Target Customers 168 7 Products, Services, and Brands: Building Customer Value 200 8 Developing New Products and Managing the Product Life Cycle 236 9 Pricing: Understanding and Capturing Customer Value 262 10 Marketing Channels: Delivering Customer Value 298 11 Retailing and Wholesaling 332 12 Engaging Customers and Communicating Customer Value: Advertising and Public Relations 364 13 Personal Selling and Sales Promotion 398 14 Direct, Online, Social Media, and Mobile Marketing 428

PArt 4 extenDInG mArKetInG 458

15 The Global Marketplace 458 16 Sustainable Marketing: Social Responsibility and Ethics 488

APPenDIx 1 Company Cases 519 APPenDIx 2 Marketing Plan 551 APPenDIx 3 Marketing by the Numbers 561 APPenDIx 4 Careers in Marketing 579

Glossary 591 References 601 Index 623

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xi

Contents Preface xxi Acknowledgments xxvii

PArt 1 DefInInG mArKetInG AnD the mArKetInG ProCess 2

1 marketing: Creating Customer Value and Engagement 2 ChAPter roAD mAP 2

Objective Outline 2 • Previewing the Concepts 2 • First Stop: Nike’s Customer Value-Driven Marketing 3

What Is marketing? 4 Marketing Defined 5 • The Marketing Process 5

Understanding the marketplace and Customer needs 6 Customer Needs, Wants, and Demands 6 • Market Offerings—Products, Services, and Experiences 6 • Customer Value and Satisfaction 7 • Exchanges and Relationships 7 • Markets 8

Designing a Customer Value-Driven marketing strategy 9 Selecting Customers to Serve 9 • Choosing a Value Proposition 9 • Marketing Management Orientations 9

Preparing an Integrated marketing Plan and Program 12

engaging Customers and managing Customer relationships 13 Customer Relationship Management 13

marketing at Work 1.1: JetBlue: Delighting Customers and Bringing Humanity Back to Air Travel 15 Engaging Customers 18 • Customer Engagement and Today’s Digital and Social Media 18 • Consumer-Generated Marketing 19 • Partner Relationship Management 20

Capturing Value from Customers 20 Creating Customer Loyalty and Retention 21 • Growing Share of Customer 21 • Building Customer Equity 22

the Changing marketing landscape 24 The Digital Age: Online, Mobile, and Social Media Marketing 24

marketing at Work 1.2: Real-Time Marketing: Engaging Consumers in the Moment 26 The Changing Economic Environment 28 • The Growth of Not-for-Profit Marketing 28 • Rapid Globalization 29 • Sustainable Marketing—The Call for More Environmental and Social Responsibility 30

so, What Is marketing? Pulling It All together 31

reVIeWInG AnD extenDInG the ConCePts 33 CHAPTER REVIEW AND CRITICAL THINKING • Objectives Review 33 • Key Terms 34 • Discussion Questions 34 • Critical Thinking Exercises 35 • MINICASES AND APPLICATIONS • Online, Mobile, and Social Media Marketing 35 • Marketing Ethics 35 • Marketing by the Numbers 36 • Video Case 36 • Company Cases 37

xii Contents

2 Company and marketing strategy: Partnering to Build Customer Engagement, Value, and Relationships 38

ChAPter roAD mAP 38

Objective Outline 38 • Previewing the Concepts 38 • First Stop: Starbucks’s Customer Value-Driven Marketing Strategy 39

Company-Wide strategic Planning: Defining marketing’s role 40 Defining a Market-Oriented Mission 41 • Setting Company Objectives and Goals 42 • Designing the Business Portfolio 43

marketing at Work 2.1: ESPN: Skillfully Managing a Complex Brand Portfolio 44

Planning marketing: Partnering to Build Customer relationships 48 Partnering with Other Company Departments 49 • Partnering with Others in the Marketing System 50

marketing strategy and the marketing mix 50 Customer Value-Driven Marketing Strategy 51 • Developing an Integrated Marketing Mix 53

marketing at Work 2.2: DuckDuckGo: Google’s Tiniest, Fiercest Competitor 54

managing the marketing effort 56 Marketing Analysis 56 • Marketing Planning 57 • Marketing Implementation 57 • Marketing Department Organization 59 • Marketing Control 60

measuring and managing marketing return on Investment 60

reVIeWInG AnD extenDInG the ConCePts 62 CHAPTER REVIEW AND CRITICAL THINKING • Objectives Review 62 • Key Terms 63 • Discussion Questions 63 • Critical Thinking Exercises 63 • MINICASES AND APPLICATIONS • Online, Mobile, and Social Media Marketing 64 • Marketing Ethics 64 • Marketing by the Numbers 64 • Video Case 65 • Company Cases 65

PArt 2 UnDerstAnDInG the mArKetPlACe AnD CUstomer VAlUe 66

3 Analyzing the marketing environment 66 ChAPter roAD mAP 66

Objective Outline 66 • Previewing the Concepts 66 • First Stop: Kellogg 67

the microenvironment 68 The Company 68 • Suppliers 69 • Marketing Intermediaries 70 • Competitors 70 • Publics 71 • Customers 72

the macroenvironment 72 The Demographic Environment 72 • The Economic Environment 80 • The Natural Environment 81 • The Technological Environment 82

marketing at Work 3.1: Chipotle’s Environmental Sustainability Mission: Food With Integrity 83 The Political and Social Environment 85 • The Cultural Environment 88

responding to the marketing environment 91 marketing at Work 3.2: In the Social Media Age: When the Dialogue Gets Nasty 92

Contents xiii

reVIeWInG AnD extenDInG the ConCePts 94 CHAPTER REVIEW AND CRITICAL THINKING • Objectives Review 94 • Key Terms 95 • Discussion Questions 95 • Critical Thinking Exercises 95 • MINICASES AND APPLICATIONS • Online, Mobile, and Social Media Marketing 95 • Marketing Ethics 96 • Marketing by the Numbers 96 • Video Case 96 • Company Cases 97

4 managing marketing Information to Gain Customer Insights 98 ChAPter roAD mAP 98

Objective Outline 98 • Previewing the Concepts 98 • First Stop: The LEGO Group 99

marketing Information and Customer Insights 100 Marketing Information and Today’s “Big Data” 101 • Managing Marketing Information 101

Assessing marketing Information needs 102

Developing marketing Information 102 Internal Data 102 • Competitive Marketing Intelligence 103

marketing at Work 4.1: Social Media Command Centers: Listening to and Engaging Customers in Social Space 104

marketing research 106 Defining the Problem and Research Objectives 107 • Developing the Research Plan 107 • Gathering Secondary Data 108 • Primary Data Collection 109 • Implementing the Research Plan 117 • Interpreting and Reporting the Findings 117

Analyzing and Using marketing Information 118 Customer Relationship Management (CRM) 118 • Big Data and Marketing Analytics 119

marketing at Work 4.2: Netflix Streams Success with Big Data and Marketing Analytics 120 Distributing and Using Marketing Information 122

other marketing Information Considerations 123 Marketing Research in Small Businesses and Nonprofit Organizations 123 • International Marketing Research 124 • Public Policy and Ethics in Marketing Research 125

reVIeWInG AnD extenDInG the ConCePts 128 CHAPTER REVIEW AND CRITICAL THINKING • Objectives Review 128 • Key Terms 129 • Discussion Questions 129 • Critical Thinking Exercises 129 • MINICASES AND APPLICATIONS • Online, Mobile, and Social Media Marketing 130 • Marketing Ethics 130 • Marketing by the Numbers 130 • Video Case 131 • Company Cases 131

5 Understanding Consumer and Business Buyer Behavior 132 ChAPter roAD mAP 132

Objective Outline 132 • Previewing the Concepts 132 • First Stop: Harley-Davidson 133

Consumer markets and Consumer Buyer Behavior 134 Model of Consumer Behavior 134 • Characteristics Affecting Consumer Behavior 135

marketing at Work 5.1: Word-of-Mouth Marketing: Sparking Brand Conversations and Helping Them Catch Fire 140

marketing at Work 5.2: Taco Bell: More than Just Tacos, a “Live Más” Lifestyle 144

the Buyer Decision Process 149 Need Recognition 149 • Information Search 149 • Evaluation of Alternatives 150 • Purchase Decision 150 • Postpurchase Behavior 151

the Buyer Decision Process for new Products 151 Stages in the Adoption Process 152 • Individual Differences in Innovativeness 152 • Influence of Product Characteristics on Rate of Adoption 153

Business markets and Business Buyer Behavior 154 Business Markets 154 • Business Buyer Behavior 156 • Engaging Business Buyers with Digital and Social Marketing 161

reVIeWInG AnD extenDInG the ConCePts 164 CHAPTER REVIEW AND CRITICAL THINKING • Objectives Review 164 • Key Terms 165 • Discussion Questions 165 • Critical Thinking Exercises 165 • MINICASES AND APPLICATIONS • Online, Mobile, and Social Media Marketing 166 • Marketing Ethics 166 • Marketing by the Numbers 166 • Video Case 167 • Company Cases 167

PArt 3 DesIGnInG A CUstomer VAlUe-DrIVen strAteGy AnD mIx 168

6 Customer Value-Driven marketing strategy: Creating Value for Target Customers 168 ChAPter roAD mAP 168

Objective Outline 168 • Previewing the Concepts 168 • First Stop: Dunkin’ Donuts 169

market segmentation 170 Segmenting Consumer Markets 171 • Segmenting Business Markets 176 • Segmenting International Markets 177 • Requirements for Effective Segmentation 178

market targeting 179 Evaluating Market Segments 179 • Selecting Target Market Segments 179

marketing at Work 6.1: Hypertargeting: Walking a Fine Line between Serving Customers and Stalking Them 186

Differentiation and Positioning 187 Positioning Maps 188 • Choosing a Differentiation and Positioning Strategy 189

marketing at Work 6.2: Spirit Airlines: Getting Less but Paying Much Less for It 194 Communicating and Delivering the Chosen Position 195

reVIeWInG AnD extenDInG the ConCePts 196 CHAPTER REVIEW AND CRITICAL THINKING • Objectives Review 196 • Key Terms 197 • Discussion Questions 197 • Critical Thinking Exercises 198 • MINICASES AND APPLICATIONS • Online, Mobile, and Social Media Marketing 198 • Marketing Ethics 198 • Marketing by the Numbers 199 • Video Case 199 • Company Cases 199

7 Products, services, and Brands: Building Customer Value 200 ChAPter roAD mAP 200

Objective Outline 200 • Previewing the Concepts 200 • First Stop: GoPro 201

What Is a Product? 202 Products, Services, and Experiences 202 • Levels of Product and Services 203 • Product and Service Classifications 204

xiv Contents

Product and service Decisions 207 Individual Product and Service Decisions 207 • Product Line Decisions 213 • Product Mix Decisions 214

services marketing 215 The Nature and Characteristics of a Service 215 • Marketing Strategies for Service Firms 216 • The Service Profit Chain 217

marketing at Work 7.1: Zappos.com: Taking Care of Those Who Take Care of Customers 218

Branding strategy: Building strong Brands 221 Brand Equity and Brand Value 222 • Building Strong Brands 223 • Managing Brands 229

marketing at Work 7.2: Brand Extensions: Consumers Say “Yeah!” or “Huh?” 230

reVIeWInG AnD extenDInG the ConCePts 232 CHAPTER REVIEW AND CRITICAL THINKING • Objectives Review 232 • Key Terms 233 • Discussion Questions 233 • Critical Thinking Exercises 233 • MINICASES AND APPLICATIONS • Online, Mobile, and Social Media Marketing 234 • Marketing Ethics 234 • Marketing by the Numbers 234 • Video Case 235 • Company Cases 235

8 Developing new Products and Managing the Product Life Cycle 236

ChAPter roAD mAP 236 Objective Outline 236 • Previewing the Concepts 236 • First Stop: Google 237

new Product Development strategy 238

the new Product Development Process 239 Idea Generation 239

marketing at Work 8.1: Crowdsourcing: Throwing the Innovation Doors Wide Open 241 Idea Screening 243 • Concept Development and Testing 243 • Marketing Strategy Development 244 • Business Analysis 245 • Product Development 245 • Test Marketing 246 • Commercialization 247

managing new Product Development 247 Customer-Centered New Product Development 247 • Team-Based New Product Development 248 • Systematic New Product Development 248

Product life-Cycle strategies 249 Introduction Stage 251

marketing at Work 8.2: Managing Mattel’s Product Life Cycle: More Than Just Fun and Games 252 Growth Stage 253 • Maturity Stage 254 • Decline Stage 255

Additional Product and service Considerations 256 Product Decisions and Social Responsibility 256 • International Product and Services Marketing 257

reVIeWInG AnD extenDInG the ConCePts 258 CHAPTER REVIEW AND CRITICAL THINKING • Objectives Review 258 • Key Terms 259 • Discussion Questions 260 • Critical Thinking Exercises 260 • MINICASES AND APPLICATIONS • Online, Mobile, and Social Media Marketing 260 • Marketing Ethics 260 • Marketing by the Numbers 261 • Video Case 261 • Company Cases 261

Contents xv

9 Pricing: Understanding and Capturing Customer Value 262 ChAPter roAD mAP 262

Objective Outline 262 • Previewing the Concepts 262 • First Stop: Amazon versus Walmart 263

What Is a Price? 264

major Pricing strategies 265 Customer Value-Based Pricing 265

marketing at Work 9.1: ALDI: Impressively High Quality at Impossibly Low Prices, Every Day 268 Cost-Based Pricing 269 • Competition-Based Pricing 271

other Internal and external Considerations Affecting Price Decisions 272 Overall Marketing Strategy, Objectives, and Mix 272 • Organizational Considerations 273 • The Market and Demand 274 • The Economy 275 • Other External Factors 276

new Product Pricing strategies 277 Market-Skimming Pricing 277 • Market-Penetration Pricing 277

Product mix Pricing strategies 278 Product Line Pricing 278 • Optional-Product Pricing 279 • Captive-Product Pricing 279 • By-Product Pricing 279 • Product Bundle Pricing 280

Price Adjustment strategies 280 Discount and Allowance Pricing 280 • Segmented Pricing 281 • Psychological Pricing 282 • Promotional Pricing 282 • Geographical Pricing 283 • Dynamic and Online Pricing 284

marketing at Work 9.2: Dynamic Pricing: The Wonders and Woes of Real-Time Price Adjustments 285 International Pricing 287

Price Changes 288 Initiating Price Changes 288 • Responding to Price Changes 290

Public Policy and Pricing 291 Pricing within Channel Levels 292 • Pricing across Channel Levels 293

reVIeWInG AnD extenDInG the ConCePts 294 CHAPTER REVIEW AND CRITICAL THINKING • Objectives Review 294 • Key Terms 295 • Discussion Questions 295 • Critical Thinking Exercises 296 • MINICASES AND APPLICATIONS • Online, Mobile, and Social Media Marketing 296 • Marketing Ethics 296 • Marketing by the Numbers 297 • Video Case 297 • Company Cases 297

10 marketing Channels: Delivering Customer Value 298 ChAPter roAD mAP 298

Objective Outline 298 • Previewing the Concepts 298 • First Stop: Uber 299

supply Chains and the Value Delivery network 300

the nature and Importance of marketing Channels 301 How Channel Members Add Value 301 • Number of Channel Levels 303

Channel Behavior and organization 304 Channel Behavior 304 • Vertical Marketing Systems 305 • Horizontal Marketing Systems 307 • Multichannel Distribution Systems 308 • Changing Channel Organization 308

xvi Contents

marketing at Work 10.1: Netflix: Disintermediate or Be Disintermediated 310

Channel Design Decisions 311 Analyzing Consumer Needs 311 • Setting Channel Objectives 312 • Identifying Major Alternatives 313 • Evaluating the Major Alternatives 314 • Designing International Distribution Channels 314

Channel management Decisions 315 Selecting Channel Members 315 • Managing and Motivating Channel Members 316

marketing at Work 10.2: Amazon and P&G: Taking Channel Partnering to a New Level 317 Evaluating Channel Members 318

Public Policy and Distribution Decisions 319

marketing logistics and supply Chain management 319 Nature and Importance of Marketing Logistics 319 • Sustainable Supply Chains 321 • Goals of the Logistics System 321 • Major Logistics Functions 322 • Integrated Logistics Management 325

reVIeWInG AnD extenDInG the ConCePts 327 CHAPTER REVIEW AND CRITICAL THINKING • Objectives Review 327 • Key Terms 328 • Discussion Questions 329 • Critical Thinking Exercises 329 • MINICASES AND APPLICATIONS • Online, Mobile, and Social Media Marketing 329 • Marketing Ethics 330 • Marketing by the Numbers 330 • Video Case 330 • Company Cases 331

11 retailing and Wholesaling 332 ChAPter roAD mAP 332

Objective Outline 332 • Previewing the Concepts 332 • First Stop: Walmart 333

retailing 334 Retailing: Connecting Brands with Consumers 334 • Types of Retailers 335 • Retailer Marketing Decisions 341

marketing at Work 11.1: Digitizing the In-Store Retail Experience 344 Retailing Trends and Developments 348

marketing at Work 11.2: Omni-Channel Retailing: Creating a Seamless Shopping Experience 351

Wholesaling 355 Types of Wholesalers 356 • Wholesaler Marketing Decisions 357 • Trends in Wholesaling 359

reVIeWInG AnD extenDInG the ConCePts 360 CHAPTER REVIEW AND CRITICAL THINKING • Objectives Review 360 • Key Terms 361 • Discussion Questions 361 • Critical Thinking Exercises 361 • MINICASES AND APPLICATIONS • Online, Mobile, and Social Media Marketing 362 • Marketing Ethics 362 • Marketing by the Numbers 362 • Video Case 363 • Company Cases 363

12 engaging Consumers and Communicating Customer Value: Advertising and Public Relations 364

ChAPter roAD mAP 364 Objective Outline 364 • Previewing the Concepts 364 • First Stop: GEICO 365

the Promotion mix 366

Contents xvii

Integrated marketing Communications 367 The New Marketing Communications Model 367

marketing at Work 12.1: Just Don’t Call It Advertising: It’s Content Marketing 369 The Need for Integrated Marketing Communications 370 • Shaping the Overall Promotion Mix 372

Advertising 375 Setting Advertising Objectives 375 • Setting the Advertising Budget 377 • Developing Advertising Strategy 379 • Evaluating Advertising Effectiveness and the Return on Advertising Investment 388

marketing at Work 12.2: The Super Bowl: The Mother of All Advertising Events—But Is It Worth the Price? 389

Other Advertising Considerations 390

Public relations 392 The Role and Impact of PR 393 • Major Public Relations Tools 393

reVIeWInG AnD extenDInG the ConCePts 394 CHAPTER REVIEW AND CRITICAL THINKING • Objectives Review 394 • Key Terms 395 • Discussion Questions 395 • Critical Thinking Exercises 395 • MINICASES AND APPLICATIONS • Online, Mobile, and Social Media Marketing 396 • Marketing Ethics 396 • Marketing by the Numbers 397 • Video Case 397 • Company Cases 397

13 Personal selling and sales Promotion 398 ChAPter roAD mAP 398

Objective Outline 398 • Previewing the Concepts 398 • First Stop: Salesforce 399

Personal selling 400 The Nature of Personal Selling 400 • The Role of the Sales Force 401

managing the sales force 402 Designing the Sales Force Strategy and Structure 402 • Recruiting and Selecting Salespeople 406 • Training Salespeople 407 • Compensating Salespeople 408 • Supervising and Motivating Salespeople 409 • Evaluating Salespeople and Sales Force Performance 410

social selling: online, mobile, and social media tools 410 marketing at Work 13.1: B-to-B Salespeople: In This Digital and Social Media Age, Who Needs Them Anymore? 411

the Personal selling Process 414 Steps in the Selling Process 414 • Personal Selling and Managing Customer Relationships 416

sales Promotion 417 The Rapid Growth of Sales Promotion 417 • Sales Promotion Objectives 418 • Major Sales Promotion Tools 419

marketing at Work 13.2: P&G’s “Everyday Effect” Event: A Great Marriage between Old-School Promotions and New-School Social Sharing 421

Developing the Sales Promotion Program 423

reVIeWInG AnD extenDInG the ConCePts 424 CHAPTER REVIEW AND CRITICAL THINKING • Objectives Review 424 • Key Terms 425 • Discussion Questions 425 • Critical Thinking Exercises 426 • MINICASES AND APPLICATIONS • Online, Social Media, and Mobile Marketing 426 • Marketing Ethics 426 • Marketing by the Numbers 427 • Video Case 427 • Company Cases 427

xviii Contents

14 Direct, online, social media, and mobile marketing 428 ChAPter roAD mAP 428

Objective Outline 428 • Previewing the Concepts 428 • First Stop: Amazon.com 429

Direct and Digital marketing 430 The New Direct Marketing Model 430 • Rapid Growth of Direct and Digital Marketing 431 • Benefits of Direct and Digital Marketing to Buyers and Sellers 431

forms of Direct and Digital marketing 432

Digital and social media marketing 433 Marketing, the Internet, and the Digital Age 433 • Online Marketing 434 • Social Media Marketing 439

marketing at Work 14.1: Social Media Monetization: Making Money without Driving Fans Away 440 Mobile Marketing 443

marketing at Work 14.2: Mobile Marketing: Smartphones Are Changing How People Live—and How They Buy 445

traditional Direct marketing forms 447 Direct-Mail Marketing 447 • Catalog Marketing 448 • Telemarketing 449 • Direct-Response Television Marketing 449 • Kiosk Marketing 450

Public Policy Issues in Direct and Digital marketing 451 Irritation, Unfairness, Deception, and Fraud 451 • Consumer Privacy 452 • A Need for Action 452

reVIeWInG AnD extenDInG the ConCePts 454 CHAPTER REVIEW AND CRITICAL THINKING • Objectives Review 454 • Key Terms 455 • Discussion Questions 455 • Critical Thinking Exercises 456 • MINICASES AND APPLICATIONS • Online, Social Media, and Mobile Marketing 456 • Marketing Ethics 456 • Marketing by the Numbers 457 • Video Case 457 • Company Cases 457

PArt 4 extenDInG mArKetInG 458

15 the Global marketplace 458 ChAPter roAD mAP 458

Objective Outline 458 • Previewing the Concepts 458 • First Stop: L’Oréal 459

Global marketing today 460

looking at the Global marketing environment 462 The International Trade System 462 • Economic Environment 464 • Political-Legal Environment 465

marketing at Work 15.1: International Marketing: Targeting the Bottom of the Economic Pyramid 466 Cultural Environment 467

Deciding Whether to go Global 470

Deciding Which markets to enter 471

Deciding how to enter the market 472 Exporting 472 • Joint Venturing 473 • Direct Investment 474

Deciding on the Global marketing Program 475

Contents xix

Product 476 • Promotion 477

marketing at Work 15.2: Localizing Chinese Brand Names: Very Important but Notoriously Tricky 479 Price 480 • Distribution Channels 481

Deciding on the Global marketing organization 483

reVIeWInG AnD extenDInG the ConCePts 484 CHAPTER REVIEW AND CRITICAL THINKING • Objectives Review 484 • Key Terms 484 • Discussion Questions 485 • Critical Thinking Exercises 485 • MINICASES AND APPLICATIONS • Online, Mobile, and Social Media Marketing 485 • Marketing Ethics 486 • Marketing by the Numbers 486 • Video Case 486 • Company Cases 487

16 sustainable marketing: Social Responsibility and Ethics 488 ChAPter roAD mAP 488

Objective Outline 488 • Previewing the Concepts 488 • First Stop: Patagonia 489

sustainable marketing 490

social Criticisms of marketing 492 Marketing’s Impact on Individual Consumers 492 • Marketing’s Impact on Society as a Whole 496 • Marketing’s Impact on Other Businesses 498

Consumer Actions to Promote sustainable marketing 499 Consumerism 500 • Environmentalism 501

marketing at Work 16.1: Sustainability at Unilever: Creating a Better Future Every Day 502 Public Actions to Regulate Marketing 505

Business Actions toward sustainable marketing 506 Sustainable Marketing Principles 506

marketing at Work 16.2: TOMS: “Be the Change You Want to See in the World” 508 Societal Marketing 509 • Marketing Ethics 510 • The Sustainable Company 513

reVIeWInG AnD extenDInG the ConCePts 514 CHAPTER REVIEW AND CRITICAL THINKING • Objectives Review 514 • Key Terms 515 • Discussion Questions 515 • Critical Thinking Exercises 515 • MINICASES AND APPLICATIONS • Online, Mobile, and Social Media Marketing 515 • Marketing Ethics 516 • Marketing by the Numbers 516 • Video Case 516 • Company Cases 517

APPenDIx 1 Company Cases 519 APPenDIx 2 Marketing Plan 551 APPenDIx 3 Marketing by the Numbers 561 APPenDIx 4 Careers in Marketing 579

Glossary 591 References 601 Index 623

xx Contents

xxi

The Thirteenth Edition of Marketing: An Introduction! fresh. Proven. Practical. engaging. These are exciting times in marketing. Recent surges in digital technologies have created a new, more engaging, more connected marketing world. Beyond traditional tried-and-true marketing concepts and practices, today’s marketers have added a host of new-age tools for engaging consumers, building brands, and creating customer value and relationships. In these digital times, sweeping advances in “the Internet of Things”—from social and mobile media, connected digital devices, and the new consumer empowerment to “big data” and new mar- keting analytics—have profoundly affected both marketers and the consumers they serve.

More than ever, the 13th edition of Marketing: An Introduction introduces the exciting and fast-changing world of marketing in a fresh yet proven, practical, and engaging way.

marketing: Creating Customer Value and engagement in the Digital and social Age Top marketers share a common goal: putting the consumer at the heart of marketing. Today’s marketing is all about creating customer value and engagement in a fast-changing, increasingly digital and social marketplace.

Marketing starts with understanding consumer needs and wants, determining which target markets the organization can serve best, and developing a compelling value prop- osition by which the organization can attract and grow valued customers. Then, more than just making a sale, today’s marketers want to engage customers and build deep customer relationships that make their brands a meaningful part of consumers’ conver- sations and lives.

In this digital age, to go along with proven traditional marketing methods, marketers have a dazzling set of new online, mobile, and social media tools for engaging customers anytime, anyplace to jointly shape brand conversations, experiences, and community. If marketers do these things well, they will reap the rewards in terms of market share, profits, and customer equity. In the 13th edition of Marketing: An Introduction, you’ll learn how customer value and customer engagement drive every good marketing strategy.

Marketing: An Introduction makes learning and teaching marketing more productive and enjoyable than ever. The 13th edition’s streamlined approach strikes an effective bal- ance between depth of coverage and ease of learning. The 13th edition builds on proven content developed over 12 previous editions, yet it has been thoroughly revised to provide the freshest insights into current marketing concepts and practices.

The 13th edition remains highly approachable, with an organization, writing style, and design well suited to beginning marketing students. Its learning design—with integrative features at the start and end of each chapter plus insightful author comments throughout— helps students to learn, link, and apply important concepts. The text presents the practical side of marketing, with engaging examples and illustrations throughout that help to bring marketing to life. And when combined with MyMarketingLab, our online homework and

Preface

personalized study tool, Marketing: An Introduction ensures that students will come to class well prepared and leave class with a richer understanding of basic marketing concepts, strategies, and practices.

What’s new in the 13th edition? Once again, we’ve thoroughly revised Marketing: An Introduction to provide the freshest coverage of the latest trends and forces that affect marketing. We’ve poured over every page, table, figure, fact, and example in order to keep this the best text from which to learn about and teach marketing. The new edition provides substantial new content, expanded coverage, and fresh examples throughout each chapter.

●● The 13th edition adds fresh coverage in both traditional marketing areas and on fast- changing and trending topics such as customer engagement marketing, mobile and social media, big data and the new marketing analytics, omni-channel marketing and retailing, customer co-creation and empowerment, real-time customer listening and marketing, building brand community, marketing content creation and native advertising, B-to-B social media and social selling, tiered and dynamic pricing, consumer privacy, sustain- ability, global marketing, and much more.

●● This new edition continues to build on its customer engagement framework—creating direct and continuous customer involvement in shaping brands, brand conversations, brand experiences, and brand community. New coverage and fresh examples throughout the text address the latest customer engagement tools, practices, and developments. See especially Chapter 1 (refreshed sections on Customer Engagement and Today’s Digital and Social Media and Consumer-Generated Marketing); Chapter 4 (big data and real- time research to gain deeper customer insights); Chapter 5 (creating social influence and customer community through digital and social media marketing); Chapter 8 (customer co-creation and customer-driven new-product development); Chapter 11 (omni- channel retailing); Chapter 12 (marketing content curation and native advertising); Chapter 13 (salesforce social selling); and Chapter 14 (direct digital, online, social media, and mobile marketing).

●● No area of marketing is changing faster than online, mobile, social media, and other digital marketing technologies. Keeping up with digital concepts, technologies, and practices has become a top priority and major challenge for today’s marketers. The 13th edition of Marketing: An Introduction provides thoroughly refreshed, up-to-date cover- age of these explosive developments in every chapter—from online, mobile, and social media engagement technologies discussed in Chapters 1, 5, 12, and 14 to “real-time lis- tening” and “big data” research tools in Chapter 4, real-time dynamic pricing in Chapter 9, digitizing the in-store retail shopping experience in Chapter 11, and social selling in Chapter 13. A Chapter 1 section on The Digital Age: Online, Mobile, and Social Media Marketing introduces the exciting new developments in digital and social media mar- keting. Then a Chapter 14 section on Direct, Online, Social Media, and Mobile Mar- keting digs more deeply into digital marketing tools such as online sites, social media, mobile ads and apps, online video, email, blogs, and other digital platforms that engage consumers anywhere, anytime via their computers, smartphones, tablets, Internet-ready TVs, and other digital devices.

●● The 13th edition continues to track fast-changing developments in marketing commu- nications and the creation of marketing content. Marketers are no longer simply creat- ing integrated marketing communications programs; they are joining with customers and media to curate customer-driven marketing content in paid, owned, earned, and shared media. You won’t find fresher coverage of these important topics in any other marketing text.

●● The 13th edition of Marketing: An Introduction continues to improve on its innovative learning design. The text’s active and integrative presentation includes learning enhance- ments such as annotated chapter-opening stories, a chapter-opening objective outline, explanatory author comments on major chapter sections and figures, and Marketing at Work highlights that provide in-depth examples of marketing concepts and practices at

xxii Preface

work. The chapter-opening layout helps to preview and position the chapter and its key concepts. Figures annotated with author comments help students to simplify and organize chapter material. New and substantially revised end-of-chapter features help to summa- rize important chapter concepts and highlight important themes, such as marketing eth- ics, financial marketing analysis, and online, mobile, and social media marketing. This innovative learning design facilitates student understanding and eases learning.

●● The 13th edition provides 16 new end-of-chapter company cases by which students can apply what they learn to actual company situations. It also features 16 brand-new video cases, with brief end-of-chapter summaries and discussion questions. Finally, all of the chapter-opening stories, Marketing at Work highlights, and end-of-chapter features in the 13th edition are either new or substantially revised.

five major Customer Value and engagement themes The 13th edition of Marketing: An Introduction builds on five major customer value and engagement themes:

1. Creating value for customers in order to capture value from customers in return. Today’s marketers must be good at creating customer value, engaging customers, and managing customer relationships. Outstanding marketing companies understand the marketplace and customer needs, design value-creating marketing strategies, develop integrated marketing programs that engage customers and deliver value and satisfac- tion, and build strong customer relationships and brand community. In return, they cap- ture value from customers in the form of sales, profits, and customer equity.

This innovative customer value and engagement framework is introduced at the start of Chapter 1 in a five-step marketing process model, which details how market- ing creates customer value and captures value in return. The framework is carefully developed in the first two chapters and then fully integrated throughout the remainder of the text.

2. Customer engagement and today’s digital and social media. New digital and social media have taken today’s marketing by storm, dramatically changing how companies and brands engage consumers and how consumers connect and influence each other’s brand behaviors. The 13th edition thoroughly explores the contemporary concept of customer engagement marketing and the exciting new digital and social media technol- ogies that help brands to engage customers more deeply and interactively. It starts with two major Chapter 1 sections: Customer Engagement and Today’s Digital and Social Media and The Digital Age: Online, Mobile, and Social Media Marketing. A refreshed Chapter 14 on Direct, Online, Social Media, and Mobile Marketing summarizes the lat- est developments in digital engagement and relationship-building tools. Everywhere in between, you’ll find revised and expanded coverage of the exploding use of digital and social tools to create customer engagement and build brand community.

3. Building and managing strong, value-creating brands. Well-positioned brands with strong brand equity provide the basis upon which to build customer value and profit- able customer relationships. Today’s marketers must position their brands powerfully and manage them well to create valued brand experiences. The 13th edition provides a deep focus on brands, anchored by a Chapter 7 section on Branding Strategy: Building Strong Brands.

4. Measuring and managing return on marketing. Especially in uneven economic times, marketing managers must ensure that their marketing dollars are being well spent. In the past, many marketers spent freely on big, expensive marketing programs, often without thinking carefully about the financial returns on their spending. But all that has changed rapidly. “Marketing accountability”—measuring and managing market- ing return on investment—has now become an important part of strategic marketing decision making. This emphasis on marketing accountability is addressed in Chapter 2,

Preface xxiii

Appendix 3: Marketing by the Numbers, and end-of-chapter Marketing by the Numbers features and throughout the 13th edition.

5. Sustainable marketing around the globe. As technological developments make the world an increasingly smaller and more fragile place, marketers must be good at marketing their brands globally and in sustainable ways. New material throughout the 13th edition emphasizes the concepts of global marketing and sustainable marketing— meeting the present needs of consumers and businesses while also preserving or enhancing the ability of future generations to meet their needs. The 13th edition inte- grates global marketing and sustainability topics throughout the text. It then provides focused coverage on each topic in Chapters 15 and 16, respectively.

An emphasis on real marketing and Bringing marketing to life Marketing: An Introduction, 13th edition, takes a practical marketing management approach, providing countless in-depth, real-life examples and stories that engage students with marketing concepts and bring modern marketing to life. In the 13th edition, every chapter has an engaging First Stop opening story plus Marketing at Work highlights that provide fresh insights into real marketing practices. Learn how:

●● Netflix uses “big data” to personalize each customer’s viewing experience. While Netflix subscribers are busy watching videos, Netflix is busy watching them—very, very closely.

●● Wildly innovative Google has become an incredibly successful new product “moonshot factory,” unleashing a seemingly unending flurry of diverse products, most of which are market leaders in their categories.

●● Nike—by far the world’s largest sports apparel company—does much more than just make and sell sports gear. The iconic brand creates customer value by building deep engagement and a sense of community with and between the Nike brand and its customers.

●● Toy market leader LEGO uses innovative marketing research—lots and lots of it—to dig out fresh customer insights, then uses the insights to create irresistible play experi- ences for children around the world.

●● Mighty Kellogg, the world’s largest cereal maker, may be losing its snap, crackle, and pop as shifts in the marketing environment change how people today eat breakfast.

●● Harley-Davidson’s market dominance comes from a deep understanding of the emotions and motivations that underlie consumer behavior. Harley doesn’t just sell motorcycles; it sells freedom, independence, power, and authenticity.

●● Ultra low-price Spirit Airlines is thriving despite industry-low customer experience rat- ings. You don’t get much when you fly Spirit. Then again, you don’t pay for what you don’t get.

●● Marketers are now using real-time online, mobile, and social media marketing to engage customers in the moment, linking brands to trending topics, events, causes, personal oc- casions, or other happenings in their lives.

●● Amazon has become the poster child for direct and digital marketing. Its passion for cre- ating superb online customer experiences has made it one of the most powerful names on the Internet.

●● Direct marketing insurance giant GEICO has gone from bit player to behemoth thanks to a big-budget advertising campaign featuring a smooth-talking gecko and an enduring “15 minutes could save you 15 percent” tagline.

●● Outdoor apparel and gear maker Patagonia’s “Conscious Consumption” mission takes sustainability to new extremes by telling consumers to buy less of its products.

●● Cosmetics maker L’Oréal has become the “United Nations of Beauty” by achieving a global-local balance that adapts and differentiates brands in local markets while opti- mizing their impact across global markets.

xxiv Preface

Beyond such features, each chapter is packed with countless real, engaging, and timely examples that reinforce key concepts. No other text brings marketing to life like the 13th edition of Marketing: An Introduction.

learning Aids that Create Value and engagement A wealth of chapter-opening, within-chapter, and end-of-chapter learning devices help stu- dents to learn, link, and apply major concepts:

●● Integrated Chapter-Opening Road Maps. The active and integrative chapter-opening spread in each chapter features an Objective Outline that outlines chapter contents and learning objectives, a brief Previewing the Concepts section that introduces chapter con- cepts, and a First Stop opening vignette—an engaging, deeply developed, illustrated, and annotated marketing story that introduces the chapter material and sparks student interest.

●● Marketing at Work highlights. Each chapter contains two carefully developed high- light features that provide an in-depth look at real marketing practices of large and small companies.

●● Author comments and figure annotations. Throughout each chapter, author comments ease and enhance student learning by introducing and explaining major chapter sections and figures.

●● Reviewing and Extending the Concepts. Sections at the end of each chapter summa- rize key chapter concepts and provide questions, exercises, and cases by which students can review and apply what they’ve learned. The Chapter Review and Critical Thinking section reviews major chapter concepts and links them to chapter objectives. It provides a helpful listing of chapter key terms by order of appearance with page numbers that fa- cilitate easy reference. Finally, it provides discussion questions and critical thinking ex- ercises that help students to keep track of and apply what they’ve learned in the chapter.

The Minicases and Applications section at the end of each chapter provides brief Marketing Ethics; Online, Mobile, and Social Media Marketing; and Marketing by the Numbers applications cases that facilitate discussion of current issues and company situations in areas such as mobile and social marketing, ethics, and financial marketing analysis. It also includes a Video Case section that contains short vignettes with discus- sion questions to be used with a set of short videos that accompany the 13th edition. An end-of-chapter Company Cases section identifies which of the company cases found in Appendix 1 are best for use with each chapter.

●● Company Cases. Appendix 1 contains 16 all-new company cases that help students to apply major marketing concepts to real company and brand situations.

●● Marketing Plan appendix. Appendix 2 contains a sample marketing plan that helps students to apply important marketing planning concepts.

●● Marketing by the Numbers appendix. An innovative Appendix 3 provides students with a comprehensive introduction to the marketing financial analysis that helps to guide, assess, and support marketing decisions. An exercise at the end of each chapter lets students apply analytical and financial thinking to relevant chapter concepts and links the chapter to the Marketing by the Numbers appendix.

●● Careers in Marketing. Appendix 4 helps students to explore marketing career paths open to them and lays out a process for landing a marketing job that best matches their special skills and interests.

More than ever before, the 13th edition of Marketing: An Introduction creates value and engagement for you—it gives you all you need to know about marketing in an effective and enjoyable total learning package!

A total teaching and learning Package A successful marketing course requires more than a well-written book. Today’s classroom requires a dedicated teacher, well-prepared students, and a fully integrated teaching system.

Preface xxv

A total package of teaching and learning supplements extends this edition’s emphasis on creating value and engagement for both the student and instructor. The following aids sup- port Marketing: An Introduction, 13th edition.

Instructor resources At the Instructor Resource Center, www.pearsonhighered.com/irc, instructors can eas- ily register to gain access to a variety of instructor resources available with this text in downloadable format. If assistance is needed, our dedicated technical support team is ready to help with the media supplements that accompany this text. Visit http://247.pearsoned .com for answers to frequently asked questions and toll-free user support phone numbers.

The following supplements are available with this text:

●● Instructor’s Resource Manual ●● Test Bank ●● TestGen® Computerized Test Bank ●● PowerPoint Presentation

xxvi Preface

xxvii

Acknowledgments No book is the work only of its authors. We greatly appreciate the valuable contributions of several people who helped make this new edition possible. As always, we owe extra-special thanks to Keri Jean Miksza for her dedicated and valuable contributions to all phases of the project and to her husband Pete and daughters Lucy and Mary for all the support they provide Keri during this very absorbing project.

We owe substantial thanks to Andy Norman of Drake University for his skillful help in developing chapter vignettes and highlights, company and video cases, and the Marketing Plan appendix. This and many previous editions have benefited greatly from Andy’s assistance. We also thank Laurie Babin of the University of Louisiana at Monroe for her dedicated continued efforts in preparing end-of-chapter materials and for keeping our Marketing by the Numbers ap- pendix fresh. Additional thanks also go to Jennifer Barr, Tony Henthorne, and Douglas Martin.

Many reviewers at other colleges and universities provided valuable comments and suggestions for this and previous editions. We are indebted to the following colleagues for their thoughtful inputs:

We also owe a great deal to the people at Pearson Education who helped develop this book. Senior Acquisitions Editor Mark Gaffney provided resources and support during the revision. Senior Project Manager Jacqueline Martin and Program Manager Jennifer Collins provided valuable assistance and advice in guiding this complex revision project through development, design, and production. We’d also like to thank Stephanie Wall, Lenny Ann Kucenski, Judy Leale, Jeff Holcomb, and Eric Santucci for their able assistance along the way. We are proud to be associated with the fine professionals at Pearson. We also owe a mighty debt of gratitude to Charles Fisher and the team at Integra.

reVIeWers

George Bercovitz, York College Pari S. Bhagat, Ph.D., Indiana University of

Pennsylvania Sylvia Clark, St. John’s University Linda Jane Coleman, Salem State University Mary Conran, Temple University Datha Damron-Martinez, Truman State University Lawrence K. Duke, Drexel University Barbara S. Faries, MBA, Mission College Ivan Filby, Greenville College John Gaskins, Longwood University Karen Halpern, South Puget Sound Community College Jan Hardesty, University of Arizona Hella-Ilona Johnson, Olympic College David Koehler, University of Illinois at Chicago Michelle Kunz, Morehead State University Susan Mann, University of Northwestern Ohio Thomas E. Marshall, M.B.E., Owens Community College

Nora Martin, University of South Carolina Erika Matulich, University of Tampa Marc Newman, Hocking College John T. Nolan, SUNY, Buffalo State Nikolai Ostapenko, University of the District of Columbia Vic Piscatello, University of Arizona Bill Rice, California State University David Robinson, University of California, Berkeley William M. Ryan, University of Connecticut Elliot Schreiber, Drexel University Lisa Simon, Cal Poly, San Luis Obispo Robert Simon, University of Nebraska, Lincoln Keith Starcher, Indiana Wesleyan University John Talbott, Indiana University Rhonda Tenenbaum, Queens College Deborah Utter, Boston University Tom Voigt, Judson University Terry Wilson, East Stroudsburg University

Finally, we owe many thanks to our families for all of their support and encouragement — Kathy, Betty, Mandy, Matt, KC, Keri, Delaney, Molly, Macy, and Ben from the Armstrong clan and Nancy, Amy, Melissa, and Jessica from the Kotler family. To them, we dedicate this book.

Gary Armstrong Philip Kotler

xxviii Acknowledgments

Marketing An Introduction Thirteenth Edition

Part 1: Defining Marketing anD the Marketing Process (chaPters 1–2) Part 2: UnDerstanDing the MarketPlace anD cUstoMer ValUe (chaPters 3–5) Part 3: Designing a cUstoMer ValUe-DriVen strategy anD Mix (chaPters 6–14) Part 4: extenDing Marketing (chaPters 15–16)

1 objectiVe 1-1 Define marketing and outline the steps in the marketing process. What Is Marketing? (4–5)

objectiVe 1-2 explain the importance of understanding the marketplace and customers and identify the five core marketplace concepts. Understanding the Marketplace and Customer Needs (6–8)

objectiVe 1-3 identify the key elements of a customer- value driven marketing strategy and discuss the marketing management orientations that guide marketing strategy. Designing a Customer-Driven Marketing Strategy (9–12) Preparing an Integrated Marketing Plan and Program (12–13)

Marketing creating customer Value and engagement

objectiVe 1-4 Discuss customer relationship management and identify strategies for creating value for customers and capturing value from customers in return. Engaging Customers and Managing Customer Relationships (13–20); Capturing Value from Customers (20–23)

objectiVe 1-5 Describe the major trends and forces that are changing the marketing landscape in this age of relationships. The Changing Marketing Landscape (24–31)

Previewing the concepts this chapter introduces you to the basic concepts of marketing. We start with the question: What is marketing? simply put, marketing is engaging customers and managing profitable customer relationships. the aim of marketing is to create value for customers in order to capture value from customers in return. next we discuss the five steps in the marketing process—from understanding customer needs, to designing customer value-driven market- ing strategies and integrated marketing programs, to building customer relationships and capturing value for the firm. finally, we discuss the major trends and forces affecting market- ing in this new age of digital, mobile, and social media. Understanding these basic concepts and forming your own ideas about what they really mean to you will provide a solid founda- tion for all that follows.

let’s start with a good story about marketing in action at nike, the world’s leading sports apparel company and one of the best-known brands on the planet. nike’s outstand- ing success results from much more than just making and selling good sports gear. it’s based on a customer-focused marketing strategy by which nike creates customer value through deep brand–customer engagement and close brand community with and among its customers.

chaPter roaD MaP objective outline

3

first stop nike’s customer Value-Driven Marketing: Engaging Customers and Building Brand Community The Nike “swoosh”—it’s everywhere! Just for fun, try counting the swooshes whenever you pick up the sports pages or watch a basketball game or tune into a televised soccer match. Over the past 50 years, through innovative marketing, Nike has built the ever-present swoosh into one of the world’s best-known brand symbols.

Product innovation has always been a cornerstone of Nike’s success. Nike makes outstanding shoes, clothing, and gear, whether for basketball, football, and baseball or golf, skate- boarding, wall climbing, bicycling, and hiking. But from the start, a brash, young Nike revolutionized sports marketing. To build image and market share, the brand lavishly outspent competi- tors on big-name endorsements, splashy promotional events, and big-budget, in-your-face “Just Do It” ads. Whereas competi- tors stressed technical performance, Nike built customer engagement and relationships.

Beyond shoes, Nike marketed a way of life, a genuine passion for sports, a “just-do-it” attitude. Customers didn’t just wear their Nikes, they experienced them. As the company once stated on its Web page, “Nike has always known the truth—it’s not so much the shoes but where they take you.” Nike’s mission isn’t to “make better gear,” it’s to “connect with and inspire athletes around the world.” Few brands have become more ever-present and valued than Nike in their customers’ lives and conversations.

Whether customers connect with Nike through ads, in-person events at Niketown stores, a local Nike running club, or one of the company’s profusion of community Web and social media sites, more and more people are bonding closely with the Nike brand. Connecting once required simply outspending competitors on big media ads and celebrity endorsers that talk at customers. But in these digital times, Nike is forging a new kind of brand–customer connection—a deeper, more personal, more engaging one. Nike still invests heavily in traditional advertising. But the brand now spends a lion’s share of its marketing budget on cutting-edge digital and social media marketing that interacts with customers to build brand engagement and community.

Nike’s innovative use of online, mobile, and social media recently earned the brand the title of “top genius” in “digital IQ” among 42 sportswear companies in one digital consultancy’s rankings. Nike also placed first in creating brand “tribes”—large groups of highly engaged users—with the help of social media platforms such as Facebook, Twitter, Instagram, YouTube, and Pinterest. For example, the main Nike Facebook page has more than 42 million Likes. The Nike Soccer page adds another 35 mil- lion, the Nike Basketball page 7 million more, and Nike Running another 3 million. More than just numbers, Nike’s social media presence engages customers at a high level, gets them talking with each other about the brand, and weaves the brand into their daily lives.

Nike excels at cross-media campaigns that integrate digi- tal media with traditional tools to connect with customers. An

the nike swoosh—it’s everywhere. nike has mastered social networking, both online and off, creating deep engagement and community with and among customers. © Steve Hellerstein/Alamy

nike’s outstanding success results from much more than just making good sports gear. the iconic brand

delivers customer value by building deep engagement and a

sense of community with and between the nike brand

and its customers.

example is Nike’s recent “Risk Everything” World Cup soccer campaign. The Risk Everything campaign began with captivating four- to five-minute videos embedded in Nike social media sites and its own Risk Everything Web site. The campaign—featuring Nike- sponsored soccer superstars such as Portugal’s Cristiano Ronaldo, England’s Wayne Rooney, Brazil’s Neymar, and a dozen others—was built around an intense, provocative World Cup story line of taking risks to gain the glory of succeeding against rival teams and nations.

In one Risk Everything video—“Winner Stays”—two teams of young men faced off on a local soccer field for a pickup game, pretending to be (then turning into) the superstars. The scene trans- formed into a legendary bout on a global stage. As the video ended, a young boy stepped in for Ronaldo and under immense pres- sure scored the winning goal. According to one analyst, the Risk Every- thing videos were “the perfect blend of product placement, provocative storytelling, and real-time marketing.” Although the videos were filled with Nike swooshes, products, and stars, highly engaged viewers hardly realized that they were con- suming ad content.

By the end of the final World Cup match, the Risk Everything videos had produced 372 million views, 22 million engagements (Likes, comments, shares), and 650,000 uses of #riskeverything. Nike reigned as the “most-viewed brand” of the World Cup in terms of online video, trouncing rival adidas. In fact, Nike’s online views accounted for an incredible one-half of all the views attributed to the event’s 97 World Cup marketing campaigns—and Nike wasn’t even an official sponsor. Along with the Risk Everything videos, Nike ran a full array of traditional television, print, radio, cinema, and gaming

4

advertising. Taken as a whole, across all media, the Risk Everything campaign generated more than 6 billion impressions in 35 countries. Now that’s customer engagement.

Nike has also created customer value and brand commu- nity through groundbreaking mobile apps and technologies. For example, its Nike+ apps have helped Nike become a part of the daily fitness routines of millions of customers around the world. The Nike+ FuelBand device, for instance, converts just about every imaginable physical movement into NikeFuel, Nike’s own universal activity metric. So whether your activity is running, jump- ing, baseball, skating, dancing, stacking sports cups, or chasing chickens, it counts for NikeFuel points. Everyday athletes can use NikeFuel to track their personal performance, then share and com- pare it across sports and locations with others in the global Nike community. The Nike+ mobile app lets users watch their progress, get extra motivation on the go, and stay connected with friends. Nike+ has engaged a huge global brand community. To date, more than 5 million Nike+ users worldwide have logged 1,118,434,247

miles. That’s 44,914 trips around the world or 4,682 journeys to the moon and back.

Thus, Nike delivers customer value well beyond the products it makes. It has built a deep kinship and sense of community with and between the Nike brand and its customers. Whether it’s through local running clubs, a performance-tracking app, primetime TV ads, videos, and other content in any of its dozens of brand Web sites and social media pages, the Nike brand has become a valued part of customers’ lives and times.

As a result, Nike remains the world’s largest sports apparel com- pany, an impressive 44 percent larger than closest rival adidas. Dur- ing the past decade, even as a sometimes-shaky economy left many sports footwear and apparel rivals gasping for breath, Nike’s global sales and income have sprinted ahead by more than double. “Connect- ing used to be, ‘Here’s some product, and here’s some advertising. We hope you like it,’” notes Nike’s CEO. “Connecting today is a dialogue.” Says Nike’s chief marketing officer, “The engagement levels we have received . . . drive huge momentum for our brand. This is just the begin- ning of how we will connect with and inspire athletes around the world.”1

oday’s successful companies have one thing in common: Like Nike, they are strongly customer focused and heavily committed to marketing. These companies share a passion for understanding and satisfying customer needs in well-defined

target markets. They motivate everyone in the organization to help build lasting customer relationships based on creating value.

Customer relationships and value are especially important today. Facing dramatic technological advances and deep economic, social, and environmental challenges, today’s customers are relating digitally with companies and each other, spending more carefully, and reassessing how they engage with brands. New digital, mobile, and social media developments have revolutionized how consumers shop and interact, in turn calling for new marketing strategies and tactics. In these fast-changing times, it’s now more important than ever to build strong customer relationships based on real and enduring customer value.

We’ll discuss the exciting new challenges facing both customers and marketers later in the chapter. But first, let’s introduce the basics of marketing.

What is Marketing? Marketing, more than any other business function, deals with customers. Although we will soon explore more-detailed definitions of marketing, perhaps the simplest definition is this one: Marketing is engaging customers and managing profitable customer relationships. The twofold goal of marketing is to attract new customers by promising superior value and to keep and grow current customers by delivering satisfaction.

For example, Walmart has become the world’s largest retailer—and the world’s largest company—by delivering on its promise “Save Money. Live Better.” Coca-Cola has earn a 49 percent global share of the carbonated beverage market—more than twice Pepsi’s share—by fulfilling its “open happiness” motto with products that “spread smiles and open happiness every day all across the world.” Facebook has attracted more than 1.4 billion active Web and mobile users worldwide by helping them to “connect and share with the people in their lives.”2

Sound marketing is critical to the success of every organization. Large for-profit firms, such as Google, Target, Procter & Gamble, Coca-Cola, and Microsoft, use mar- keting. But so do not-for-profit organizations, such as colleges, hospitals, museums, symphony orchestras, and even churches.

You already know a lot about marketing—it’s all around you. Marketing comes to you in the good old traditional forms: You see it in the abundance of products at your nearby

author comment Pause here and think about how you’d answer this question before studying marketing. Then

see how your answer changes as you read the chapter.

t

chapter 1: Marketing: creating customer Value and engagement 5

shopping mall and the ads that fill your TV screen, spice up your magazines, or stuff your mailbox. But in recent years, marketers have assembled a host of new marketing approaches, everything from imaginative Web sites and smartphone apps to blogs, online videos, and so- cial media. These new approaches do more than just blast out messages to the masses. They reach you directly, personally, and interactively. Today’s marketers want to become a part of your life and enrich your experiences with their brands—to help you live their brands.

At home, at school, where you work, and where you play, you see marketing in almost everything you do. Yet there is much more to marketing than meets the consumer’s casual eye. Behind it all is a massive network of people, technologies, and activities competing for your attention and purchases. This book will give you a complete introduction to the basic concepts and practices of today’s marketing. In this chapter, we begin by defining marketing and the marketing process.

Marketing Defined What is marketing? Many people think of marketing as only selling and advertising. We are bombarded every day with TV commercials, catalogs, spiels from salespeople, and online pitches. However, selling and advertising are only the tip of the marketing iceberg.

Today, marketing must be understood not in the old sense of making a sale—“telling and selling”—but in the new sense of satisfying customer needs. If the marketer engages consumers effectively, understands their needs, develops products that provide superior customer value, and prices, distributes, and promotes them well, these products will sell easily. In fact, according to management guru Peter Drucker, “The aim of marketing is to make selling unnecessary.”3 Selling and advertising are only part of a larger marketing mix—a set of marketing tools that work together to engage customers, satisfy customer needs, and build customer relationships.

Broadly defined, marketing is a social and managerial process by which individuals and organizations obtain what they need and want through creating and exchanging value with others. In a narrower business context, marketing involves building profitable, value-laden exchange relationships with customers. Hence, we define marketing as the process by which companies engage customers, build strong customer relationships, and create customer value in order to capture value from customers in return.4

the Marketing Process figure 1.1 presents a simple, five-step model of the marketing process for creating and

capturing customer value. In the first four steps, companies work to understand consum- ers, create customer value, and build strong customer relationships. In the final step, companies reap the rewards of creating superior customer value. By creating value for consumers, they in turn capture value from consumers in the form of sales, profits, and long-term customer equity.

In this chapter and the next, we will examine the steps of this simple model of mar- keting. In this chapter, we review each step but focus more on the customer relationship steps—understanding customers, engaging and building relationships with customers, and capturing value from customers. In Chapter 2, we look more deeply into the second and third steps—designing value-creating marketing strategies and constructing marketing programs.

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.

Create value for customers and build customer relationships

Capture value from customers in return

Capture value from customers to create profits and customer equity

Engage customers, build profitable

relationships, and create customer

delight

Construct an integrated

marketing program that delivers

superior value

Understand the marketplace and customer needs

and wants

Design a customer value- driven marketing

strategy

This important figure shows marketing in a nutshell. By creating value for customers, marketers capture value from customers in return. This five-step process forms the marketing framework for the rest of the chapter and the remainder of the text.

figure 1.1 the Marketing Process: creating and capturing customer Value

6 Part 1: Defining Marketing and the Marketing Process

Understanding the Marketplace and customer needs As a first step, marketers need to understand customer needs and wants and the market- place in which they operate. We examine five core customer and marketplace concepts: (1) needs, wants, and demands; (2) market offerings (products, services, and experiences); (3) value and satisfaction; (4) exchanges and relationships; and (5) markets.

customer needs, Wants, and Demands The most basic concept underlying marketing is that of human needs. Human needs are states of felt deprivation. They include basic physical needs for food, clothing, warmth, and safety; social needs for belonging and affection; and individual needs for knowledge and self-expression. Marketers did not create these needs; they are a basic part of the human makeup.

Wants are the form human needs take as they are shaped by culture and individual personality. An American needs food but wants a Big Mac, french fries, and a soft drink. A person in Papua, New Guinea, needs food but wants taro, rice, yams, and pork. Wants are shaped by one’s society and are described in terms of objects that will satisfy

those needs. When backed by buying power, wants become demands. Given their wants and resources, people demand products and services with benefits that add up to the most value and satisfaction.

Outstanding marketing companies go to great lengths to learn about and understand their customers’ needs, wants, and demands. They conduct consumer research, analyze moun- tains of customer data, and observe customers as they shop and interact, offline and online. People at all levels of the com- pany—including top management—stay close to customers:5

Target’s energetic new CEO, Brian Cornell, makes regular un- announced visits to Target stores, accompanied by local moms and loyal Target shoppers. Cornell likes nosing around stores and getting a real feel for what’s going on. It gives him “great, genuine feedback.” Similarly, Boston Market CEO George Mi- chel makes frequent visits to company restaurants, working in the dining room and engaging customers to learn about “the good, the bad, and the ugly.” He also stays connected by reading customer messages on the Boston Market Web site and has even cold-called customers for insights. “Being close to the customer is critically important,” says Michel. “I get to learn what they value, what they appreciate.”

Market offerings—Products, services, and experiences Consumers’ needs and wants are fulfilled through market offerings—some combination of products, services, information, or experiences offered to a market to satisfy a need or a want. Market offerings are not limited to physical products. They also include services— activities or benefits offered for sale that are essentially intangible and do not result in the ownership of anything. Examples include banking, airline, hotel, retailing, and home repair services.

More broadly, market offerings also include other entities, such as persons, places, organizations, information, and ideas. For example, San Diego recently launched a $9 million “Happiness Is Calling” advertising campaign that invites visi- tors to come and enjoy the city’s great weather and good times—everything from its bays and beaches to its downtown nightlife and urban scenes. And the Ad Council and

author comment Marketing is all about creating value for customers. So, as the first step in the

marketing process, the company must fully understand consumers and the marketplace

in which it operates.

needs States of felt deprivation.

Wants The form human needs take as they are shaped by culture and individual personality.

Demands Human wants that are backed by buying power.

Market offerings Some combination of products, servic- es, information, or experiences offered to a market to satisfy a need or want.

staying close to customers: energetic new target ceo brian collins makes regular unannounced visits to target stores, accompanied by local moms and loyal target shoppers. Ackerman + Gruber

chapter 1: Marketing: creating customer Value and engagement 7

the National Highway Traffic Safety Administration created a “Stop the Texts. Stop the Wrecks.” campaign that markets the idea of eliminating texting while driving. The campaign points out that a texting driver is 23 times more likely to get into a crash than a non-texting driver.6

Many sellers make the mistake of paying more attention to the specific products they offer than to the benefits and experiences produced by these products. These sell- ers suffer from marketing myopia. They are so taken with their products that they focus only on existing wants and lose sight of underlying customer needs.7 They forget that a product is only a tool to solve a consumer problem. A  manufacturer of quarter-inch drill bits may think that the customer needs a drill bit. But what the customer really needs is a quarter-inch hole. These sellers will have trouble if a new product comes along that serves the customer’s need better or less expensively. The customer will have the same need but will want the new product.

Smart marketers look beyond the attributes of the products and services they sell. By orchestrating several services and products, they create brand experiences for consumers. For example, you don’t just visit Walt Disney World Resort; you immerse yourself and your family in a world of wonder, a world where dreams come true and things still work the way they should. “Let the magic begin!” says Disney. Similarly, Mattel’s American Girl does much more than just make and sell high-end dolls. It creates special experiences between the dolls and the girls who adore them.8

To put more smiles on the faces of the girls who love their American Girl dolls, the com- pany operates huge American Girl experiential stores in 20 major cities around the country. Each store carries an amazing selection of dolls plus every imaginable outfit and accessory. But more than just shopping spots, American Girl stores are exciting destinations unto themselves, offering wonderfully engaging experiences for girls, mothers, grandmoth- ers, and even dads or grandpas. There’s an in-store restaurant where girls, their dolls, and grown-ups can sit down together for brunch, lunch, afternoon tea, or dinner. There’s even a doll hair salon where a stylist can give a doll a new hairdo. American Girl also offers “perfect parties” to celebrate a birthday or any day, as well as a full slate of special events, from crafts and activities to excursions. Much more than a store that sells dolls, says the company, “it’s the place where imaginations can soar.” A visit to American Girl creates “Fun today. Memories forever.”

customer Value and satisfaction Consumers usually face a broad array of products and services that might satisfy a given need. How do they choose among these many market offerings? Customers form expectations about the value and satisfaction that various market offerings will deliver and buy accordingly. Satisfied customers buy again and tell others about their good experiences. Dissatisfied customers often switch to competitors and disparage the product to others.

Marketers must be careful to set the right level of expectations. If they set expecta- tions too low, they may satisfy those who buy but fail to attract enough buyers. If they set expectations too high, buyers will be disappointed. Customer value and customer satisfac- tion are key building blocks for developing and managing customer relationships. We will revisit these core concepts later in the chapter.

exchanges and relationships Marketing occurs when people decide to satisfy their needs and wants through ex- change relationships. Exchange is the act of obtaining a desired object from someone by offering something in return. In the broadest sense, the marketer tries to bring about a response to some market offering. The response may be more than simply buying or trading products and services. A political candidate, for instance, wants votes; a church wants membership; an orchestra wants an audience; and a social action group wants idea acceptance.

Marketing myopia The mistake of paying more attention to the specific products a company offers than to the benefits and experiences produced by these products.

exchange The act of obtaining a desired object from someone by offering something in return.

Marketing experiences: american girl does more than just make and sell high-end dolls. it creates special experiences between the dolls and the girls who adore them. Image courtesy of American Girl, Inc. All rights reserved.

8 Part 1: Defining Marketing and the Marketing Process

Marketing consists of actions taken to create, maintain, and grow desirable exchange relationships with target audiences involving a product, service, idea, or other object. Companies want to build strong relationships by consistently delivering superior customer value. We will expand on the important concept of managing customer relationships later in the chapter.

Markets The concepts of exchange and relationships lead to the concept of a market. A market is the set of actual and potential buyers of a product or service. These buyers share a particu- lar need or want that can be satisfied through exchange relationships.

Marketing means managing markets to bring about profitable customer relation- ships. However, creating these relationships takes work. Sellers must search for and engage buyers, identify their needs, design good market offerings, set prices for them, promote them, and store and deliver them. Activities such as consumer research, prod- uct development, communication, distribution, pricing, and service are core marketing activities.

Although we normally think of marketing as being carried out by sellers, buyers also carry out marketing. Consumers market when they search for products, interact with companies to obtain information, and make their purchases. In fact, today’s digital tech- nologies, from online sites and smartphone apps to the explosion of social media, have empowered consumers and made marketing a truly two-way affair. Thus, in addition to customer relationship management, today’s marketers must also deal effectively with customer-managed relationships. Marketers are no longer asking only “How can we influ- ence our customers?” but also “How can our customers influence us?” and even “How can our customers influence each other?”

figure 1.2 shows the main elements in a marketing system. Marketing involves serving a market of final consumers in the face of competitors. The company and competi- tors research the market and interact with consumers to understand their needs. Then they create and exchange market offerings, messages, and other marketing content with con- sumers, either directly or through marketing intermediaries. Each party in the system is affected by major environmental forces (demographic, economic, natural, technological, political, and social/cultural).

Each party in the system adds value for the next level. The arrows represent rela- tionships that must be developed and managed. Thus, a company’s success at engaging customers and building profitable relationships depends not only on its own actions but also on how well the entire system serves the needs of final consumers. Walmart can- not fulfill its promise of low prices unless its suppliers provide merchandise at low costs. And Ford cannot deliver a high-quality car-ownership experience unless its dealers provide outstanding sales and service.

Market The set of all actual and potential buyers of a product or service.

figure 1.2 a Modern Marketing system

Major environmental forces

Each party in the system adds value. Walmart cannot fulfill its promise of low prices unless its suppliers provide low costs. Ford cannot deliver a high- quality car-ownership experience unless its dealers provide outstanding service.

Marketing intermediaries

Competitors

Company

Suppliers Final consumers

Arrows represent relationships that must be developed and managed to create customer value and profitable customer relationships.

chapter 1: Marketing: creating customer Value and engagement 9

Designing a customer Value-Driven Marketing strategy Once it fully understands consumers and the marketplace, marketing management can design a customer value-driven marketing strategy. We define marketing management as the art and science of choosing target markets and building profitable relationships with them. The marketing manager’s aim is to engage, keep, and grow target customers by creating, delivering, and communicating superior customer value.

To design a winning marketing strategy, the marketing manager must answer two impor- tant questions: What customers will we serve (what’s our target market)? and How can we serve these customers best (what’s our value proposition)? We will discuss these marketing strategy concepts briefly here and then look at them in more detail in Chapters 2 and 6.

selecting customers to serve The company must first decide whom it will serve. It does this by dividing the market into segments of customers (market segmentation) and selecting which segments it will go after (target marketing). Some people think of marketing management as finding as many customers as possible and increasing demand. But marketing managers know that they cannot serve all customers in every way. By trying to serve all customers, they may not serve any customers well. Instead, the company wants to select only customers that it can serve well and profitably. For example, Nordstrom profitably targets affluent profession- als; Dollar General profitably targets families with more modest means.

Ultimately, marketing managers must decide which customers they want to target and on the level, timing, and nature of their demand. Simply put, marketing management is customer management and demand management.

choosing a Value Proposition The company must also decide how it will serve targeted customers—how it will dif- ferentiate and position itself in the marketplace. A brand’s value proposition is the set of benefits or values it promises to deliver to consumers to satisfy their needs. JetBlue promises to put “You Above All” by bringing “humanity back to travel.” By contrast, Spirit Airlines gives you “Bare Fare” pricing: “Less Money. More Go.” Facebook helps you “connect and share with the people in your life,” whereas Twitter’s Vine app gives you “the best way to see and share life in motion” through “short, beautiful,

looping videos in a simple and fun way for your friends and family to see.”9

Such value propositions differentiate one brand from another. They answer the customer’s question: “Why should I buy your brand rather than a competitor’s?” Companies must design strong value propositions that give them the greatest advantage in their target markets.

Marketing Management orientations Marketing management wants to design strategies that will engage target customers and build profitable relationships with them. But what philosophy should guide these marketing strategies? What weight should be given to the interests of customers, the organization, and society? Very often, these interests conflict.

There are five alternative concepts under which organizations design and carry out their marketing strategies: the production, product, selling, marketing, and societal mar- keting concepts.

author comment Once a company fully understands its

consumers and the marketplace, it must decide which customers it will serve and

how it will bring them value.

Marketing management The art and science of choosing target markets and building profitable rela- tionships with them.

Value propositions: Vine gives you “the best way to see and share life in motion” through “short, beautiful, looping videos in a simple and fun way for your friends and family to see.” Twitter, Inc.

10 Part 1: Defining Marketing and the Marketing Process

the Production concept The production concept holds that consumers will favor products that are available and highly affordable. Therefore, management should focus on improving production and dis- tribution efficiency. This concept is one of the oldest orientations that guides sellers.

The production concept is still a useful philosophy in some situations. For example, both personal computer maker Lenovo and home appliance maker Haier dominate the highly competitive, price-sensitive Chinese market through low labor costs, high production efficiency, and mass distribution. However, although useful in some situations, the production concept can lead to marketing myopia. Companies adopting this orientation run a major risk of focusing too narrowly on their own operations and losing sight of the real objective—satisfying customer needs and build- ing customer relationships.

the Product concept The product concept holds that consumers will favor products that offer the most in qual- ity, performance, and innovative features. Under this concept, marketing strategy focuses on making continuous product improvements.

Product quality and improvement are important parts of most marketing strategies. However, focusing only on the company’s products can also lead to marketing myopia. For example, some manufacturers believe that if they can “build a better mousetrap, the world will beat a path to their doors.” But they are often rudely shocked. Buyers may be looking for a better solution to a mouse problem but not necessarily for a better mousetrap. The better solution might be a chemical spray, an exterminating service, a house cat, or something else that suits their needs even better than a mousetrap. Furthermore, a better mousetrap will not sell unless the manufacturer designs, packages, and prices it attrac- tively; places it in convenient distribution channels; brings it to the attention of people who need it; and convinces buyers that it is a better product.

the selling concept Many companies follow the selling concept, which holds that consumers will not buy enough of the firm’s products unless it undertakes a large-scale selling and promotion ef- fort. The selling concept is typically practiced with unsought goods—those that buyers do not normally think of buying, such as life insurance or blood donations. These industries must be good at tracking down prospects and selling them on a product’s benefits.

Such aggressive selling, however, carries high risks. It focuses on creating sales trans- actions rather than on building long-term, profitable customer relationships. The aim often is to sell what the company makes rather than to make what the market wants. It assumes that customers who are coaxed into buying the product will like it. Or, if they don’t like it, they will possibly forget their disappointment and buy it again later. These are usually poor assumptions.

the Marketing concept The marketing concept holds that achieving organizational goals depends on knowing the needs and wants of target markets and delivering the desired satisfactions better than competitors do. Under the marketing concept, customer focus and value are the paths to sales and profits. Instead of a product-centered make-and-sell philosophy, the marketing concept is a customer-centered sense-and-respond philosophy. The job is not to find the right customers for your product but to find the right products for your customers.

figure 1.3 contrasts the selling concept and the marketing concept. The selling con- cept takes an inside-out perspective. It starts with the factory, focuses on the company’s existing products, and calls for heavy selling and promotion to obtain profitable sales. It focuses primarily on customer conquest—getting short-term sales with little concern about who buys or why.

In contrast, the marketing concept takes an outside-in perspective. As Herb Kelleher, the colorful founder of Southwest Airlines, once put it, “We don’t have a marketing depart- ment; we have a customer department.” The marketing concept starts with a well-defined

Production concept The idea that consumers will favor products that are available and highly affordable; therefore, the organization should focus on improving production and distribution efficiency.

Product concept The idea that consumers will favor products that offer the most quality, performance, and features; therefore, the organization should devote its energy to making continuous product improvements.

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.

Marketing concept A philosophy in which achieving orga- nizational goals depends on knowing the needs and wants of target markets and delivering the desired satisfactions better than competitors do.

chapter 1: Marketing: creating customer Value and engagement 11

market, focuses on customer needs, and integrates all the marketing activities that affect customers. In turn, it yields profits by creating relationships with the right customers based on customer value and satisfaction.

Implementing the marketing concept often means more than simply responding to customers’ stated desires and obvious needs. Customer-driven companies research cus- tomers deeply to learn about their desires, gather new product ideas, and test product improvements. Such customer-driven marketing usually works well when a clear need exists and when customers know what they want.

In many cases, however, customers don’t know what they want or even what is possible. As Henry Ford once remarked, “If I’d asked people what they wanted, they would have said faster horses.”10 For example, even 20 years ago, how many consum- ers would have thought to ask for now-commonplace products such as tablet computers, smartphones, digital cameras, 24-hour online buying, digital video and music streaming, and GPS systems in their cars and phones? Such situations call for customer-driving marketing—understanding customer needs even better than customers themselves do and creating products and services that meet both existing and latent needs, now and in the future. As an executive at 3M put it, “Our goal is to lead customers where they want to go before they know where they want to go.”

the societal Marketing concept The societal marketing concept questions whether the pure marketing concept overlooks possible conflicts between consumer short-run wants and consumer long-run welfare. Is a firm that satisfies the immediate needs and wants of target markets always doing what’s best for its consumers in the long run? The societal marketing concept holds that market- ing strategy should deliver value to customers in a way that maintains or improves both the consumer’s and society’s well-being. It calls for 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.

Even more broadly, many leading business and marketing thinkers are now preaching the concept of shared value, which recognizes that societal needs, not just economic needs, define markets.11 The concept of shared value focuses on creating economic value in a way that also creates value for society. A growing number of companies known for their hard- nosed approaches to business—such as GE, Dow, Google, IBM, Intel, Johnson & Johnson, Nestlé, Unilever, and Walmart—are rethinking the interactions between society and corpo- rate performance. They are concerned not just with short-term economic gains but with the well-being of their customers, the depletion of natural resources vital to their businesses, the viability of key suppliers, and the economic well-being of the communities in which they operate.

One prominent marketer calls this Marketing 3.0. “Marketing 3.0 organizations are values-driven,” he says. “I’m not talking about being value-driven. I’m talking about ‘values’ plural, where values amount to caring about the state of the world.” Another marketer calls it purpose-driven marketing. “The future of profit is purpose,” he says.12

societal marketing concept The idea that a company’s marketing decisions should consider consumers’ wants, the company’s requirements, consumers’ long-run interests, and society’s long-run interests.

MeansStarting point

EndsFocus

The selling concept

Profits through customer

satisfaction Market Integratedmarketing

Customer needs

The marketing concept

Selling and

promoting Factory Profits throughsales volume

Existing products

The selling concept takes an inside-out view that focuses on existing products and heavy selling. The aim is to sell what the company makes rather than making what the customer wants.

The marketing concept takes an outside-in view that focuses on satisfying customer needs as a path to profits. As Southwest Airlines’ colorful founder puts it, “We don’t have a marketing department, we have a customer department.”

figure 1.3 selling and Marketing concepts contrasted

12 Part 1: Defining Marketing and the Marketing Process

As figure 1.4 shows, companies should balance three considerations in setting their mar- keting strategies: company profits, consumer wants, and society’s interests. British-based cosmetics retailer Lush operates this way:13

Lush is known for “Fresh Handmade Cosmet- ics”—premium beauty products made by hand from the freshest possible natural ingredients. It sells products with evocative names such as Flying Fox shower gel, Angels on Bareskin cleanser, and Honey I Washed the Kids soap. But Lush does much more than just make and sell body care products for profit. It also dedicates itself to doing right by customers, employees, the environment, and society. Its do- good mission is spelled out in a seven-point state- ment titled “A Lush Life: We Believe. . . . ” For exam- ple, the company believes in inventing and making its own products from fresh organic fruits and veg- etables using little or no preservatives or packaging. Lush has a strict policy against animal testing and supports fair-trade and community trade efforts. Each year, the company invests heavily in sustain- able initiatives and support of grassroots charities. Lush takes care of its employees—“We believe in happy people making happy soap . . . ” In fact, Lush seems to wish well to everyone, everywhere—“We believe in long candlelit baths, sharing showers, massage, filling the world with perfume, and the right to make mistakes, lose everything, and start

again.” Only in its final belief does Lush mention profits—“We believe our products are good value, that we should make a profit, and that the customer is always right.” Thanks to its societal mission, Lush is thriving like fresh flowers in springtime. It now operates stores in 50 countries, with e-commerce sites in 27 countries. Its sales have nearly doubled in just the past three years, suggesting that doing good can benefit both the planet and the company.

Preparing an integrated Marketing Plan and Program The company’s marketing strategy outlines which customers it will serve and how it will create value for these customers. Next, the marketer develops an integrated marketing program that will actually deliver the intended value to target customers. The marketing program builds cus- tomer relationships by transforming the marketing strategy into action. It consists of the firm’s marketing mix, the set of marketing tools the firm uses to implement its marketing strategy.

author comment The marketing strategy discussed

in the previous section outlines which customers the company will serve and

how. Now, the company develops marketing plans and programs—a marketing mix—

that will deliver the intended customer value.

the societal marketing concept: cosmetics retailer lush does more than just make and sell premium body care products for profit. it also dedicates itself to doing right by customers, employees, the environment, and society.

Societal marketing concept

Consumers (Want satisfaction)

Company (Profits)

Society (Human welfare) Cosmetics retailer Lush knows that doing

what’s right benefits both customers and the company. “We believe in happy people making happy soap,” says the company’s mission statement.

figure 1.4 three considerations Underlying the societal Marketing concept

Lush Fresh Handmade Cosmetics

chapter 1: Marketing: creating customer Value and engagement 13

The major marketing mix tools are classified into four broad groups, called the four  Ps of marketing: product, price, place, and promotion. To deliver on its value proposition, the firm must first create a need-satisfying market offering (product). It  must then decide how much it will charge for the offering (price) and how it will make the offering available to target consumers (place). Finally, it must engage target consumers, communicate about the offering, and persuade consumers of the offer’s merits (promotion). The firm must blend each marketing mix tool into a comprehensive integrated marketing program that communicates and delivers the intended value to chosen customers. We will explore marketing programs and the marketing mix in much more detail in later chapters.

engaging customers and Managing customer relationships The first three steps in the marketing process—understanding the marketplace and cus- tomer needs, designing a customer value-driven marketing strategy, and constructing a marketing program—all lead up to the fourth and most important step: engaging cus- tomers and managing profitable customer relationships. We first discuss the basics of customer relationship management. Then we examine how companies go about engaging customers on a deeper level in this age of digital and social marketing.

customer relationship Management Customer relationship management is perhaps the most important concept of modern mar- keting. In the broadest sense, customer relationship management is the overall process of building and maintaining profitable customer relationships by delivering superior customer value and satisfaction. It deals with all aspects of acquiring, engaging, and growing customers.

relationship building blocks: customer Value and satisfaction The key to building lasting customer relationships is to create superior customer value and satisfaction. Satisfied customers are more likely to be loyal customers and give the com- pany a larger share of their business.

customer Value. Attracting and retaining customers can be a difficult task. Customers of- ten face a bewildering array of products and services from which to choose. A customer buys from the firm that offers the highest customer-perceived value—the customer’s evaluation of the difference between all the benefits and all the costs of a market offering relative to those of competing offers. Importantly, customers often do not judge values and costs “accurately” or “objectively.” They act on perceived value.

To some consumers, value might mean sensible products at affordable prices. To other consumers, however, value might mean paying more to get more. For example,

customer relationship management The overall process of building and maintaining profitable customer relationships by delivering superior customer value and satisfaction.

customer-perceived value The customer’s evaluation of the dif- ference between all the benefits and all the costs of a market offering relative to those of competing offers.

linking the concePts Stop here for a moment and stretch your mind. What have you learned so far about marketing? Set aside the more formal definitions we’ve examined and try to develop your own understanding of marketing.

●● In your own words, what is marketing? Write down your definition. Does your definition include such key concepts as customer value, engagement, and relationships?

●● What does marketing mean to you? How does it affect your daily life? ●● What brand of athletic shoes did you purchase last? Describe your relationship with Nike, adidas,

New Balance, Asics, Reebok, Puma, Converse, or whatever brand of shoes you purchased.

author comment Doing a good job with the first

three steps in the marketing process sets the stage for step four, building

and managing customer relationships.

14 Part 1: Defining Marketing and the Marketing Process

what’s a cooler worth—one of those insulated containers you take camping or haul to a picnic or tailgate party? If it’s a YETI cooler, you can expect to pay from $229 to as much as $1,300 for the top-of-the-line Tundra model. However, despite their high prices and spare, boxy designs, YETI coolers have achieved an almost cult status among the field-and-stream set and on construction sites, ranches, and even military bases. The company’s slogan—“YETI Coolers—Wildly Stronger. Keeps Ice Longer!”—suggests the reasons why. Devoted us- ers will tell you that a YETI does keep things cooler—with a FatWall design (with twice the insulation of competitors) and an interlocking lid system with a gasket that keeps the cold in. And rugged YETI coolers are made to last—no more busted hinges, failed latches, or caved-in lids. They’re even certi- fied as grizzly bear resistant by the Interagency Grizzly Bear Committee. One reporter describes a YETI as “a cooler fit for the apocalypse,” and the company claims it’s “The cooler you’ve always wanted. The last cooler you’ll ever need.” So, is a YETI cooler worth the premium price compared with less expensive coolers made by Igloo or Rubbermaid? To many consumers, the answer is no. But to YETI’s target buyers, the answer is a resounding yes.14

customer satisfaction. Customer satisfaction depends on the product’s perceived per- formance relative to a buyer’s expectations. If the product’s performance falls short of expectations, the customer is dissatisfied. If performance matches expectations, the cus- tomer is satisfied. If performance exceeds expectations, the customer is highly satisfied or

delighted. Outstanding marketing companies go out of their way to keep important cus-

tomers satisfied. Most studies show that higher levels of customer satisfaction lead to greater customer loyalty, which in turn results in better company performance. Companies aim to delight customers by promising only what they can deliver and then delivering more than they promise. Delighted customers not only make repeat purchases but also become willing marketing partners and “customer evangelists” who spread the word about their good experiences to others.

For companies interested in delighting customers, exceptional value and service become part of the overall company culture. For example, year after year, Ritz- Carlton ranks at or near the top of the hospitality industry in terms of customer satis- faction. Its passion for satisfying customers is summed up in the company’s credo, which promises that its luxury hotels will deliver a truly memorable experience—one that “enlivens the senses, instills well-being, and fulfills even the unexpressed wishes and needs of our guests.”15

Check into any Ritz-Carlton hotel around the world, and you’ll be amazed by the compa- ny’s fervent dedication to anticipating even your slightest need. Without ever asking, they seem to know that you’re allergic to peanuts and want a king-size bed, a hypoallergenic pillow, extra body gel, the blinds open when you arrive, and breakfast with decaffeinated coffee in your room. Each day, hotel staffers—from those at the front desk to those in maintenance and housekeeping—discreetly observe and record even the smallest guest preferences. Then, every morning, each hotel reviews the files of all new arrivals who have previously stayed at a Ritz-Carlton and prepares a list of suggested extra touches that might delight each guest. For example, according to one Ritz-Carlton manager, if the chain gets hold of a picture of a guest’s pet, it will make a copy, have it framed, and display it in the guest’s room in whatever Ritz-Carlton the guest visits.

Once they identify a special customer need, Ritz-Carlton employees go to legendary extremes to meet it. For instance, to serve the needs of a guest whose son had food allergies, a Ritz-Carlton chef in Bali located special eggs and milk in a small grocery store in another country and had them delivered to the hotel. In another case, when a businessman attending

customer satisfaction The extent to which a product’s perceived performance matches a buyer’s expectations.

Perceived value: is a yeti cooler worth its premium price? to devoted yeti users, the answer is a resounding “yes.” the “Wildly stronger. keep ice longer!” coolers are even certified as grizzly bear proof by the interagency grizzly bear committee. Courtesy YETI Coolers and the Interagency Grizzly Bear Committee (IGBC)

creating customer satisfaction: ritz-carlton hotels deliver a truly memorable experience, one that “enlivens the senses, instills well-being, and fulfills even the unexpressed wishes and needs of our guests.” Toronto Star via Getty Images

chapter 1: Marketing: creating customer Value and engagement 15

a conference at the Ritz-Carlton Orlando ordered his favorite soda during a dinner in a hotel ballroom, his banquet server told him that the hotel didn’t serve that beverage but he would see what he could do. To no one’s surprise, the server quickly returned with the requested bever- age, and for the rest of the week he had the drink waiting for the guest. But here’s the best part. A year later when the guest returned for the conference, as he sat in the ballroom waiting for dinner the first night, the same server walked up with his favorite drink in hand. As a result of such customer service heroics, an amazing 95 percent of departing guests report that their stay has been a truly memorable experience. More than 90 percent of Ritz-Carlton’s delighted customers return.

Other companies that have become legendary for customer delight and their service heroics include Zappos.com, Amazon.com, Chick-Fil-A, Nordstrom department stores, and JetBlue Airways (see Marketing at Work 1.1). However, a company doesn’t need to

There’s an old adage in the airline industry: “You’re not flying planes, you’re flying people.” These days, however, it seems that many big airlines overlook the people factor. Instead, they focus on moving their human cargo as efficiently as possible while charging as much as the traffic will bear. The American Customer Satisfaction Index rates the airline industry near the bottom among 47 industries in customer satisfaction, barely ahead of perennial cellar-dwellers subscription TV and Internet service providers.

Not so at JetBlue Airways. From the very beginning, young JetBlue (little more than 15 years old) has built a reputa- tion for creating first-rate, customer-satisfying experiences. Its slogan—“YOU ABOVE ALL”—tells the JetBlue faithful that they are at the very heart of the company’s strategy and culture. JetBlue is on a heartfelt mission to bring humanity back to air travel.

At JetBlue, customer care starts with basic amenities that exceed customer expectations, especially for a low-cost car- rier. JetBlue’s well-padded, leather-covered coach seats al- low three inches more legroom than the average airline seat. Although the airline doesn’t serve meals, it offers the best selection of free beverages and snacks to be found at 30,000 feet (including unexpected treats such as Terra Blues chips, Linden’s chocolate chip cookies, and Dunkin’ Donuts coffee). Every JetBlue seat has its own LCD entertainment system, complete with free 36-channel DirecTV and 100-plus chan- nels of SiriusXM Radio. JetBlue rounds out the amenities with a recently launched industry first—Fly-Fi, an in-flight high-speed Internet service with free basic browsing on all equipped planes.

JetBlue continuously innovates to find new ways to delight customers. Its “Even More Space” seats give customers the option of going from “roomy to roomier,” allow early board- ing, and give early access to overhead bins. Its “Even More Speed” service provides VIP passage through airport security

screening. And JetBlue’s Mint service puts a new spin on first-class air travel, offering front-of-the-plane, lie-flat “sweet seats,” some of them in enclosed suites with their own doors. According to JetBlue, Mint services deliver “unexpected,

Marketing at Work 1.1

jetblue: Delighting customers and bringing humanity back to air travel

creating customer satisfaction: jetblue creates first-rate, customer-satisfying experiences. its slogan—“jetblue: yoU aboVe all”—tells customers that they are at the very heart of jetblue’s strategy and culture. JetBlue

16 Part 1: Defining Marketing and the Marketing Process

individualized ‘mo-mints’ that revive and engage, keeping you in mint condition during your travels.”

Such tangibles help keep JetBlue travelers satisfied. But former JetBlue CEO David Barger knows that the tangibles are only a small part of what really makes JetBlue special. “The hard product—airplanes, leather seats, satellite TVs—as long as you have a checkbook, . . . can be replicated,” says Barger. “It’s the JetBlue culture that can’t be replicated. The human side of the equation is the most important part of what we’re doing.” It’s that JetBlue culture—the near-obsessive focus on the customer flying experience—that creates not just satisfied JetBlue customers but delighted ones.

At JetBlue, developing a customer-centered corporate cul- ture starts with hiring quality people whose personal values match JetBlue’s values—from work-at-home part-time call center reservationists to baggage handlers to flight atten- dants and even pilots. By the time JetBlue employees are on board and trained, they not only know the company’s core values—safety, integrity, caring, passion, and fun—they live them. It’s those heartfelt values that result in outstanding cus- tomer experiences. And the outstanding customer experiences make JetBlue’s customers the most satisfied and loyal in the industry.

Whereas passengers on most competing airlines regard fly- ing as an experience just to be tolerated, many JetBlue custom- ers actually look forward to flying. And customers themselves spread the good word about JetBlue with evangelistic zeal. Recently crowned a “social media all-star” by Fortune maga- zine, JetBlue has been a leader in using a full range of social media to engage customers and get them talking with each other about the brand. And whereas other airlines are just now discovering the power of customer dialogue, throughout its his- tory, in ads and promotions, JetBlue has often let its customers do the talking.

For example, its “Experience JetBlue” Web site features authentic testimonials from some of the airline’s most devoted fans, who were found through Twitter and Facebook. The cus- tomers give glowing first-person accounts about why they like flying JetBlue. “It’s like an open bar for snacks,” says one cus- tomer. “They’re constantly walking around offering it, so I’m never thirsty or hungry.” Another JetBlue fan, a 6’3” woman from Portland, Oregon, likes the seating: “I can stretch and sit crosslegged—no black-and-blue knees,” she says. “The cus- tomer service is above and beyond,” declares a third customer, a small business owner from Boston. “[Coach on] JetBlue is very similar to flying first class.”

In a former advertising campaign called “Sincerely, JetBlue,” actual customers gave voice to even deeper JetBlue experiences. In one ad, for example, customer Melissa con- fided, “Let me tell you, I wanted not to like you, if only be- cause everyone seems to love you. I got on a flight with a pen and paper, waiting to take down every irritating detail.” But, she continued, “two flights later, I was staring at the same blank piece of paper. You’ve done nothing wrong and every- thing more than right, if that’s possible.” After detailing all the right things the airline does, she mock-lamented, “JetBlue,

I wanted not to like you but it can’t be done—at all. Sincerely, Melissa, Portland, Oregon.”

In other Sincerely, JetBlue ads, customers recounted spe- cific service heroics by dedicated JetBlue employees. For ex- ample, customer Ann recounted how, when her JetBlue flight was delayed by a snowstorm, the airline eased the long wait by providing pizza and even a live band. “My [three-year-old] son was dancing. I was dancing,” she remembers. “It made a horrible experience really nice.” And the Steins from Darien, Connecticut, told how they arrived late at night for a family va- cation in Florida with their three very tired small children only to learn that their hotel wouldn’t take them in. “Out of nowhere we heard a voice from behind us, go ahead, take my room,” the Steins recalled. “A superhero in a JetBlue pilot’s uniform, who sacrificed his room graciously, saved our night. And we slept like babies. Thank you, JetBlue.”

Delighting customers has been good for JetBlue. Last year, the airline reported record revenues of $5.8 billion, up 75 per- cent in just the past five years, with profits soaring more than sixfold. Even during recent hard economic times, as many competing airlines were cutting routes, retiring aircraft, laying off employees, and losing money, JetBlue was adding planes, expanding into new cities, hiring thousands of new employees, and turning profits.

Perhaps even more important to future success, customers continue to adore their JetBlue. For nine straight years, the customer-centered company has topped the J. D. Power and Associates customer satisfaction rankings among major U.S. airlines. For the past five years, JetBlue has flip-flopped with fellow customer-service champ Southwest Airlines for the air- line industry’s highest customer loyalty scores in the respected Satmetrix Net Promoter rankings. Every year, more than 60 percent of customers have rated JetBlue 9 or 10 on a 0-to-10- point scale indicating the likelihood that they would recom- mend JetBlue to others.

So, JetBlue really means it when it tells customers YOU ABOVE ALL. “Above all else,” says JetBlue’s Customer Bill of Rights, “JetBlue Airways is dedicated to bringing humanity back to air travel. We strive to make every part of your experi- ence as simple and as pleasant as possible.” Adds JetBlue’s senior VP of marketing: “[YOU ABOVE ALL] gets us back to our DNA, to our original mission.”

Sources: “Industry Sector Reports: Airlines,” Satmetrix, www.satmetrix .com/expertise/benchmarks-by-industry/travel-and-hospitality/, accessed June 2015; Iris Mansour, “Best in Customer Service,” Fortune, August 29, 2013, http://money.cnn.com/gallery/technology/2013/08/29/social-media-all-stars .fortune/2.html; March Gunther, “Nothing Blue about JetBlue,” Fortune, September 3, 2009, http://archive.fortune.com/2009/09/03/news/companies/ jetblue_airways_airline.fortune/index.htm; Kevin Randall, “Red, Hot, and Blue: The Hottest American Brand Is Not Apple,” Fast Company, June 3, 2010, www.fastcompany.com/1656066/red-hot-and-blue-hottest-american-brand- not-apple; Rupal Parekh, “The Newest Marketing Buzzword? Human,” Advertising Age, September 20, 2013, http://adage.com/print/244261/; “The American Customer Satisfaction Index: Benchmarks by Industry,” www .theacsi.org/customer-satisfaction-benchmarks/benchmarks-by-industry, accessed September 2015; and http://experience.jetblue.com/, investor.jetblue .com; and www.jetblue.com/about/, accessed September 2015.

chapter 1: Marketing: creating customer Value and engagement 17

have over-the-top service to create customer delight. For example, no-frills grocery chain ALDI has highly satisfied customers, even though they have to bag their own groceries and can’t use credit cards. ALDI’s everyday very low pricing on good-quality products delights customers and keeps them coming back. Thus, customer satisfaction comes not just from service heroics but from how well a company delivers on its basic value proposition and helps customers solve their buying problems. “Most customers don’t want to be ‘wowed,’” says one marketing consultant. “They [just] want an effortless experience.”16

Although a customer-centered firm seeks to deliver high customer satisfaction rela- tive to competitors, it does not attempt to maximize customer satisfaction. A company can always increase customer satisfaction by lowering its prices or increasing its ser- vices. But this may result in lower profits. Thus, the purpose of marketing is to generate customer value profitably. This requires a very delicate balance: The marketer must con- tinue to generate more customer value and satisfaction but not “give away the house.”

customer relationship levels and tools Companies can build customer relationships at many levels, depending on the nature of the target market. At one extreme, a company with many low-margin customers may seek to develop basic relationships with them. For example, Procter & Gamble’s Tide detergent does not phone or call on all of its consumers to get to know them personally. Instead, Tide creates engagement and relationships through brand-building advertising, Web sites, and social media presence. At the other extreme, in markets with few custom- ers and high margins, sellers want to create full partnerships with key customers. For example, P&G sales representatives work closely with Walmart, Kroger, and other large retailers that sell Tide. In between these two extremes, other levels of customer relation- ships are appropriate.

Beyond offering consistently high value and satisfaction, marketers can use specific marketing tools to develop stronger bonds with customers. For example, many companies offer frequency marketing programs that reward customers who buy frequently or in large amounts. Airlines offer frequent-flier programs, hotels give room upgrades to frequent guests, and supermarkets give patronage discounts to “very important customers.” These days almost every brand has a loyalty rewards program. However, some innovative loyalty programs go a step beyond the usual. Consider Walgreens:17

Members of Walgreens’ Balance Rewards program earn points for in-store or online product purchases, redeemable for purchases in Walgreens stores or online. And members receive surprise offers and giveaways, every- thing from free movie passes to gift cards. But in line with the chain’s mission “to keep our community happy and healthy,” the unique Walgreens Balance Rewards program goes beyond just points for purchases. It also in- cludes programs that reward customers for taking steps toward a happy, healthy, well-bal- anced life. The program has included giving members points for every mile they walk or run, every daily weigh-in as they track their weight, and every prescription and immuni- zation. Walgreens even provides online and mobile tools that help members set healthy goals and track their progress, celebrating their achievements with milestone badges. Thus, the Walgreens Balance Rewards pro- gram builds stronger customer relationships and helps the brand by helping customers, be- fitting the chain’s slogan: “Walgreens: At the corner of happy & healthy.”

relationship marketing tools: the innovative Walgreens balance rewards program builds stronger customer relationships and helps the brand by helping customers, befitting the chain’s slogan: “Walgreens: at the corner of happy & healthy.” Used with permission of Walgreen Co. Walgreens Balance® Rewards and “At the corner of healthy and happy®” are registered trademarks of Walgreen Co.

18 Part 1: Defining Marketing and the Marketing Process

Other companies sponsor club marketing programs that offer members special benefits and create member communities. For example, Apple encourages customers to form local Apple user groups. More than 800 registered Apple user groups worldwide offer monthly meetings, a newsletter, advice on technical issues, training classes, product discounts, and a forum for swapping ideas and stories with like-minded Apple fans. Similarly, buy a Weber grill and you can join the Weber Nation—“the site for real people who love their Weber grills.” Membership gets you exclusive access to online grilling classes, an interactive recipe box, grilling tips and 24/7 telephone support, audio and video podcasts, straight-talk forums for interacting with other grilling fanatics, and even a chance to star in a Weber TV commer- cial. “Become a spatula-carrying member today,” says Weber.18

engaging customers Significant changes are occurring in the nature of customer–brand relationships. Today’s digital technologies—the Internet and the surge in online, mobile, and social media—have profoundly changed the ways that people on the planet relate to one another. In turn, these events have had a huge impact on how companies and brands connect with customers, and how customers connect with and influence each other’s brand behaviors.

customer engagement and today’s Digital and social Media The digital age has spawned a dazzling set of new customer relationship-building tools, from Web sites, online ads and videos, mobile ads and apps, and blogs to online communities and the major social media, such as Twitter, Facebook, YouTube, Instagram, and Pinterest.

Yesterday’s companies focused mostly on mass marketing to broad segments of cus- tomers at arm’s length. By contrast, today’s companies are using online, mobile, and social media to refine their targeting and to engage customers more deeply and interactively. The old marketing involved marketing brands to consumers. The new marketing is customer- engagement marketing—fostering direct and continuous customer involvement in shap- ing brand conversations, brand experiences, and brand community. Customer-engagement marketing goes beyond just selling a brand to consumers. Its goal is to make the brand a meaningful part of consumers’ conversations and lives.

The burgeoning Internet and social media have given a huge boost to customer- engagement marketing. Today’s consumers are better informed, more connected, and more empowered than ever before. Newly empowered consumers have more informa- tion about brands, and they have a wealth of digital platforms for airing and sharing their brand views with others. Thus, marketers are now embracing not only customer relationship management but also customer-managed relationships, in which customers connect with companies and with each other to help forge their own brand experiences.

Greater consumer empowerment means that companies can no longer rely on market- ing by intrusion. Instead, they must practice marketing by attraction—creating market offerings and messages that engage consumers rather than interrupt them. Hence, most mar- keters now combine their mass-media marketing efforts with a rich mix of online, mobile, and social media marketing that promotes brand–consumer engagement and conversation.

For example, companies post their latest ads and videos on social media sites, hop- ing they’ll go viral. They maintain an extensive presence on Twitter, YouTube, Facebook, Google+, Pinterest, Instagram, Vine, and other social media to create brand buzz. They launch their own blogs, mobile apps, online microsites, and consumer-generated review systems, all with the aim of engaging customers on a more personal, interactive level.

Take Twitter, for example. Organizations ranging from Dell, JetBlue, and Dunkin’ Donuts to the Chicago Bulls, NASCAR, and the Los Angeles Fire Department have cre- ated Twitter pages and promotions. They use “Tweets” to start conversations with and between Twitter’s more than 288 million active users, address customer service issues, re- search customer reactions, and drive traffic to relevant articles, Web and mobile marketing sites, contests, videos, and other brand activities.

Similarly, almost every company has something going on Facebook these days. Starbucks has more than 38 million Facebook “fans”; Coca-Cola has more than 94 million.

customer-engagement marketing Making the brand a meaningful part of consumers’ conversations and lives by fostering direct and continuous customer involvement in shaping brand conversations, experiences, and community.

chapter 1: Marketing: creating customer Value and engagement 19

And every major marketer has a YouTube channel where the brand and its fans post cur- rent ads and other entertaining or informative videos. Instagram, LinkedIn, Pinterest, Snapchat, Vine—all have exploded onto the marketing scene, giving brands more ways to engage and interact with customers. Skilled use of social media can get consumers in- volved with and talking about a brand.

The key to engagement marketing is to find ways to enter consumers’ conversations with engaging and relevant brand messages. Simply posting a humorous video, creating a social media page, or hosting a blog isn’t enough. Successful engagement marketing means making relevant and genuine contributions to consumers’ lives and interactions.

Consider T-shirt and apparel maker Life is good:19

For starters, Life is good has an authentic, engagement-worthy sense of purpose: spreading the power of optimism. The brand is about helping people to open up, create relationships, and connect with other people. The company’s infectious philosophy is best represented by the “Life is good” slogan itself and by Jake—the familiar beret-wearing, happy-go-lucky stick figure who quickly became a pop-culture icon. Life is good backs its optimism phi- losophy with good deeds, donating 10 percent of its net profits each year to help kids in need.

Online and social media have become a perfect fit for shar- ing the Life is good message. Today, the brand fosters a thriving community of Optimists, with more than 2.5 million Facebook fans, 290,000 Twitter followers, 15,300 followers on Instagram, and an active YouTube channel. But the strongest engagement platform is the brand’s own Web site, Lifeisgood.com, one of the most active customer- engagement sites found anywhere online. The site’s “Live It” section gives brand fans a breath of “fresh share.” It’s a place where they share photos, videos, and stories showing the brand’s role in their trials, triumphs, and optimism. To Life is good, true engagement is about deep meaningful re- lationships that go beyond the products it is selling. Says Life is good CEO Bert Jacobs: “You can’t build a brand on your own; we have entered a world where customers co-author your story.”

consumer-generated Marketing A growing form of customer-engagement marketing is consumer-generated marketing, by which consumers themselves are playing a bigger role in shaping their own brand expe- riences and those of others. This might happen through uninvited consumer-to-consumer exchanges in blogs, video-sharing sites, social media, and other digital forums. But in- creasingly, companies themselves are inviting consumers to play a more active role in shaping products and brand content.

Some companies ask consumers for new product and service ideas. For example, at its My Starbucks Idea site, Starbucks collects ideas from customers on new products, store changes, and just about anything else that might make their Starbucks experience better. “You know better than anyone else what you want from Starbucks,” says the company at the Web site. “So tell us. What’s your Starbucks idea? Revolutionary or simple—we want to hear it.” The site invites customers to share their ideas, vote on and discuss the ideas of others, and see which ideas Starbucks has implemented.20

Other companies invite customers to play an active role in shaping ads. For exam- ple, for the past nine years, PepsiCo’s Doritos brand has held a “Crash the Super Bowl” contest in which it invites 30-second ads from consumers and runs the best ones during the game. The consumer-generated ads have been a huge success. Last year, Doritos opened up the contest to people in all 46 countries where Doritos are sold. From more than 4,900 entries, Doritos aired two fan-produced ads during the Super Bowl. Past campaigns have produced numerous top-place finishers in USA Today’s AdMeter rank- ings, earning their creators $1 million in cash prizes from PepsiCo’s Frito-Lay division. In the recent campaign, the prizes were instead awarded based on fan votes at Doritos.

consumer-generated marketing Brand exchanges created by consumers themselves—both invited and uninvited—by which consumers are playing an increasing role in shap- ing their own brand experiences and those of other consumers.

engaging customers: life is good starts with a deeply felt, engagement-worthy sense of purpose: spreading the power of optimism. then it creates online and social media tools that let people engage and help co-author the brand’s story. © WWPhotography/Alamy Stock Photo

20 Part 1: Defining Marketing and the Marketing Process

com. 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—earned its amateur creators the $1 million plus a “dream job” working at Universal Studios. The homemade commercial cost $2,000 to make and took just four hours to shoot.21

Despite the successes, however, harnessing consumer-generated content can be a time- consuming and costly process, and companies may find it difficult to glean even a little gold from all the garbage. Moreover, because consumers have so much control over social media content, inviting their input can sometimes backfire. For example, McDonald’s famously launched a Twitter campaign using the hashtag #McDStories, hoping that it would inspire heartwarming stories about Happy Meals. Instead, the effort was hijacked by Twitter users, who turned the hashtag into a “bashtag” by posting less-than-appetizing messages about their bad experiences with the fast-food chain. McDonald’s pulled the campaign within only two hours, but the hashtag was still churning weeks, even months later.22

As consumers become more connected and empowered, and as the boom in digital and social media technologies continues, consumer brand engagement—whether invited by marketers or not—will be an increasingly important marketing force. Through a profu- sion of consumer-generated videos, shared reviews, blogs, mobile apps, and Web sites, consumers are playing a growing role in shaping their own and other consumers’ brand experiences. Engaged consumers are now having a say in everything from product design, usage, and packaging to brand messaging, pricing, and distribution. Brands must embrace this new consumer empowerment and master the new digital and social media relationship tools or risk being left behind.

Partner relationship Management When it comes to creating customer value and building strong customer relationships, today’s marketers know that they can’t go it alone. They must work closely with a variety of marketing partners. In addition to being good at customer relationship management, marketers must also be good at partner relationship management—working closely with others inside and outside the company to jointly engage and bring more value to customers.

Traditionally, marketers have been charged with understanding customers and rep- resenting customer needs to different company departments. However, in today’s more connected world, every functional area in the organization can interact with customers. The new thinking is that—no matter what your job is in a company—you must understand marketing and be customer focused. Rather than letting each department go its own way, firms must link all departments in the cause of creating customer value.

Marketers must also partner with suppliers, channel partners, and others outside the company. Marketing channels consist of distributors, retailers, and others who connect the company to its buyers. The supply chain describes a longer channel, stretching from raw materials to components to final products that are carried to final buyers. Through supply chain management, companies today are strengthening their connections with partners all along the supply chain. They know that their fortunes rest on more than just how well they perform. Success at delivering customer value rests on how well their entire supply chain performs against competitors’ supply chains.

capturing Value from customers The first four steps in the marketing process outlined in Figure 1.1 involve engaging cus- tomers and building customer relationships by creating and delivering superior customer value. The final step involves capturing value in return in the form of sales, market share, and profits. By creating superior customer value, the firm creates highly satisfied custom- ers who stay loyal and buy more. This, in turn, means greater long-run returns for the firm. Here, we discuss the outcomes of creating customer value: customer loyalty and retention, share of market and share of customer, and customer equity.

Partner relationship management Working closely with partners in other company departments and outside the company to jointly bring greater value to customers.

author comment Look back at Figure 1.1. In the first four

steps of the marketing process, the company creates value for target customers and builds strong relationships with them. If it does that well, it can capture value from customers in return, in the form of loyal customers who

buy and continue to buy the company’s brands.

chapter 1: Marketing: creating customer Value and engagement 21

creating customer loyalty and retention Good customer relationship management creates customer satisfaction. In turn, satisfied customers remain loyal and talk favorably to others about the company and its products. Studies show big differences in the loyalty of customers who are less satisfied, somewhat satisfied, and completely satisfied. Even a slight drop from complete satisfaction can create an enormous drop in loyalty. Thus, the aim of cus- tomer relationship management is to create not only customer satisfaction but also customer delight.

Keeping customers loyal makes good economic sense. Loyal customers spend more and stay around longer. Research also shows that it’s five times cheaper to keep an old customer than acquire a new one. Conversely, customer defections can be costly. Losing a customer means losing more than a single sale. It means losing the entire stream of purchases that the customer would make over a lifetime of patronage. For example, here is a classic illustration of customer lifetime value:23

Stew Leonard, who operates a highly profitable four-store su- permarket in Connecticut and New York, once said that he sees $50,000 flying out of his store every time he sees a sulking cus- tomer. Why? Because his average customer spends about $100 a week, shops 50 weeks a year, and remains in the area for about 10 years. If this customer has an unhappy experience and switches to another supermarket, Stew Leonard’s has lost $50,000 in lifetime revenue. The loss can be much greater if the disappointed cus- tomer shares the bad experience with other customers and causes them to defect.

To keep customers coming back, Stew Leonard’s has cre- ated what has been called the “Disneyland of Dairy Stores,” complete with costumed characters, scheduled entertainment, a petting zoo, and animatronics throughout the store. From its humble beginnings as a small dairy store in 1969, Stew Leon- ard’s has grown at an amazing pace. It’s built 30 additions onto the original store, which now serves more than 300,000 custom- ers each week. This legion of loyal shoppers is largely a result of the store’s passionate approach to customer service. “Rule #1: The customer is always right. Rule #2: If the customer is ever wrong, reread rule #1.”

Stew Leonard is not alone in assessing customer lifetime value. Lexus, for example, estimates that a single satisfied and loyal customer is worth more than $600,000 in lifetime sales, and the estimated lifetime value of a Starbucks cus- tomer is more than $14,000.24 In fact, a company can lose money on a specific transaction but still benefit greatly from a long-term relationship. This means that companies must aim high in building customer relationships. Customer delight creates an emotional rela- tionship with a brand, not just a rational preference. And that relationship keeps customers coming back.

growing share of customer Beyond simply retaining good customers to capture customer lifetime value, good cus- tomer relationship management can help marketers increase their share of customer—the share they get of the customer’s purchasing in their product categories. Thus, banks want to increase “share of wallet.” Supermarkets and restaurants want to get more “share of stomach.” Car companies want to increase “share of garage,” and airlines want greater “share of travel.”

To increase share of customer, firms can offer greater variety to current custom- ers. Or they can create programs to cross-sell and up-sell to market more products and services to existing customers. For example, Amazon is highly skilled at leveraging

customer lifetime value The value of the entire stream of purchases a customer makes over a lifetime of patronage.

share of customer The portion of the customer’s purchas- ing that a company gets in its product categories.

customer lifetime value: to keep customers coming back, stew leonard’s has created the “Disneyland of dairy stores.” rule #1—the customer is always right. rule #2—if the customer is ever wrong, reread rule #1. Courtesy of Stew Leonard’s

22 Part 1: Defining Marketing and the Marketing Process

relationships with its 244 million customers to increase its share of each customer’s spending budget:25

Once they log onto Amazon.com, customers often buy more than they intend, and Amazon does all it can to help make that happen. The online giant continues to broaden its merchandise assort- ment, creating an ideal spot for one-stop shopping. And based on each customer’s purchase and search history, the company recommends related products that might be of interest. This recom- mendation system influences perhaps a third of all sales. Amazon’s ingenious Amazon Prime two-day shipping program has also helped boost its share of customers’ wallets. For an annual fee of $99, Prime members receive delivery of all their purchases within two days, whether it’s a single paperback book or a 60-inch HDTV. According to one analyst, the ingenious Amazon Prime program “converts casual shoppers, who gorge on the gratification of having purchases reliably appear two days after the order, into Amazon addicts.” As a result, Amazon’s 40 million Prime customers now account for more than half of its U.S. sales. On average, a Prime customer spends 2.4 times more a non-Prime customer.

building customer equity We can now see the importance of not only acquiring customers but also keeping and growing them. The value of a company comes from the value of its current and future customers. Customer relationship management takes a long-term view. Companies want to not only create profitable customers but also “own” them for life, earn a greater share of their purchases, and capture their customer lifetime value.

What is customer equity? The ultimate aim of customer relationship management is to produce high customer equity.26 Customer equity is the total combined customer lifetime values of all of the company’s current and potential customers. As such, it’s a measure of the future value of the company’s customer base. Clearly, the more loyal the firm’s profitable customers, the higher its customer equity. Customer equity may be a better measure of a firm’s perfor- mance than current sales or market share. Whereas sales and market share reflect the past, customer equity suggests the future. Consider Cadillac:27

In the 1970s and 1980s, Cadillac had some of the most loyal customers in the indus- try. To an entire generation of car buyers, the name Cadillac defined “The Standard of the World.” Cadillac’s share of the luxury car market reached a whopping 51 percent in 1976, and based on market share and sales, the brand’s future looked rosy. However,

measures of customer equity would have painted a bleaker picture. Cadillac customers were getting older (average age 60), and average customer lifetime value was falling. Many Cadillac buyers were on their last cars. Thus, although Cadil- lac’s market share was good, its customer equity was not.

Compare this with BMW. Its more youthful and vigorous image didn’t win BMW the early market share war. However, it did win BMW younger customers (average age about 40) with higher customer lifetime values. The result: In the years that fol- lowed, BMW’s market share and profits soared while Cadillac’s fortunes eroded badly. BMW overtook Cadillac in the 1980s. In recent years, Cadillac has struggled to make the Caddy cool again with edgier, high-performance designs that target a younger gen- eration of consumers. More recently, the brand has billed itself as “The New Standard of the World” with marketing pitches based on “power, performance, and design,” attributes that position it more effectively against the likes of BMW and Audi. Recent ads invite consumers to “Dare Greatly” and “Drive the world for- ward.” However, for the past decade, Cadillac’s share of the lux- ury car market has stagnated. The moral: Marketers should care not just about current sales and market share. Customer lifetime value and customer equity are the name of the game.

customer equity The total combined customer lifetime values of all of the company’s current and potential customers.

Managing customer equity: to increase customer equity, cadillac is making the classic car cool again among younger buyers, encouraging consumers to “Dare greatly.” General Motors

chapter 1: Marketing: creating customer Value and engagement 23

building the right relationships with the right customers Companies should manage customer equity carefully. They should view customers as assets that need to be managed and maximized. But not all customers, not even all loyal customers, are good investments. Surprisingly, some loyal customers can be unprofitable, and some disloyal customers can be profitable. Which customers should the company ac- quire and retain?

The company can classify customers according to their poten- tial profitability and  manage its relationships with them accord- ingly. figure 1.5 classifies customers into one of four relationship groups, according to their profitability and projected loyalty.28 Each group requires a different relationship management strategy. Strangers show low potential profitability and little projected loy- alty. There is little fit between the company’s offerings and their needs. The relationship management strategy for these customers is simple: Don’t invest anything in them; make money on every transaction.

Butterflies are potentially profitable but not loyal. There is a good fit between the company’s offerings and their needs. However, like real butterflies, we can enjoy them for only a short while and then they’re gone. An example is stock market inves- tors who trade shares often and in large amounts but who enjoy hunting out the best deals without building a regular relationship

with any single brokerage company. Efforts to convert butterflies into loyal custom- ers are rarely successful. Instead, the company should enjoy the butterflies for the moment. It should create satisfying and profitable transactions with them, capturing as much of  their business as possible in the short time during which they buy from the company. Then it should move on and cease investing in them until the next time around.

True friends are both profitable and loyal. There is a strong fit between their needs and the company’s offerings. The firm wants to make continuous relationship investments to delight these customers and nurture, retain, and grow them. It wants to turn true friends into true believers, who come back regularly and tell others about their good experiences with the company.

Barnacles are highly loyal but not very profitable. There is a limited fit between their needs and the company’s offerings. An example is smaller bank customers who bank regularly but do not generate enough returns to cover the costs of maintaining their ac- counts. Like barnacles on the hull of a ship, they create drag. Barnacles are perhaps the most problematic customers. The company might be able to improve their profitability by selling them more, raising their fees, or reducing service to them. However, if they cannot be made profitable, they should be “fired.”

The point here is an important one: Different types of customers require different en- gagement and relationship management strategies. The goal is to build the right relation- ships with the right customers.

P ot

en tia

l p ro

fit ab

ili ty

Projected loyalty

High

Low

Short-term Long-term

h

w

Short-term Long-term

Butterflies

Strangers Barnacles

True friends

figure 1.5 customer relationship groups

linking the concePts We’ve covered a lot of ground. Again, pause for a moment and develop your own thoughts about marketing.

●● In your own words, what is marketing and what does it seek to accomplish? ●● How well does JetBlue manage its relationships with customers? What customer relation-

ship management strategy does it use? What relationship management strategy does Walmart use?

●● Think of a company for which you are a “true friend.” What strategy does this company use to manage its relationship with you?

24 Part 1: Defining Marketing and the Marketing Process

the changing Marketing landscape Every day, dramatic changes are occurring in the marketplace. Richard Love of HP observed, “The pace of change is so rapid that the ability to change has now become a competitive advantage.” Yogi Berra, the legendary New York Yankees catcher and man- ager, summed it up more simply when he said, “The future ain’t what it used to be.” As the marketplace changes, so must those who serve it.

In this section, we examine the major trends and forces that are changing the marketing landscape and challenging marketing strategy. We look at five major develop- ments: the digital age, the changing economic environment, the growth of not-for-profit marketing, rapid globalization, and the call for sustainable marketing practices.

the Digital age: online, Mobile, and social Media Marketing The explosive growth in digital technology has fundamentally changed the way we live— how we communicate, share information, access entertainment, and shop. More than 3 billion people—42 percent of the world’s population—are now online; 58 percent of all American adults own smartphones. These numbers will only grow as digital technology rockets into the future.29

Most consumers are totally smitten with all things digital. For example, accord- ing to one study, 44 percent of Americans keep their mobile phone next to them when they sleep—they say it’s the first thing they touch when they get up in the morning and the last thing they touch at night. In just the past few years, people in the United States averaged more time per day with digital media (5.25 hours) than viewing traditional TV (4.5 hours).30

The consumer love affair with digital and mobile technology makes it fertile ground for marketers trying to engage customers. So it’s no surprise that the Internet and rapid advances in digital and social media have taken the marketing world by storm. Digital and social media marketing involves using digital marketing tools such as Web sites, social media, mobile ads and apps, online video, email, blogs, and other digital platforms to engage consumers anywhere, anytime via their computers, smartphones, tablets, Internet- ready TVs, and other digital devices. These days, it seems that every company is reaching out to customers with multiple Web sites, newsy Tweets and Facebook pages, viral ads and videos posted on YouTube, rich-media emails, and mobile apps that solve consumer problems and help them shop.

At the most basic level, marketers set up company and brand Web sites that provide information and promote the company’s products. Many companies also set up branded community sites, where customers can congregate and exchange brand-related interests and information. For example, Petco’s Pet Talk Place site is a place where pet lovers can “connect, share, and learn” via discussions boards dedicated to dogs (“the bark”), cats (“the purr”), fish (“the splash”), birds (“the chirp”), reptiles (“the hiss”), and other types of pets. At cosmetics seller Sephora’s Beauty Talk community site, like-minded members discuss, debate, and compare makeup, hair, fragrance, or skin care products to find the best match for them. And Sony’s GreatnessAwaits.com site serves as a social hub for PlayStation PS4 game enthusiasts. It’s a place where fans can follow social media posts about PS4, watch the latest PS4 videos, discover which PS4 games are trending on social networks, share content, and interact with other fans—all in real time. To date, GreatnessAwaits.com has earned more than 4.5 million page views, curated more than 3.3 million pieces of social content, and featured 75,000 fans.31

Beyond brand Web sites, most companies are also integrating social and mobile media into their marketing mixes.

social Media Marketing It’s hard to find a brand Web site, or even a traditional media ad, that doesn’t feature links to the brand’s Facebook, Twitter, Google+, LinkedIn, YouTube, Instagram, Pinterest, or other social media sites. Social media provide exciting opportunities to extend customer

author comment Marketing doesn’t take place in a vacuum. Now that we’ve discussed the five steps in

the marketing process, let’s look at how the ever-changing marketplace affects both consumers and the marketers who serve them. We’ll look more deeply into these

and other marketing environment factors in Chapter 3.

Digital and social media marketing Using digital marketing tools such as Web sites, social media, mobile apps and ads, online video, email, and blogs to engage consumers anywhere, at any time, via their digital devices.

chapter 1: Marketing: creating customer Value and engagement 25

engagement and get people talking about a brand. More than 90 percent of all U.S. com- panies now use social media as part of their marketing mixes, and 71 percent believe that social marketing is core to their business.32

Some social media are huge—Facebook has more than 1.2 billion active monthly members. Twitter has more than 232 million active users; Pinterest draws in 53 million us- ers; and Instagram racks up an estimated 300 million active monthly visitors. Reddit, the online social news community, has nearly 174 million unique visitors each month from 185 countries. But more focused social media sites are also thriving, such as CafeMom, an online community of 20 million moms who exchange advice, entertainment, and commiseration at the community’s online, Facebook, Twitter, Pinterest, YouTube, Google+, and mobile sites.

Online social media provide a digital home where people can connect and share im- portant information and moments in their lives. As a result, they offer an ideal platform for real-time marketing, by which marketers can engage consumers in the moment by linking brands to important trending topics, real-world events, causes, personal occa- sions, or other important happenings in consumers’ lives (see Marketing at Work 1.2).

Using social media might involve something as simple as a contest or promotion to garner Facebook Likes, Tweets, or YouTube postings. But more often these days, large organizations of all kinds use a wide range of carefully integrated social media.

For example, space agency NASA uses a broad mix of social media to educate the next generation of space explorers on its mission to “boldly go where no man has gone before.” In all, NASA has more than 480 social media accounts spanning various topics and digital platforms. The agency has more than 10 million Facebook fans, 9 million Twitter followers, 2.5 million Instagram followers, and 30,000 YouTube subscribers. One of NASA’s largest-ever social media campaigns supported the recent test launch of

the Orion spacecraft, which will eventually carry humans to deep space destinations, such as Mars or an asteroid:33

The extensive campaign included a dozen or more YouTube “I’m On Board” videos starring actors from classic science-fiction TV shows, such as Star Trek and The Incredible Hulk. Even Sesame Street’s Elmo added his support, proudly displaying his “I’m On Board” boarding pass, chatting up astronauts, and relaying facts and launch information on the Sesame Street Twitter feed and other digital platforms. The campaign offered social media users a chance to put their names on a microchip aboard the space vehicle— more than a million people signed on. During the flight, NASA’s social media team briefed the public through Twitter, Facebook, and Instagram posts. In all, it’s a new NASA. People once followed NASA events from afar by gathering around their TV sets. Not anymore. Now, the space agency engages fans di- rectly through interactive social media. “You can ask an astronaut a question,” says NASA’s social media manager. “You can . . . really be part of the experience in a much different way than ever before. It’s not your father and grandfather’s space agency anymore.

Mobile Marketing Mobile marketing is perhaps the fastest-growing digital marketing platform. Four out of five smartphone users use their phones to shop—browsing product information through apps or the mobile Web, making in-store price comparisons, reading online product reviews, finding and redeeming coupons, and more.34 Smartphones are ever present, always on, finely targeted, and highly personal. This makes them ideal for engaging customers anytime, anywhere as they move through the buying process. For example, Starbucks customers can use their mobile devices for everything from finding the near- est Starbucks and learning about new products to placing and paying for orders.

nasa uses an extensive array of social media to engage and educate the next generation of space explorers. the agency invites you to “follow, share, and be a part of the conversation on popular social media sites with nasa.” NASA

26 Part 1: Defining Marketing and the Marketing Process

A funny thing happened during Super Bowl XLVII in New Orleans. Early in the third quarter, the lights in the Mercedes- Benz Superdome suddenly went out. As 71,000 attendees and 106 million viewers restlessly bided their time and scratched their heads, engineers worked feverishly for a full 34 minutes to repair the power outage and bring the lights back on. But whereas the blackout was a disaster for Superdome management and CBS Sports, and an annoyance for players and fans, at least one marketer saw it as an opportunity. Shortly after the blackout began, Nabisco’s Oreo brand tweeted out a simple message: “Power out? No problem. You can still dunk in the dark.”

That now-famous single tweet, conceived and approved within just minutes, grabbed more attention for Oreo than the brand’s extravagant first-quarter advertisement. Within an hour, the “dunk in the dark” message was retweeted nearly 16,000 times and racked up more than 20,000 Facebook likes, result- ing in tens of millions of favorable exposures. In the following days, Oreo received tons of media coverage and was hailed as “The Brand That Won the Blackout Bowl.” Those were pretty impressive results for a one-off joke by a cookie maker.

Oreo’s successful Super Bowl one-liner triggered a surge in real-time marketing, and to this day it’s hailed as the model for real-time success. Brands of all kinds are now trying to create their own “Oreo moments” by aligning marketing content with real-world events and trending topics through timely tweets, videos, blog entries, and social media posts. Done right, real- time marketing can engage consumers in the moment and make the brand more relevant.

Done poorly, however, real-time engagements can come off as little more than awkward or inappropriate intrusions. Too of- ten, brands simply toss standalone, last-minute ads or messages into social channels, “hoping to catch lightning in a bottle.” But hastily prepared or self-serving real-time messages can easily backfire, painting the brand as opportunistic or out of touch.

For example, after a video went viral showing Baltimore Ravens running back Ray Rice knocking his then-fiancée unconscious, thousands of women took to Twitter to discuss abusive relationships, referencing the hashtags #WhyIStayed and #WhyILeft. Jumping into the trending discussion, frozen pizza maker DiGiorno added three words: “#WhyIStayed You had pizza.” As might be expected, the Twittersphere lit up with disgust at the insensitive pitch, leaving the number-one frozen pizza brand scrambling to explain itself. The best response it could muster was a feeble, “A million apologies. Did not read what the hashtag was about before posting.”

Today, many real-time marketing efforts center on major media events, such as the Super Bowl, the Grammys, and the Academy Awards. These events let marketers engage huge, ready-made audiences. For example, when its blockbuster fea- ture The LEGO Movie failed to win a nomination in the Best Animated Movie category at the recent Oscars, LEGO turned

the snub into an opportunity to engage viewers in real time during the Academy Awards TV spectacular. During a perfor- mance of the movie’s Oscar-nominated song—“Everything Is Awesome”—performers handed out Oscars made of golden LEGO bricks to celebrities in the audience. Simultaneously, the brand tweeted coordinated real-time images and the mes- sage “#EverythingIsAwesome at the #Oscars!” With pic- tures of stars such as Meryl Streep, Clint Eastwood, Oprah Winfrey, and Bradley Cooper posing with their LEGO Oscars, #LegoOscar became the number-one trending topic on Twitter.

Others companies attached real-time efforts to events in the competitive or natural environments. For example, with each new Apple iPhone model, at the very same time that Apple executives are on stage unveiling the features of the new phone, Samsung marketers are flooding social media with clever real-time “The next best thing is already here” responses. Starbucks, a social media powerhouse with nearly 36 million Facebook fans and more than 7 million Twitter followers, has long used real-time marketing to link the brand to current events important to its customers. For example, after Winter Storm Nemo hit the northeastern United States with heavy snowfall and hurricane-force winds in early 2013, Starbucks

Marketing at Work 1.2

real-time Marketing: engaging consumers in the Moment

real-time marketing: oreo’s spectacularly successful “you can still dunk in the dark” tweet triggered a surge in real-time marketing, as brands of all kinds are now trying to create their own “oreo moments” by aligning marketing content with real-world events and trending topics. © Isabella Cassini/Alamy

chapter 1: Marketing: creating customer Value and engagement 27

Twitter and Facebook promotions offered “Snow Day” free coffee to customers in affected areas. “We wanted to make a grand [and timely] gesture,” said a Starbucks digital marketer.

Minute-by-minute marketing strikes rarely succeed. Instead, to be consistently successful, real-time marketing must be part of a broader, carefully conceived strategy that makes the brand itself an engaging and relevant part of consumers’ lives. According to one marketing strategist, brands must “evolve their entire plan to marketing in a real-time world.” Today’s smartphone-wielding, social media–saturated customers “are no longer just second-screen viewing—they are second-screen living.” Smart brands build agile, ongoing real-time marketing programs that listen in on the social space and respond with relevant marketing content that blends smoothly with the dy- namics of customers’ real-time social sharing.

For example, although the Oreo “dunk in the dark” tweet might have seemed off the cuff, it was only the latest in a long series of real-time marketing efforts designed to make Oreo a part of consumers’ daily discourse. In the months preceding the Super Bowl, Oreo had successfully carried out its “Daily Twist” cam- paign. Each day for 100 days, the brand posted consumer-inspired Oreo cookie art tied to a relevant event. There was a Mars Rover Landing Oreo (an open-face cookie with tire tracks through its red crème filling), an Elvis Week Oreo (with an Oreo profile of The King of Rock’n’ Roll), and a Shark Week Oreo (with a jagged bite taken out of it, of course). The groundbreaking Daily Twist campaign gave Oreo a fourfold increase in Facebook shares and boosted its Instagram following from 2,200 to more than 85,000.

Oreo wages an ongoing social media and mobile campaign to engage consumers in the moment, skillfully injecting the brand into consumers’ lives and conversations. For example, there

was the wildly popular “Twist, Lick, Dunk” mobile game app that had 4 million users dunking 4 billion virtual Oreo cookies. Then there was the catchy 90-second “Oreo Cookie Balls” rap video, tweeted and posted on YouTube and other social media, showing clever ideas for eating and serving cookie balls during the end-of-year holiday season—it quickly went viral with more than 1.6 million views on YouTube alone. And leading up to a recent Halloween season, Oreo Laboratorium, a series of brief stop-motion videos, showed different Oreo creatures and asked fans to “Name the Nomster.” Such gems illustrate how Oreo keeps itself smack dab in the middle of the consumer conscious- ness by making real-time marketing an everyday event.

Whether connected to a social cause, a trending topic or event, a consumer’s personal situation, or something else, the essential concept behind successful real-time marketing is pretty simple: Find or create ongoing connections between the brand and what’s happening and important in consumers’ lives, then engage consumers genuinely in the moment. One marketing executive suggests that real-time marketers should equate the practice to “meeting somebody in a social gathering—you don’t accost them, instead you try to find a commonality of interest.”

Sources: Georgia Christopher Heine, “Ads in Real Time, All the Time,” Adweek, February 18, 2013, p. 9; David Griner, “DiGiorno Is Really, Really Sorry about Its Tweet Accidentally Making Light of Domestic Violence,” Adweek, September 9, 2014, www.adweek.com/print/159998; Danielle Sacks, “The Story of Oreo: How an Old Cookie Became a Modern Marketing Personality,” Fast Company, October 23, 2014, www.fastcocreate.com/3037068; Christopher Palmeri, “‘Lego Movie’ Picks Up Tweets Not Trophies at Academy Awards,” Businessweek, February 23, 2015, www.bloomberg.com/news/ articles/2015-02-23/lego-movie-picks-up-tweets-not-trophies-at-academy- awards-show; and www.360i.com/work/oreo-daily-twist/ and https://twitter .com/oreo/status/298246571718483968, accessed September 2015.

Marketers use mobile channels to stimulate immediate buying, make shopping easier, enrich the brand experience, or all of these. Consider Redbox:35

Redbox DVD rental kiosks are unmanned, so the company has to find innova- tive ways to engage customers and personalize its service—most of which it does through its Web site and mobile app, text messaging, and email. Customers can use the Redbox mobile app to locate Redbox kiosks, check availability of movies and games, and reserve rentals for quick pickup. Mobile customers can also join the Redbox Text Club to receive texts about the latest Redbox news, releases, and members-only deals. Text Club members are Redbox’s most valuable customers, so the company launched a 10-day-long mobile marketing campaign to increase membership. Using large call-to-action stickers on kiosks, a blast of email, and posts on its Facebook and other social media pages, Redbox offered discounts of between 10 cents and $1.50 on the next DVD rental to customers who texted the word “DEALS” to 727272.The campaign—called “The 10 Days of Deals”— generated nearly 1.5 million text messages from some 400,000 customers, result- ing in more than 200,000 new Text Club members. “Mobile is like having a kiosk in your hand,” explains Redbox’s chief marketer. “It’s an incredibly important part of our [marketing] strategy.”

Although online, social media, and mobile marketing offer huge potential, most marketers are still learning how to use them effectively. The key is to blend the new digital approaches with traditional market- ing to create a smoothly integrated marketing strategy and mix. We will examine digital, mobile, and social media marketing throughout the

Mobile marketing: redbox uses mobile marketing to engage its customers, personalize its service, and promote DVD rentals. its “the 10 Days of Deals” mobile campaign generated nearly 1.5 million text messages, resulting in more than 200,000 new redbox text club members. AP Images for Redbox

28 Part 1: Defining Marketing and the Marketing Process

text—they touch almost every area of marketing strategy and tactics. Then, after we’ve covered the marketing basics, we’ll look more deeply into digital and direct marketing in Chapter 14.

the changing economic environment The Great Recession of 2008 to 2009 and its aftermath hit American consumers hard.  After two decades of overspending, new economic realities forced consumers to bring their consumption back in line with their incomes and rethink their buying priorities.

In today’s post-recession era, consumer incomes and spending are again on the rise. However, even as the economy has strengthened, rather than reverting to their old free-spending ways, Americans are now showing an enthusiasm for frugality not seen in decades. Sensible consumption has made a comeback, and it appears to be here to stay. The new consumer spending values emphasize simpler living and more value for the dol- lar. Despite their rebounding means, consumers continue to buy less, clip more coupons, swipe their credit cards less, and put more in the bank.

Many consumers are reconsidering their very definition of the good life. “People are finding happiness in old-fashioned virtues—thrift, savings, do-it-yourself projects, self- improvement, hard work, faith, and community,” says one consumer behavior expert. “We are moving from mindless to mindful consumption.”36 The new, more frugal spending values don’t mean that people have resigned themselves to lives of deprivation. As the economy has improved, consumers are again indulging in luxuries and bigger- ticket purchases, just more sensibly.

In response, companies in all industries—from discounters such as Target to luxury brands such as Lexus—have realigned their marketing strategies with the new economic realities. More than ever, marketers are emphasizing the value in their value propositions. They are focusing on value for the money, practicality, and durability in their product offerings and marketing pitches.

For example, for years discount retailer Target focused increasingly on the “Expect More” side of its “Expect More. Pay Less.” value proposition. Its carefully cultivated “upscale-discounter” image successfully differentiated it from Walmart’s more hard-nosed “lowest-price” position. But when the economy soured, many consumers worried that Target’s trendier assortments and hip marketing also meant higher prices. So Target has shifted its balance more toward the “Pay Less” half of the slogan, making certain that its prices are in line with Walmart’s and that customers know it. Although still trendy, Target’s marketing now emphasizes more practical price and savings appeals. Offering “more for your money” holds a prominent place in the Target mission. “We think a lot about your budget and how to give you the best value every time you shop with us,” says the company.37

In adjusting to the new economy, companies may be tempted to cut their market- ing budgets and slash prices in an effort to coax more frugal customers into opening their wallets. However, although cutting costs and offering selected discounts can be important marketing tactics, smart marketers understand that making cuts in the wrong places can damage long-term brand images and customer relationships. The challenge is to balance the brand’s value proposition with the current times while also enhancing its long-term equity. Thus, rather than slashing prices in uncertain economic times,  many marketers hold the line on prices and instead explain why their brands are worth it.

the growth of not-for-Profit Marketing In recent years, marketing has also become a major part of the strategies of many not- for-profit organizations, such as colleges, hospitals, museums, zoos, symphony orches- tras, foundations, and even churches. The nation’s not-for-profits face stiff competition for support and membership. Sound marketing can help them attract membership, funds, and support.

chapter 1: Marketing: creating customer Value and engagement 29

For example, Alex’s Lemonade Stand Foundation is a not-for-profit organization with a special mission: “Fighting childhood cancer, one cup at a time.” It all started with a simple lemonade stand, run by four-year-old Alexandra “Alex” Scott, who was battling cancer. Alex wanted to raise money for doctors so that they could “help other kids, like they helped me.” In its first summer, little Alex’s lemonade stand raised $2,000. By age 8, with the help of founding sponsor Volvo and a nationwide network of volunteer-held lemonade stands, Alex had raised $1 million for pediatric cancer research. Although Alex has passed away, Alex’s Lemonade Stand Foundation (ALSF) keeps her dream alive through a comprehensive mar- keting effort:38

Alex’s Lemonade Stand Foundation’s marketing revolves around a well-designed Web site (www.AlexsLemonade.org), which details the organization, its mission, sponsored research, a logo gifts and gear store, and special events such as National Lemonade Days, the Great Chefs Event, and Alex’s Million Mile—Run, Walk, Ride. The site also gives detailed instructions for holding a successful local lemonade stand, backed by a fundraising kit containing ALSF-brand- ed banners, signs, posters, and flyers. ALSF makes good use of social media. Its blog discusses issues of childhood cancer and shares stories about ALSF “heroes and amazing supporters.”

And its well-curated Facebook, Instagram, Twitter, YouTube, Pinterest, and LinkedIn sites have created an active community of dedicated fans.

Finally, ALSF has assembled a network of corporate marketing partners—from Vol- vo, Northwestern Mutual, and Toys “R” Us to Applebee’s, Rita’s Italian Ice, and A&P. For example, at Applebee’s, if you donate to ALSF, you get a coupon for a free kid’s meal or frozen lemonade. At Rita’s, you can buy a paper lemon for $1 or text to a number to donate $5. Volvo holds raffles for new cars, with all proceeds going to ALSF. Northwest- ern Mutual supports ALSF’s Family Travel Fund, which pays for gasoline and other expenses to help families get their children to and from treatment. Thus,Alex’s one lem- onade stand sparked a foundation that ef- fectively markets her cause to raise funds to fight childhood cancer. Since 2005, Alex’s Lemonade Stand Foundation has raised more than $100 million and funded more than 475 medical research projects.

Government agencies have also shown an increased interest in marketing. For example, the U.S. military has a marketing plan to attract recruits to its different services, and various government agencies are now designing social marketing cam- paigns to encourage energy conservation and concern for the environment or discourage smoking, illegal drug use, and obesity. Even the once-stodgy U.S. Postal Service has developed innovative marketing to sell commemorative stamps, promote its Priority Mail services, and lift its image as a contemporary and competitive organization. In all, the U.S. government is the nation’s 39th largest advertiser, with an annual advertising budget of more than $980 million.39

rapid globalization As they are redefining their customer relationships, marketers are also taking a fresh look at the ways in which they relate with the broader world around them. Today, al- most every company, large or small, is touched in some way by global competition. A neighborhood florist buys its flowers from Mexican nurseries, and a large U.S. electronics manufacturer competes in its home markets with giant Korean rivals. A fledgling Internet retailer finds itself receiving orders from all over the world at the

not-for-profit marketing: alex’s lemonade stand foundation (alsf) effectively markets its mission of “fighting childhood cancer, one cup at a time.” alsf has raised more than $100 million for pediatric cancer research. Alex’s Lemonade Stand Foundation for Childhood Cancer

30 Part 1: Defining Marketing and the Marketing Process

same time that an American consumer goods producer introduces new products into emerging markets abroad.

American firms have been challenged at home by the skillful marketing of European and Asian multinationals. Companies such as Toyota, Nestlé, and Samsung have often outperformed their U.S. competitors in American markets. Similarly, U.S. companies in a wide range of industries have developed truly global operations, mak- ing and selling their products worldwide. Quintessentially American McDonald’s now serves 70 million customers daily in more than 36,000 local restaurants in more than 100 countries worldwide—68 percent of its corporate revenues come from outside the United States. Similarly, Nike markets in 190 countries, with non-U.S. sales account- ing for 52 percent of its worldwide sales.40 Today, companies are not just selling more of their locally produced goods in international markets; they are also sourcing more supplies and components abroad and developing new products for specific markets around the world.

Thus, managers in countries around the world are increasingly taking a global, not just local, view of the company’s industry, competitors, and opportunities. They are ask- ing: What is global marketing? How does it differ from domestic marketing? How do global competitors and forces affect our business? To what extent should we “go global”? We will discuss the global marketplace in more detail in Chapter 15.

sustainable Marketing—the call for More environmental and social responsibility Marketers are reexamining their relationships with social values and responsibilities and with the very Earth that sustains us. As the worldwide consumerism and environmental- ism movements mature, today’s marketers are being called on to develop sustainable marketing practices. Corporate ethics and social responsibility have become hot topics for almost every business. And few companies can ignore the renewed and very demand- ing environmental movement. Every company action can affect customer relationships. Today’s customers expect companies to deliver value in a socially and environmentally responsible way.

The social responsibility and environmental movements will place even stricter demands on companies in the future. Some companies resist these movements, budg- ing only when forced by legislation or organized consumer outcries. Forward-looking

companies, however, readily accept their responsibilities to the world around them. They view sustainable marketing as an opportunity to do well by doing good. They seek ways to profit by serving immediate needs and the best long-run interests of their customers and communities.

Some companies, such as Patagonia, Timberland, Method, Ben & Jerry’s, and others, practice caring capi- talism, setting themselves apart by being civic minded and responsible. They build social and environmental respon- sibility into their company value and mission statements.

For example, Ben & Jerry’s, a division of Unilever, has long prided itself on being a “values-led business,” one that creates “linked prosperity” for everyone connected to the brand—from suppliers to employees to customers and communities:41

Under its three-part mission, Ben & Jerry’s wants to make fan- tastic ice cream (product mission), manage the company for sustainable financial growth (economic mission), and use the company “in innovative ways to make the world a better place” (social mission). Ben & Jerry’s backs its mission with actions. For example, the company is committed to using wholesome, natural, non-GMO, fair-trade-certified ingredients and buys

sustainable marketing: ben & jerry’s three-part “linked prosperity” mission drives it to make fantastic ice cream (product mission), manage the company for sustainable financial growth (economic mission), and use the company “in innovative ways to make the world a better place” (social mission). © ZUMA Press, Inc /Alamy

chapter 1: Marketing: creating customer Value and engagement 31

from local farms. It employs business practices “that respect the earth and the environment,” investing in wind energy, solar usage, travel offsets, and carbon neutrality. Its Caring Dairy program helps farmers develop more sustainable practices on the farm (“Caring Dairy means happy cows, happy farmers, and a happy planet”). The Ben & Jerry’s Foundation awards nearly $2 million annually in grassroots grants to community service organizations and projects in communities across the nation. Ben & Jerry’s also operates 14  PartnerShops, scoop shops that are independently owned and operated by community-based not-for-profit organizations. The company waives standard franchise fees for these shops.

Sustainable marketing presents both opportunities and challenges for marketers. We will revisit the topic of sustainable marketing in greater detail in Chapter 16.

so, What is Marketing? Pulling it all together At the start of this chapter, Figure 1.1 presented a simple model of the marketing process. Now that we’ve discussed all the steps in the process, figure 1.6 presents an expanded model that will help you pull it all together. What is marketing? Simply put, marketing is the process of engaging customers and building profitable customer relationships by creat- ing value for customers and capturing value in return.

The first four steps of the marketing process focus on creating value for customers. The company first gains a full understanding of the marketplace by researching customer needs and managing marketing information. It then designs a customer-driven market- ing strategy based on the answers to two simple questions. The first question is “What

author comment Remember Figure 1.1 outlining the marketing

process? Now, based on everything we’ve discussed in this chapter, we’ll expand that figure to provide a road map for learning

marketing throughout the remainder of the text.

Construct an integrated

marketing program that delivers

superior value

Engage customers, build profitable

relationships, and create customer

delight

Capture value from customers to create profits and customer equity

Understand the marketplace and customer needs

and wants

Select customers to serve: market

segmentation and targeting

Decide on a value proposition:

differentiation and positioning

Product and service design:

build strong brands

Customer relationship

management: build engagement and

strong relationships with chosen customers

Partner relationship management: build strong relationships

with marketing partners

Create satisfied, loyal customers

Pricing: create real value

Manage global markets

Harness marketing technology

Ensure environmental and social responsibility

Capture customer lifetime value

Increase share of market and share

of customer

Research customers and the marketplace

Manage marketing information and customer data

Distribution: manage demand and supply chains

Promotion: communicate the value proposition

Create value for customers and build customer relationships

Capture value from customers in return

Design a customer value- driven marketing

strategy

This expanded version of Figure 1.1 at the beginning of the chapter provides a good road map for the rest of the text. The underlying concept of the entire text is that marketing creates value for customers in order to capture value from customers in return.

figure 1.6 an expanded Model of the Marketing Process

32 Part 1: Defining Marketing and the Marketing Process

consumers will we serve?” (market segmentation and targeting). Good marketing compa- nies know that they cannot serve all customers in every way. Instead, they need to focus their resources on the customers they can serve best and most profitably. The second marketing strategy question is “How can we best serve targeted customers?” (differentia- tion and positioning). Here, the marketer outlines a value proposition that spells out what values the company will deliver to win target customers.

With its marketing strategy chosen, the company now constructs an integrated marketing program—consisting of a blend of the four marketing mix elements, the four Ps—that transforms the marketing strategy into real value for customers. The company develops product offers and creates strong brand identities for them. It prices these offers to create real customer value and distributes the offers to make them available to target consumers. Finally, the company designs promotion programs that engage target custom- ers, communicate the value proposition, and persuade customers to act on the market offering.

Perhaps the most important step in the marketing process involves building value- laden, profitable relationships with target customers. Throughout the process, marketers practice customer relationship management to create customer satisfaction and delight. They engage customers in the process of creating brand conversations, experiences, and community. In creating customer value and relationships, however, the company cannot go it alone. It must work closely with marketing partners both inside the company and throughout its marketing system. Thus, beyond practicing good customer relationship management and customer-engagement marketing, firms must also practice good partner relationship management.

The first four steps in the marketing process create value for customers. In the final step, the company reaps the rewards of its strong customer relationships by capturing value from customers. Delivering superior customer value creates highly satisfied custom- ers who will buy more and buy again. This helps the company capture customer lifetime value and greater share of customer. The result is increased long-term customer equity for the firm.

Finally, in the face of today’s changing marketing landscape, companies must take into account three additional factors. In building customer and partner relationships, they must harness marketing technologies in the new digital age, take advantage of global opportunities, and ensure that they act sustainably in an environmentally and socially responsible way.

Figure 1.6 provides a good road map to future chapters of this text. Chapters 1 and 2 introduce the marketing process, with a focus on building customer relationships and cap- turing value from customers. Chapters 3 through 5 address the first step of the marketing process—understanding the marketing environment, managing marketing information, and understanding consumer and business buyer behavior. In Chapter 6, we look more deeply into the two major marketing strategy decisions: selecting which customers to serve (segmentation and targeting) and determining a value proposition (differentiation and positioning). Chapters 7 through 14 discuss the marketing mix variables one by one. The final two chapters examine special marketing considerations: global marketing and sustainable marketing.

MyMarketingLab If assigned by your instructor, complete the questions marked with the from the EOC Discussion Questions section in the MyLab. To complete the Marketing by the Numbers problems found in this section, go to your Assignments in the MyLab.

chapter 1: Marketing: creating customer Value and engagement 33

chaPter reVieW anD critical thinking

Today’s successful companies—whether large or small, for- profit or not-for-profit, domestic or global—share a strong cus- tomer focus and a heavy commitment to marketing. The goal of marketing is to engage customers and manage profitable customer relationships.

objectiVe 1-1 Define marketing and outline the steps in the marketing process. (pp 4–5)

Marketing is the process by which companies create value for customers and build strong customer relationships in order to capture value from customers in return. The marketing process involves five steps. The first four steps create value for custom- ers. First, marketers need to understand the marketplace and customer needs and wants. Next, marketers design a customer- driven marketing strategy with the goal of getting, engaging, and growing target customers. In the third step, marketers construct a marketing program that actually delivers superior value. All of these steps form the basis for the fourth step: engaging customers, building profitable customer relationships, and creating customer delight. In the final step, the company reaps the rewards of strong customer relationships by capturing value from customers.

objectiVe 1-2 explain the importance of understand- ing the marketplace and customers and identify the five core marketplace concepts. (pp 6–8)

Outstanding marketing companies go to great lengths to learn about and understand their customers’ needs, wants, and demands. This understanding helps them to design want-satisfying market of- ferings and build value-laden customer relationships by which they can capture customer lifetime value and greater share of customer. The result is increased long-term customer equity for the firm.

The core marketplace concepts are needs, wants, and demands; market offerings (products, services, and experi- ences); value and satisfaction; exchange and relationships; and markets. Companies address needs, wants, and demands by putting forth a value proposition, a set of benefits that they promise to consumers to satisfy their needs. The value proposition is fulfilled through a market offering, which de- livers customer value and satisfaction, resulting in long-term exchange relationships with customers.

reVieWing anD extenDing the concePts

objectives review objectiVe 1-3 identify the key elements of a customer value-driven marketing strategy and discuss the marketing management orientations that guide marketing strategy. (pp 9–13)

To design a winning marketing strategy, the company must first decide whom it will serve. It does this by dividing the market into segments of customers (market segmentation) and select- ing which segments it will cultivate (target marketing). Next, the company must decide how it will serve targeted customers (how it will differentiate and position itself in the marketplace).

Marketing management can adopt one of five compet- ing market orientations. The production concept holds that management’s task is to improve production efficiency and bring down prices. The product concept holds that consumers favor products that offer the most in quality, performance, and innovative features; thus, little promotional effort is required. The selling concept holds that consumers will not buy enough of an organization’s products unless it undertakes a large-scale selling and promotion effort. The marketing concept holds that achieving organizational goals depends on determining the needs and wants of target markets and delivering the desired satisfactions more effectively and efficiently than competi- tors do. The societal marketing concept holds that generating customer satisfaction and long-run societal well-being through sustainable marketing strategies is key to both achieving the company’s goals and fulfilling its responsibilities.

objectiVe 1-4 Discuss customer relationship management and identify strategies for creating value for customers and capturing value from customers in return. (pp 13–23)

Broadly defined, customer relationship management is the pro- cess of engaging customers and building and maintaining prof- itable customer relationships by delivering superior customer value and satisfaction. Customer-engagement marketing aims to make a brand a meaningful part of consumers’ conversations and lives through direct and continuous customer involvement in shaping brand conversations, experiences, and community. The aim of customer relationship management and customer engagement is to produce high customer equity, the total

34 Part 1: Defining Marketing and the Marketing Process

combined customer lifetime values of all of the company’s cus- tomers. The key to building lasting relationships is the creation of superior customer value and satisfaction. In return for creat- ing value for targeted customers, the company captures value from customers in the form of profits and customer equity.

objectiVe 1-5 Describe the major trends and forces that are changing the marketing landscape in this age of relationships. (pp 24–31)

Dramatic changes are occurring in the marketing arena. The digi- tal age has created exciting new ways to learn about and relate to individual customers. As a result, advances in digital and social media have taken the marketing world by storm. Online, mobile, and social media marketing offer exciting new opportunities to tar- get customers more selectively and engage them more deeply. The key is to blend the new digital approaches with traditional market- ing to create a smoothly integrated marketing strategy and mix.

The Great Recession caused consumers to rethink their buying priorities and bring their consumption back in line

with their incomes. Even as the post-recession economy has strengthened, Americans are now showing an enthusiasm for frugality not seen in decades. The challenge is to balance a brand’s value proposition with current times while also enhancing its long-term equity.

In recent years, marketing has become a major part of the strategies for many not-for-profit organizations, such as colleges, hospitals, museums, zoos, symphony orchestras, foundations, and even churches. Also, in an increasingly smaller world, many marketers are now connected globally with their customers, marketing partners, and competitors. Finally, today’s marketers are also reexamining their ethical and societal responsibilities. Marketers are being called on to take greater responsibility for the social and environmental impacts of their actions.

Pulling it all together, as discussed throughout the chapter, the major new developments in marketing can be summed up in a sin- gle concept: engaging customers and creating and capturing cus- tomer value. Today, marketers of all kinds are taking advantage of new opportunities for building value-laden relationships with their customers, their marketing partners, and the world around them.

key terms objective 1-1 Marketing (p 5)

objective 1-2 Needs (p 6) Wants (p 6) Demands (p 6) Market offerings (p 6) Marketing myopia (p 7) Exchange (p 7) Market (p 8)

objective 1-3 Marketing management (p 9) Production concept (p 10) Product concept (p 10) Selling concept (p 10) Marketing concept (p 10) Societal marketing concept (p 11)

objective 1-4 Customer relationship management (p 13)

Customer-perceived value (p 13) Customer satisfaction (p 14) Customer-engagement marketing (p 18) Consumer-generated marketing (p 19) Partner relationship management (p 20) Customer lifetime value (p 21) Share of customer (p 21) Customer equity (p 22)

objective 1-5 Digital and social media marketing (p 24)

Discussion Questions 1-1. Define marketing and outline the steps in the marketing

process. (AASCB: Communication) 1-2. Describe how the marketing concept differs from the

other marketing management orientations. (AACSB: Communication; Reflective Thinking)

1-3. What is customer-engagement marketing and how is it related to the surge in digital and social media technolo- gies? (AACSB: Communication; Reflective Thinking)

1-4. When implementing customer relationship manage- ment, why might a business desire fewer customers over more customers? Shouldn’t the focus of marketing be to acquire as many customers as possible? (AACSB: Communication; Reflective Thinking)

1-5. Discuss how technology is affecting marketing. (AACSB: Communication)

chapter 1: Marketing: creating customer Value and engagement 35

critical thinking exercises 1-6. Select three companies competing in the same product

or service category. How does each differentiate and position itself, and how do they execute these strate- gies in their marketing mixes? Which competitor is most successful? Which element(s) of that competitor’s marketing mix has contributed to its success? (AACSB Communication; Analytic Reasoning)

1-7. Go to a company, organization, or specific brand Web site that has a link to Facebook, Google+, YouTube, Twitter, and/or Pinterest. Click on the links and describe how that company is using social media to market its

products or services. Evaluate its effectiveness in creat- ing customer engagement. (AACSB: Communication; Use of IT; Reflective Thinking)

1-8. In a small group, create a presentation about careers in marketing. Search the Internet for information regarding the different career options available in mar- keting and the skills, education, and experience neces- sary to advance in the field of marketing. Then select a company and describe the marketing career opportuni- ties available there. (AACSB: Communication; Use of IT; Reflective Thinking)

Two Lay’s chip flavors—Cheesy Garlic Bread and Kettle Cooked Wasabi Ginger—were created by consumers as part of Frito-Lay’s wildly successful “Do Us A Flavor” marketing campaign (www.dousaflavor.com). Launched in July 2012 in a pop-up shop in New York’s Times Square, the event took on new dimensions in 2015 by incorporating real-time marketing. In response to interesting Tweets during the three-month-long submission period, digital shop Deep Focus produced 20 one- minute YouTube clips featuring two potato puppets named Marvin and Duncan (also known as the Taste Spuds). Google has now developed the “Flavorcast Heat Map” showing trend- ing ingredients for each state, and consumers can see state- versus-state contests in the Flavor Showdown Gallery on the Web site. Consumers submit their flavor’s name, up to three ingredients, and a chip style. They can also vote online at the Web site or via social media, and finalists’ flavors are devel- oped and shipped to stores a few months later, where they can

be purchased and then voted upon. The creator of the winning flavor receives $1 million. But Lay’s is the big winner of this campaign. The first contest’s goal was 1.2 million submis- sions, but Lay’s received 3.8 million submissions, 22.5 million Facebook visits a week, and a 12 percent increase in sales.

1-9. Some have argued that real-time marketing success is luck-based, whereas responsive marketing is more strategy-based. Research these two concepts and sup- port or refute this statement. (AACSB: Communica- tion; Reflective Thinking)

1-10. Select a brand in a different product category and cre- ate a responsive campaign that incorporates online, mobile, and social media to create customer engage- ment. How would you measure the success of your campaign? (AACSB: Communication; Reflective Thinking)

Minicases anD aPPlications

online, Mobile, and social Media Marketing Do Us a flavor

Marketing ethics extreme baby Monitoring Every parent’s fear when putting an infant to sleep is Sudden Infant Death Syndrome (SIDS)—the sudden unexplainable death of an otherwise healthy baby. In the United States, about 2,000 infants die each year of SIDS, the third leading cause of infant death. For $199, parents can buy monitors that track babies’ vital signs, such as respiration, heart rate, skin tempera- ture, sleeping position, and quality of sleep. The Mimo Smart Baby Monitor is a cute clip-on turtle that attaches to a special organic cotton onesie, and the Owlet Baby Monitor is a smart sock that looks like a little toeless boot. If parents don’t want

to attach these devices on their little ones, they can opt for the SafeToSleep Breathing Monitor sheet with a built-in moni- tor. All of these devices stream data to parents’ smartphones. Manufacturers of these devices promote them to parents for “your baby’s health” or to give “that extra assurance” to protect against SIDS. However, several government agencies such as the Food and Drug Administration, the Consumer Product Safety Commission, the Centers for Disease Control and Prevention, and the National Institutes of Health as well as the American Academy of Pediatrics all agree that these devices cannot protect

36 Part 1: Defining Marketing and the Marketing Process

Video case eskimo joe’s Since 1975, Eskimo Joe’s has been a popular watering hole in Stillwater, Oklahoma. Through word of mouth and a popular logo spread via T-shirts, it rapidly became a favorite place to grab a beer for students at Oklahoma State. But what started as a basic beer joint has grown into something much more.

When the drinking age changed from 18 to 21 in the 1980s, Eskimo Joe’s had to decide how it would move for- ward. That challenge helped the company to recognize that its product is much more than just a cold mug of beer. Instead, people flocked to Eskimo Joe’s for the fun atmosphere and

customer-friendly service. This realization led to an expansion into different businesses that have now spread the Eskimo Joe’s logo all over the planet.

After viewing the video featuring Eskimo Joe’s, answer the following questions:

1-15. Describe Eskimo Joe’s market offering. 1-16. What is Eskimo Joe’s value proposition? How does its

value proposition relate to its market offering? 1-17. How does Eskimo Joe’s build long-term customer

relationships?

Marketing by the numbers What’s a customer Worth? How much are you worth to a given company if you continue to purchase its brand for the rest of your life? Many marketers are grappling with that question, but it’s not easy to determine how much a customer is worth to a company over his or her lifetime. Calculating customer lifetime value can be very com- plicated. Intuitively, however, it can be a fairly simple net pres- ent value calculation, which incorporates the concept of the time value of money. To determine a basic customer lifetime value, each stream of profit (C, the net cash flow after costs are subtracted) is discounted back to its present value (PV) and then summed. The basic equation for calculating net present value (NPV) is:

NPV = a N

t = 0

Ct (1 + r)t

Where,

t = time of the cash flow N = total customer lifetime

r = discount rate Ct = net cash flow (the profit) at time t (The initial cost of ac- quiring a customer would be a negative net cash flow at time 0.)

NPV can be calculated easily on most financial calculators or by using one of the calculators available on the Internet, such as the one found at www.investopedia.com/calculator/ NetPresentValue.aspx.

1-13. Assume that a customer shops at a local grocery store spend- ing an average of $200 a week, resulting in a retailer prof- it of $10 each week from this customer. Assuming the shopper visits the store all 52 weeks of the year, calculate the customer lifetime value if this shopper remains loyal over a 10-year life span. Also assume a 5 percent annual interest rate and no initial cost to acquire the customer. (AACSB: Communication; Analytic Reasoning)

1-14. Describe ways marketers can increase the lifetime value of a customer. (AACSB: Communication; Re- flective Thinking)

a baby from SIDS. But fear sells, and most of these manufactur- ers cannot keep up with the demand for their products.

1-11. Is it right for marketers to play on parents’ fear to sell products that experts conclude are not necessary or

effective? (AACSB: Communication; Ethical Reason- ing; Reflective Thinking)

1-12. Discuss other examples of marketers using emotion to sell products. Are they ethical? (AACSB: Commu- nication; Ethical Reasoning)

chapter 1: Marketing: creating customer Value and engagement 37

company cases 1 fedex/4 campbell’s/14 alibaba See Appendix 1 for cases appropriate for this chapter. Case 1, FedEx: Making Every Customer Experience Outstanding. From the time FedEx opened for business over 40 years ago, the company strategy has been built on a foundation of obses- sive customer focus. Case 4, Campbell’s: Watching What

You Eat. Through extensive marketing research, Campbell’s maintains its customer focus. Case 14, Alibaba: The World’s Largest E-Tailer Is Not Amazon. Alibaba is on track to hit $700 billion in annual revenues within two years by providing everything customers need and desire.

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

1-18. Compare and contrast needs, wants, and demands. Which one(s) can marketers influence? (AACSB: Communication; Reflective Thinking)

1-19. Is it fair to single out specific products for restrictions such as when New York City proposed size cap on soft drinks? Discuss this argument from all sides of this issue: government, soft drink marketers, and consumers. (AACSB: Written and Oral Communication; Reflective Thinking)

Part 1: Defining Marketing anD the Marketing Process (chaPters 1–2) Part 2: UnDerstanDing the MarketPlace anD cUstoMer ValUe (chaPters 3–5) Part 3: Designing a cUstoMer ValUe-DriVen strategy anD Mix (chaPters 6–14) Part 4: extenDing Marketing (chaPters 15–16)

2 objectiVe 2-1 explain company-wide strategic planning and its four steps. Company-Wide Strategic Planning: Defining Marketing’s Role (40–43)

objectiVe 2-2 Discuss how to design business portfolios and develop growth strategies. Designing the Business Portfolio (43–48)

objectiVe 2-3 explain marketing’s role in strategic plan- ning and how marketing works with its partners to create and deliver customer value. Planning Marketing: Partnering to Build Customer Relationships (48–50)

company and Marketing strategy Partnering to build customer engagement, Value, and relationships

objectiVe 2-4 Describe the elements of a customer value-driven marketing strategy and mix and the forces that influence it. Marketing Strategy and the Marketing Mix (50–56)

objectiVe 2-5 list the marketing management functions, including the elements of a marketing plan, and discuss the importance of measuring and managing marketing return on investment. Managing the Marketing Effort (56–60); Measuring and Managing Marketing Return on Investment (60–61)

Previewing the concepts in the first chapter, we explored the marketing process by which companies create value for customers to capture value from them in return. in this chapter, we dig deeper into steps two and three of that process: designing customer value-driven marketing strategies and constructing marketing programs. first, we look at the organization’s overall strategic planning, which guides marketing strategy and planning. next, we discuss how, guided by the strategic plan, marketers partner closely with others inside and outside the firm to engage customers and create value for them. We then examine marketing strategy and planning— how marketers choose target markets, position their market offerings, develop a marketing mix, and manage their marketing programs. finally, we look at the important step of measur- ing and managing marketing return on investment (marketing roi).

first, let’s look at starbucks, a good company and a good marketing strategy story. starbucks met with enormous early success by focusing not just on coffee, but on the coffee- drinking experience. the company has since taken a bumpy ride from boom to bust and back to boom again. along the way, it learned that good marketing strategy means more than just growth, sales, and profits. it means skillfully engaging customers and creating value for them. at its core, starbucks doesn’t sell just coffee, it sells “the starbucks experience.”

chaPter roaD MaP objective outline

39

first stop starbucks’s customer Value-Driven Marketing strategy: Delivering “The Starbucks Experience” More than 30 years ago, Howard Schultz transformed the coffee industry by bringing a European-style coffeehouse to America. He believed that people needed to slow down—to “smell the coffee” and to enjoy life a little more. The result was Starbucks, founded with a whole new strategy for engaging customers and creating customer value.

Starbucks didn’t sell just coffee, it sold “The Starbucks Experience”—“an uplifting experience that enriches people’s lives one moment, one human being, one extraordinary cup of coffee at a time.” Starbucks gave customers what it calls a “third place”— a place away from home and away from work. At Starbucks, the smells, the sound of beans grinding, watching baristas blend and brew the brand’s specialty coffees—all became as much or more a part of the customer experience as the coffee itself.

Over the next two decades, customers flocked to Starbucks cafés. By 2007, some 15,000 Starbucks stores dotted the nation and globe, and the company’s sales and profits rose like steam off a mug of hot java. However, Starbucks’s enormous success drew a host of competitors. It seemed that every rival—from inde- pendent coffeehouses to fast-food restaurants—was peddling its own brand of premium coffee.

To maintain its phenomenal growth in the increasingly overcaf- feinated marketplace, Starbucks brewed up an ambitious growth strategy. It opened new stores at a breakneck pace, seemingly everywhere. For example, one three-block stretch in Chicago con- tained six of the trendy coffee bars. In New York City, there were two Starbucks in one Macy’s store. In fact, cramming so many stores so close together caused one satirical publication to run this headline: “A New Starbucks Opens in the Restroom of Existing Starbucks.” The company also blanketed the country with Starbucks kiosks and coffee stands in everything from Target stores and supermarkets to hotel lobbies, and service businesses from airlines to car dealerships proclaimed “We proudly serve Starbucks coffee.”

The more Starbucks grew, however, the more it drifted away from the core mission and values that had made it so successful. The company’s almost obsessive focus on growth for growth’s sake began to take a toll on the prized Starbucks Experience. Far from its roots as a warm and intimate coffeehouse, Starbucks began to evolve into more of a caffeine filling station. More and more, the premium brand found itself competing with the likes of—gasp!— McDonald’s for many of the same customers.

Founder Howard Schultz, who had stepped down as CEO in 2000, expressed concern. In a 2007 memo to Starbucks management, Schultz lamented that the company’s push for growth had “led to the watering down of the Starbucks Experience” and that Starbucks was “losing its soul.” Schultz was right that something was wrong. By early 2008, when Schultz reassumed his role as Starbucks president and CEO, the company found itself in hot water. For the first time ever, the average number of transactions per U.S. store fell off and same-store sales growth slowed. Within just the previous two years, Starbucks’s stock had tumbled nearly 80 percent. According to one analyst, “The financial vultures circled. Obituaries were drafted.”

starbucks has become america’s—

the world’s—largest coffeehouse by skillfully engaging customers and delivering superior customer

value. at its core, starbucks doesn’t sell just coffee. it

sells “the starbucks experience.”

Instead of presiding over the brand’s demise, however, Schultz reacted quickly to restore its luster. He cooled the pace of Starbucks’s growth, closed underperforming locations, and replaced most of the company’s top executives. Most important, Schultz laid plans to rees- tablish the brand’s core mission and values and to refocus the company on giving customers the authentic Starbucks Experience. “As we grew rapidly and had phenomenal success,” Shultz announced, “we started to lose sight of our focus on the customer and our commitment to con- tinually and creatively enhance the Starbucks Experience.” Starbucks needed to shift its focus back to customers—to “reignite the emotional attach- ment with customers.”

To emphasize the point, at a cost of $30 million, Schultz transported 10,000 Starbucks store managers to a morale-building reori- entation in New Orleans. A short time later, Starbucks dramatically closed all of its U.S. locations for three hours to conduct nationwide employee training on the basics of producing satisfying customer experiences.

Those early actions began a process of continual renewal by which Starbucks has reignited the Starbucks customer experience through new products, innovative store formats, and new platforms for engaging customers. Beyond improvements in its signature coffee products, Star- bucks has developed new products that take the Starbucks Experience into new areas. For example, a few years ago, Starbucks successfully launched Via, an instant coffee that’s as good at home as fresh-brewed is in stores. More recently, Starbucks added Fizzio to its menu—freshly carbonated and handcrafted sodas in classic flavors.

More than just coffee, starbucks sells the starbucks experience, one that “enriches people’s lives one moment, one human being, one extraordinary cup of coffee at a time.” Associated Press

40

The company is also experimenting with new store formats, such as the new high-end Starbucks Reserve Roastery and Tasting Room in Seattle that’s part café, part shrine, and part working roastery. Schultz describes the new interactive store as “Niketown meets Apple meets Starbucks”—think of it as the Starbucks Experience on ste- roids. In another big move, Starbucks purchased Teavana—a special- ty tea retailer with more than 400 locations in five countries. Schultz sees the Teavana acquisition as pivotal to Starbucks’s renewal and reinvention. Tea is “a $90 billion global category, ripe for innovation,” he says. “We’re going to do for tea what we’ve done for coffee.”

Starbucks’s renewal extends the Starbucks Experience well be- yond employee relearning, new products, and innovative stores for- mats. Over the past decade, as much as any brand, Starbucks has built customer engagement and brand community through digital and mobile platforms. Its highly successful mobile payments app, My Starbucks Rewards loyalty program, and prepaid Starbucks Cards now give Starbucks “a direct, real-time, personalized, two-way digi- tal relationship with its customers,” says the company’s chief digital officer. The Starbucks Rewards mobile payment app has 12 million

active users, and digital products now account for roughly 35 per- cent of payments at Starbucks’s North American stores.

Today, a rejuvenated Starbucks is once again fully engaged with customers and delivering the one-of-a-kind Starbucks Experience. And once again, sales and profits are really perking. Every week, Starbucks serves more than 70 million customers face to face in 20,200 stores in 64 countries. Over the past six years, revenues have increased 70 percent, profits have shot up fivefold, and Starbucks’s stock price has skyrocketed by a factor of 12.

The moral of the Starbucks story: Good marketing strategy means keeping your eye squarely on delivering customer value. The objective isn’t just growth or sales or profits; it’s engaging customers in a meaningful way and creating value for them. If a company takes care of customer engagement and value, good performance will re- sult. “It’s not just about ringing a register and performing a task,” says Schultz. “It’s also about creating an emotional, enduring relationship and connection with our…customers. At our core, we celebrate the interaction between us and our customers through the coffee experi- ence. Life happens over coffee.”1

company-Wide strategic Planning: Defining Marketing’s role Each company must find the game plan for long-run survival and growth that makes the most sense given its specific situation, opportunities, objectives, and resources. This is the focus of strategic planning—the process of developing and maintaining a stra- tegic fit between the organization’s goals and capabilities and its changing marketing opportunities.

Strategic planning sets the stage for the rest of planning in the firm. Companies usu- ally prepare annual plans, long-range plans, and strategic plans. The annual and long- range plans deal with the company’s current businesses and how to keep them going. In contrast, the strategic plan involves adapting the firm to take advantage of opportunities in its constantly changing environment.

At the corporate level, the company starts the strategic planning process by defining its overall purpose and mission (see figure 2.1). This mission is then turned into detailed supporting objectives that guide the entire company. Next, headquarters decides what portfolio of businesses and products is best for the company and how much support to give each one. In turn, each business and product develops detailed marketing and other departmental plans that support the company-wide plan. Thus, marketing planning occurs at the business-unit, prod- uct, and market levels. It supports company strategic planning with more detailed plans for specific market- ing opportunities.

author comment Company-wide strategic planning

guides marketing strategy and planning. Like marketing strategy, the company’s

broader strategy must also be customer focused.

strategic planning The process of developing and maintaining a strategic fit between the organization’s goals and capabilities and its changing marketing opportunities.

figure 2.1 steps in strategic Planning

Planning marketing and other functional

strategies

Corporate level Business unit, product,

and market level

Designing the business

portfolio

Setting company objectives and goals

Defining the company

mission

Like the marketing strategy, the broader company strategy must be customer focused.

Company-wide strategic planning guides marketing strategy and planning.

chapter 2: company and Marketing strategy 41

Defining a Market-oriented Mission An organization exists to accomplish something, and this purpose should be clearly stated. Forging a sound mission begins with the following questions: What is our business? Who is the customer? What do consumers value? What should our business be? These simple- sounding questions are among the most difficult the company will ever have to answer. Successful companies continuously raise these questions and answer them carefully and completely.

Many organizations develop formal mission statements that answer these ques- tions. A mission statement is a statement of the organization’s purpose—what it wants to accomplish in the larger environment. A clear mission statement acts as an “invisible hand” that guides people in the organization.

Some companies define their missions myopically in product or technology terms (“We make and sell furniture” or “We are a chemical-processing firm”). But mission statements should be market oriented and defined in terms of satisfying basic customer needs. Products and technologies eventually become outdated, but basic market needs may last forever. For example, social scrapbooking site Pinterest doesn’t define itself as just an online place to post pictures. Its mission is to give people a social media platform for collecting, organiz- ing, and sharing things they love. And Chipotle’s mission isn’t to sell burritos. Instead, the restaurant promises “Food with Integrity,” highlighting its commitment to the immediate and long-term welfare of customers and the environment. To back its mission, Chipotle serves only the very best natural, sustainable, local ingredients. table 2.1 provides several examples of product-oriented versus market-oriented business definitions.2

Mission statements should be meaningful and specific yet motivating. Too often, mission statements are written for public relations purposes and lack specific, workable guidelines. Instead, they should emphasize the company’s strengths and tell forcefully how it intends to win in the marketplace. For example, Google’s mission isn’t to be the world’s best search engine. It’s to give people a window into the world’s information, wherever it might be found.3

Mission statement A statement of the organization’s purpose—what it wants to accomplish in the larger environment.

table 2.1 Product- versus Market-oriented business Definitions

company Product-oriented Definition Market-oriented Definition

chipotle We sell burritos and other Mexican food. We give customers “food With integrity,” served with a commitment toward the long-term welfare of customers and the environment.

facebook We are an online social network. We connect people around the world and help them share important moments in their lives.

home Depot We sell tools and home repair and improvement items.

We empower consumers to achieve the homes of their dreams.

nasa We explore outer space. We reach for new heights and reveal the unknown so that what we do and learn will benefit all humankind.

revlon We make cosmetics. We sell lifestyle and self-expression; success and status; memories, hopes, and dreams.

ritz-carlton hotels & resorts

We rent rooms. We create “the ritz-carlton experience,”—a memorable stay that far exceeds guests’ already high expectations.

starbucks We sell coffee and snacks. We sell “the starbucks experience,” one that enriches people’s lives one moment, one human being, one extraordinary cup of coffee at a time.

Walmart We run discount stores. We deliver low prices every day and give ordinary folks the chance to buy the same things as rich people. “save Money. live better.”

42 Part 1: Defining Marketing and the Marketing Process

Finally, as we discovered in the chapter-opening Starbucks story, a company’s mis- sion should not be stated as making more sales or profits; profits are only a reward for creating value for customers. Instead, the mission should focus on customers and the cus- tomer experience the firm seeks to create. Thus, the fast-growing Buffalo Wild Wings restaurant chain’s mission isn’t just to sell the most wings at a profit:4

Customers do, in fact, come to Buffalo Wild Wings (“B-Dubs” to regulars) to eat wings and drink beer, but they also come to watch sports, trash talk, cheer on their sports teams, and meet old friends and make new ones—that is, a total eating and social experience. “We realize that we’re not just in the business of selling wings,” says the company. “We’re something much bigger. We’re in the business of fueling the sports fan experience. Our mission is to WOW people every day!” Each table has two types of servers, a food-order server and a “guest experience captain,” whose job is to make sure that guests can see whatever game they came to watch on one of the 40 to 60 screens lining the walls, over the bar, and about everywhere else. True to that broader mission, Buffalo Wild Wings creates in-store and online promotions that inspire camaraderie. “It’s about giving them tools to not just be spectators but advocates of the brand,” says the chain. For example, the brand’s very active Web site draws 3 million visitors per month; its Facebook page has more than 12 million fans. Pursuing a customer-focused mission has paid big dividends for Buffalo Wild Wings. The wing joint’s sales and profits have both jumped 250 percent in the past four years, and the com- pany brags that it’s the number-one brand in its industry for fan en- gagement. The chain’s “hottest wing coating available comes with a warning to B-Dubs customers: ‘keep away from eyes, pets, and chil- dren.’ The sauce is called Blazin’,” says one analyst. “That term also happens to be a good description of the stock’s performance lately.”

setting company objectives and goals The company needs to turn its broad mission into detailed supporting objectives for each level of management. Each manager should have objectives and be responsible for reach- ing them. For example, most Americans know CVS as a chain of retail pharmacies selling prescription and over-the-counter medicines, personal care products, and a host of conve-

nience and other items. But CVS—recently renamed CVS Health—has a much broader mission. It views itself as a “pharmacy innovation company,” one that is “helping people on their path to better health.” The company’s motto: “Health is everything.”5

CVS Health’s broad mission leads to a hierarchy of objectives, including business objectives and marketing objectives. CVS Health’s overall business objective is to increase access, lower costs, and improve the quality of care. It does this through the products it sells at its retail pharma- cies and by taking a more active role in overall health-care management through research, consumer outreach and edu- cation, and support of health-related programs and organiza- tions. However, such activities are expensive and must be funded through improved profits, so improving profits be- comes another major objective for CVS Health. Profits can be improved by increasing sales or by reducing costs. Sales can be increased by improving customer engagement and raising the company’s share of the health-care market. These goals then become the company’s current marketing objectives.

Marketing strategies and programs must be developed to support these marketing objectives. To increase customer

customer-focused mission: the fast-growing buffalo Wild Wings chain’s mission is to provide a total eating and social environment that “fuels the sports fan experience.” as a result, it creates in-store and online experiences that promote brand fan engagement. Reprinted with permission of Buffalo Wild Wings, Inc.

cVs health’s overall mission is to be a “pharmacy innovation company” that “helps people on their way to better health.” its marketing strategies and programs must support this mission. CVS Caremark Corporation

chapter 2: company and Marketing strategy 43

engagement, sales, and market share, CVS Health has reshaped and broadened its lines of products and services. For example, it recently stopped selling tobacco products, items not compatible with its “better health” mission. And it has placed CVS MinuteClinic locations in nearly 1,000 of its more than 7,800 stores, providing walk-in medical care in more than 23 million patient visits since 2000. CVS Health has also broadened its range of customer contact activities to include tailored advising to customers managing chronic and specialty health conditions.

These are CVS Health’s broad marketing strategies. Each marketing strategy must then be defined in greater detail. For example, the company’s rapidly expanding MinuteClinic services will require more advertising and promotional efforts, and such efforts will need to be spelled out carefully. In this way, CVS Health’s broad mission is translated into a set of specific short-term objectives and marketing plans.

Designing the business Portfolio Guided by the company’s mission statement and objectives, management now must plan its business portfolio—the collection of businesses and products that make up the com- pany. The best business portfolio is the one that best fits the company’s strengths and weaknesses to opportunities in the environment.

Most large companies have complex portfolios of businesses and brands. Strategic and marketing planning for such business portfolios can be a daunting but critical task. For example, ESPN’s brand portfolio consists of more than 50 business enti- ties, ranging from multiple ESPN cable channels to ESPN Radio, ESPN.com, ESPN The Magazine, and even ESPN Zone sports-themed restaurants. In turn, ESPN is just one unit in the even more complex portfolio of its parent company, The Walt Disney Company. Through skillful portfolio management, however, ESPN has built a cohe- sive brand, unified powerfully under its mission to serve sports enthusiasts “wher- ever sports  are watched, listened to, discussed, debated, read about, or played” (see Marketing at Work 2.1).

Similarly, GE is a giant $149 billion conglomerate operating in dozens of con- sumer and business markets, with a broad portfolio of products that “move, power, build, and cure the world.” Most consumers know GE for its home appliance and lighting products, part of the company’s GE Home & Business Solutions unit. But that’s just the beginning for GE. Other company units—such as GE Transportation, GE Aviation, GE Energy Management, GE Power & Water, GE Gas & Oil, GE Healthcare, and others—offer products and services ranging from jet engines, diesel-electric locomotives, wind turbines, and off-shore drilling solutions to aerospace systems and medical imaging equipment. GE Capital offers a breadth of business financial products and services. Successfully managing such a broad portfolio takes plenty of manage- ment skill and—as GE’s long-running corporate slogan suggests—lots of “Imagination at work.”6

Business portfolio planning involves two steps. First, the company must analyze its current business portfolio and determine which businesses should receive more, less, or no investment. Second, it must shape the future portfolio by developing strategies for growth and downsizing.

analyzing the current business Portfolio The major activity in strategic planning is business portfolio analysis, whereby manage- ment evaluates the products and businesses that make up the company. The company will want to put strong resources into its more profitable businesses and phase down or drop its weaker ones.

Management’s first step is to identify the key businesses that make up the company, called strategic business units (SBUs). An SBU can be a company division, a product line within a division, or sometimes a single product or brand. The company next assesses the attractiveness of its various SBUs and decides how much support each deserves. When designing a business portfolio, it’s a good idea to add and support products and businesses that fit closely with the firm’s core philosophy and competencies.

business portfolio The collection of businesses and products that make up the company.

Portfolio analysis The process by which management evaluates the products and businesses that make up the company.

44 Part 1: Defining Marketing and the Marketing Process

When you think about ESPN, you probably think of it as a ca- ble TV network, or a magazine, or maybe a Web site. ESPN is all of those things. But over the years, ESPN has grown to be- come a huge and complex brand portfolio consisting of more than 50 different entities. Thanks to skillful portfolio manage- ment, however, ESPN is much more than just a haphazard collection of media entities. Instead, it’s an immersive brand experience—a meaningful part of customers’ lives. ESPN is synonymous with sports entertainment, inexorably linked with customers’ sports memories, realities, and anticipations.

In 1979, entrepreneur Bill Rasmussen took a daring leap and founded the round-the-clock sports network ESPN (Entertainment and Sports Programming Network). Despite many early skeptics—seriously, a 24-hour sports network?— ESPN is now a multibillion-dollar sports empire and a “can’t- live-without-it” part of the daily routines of hundreds of millions of people worldwide. Today, ESPN is as much rec- ognized and revered as iconic megabrands such as Coca-Cola, Nike, Apple, and Google. No matter who you are, chances are good that ESPN has touched you in some meaningful way. And no matter what the sport or where, ESPN seems to be everywhere at once.

Here’s a brief summary of the incredible variety of entities tied together as part of the ESPN portfolio:

Television: From its original groundbreaking cable network, the ESPN brand has sprouted eight additional U.S. networks— ESPN3D, ESPN2, ESPN Classic, ESPNEWS, ESPNU, ESPN Deportes (Spanish language), the Longhorn Network, and the SEC Network. With its signal now flowing into almost 115 million U.S. households at an industry-topping cost of $6 per household per month—TNT is a distant second at $1.48—ESPN is by far the most-sought cable network. Additionally, ESPN International serves fans through 26 international networks in 61 countries on all seven continents. ESPN is the home of the NBA Finals, WNBA, MLB, Monday Night Football, IndyCar, the NHRA, college football, college basketball, tennis’s Grand Slam events, golf’s Masters and British Open, the Little League World Series, and more. This list grows every year as ESPN continues to outbid the major broadcast networks to capture the rights to major sports events. For 14 straight years, American men have named ESPN their favorite channel.

Radio: Sports radio is thriving, and ESPN Radio is the largest sports radio network, broadcasting more than 8,500 hours of con- tent annually to 23 million listeners through nearly 500 U.S. affili- ates. Overseas, ESPN has radio and syndicated radio programs in 11 countries. ESPN Radio extends its reach even further through Sirius XM, digital distributors Slacker Radio and Tune In, and its own ESPNRadio.com.

Online: ESPN Digital Media is composed of 19 U.S. Web sites, including the flagship ESPN.com. These digital destinations capture some 75 million unique visitors and 6.8 billion minutes of usage every month. ESPN accounts for 31 percent of all online

sports activity, more than the combined totals of its two clos- est competitors. ESPNRadio.com is the world’s most-listened-to online sports destination. And ESPN’s Podcasts are downloaded more than 369 million times per year.

With access to its own content from television, radio, and print, ESPN has a plentiful supply of material to feed its digital efforts. But ESPN also leads the game in the exploding mobile arena. It employs a “mobile first” strategy, in which it orients all of its Web sites around mobile, thus optimizing performance. ESPN delivers mobile sports content via all major U.S. wireless providers— including real- time scores, stats, late-breaking news, and video-on-demand. Its mobile sites and apps lead the sports category in unique visitors and average audience per minute. The digital strategy has led to ESPN3, a multi-screen live 24/7 sports network available at no cost to tens of millions of homes that receive their high-speed Internet connection from an affiliated service provider.

Publishing: When ESPN first published ESPN The Magazine in 1998, critics gave it little chance against mighty Sports Illustrated. Yet, with its bold look, bright colors, and unconventional format, the ESPN publication now serves more than 15 million readers each month and is the leading publication among men ages 18 to 34. Digital-only consumption of ESPN The Magazine is soaring, whereas a relatively stagnate Sports Illustrated is struggling to make the shift to a digital world.

Even More: As if all this weren’t enough, ESPN also manages events, including the X Games, the Winter X Games, the Bassmaster Classic, the Jimmy V Classic, and several football bowl games. It also develops ESPN-branded consumer products and services, including DVDs, video games, apparel, and even golf schools. If reading all this makes you hungry, you may be near an ESPN Zone, which includes a sports-themed restaurant, interactive games, and sports-related merchandise sales. You’ll now find ESPN content in airports and on planes, in health clubs, and even on gas station video panels. All this translates into annual revenues of $11 billion, mak- ing ESPN more important to its parent The Walt Disney Company than the Disneyland and Disney World theme parks combined.

Marketing at Work 2.1

esPn: skillfully Managing a complex brand Portfolio

esPn is much more than just a haphazard collection of media entities. it’s a skillfully managed brand portfolio that delivers an immersive sports entertainment experience, inexorably linked with customers’ sports memories, realities, and anticipations. © R Heyes Design/Alamy

chapter 2: company and Marketing strategy 45

The purpose of strategic planning is to find ways in which the company can best use its strengths to take advantage of attractive opportunities in the environment. For this reason, most standard portfolio analysis methods evaluate SBUs on two important dimen- sions: the attractiveness of the SBU’s market or industry and the strength of the SBU’s position in that market or industry. The best-known portfolio-planning method was devel- oped by the Boston Consulting Group, a leading management consulting firm.7

the boston consulting group approach. Using the now-classic Boston Consulting Group (BCG) approach, a company classifies all its SBUs according to the growth- share matrix, as shown in figure 2.2. On the vertical axis, market growth rate pro- vides a measure of market attractiveness. On the horizontal axis, relative market share serves as a measure of company strength in the market. The growth-share matrix defines four types of SBUs:

1. Stars. Stars are high-growth, high-share businesses or products. They often need heavy investments to finance their rapid growth. Eventually their growth will slow down, and they will turn into cash cows.

2. Cash cows. Cash cows are low-growth, high-share businesses or products. These established and successful SBUs need less investment to hold their market share. Thus, they produce a lot of the cash that the company uses to pay its bills and support other SBUs that need investment.

growth-share matrix A portfolio-planning method that evaluates a company’s SBUs in terms of market growth rate and relative market share.

What ties this huge collection of ESPN entities together? The brand’s customer-focused mission: It wants to serve sports enthusiasts “wherever sports are watched, listened to, dis- cussed, debated, read about, or played.” ESPN has a philoso- phy known as “best available screen.” It knows that when fans are at home, they’ll watch the big 60-inch flat-screen. But during the morning hours, smartphones light up more. During the day, desktops dominate, and in the evening, tablet activity increases. ESPN is on a crusade to know when, where, and under what conditions fans will reach for which device, and to provide the most seamless, high-quality experience for them.

It’s no surprise, then, that sports fans around the world love their ESPN. To consumers everywhere, ESPN means sports. Tech savvy, creative, and often irreverent, the well-managed,

ever-extending yet carefully integrated brand portfolio contin- ues to build meaningful customer engagement and experiences. If it has to do with your life and sports—large or small—ESPN covers it for you, anywhere you are, 24/7. Perhaps the company should rename ESPN to stand for Every Sport Possible—Now.

Sources: Dorothy Pomerantz, “Are You Willing to Pay $36 per Month for ESPN?” Forbes, March 25, 2015, www.forbes.com/sites/dorothypomerantz/ 2015/03/25/are-you-willing-to-pay-36-per-month-for-espn/; Anthony Kosner, “Mobile First: How ESPN Delivers to the Best Available Screen,” Forbes, January 30, 2012, www.forbes.com/sites/anthonykosner/2012/01/30/mobile- first-how-espn-delivers-to-the-best-available-screen/2/; Derek Thompson, “The Global Dominance of ESPN,” The Atlantic, August 14, 2013, www. theatlantic .com/magazine/archive/2013/09/the-most-valuable-network/309433/; and infor- mation from http://espnmediazone.com/us/espn-inc-fact-sheet/ and www.espn .com, accessed September 2015.

figure 2.2 the bcg growth-share Matrix

46 Part 1: Defining Marketing and the Marketing Process

3. Question marks. Question marks are low-share business units in high-growth markets. They require a lot of cash to hold their share, let alone increase it. Management has to think hard about which question marks it should try to build into stars and which should be phased out.

4. Dogs. Dogs are low-growth, low-share businesses and products. They may gen- erate enough cash to maintain themselves but do not promise to be large sources of cash.

The 10 circles in the growth-share matrix represent the company’s 10 current SBUs. The company has two stars, two cash cows, three question marks, and three dogs. The area of each circle is proportional to the SBU’s dollar sales. This company is in fair shape, although not in good shape. It wants to invest in the more promising question marks to make them stars and maintain the stars so that they will become cash cows as their markets mature. Fortunately, it has two good-sized cash cows. Income from these cash cows will help finance the company’s question marks, stars, and dogs. The company should take some decisive action concerning its dogs and its question marks.

Once it has classified its SBUs, the company must determine what role each will play in the future. It can pursue one of four strategies for each SBU. It can invest more in the business unit to build its share. Or it can invest just enough to hold the SBU’s share at the current level. It can harvest the SBU, milking its short-term cash flow regardless of the long-term effect. Finally, it can divest the SBU by selling it or phasing it out and using the resources elsewhere.

As time passes, SBUs change their positions in the growth-share matrix. Many SBUs start out as question marks and move into the star category if they succeed. They later become cash cows as market growth falls and then finally die off or turn into dogs toward the end of the life cycle. The company needs to add new products and units continuously so that some of them will become stars and, eventually, cash cows that will help finance other SBUs.

Problems with Matrix approaches. The BCG and other formal methods revolutionized strategic planning. However, such centralized approaches have limitations: They can be difficult, time consuming, and costly to implement. Management may find it difficult to define SBUs and measure market share and growth. In addition, these approaches focus on classifying current businesses but provide little advice for future planning.

Because of such problems, many companies have dropped formal matrix methods in favor of more customized approaches that better suit their specific situations. Moreover, unlike former strategic planning efforts that rested mostly in the hands of senior manag- ers at company headquarters, today’s strategic plan- ning has been decentralized. Increasingly, companies are placing responsibility for strategic planning in the hands of cross-functional teams of divisional managers who are close to their markets. In this digital age, such managers have rich and current data at their fingertips and can adapt their plans quickly to meet changing con- ditions and events in their markets.

Portfolio planning can be challenging. For ex- ample, think about The Walt Disney Company. Most people think of Disney as theme parks and wholesome family entertainment. But in the mid-1980s, Disney set up a powerful, centralized strategic planning group to guide its direction and growth. Over the next two decades, the strategic planning group turned The Walt Disney Company into a huge and diverse collection of media and entertainment businesses. The sprawl- ing company grew to include everything from theme

Managing the business portfolio: Most people think of Disney as theme parks and wholesome family entertainment, but over the past two decades, it’s become a sprawling collection of media and entertainment businesses that requires big doses of the famed “Disney Magic” to manage. Martin Beddall/Alamy

chapter 2: company and Marketing strategy 47

resorts and film studios (Walt Disney Pictures, Touchstone Pictures, Pixar Animation, and Marvel Studios) to media networks (ABC Television plus ESPN, Disney Channel, parts of A&E and the History Channel, and a half dozen others) to consumer products (from apparel and toys to interactive games) and a cruise line.

The newly transformed company proved hard to manage and performed unevenly. To improve company performance, Disney disbanded the centralized strategic planning unit, decentralizing its functions to Disney division managers. For example, although carefully coordinated with other Disney units, in many respects ESPN runs autonomously. As a result of such decisions, The Walt Disney Company retains its position at the head of the world’s media conglomerates. And even through the recently uneven economy, Disney’s sound strategic management of its broad mix of businesses, plus a touch of the famed Disney magic, has helped it fare better than rival media companies.8

Developing strategies for growth and Downsizing Beyond evaluating current businesses, designing the business portfolio involves finding businesses and products the company should consider in the future. Companies need growth if they are to compete more effectively, satisfy their stakeholders, and attract top talent. At the same time, a firm must be careful not to make growth itself an objective. The company’s objective must be to manage “profitable growth.”

Marketing has the main responsibility for achieving profitable growth for the com- pany. Marketing needs to identify, evaluate, and select market opportunities and lay down strategies for capturing them. One useful device for identifying growth opportunities is the product/market expansion grid, shown in figure 2.3.9 We apply it here to performance sports apparel maker Under Armour:10

Less than 20 years ago, Under Armour introduced its innovative line of comfy, moisture-wick- ing performance shirts and shorts with the mission “to make all athletes better through passion, design, and the relentless pursuit of innovation.” Since then, it has grown at a torrid pace. In just the past five years, Under Armour’s sales have quadrupled. Its earnings have grown at a blister- ing rate of 20 percent in every quarter during that five-year period. Under Armour is now the nation’s second-best-selling apparel brand behind Nike. Looking forward, the company must look for new ways to keep growing.

First, Under Armour might consider whether the company can achieve deeper market penetration—making more sales in its current product lines and markets. It can spur growth through marketing mix improvements—adjustments to its product design, adver- tising, pricing, and distribution efforts. For example, Under Armour offers an ever-increas- ing range of styles and colors in its original apparel lines. And it boosted its spending on advertising and professional athlete and team endorsements last year by 35 percent over the previous year. The company has also added direct-to-consumer distribution channels, including its own retail stores and sales Web sites. Direct-to-consumer sales have tripled over the past seven years and now account for some 30 percent of total revenues.

Second, Under Armour might consider possibilities for market development—iden- tifying and developing new markets for its current products. Under Armour can review new demographic markets. For instance, the company recently stepped up its marketing to women consumers, with new products and a highly acclaimed $15 million women- focused promotion campaign called “I Will What I Want.” Under Armour can also pursue

Product/market expansion grid A portfolio-planning tool for identifying company growth opportunities through market penetration, market development, product development, or diversification.

Market penetration Company growth by increasing sales of current products to current market segments without changing the product.

Market development Company growth by identifying and developing new market segments for current company products.

Existing markets

New markets

Existing products

New products

Market penetration

Product development

Market development Diversification

Through diversification, companies can grow by starting or buying businesses outside their current product/markets. For example, Under Armour has entered the digital personal health and fitness market by acquiring three fitness app companies.

Companies can grow by developing new markets for existing products. For example, Under Armour recently stepped up its marketing to women consumers and is expanding rapidly in international markets.

figure 2.3 the Product/Market expansion grid

48 Part 1: Defining Marketing and the Marketing Process

new geographical markets. For example, the brand is rapidly making a name for itself in international markets, including Japan, Europe, Canada, and Latin America. It recently opened its first-ever brand store in China. Although Under Armour’s international sales grew 94 percent last year, they still account for only 12 percent of total sales, leaving plenty of room for international growth.

Third, Under Armour can consider product development—offering modified or new products to current markets. For example, the company added athletic shoes to its apparel lines in 2006, and it con- tinues to introduce innovative new athletic-footwear products, such as the recently added Under Armour SPEEDFORM line. Sneaker sales rose 44 percent last year yet still account for only about 13 percent of total sales, again leaving plenty of growth potential.

Finally, Under Armour can consider diversifica- tion—starting up or buying businesses outside of its current products and markets. For example, the com- pany recently expanded into the digital personal health and fitness tracking market by acquiring three fitness app companies—MapMyFitness, MyFitnessPal, and Endomondo. Under Armour might also consider mov- ing into nonperformance leisurewear or begin mak- ing and marketing Under Armour fitness equipment. When diversifying, companies must be careful not to overextend their brands’ positioning.

Companies must develop not only strategies for growing their business portfolios but also strategies

for downsizing them. There are many reasons that a firm might want to abandon products or markets. A firm may have grown too fast or entered areas where it lacks experience. The market environment might change, making some products or markets less profitable. For example, in difficult economic times, many firms prune out weaker, less-profitable products and markets to focus their more limited resources on the strongest ones. Finally, some products or business units simply age and die.

When a firm finds brands or businesses that are unprofitable or that no longer fit its overall strategy, it must carefully prune, harvest, or divest them. For example, over the past several years, P&G has sold off dozens of major brands—from Crisco, Folgers, Jif, and Pringles to Duracell batteries, Right Guard deodorant, Aleve pain reliever, CoverGirl and Max Factor cosmetics, Wella and Clairol hair care products, and its Iams and other pet food brands—allowing the company to focus on household care and beauty and grooming products. And in recent years, GM has pruned several underperforming brands from its portfolio, including Oldsmobile, Pontiac, Saturn, Hummer, and Saab. Weak businesses usu- ally require a disproportionate amount of management attention. Managers should focus on promising growth opportunities, not fritter away energy trying to salvage fading ones.

Planning Marketing: Partnering to build customer relationships The company’s strategic plan establishes what kinds of businesses the company will oper- ate and its objectives for each. Then, within each business unit, more detailed planning takes place. The major functional departments in each unit—marketing, finance, account- ing, purchasing, operations, information systems, human resources, and others—must work together to accomplish strategic objectives.

Product development Company growth by offering modified or new products to current market segments.

Diversification Company growth through starting up or acquiring businesses outside the company’s current products and markets.

author comment Marketing can’t go it alone in creating

customer value. Under the company-wide strategic plan, marketing must work closely with other departments to form an effective internal company value chain and with other companies in the marketing system to create

an external value delivery network that jointly serves customers.

strategies for growth: Under armour has grown at a blistering rate under its multipronged growth strategy. in recent years, the brand has stepped up its marketing to women, as in its highly acclaimed “i Will” advertising campaign. UNDER ARMOUR, INC.

chapter 2: company and Marketing strategy 49

Marketing plays a key role in the company’s strategic planning in several ways. First, marketing provides a guiding philosophy—the marketing concept—that suggests the com- pany strategy should revolve around creating customer value and building profitable rela- tionships with important consumer groups. Second, marketing provides inputs to strategic planners by helping to identify attractive market opportunities and assessing the firm’s potential to take advantage of them. Finally, within individual business units, marketing designs strategies for reaching the unit’s objectives. Once the unit’s objectives are set, marketing’s task is to help carry them out profitably.

Customer engagement and value are the key ingredients in the marketer’s formula for success. However, as noted in Chapter 1, although marketing plays a leading role, it alone cannot produce engagement and superior value for customers. It can be only a partner in attracting, engaging, and growing customers. In addition to customer relationship man- agement, marketers must also practice partner relationship management. They must work closely with partners in other company departments to form an effective internal value chain that serves customers. Moreover, they must partner effectively with other companies in the marketing system to form a competitively superior external value delivery network. We now take a closer look at the concepts of a company value chain and a value delivery network.

Partnering with other company Departments Each company department can be thought of as a link in the company’s internal value chain.11 That is, each department carries out value-creating activities to design, produce, market, deliver, and support the firm’s products. The firm’s success depends not only on how well each department performs its work but also on how well the various departments coordinate their activities.

For example, True Value Hardware’s goal is to create customer value and satisfaction by providing shoppers with the hardware and home improvement products they need at affordable prices along with top-notch customer service. Marketers at the retail-owned cooperative play an important role. They learn what customers need and help the 3,500 independent True Value retailers stock their store shelves with the desired products at competitive prices. They prepare advertising and merchandising programs and assist shop- pers with customer service. Through these and other activities, True Value marketers help

deliver value to customers. However, True Value’s marketers, both

at the home office and in stores, need help from the company’s other functions. True Value’s ability to help you “Start Right. Start Here.” depends on purchasing’s skill in developing the needed suppliers and buying from them at low cost. True Value’s information technology people must pro- vide fast and accurate information about which products are selling in each store. And its operations people must provide effective, low-cost merchandise handling and delivery.

A company’s value chain is only as strong as its weakest link. Success depends on how well each group performs its work of adding customer value and on how the company coordinates the activities of various functions. True Value’s recent marketing campaign—“Behind Every Project Is a True Value”—recognizes the importance of having everyone in the organization—from in-store managers and employees to home-office operations

Value chain The series of internal departments that carry out value-creating activities to design, produce, market, deliver, and support a firm’s products.

the value chain: these true Value ads recognize that everyone in the organization—from operations managers tom statham (left) to marketing research analyst jeff alvarez (right)—must contribute to helping the chain’s customers handle their home improvement projects. they form the foundation for the brand’s “behind every Project is a true Value” positioning. True Value and Start Right. Start Here. are registered trademarks of True Value Company. The print ads and images are copyrighted works of authorship of True Value Company.

50 Part 1: Defining Marketing and the Marketing Process

managers and marketing research analysts—understand the needs and aspirations of the chain’s do-it-yourself customers and help them handle home improvement projects.

Ideally, then, a company’s different functions should work in harmony to produce value for consumers. But, in practice, interdepartmental relations are full of conflicts and misunderstandings. The marketing department takes the consumer’s point of view. But when marketing tries to improve customer satisfaction, it can cause other departments to do a poorer job in their terms. Marketing department actions can increase purchasing costs, disrupt production schedules, increase inventories, and create budget headaches. Thus, other departments may resist the marketing department’s efforts.

Yet marketers must find ways to get all departments to “think consumer” and develop a smoothly functioning value chain. One marketing expert puts it this way: “True market orientation . . . means that the entire company obsesses over creating value for the customer and views itself as a bundle of processes that profitably define, create, communicate, and deliver value to its target customers…. Everyone must do marketing regardless of function or department.” Says another, “Engaging customers today requires commitment from the entire company. We’re all marketers now.”12 Thus, whether you’re an accountant, an op- erations manager, a financial analyst, an IT specialist, or a human resources manager, you need to understand marketing and your role in creating customer value.

Partnering with others in the Marketing system In its quest to engage customers and create customer value, the firm needs to look beyond its own internal value chain and into the value chains of its suppliers, its distributors, and, ultimately, its customers. Consider McDonald’s. People do not swarm to McDonald’s only because they love the chain’s hamburgers. Consumers flock to the McDonald’s system, not only to its food products. Throughout the world, McDonald’s finely tuned value delivery system delivers a high standard of QSCV—quality, service, cleanliness, and value. McDonald’s is effective only to the extent that it successfully partners with its franchisees, suppliers, and others to jointly create “our customers’ favorite place and way to eat.”

More companies today are partnering with other members of the supply chain— suppliers, distributors, and, ultimately, customers—to improve the performance of the customer value delivery network. Competition no longer takes place only between individual competitors. Rather, it takes place between the entire value delivery network created by these competitors. Thus, Ford’s performance against Toyota depends on the quality of Ford’s overall value delivery network versus Toyota’s. Even if Ford makes the best cars, it might lose in the marketplace if Toyota’s dealer network provides a more customer-satisfying sales and service experience.

Value delivery network A network composed of the company, suppliers, distributors, and, ultimately, customers who partner with each other to improve the performance of the entire system in delivering customer value.

linking the concePts Pause here for a moment to apply what you’ve read in the first part of this chapter.

●● Why are we talking about company-wide strategic planning in a marketing text? What does strategic planning have to do with marketing?

●● What are Starbucks’s strategy and mission? What role does marketing play in helping Starbucks to accomplish its strategy and mission?

●● What roles do other Starbucks departments play, and how can the company’s marketers partner with these departments to maximize overall customer value? What roles do Starbucks’s suppliers play?

author comment Now that we’ve set the context in terms of company-wide strategy, it’s time to discuss

customer value-driven marketing strategies and programs.

Marketing strategy and the Marketing Mix The strategic plan defines the company’s overall mission and objectives. Marketing’s role is shown in figure 2.4, which summarizes the major activities involved in managing a customer-driven marketing strategy and the marketing mix.

chapter 2: company and Marketing strategy 51

Consumers are in the center. The goal is to create value for customers and build profitable customer relationships. Next comes marketing strategy—the marketing logic by which the company hopes to create this customer value and achieve these profitable relationships. The company decides which customers it will serve (segmentation and targeting) and how (differentiation and positioning). It identifies the total market and then divides it into smaller segments, selects the most promising segments, and focuses on serving and satisfying the customers in these segments.

Guided by marketing strategy, the company designs an integrated marketing mix made up of factors under its control—product, price, place, and promotion (the four Ps). To find the best marketing strategy and mix, the company engages in marketing analysis, planning, implementation, and control. Through these activities, the company watches and adapts to the actors and forces in the marketing environment. We will now look briefly at each activity. In later chapters, we will discuss each one in more depth.

customer Value-Driven Marketing strategy To succeed in today’s competitive marketplace, companies must be customer centered. They must win customers from competitors and then engage and grow them by delivering greater value. But before it can satisfy customers, a company must first understand cus- tomer needs and wants. Thus, sound marketing requires careful customer analysis.

Companies know that they cannot profitably serve all consumers in a given market— at least not all consumers in the same way. There are too many different kinds of consum- ers with too many different kinds of needs. Most companies are in a position to serve some segments better than others. Thus, each company must divide up the total market, choose the best segments, and design strategies for profitably serving chosen segments. This pro- cess involves market segmentation, market targeting, differentiation, and positioning.

Market segmentation The market consists of many types of consumers, products, and needs. The marketer must determine which segments offer the best opportunities. Consumers can be grouped and served in various ways based on geographic, demographic, psychographic, and behavioral factors. The process of dividing a market into distinct groups of buyers who have different needs, characteristics, or behaviors and who might require separate marketing strategies or mixes is called market segmentation.

Marketing strategy The marketing logic by which the company hopes to create customer value and achieve profitable customer relationships.

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.

Price

PublicsSuppliers

CompetitorsMarketing intermediaries

Place

Promotion

Product M

ar ke

tin g

an aly

sis

M arketing

control M ar

ke tin

g

im ple

m en

ta tio

n

M arketing

planning

p

i

P

M

Customer value and relationships

S eg

m

en tati

on Targeting Diffe

re

nt ia

tio n Positioning

Marketing strategy involves two key questions: Which customers will we serve (segmentation and targeting)? and How will we create value for them (differentiation and positioning)? Then the company designs a marketing program—the four Ps—that delivers the intended value to targeted consumers.

At its core, marketing is all about creating customer value and profitable customer relationships.

figure 2.4 Managing Marketing strategies and the Marketing Mix

52 Part 1: Defining Marketing and the Marketing Process

Every market has segments, but not all ways of segmenting a market are equally use- ful. For example, Tylenol would gain little by distinguishing between low-income and high-income pain-relief users if both respond the same way to marketing efforts. A market segment consists of consumers who respond in a similar way to a given set of marketing efforts. In the car market, for example, consumers who want the biggest, most comfortable car regardless of price make up one market segment. Consumers who care mainly about price and operating economy make up another segment. It would be difficult to make one car model that was the first choice of consumers in both segments. Companies are wise to focus their efforts on meeting the distinct needs of individual market segments.

Market targeting After a company has defined its market segments, it can enter one or many of these seg- ments. Market targeting involves evaluating each market segment’s attractiveness and selecting one or more segments to enter. A company should target segments in which it can profitably generate the greatest customer value and sustain it over time.

A company with limited resources might decide to serve only one or a few special segments or market niches. Such nichers specialize in serving customer segments that ma- jor competitors overlook or ignore. For example, Ferrari sells only 2,200 of its very-high- performance cars in North America each year but at very high prices—such as its Ferrari California model at $198,000 or the 740-horsepower F-12 Berlinetta at an eye-opening $318,000. Most nichers aren’t quite so exotic. Profitable low-cost airline Allegiant Air avoids direct competition with larger major airline rivals by targeting smaller, neglected markets and new flyers. Nicher Allegiant “goes where they ain’t.” And small online-search startup DuckDuckGo thrives among privacy-minded users in the shadows of search giants Google and Microsoft’s Bing (see Marketing at Work 2.2).

Alternatively, a company might choose to serve several related segments—perhaps those with different kinds of customers but with the same basic wants. Gap Inc., for ex- ample, targets different age, income, and lifestyle clothing and accessory segments with six different store and online brands: Gap, Banana Republic, Old Navy, Piperlime, Athleta, and INTERMIX. The Gap store brand breaks its segment down into even smaller niches, including Gap, GapKids, babyGap, GapMaternity, and GapBody.13 Or a large company (for example, car companies like Honda and Ford) might decide to offer a complete range of products to serve all market segments.

Most companies enter a new market by serving a single segment; if this proves successful, they add more segments. For example, Nike started with innovative running shoes for serious runners. Large companies eventually seek full market coverage. Nike now makes and sells a broad range of sports apparel and equipment for just about anyone and everyone, in about every sport. It designs different products to meet the special needs of each segment it serves.

Market Differentiation and Positioning After a company has decided which market segments to enter, it must determine how to differentiate its market offering for each targeted segment and what positions it wants to occupy in those segments. A product’s position is the place it occupies relative to competi- tors’ products in consumers’ minds. Marketers want to develop unique market positions for their products. If a product is perceived to be exactly like others on the market, con- sumers would have no reason to buy it.

Positioning is arranging for a product to occupy a clear, distinctive, and desirable place relative to competing products in the minds of target consumers. Marketers plan positions that distinguish their products from competing brands and give them the greatest advantage in their target markets.

Audi promises “Truth in Engineering”; Subaru is “Confidence in Motion.” Coke is all about “open happiness”; Pepsi says “live for now.” Del Monte is “Bursting with Life”; Cascadian Farm products are “Certified Organic. Guaranteed Delicious.” At Panera, you can “Live Consciously, Eat Deliciously; at Wendy’s, “Quality Is Our Recipe.”

Such deceptively simple statements form the backbone of a product’s marketing strat- egy. For example, from its founding, Southwest Airlines has positioned itself as “The LUV Airline,” a positioning recently reinforced by the colorful heart in its new logo and plane

Market segment A group of consumers who respond in a similar way to a given set of marketing efforts.

Market targeting The process of evaluating each market segment’s attractiveness and selecting one or more segments to enter.

Positioning Arranging for a product to occupy a clear, distinctive, and desirable place relative to competing products in the minds of target consumers.

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.

Differentiation Actually differentiating the market offering to create superior customer value.

chapter 2: company and Marketing strategy 53

graphics design. As recent Southwest advertising affirms, “Without a heart, it’s just a machine.” The airline has “always put Heart in everything it does.”

In positioning its brand, a company first identifies possible customer value differ- ences that provide competitive advantages on which to build the position. A company can offer greater customer value by either charging lower prices than competitors or offering more benefits to justify higher prices. But if the company promises greater value, it must then deliver that greater value. Thus, effective positioning begins with differentiation— actually differentiating the company’s market offering to create superior customer value. Once the company has chosen a desired position, it must take strong steps to deliver and communicate that position to target consumers. The company’s entire marketing program should support the chosen positioning strategy.

Developing an integrated Marketing Mix After determining its overall marketing strategy, the company is ready to begin planning the details of the marketing mix, one of the major concepts in modern marketing. The marketing mix is the set of tactical marketing tools that the firm blends to produce the response it wants in the target market. The marketing mix consists of everything the firm can do to engage consumers and deliver customer value. The many possibilities can be collected into four groups of variables—the four Ps. figure 2.5 shows the marketing tools under each P.

●● Product means the goods-and-services combination the company offers to the target market. Thus, a Ford Escape consists of nuts and bolts, spark plugs, pistons, headlights, and thousands of other parts. Ford offers several Escape models and dozens of optional features. The car comes fully serviced and with a comprehensive warranty that is as much a part of the product as the tailpipe.

●● Price is the amount of money customers must pay to obtain the product. For example, Ford calculates suggested retail prices that its dealers might charge for each Escape. But Ford dealers rarely charge the full sticker price. Instead, they negotiate the price with each customer, offering discounts, trade-in allowances, and credit terms. These actions adjust prices for the current competitive and economic situations and bring them into line with the buyer’s perception of the car’s value.

●● Place includes company activities that make the product available to target con- sumers. Ford partners with a large body of independently owned dealerships that sell the company’s many different models. Ford selects its dealers carefully and strongly

Positioning: southwest’s positioning as “the lUV airline” is reinforced by the colorful heart in its new logo and plane redesign. southwest has “always put heart in everything it does.” Southwest Airlines Co.

Target customers

Intended positioning

Place Channels Coverage Locations Inventory

Transportation Logistics

List price Discounts

Allowances Payment period

Credit terms

Promotion Advertising

Personal selling Sales promotion Public relations

Product Variety Quality Design

Features Brand name Packaging Services

Price

The marketing mix—or the four Ps—consists of tactical marketing tools blended into an integrated program that actually engages target customers and delivers the intended customer value.

figure 2.5 the four Ps of the Marketing Mix

54 Part 1: Defining Marketing and the Marketing Process

niche marketing: DuckDuckgo thrives in the shadows of giant search engine competitors by giving its user community something the googles of the world can’t mimic—real privacy. Duck Duck Go, Inc.

Google dominates global online search with its massive 67 percent market share. Three other giants—Microsoft’s Bing, Yahoo!, and China-based Baidu—combine for another 31 per- cent of the market. That leaves a precious 2 percent sliver of the market for dozens of other search engines trying to get a foot- hold. What’s more, Google and the other search giants have deep pockets from their non-search businesses, letting them spend abundantly to hold and grow market share. So how does a small search engine wannabe compete against global powerhouses? The best answer: It doesn’t—at least not directly. Instead, it finds a unique market niche and runs where the big dogs don’t.

Enter DuckDuckGo, a plucky search engine start-up that’s carving out its own special market niche. Instead of battling Google and other giants head-on, DuckDuckGo provides a cus- tomer benefit that the market leaders can’t—privacy. Then it energizes its unique niche with brand personality and user com- munity. One look at DuckDuckGo’s icon—a quirky bow-tied duck—gives you the sense that, like the small locomotive in the classic children’s story, this might be “the little engine that could.”

DuckDuckGo isn’t just surviving in its niche, it’s explod- ing. The company is still comparatively tiny—it averages about 9 million daily searches compared with Google’s nearly 6 billion. But DuckDuckGo’s daily search volume has surged nearly tenfold in just the past three years, whereas Google’s volume growth has lagged a bit.

When Gabriel Weinberg first launched DuckDuckGo seven years ago, most people questioned his sanity. How could a small upstart challenge the likes of mighty Google? But rather than simply mimicking Google, Weinberg went a different direction, developing a quality search engine with a key dif- ferentiating feature. DuckDuckGo now positions itself strongly on “Smarter Search. Less Clutter. Real Privacy.”

DuckDuckGo focuses only on search. It offers a streamlined, clutter-free, customizable user interface with far fewer sponsored ads. As with other search engines, a DuckDuckGo query returns link-by-link search results based on third-party sources, but the results are filtered and reorganized to reduce spam. And beyond the usual search-result links, for many searches, DuckDuckGo provides direct “Instant Answers” in the form of zero-click infor- mation boxes above the search results. “When you do a search, you generally want an answer,” says Weinberg. “It’s our job to try to get an answer.” With Instant Answers, DuckDuckGo can “help you get where you want to go in fewer clicks.”

The Instant Answer feature is a good one, so good in fact that it has now been copied by Google and Bing. For example, run a Google search for “davinci” or “how long is the great wall” and along with the familiar list of blue links you’ll get a white box containing a mini-biography of Leonardo Da Vinci or displaying the length of the Great Wall of China (5,500.3 miles) and other interesting facts about it.

DuckDuckGo would tell you that its Instant Answers are of- ten better. Its answers rely not just on third-party data sources but also on the deep and diverse knowledge of its active, growing, and loyal community of users and developers. DuckDuckGo’s community provides additional power behind its searches. In a Wikipedia-like fashion, DuckDuckGo users come up with ideas about what the answers should be, suggest sources, and even develop answers themselves. “DuckDuckGo is a search engine driven by community—you’re on the team!” says the company. “We’re not just servers and an algorithm. We’re so much more.”

Still, even though DuckDuckGo had Instant Answers long before Google, Google’s response illustrates a typical nicher dilemma. Market leaders usually have huge resources and can quickly copy the start-up’s most popular features. “At any point,” notes one analyst, “the Googles or Facebooks or Apples of the world can just mimic what made you different, slam-dunking your shattered dreams into the waste bin of tech history.”

Fortunately for DuckDuckGo, it has one crucial differentia- tor that the Googles of the world simply can’t mimic. Real pri- vacy. Google’s entire model is built around personalization for customers and behaviorally targeted marketing for advertisers. That requires collecting and sharing data about users and their searches. When you search on Google, the company knows and retains in detail who you are, what you’ve searched for, and when you’ve searched. It then integrates your online identity and data with its services.

Marketing at Work 2.2

DuckDuckgo: google’s tiniest, fiercest competitor

chapter 2: company and Marketing strategy 55

supports them. The dealers keep an inventory of Ford automobiles, demonstrate them to potential buyers, negotiate prices, close sales, and service the cars after the sale.

●● Promotion refers to activities that communicate the merits of the product and persuade target customers to buy it. Ford spends nearly $2.6 billion each year on U.S. advertising to tell consumers about the company and its many products.14 Dealership salespeople assist potential buyers and persuade them that Ford is the best car for them. Ford and its dealers offer special promotions—sales, cash rebates, and low financing rates—as added purchase incentives. And Ford’s Facebook, Twitter, YouTube, Instagram, and other social media platforms engage consumers with the brand and with other brand fans.

An effective marketing program blends the marketing mix elements into an integrated marketing program designed to achieve the company’s marketing objectives by engaging consumers and delivering value to them. The marketing mix constitutes the company’s tactical tool kit for establishing strong positioning in target markets.

Some critics think that the four Ps may omit or underemphasize certain important activities. For example, they ask, “Where are services? Just because they don’t start with a P doesn’t justify omitting them.” The answer is that services, such as banking, airline, and retailing services, are products too. We might call them service products. “Where is packaging?” the critics might ask. Marketers would answer that they include packaging as one of many product decisions. All said, as Figure 2.5 suggests, many marketing activities that might appear to be left out of the marketing mix are included under one of the four Ps. The issue is not whether there should be four, six, or ten Ps so much as what framework is most helpful in designing integrated marketing programs.

By contrast, DuckDuckGo is specifically designed to be less invasive and less creepy than its competitors. DuckDuckGo doesn’t know who you are. It doesn’t log user IP addresses or use cookies to track users over time or other online locations. Users don’t have accounts. In fact, DuckDuckGo doesn’t even save user search histories. Perhaps most important, when users click on DuckDuckGo’s search results links, the linked Web sites don’t receive any information generated by the search engine. As one privacy advocate puts it, “DuckDuckGo is a solid search engine that lets you surf the Web without leaving behind a bunch of bread crumbs for Uncle Sam or anyone else to follow. . . . The sites you visit are being kept at arm’s length.”

So DuckDuckGo has become the preferred search engine for people concerned about online privacy, and that’s a fast- growing group. “If you look at the logs of people’s search sessions, they’re the most personal thing on the Internet,” Weinberg says. “Unlike Facebook, where you choose what to post, with search you’re typing in medical and financial problems and all sorts of other things.” Today, more and more people are thinking about the privacy implications of their search histories. “It was extreme at the time,” says Weinberg of DuckDuckGo’s early privacy positioning. But today, he adds, “It’s become obvious why people don’t want to be tracked.”

How does DuckDuckGo make money? Last year, Google made almost all of its $66 billion of revenue from search- related advertising, and most of that business involved large- scale, behaviorally targeted advertising that relies on the very tracking tools that DuckDuckGo shuns. However, even without tracking users, smaller DuckDuckGo can be profitable. It sim- ply focuses on the other part of Google’s business—delivering

contextual search ads based on the topic of the search itself. So when users search for “curved OLED TVs,” DuckDuckGo shows ads and links for TV manufacturers and retailers who’ve paid for the associated key words.

Thus, in many ways, DuckDuckGo is David to Google’s Goliath. But unlike David, DuckDuckGo isn’t out to slay the giant. It knows that it can’t compete head-on with the Googles and Bings of the world—it doesn’t even try. Then again, given the depth of consumer engagement and loyalty that DuckDuckGo engenders in its own small corner of the online search market, Google and the other giants may find it difficult to compete with DuckDuckGo for privacy-minded users. DuckDuckGo is currently the nation’s 11th-most-popular search engine based on unique monthly visi- tors. And as privacy grows in importance, so will DuckDuckGo.

That’s what niche marketing is all about—a well-defined brand engaging a focused customer community with meaning- ful brand relationships that even large and resourceful com- petitors can’t crack. Smart niching has made DuckDuckGo “Google’s tiniest, fiercest competitor,” says the analyst. “Our vision is simple,” says DuckDuckGo. “To give you great search results without tracking you.”

Sources: John Paul Titlow, “Inside DuckDuckGo, Google’s Tiniest, Fiercest Competitor,” Fast Company, February 20, 2014, www.fastcompany .com/3026698/inside-duckduckgo-googles-tiniest-fiercest-competitor; “DuckDuckGo Direct Queries per Day,” https://duckduckgo.com/traffic.html, accessed June 2015; “Privacy, DuckDuckGo, and the Battle for Search Market Share,” Perioncodefuel, February 13, 2015, www.codefuel.com/blog/privacy- duckduckgo-battle-search-market-share/; “Top 15 Most Popular Search Engines—April 2015,” www.ebizmba.com/articles/search-engines, accessed September 2015; and https://duckduckgo.com/about and www.netmarketshare .com, accessed September 2015.

56 Part 1: Defining Marketing and the Marketing Process

There is another concern, however, that is valid. It holds that the four Ps concept takes the seller’s view of the market, not the buyer’s view. From the buyer’s viewpoint, in this age of customer value and relationships, the four Ps might be better described as the four As:15

four Ps four As

Product Acceptability Price Affordability Place Accessibility Promotion Awareness

Under this more customer-centered framework, acceptability is the extent to which the product exceeds customer expectations; affordability the extent to which customers are willing and able to pay the product’s price; accessibility the extent to which customers can readily acquire the product; and awareness the extent to which customers are informed about the product’s features, persuaded to try it, and reminded to repurchase. The four As relate closely to the traditional four Ps. Product design influences acceptability, price affects affordability, place affects accessibility, and promotion influences awareness. Marketers would do well to think through the four As first and then build the four Ps on that platform.

Managing the Marketing effort In addition to being good at the marketing in marketing management, companies also need to pay attention to the management. Managing the marketing process requires the five marketing management functions shown in figure 2.6—analysis, planning, implementation, organization, and control. The company first develops company-wide strategic plans and then translates them into marketing and other plans for each division, product, and brand. Through implementation and organization, the company turns the plans into actions. Control consists of measuring and evaluating the results of marketing activities and taking corrective action where needed. Finally, marketing analysis provides the information and evaluations needed for all the other marketing activities.

Marketing analysis Managing the marketing function begins with a complete analysis of the company’s situ- ation. The marketer should conduct a SWOT analysis (pronounced “swat” analysis), by which it evaluates the company’s overall strengths (S), weaknesses (W), opportunities (O),

author comment So far we’ve focused on the marketing

in marketing management. Now, let’s turn to the management.

sWot analysis An overall evaluation of the company’s strengths (S), weaknesses (W), opportunities (O), and threats (T).

Control Measure results

Evaluate results

Take corrective action

Analysis

Planning Develop strategic

plans

Develop marketing plans

action

op marke

uate resu

e correct

The first part of the chapter dealt with this—developing company-wide and marketing strategies and plans.

We’ll close the chapter by looking at how marketers manage those strategies and plans—how they implement marketing strategies and programs and evaluate the results.

Implementation and

Organization Carry out the

plans

figure 2.6 Managing Marketing: analysis, Planning, implementation, and control

chapter 2: company and Marketing strategy 57

and threats (T) (see figure 2.7). Strengths include internal capabilities, resources, and positive situational factors that may help the company serve its customers and achieve its objectives. Weaknesses include internal limitations and negative situational factors that may interfere with the company’s performance. Opportunities are favorable factors or trends in the external environment that the company may be able to exploit to its advan- tage. And threats are unfavorable external factors or trends that may present challenges to performance.

The company should analyze its markets and marketing environment to find attractive opportunities and identify threats. It should analyze company strengths and weaknesses as well as current and possible marketing actions to determine which opportunities it can best pursue. The goal is to match the company’s strengths to attractive opportunities in the environment while simultaneously eliminating or overcoming the weaknesses and minimizing the threats. Marketing analysis provides inputs to each of the other marketing management functions. We discuss marketing analysis more fully in Chapter 3.

Marketing Planning Through strategic planning, the company decides what it wants to do with each business unit. Marketing planning involves choosing marketing strategies that will help the com- pany attain its overall strategic objectives. A detailed marketing plan is needed for each business, product, or brand. What does a marketing plan look like? Our discussion focuses on product or brand marketing plans.

table 2.2 outlines the major sections of a typical product or brand marketing plan. (See Appendix 2 for a sample marketing plan.) The plan begins with an executive sum- mary that quickly reviews major assessments, goals, and recommendations. The main section of the plan presents a detailed SWOT analysis of the current marketing situation as well as potential threats and opportunities. The plan next states major objectives for the brand and outlines the specifics of a marketing strategy for achieving them.

A marketing strategy consists of specific strategies for target markets, positioning, the marketing mix, and marketing expenditure levels. It outlines how the company intends to engage target customers and create value in order to capture value in return. In this sec- tion, the planner explains how each strategy responds to the threats, opportunities, and critical issues spelled out earlier in the plan. Additional sections of the marketing plan lay out an action program for implementing the marketing strategy along with the details of a supporting marketing budget. The last section outlines the controls that will be used to monitor progress, measure return on marketing investment, and take corrective action.

Marketing implementation Planning good strategies is only a start toward successful marketing. A brilliant market- ing strategy counts for little if the company fails to implement it properly. Marketing implementation is the process that turns marketing plans into marketing actions to

Marketing implementation Turning marketing strategies and plans into marketing actions to accomplish strategic marketing objectives.

Internal

External

Positive Negative

SStrengthsInternal capabilities thatmay help a company reach its objectives WWeaknessesInternal limitations that mayinterfere with a company’sability to achieve itsobjectives OOpportunitiesExternal factors that thecompany may be able to exploit to its advantage TThreatsCurrent and emerging external factors that may challenge the company’s performance

The goal of SWOT analysis is to match the company’s strengths to attractive opportunities in the environment while eliminating or overcoming the weaknesses and minimizing the threats.

Hang on to this figure! SWOT analysis (pronounced “swat” analysis) is a widely used tool for conducting a situation analysis. You’ll find yourself using it a lot in the future, especially when analyzing business cases.

figure 2.7 sWot analysis: strengths (s), Weaknesses (W), opportunities (o), and threats (t)

58 Part 1: Defining Marketing and the Marketing Process

accomplish strategic marketing objectives. Whereas marketing planning addresses the what and why of marketing activities, implementation addresses the who, where, when, and how.

Many managers think that “doing things right” (implementation) is as important as, or even more important than, “doing the right things” (strategy). The fact is that both are critical to success, and companies can gain competitive advantages through effective implementation. One firm can have essentially the same strategy as another yet win in the marketplace through faster or better execution. Still, implementation is difficult—it is often easier to think up good marketing strategies than it is to carry them out.

In an increasingly connected world, people at all levels of the marketing system must work together to implement marketing strategies and plans. At John Deere, for example, marketing implementation for the company’s residential, commercial,

table 2.2 contents of a Marketing Plan

section Purpose

executive summary Presents a brief summary of the main goals and recommendations of the plan for management review, helping top management find the plan’s major points quickly.

current marketing situation Describes the target market and the company’s position in it, including information about the market, product performance, competition, and distribution. this section includes the following:

●● a market description that defines the market and major segments and then reviews customer needs and factors in the marketing environment that may affect customer purchasing.

●● a product review that shows sales, prices, and gross margins of the major products in the product line.

●● a review of competition that identifies major competitors and assesses their market positions and strategies for product quality, pricing, distribution, and promotion.

●● a review of distribution that evaluates recent sales trends and other developments in major distribution channels.

threats and opportunities analysis assesses major threats and opportunities that the product might face, helping management to anticipate important positive or negative developments that might have an impact on the firm and its strategies.

objectives and issues states the marketing objectives that the company would like to attain during the plan’s term and discusses key issues that will affect their attainment.

Marketing strategy outlines the broad marketing logic by which the business unit hopes to engage customers, create customer value, and build customer relationships, plus the specifics of target markets, positioning, and marketing expenditure levels. how will the company create value for customers in order to capture value from customers in return? this section also outlines specific strategies for each marketing mix element and explains how each responds to the threats, opportunities, and critical issues spelled out earlier in the plan.

action programs spells out how marketing strategies will be turned into specific action programs that answer the following questions: What will be done? When will it be done? Who will do it? How much will it cost?

budgets Details a supporting marketing budget that is essentially a projected profit-and-loss statement. it shows expected revenues and expected costs of production, distribution, and marketing. the difference is the projected profit. the budget becomes the basis for materials buying, production scheduling, personnel planning, and marketing operations.

controls outlines the controls that will be used to monitor progress, allow management to review imple- mentation results, and spot products that are not meeting their goals. it includes measures of return on marketing investment.

chapter 2: company and Marketing strategy 59

agricultural, and industrial equipment requires day-to-day decisions and actions by thousands of people both inside and outside the organization. Marketing managers make decisions about target segments, branding, product development, pricing, promo- tion, and distribution. They talk with engineering about product design, with manu- facturing about production and inventory levels, and with finance about funding and cash flows. They also connect with outside people, such as advertising agencies to plan ad campaigns and the news media to obtain publicity support. The sales force urges and  supports independent John Deere dealers and large retailers like Lowe’s in their efforts to convince residential, agricultural, and industrial customers that “Nothing Runs Like a Deere.”

Marketing Department organization The company must design a marketing organization that can carry out marketing strat- egies and plans. If the company is very small, one person might do all the research, selling, advertising, customer service, and other marketing work. As the company expands, however, a marketing department emerges to plan and carry out marketing activities. In large companies, this department contains many specialists—product and market managers, sales managers and salespeople, market researchers, and advertising and social media experts, among others.

To head up such large marketing organizations, many companies have now created a chief marketing officer (or CMO) position. This person heads up the company’s entire marketing operation and represents marketing on the company’s top management team. The CMO position puts marketing on equal footing with other “C-level” executives, such as the chief operating officer (COO) and the chief financial officer (CFO). As a member of top management, the CMO’s role is to champion the customer’s cause—to be the “chief customer officer.” To that end, British Airways even went so far as to rename its top mar- keting position as Director of Customer Experience.16

Modern marketing departments can be arranged in several ways. The most com- mon form of marketing organization is the functional organization. Under this orga- nization, different marketing activities are headed by a functional specialist—a sales manager, an advertising manager, a marketing research manager, a customer service manager, or a new product manager. A company that sells across the country or inter- nationally often uses a geographic organization. Its sales and marketing people are assigned to specific countries, regions, and districts. Geographic organization allows salespeople to settle into a territory, get to know their customers, and work with a mini-

mum of travel time and cost. Companies with many very different products or brands often create a prod- uct management organization. Using this approach, a product manager develops and implements a com- plete strategy and marketing program for a specific product or brand.

For companies that sell one product line to many different types of markets and customers who have different needs and preferences, a market or customer management organization might be best. A market man- agement organization is similar to the product manage- ment organization. Market managers are responsible for developing marketing strategies and plans for their spe- cific markets or customers. This system’s main advan- tage is that the company is organized around the needs of specific customer segments. Many companies develop special organizations to manage their relationships with large customers. For example, companies such as P&G and Stanley Black & Decker have created large teams, or even whole divisions, to serve large customers, such as Walmart, Target, Kroger, or Home Depot.

Marketers must continually plan their analysis, implementation, and control activities. Kzenon/Shutterstock

60 Part 1: Defining Marketing and the Marketing Process

Large companies that produce many different products flowing into many different geographic and customer markets usually employ some combination of the functional, geographic, product, and market organization forms.

Marketing organization has become an increasingly important issue in recent years. More and more, companies are shifting their brand management focus toward customer management—moving away from managing only product or brand profitability and toward managing customer profitability and customer equity. They think of themselves not as managing portfolios of brands but as managing portfolios of customers. And rather than managing the fortunes of a brand, they see themselves as managing customer-brand engagement, experiences, and relationships.

Marketing control Because many surprises occur during the implementation of marketing strategies and plans, marketers must practice constant marketing control—measuring and evaluating results and taking corrective action to ensure that the objectives are attained. Marketing control involves four steps. Management first sets specific marketing goals. It then mea- sures its performance in the marketplace and evaluates the causes of any differences between expected and actual performance. Finally, management takes corrective action to close the gaps between goals and performance. This may require changing the action programs or even changing the goals.

Operating control involves checking ongoing performance against the annual plan and taking corrective action when necessary. Its purpose is to ensure that the company achieves the sales, profits, and other goals set out in its annual plan. It also involves deter- mining the profitability of different products, territories, markets, and channels. Strategic control involves looking at whether the company’s basic strategies are well matched to its opportunities. Marketing strategies and programs can quickly become outdated, and each company should periodically reassess its overall approach to the marketplace.

Measuring and Managing Marketing return on investment Marketing managers must ensure that their marketing dollars are being well spent. In the past, many marketers spent freely on big, expensive marketing programs and flashy ad- vertising campaigns, often without thinking carefully about the financial returns on their spending. Their goal was often a general one—to “build brands and consumer preference.” They believed that marketing produces intangible creative outcomes, which do not lend themselves readily to measures of productivity or return.

In today’s tighter economic times, however, all that has changed. The free-spending days have been replaced by a new era of marketing measurement and accountability. More than ever, today’s marketers are being held accountable for linking their strategies and tactics to measurable marketing performance outcomes. One important marketing perfor- mance measure is marketing return on investment (or marketing ROI). Marketing ROI is the net return from a marketing investment divided by the costs of the marketing invest- ment. It measures the profits generated by investments in marketing activities.

In one recent survey, 64 percent of senior marketers rated accountability as a top three concern, well ahead of the 50 percent rating the hot topic of integrated market- ing communications as a top concern. However, another survey found that only about 36 percent of chief marketing officers felt able to quantitatively prove the short-term impact of marketing spending on their business; only about 29 percent felt able to prove long-term impact. Another CMO survey showed that a startling 57 percent of CMOs don’t take ROI measures into account when setting their marketing budgets, and an even more startling 28 percent said they base their marketing budgets on “gut instinct.” Clearly, marketers must think more strategically about the marketing performance returns of their marketing spending.17

Marketing control Measuring and evaluating the results of marketing strategies and plans and taking corrective action to ensure that the objectives are achieved.

author comment Measuring marketing return on

investment has become a major emphasis. But it can be difficult. For example, a Super

Bowl ad reaches more than 100 million consumers but may cost more than $4

million for 30 seconds of airtime. How do you measure the return on such an investment

in terms of sales, profits, and building customer engagement and relationships?

We’ll look at this question again in Chapter 12.

Marketing return on investment (or marketing roi) The net return from a marketing investment divided by the costs of the marketing investment.

chapter 2: company and Marketing strategy 61

Marketing ROI can be difficult to measure. In measuring financial ROI, both the R and the I are uniformly measured in dollars. For example, when buying a piece of equip- ment, the productivity gains resulting from the purchase are fairly straightforward. As of yet, however, there is no consistent definition of marketing ROI. For instance, returns such as engagement, advertising, and brand-building impact aren’t easily put into dollar returns.

A company can assess marketing ROI in terms of standard marketing performance measures, such as brand awareness, sales, or market share. Many companies are assembling such measures into marketing dashboards—meaningful sets of marketing performance mea- sures in a single display used to monitor strategic marketing performance. Just as automobile dashboards present drivers with details on how their cars are performing, the marketing dashboard gives marketers the detailed measures they need to assess and adjust their market- ing strategies. For example, VF Corporation uses a marketing dashboard to track the per- formance of its more than 30 lifestyle apparel brands—including Wrangler, Lee, The North Face, Vans, Nautica, 7 For All Mankind, Timberland, and others. VF’s marketing dashboard tracks brand equity and trends, share of voice, market share, online sentiment, and market- ing ROI in key markets worldwide, not only for VF brands but also for competing brands.18

Increasingly, however, beyond standard performance measures, marketers are using customer-centered measures of marketing impact, such as customer acquisition, customer engagement, customer retention, customer lifetime value, and customer equity. These mea- sures capture not only current marketing performance but also future performance result- ing from stronger customer relationships. figure 2.8 views marketing expenditures as investments that produce returns in the form of more profitable customer relationships.19 Marketing investments result in improved customer value, engagement, and satisfaction, which in turn increase customer attraction and retention. This increases individual customer lifetime values and the firm’s overall customer equity. Increased customer equity, in relation to the cost of the marketing investments, determines return on marketing investment.

Regardless of how it’s defined or measured, the marketing ROI concept is here to stay. In good times or bad, marketers will be increasingly accountable for the performance outcomes of their activities.

Marketing returns

Marketing investments

Marketing return on investment

Improved customer value and engagement

Increased customer attraction

Increased customer retention

Cost of marketing investment

Beyond measuring marketing return on investment in terms of standard performance measures such as sales or market share, many companies are using customer relationship measures, such as customer satisfaction, engagement, retention, and equity. These are more difficult to measure but capture both current and future performance.

Increased customer lifetime values and customer equity

figure 2.8 Marketing return on investment Source: Adapted from Roland T. Rust, Katherine N. Lemon, and Valerie A. Zeithaml, “Return on Marketing: Using Consumer Equity to Focus Marketing Strategy,” Journal of Marketing, January 2004, p. 112. Used with permission.

MyMarketingLab If assigned by your instructor, complete the questions marked with the from the EOC Discussion Questions section in the MyLab. To complete the Marketing by the Numbers problems found in this section, go to your Assignments in the MyLab.

62 Part 1: Defining Marketing and the Marketing Process

chaPter reVieW anD critical thinking

In Chapter 1, we defined marketing and outlined the steps in the marketing process. In this chapter, we examined company- wide strategic planning and marketing’s role in the organiza- tion. Then we looked more deeply into marketing strategy and the marketing mix and reviewed the major marketing manage- ment functions. So you’ve now had a pretty good overview of the fundamentals of modern marketing.

objectiVe 2-1 explain company-wide strategic planning and its four steps. (pp 40–43)

Strategic planning sets the stage for the rest of the company’s planning. Marketing contributes to strategic planning, and the overall plan defines marketing’s role in the company.

Strategic planning involves developing a strategy for long- run survival and growth. It consists of four steps: (1) defining the company’s mission, (2) setting objectives and goals, (3) designing a business portfolio, and (4) developing functional plans. The company’s mission should be market oriented, realistic, specific, motivating, and consistent with the market environment. The mission is then transformed into detailed supporting goals and objectives, which in turn guide decisions about the business port- folio. Then each business and product unit must develop detailed marketing plans in line with the company-wide plan.

objectiVe 2-2 Discuss how to design business portfolios and develop growth strategies. (pp 43–48)

Guided by the company’s mission statement and objec- tives, management plans its business portfolio, or the collec- tion of businesses and products that make up the company. The firm wants to produce a business portfolio that best fits its strengths and weaknesses to opportunities in the environ- ment. To do this, it must analyze and adjust its current busi- ness portfolio and develop growth and downsizing strategies for adjusting the future portfolio. The company might use a for- mal portfolio-planning method. But many companies are now designing more- customized portfolio-planning approaches that better suit their unique situations.

objectiVe 2-3 explain marketing’s role in strategic planning and how marketing works with its partners to create and deliver customer value. (pp 48–50)

Under the strategic plan, the major functional departments— marketing, finance, accounting, purchasing, operations, information systems, human resources, and others—must work

reVieWing anD extenDing the concePts

objectives review together to accomplish strategic objectives. Marketing plays a key role in the company’s strategic planning by providing a marketing concept philosophy and inputs regarding attractive market opportunities. Within individual business units, mar- keting designs strategies for reaching the unit’s objectives and helps to carry them out profitably.

Marketers alone cannot produce superior value for cus- tomers. Marketers must practice partner relationship manage- ment, working closely with partners in other departments to form an effective value chain that serves the customer. And they must also partner effectively with other companies in the marketing system to form a competitively superior value delivery network.

objectiVe 2-4 Describe the elements of a customer value-driven marketing strategy and mix and the forces that influence it. (pp 50–56)

Customer engagement, value, and relationships are at the center of marketing strategy and programs. Through market segmen- tation, targeting, differentiation, and positioning, the company divides the total market into smaller segments, selects segments it can best serve, and decides how it wants to bring value to target consumers in the selected segments. It then designs an integrated marketing mix to produce the response it wants in the target market. The marketing mix consists of product, price, place, and promotion decisions (the four Ps).

objectiVe 2-5 list the marketing management functions, including the elements of a marketing plan, and discuss the importance of measuring and managing marketing return on investment. (pp 56–61)

To find the best strategy and mix and to put them into action, the company engages in marketing analysis, planning, implementa- tion, and control. The main components of a marketing plan are the executive summary, the current marketing situation, threats and opportunities, objectives and issues, marketing strategies, action programs, budgets, and controls. Planning good strate- gies is often easier than carrying them out. To be successful, companies must also be effective at implementation—turning marketing strategies into marketing actions.

Marketing departments can be organized in one way or a combination of ways: functional marketing organization, geographic organization, product management organization, or market management organization. In this age of customer relationships, more and more companies are now changing

chapter 2: company and Marketing strategy 63

their organizational focus from product or territory manage- ment to customer relationship management. Marketing organi- zations carry out marketing control, both operating control and strategic control.

More than ever, marketing accountability is the top market- ing concern. Marketing managers must ensure that their market-

ing dollars are being well spent. In a tighter economy, today’s marketers face growing pressures to show that they are adding value in line with their costs. In response, marketers are develop- ing better measures of marketing return on investment. Increas- ingly, they are using customer-centered measures of marketing impact as a key input into their strategic decision making.

key terms objective 2-1 Strategic planning (p 40) Mission statement (p 41)

objective 2-2 Business portfolio (p 43) Portfolio analysis (p 43) Growth-share matrix (p 45) Product/market expansion grid (p 47) Market penetration (p 47) Market development (p 47)

Product development (p 48) Diversification (p 48)

objective 2-3 Value chain (p 49) Value delivery network (p 50)

objective 2-4 Marketing strategy (p 51) Market segmentation (p 51) Market segment (p 52)

Market targeting (p 52) Positioning (p 52) Differentiation (p 53) Marketing mix (p 53)

objective 2-5 SWOT analysis (p 56) Marketing implementation (p 57) Marketing control (p 60) Marketing return on investment

(marketing ROI) (p 60)

Discussion Questions 2-1. Define strategic planning and briefly describe

the four steps that lead managers and the firm through the strategic planning process. Discuss the role marketing plays in this process. (AASCB: Communication)

2-2. Name and define the four product/market growth strategies. (AACSB: Communications; Reflective Thinking)

2-3. Define each of the four Ps. What insights might a firm gain by considering the four As rather than the four Ps? (AACSB: Communication; Reflective Thinking)

2-4. How are marketing departments organized? Which organization is best? (AACSB: Communication, Reflective Thinking)

2-5. Why must marketers practice marketing control, and how is it done? (AACSB: Communication)

critical thinking exercises 2-6. Form a small group and conduct a SWOT analysis for

your school, a group that you are a member of, a pub- licly traded company, a local business, or a nonprofit organization. Based on your analysis, suggest a strat- egy from the product/market expansion grid and an appropriate marketing mix to implement that strategy. (AACSB: Communication; Reflective Thinking)

2-7. The Boston Consulting Group (BCG) Matrix is a useful strategic tool. Another classic portfolio planning meth- od useful to marketers is the GE/McKinsey Matrix (see

www.quickmba.com/strategy/matrix/ge-mckinsey/). How is the GE/McKinsey Matrix similar to and differ- ent from the BCG matrix? (AACSB: Communication; Reflective Thinking)

2-8. Create a mission statement for a nonprofit organization you would be interested in starting. Have another stu- dent evaluate your mission statement while you evalu- ate the other student’s statement, suggesting areas of improvement. (AACSB: Communication; Reflective Thinking)

64 Part 1: Defining Marketing and the Marketing Process

Founded in 1998 as an Internet search engine, Google’s mission statement remains the same to this day: to “organize the world’s information and make it universally accessible and useful.” Google is certainly successful, with revenues growing from $3.2 billion in 2002 to $66 billion in 2014, 90 percent of which comes from advertisers. Google is expanding rapidly into other areas well beyond its search engine, such as self-driving cars, smart contact lenses that measure a person’s blood sugar levels, Internet- bearing balloons to create Internet hotspots anywhere on earth, and even magnetic nanoparticles to search for disease within the human bloodstream. Google has been on a buying frenzy recently, purchasing security, biotech, and robotic companies in a quest to capitalize on the Internet of Things (IoT) phenomenon. Experts predict there will be 25 million connected devices in our homes and workplaces by 2020. Google recently announced its new IoT operating system, dubbed Brillo (after the Brillo scrubbing pad

because it is a scrubbed-down version of its Android operating system), targeted to developers of smart products connected to the Internet, such as ovens, thermostats, and even toothbrushes. It has also developed Weave, the corresponding IoT language that will allow smart products to speak to each other. Perhaps one day you will be sitting in your Google self-driving car, streaming the news, checking your blood sugar, and cooling your home by turning down your thermostat on the way home from work.

2-9. Conduct research on Google to learn more about its prod- ucts and services. Some say the time has come for Google to create a new mission statement. Do you agree? Explain. (AACSB: Communication; Reflective Thinking)

2-10. Create a new mission statement for Google that will take it through the rest of this century. (AACSB: Com- munication; Reflective Thinking)

Minicases anD aPPlications

online, Mobile, and social Media Marketing google’s Mission

Marketing ethics family feud Otsuka Kagu, a well-known furniture store in Japan, made news recently because of an ugly family feud between the founding father and his daughter. Mr. Otsuka started the store in 1969 and built it into one of Japan’s leading furniture retail- ers, now a publicly traded company. Mr. Otsuka’s business model focused on high-end customers using a membership sys- tem, large showrooms, customer advisors, and strong relation- ships with a wide range of suppliers. This strategy worked until the 2008 worldwide financial crisis, when the company started experiencing losses as customers sought out lower-priced rivals like IKEA. As a result, Mr. Otsuka put his daughter in charge as president of the company. Ms. Otsuka cut prices, renovated stores, and created a line of lower-priced walk-in stores, bring- ing the company back to profitability. Although customers

apparently approved of Ms. Otsuka’s actions, her father and many employees did not. So Mr. Otsuka fired his daughter and reverted to the company’s original strategy. Mr. Otsuka even went so far as to call his daughter a “bad child” and label her marketing actions “terrorism.” When the company’s profitabil- ity once again suffered, shareholders voted to bring back Ms. Otsuka as president of the company.

2-11. Do you think Mr. Otsuka’s demands to continue focus- ing on high-end customers are reasonable? (AACSB: Communication; Ethical Reasoning)

2-12. Discuss an example of a company that successfully changed its marketing strategy. (AACSB: Communica- tion; Reflective Thinking)

Marketing by the numbers apple Versus Microsoft In 2014, Apple reported profits of more than $50 billion on sales of $182 billion. For that same period, Microsoft posted a profit of almost $30 billion on sales of $88 billion. So Apple is a better marketer, right? Sales and profits provide information to com- pare the profitability of these two competitors, but between these numbers is information regarding the efficiency of marketing efforts in creating those sales and profits. Appendix 3, Marketing by the Numbers, discusses other marketing profitability mea- sures beyond the return on marketing investment (marketing ROI) measure described in this chapter. Review the Appendix 2 to answer the questions using the following information from the two companies’ incomes statements (all numbers are in thousands):

Apple Microsoft

Sales $182,795,000 $86,833,000

Gross Profit $70,537,000 $59,899,000

Marketing Expenses $8,994,750 $15,474,000

Net Income (Profit) $52,503,000 $27,759,000

2-13. Calculate profit margin, net marketing contribution, marketing return on sales (or marketing ROS), and mar- keting return on investment (or marketing ROI) for each company. Which company is performing better? (AAC- SB: Communication; Use of IT; Analytic Thinking)

chapter 2: company and Marketing strategy 65

2-14. Go to Yahoo! Finance (http://finance.yahoo.com/) and find the income statements for two other compet- ing companies. Perform the same analyses for these companies that you performed for the previous ques- tion. Which company is doing better overall and with

respect to marketing? For marketing expenses, use 75 percent of the company’s reported “Selling General and Administrative” expenses, as not all of the expenses in that category are marketing expenses. (AACSB: Com- munication; Analytic Reasoning; Reflective Thinking)

Video case konica Minolta Konica Minolta has been in business since 1873. For decades, it was a successful photo company selling cameras, equip- ment, and supplies primarily to final consumers. But dramatic changes in the marketing environment forced the company to reevaluate its marketing strategy and ultimately to abandon what had been its primary industry.

Today, Konica Minolta has a successful business-to- business strategy centered on office equipment and print products for commercial printers. The company has also developed a health-care and medical group, an optics group,  and a division that produces components for mobile

phones and televisions. With the advent and growth of social media, Konica Minolta’s marketing strategy continues to evolve.

After viewing the video featuring Konica Minolta, answer the following questions:

2-15. What is Konica Minolta’s mission? 2-16. What market conditions led Konica Minolta to reevalu-

ate its marketing strategy? 2-17. How has Konica Minolta modified its marketing mix?

Are these changes in line with its mission?

company cases 2 samsung/1 fedex/3 sony See Appendix 1 for cases appropriate for this chapter. Case 2, Samsung: A Strategic Plan for Success. Once an off-brand, strategic planning has made Samsung the number one consumer electronics company. Case 1, FedEx: Making Every Customer Experience Outstanding. From the time FedEx opened for

business over 40 years ago, the company strategy has been built on a foundation of obsessive customer focus. Case 3, Sony: Battling the Marketing Environment’s “Perfect  Storm.” Where Samsung has succeeded through sound strategic plan- ning, Sony is struggling due to the lack thereof.

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

2-18. Explain the roles of market segmentation, market targeting, differentiation, and positioning in implementing an effective marketing strategy. (AACSB: Communication)

2-19. Marketers are increasingly held accountable for demonstrating marketing suc- cess. Research the various marketing metrics, in addition to those described in the chapter and Appendix 3, used by marketers to measure marketing performance. Write a brief report of your findings. (AACSB: Written and Oral Communication; Reflective Thinking)

Part 1: Defining Marketing anD the Marketing Process (chaPters 1–2) Part 2: UnDerstanDing the MarketPlace anD cUstoMer ValUe (chaPters 3–5) Part 3: Designing a cUstoMer ValUe-DriVen strategy anD Mix (chaPters 6–14) Part 4: extenDing Marketing (chaPters 15–16)

3 objectiVe 3-1 Describe the environmental forces that affect the company’s ability to serve its customers. The Microenvironment (68–72); The Macroenvironment (72)

objectiVe 3-2 explain how changes in the demographic and economic environments affect marketing decisions. The Demographic Environment (72–80); The Economic Environment (80–81)

objectiVe 3-3 identify the major trends in the firm’s natural and technological environments. The Natural Environment (81–82); The Technological Environment (82–85)

analyzing the Marketing environment

objectiVe 3-4 explain the key changes in the political and cultural environments. The Political and Social Environment (85–88); The Cultural Environment (88–91)

objectiVe 3-5 Discuss how companies can react to the marketing environment. Responding to the Marketing Environment (91–93)

Previewing the concepts so far, you’ve learned about the basic concepts of marketing and the steps in the marketing process for engaging and building profitable relationships with targeted consumers. next, we’ll begin digging deeper into the first step of the marketing process—understanding the marketplace and customer needs and wants. in this chapter, you’ll see that marketing operates in a complex and changing environment. other actors in this environment— suppliers, intermediaries, customers, competitors, publics, and others—may work with or against the company. Major environmental forces—demographic, economic, natural, tech- nological, political, and cultural—shape marketing opportunities, pose threats, and affect the company’s ability to engage customers and build customer relationships. to develop effective marketing strategies, a company must first understand the environment in which marketing operates.

to start, let’s look at kellogg, the world’s largest cereal maker and one of its most rec- ognized and respected brands. kellogg’s cereals have been staples in american homes for generations. however, as demographic, cultural, lifestyle, and other environmental shifts have changed how people eat breakfast, mighty kellogg has had difficulty adapting. the storied company now finds itself battling to bring modern breakfast eaters back to its table.

chaPter roaD MaP objective outline

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first stop kellogg: Losing Its Snap, Crackle, and Pop? For more than 109 years, ever since the Kellogg brothers of Battle Creek, Michigan, first perfected the process of making toasted corn flakes, the morning bowl of cereal has been a daily ritual in U.S. homes. Generations of sleepy-eyed Ameri- cans have bellied up to the breakfast table, filled a bowl with crunchy goodness, and munched their way through enough fuel to fortify them until lunch.

That morning ritual has made Kellogg the world’s largest cereal maker. For more than a century, the company’s sto- ried brands—such as Kellogg’s Corn Flakes, Frosted Flakes, Froot Loops, Rice Krispies, Frosted Mini-Wheats, Raisin Bran, and Special K—have helped define the American breakfast experience.

From its origins, Kellogg has capitalized on environmental trends and shifts, even led them. Before Kellogg, most people ate leftovers for breakfast, a sure-fire path to late-morning in- digestion. Then John and Will Kellogg patented the process for making a healthy alternative, “flaked cereal,” leading to their first successful product, Kellogg’s Corn Flakes. When television appeared in 1950s, Kellogg pioneered the pairing of its cereal brands with familiar animated mascots, such as Tony the Tiger for Frosted Flakes; Toucan Sam for Froot Loops; and Snap, Crackle, and Pop for Rice Krispies. And when cereal sales waned in the 1980s, Kellogg al- most single-handedly grew the entire cereal category by 50 percent in just five years by targeting baby boomers with products positioned on nutrition and convenience.

But in recent years, amid a flurry of demographic, cultural, and life- style changes, Kellogg’s bowl-of-cereal breakfast has lost a lot of its allure. Today, as people increasingly reach for granola bars or Greek yo- gurt, cold cereal consumption has dipped. As breakfast-eating behavior has changed, however, Kellogg has not. As a result, in recent years, Kellogg’s overall revenues and profits have lost their snap, crackle, and pop. Its morning-foods sales—which account for the lion’s share of its overall revenues—have been hardest hit. Last year, for example, sales of 19 of Kellogg’s 25 top cereals dropped by as much as 14 percent.

Americans simply aren’t eating as much cereal these days. Gone are the times when families gathered around the breakfast table before Dad headed off to work while Mom stayed home, made lunches, and got the kids off to school. Cold cereal fit well with that routine. But now, with both parents often working, it’s a grab-and-go breakfast world, with little time to linger over a bowl of Raisin Bran and the morning newspaper. “For a while, breakfast cereal was con- venience food,” says one food historian. “But convenience is rela- tive. It’s more convenient [now] to grab a breakfast bar, yogurt, a piece of fruit, or a breakfast sandwich at some fast-food place than to eat a bowl of breakfast cereal.” Kellogg does market some grab- and-go breakfast lines—such as Eggo frozen waffles, Pop-Tarts toaster pastries, and Nutri-Grain cereal bars. But the modest gains in those products have done little to offset the bigger losses from Kellogg’s powerhouse cereals.

There’s another major lifestyle trend affecting Kellogg’s cereal business—Americans have become more health-conscious. Increas- ingly, consumers are looking for food with attributes such as “low-carb,”

kellogg is the world’s largest cereal

maker. but as demographic, cultural, lifestyle, and other

shifts in the marketing environment change how people eat breakfast,

mighty kellogg finds itself battling to bring modern

breakfast eaters back to its table.

“gluten-free,” “organic,” and “non-GMO” (genetically modified organisms). That presents a big problem for Kellogg, which churns out box after box of carb-heavy, processed foods made from corn, oats, wheat, and rice.

Increased health concerns also add new weight to long-standing claims by food activists that the cereal industry is peddling junk food to children. “Many of the kid-oriented cereals have a fair amount of sugar in them,” says one Kellogg critic. “Their Eggo waffles are mostly white flour. Pop-Tarts are white flour and sugar. For a company that started out as a health-food company, they’ve turned into something very dif- ferent.” For some discerning breakfast eaters, says one analyst, “Tony the Tiger and Toucan Sam may seem less like friendly childhood avatars and more like malevolent sugar traffickers.”

Kellogg has respond- ed to some of these con- cerns. Over the years it has lowered the amount of sugar in its top-selling children’s cereals, added gluten-free and GMO-free cereal varieties, and added healthier extensions such as Raisin Bran with Cranberries and Special K Red Berries, a current best seller. In 2000, Kellogg also purchased Kashi, a California-based health-food cereal brand known for natural and organic ingredients. Leveraging Kellogg’s resources and know-how, Kashi’s annual rev- enues grew from $25 million to more than $600 million in less than a decade.

But moves toward a healthier Kellogg have been compromised by decisions that seemed at odds with shifting customer lifestyles and preferences. For example, at the same time that Kellogg was adding healthier options to its mainstream brands, it was weighing

for generations, kellogg’s storied cereal brands have helped to define the american breakfast experience. but as modern american lifestyles and breakfast-eating behaviors have changed, kellogg has lost some of its snap, crackle, and pop. Associated Press

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down its more wholesome brands like Special K and Kashi with less- than-healthy extensions—such as Special K Chocolately Pretzel Bars, Special K Fudge Brownie Bites, Kashi GoLean Vanilla Graham Clusters cereal, and Kashi Blueberry Frozen Waffles—all processed foods loaded with carbs and calories. Kashi also now sells cookies, crackers, pizzas, and frozen entrees in addition to breakfast foods. As a result, these “healthier” Kellogg brands have suffered setbacks. Last year, some Special K versions posted double-digit declines. And the Kashi brand is now struggling with both its identity and its sales. “Kashi is a brand that has lost its way,” says an analyst. “Many of its varieties are not organic. Many have GMOs.”

Kellogg has plans to reenergize its breakfast sales, such as re- storing Kashi’s credibility among health-food shoppers and reposi- tioning Special K from a diet brand to one with broader appeal to health-conscious consumers. And the company is busy developing new on-trend breakfast products. Kellogg has also reduced its reli- ance on cereals with the acquisitions of big snack brands such as Pringles and Keebler—cereal now accounts for 45 percent of its business, down from 70 percent 15 years ago.

Still, some analysts wonder if Kellogg’s heart is really into keep- ing up with new health and lifestyle trends. For example, its recent

unveiling of a new gluten-free Special K was largely overshadowed by the enthusiastic introduction of peanut butter and jelly Pop-Tarts, a product largely out of sync with where the U.S. food culture is head- ing. And although Kellogg has already put 15 new GMO-free cereals on supermarket shelves, behind the scenes the company is spending millions to defeat ballot initiatives in three Western states that would require companies to identify GMO ingredients on their labels. Finally, the Pringles and Keebler acquisitions were more off-trend than on, and they moved the company farther away from its breakfast-foods core.

Despite its recent woes, Kellogg remains a strong, iconic brand. Kellogg’s CEO doesn’t seem all that worried: “The company has been around for 109 years,” he says. “We have the time. We have a plan to turn it around.” Some analysts, however, paint a more omi- nous picture. “Carbs, sugar, and stubbornness are killing Kellogg,” says one. Whatever their views, all observers agree that Kellogg is at a critical juncture. As consumers change, Kellogg must change with them. The company’s difficulties provide a cautionary tale of what can happen when a company—even a dominant market leader— fails to adapt to its changing marketing environment. Companies that understand and adapt well to their environments can thrive. Those that don’t risk their very survival.1

company’s marketing environment consists of the actors and forces outside marketing that affect marketing management’s ability to build and maintain success- ful relationships with target customers. Like Kellogg, companies must constantly

watch and adapt to the changing environment—or, in many cases, lead those changes. More than any other group in the company, marketers must be environmental trend

trackers and opportunity seekers. Although every manager in an organization should watch the outside environment, marketers have two special aptitudes. They have disciplined methods—marketing research and marketing intelligence—for collecting information and developing insights about the marketing environment. They also spend more time in customer and competitor environments. By carefully studying the environment, marketers can adapt their strategies to meet new marketplace challenges and opportunities.

The marketing environment consists of a microenvironment and a macroenvironment. The microenvironment consists of the actors close to the company that affect its abil- ity to engage and serve its customers—the company, suppliers, marketing intermediaries, customer markets, competitors, and publics. The macroenvironment consists of the larger societal forces that affect the microenvironment—demographic, economic, natural, tech- nological, political, and cultural forces. We look first at the company’s microenvironment.

the Microenvironment Marketing management’s job is to build relationships with customers by creating customer value and satisfaction. However, marketing managers cannot do this alone. figure 3.1 shows the major actors in the marketer’s microenvironment. Marketing success requires building relationships with other company departments, suppliers, marketing interme- diaries, competitors, various publics, and customers, which combine to make up the company’s value delivery network.

the company In designing marketing plans, marketing management takes other company groups into account—groups such as top management, finance, research and development (R&D), purchasing, operations, human resources, and accounting. All of these interrelated groups

Marketing environment The actors and forces outside marketing that affect marketing management’s ability to build and maintain successful relationships with target customers.

Microenvironment The actors close to the company that affect its ability to engage and serve its customers—the company, suppliers, marketing intermediaries, customer markets, competitors, and publics.

Macroenvironment The larger societal forces that affect the microenvironment—demographic, economic, natural, technological, political, and cultural forces.

author comment The microenvironment includes all the actors close to the company that affect, positively or negatively, its ability to create value for and

relationships with customers.

a

chapter 3: analyzing the Marketing environment 69

form the internal environment. Top management sets the company’s mission, objec- tives, broad strategies, and policies. Marketing managers make decisions within these broader strategies and plans. Then, as we discussed in Chapter 2, marketing managers must work closely with other company departments. With marketing taking the lead, all departments—from manufacturing and finance to legal and human resources—share the responsibility for understanding customer needs and creating customer value.

suppliers Suppliers form an important link in the company’s overall customer value delivery net- work. They provide the resources needed by the company to produce its goods and ser- vices. Supplier problems can seriously affect marketing. Marketing managers must watch supply availability and costs. Supply shortages or delays, natural disasters, and other events can cost sales in the short run and damage customer satisfaction in the long run. Rising supply costs may force price increases that can harm the company’s sales volume.

Most marketers today treat their suppliers as partners in creating and delivering cus- tomer value. For example, Honda knows the importance of building close relationships with its extensive network of suppliers, who furnish everything from fuel tanks, brake controls, and seating systems to production equipment and office supplies.2

In the United States alone, American Honda purchases $23 billion worth of auto parts and materials annually from 530 strategic suppliers in 34 states. It spends billions of dollars more on maintenance, repair, and operations (MRO) supplies and services from another 13,900 suppliers. Outside purchases represent about 75 percent of the cost of making a Honda vehicle. So Honda

views strategic suppliers as key players in its success and devel- ops deep relationships and teamwork with them. “These suppliers are literally considered extensions of Honda,” says one insider.

For example, Honda requires that strategic suppliers open up their books and give Honda full access to their financial information. This helps Honda purchasing associates, Honda engineers, and supplier engineers work as a team to achieve target costs and quality standards, often improving suppli- ers’ performance and profit margins in the process. Supplier personnel also participate in Honda training programs on leadership, finance, quality, and other topics. And Honda meets formally each year with strategic suppliers to review the previ- ous year’s results and set goals for the coming year. As a result of such teamwork, Honda has developed healthy, long-term supplier relationships. “Almost 100 percent of the original suppliers selected in the late 1980s are still Honda suppliers today,” says the insider. In a recent industry survey, automotive suppliers rated Honda the “most preferred” customer among the world’s top six auto manufacturers.

figure 3.1 actors in the Microenvironment

suppliers: through close teamwork, honda has developed healthy, long-term supplier relationships. strategic suppliers are considered extensions of honda, to the benefit of both partners. (right) © Ian Dagnall/Alamy Stock Photo (left) Bloomberg via Getty Images

70 Part 2: Understanding the Marketplace and customer Value

Marketing intermediaries Marketing intermediaries help the company promote, sell, and distribute its products to final buyers. They include resellers, physical distribution firms, marketing services agen- cies, and financial intermediaries. Resellers are distribution channel firms that help the company find customers or make sales to them. These include wholesalers and retailers that buy and resell merchandise. Selecting and partnering with resellers is not easy. No longer do manufacturers have many small, independent resellers from which to choose. They now face large and growing reseller organizations, such as Walmart, Target, Home Depot, Costco, and Best Buy. These organizations frequently have enough power to dic- tate terms or even shut smaller manufacturers out of large markets.

Physical distribution firms help the company stock and move goods from their points of origin to their destinations. Marketing services agencies are the marketing research firms, advertising agencies, media firms, and marketing consulting firms that help the com- pany target and promote its products to the right markets. Financial intermediaries include banks, credit companies, insurance companies, and other businesses that help finance trans- actions or insure against the risks associated with the buying and selling of goods.

Like suppliers, marketing intermediaries form an important component of the compa- ny’s overall value delivery network. In its quest to create satisfying customer relationships, the company must do more than just optimize its own performance. It  must partner effectively with marketing intermediaries to optimize the performance of the entire system.

Thus, today’s marketers recognize the importance of working with their intermediaries as partners rather than simply as channels through which they sell their products. For example, when Coca-Cola signs on as the exclusive beverage provider for a fast-food chain, such as

McDonald’s, Wendy’s, or Subway, it provides much more than just soft drinks. It also pledges powerful marketing support:3

Coca-Cola assigns cross-functional teams dedicated to under- standing the finer points of each retail partner’s business. It conducts a staggering amount of research on beverage consum- ers and shares these insights with its partners. It analyzes the demographics of U.S. zip code areas and helps partners deter- mine which Coke brands are preferred in their areas. Coca-Cola has even studied the design of drive-through menu boards to better understand which layouts, fonts, letter sizes, colors, and visuals induce consumers to order more food and drink. Based on such insights, the Coca-Cola Foodservice group develops marketing programs and merchandising tools that help its retail partners improve their beverage sales and profits. Its Web site, www.CokeSolutions.com, provides retailers with a wealth of information, business solutions, merchandising tips, advice on digital and social media marketing, and techniques on how to go green. “At Coca-Cola we always strive to be our customers’ most valued partner,” says Coca-Cola’s vice president of Foodservice Customer Marketing. Such intense partnering has made Coca- Cola a runaway leader in the U.S. fountain-soft-drink market.

competitors The marketing concept states that, to be successful, a company must provide greater cus- tomer value and satisfaction than its competitors do. Thus, marketers must do more than simply adapt to the needs of target consumers. They also must gain strategic advantage by positioning their offerings strongly against competitors’ offerings in the minds of consumers.

No single competitive marketing strategy is best for all companies. Each firm should consider its own size and industry position compared with those of its competitors. Large firms with dominant positions in an industry can use certain strategies that smaller firms cannot afford. But being large is not enough. There are winning strategies for large firms, but there are also losing ones. And small firms can develop strategies that give them better rates of return than large firms enjoy.

Marketing intermediaries Firms that help the company to promote, sell, and distribute its products to final buyers.

Partnering with intermediaries: coca-cola provides its retail partners with much more than just soft drinks. it also pledges powerful marketing support. Bloomberg via Getty Images

chapter 3: analyzing the Marketing environment 71

Publics The company’s marketing environment also includes various publics. A public is any group that has an actual or potential interest in or impact on an organization’s ability to achieve its objectives. We can identify seven types of publics:

●● Financial publics. This group influences the company’s ability to obtain funds. Banks, investment analysts, and stockholders are the major financial publics.

●● Media publics. This group carries news, features, editorial opinions, and other content. It includes television stations, newspapers, magazines, and blogs and other social media.

●● Government publics. Management must take government developments into ac- count. Marketers must often consult the company’s lawyers on issues of product safety, truth in advertising, and other matters.

●● Citizen-action publics. A company’s marketing decisions may be questioned by consumer organizations, environmental groups, minority groups, and oth- ers. Its public relations department can help it stay in touch with consumer and citizen groups.

●● Local publics. This group includes neighborhood residents and community organizations. Large companies usually work to become responsible mem- bers of the local communities in which they operate. For example, Office Depot serves its communities through the Office Depot Foundation, an in- dependent, nonprofit foundation that serves as Office Depot’s primary chari- table giving arm. The foundation supports a variety of programs that give children tools to succeed in school and in life, build the capacity of nonprofit organizations, and help communities prepare for and overcome disasters. The company backs its “Listen Learn Care” mission with several key community programs supporting children, parents, and teachers. Since 2001, the founda- tion’s National Backpack Program has donated new backpacks containing es- sential school supplies to more than 3.3 million deserving children. The Office

Depot Foundation works with the Kids In Need Foundation to fund Ready, Steady, GO! teacher grants that inspire innovative hands-on learning projects in primary and sec- ondary classrooms. And the company’s Be The Difference: Speak Up Against Bullying initiative sponsors school assemblies for students, along with anti- bullying education sessions for par- ents, teachers, and administrators con- ducted by nationally known experts.4

●● General public. A company needs to be concerned about the general public’s attitude toward its products and activities. The public’s image of the company affects its buying behavior.

●● Internal publics. This group includes workers, managers, volunteers, and the board of directors. Large compa- nies use newsletters and other means to inform and motivate their internal publics. When employees feel good about the companies they work for, this positive attitude spills over to the external publics.

Public Any group that has an actual or potential interest in or impact on an organization’s ability to achieve its objectives.

Publics: the office Depot foundation’s “listen learn care” mission calls for giving children tools to succeed in school . . . and in life. its national backpack Program has donated new backpacks containing essential school supplies to more than 3.3 million deserving children. Office Depot Foundation

72 Part 2: Understanding the Marketplace and customer Value

A company can prepare marketing plans for these major publics as well as for its customer markets. Suppose the company wants a specific response from a particular pub- lic, such as goodwill, favorable word of mouth and social sharing, or donations of time or money. The company would have to design an offer to this public that is attractive enough to produce the desired response.

customers Customers are the most important actors in the company’s microenvironment. The aim of the entire value delivery network is to engage target customers and create strong relationships with them. The company might target any or all of five types of customer markets. Consumer markets consist of individuals and households that buy goods and services for personal consumption. Business markets buy goods and services for further processing or use in their production processes, whereas reseller markets buy goods and  services to resell at a profit. Government markets consist of govern- ment agencies that buy goods and services to produce public services or transfer the goods  and services to  others who need them. Finally, international markets consist of these  buyers in other countries, including consumers, producers, resellers, and governments. Each market type has special characteristics that call for careful study by the seller.

the Macroenvironment The company and all of the other actors operate in a larger macroenvironment of forces that shape opportunities and pose threats to the company. figure 3.2 shows the six ma- jor forces in the company’s macroenvironment. Even the most dominant companies can be vulnerable to the often turbulent and changing forces in the marketing environment. Some of these forces are unforeseeable and uncontrollable. Others can be predicted and handled through skillful management. Companies that understand and adapt well to their environments can thrive. Those that don’t can face difficult times. One-time dominant market leaders such as Xerox, Sears, and Sony have learned this lesson the hard way. In the remaining sections of this chapter, we examine these forces and show how they affect marketing plans.

the Demographic environment Demography is the study of human populations in terms of size, density, location, age, gender, race, occupation, and other statistics. The demographic environment is of major interest to marketers because it involves people, and people make up markets. The world population is growing at an explosive rate. It now exceeds 7.2 billion people and is ex- pected to grow to more than 8 billion by the year 2030.5 The world’s large and highly diverse population poses both opportunities and challenges.

author comment The macroenvironment consists of broader

forces that affect the actors in the microenvironment.

author comment Changes in demographics mean changes in markets, so they are very important

to marketers. We first look at the biggest demographic trend—the changing age

structure of the population.

Demography The study of human populations in terms of size, density, location, age, gender, race, occupation, and other statistics.

figure 3.2 Major forces in the company’s Macroenvironment

chapter 3: analyzing the Marketing environment 73

Changes in the world demographic environment have major implications for busi- ness. Thus, marketers keep a close eye on demographic trends and developments in their markets. They analyze changing age and family structures, geographic population shifts, educational characteristics, and population diversity. Here, we discuss the most important demographic trends in the United States.

the changing age structure of the Population The U.S. population currently stands at nearly 321 million and may reach almost 364 mil- lion by 2030.6 The single most important demographic trend in the United States is the changing age structure of the population. Primarily because of falling birthrates and longer life expectancies, the U.S. population is rapidly getting older. In 1980, the median age was 23; by 2050, it is estimated to be 38.7 This aging of the population will have a significant impact on markets and those who service them.

The U.S. population contains several generational groups. Here, we discuss the four largest groups—the baby boomers, Generation X, the Millennials, and Generation Z—and their impact on today’s marketing strategies.

the baby boomers. The post–World War II baby boom produced 78 million baby boomers, who were born between 1946 and 1964. Over the years, the baby boomers have been one of the most powerful forces shaping the marketing environment. The youngest boomers are now in their fifties; the oldest are in their late sixties and well into retirement.

The baby boomers are the wealthiest generation in U.S. history, what one analyst calls “a marketer’s dream.” Today’s baby boomers account for about 35 percent of the U.S. pop- ulation but control an estimated 70 percent of the nation’s disposable income and half of all consumer spending.8 The boomers constitute a lucrative market for financial services, new housing and home remodeling, new cars, travel and entertainment, eating out, health and fitness products, and just about everything else.

In a recent campaign aimed at convincing companies to advertise in its magazine, the AARP (formerly the American Association of Retired Persons) advises that brands focusing on younger demographics groups are missing a big opportu- nity. The AARP ads feature people in their 50s and 60s, with headlines such as “I may be creased, but my money is crisp” and “I may be gray, but my money is as green as it gets.” The ads continue: “Why is it all about 18–34, when they barely have a dime of their own? The story is simple, AARP . . . reaches the best boomers, and 68 percent of those over 50 give money to their adult kids.”

It would be a mistake to think of the older boomers as phasing out or slowing down. For example, the titles of many magazines targeting boomers suggest that these con- sumers are anything but the stereotypical faded, poverty- struck shut-ins. With titles such as Everything Zoomer, WatchBoom, and BOOM! Magazine, they appeal to an ac- tive boomer generation that is redefining the meaning of growing older:9

BOOM! Magazine targets active 50-plus consumers, with an appeal to Live Smart—Live Well—Live Large.” The maga- zine bills itself as “a lifestyle resource for active adults [that] inspires, educates, motivates, and delights readers with a vigor- ous new image of phase-two living.” Monthly topics include health and wellness, travel and leisure, food and wine, history, visual and performing arts, and financial planning. Each issue features local personalities in a Fifty & Fabulous spotlight. Fodder for old folks? You won’t find much of that in BOOM! Magazine or its online newsletter Boom! Blast.

baby boomers The 78 million people born during the years following World War II and lasting until 1964.

targeting baby boomers: BOOM! Magazine targets active 50-plus consumers, urging them to “live smart—live Well—live large.” Boom! Magazine

74 Part 2: Understanding the Marketplace and customer Value

Rather than viewing themselves that way, many of today’s boomers see themselves as entering new life phases. The more active boomers—sometimes called zoomers—have no intention of abandoning their youthful lifestyles as they age. For example, adults over 50 now account for 80 percent of luxury travel spending in America. Boomers are also digitally active and increasingly social media savvy. They are the fastest-growing demo- graphic online, and nine out of 10 boomers have made an online purchase. They are also the fastest-growing social media users, with an 80 percent surge in Facebook usage over the past four years.10

Thus, although the boomers buy lots of products that help them deal with issues of aging—from vitamins to blood pressure monitors to Good Grips kitchen tools—they also constitute a lucrative market for products and services that help them live life to the fullest. For example, Amazon created a site dedicated to customers over 50—called “50+ Active  & Healthy Living.” The site features four sections catering to health-care, medical, and dietary needs but five sections focused on products for travel and leisure, exercise and fitness, personal care, beauty, and entertainment.

generation x. The baby boom was followed by a “birth dearth,” creating another genera- tion of 49 million people born between 1965 and 1976. Author Douglas Coupland calls them Generation X because they lie in the shadow of the boomers.

Considerably smaller than the boomer generation that precedes them and the Millennials who follow, the Generation Xers are a sometimes overlooked consumer group. Although they seek success, they are less materialistic than the other groups; they prize ex- perience, not acquisition. For many of the Gen Xers who are parents, family comes first— both children and their aging parents—and career second. From a marketing standpoint, the Gen Xers are a more skeptical bunch. They tend to research products heavily before they consider a purchase, prefer quality to quantity, and tend to be less receptive to overt marketing pitches. They are more likely to be receptive to irreverent ad pitches that make fun of convention and tradition.

The first to grow up in the Internet era, Generation X is a connected generation that embraces the benefits of new technology. Some 60 percent use a smartphone daily compared with 42 percent of baby boomers. Of the Xers on the Internet, 74 percent use

the Internet for banking, 72 percent use it for researching com- panies or products, and 81 percent have made purchases online. Nearly two-thirds of Xers used Facebook in the last month and 30 percent use Pinterest.11

The Gen Xers, now middle-aged, have grown up and are taking over. They have increasingly displaced the lifestyles, cul- ture, and values of the baby boomers. They are firmly into their careers, and many are proud homeowners with growing families. They are the most educated generation to date, and they possess hefty annual purchasing power.

With so much potential, many brands and organizations fo- cus on Gen Xers as a prime target segment. For example, a full 82 percent of Gen Xers own their own homes, making them an important segment for home-and-hearth marketers. Home improvement retailer Lowe’s markets heavily to Gen X home- owners, urging them to “Never Stop Improving.” Through ads, online videos, and a substantial social media presence, Lowe’s provides ideas and advice on a wide range of indoor and out- door home improvement projects and problems, providing solutions that make life simpler for busy Gen X homeowners and their families. Its myLowe’s app is like a 24/7 home im- provement concierge that lets customers build room-by-room profiles of their homes, archive their Lowe’s purchases, build product lists with photos, receive reminders for things like changing furnace filters, and even consult with store employ- ees online as they plan out home improvement projects.12

generation x The 49 million people born between 1965 and 1976 in the “birth dearth” following the baby boom.

targeting gen xers: lowe’s markets heavily to gen x homeowners with ideas and advice on home improvement projects and problems, urging them to “never stop improving.” the lowe’s Pinterest page is loaded with tips for gen xers. LOWE’S, the Gable Mansard Design, and NEVER STOP IMPROVING are trademarks or registered trademarks of LF, LLC.

chapter 3: analyzing the Marketing environment 75

Millennials. Both the baby boomers and Gen Xers will one day be passing the reins to the Millennials (also called Generation Y or the echo boomers). Born between 1977 and 2000, these children of the baby boomers number 83 million or more, dwarfing the Gen Xers and becoming larger even than the baby boomer segment. In the postrecession era, the Millenni- als are the most financially strapped generation. Facing higher unemployment and saddled with more debt, many of these young consumers have near-empty piggy banks. Still, be- cause of their numbers, the Millennials make up a huge and attractive market, both now and in the future.

One thing that all Millennials have in common is their comfort with digital technology. They don’t just embrace technology; it’s a way of life. The Millennials were the first gen- eration to grow up in a world filled with computers, mobile phones, satellite TV, iPods and iPads, and online social media. As a result, they engage with brands in an entirely new way, such as with mobile or social media. More than sales pitches from marketers, Millennials seek authenticity and opportunities to shape their own brand experiences and share them with others. One AT&T marketer identifies what she calls “universal Millennial truths: being transparent, authentic, immediate and versatile.”13

Many brands are now fielding specific products and mar- keting campaigns aimed at Millennial needs and lifestyles.

For example, GE has created a new entry-level line of styl- ish but affordable home appliances called GE Artistry. GE has traditionally focused its marketing and design on consumers ages 45 to 60, who boast fatter wallets and fancier kitchens. However, the GE Artistry line is designed to capture the fast- growing segment of tech-design-savvy but price-conscious Millennials who are buying and equipping their first homes.14

Similarly, Marriott and IKEA recently joined forces to launch a new European hotel chain called Moxy Hotels. The innovative lifestyle hotel chain targets the fast-emerging mar- ket of young Millennial travelers by combining contemporary design, approachable service, high-tech features, and— perhaps most important—reasonable prices. Moxy hotels offer styl- ish, no-frills accommodations to keep prices down. But they feature plenty of the technologies that young Millennials favor, such as checking in via mobile devices, big-screen TVs, plenty of built-in USB ports in rooms, free Wi-Fi, and “Plug and Meet” common areas furnished with state-of-the-art comput- ers, writing walls, and large TV screens for presentations.15

generation Z. Hard on the heels of the Millennials is Generation Z, young people born after 2000 (although many analysts include people born after 1995 in this group). The ap- proximately 72 million Gen Zers make up important kids, tweens, and teens markets. They spend an estimated $44 billion annually of their own money and influence a total of almost $200 billion of their own and parents’ spending.16 These young consumers also represent tomorrow’s markets—they are now forming brand relationships that will affect their buy- ing well into the future.

Even more than the Millennials, the defining characteristic of Gen Zers is their utter fluency and comfort with digital technologies. Generation Z take smartphones, tablets, Internet-connected game consoles, wireless Internet, and digital and social media for granted—they’ve always had them—making this group highly mobile, connected, and so- cial. On average, connected Gen Zers receive more than 3,000 texts per month. “If they’re awake, they’re online,” quips one analyst. They have “digital in their DNA,” says another.17

Gen Zers blend the online and offline worlds seamlessly as they socialize and shop. According to recent studies, despite their youth, more than half of all Generation Z tweens and teens do product research before buying a product or having their parents buy it for them. Of those who shop online, more than half prefer shopping online in categories rang- ing from electronics, books, music, sports equipment, and beauty products to clothes, shoes, and fashion accessories.

Millennials (or generation y) The 83 million children of the baby boomers born between 1977 and 2000.

generation Z People born after 2000 (although many analysts include people born after 1995) who make up the kids, tweens, and teens markets.

targeting Millennials: ge’s artistry appliance line is designed to capture the fast-growing segment of tech-design-savvy but price-conscious Millennials who are buying and equipping their first homes. GE

76 Part 2: Understanding the Marketplace and customer Value

Companies in almost all industries market products and services aimed at Generation Z. For example, many retailers have created special lines or even entire stores appealing to Gen Z buyers and their parents— consider Abercrombie Kids, Gap Kids, Old Navy Kids, and Pottery Barn Kids. The Justice chain targets tween girls, with apparel and accessories laser-focused on their special preferences and lifestyles. Although these young buyers often have their mothers in tow, “the last thing a 10- or 12-year-old girl wants is to look like her mom,” says Justice’s CEO. Justice’s stores, Web site, and social media pages are designed with tweens in mind. “You have to appeal to their senses,” says the CEO. “They love sensory overload—bright colors, music videos, a variety of merchandise, the tumult of all of that.” Justice now outsells even Walmart and Target in girl’s apparel (that’s impressive considering that Walmart has almost 4,000 U.S. stores compared with Justice’s 1,000).18

Marketing to Gen Zers and their parents presents special challenges. Traditional media are still important to this group. Magazines such as J-14 and Twist are popular with some Gen Z segments, as are TV chan- nels such as Nickelodeon and the Disney Channel. But marketers know they must meet Gen Zers where they hang out and shop. Increasingly, that’s in the online and mobile worlds. Although the under-13 set remains barred from social media such as Facebook and Instagram, at least offi- cially, the social media will play a crucial marketing role as the kids and tweens grow into teens.

Today’s kids are notoriously fickle and hard to pin down, and they have short attention spans. The key is to engage these young consumers and let them help to define their brand experiences. Another Generation

Z concern involves children’s privacy and their vulnerability to marketing pitches. Companies marketing to this group must do so responsibly or risk the wrath of parents and public policy makers.

generational Marketing. Do marketers need to create separate products and marketing pro- grams for each generation? Some experts warn that marketers need to be careful about turn- ing off one generation each time they craft a product or message that appeals effectively to another. Others caution that each generation spans decades of time and many socioeconomic levels. For example, marketers often split the baby boomers into three smaller groups— leading-edge boomers, core boomers, and trailing-edge boomers—each with its own beliefs and behaviors. Similarly, they split Generaton Z into kids, tweens, and teens.

Thus, marketers need to form more precise age-specific segments within each group. More important, defining people by their birth date may be less effective than segmenting them by lifestyle, life stage, or the common values they seek in the products they buy. We will discuss many other ways to segment markets in Chapters 5 and 6.

the changing american family The traditional household consists of a husband, wife, and children (and sometimes grand- parents). Yet the historic American ideal of the two-child, two-car suburban family has lately been losing some of its luster.

In the United States, fewer than half of today’s households contain married couples, down from 76 percent in 1940. Married couples with children under 18 represent only 19 percent of the nation’s 123 million households. Married couples without children repre- sent 23 percent and single parents are another 14 percent. A full 34 percent are nonfamily households—singles living alone or unrelated adults of one or both sexes living together.19

More people are divorcing or separating, choosing not to marry, marrying later,  remarrying, or marrying without intending to have children. One in 12 married couples is interracial. The number of same-sex couples raising children has increased 75 percent since 2000. The changing composition of today’s modern American fami- lies is increasingly reflected in popular movies and televisions shows, such as Modern Family, the award-winning TV sitcom about an extended nontraditional family.

targeting generation Z: by themselves, U.s. “tweens” number 20 million girls and boys who spend billions of dollars annually of their own money and influence billions more of their parents’ spending. © Blend Images/Alamy

chapter 3: analyzing the Marketing environment 77

Marketers must consider the special needs of nontraditional households because they are now growing more rapidly than traditional households. Each group has distinctive needs and buying habits.

The number of working women has also increased greatly, growing from under 40 percent of the U.S. workforce in the late 1950s to 69 percent today. American women now make up 40 percent of primary family breadwinners. Among households made up of married couples with children, 60 percent are dual-income households; only the husband works in 28.5 percent. Meanwhile, more men are staying home with their children and managing the household while their wives go to work. Four percent of the stay-at-home-parent families have a full-time stay-at-home dad.20

Companies are now adapting their marketing to reflect the changing dynamics of American families. For example, whereas fathers were once ignored or portrayed as dolts in family-oriented ads, today’s advertisers are showing more caring and capable dads. One recent Samsung Galaxy phone ad, for instance, features a dad swaddling and calming his

newborn son while Mom runs errands. When the anxious mom calls home to check in, the newly minted swaddle master replies, “We’re having a dudes’ day here. We’re fiiiiine. You take the weekend if you want to.”

Other ads reflect the evolving diversity in modern American households. For instance, one ad for Honey Maid graham crackers takes family diversity to a whole new level:21

A single 30-second Honey Maid commercial features everything from a same-sex couple bottle- feeding their son, to an interracial couple and their three kids holding hands, to a Hispanic mother and an African-American father with their three mixed-race children. There’s even a father covered in body tattoos. The century-old Honey Maid brand—owned by Mondelez, which also makes Oreos, Ritz, and Chips Ahoy—is reinventing itself as a wholesome but relevant snack for today’s families. “No matter how things change,” says the narrator in the ad, “what makes wholesome never will.” The ad concludes: “Honey Maid everyday wholesome snacks. For every wholesome family.” Says a Mondelez marketer, no matter what their skin color or sex- ual orientation, “these families that we portray all have wonderful parent and child connections. This is a recognition that the family dynamic in America is evolving…and we’ve evolved, too.”

geographic shifts in Population This is a period of great migratory movements between and within countries. Americans, for example, are a mobile people, with about 12 percent of all U.S. residents moving each year and 35 percent or more moving every five years. Over the past two decades, the U.S. population has shifted toward the Sunbelt states. The West and South have grown, whereas the Midwest and Northeast states have lost population.22 Such population shifts interest marketers because people in different regions buy differently. For example, people in the Midwest buy more winter clothing than people in the Southeast.

Also, for more than a century, Americans have been moving from rural to metropoli- tan areas. In the 1950s, they made a massive exit from the cities to the suburbs. Today, the migration to the suburbs continues. And more and more Americans are moving to “micropolitan areas,” small cities located beyond congested metropolitan areas, such as Minot, North Dakota; Boone, North Carolina; Traverse City, Michigan; and Concord, New Hampshire. These smaller micros offer many of the advantages of metro areas—jobs, res- taurants, diversions, community organizations—but without the population crush, traffic jams, high crime rates, and high property taxes often associated with heavily urbanized areas. Ten percent of the U.S. population now resides in micropolitan areas.23

The shift in where people live has also caused a shift in where they work. For example, the migration toward micropolitan and suburban areas has resulted in a rapid increase in the number of people who “telecommute”—work at home or in a remote office and con- duct business by phone or the Internet. This trend, in turn, has created a booming SOHO

the american family: the changing composition of american families is increasingly reflected in popular movies and television shows, such as Modern Family, the award-winning tV sitcom about an extended nontraditional family. Mitch Haddad/Getty Images

78 Part 2: Understanding the Marketplace and customer Value

(small office/home office) market. Increasing numbers of people are working from home with the help of electronic conveniences such as PCs, smartphones, and broadband Internet access. One recent study estimates that 24 percent of employed individuals do some or all of their work at home.24

Many marketers are actively courting the lucrative telecom- muting market. For example, online applications such as Citrix’s GoToMeeting and Cisco’s WebEx help connect people who telecom- mute or work remotely. With such applications, people can meet and collaborate online via computer, tablet, or smartphone, no matter what their work location. And companies ranging from Salesforce. com to Google and IBM offer cloud computing applications that let people collaborate anywhere and everywhere through the Internet and mobile devices.25

Additionally, for telecommuters who can’t work fully at home, companies such as NextSpace, Grind, and Regus rent out fully equipped shared office space. For a daily, monthly, or yearly fee, tele- commuters who work away from a main office can rent shared space that includes the same amenities of regular office, from networked computers, printers, and copiers to conference rooms and lounge spaces.26

a better-educated, More White-collar, More Professional Population The U.S. population is becoming better educated. For example, in 2012, 88 percent of the U.S. population over age 25 had completed high school and 32 percent had a bachelor’s degree or better, com- pared with 66 percent and 16 percent, respectively, in 1980.27 The workforce also is becoming more white collar. Job growth is now strongest for professional workers and weakest for manufacturing workers. Between 2010 and 2020, of 30 detailed occupations pro-

jected to have the fastest employment growth, 17 require some type of postsecondary education.28 The rising number of educated professionals will affect not just what people buy but also how they buy.

increasing Diversity Countries vary in their ethnic and racial makeup. At one extreme is Japan, where almost everyone is Japanese. At the other extreme is the United States, with people from virtually all national origins. The United States has often been called a melting pot, where diverse groups from many nations and cultures have melted into a single, more homogenous whole. Instead, the United States seems to have become more of a “salad bowl” in which various groups have mixed together but have maintained their diversity by retaining and valuing important ethnic and cultural differences.

Marketers now face increasingly diverse markets, both at home and abroad, as their  operations become more international in scope. The U.S. population is about 62.2 percent non-Hispanic white, with Hispanics at 17.4 percent and African Americans at 13.2 percent. The U.S. Asian American population now totals more than 5.4 percent of the total U.S. population, with the remaining groups being Native Hawaiian, Pacific Islander, American Indian, Eskimo, or Aleut. Moreover, one in eight people living in the United States—more than 13 percent of the population—was born in another country. The nation’s ethnic populations are expected to explode in coming decades. By 2060, Hispanics will be about 28 percent of the population, African Americans will be about 14 percent, and Asian Americans will increase to 9 percent.29

Most large companies, from P&G, Walmart, Allstate, and Wells Fargo to McDonald’s and Southwest Airlines, now target specially designed products, ads, and promotions to one or more of these groups. For example, Southwest Airlines’ outreach to Asian Americans includes being the title sponsor for the Chinese New Year Festival and Parade

telecommuting: applications like citrix’s gotoMeeting help people meet and collaborate online via computer, tablet, or smartphone, no matter what their work location. Citrix Systems, Inc.

chapter 3: analyzing the Marketing environment 79

in San Francisco, the biggest nighttime parade in the United States and the second-biggest in North America after the Macy’s Thanksgiving Day parade:30

San Francisco’s Chinese New Year Festival and Parade typically draws hundreds of thousands of spectators and is broadcast on English- and Asian-language TV sta- tions to viewers around the world. Consumers in the affluent, fast-growing Asian American segment travel often. And they are concentrated in a few key areas such as California and New York, making them easy to pinpoint. That makes them an ideal target for Southwest. The Chinese New Year Festival and Parade event also aligns well with Southwest’s preference for grassroots marketing programs that position it as a hometown carrier targeting local “passion points,” in this case a cultural and family-related celebration. To support its title sponsorship, Southwest ties its brand to the Lunar New Year though promotional efforts ranging from floats and ticket-giveaway contests to “cleverly constructed well wishes and cheerful nods to the community” on street pole banners, bus shelters, billboards, and traditional broadcast and print ads. Something must be working right—Southwest has been the event’s title sponsor for more than 15 years.

Diversity goes beyond ethnic heritage. For example, many major companies explicitly target gay and lesbian consumers. According to one estimate, the 6 to 7 percent of U.S. adults who identify themselves as lesbian, gay, bisexual, or trans- gender (LGBT) have buying power of more than $830 billion.31 As a result of TV shows such as Modern Family, movies like Brokeback Mountain and The Perks of Being a Wallflower, and openly gay celebrities and public figures such as Neil Patrick Harris, Ellen DeGeneres, David Sedaris, and Apple CEO Tim Cook, the LGBT community has increasingly emerged in the public eye.

Numerous media now provide companies with access to this market. For example, Planet Out Inc., a leading global media and entertainment company that exclusively serves the LGBT community, offers several successful maga- zines (Out, The Advocate, Out Traveler) and Web sites (Gay.com and PlanetOut. com). In addition, media giant Viacom’s MTV Networks offers LOGO, a cable television network aimed at gays and lesbians and their friends and family. LOGO is now available in more than 51 million U.S. households, and its Web

site is number one in the LGBT category of digital, mobile, and video streaming. More than 100 mainstream marketers have advertised on LOGO, including Ameriprise Financial, Toyota, Anheuser-Busch, Dell, Levi Strauss, eBay, J&J, Orbitz, Sears, Sony, and Subaru.

Brands in a wide range of industries are now targeting the LGBT community with gay-specific ads and marketing efforts—from Amazon, American Airlines, Allstate, and Apple to luxury jewelry retailer Tiffany. Allstate recently ran an “Everyone deserves to be in good hands” campaign with ads featuring same-sex couples and the hashtag #OutHoldingHands. Brands ranging from Axe to Tiffany have sponsored similar ads. American Airlines has a dedicated LGBT “Rainbow Team,” sponsors gay and lesbian community events, and offers a special Web site (www.aa.com/rainbow), Facebook pages, and a Twitter feed featuring LGBT-oriented travel deals, information, and discussion. The airline’s focus on gay consumers has earned it double-digit revenue growth from the LGBT community each year for more than a decade.32

Another attractive diversity segment is the 57 million U.S. adults with disabilities—a market larger than African Americans or Hispanics—representing anywhere from $200 to $500 billion in annual spending power. Most individuals with disabilities are active con- sumers. For example, one study found that the segment spends $13.6 billion on 31.7 mil- lion business or leisure trips every year. And if certain needs were met, the amount spent on travel could double to $27 billion annually.33

How are companies trying to reach consumers with disabilities? Many marketers now recognize that the worlds of people with disabilities and those without disabilities are one in the same. Marketers such as McDonald’s, Verizon Wireless, Nike, Samsung, Nordstrom, and Toyota have featured people with disabilities in their mainstream market- ing. For instance, a recent Toyota Super Bowl commercial featured Paralympic snow- boarder Amy Purdy (also a popular recent finalist on Dancing with the Stars) persevering

serving diverse customer communities: southwest airlines reaches out to asian american consumers through its title sponsorship of san francisco’s chinese new year festival and Parade and through ads like this one, which pass along “cleverly constructed well wishes and cheerful nods to the community.” Southwest Airlines Co.

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as she trains on the slopes, performs on the dance floor, and poses for a photo shoot, using special prosthetic legs for each task. And, of course, she drives a Toyota.34

As the population in the United States grows more diverse, successful marketers will continue to diversify their marketing programs to take advantage of opportunities in fast- growing segments.

economic environment: to serve the tastes of today’s more financially frugal buyers, companies like target are emphasizing the “pay less” side of their value propositions. Associated Press

linking the concePts Stop here and think about how deeply these demographic factors affect all of us and, as a result, marketing strategies.

●● Apply these demographic developments to your own life. Discuss some specific examples of how changing demographic factors affect you and your buying behavior.

●● Identify a specific company that has done a good job of reacting to the shifting demographic environment—generational segments (baby boomers, Gen Xers, Millennials, or Gen Zers), the changing American family, and increased diversity. Compare this company with one that’s done a poor job.

author comment The economic environment can offer both

opportunities and threats. For example, in the post–Great Recession era of more sensible consumer spending, “value” has become the

marketing watchword.

the economic environment Markets require buying power as well as people. The economic environment consists of economic factors that affect consumer purchasing power and spending patterns. Economic factors can have a dramatic effect on consumer spending and buying behavior. For ex- ample, until fairly recently, American consumers spent freely, fueled by income growth, a boom in the stock market, rapid increases in housing values, and other economic good fortunes. They bought and bought, seemingly without caution, amassing record levels of debt. However, the free spending and high expectations of those days were dashed by the Great Recession of 2008–2009.

As a result, as discussed in Chapter 1, consumers have now adopted a back-to-basics sensibility in their lifestyles and spending patterns that will likely persist for years to come. They are buying less and looking for greater value in the things they do buy. In turn, value marketing has become the watchword for many marketers. Marketers in all industries are looking for ways to offer today’s more financially frugal buyers greater value—just the right combination of product quality and good service at a fair price.

You’d expect value pitches from the sellers of everyday products. For example, as Target has shifted emphasis toward the “Pay Less” side of its “Expect More. Pay Less.” slogan, the once-chic headlines at the Target.com Web site have been replaced by more practical appeals such as “Our lowest prices of the season,” “Fun, sun, save,” and “Free

shipping, every day.” However, these days, even lux- ury-brand marketers are emphasizing good value. For example, Tiffany has long been known for selling high- end “fine jewelry” and “statement jewelry” at prices of $5,000 to $50,000 or more. However, when the Great Recession eroded Tiffany’s high-end sales, the company began offering affordable luxury items—what it calls “fashion jewelry”—priced at as little as $100 to $500. Such relatively affordable items now account for about one-quarter of the Tiffany’s sales.35

Marketers should pay attention to income distri- bution as well as income levels. Over the past sev- eral decades, the rich have grown richer, the middle class has shrunk, and the poor have remained poor. The top 5 percent of American earners get more than 22 percent of the country’s adjusted gross income, and the top 20 percent of earners capture 51 percent of all

economic environment Economic factors that affect consumer purchasing power and spending patterns.

chapter 3: analyzing the Marketing environment 81

income. In contrast, the bottom 40 percent of American earners get just 11.5 percent of the total income.36

This distribution of income has created a tiered market. Many companies—such as Nordstrom and Neiman Marcus—aggressively target the affluent. Others—such as Dollar General, Five Below, and Family Dollar—target those with more modest means. In fact, dollar stores are now the fastest-growing retailers in the nation. Still other companies tailor their marketing offers across a range of markets, from the less affluent to the very affluent. For example, Ford offers cars ranging from the low-priced Ford Fiesta, starting at $13,965, to the luxury Lincoln Navigator SUV, starting at $61,920.

Changes in major economic variables, such as income, cost of living, interest rates, and savings and borrowing patterns, have a large impact on the marketplace. Companies watch these variables by using economic forecasting. Businesses do not have to be wiped out by an economic downturn or caught short in a boom. With adequate warning, they can take advantage of changes in the economic environment.

the natural environment The natural environment involves the physical environment and the natural resources that are needed as inputs by marketers or that are affected by marketing activities. At the most basic level, unexpected happenings in the physical environment—anything from weather to natural disasters—can affect companies and their marketing strategies. For example, during a recent cold winter—in which the term polar vortex gusted into the American vocabulary—sales suffered across a wide range of businesses, from florists and auto deal- ers to restaurants, airlines, and tourist destinations. In contrast, the severe weather boosted demand for products such as salt, snow blowers, winter clothing, and auto repair centers.

Although companies can’t prevent such natural occur- rences, they should prepare for dealing with them. For ex- ample, shipping companies such as FedEx and UPS maintain corps of meteorologists on their staffs to anticipate weather conditions that might inhibit on-time deliveries around the world. “Someone awaiting a package in Bangkok doesn’t care if it snowed in Louisville, Kentucky,” says a UPS meteorolo- gist. “They want their stuff.”37

At a broader level, environmental sustainability concerns have grown steadily over the past three decades. In many cities around the world, air and water pollution have reached danger- ous levels. World concern continues to mount about the pos- sibilities of global warming, and many environmentalists fear that we soon will be buried in our own trash.

Marketers should be aware of several trends in the natural environment. The first involves growing shortages of raw mate- rials. Air and water may seem to be infinite resources, but some groups see long-run dangers. Air pollution chokes many of the world’s large cities, and water shortages are already a big prob- lem in some parts of the United States and the world. By 2030,

more than one in three people in the world will not have enough water to drink.38 Renewable resources, such as forests and food, also have to be used wisely. Nonrenewable resources, such as oil, coal, and various minerals, pose a serious problem. Firms making products that require these scarce resources face large cost increases even if the materials remain available.

A second environmental trend is increased pollution. Industry will almost always damage the quality of the natural environment. Consider the disposal of chemical and nuclear wastes; the dangerous mercury levels in the ocean; the quantity of chemical pollut- ants in the soil and food supply; and the littering of the environment with nonbiodegrad- able bottles, plastics, and other packaging materials.

A third trend is increased government intervention in natural resource management. The governments of different countries vary in their concern and efforts to promote a clean environment. Some, such as the German government, vigorously pursue environmental

author comment Today’s enlightened companies are developing environmentally sustainable strategies in an effort to create a world economy that the

planet can support indefinitely.

natural environment The physical environment and the natural resources that are needed as inputs by marketers or that are affected by marketing activities.

natural environment: companies must prepare for unexpected happenings in the natural environment. for example, fedex and UPs employ large staffs of meteorologists to anticipate weather conditions that might inhibit on-time deliveries around the world. PAUL J. RICHARDS/AFP/GettyImages

82 Part 2: Understanding the Marketplace and customer Value

quality. Others, especially many poorer nations, do little about pollution, largely because they lack the needed funds or political will.

In the United States, the Environmental Protection Agency (EPA) was created in 1970 to create and enforce pollution standards and conduct pollution research. In the future, companies doing business in the United States can expect continued strong controls from government and pressure groups. Instead of opposing regulation, marketers should help develop solutions to the materials and energy problems facing the world.

Concern for the natural environment has spawned an environmental sustainability movement. Today, enlightened companies go beyond what government regulations dictate. They are developing strategies and practices that create a world economy that the planet can support indefinitely. Environmental sustainability means meeting present needs with- out compromising the ability of future generations to meet their needs.

Many companies are responding to consumer demands with more environmentally responsible products. Others are developing recyclable or biodegradable packaging, recycled materials and components, better pollution controls, and more energy-efficient operations. For example, Timberland’s mission is about more than just making rugged, high-quality boots, shoes, clothes, and other outdoor gear. The VF brand is about doing everything it can to reduce the environmental footprint of its products and processes:39

Timberland is on a mission to develop processes and products that cause less harm to the envi- ronment and to enlist consumers in the cause. For example, it has a solar-powered distribution center in California and a wind-powered factory in the Dominican Republic. It has installed energy-efficient lighting and equipment retrofits in its facilities and is educating workers about production efficiency. Timberland is constantly looking for and inventing innovative materi- als that allow it to reduce its impact on the planet while at the same time making better gear. Its Earthkeepers line of boots is made from recycled and organic materials, and the brand has launched footwear collections featuring outsoles made from recycled car tires. Plastic from recycled soda bottles goes into its breathable linings and durable shoe laces. Coffee grounds find a place in its odor-resistant jackets. Organic cotton without toxins makes it into its rug- ged canvas. To inspire consumers to make more sustainable decisions, Timberland puts Green Index tags on its products that rate each item’s ecological footprint in terms of climate impact, chemicals used, and resources consumed. To pull it all together, Timberland launched an Earthkeepers campaign, an online social media effort that seeks to inspire people to take actions to lighten their environmental footprints.

Companies today are looking to do more than just good deeds. More and more, companies are making environmental sustainability a part of their core missions. And they are learning that what’s good for customer well-being and the planet can also be good business. For example, Chipotle Mexican Grill has built a thriving business around an environmentally responsible mission of providing “Food With Integrity” (see Marketing at Work 3.1).

the technological environment The technological environment is perhaps the most dramatic force now shaping our des- tiny. Technology has released such wonders as antibiotics, robotic surgery, smartphones, and the Internet. It also has released such horrors as nuclear missiles and assault rifles. It has released such mixed blessings as the automobile, television, and credit cards. Our at- titude toward technology depends on whether we are more impressed with its wonders or its blunders.

New technologies can offer exciting opportunities for marketers. For example, what would you think about having tiny little transmitters implanted in all the products you buy that would allow tracking of the products from their point of production through use and disposal? Or how about a bracelet with a chip inserted that would let you make and pay for purchases, receive personalized specials at retail locations, or even track your whereabouts or those of friends? On the one hand, such technology would provide many advantages to both buyers and sellers. On the other hand, it could be a bit scary. Either way, with the advent of radio-frequency identification (RFID) transmitters, it’s already happening.

environmental sustainability Developing strategies and practices that create a world economy that the planet can support indefinitely.

author comment Technological advances are perhaps

the most dramatic forces affecting today’s marketing strategies. Just think about the tremendous impact on marketing of digital

technologies—which have exploded in recent years. You’ll see examples of the fast-growing

world of online, mobile, and social media marketing throughout every chapter, and we’ll discuss them in

detail in Chapter 14.

technological environment Forces that create new technologies, creating new product and market opportunities.

chapter 3: analyzing the Marketing environment 83

environmental sustainability: What’s good for customer well-being and the planet can also be good for business. chipotle is thriving under its environmentally responsible mission of providing “food With integrity.” © Chipotle Mexican Grill, Inc.

Envision this. You’re sitting in a restaurant where the people— from the CEO on down to the kitchen crew—obsess over using only the finest ingredients. They come to work each morning inspired by all the “fresh produce and meats they have to mari- nate, rice they have to cook, and fresh herbs they have to chop,” says the CEO. The restaurant prefers to use sustainable, natu- rally raised ingredients sourced from local family farms. It’s on a mission not just to serve its customers good food but to change the way its entire industry produces food. This sounds like one of those high-falutin’, gourmet specialty restaurants, right? Wrong. It’s your neighborhood Chipotle Mexican Grill. That’s right, it’s a fast-food restaurant.

In an age when many fast-feeders seem to be using ever- cheaper ingredients and centralization of food preparation to cut costs and keep prices low, Chipotle is doing just the op- posite. The chain’s core sustainable mission is to serve “Food With Integrity.” What does that mean? The company explains it this way:

Chipotle is committed to finding the very best ingredients raised with respect for animals, the environment, and farmers. It means serving the very best sustainably raised food possible with an eye to great taste, great nutrition, and great value. It means that we support and sustain family farmers who respect the land and the animals in their care. It means that whenever possible we use meat from animals raised without the use of antibiotics or added hormones. And it means that we source organic and local produce when practical, and that we use dairy from cows raised without the use of synthetic hormones. In other words, “integrity” is kind of a funny word for “good.”

When founder and CEO Steve Ells opened the first Chipotle in Denver in 1993, his primary goal was to make the best gourmet burrito around. However, as the chain grew, Ells found that he didn’t like the way the ingredients Chipotle used were raised and processed. So, in 2000, Chipotle began developing a supply chain with the goal of producing and using naturally raised, organic, hormone-free, non–genetically modified ingre- dients. Pursuing this healthy-food mission was no easy task. As the fast-food industry increasingly moved to- ward low-cost, efficient food processing, factory farms were booming, whereas independent farms producing naturally raised and organic foods were in decline.

To obtain the ingredients it needed, Chipotle had to develop many new sources by supporting family farming and encouraging sustainable farming prac- tices. Such efforts have paid off. For example, when Chipotle first started serving naturally raised pork in 2000, there were only 60 to 70 farms producing meat for the Niman Ranch pork cooperative, an important Chipotle supplier. Now, there are more than 700.

Today, 100 percent of Chipotle’s pork and beef comes from producers that meet or exceed its “naturally raised” standards (the animals are raised in a humane way, fed a vegetarian diet, never given hormones, and allowed to display their natural ten- dencies). Chipotle’s goal is to meet that same 100 percent mark for its chicken, its dairy, and even its produce. It then plans to tighten its standards even more.

Sourcing such natural and organic ingredients not only serves Chipotle’s sustainability mission, it results in one of the most nutritious, best-tasting fast-food burritos on the market— something the company can brag about to customers. Whereas some fast-food companies intentionally obscure the sometimes less-than-appetizing truths about their ingredients, Chipotle doesn’t play that game. Instead, it commits fast-food heresy: Proudly telling customers what’s really inside its burritos.

Chipotle chose the “Food With Integrity” slogan because it sends the right message in an appetizing way. “Saying that we don’t buy dairy from cows that are given the hormone rBGH is not an appetizing message,” says Ells. So the company is building its marketing campaign around the more positive mes- sage that food production should be healthier and more ethi- cal. Chipotle communicates this positioning via an integrated mix of traditional and digital promotion venues, ranging from its Farm Team invitation-only loyalty program—by which

Marketing at Work 3.1

chipotle’s environmental sustainability Mission: food With integrity

84 Part 2: Understanding the Marketplace and customer Value

customers earn rewards based not on frequent buying but on knowledge about food and how it is produced—to its Pasture Pandemonium smartphone app, where players try to get their pig across a pasture without getting trapped in pens or pricked by antibiotic needles.

While Chipotle doesn’t spend much on traditional media advertising, the company uses both traditional and nontradi- tional promotional methods to broadcast its message. Chipotle made a big splash a few years ago during the broadcast for the Grammy Awards with its first-ever national television ad, “Back to the Start”—a two-and-a-half-minute stop-motion animation film showing the negative effects of industrialized farming. The ad received critical acclaim and racked up mil- lions of views online.

As a follow-up, Chipotle released “The Scarecrow,” an- other animated video indicting the industrial food industry. Accompanied by Fiona Apple’s cover of “Pure Imagination,” the star character leaves his job at a factory farm and opens his own little shop selling freshly prepared food under the banner “Cultivate a better world.” The online ad directed people to the campaign’s centerpiece—an arcade-style game app. So far, the video has racked up more than 14 million views on YouTube and more than 9 million people have downloaded the app. Today, Chipotle has moved well beyond ads. The eco-conscious burrito maker is now producing sitcoms with a message. For example, it partnered with Hulu for the original comedy series Farmed and Dangerous, attacking the sins of big agriculture.

Companies with a socially responsible business model often struggle to grow and make profits. But Chipotle is proving that a company can do both. Last year, its 45,000 employees chopped, sliced, diced, and grilled their way to $4.1 billion in revenues and $445 million in profits at Chipotle’s almost 1,800 U.S. res- taurants. And the chain is growing fast, opening a new restaurant

about every two days. In the past five years, Chipotle’s stock price surged sixfold, suggesting that the company’s investors are as pleased as its fast-growing corps of customers.

Founder and CEO Ells wants Chipotle to grow and make money. But ultimately, on a larger stage, he wants to change the way fast food is produced and sold—not just by Chipotle but by the entire industry. “We think the more people under- stand where their food comes from and the impact that has on independent family farmers [and] animal welfare, the more they’re going to ask for better ingredients,” says Ells. Whether customers stop by Chipotle’s restaurants to support the cause, gobble down the tasty food, or both, it all suits Ells just fine. Chipotle’s sustainability mission isn’t an add-on, created just to position the company as “socially responsible.” Doing good “is the company’s ethos and ingrained in everything we do,” says Chipotle’s director of communications. “Chipotle is a very different kind of company where the deeper you dig into what’s happening, the more there is to like and feel good about.”

Sources: Based on information and quotes from Denise Lee Yohn, “How Chipotle Changed American Fast Food Forever,” Fast Company, March 14, 2014, www.fastcompany.com/3027647/lessons-learned/how-chipotle-changed- american-fast-food-forever; Danielle Sacks, “Chipotle: For Exploding All the Rules of Fast Food,” Fast Company, March 2012, pp. 125–126; John Trybus, “Chipotle’s Chris Arnold and the Food With Integrity Approach to Corporate Social Responsibility,” The Social Strategist, March 22, 2012, https://blogs .commons.georgetown.edu/socialimpact/2012/03/22/the-social-strategist-part- xvi-chipotle%E2%80%99s-chris-arnold-and-the-food-with-integrity-approach- to-corporate-social-responsibility/; Emily Bryson York, “Chipotle Ups the Ante on Its Marketing,” Chicago Tribune, September 30, 2011, http://articles .chicagotribune.com/2011-09-30/business/ct-biz-chipotle-profile-20110930_1_ chipotle-plans-executive-steve-ells-chipotle-founder; Kyle Stock and Venesa Wong, “Chipotle: The Definitive Oral History,” Bloomberg Business, www .bloomberg.com/graphics/2015-chipotle-oral-history/, accessed June, 2015; and information from www.chipotle.com and www.chipotle.com/en-US/fwi/fwi .aspx, accessed September 2015.

Many firms are already using RFID technology to track products and customers at various points in the distribution channel. For example, Walmart has strongly encouraged suppliers shipping products to its distribution centers to apply RFID tags to their pallets. And retailers such as American Apparel, Macy’s, and Bloomingdales are now installing item-level RFID systems in their stores. Fashion and accessories maker Burberry even uses chips imbedded in items and linked to smartphones to provide personalized, interac- tive experiences for customers in its stores and at runway shows.40

Disney is taking RFID technology to new levels with its cool new MagicBand RFID wristband:41

Wearing a MagicBand at The Walt Disney World Resort opens up a whole new level of Disney’s famed magic. After registering for cloud-based MyMagic+ services, with the flick of your wrist you can enter a park or attraction, buy dinner or souvenirs, or even unlock your ho- tel room. But Disney has only begun to tap the MagicBand’s potential for personalizing guest experiences. Future applications could be truly magical. Imagine, for example, the wonder of a child who receives a warm hug from Mickey Mouse or a bow from Prince Charming, who then greets the child by name and wishes her a happy birthday. Imagine animatronics that interact with nearby guests based on personal information supplied in advance. You get separated from family or friends? No problem. A quick scan of your MagicBand at a nearby directory could pinpoint the locations of your entire party. Linked to your Disney phone app, the MagicBand could trigger in-depth information about park features, ride wait times, FastPass check-in alerts, and your reservations schedule. Of course, the MagicBand also offers Disney a potential

chapter 3: analyzing the Marketing environment 85

mother lode of digital data on guest activities and movements in minute detail, helping to improve guest logistics, services, and sales. If all this seems too big-brotherish, there will be privacy options—for example, letting parents opt out of things like characters knowing children’s names. In all, such digital technologies promise to enrich the Disney experience for both guests and the company.

The technological environment changes rapidly, creat- ing new markets and opportunities. However, every new technology replaces an older technology. Transistors hurt the vacuum-tube industry, digital photography hurt the film business, and digital downloads and streaming are hurting the CD and DVD businesses. When old industries fight or ig- nore new technologies, their businesses decline. Thus, mar- keters should watch the technological environment closely. Companies that do not keep up will soon find their products outdated. If that happens, they will miss new product and market opportunities.

As products and technologies become more complex, the public needs to know that these items are safe. Thus, government agencies investigate and ban potentially unsafe products. In the United States, the Food and Drug Administration (FDA) has created complex regulations for testing new drugs. The Consumer Product Safety Commission (CPSC) establishes safety standards for consumer products and penalizes com- panies that fail to meet them. Such regulations have resulted in much higher research costs and longer times between new product ideas and their introduction. Marketers should be aware of these regulations when applying new technologies and developing new products.

the Political and social environment Marketing decisions are strongly affected by developments in the political environment. The political environment consists of laws, government agencies, and pressure groups that influence or limit various organizations and individuals in a given society.

legislation regulating business Even the strongest advocates of free-market economies agree that the system works best with at least some regulation. Well-conceived regulation can encourage competition and ensure fair markets for goods and services. Thus, governments develop public policy to guide commerce—sets of laws and regulations that limit business for the good of society as a whole. Almost every marketing activity is subject to a wide range of laws and regulations.

Legislation affecting business around the world has increased steadily over the years. The United States and many other countries have many laws covering issues such as competition, fair-trade practices, environmental protection, product safety, truth in advertising, consumer privacy, packaging and labeling, pricing, and other important areas (see table 3.1).

Understanding the public policy implications of a particular marketing activity is not a simple matter. In the United States, there are many laws created at the national, state, and local levels, and these regulations often overlap. For example, aspirin products sold in Dallas are governed by both federal labeling laws and Texas state advertising laws. Moreover, regulations are constantly changing; what was allowed last year may now be prohibited, and what was prohibited may now be allowed. Marketers must work hard to keep up with changes in regulations and their interpretations.

Business legislation has been enacted for a number of reasons. The first is to protect companies from each other. Although business executives may praise competition, they sometimes try to neutralize it when it threatens them. Therefore, laws are passed to define and prevent unfair competition. In the United States, such laws are enforced by the Federal Trade Commission (FTC) and the Antitrust Division of the Attorney General’s office.

author comment Even the strongest free-market

advocates agree that the system works best with at least some regulation. But beyond regulation, most companies want to be

socially responsible. We’ll dig deeper into marketing and social responsibility

in Chapter 16.

Political environment Laws, government agencies, and pressure groups that influence or limit various organizations and individuals in a given society.

Marketing technology: Disney is taking rfiD technology to new levels with its cool new Magicband rfiD wristband. Bob Croslin

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table 3.1 Major U.s. legislation affecting Marketing

legislation Purpose

sherman antitrust act (1890) Prohibits monopolies and activities (price-fixing, predatory pricing) that restrain trade or competition in interstate commerce.

federal food and Drug act (1906) created the food and Drug administration (fDa). it forbids the manufacture or sale of adulterated or fraudulently labeled foods and drugs.

clayton act (1914) supplements the sherman act by prohibiting certain types of price discrimination, exclusive dealing, and tying clauses (which require a dealer to take additional products in a seller’s line).

federal trade commission act (1914) established the federal trade commission (ftc), which monitors and remedies unfair trade methods.

robinson-Patman act (1936) amends the clayton act to define price discrimination as unlawful. empowers the ftc to establish limits on quantity discounts, forbid some brokerage allowances, and prohibit promotional allowances except when made available on proportionately equal terms.

Wheeler-lea act (1938) Makes deceptive, misleading, and unfair practices illegal regardless of injury to competition. Places advertising of food and drugs under ftc jurisdiction.

lanham trademark act (1946) Protects and regulates distinctive brand names and trademarks.

national traffic and safety act (1958) Provides for the creation of compulsory safety standards for automobiles and tires.

fair Packaging and labeling act (1966) Provides for the regulation of the packaging and labeling of consumer goods. requires that manufacturers state what the package contains, who made it, and how much it contains.

child Protection act (1966) bans the sale of hazardous toys and articles. sets standards for child-resistant packaging.

federal cigarette labeling and advertising act (1967)

requires that cigarette packages contain the following statement: “Warning: the surgeon general has Determined that cigarette smoking is Dangerous to your health.”

national environmental Policy act (1969) establishes a national policy on the environment. the 1970 reorganization Plan established the environmental Protection agency (ePa).

consumer Product safety act (1972) establishes the consumer Product safety commission (cPsc) and authorizes it to set safety standards for consumer products as well as exact penalties for failing to uphold those standards.

Magnuson-Moss Warranty act (1975) authorizes the ftc to determine rules and regulations for consumer warranties and provides consumer access to redress, such as the class-action suit.

children’s television act (1990) limits the number of commercials aired during children’s programs.

nutrition labeling and education act (1990) requires that food product labels provide detailed nutritional information.

telephone consumer Protection act (1991) establishes procedures to avoid unwanted telephone solicitations. limits marketers’ use of automatic telephone dialing systems and artificial or prerecorded voices.

americans with Disabilities act (1991) Makes discrimination against people with disabilities illegal in public accommodations, transportation, and telecommunications.

children’s online Privacy Protection act (2000)

Prohibits Web sites or online services operators from collecting personal information from children without obtaining consent from a parent and allowing parents to review information collected from their children.

Do-not-call implementation act (2003) authorizes the ftc to collect fees from sellers and telemarketers for the implementation and enforcement of a national Do-not-call registry.

can-sPaM act (2003) regulates the distribution and content of unsolicited commercial email.

financial reform law (2010) created the bureau of consumer financial Protection, which writes and enforces rules for the marketing of financial products to consumers. it is also responsible for enforcement of the truth- in-lending act, the home Mortgage Disclosure act, and other laws designed to protect consumers.

chapter 3: analyzing the Marketing environment 87

The second purpose of government regulation is to protect consumers from unfair business practices. Some firms, if left alone, would make shoddy products, invade con- sumer privacy, mislead consumers in their advertising, and deceive consumers through their packaging and pricing. Rules defining and regulating unfair business practices are enforced by various agencies.

The third purpose of government regulation is to protect the interests of society against unrestrained business behavior. Profitable business activity does not always cre- ate a better quality of life. Regulation arises to ensure that firms take responsibility for the social costs of their production or products.

International marketers will encounter dozens, or even hundreds, of agencies set up to enforce trade policies and regulations. In the United States, Congress has established federal regulatory agencies, such as the FTC, the FDA, the Federal Communications Commission, the Federal Energy Regulatory Commission, the Federal Aviation Administration, the Consumer Product Safety Commission, the Environmental Protection Agency, and hundreds of others. Because such government agencies have some discretion in enforcing the laws, they can have a major impact on a company’s marketing performance.

New laws and their enforcement will continue to increase. Business executives must watch these developments when planning their products and marketing programs. Marketers need to know about the major laws protecting competition, consumers, and soci- ety. They need to understand these laws at the local, state, national, and international levels.

increased emphasis on ethics and socially responsible actions Written regulations cannot possibly cover all potential marketing abuses, and existing laws are often difficult to enforce. However, beyond written laws and regulations, business is also governed by social codes and rules of professional ethics.

socially responsible behavior. Enlightened companies encourage their managers to look beyond what the regulatory system allows and simply “do the right thing.” These socially responsible firms actively seek out ways to protect the long-run interests of their consumers and the environment.

Almost every aspect of marketing involves ethics and social responsibility issues. Unfortunately, because these issues usually involve conflicting interests, well-meaning people can honestly disagree about the right course of action in a given situation. Thus, many industrial and professional trade associations have suggested codes of ethics. And more companies are now developing policies, guidelines, and other responses to complex social responsibility issues.

The boom in online, mobile, and social media marketing has created a new set of social and ethical issues. Critics worry most about online privacy issues. There has been an explosion in the amount of personal digital data available. Users themselves supply some of it. They voluntarily place highly private information on social media sites, such as Facebook or LinkedIn, or on genealogy sites that are easily searched by anyone with a computer or a smartphone.

However, much of the information is systematically developed by businesses seeking to learn more about their customers, often without consumers realizing that they are un- der the microscope. Legitimate businesses track consumers’ online browsing and buying behavior and collect, analyze, and share digital data from every move consumers make at their online sites. Critics worry that these companies may now know too much and might use digital data to take unfair advantage of consumers. Although most companies fully disclose their Internet privacy policies and most try to use data to benefit their customers, abuses do occur. As a result, consumer advocates and policy makers are taking action to protect consumer privacy. In Chapters 4 and 16, we discuss these and other societal mar- keting issues in greater depth.

cause-related Marketing. To exercise their social responsibility and build more positive im- ages, many companies are now linking themselves to worthwhile causes. These days, every product seems to be tied to some cause. For example, the P&G “Tide Loads of Hope” pro- gram provides mobile laundromats and loads of clean laundry to families in disaster-stricken

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areas—P&G washes, dries, and folds clothes for these families for free. Shake Shack runs an annual Great American Shake Sale: If you donate at least $2 at the reg- ister to Share Our Strength’s No Kid Hungry program dedicated to ending child hunger in America, you get a $5 shake free on your next visit. And AT&T joined forces with competitors Verizon, Sprint, and T-Mobile to spearhead the “It Can Wait” campaign, which addresses the texting-while-driving epidemic by urging people of all ages to take the pledge to never text and drive. The campaign’s cause-related message: “No text is worth the risk. It can wait.”42

Some companies are founded on cause-related missions. Under the concept of “values-led business” or “caring capitalism,” their mission is to use business to make the world a better place. For example, Warby Parker—the online marketer of low-priced prescrip-

tion eyewear—was founded with the hope of bringing affordable eyewear to the masses. The company sells “eyewear with a purpose.” For every pair of glasses Warby Parker sells, it distributes a free pair to someone in need. The company also works with not-for-profit organizations that train low-income entrepreneurs to sell affordable glasses. “We believe that everyone has the right to see,” says the company.43

Cause-related marketing has become a primary form of corporate giving. It lets companies “do well by doing good” by linking purchases of the company’s products or services with benefiting worthwhile causes or charitable organizations. Beyond being socially admirable, Warby Parker’s Buy a Pair, Give a Pair program also makes good economic sense, for both the company and its customers. “Companies can do good in the world while still being profitable,” says Warby Parker co-founder Neil Blumenthal. “A single pair of reading glasses causes, on average, a 20 percent increase in income. Glasses are one of the most effective poverty alleviation tools in the world.”44

Cause-related marketing has also stirred some controversy. Critics worry that cause-related marketing is more a strategy for selling than a strategy for giving—that “cause-related” marketing is really “cause-exploitative” marketing. Thus, companies us- ing cause-related marketing might find themselves walking a fine line between increased sales and an improved image and facing charges of exploitation. However, if handled well, cause-related marketing can greatly benefit both the company and the cause. The company gains an effective marketing tool while building a more positive public image. The chari- table organization or cause gains greater visibility and important new sources of funding and support. Spending on cause-related marketing in the United States skyrocketed from only $120 million in 1990 to $1.92 billion in 2015.45

the cultural environment The cultural environment consists of institutions and other forces that affect a society’s ba- sic values, perceptions, preferences, and behaviors. People grow up in a particular society that shapes their basic beliefs and values. They absorb a worldview that defines their relationships with others. The following cultural characteristics can affect marketing decision making.

the Persistence of cultural Values People in a given society hold many beliefs and values. Their core beliefs and values have a high degree of persistence. For example, most Americans believe in individual freedom, hard work, getting married, and achievement and success. These beliefs shape more spe- cific attitudes and behaviors found in everyday life. Core beliefs and values are passed on from parents to children and are reinforced by schools, businesses, religious institutions, and government.

Secondary beliefs and values are more open to change. Believing in marriage is a core belief; believing that people should get married early in life is a secondary belief.

author comment Cultural factors strongly affect how people think and how they consume, so marketers

are keenly interested in the cultural environment.

cultural environment Institutions and other forces that affect a society’s basic values, perceptions, preferences, and behaviors.

cause-related marketing: at&t joined forces with competitors Verizon, sprint, and t-Mobile to spearhead the “it can Wait” campaign, which urges people of all ages to take the pledge to never text and drive. Courtesy of AT&T Intellectual Property. Used with permission.

chapter 3: analyzing the Marketing environment 89

Marketers have some chance of changing secondary values but little chance of changing core values. For example, family-planning marketers could argue more effectively that people should get married later than not get married at all.

shifts in secondary cultural Values Although core values are fairly persistent, cultural swings do take place. Consider the impact of popular music groups, movie personalities, and other celebrities on young people’s hairstyle and clothing norms. Marketers want to predict cultural shifts to spot new opportunities or threats. The major cultural values of a society are expressed in people’s views of themselves and others, as well as in their views of organizations, society, nature, and the universe.

People’s Views of themselves. People vary in their emphasis on serving themselves versus serving others. Some people seek personal pleasure, wanting fun, change, and escape. Others seek self-realization through religion, recreation, or the avid pursuit of careers or other life goals. Some people see themselves as sharers and joiners; others see themselves as individu- alists. People use products, brands, and services as a means of self-expression, and they buy products and services that match their views of themselves.

For example, ads for Tetley tea focus on taste, appealing to tea drinkers with a more practical view and telling them to “Brew Up Something Brilliant.” Its Classic Blend black tea offers “a deep amber color and delicious tea flavor.” By contrast, Yogi Tea Company appeals to tea drinkers with a more transcendent, holistic view of themselves, their lives, and their teas. The brand offers more than 100 herbs and botanicals, blended “for both flavor and purpose.” Yogi’s slogan, “How Good Can You Feel?,” suggests that its teas not only taste good but also make you feel well, both physi- cally and mentally. For example, Yogi Stress Relief tea is “a delicious, all-natural blend that helps soothe your body and mind.” Yogi Sweet Tangerine Positive Energy tea “is a harmonizing and aromatic blend that energizes and elevates mood.” A recent post at the Yogi Community online site invited everyone to have a “Happy Feel-Good Friday and a Happy Spring!”46

People’s Views of others. People’s attitudes toward and interactions with others shift over time. In recent years, some analysts have voiced concerns that the digital age would result in diminished human interaction, as people buried themselves in social media pages or emailed and texted rather than interacting personally. Instead, today’s digital technologies seem to have launched an era of what one trend watcher calls “mass mingling.” Rather than inter- acting less, people are using social media and mobile com- munications to connect more than ever. Basically, the more people meet, network, Tweet, and socialize online, the more likely they are to eventually meet up with friends and fol- lowers in the real world.

However, these days, even when people are together, they are often “alone together.” Groups of people may sit or walk in their own little bubbles, intensely connected to tiny screens and keyboards. One expert describes the latest com-

munication skill as “maintaining eye contact with someone while you text someone else; it’s hard but it can be done,” she says. “Technology-enabled, we are able to be with one another, and also elsewhere, connected to wherever we want to be.”47 Thus, whether the new technology-driven communication is a blessing or a curse is a matter of much debate.

People’s self-views: yogi appeals to tea drinkers with a more spiritual view of themselves, their lives, and their teas. yogi sweet tangerine Positive energy tea “energizes and elevates mood.” “how good can you feel?” Courtesy Yogi Tea. Photo in ad: Mark Laita, Absodels/Getty Images

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This new way of interacting strongly affects how companies market their brands and communicate with customers. Consumers increasingly tap digitally into networks of friends and online brand communities to learn about and buy products and to shape and share brand experiences. As a result, it is important for brands to participate in these net- works too.

People’s Views of organizations. People vary in their attitudes toward corporations, govern- ment agencies, trade unions, universities, and other organizations. By and large, people are willing to work for major organizations and expect them, in turn, to carry out society’s work.

The past two decades have seen a sharp decrease in confidence in and loyalty toward America’s business and political organizations and institutions. In the workplace, there has been an overall decline in organizational loyalty. Waves of company downsizings bred cynicism and distrust. In just the past decade, major corporate scandals, rounds of layoffs resulting from the Great Recession, the financial meltdown triggered by Wall Street bank- ers’ greed and incompetence, and other unsettling activities have resulted in a further loss of confidence in big business. Many people today see work not as a source of satisfaction but as a required chore to earn money to enjoy their nonwork hours. This trend suggests that organizations need to find new ways to win consumer and employee confidence.

People’s Views of society. People vary in their attitudes toward their society—patriots defend it, reformers want to change it, and malcontents want to leave it. People’s orientation to their society influences their consumption patterns and attitudes toward the marketplace.

American patriotism has been increasing gradually for the past two decades. Marketers respond with renewed “Made in America” pitches and patriotic products and promo- tions, offering everything from orange juice to computers to cars with patriotic themes. For example, Chrysler’s patriotic “Imported from Detroit” campaign, which declared that “the world’s going to hear the roar of our engines,” resonated strongly with Americans consumers. And Apple recently kicked off a $100 million “Made in America” push with the introduction of a new high-end Mac Pro personal computer. The Mac Pro, “the most power- ful Mac ever,” is built in Austin, Texas, with components made domestically.48

Although most such marketing efforts are tasteful and well received, waving the red, white, and blue can sometimes prove tricky. Flag-waving promotions can be viewed as corny or as token attempts to cash in on the nation’s emotions. For example, some crit- ics note that, so far, Apple’s “Made in America” push hasn’t had much real impact. The Mac Pro contributes less than 1 percent of Apple’s total revenues. More than 70 percent of the company’s revenues come from its iPhone and iPad products, both built in China. Marketers must take care when appealing to patriotism and other strong national emotions.

People’s Views of nature. People vary in their attitudes toward the natural world—some feel ruled by it, others feel in harmony with it, and still others seek to master it. A long-term trend has been people’s growing mastery over nature through technology and the belief that nature is bountiful. More recently, however, people have recognized that nature is finite and fragile; it can be destroyed or spoiled by human activities.

This renewed love of things natural has created a sizable market of consumers who seek out everything from natural, organic, and nutritional products to fuel-efficient cars and alternative medicines. These consumers make up a sizable and growing market. For example, food producers have also found fast-growing markets for natural and organic products. In total, the U.S. organic/natural food market generated $53.5 billion in retail sales last year, more than doubling over the past five years.49

Annie’s Homegrown, a General Mills company, caters to this market with sustain- able, all-natural food products—from mac and cheese to pizzas, pastas, snacks, and salad dressings—made and sold in a sustainable way:50

Annie’s mission is “to cultivate a healthier and happier world by spreading goodness through nourishing foods, honest words, and conduct that is considerate and forever kind to the planet.” Annie’s products are made from simple, natural ingredients grown by its farm partners. The products contain “no artificial anything,” says the company. “If it’s not real, it’s

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not Annie’s.” The company works closely with its food sup- ply-system partners to jointly raise the bar for sustainability and organics. Annie’s also makes sustainable practices a top priority with its packaging—more than 90 percent of Annie’s packaging by weight is recyclable. Finally, Annie’s gives back to the community through programs such as sustainable agriculture scholarships, school garden programs, and support for like-minded organizations dedicated to making the planet a better place to live and eat.

People’s Views of the Universe. Finally, people vary in their beliefs about the origins of the universe and their place in it. Although most Americans practice religion, religious conviction and practice have been dropping off gradually through the years. According to a recent poll, one-fifth of Americans now say they are not affiliated with any particular faith, double the percentage in 1990. Among Americans ages 18 to 29, one-third say they are not currently affiliated with any particular religion.51

However, the fact that people are dropping out of orga- nized religion doesn’t mean that they are abandoning their faith. Some futurists have noted a renewed interest in spiri- tuality, perhaps as a part of a broader search for a new inner purpose. People have been moving away from materialism and dog-eat-dog ambition to seek more permanent values— family, community, earth, faith—and a more certain grasp of right and wrong. Rather than calling it “religion,” they call

it “spirituality.”52 This changing spiritualism affects consumers in everything from the television shows they watch and the books they read to the products and services they buy.

responding to the Marketing environment Someone once observed, “There are three kinds of companies: those who make things happen, those who watch things happen, and those who wonder what’s happened.” Many companies view the marketing environment as an uncontrollable element to which they must react and adapt. They passively accept the marketing environment and do not try to change it. They analyze environmental forces and design strategies that will help the com- pany avoid the threats and take advantage of the opportunities the environment provides.

Other companies take a proactive stance toward the marketing environment. Rather than assuming that strategic options are bounded by the current environment, these firms develop strategies to change the environment. Companies and their products often cre- ate and shape new industries and their structures, products such as Ford’s Model T car, Apple’s iPod and iPhone, and Google’s search engine.

Even more, rather than simply watching and reacting to environmental events, proactive firms take aggressive actions to affect the publics and forces in their marketing environment. Such companies hire lobbyists to influence legislation affecting their industries and stage media events to gain favorable press coverage. They take to the social media and run blogs to shape public opinion. They press lawsuits and file complaints with regulators to keep compet- itors in line, and they form contractual agreements to better control their distribution channels.

By taking action, companies can often overcome seemingly uncontrollable environ- mental events. For example, whereas some companies try to hush up negative talk about their products, others proactively counter false information. McDonald’s did this when a photo went viral showing unappetizing “mechanically separated chicken” (also known as “pink goop”) and associating it with the company’s Chicken McNuggets:53

McDonald’s quickly issued statements disclaiming the pink goop photo as a hoax and noting that McNuggets are made using only boneless white breast meat chicken in a process that never produces anything remotely resembling the weird pink substance. But McDonald’s

author comment Rather than simply watching and reacting to the marketing environment, companies

should take proactive steps.

riding the trend toward all things natural: annie’s mission is “to cultivate a healthier and happier world by spreading goodness through nourishing foods, honest words, and conduct that is considerate and forever kind to the planet.” General Mills Marketing, Inc.

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today’s empowered consumers: boeing’s embarrassing blunder over young harry Winsor’s airplane design made instant national news. however, boeing quickly took responsibility and turned the potential Pr disaster into a positive. John Winsor

Marketers have hailed the Internet and social media as the great new way to engage customers and nurture customer relationships. In turn, today’s more-empowered consumers use the new digital media to share their brand experiences with companies and with each other. All of this back and forth helps both the company and its customers. But some- times, the dialogue can get nasty. Consider the following examples:

●● Upon receiving a severely damaged computer monitor via FedEx, YouTube user goobie55 posts footage from his se- curity camera. The video clearly shows a FedEx delivery man hoisting the monitor package over his head and toss- ing it over goobie55’s front gate without ever attempting to ring the bell, open the gate, or walk the package to the door. The video—with FedEx’s familiar purple and orange logo prominently displayed on everything from the driver’s shirt to the package and the truck—goes viral, with 5 million hits in just five days. TV news and talk shows go crazy discuss- ing the clip.

●● A young creative team at Ford’s ad agency in India produces a Ford Figo print ad and releases it to the Internet without approval. The ad features three women—bound, gagged, and scantily clad—in the hatch of a Figo, with a caricature of a grinning Silvio Berlusconi (Italy’s sex-scandal-plagued ex-prime minister) at the wheel. The ad’s tagline: “Leave your worries behind with Figo’s extra-large boot (trunk).” Ford quickly pulls the ad, but not before it goes viral. Within days, millions of people around the world have viewed the  ad, causing an online uproar and giving Ford a global black eye.

●● When 8-year-old Harry Winsor sends a crayon drawing of an airplane he’s designed to Boeing with a suggestion that the company might want to manufacture it, the company responds with a stern, legal-form letter. “We do not accept unsolicited ideas,” the letter states. “We regret to inform you that we have disposed of your message and retain no

Marketing at Work 3.2

in the social Media age: When the Dialogue gets nasty

took its response an important step further. It created its own nearly three-minute social me- dia video giving a tour of a company processing plant in Canada, showing the step-by-step process by which McNuggets are made. In the process, fresh chicken breasts are ground and seasoned, stamped into four nugget shapes (balls, bells, boots, and bow ties), battered, flash- fried, frozen, packaged, and shipped out to local McDonald’s restaurants where they are fully cooked. There’s not a trace of the gross pink goop anywhere in the process. The proactive video itself went viral, garnering more than 3.5 million YouTube views in less than six weeks. As a follow-up, McDonald’s launched an “Our Food. Your Questions.” campaign inviting con- sumers to submit questions about its food-making processes via Facebook, Twitter, YouTube, and other social media. It then addressed the top concerns in a series of “behind-the-scenes” Webisodes.

Marketing management cannot always control environmental forces. In many cases, it must settle for simply watching and reacting to the environment. For example, a company would have little success trying to influence geographic population shifts, the economic environment, or major cultural values. But whenever possible, smart marketing manag- ers take a proactive rather than reactive approach to the marketing environment (see Marketing at Work 3.2).

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copies.” The embarrassing blunder would probably go un- noticed were it not for the fact that Harry’s father—John Winsor, a prominent ad exec—blogs and tweets about the incident, making it instant national news.

Extreme events? Not anymore. The Internet and social media have turned the traditional power relationship between businesses and consumers upside down. In the good old days, disgruntled consumers could do little more than bel- low at a company service rep or shout out their complaints from a street corner. Now, armed with only a laptop or smartphone, they can take it public, airing their gripes to mil- lions on blogs, social media sites, or even hate sites devoted exclusively to their least favorite corporations. “A  consum- er’s megaphone is now [sometimes] more powerful than a brand’s,” says one ad agency executive. “Individuals can bring a huge company to its knees . . . simply by sharing their experiences and opinions on Facebook, Yelp, Twitter, Instagram, or other social forums.”

“I hate” and “sucks” sites are almost commonplace. These sites target some highly respected companies with some highly disrespectful labels: Walmartblows.com, PayPalSucks.com (aka NoPayPal), IHateStarbucks.com, DeltaREALLYsucks. com, and UnitedPackageSmashers.com (UPS), to name only a few. “Sucks” videos on YouTube and other video sites also abound. For example, a search of “Apple sucks” on YouTube turns up more than 600,000 videos; a search for Microsoft finds 143,000 videos. An “Apple sucks” search on Facebook links to hundreds of groups. If you don’t find one you like, try “Apple suks” or “Apple sux” for hundreds more.

Some of these sites, videos, and other online attacks air legitimate complaints that should be addressed. Others, how- ever, are little more than anonymous, vindictive slurs that unfairly ransack brands and corporate reputations. Some of the attacks are only a passing nuisance; others can draw serious attention and create real headaches.

How should companies react to online attacks? The real quandary for targeted companies is figuring out how far they can go to protect their images without fueling the already  raging fire. One point on which all experts seem to agree: Don’t try to retaliate in kind. “It’s rarely a good idea to lob bombs at the fire starters,” says one analyst. “Preemption, engagement, and diplomacy are saner tools.” Such criticisms are often based on real consumer concerns and unresolved anger. Hence, the best strategy might be to proactively monitor these sites and respond honestly to the concerns they express.

For example, Boeing quickly took responsibility for mis- handling aspiring Harry Winsor’s designs, turning a potential PR disaster into a positive. It called and invited young Harry to visit Boeing’s facilities. On its corporate Twitter site, it con- fessed, “We’re experts at airplanes but novices in social media. We’re learning as we go.” In response to its Figo ad fiasco, Ford’s chief marketing officer issued a deep public apology,

citing that Ford had not approved the ads and that it had since modified its ad review process. Ford’s ad agency promptly fired the guilty creatives.

Similarly, FedEx drew praise by immediately posting its own YouTube video addressing the monitor-smashing incident. In the video, FedEx Senior Vice President of Operations Matthew Thornton stated that he had personally met with the aggrieved customer, who had accepted the company’s apology. “This goes directly against all FedEx values,” declared Thornton. The FedEx video struck a responsive chord. Numerous journalists and bloggers responded with stories about FedEx’s outstanding package handling and delivering record.

Many companies have now created teams of specialists that monitor online conversations and engage unhappy consum- ers. For example, the social media team at Southwest Airlines includes a chief Twitter officer who tracks Twitter comments and monitors Facebook groups, an online representative who checks facts and interacts with bloggers, and another person who takes charge of the company’s presence on sites such as YouTube, Instagram, Flickr, and LinkedIn. So if someone posts an online comment, the company can respond promptly in a personal way.

Not long ago, Southwest’s team averted what could have been a major PR catastrophe when a hole popped open in a plane’s fuselage on a flight from Phoenix to Sacramento. The flight had Wi-Fi, and the first passenger tweet about the incident, complete with a photo, was online in only nine minutes—11 minutes before Southwest’s official dispatch channel report. But Southwest’s monitoring team picked up the social media chatter and was able to craft a blog post and other social media responses shortly after the plane made an emer- gency landing in Yuma, Arizona. By the time the story hit the major media, the passenger who had tweeted initially was back on Twitter praising the Southwest crew for its professional han- dling of the situation.

Thus, by monitoring and proactively responding to seem- ingly uncontrollable events in the environment, companies can prevent the negatives from spiraling out of control or even turn them into positives. Who knows? With the right responses, Walmartblows.com might even become Walmartrules.com. Then again, probably not.

Sources: Quotes, excerpts, and other information based on Matt Wilson, “How Southwest Airlines Wrangled Four Social Media Crises,” Ragan .com, February 20, 2013, www.ragan.com/Main/Articles/How_Southwest_ Airlines_wrangled_four_social_media_46254.aspx#; Vanessa Ko, “FedEx Apologizes after Video of Driver Throwing Fragile Package Goes Viral,” Time, December 23, 2011, http://newsfeed.time.com/2011/12/23/fedex- apologizes-after-video-of-driver-throwing-fragile-package-goes-viral/; Michelle Conlin, “Web Attack,” BusinessWeek, April 16, 2007, pp. 54–56; “Boeing’s Social Media Lesson,” May 3, 2010, http://mediadecoder.blogs .nytimes.com/2010/05/03/boeings-social-media-lesson/; Brent Snavely, “Ford Marketing Chief Apologizes for Ads,” USA Today, March 27, 2013; David Angelo, “CMOs, Agencies: It’s Time to Live Your Brands,” Advertising Age, October 2, 2013, http://adage.com/print/244524; and www.youtube.com/ watch?v=C5uIH0VTg_o, accessed September 2015.

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MyMarketingLab If assigned by your instructor, complete the questions marked with the from the EOC Discussion Questions section in the MyLab. To complete the Marketing by the Numbers problems found in this section, go to your Assignments in the MyLab.

chaPter reVieW anD critical thinking

In this and the next two chapters, you’ll examine the environments of marketing and how companies analyze these environments to better understand the marketplace and consumers. Companies must constantly watch and manage the marketing environment to seek opportunities and ward off threats. The marketing environ- ment consists of all the actors and forces influencing the compa- ny’s ability to transact business effectively with its target market.

objectiVe 3-1 Describe the environmental forces that affect the company’s ability to serve its customers. (pp 68–72)

The company’s microenvironment consists of actors close to the company that combine to form its value delivery network or that affect its ability to serve customers. It includes the com- pany’s internal environment—its several departments and man- agement levels—as it influences marketing decision making. Marketing channel firms—suppliers, marketing intermediaries, physical distribution firms, marketing services agencies, and financial intermediaries—cooperate to create customer value. Competitors vie with the company in an effort to serve custom- ers better. Various publics have an actual or potential interest in or impact on the company’s ability to meet its objectives. Finally, five types of customer markets exist: consumer, busi- ness, reseller, government, and international markets.

The macroenvironment consists of larger societal forces that affect the entire microenvironment. The six forces making up the company’s macroenvironment are demographic, economic, natural, technological, political/social, and cultural forces. These forces shape opportunities and pose threats to the company.

objectiVe 3-2 explain how changes in the demo- graphic and economic environments affect marketing decisions. (pp 72–81)

Demography is the study of the characteristics of human popula- tions. Today’s demographic environment shows a changing age structure, shifting family profiles, geographic population shifts, a better-educated and more white-collar population, and increas- ing diversity. The economic environment consists of factors that affect buying power and patterns. The economic environment is

reVieWing anD extenDing the concePts

objectives review characterized by more frugal consumers who are seeking greater value—the right combination of good quality and service at a fair price. The distribution of income also is shifting. The rich have grown richer, the middle class has shrunk, and the poor have remained poor, leading to a two-tiered market.

objectiVe 3-3 identify the major trends in the firm’s natural and technological environments. (pp 81–85)

The natural environment shows three major trends: shortages of certain raw materials, higher pollution levels, and more govern- ment intervention in natural resource management. Environmen- tal concerns create marketing opportunities for alert companies. The technological environment creates both opportunities and challenges. Companies that fail to keep up with technological change will miss out on new product and marketing opportunities.

objectiVe 3-4 explain the key changes in the political and cultural environments. (pp 85–91)

The political environment consists of laws, agencies, and groups that influence or limit marketing actions. The political environ- ment has undergone changes that affect marketing worldwide: in- creasing legislation regulating business, strong government agency enforcement, and greater emphasis on ethics and socially respon- sible actions. The cultural environment consists of institutions and forces that affect a society’s values, perceptions, preferences, and behaviors. The environment shows trends toward new technology- enabled communication, a lessening trust of institutions, increasing patriotism, greater appreciation for nature, a changing spiritualism, and the search for more meaningful and enduring values.

objectiVe 3-5 Discuss how companies can react to the marketing environment. (pp 91–93)

Companies can passively accept the marketing environment as an uncontrollable element to which they must adapt, avoiding threats and taking advantage of opportunities as they arise. Or they can take a proactive stance, working to change the envi- ronment rather than simply reacting to it. Whenever possible, companies should try to be proactive rather than reactive.

chapter 3: analyzing the Marketing environment 95

key terms objective 3-1 Marketing environment (p 68) Microenvironment (p 68) Macroenvironment (p 68) Marketing intermediaries (p 70) Public (p 71)

objective 3-2 Demography (p 72) Baby boomers (p 73)

Generation X (p 74) Millennials (Generation Y) (p 75) Generation Z (p 75) Economic environment (p 80)

objective 3-3 Natural environment (p 81) Environmental sustainability (p 82) Technological environment (p 82)

objective 3-4 Political environment (p 85) Cultural environment (p 88)

Changes in the technological environment have created amaz- ing opportunities for new business models while at the same time threatening traditional ones. For example, Airbnb has shaken up the hospitality industry by allowing people to rent out spare rooms or their entire homes to strangers. The Uber and Lyft ride-sharing businesses allow consum- ers to find a ride from people looking to earn extra money with their vehicles. And with Uber you don’t have to worry about having enough cash or giving your credit card to the

driver—payments and tips are all done through the Uber app. Traditional hotel and cab companies are crying foul, claiming that these businesses are not playing by the same regulatory rules to which they are subject. Others are concerned about safety amid reports of riders allegedly being attacked, kidnap- pings, and driver accidents, questioning the thoroughness of background checks of the 160,000-plus Uber drivers around the world. Some countries, states, and cities have banned Uber because of these issues.

Minicases anD aPPlications

online, Mobile, and social Media Marketing sharing economy

Discussion Questions 3-1. Name and describe the types of publics in a company’s

marketing environment. (AASCB: Communication) 3-2. Who are the Millennials, and why are they of so much

interest to marketers? (AACSB: Communication; Reflective Thinking)

3-3. Describe Generation Z. What differentiates it from other demographic groups, such as baby boomers, Generation X, and Millennials? (AACSB: Communi- cation; Reflective Thinking)

3-4. Compare and contrast core beliefs/values and second- ary beliefs/values. Provide an example of each and discuss the potential impact marketers have on each. (AACSB: Communication; Reflective Thinking)

3-5. How should marketers respond to the changing envi- ronment? (AACSB: Communication)

critical thinking exercises 3-6. In 1965, more than 40 percent of American adults were

smokers. That percentage has now fallen to less than 18 percent. Tobacco companies have dealt with this threat by developing new markets overseas and also developing alternative nicotine products such as elec- tronic cigarettes (e-cigarettes). Research this product and the regulatory environment regarding this product, then write a report advising tobacco companies on the opportunities and threats posed by this technology. (AACSB: Communication; Reflective Thinking)

3-7. Form a small group and discuss cultural trends in the United States. Research one of them in depth and create a presentation on the trend’s impact on marketing. (AACSB: Communication; Reflective Thinking)

3-8. Visit www.causemarketingforum.com to learn about companies that have won Halo Awards for outstand- ing cause-related marketing programs. Present an award-winning case study to your class. (AACSB: Communication; Use of IT)

96 Part 2: Understanding the Marketplace and customer Value

3-9. Describe how Uber’s business model works and the role technology has played in its success. What are the arguments for banning these types of businesses? What are the arguments for defending them? (AACSB: Com- munication; Use of IT; Reflective Thinking)

3-10. Describe examples of two other businesses based on the sharing economy model and create a new business idea based on this concept. (AACSB: Communication; Reflective Thinking)

Marketing ethics Mutant loophole Genetically modifying seeds to produce herbicide-resistant plants that increase crop yields has revolutionized modern agri- culture. However, genetically modified organisms (GMOs) have come under fire in recent years, with consumer groups calling for mandatory GMO labeling on all food packages that contain GMO ingredients. GMO labeling laws have been in force in the European Union and other countries for several years, but the threat to the U.S. food industry is only now surfacing. Although bills requiring GMO labeling have been introduced in many state legislatures, Vermont is the only state where such a law has so far withstood the first round of legal battles from the industry. Leading chemical companies, including Monsanto, BASF, and DuPont, are the world’s largest suppliers of seeds that grow the food that feeds the world. To counter the GMO labeling threat, they now are turning to mutagenesis as an alternative technique to create herbicide-resistant crops. Mutagenesis mimics the

sun’s irradiation of plants to create similar results to GMO tech- niques but with virtually no regulation. Some scientists claim mutant crops created from this process are likely to create even greater health risks than genetic modification. Seed companies see it as a way around the threat of GMO labeling requirements as consumer package-goods marketers put pressure on suppliers for non-GMO ingredients.

3-11. Debate whether it is ethical for seed manufacturers to replace one controversial technique (genetic engineer- ing) with another (mutagenesis) to avoid regulatory threats. (AACSB: Communication; Reflective Think- ing; Ethical Reasoning)

3-12. Is it wise for GMO manufacturers to fight mandatory labeling? Debate this issue. (AACSB: Communication; Reflective Thinking)

Marketing by the numbers Demographic trends Marketers are interested in demographic trends related to vari- ables such as age, ethnicity, and population. The U.S. Census Bureau provides considerable demographic information that is useful for marketers. For example, the following table pro- vides a sample of such population data (see www.censusscope. org/2010Census/PDFs/RaceEth-States.pdf):

2000 2010

State Total Hispanic Total Hispanic

Georgia 8,186,453 435,227 9,687,653 853,689

Michigan 9,938,444 323,877 9,883,640 436,358

California 33,871,648 10,966,556 37,253,956 14,013,719

3-13. What percentage change in the total and Hispanic populations occurred in each state between 2000 and 2010? What conclusions can be drawn from this analy- sis? (AACSB: Communication; Analytical Reasoning; Reflective Thinking)

3-14. Research another demographic trend and create a pre- sentation to marketers regarding the significance of the trend you analyzed. (AACSB: Communication; Reflective Thinking)

Video case burger king In the fast-food burgers business, french fries are perhaps more important than the burgers themselves. System-wide, Burger King sells 56 million orders of french fries every month—one order of fries for every two customers. But nothing is exempt from the impact of marketing environment forces. As health trends drove some companies to cut back on fatty foods, Burger King saw its french fry sales dip.

So Burger King decided to let people have their fries and eat them to. To bring health-conscious customers back to the counter, Burger King introduced Satisfries—french fries with 30 percent less fat and 20 percent fewer calories than its regular fries. In a product category that has seen little if any innovation, Satisfries could be a big game changer. Still, reduced fat and calories may not be enough to make a difference to health-food

chapter 3: analyzing the Marketing environment 97

lovers. And at 30 to 40 cents more per item, Satisfries may end up as little more than a fry fiasco.

After viewing the video featuring Burger King, answer the following questions:

3-15. Considering marketing environment forces, describe how Burger King went about developing its new Satisfries.

3-16. With Satisfries, has Burger King truly created customer value, or is it just chasing trends? Explain.

company cases 3 sony/7 target/9 coach See Appendix 1 for cases appropriate for this chapter. Case 3, Sony: Battling the Marketing Environment’s “Perfect Storm.” The many forces of the marketing environment have converged to take Sony from the global leader in consumer elec- tronics to a company that is struggling to remain relevant. Case 7, Target: Where Store Brands Offer More Than Low Prices.

In addition to carrying popular national brands, Target caters to current trends in consumer desire by building a portfolio of store brands. Case 9, Coach: Riding the Wave of Premium Pricing. Coach grew from a premium niche brand into a $5 billion pow- erhouse by pursuing popular trends of selling through outlet stores at a discount. But such tactics are taking a toll.

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

3-17. What is environmental sustainability and why has it grown in importance for marketers? (AACSB: Communication)

3-18. Discuss a recent change in the technological environment that impacts marketing. How has it affected buyer behavior and how has it changed marketing? (AACSB: Written and Oral Communication; Reflective Thinking)

Part 1: Defining Marketing anD the Marketing Process (chaPters 1–2) Part 2: UnDerstanDing the MarketPlace anD cUstoMer ValUe (chaPters 3–5) Part 3: Designing a cUstoMer ValUe-DriVen strategy anD Mix (chaPters 6–14) Part 4: extenDing Marketing (chaPters 15–16)

4 objectiVe 4-1 explain the importance of information in gaining insights about the marketplace and customers. Marketing Information and Customer Insights (100–101)

objectiVe 4-2 Define the marketing information system and discuss its parts. Assessing Marketing Information Needs (102); Developing Marketing Information (102–106)

objectiVe 4-3 outline the steps in the marketing research process. Marketing Research (106–118)

Managing Marketing information to gain customer insights

objectiVe 4-4 explain how companies analyze and use marketing information. Analyzing and Using Marketing Information (118–123)

objectiVe 4-5 Discuss the special issues some marketing researchers face, including public policy and ethics issues. Other Marketing Information Considerations (123–127)

Previewing the concepts in this chapter, we continue our exploration of how marketers gain insights into consumers and the marketplace. We look at how companies develop and manage information about important marketplace elements: customers, competitors, products, and marketing programs. to succeed in today’s marketplace, companies must know how to turn mountains of marketing information into fresh customer insights that will help them deliver greater value to customers.

let’s start with a story about marketing research and customer insights in action. over the past decade, the lego group has used innovative marketing research to gain deep insights into how children really play and then used those insights to create compelling play experiences for children all over the world. in the process, it has rescued itself from near bankruptcy to become the world’s biggest toy maker. as one analyst puts it, the lego group has now become “the apple of toys.”

chaPter roaD MaP objective outline

99

first stop the lego group: Digging Out Fresh Customer Insights Classic LEGO plastic bricks have been fixtures in homes around the world for more than 65 years. Last year, The LEGO Group (TLG) produced a record 55 billion LEGO bricks, enough to construct a continuous line stretching around the world more than 20 times. More than 78 million LEGO sets found their way into the eager hands of customers in 130 countries. TLG is now the world’s second-largest toy company, ahead of Hasbro and neck and neck with market leader Mattel. And whereas Mattel and Hasbro are facing flat or declining sales, TLG’s sales are exploding. In the past 10 years, its revenues have quadrupled to nearly $5 billion, up 25 percent last year alone.

But only a decade ago, TLG was near bankruptcy, spiral- ing downward and losing money at a rate of $1 million a day. The problem: The classic toy company had fallen out of touch with its customers. In the age of the Internet, video games, mobile devices, and high-tech playthings, traditional toys such as LEGO bricks had been pushed to the back of the closet. So, in 2004, the company set out to rebuild its aging prod- ucts and approaches, brick by brick.

The LEGO makeover, however, didn’t start with engineers work- ing in design labs. First, TLG had to reconnect with customers. So it started with marketing research—lots and lots of it—listening to customers and learning in depth how children around the world really play. It created a Global Insights Team, a group of market- ing researchers charged with finding innovative new ways to dig out fresh customer insights.

Beyond traditional research methods and data analytics, TLG used innovative immersive research approaches to understand the deeper motivations underlying LEGO purchases and play. For exam- ple, TLG research teams conducted up-close-and-personal ethno- graphic studies. They embedded researchers with families, observed children at play, interviewed their parents, shopped with families, and studied the inside workings of toy stores. This immersive research produced a lot of “Aha! Moments,” customer insights that shattered many of the brand’s decades-old traditions.

For example, TLG had long held fast to a “keep it simple” man- tra. From the beginning, it had offered only basic play sets—bricks, building bases, beams, doors, windows, wheels, and slanting roof tiles—with few or no instructions. The philosophy was that giving chil- dren unstructured building sets would stimulate their imaginations and foster creativity. But the research showed that this concept just wasn’t cutting it in today’s modern, tech-rich world. Today’s children get bored easily, and in the current fast-moving environment, they are exposed to many more characters, themes, and technologies. However, counter to previous assumptions that kids seek only instant gratification, TLG found that today’s children welcome challenging tasks, such as putting together complex LEGO sets.

Responding to such insights, TLG shifted toward more- specialized, more-structured play experiences. It now churns out a seemingly endless assortment of themed product lines and specific building projects, complete with detailed instructions. So instead of

the lego group uses innovative marketing research—

lots and lots of it—to dig out fresh customer insights, then uses the insights to create irresistible play

experiences for children around the world. lego is now neck and

neck with Mattel as the world’s number-one toy maker.

just buying a set of basic square LEGO bricks and building their own houses or cars, children can now buy specialized kits to construct anything from fire trucks and helicopters to crave-worthy ninja cas- tles. To add variety and familiarity, TLG also offers an ever-changing assortment of licensed lines based on everything from Star Wars and DC Comics to Marvel Super Heroes and Disney Princesses. And to satisfy children’s needs for skill-mastery challenges, TLG has developed involving play experiences such as LEGO MINDSTORMS, a series of building sets complete with hardware and software for making customizable robots that are pro- grammable from a smartphone app. The latest incarnation of LEGO MINDSTORMS, EV3, is a 601-piece kit that includes software, motors, and sen- sors that control robot movements and speech.

Another customer insight that emerged from the ethnographic research is that kids no longer draw meaningful distinctions between digital and physical play. “To them, it’s not two separate worlds,” says a LEGO Group product designer. “It’s one world that blends together.” This insight led to TLG’s “One Real- ity” products, which combine digital and real-world play experiences that involve building with LEGO bricks alongside software running on a phone or tablet app. For example, the LEGO Fusion line lets children build physical models with actual LEGO bricks, scan their creations using a phone or tablet app, and bring them to life in a vir- tual world. In LEGO Fusion Town Master, for instance, kids create a miniature virtual LEGO city, then run the city as its mayor in an app. Town Master was one of last year’s hottest-selling Christmas toys.

the lego group’s innovative marketing research produced lots of “aha! Moments,” helping the brand to recast its classic, colorful bricks into modern, tech-rich play experiences for children around the world. 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.

100

TLG’s marketing researchers have also discovered important dif- ferences between how boys and girls play, leading to the launch of girl-focused lines such as LEGO Friends. Both boys and girls like the construction aspects of LEGO bricks. However, boys tend to be more drawn to narrative—as reflected in popular boy-focused, story-based product lines such as Ninjago and Legends of Chima. In contrast, girls tend to use their sets for role-play, as reflected in the pink- and purple-accented LEGO Friends, which focuses on commu- nity and friendship themes. The development of LEGO Friends took four years, based on research involving 3,500 girls and their mothers around the world, seeking to understand what girls who had not pre- viously played with LEGO products might want in a construction toy. LEGO Friends has been a major hit with girls in markets ranging from the United States and Germany to China.

Of course, kids aren’t the only ones playing with LEGO bricks. The classic brick sets have a huge fan base of adults who never got over the toys of their youth. Hundreds of thousands of AFOLs (Adult Fans of LEGO) around the globe spend large sums on LEGO products. These adults maintain thousands of LEGO fan sites and blogs and organize get-togethers such as the annual

BrickFest fan festival. TLG actively taps into the AFOL community for new customer insights and ideas. It has created a roster of cus- tomer ambassadors who provide regular input, and it even invites customers to participate directly in the product-development pro- cess. For example, it once invited 250 LEGO train-set enthusiasts to visit its New York office to assess new designs. The result was the LEGO Santa Fe Super Chief set, which sold out the first 10,000 units in less than two weeks with virtually no marketing. Similarly, TLG used customer co-creation to develop its most popular product ever, LEGO MINDSTORMS.

Thus, over the past decade, thanks to customer insight-driven marketing research, The LEGO Group has reconnected with both its customers and the times. TLG probably knows as much about how children play as any organization on earth, and it has par- layed that knowledge into compelling, profitable play experiences for the world’s children. As one analyst concludes, “In the last 10 years, LEGO has grown into nothing less than the Apple of Toys: a profit-generating, design-driven miracle built around premium, intuitive, highly covetable [play experiences that its young] fans can’t get enough of.”1

s the LEGO story highlights, good products and marketing programs begin with good customer information. Companies also need an abundance of information on competitors, resellers, and other actors and marketplace forces. But more than just

gathering information, marketers must use the information to gain powerful customer and market insights.

Marketing information and customer insights To create value for customers and build meaningful relationships with them, marketers must first gain fresh, deep insights into what customers need and want. Such customer insights come from good marketing information. Companies use these customer insights to develop a competitive advantage.

For example, when it began five years ago, social media site Pinterest needed to dif- ferentiate itself from the dozens, even hundreds, of existing social networking options.2

Pinterest’s research uncovered a key customer insight: Many people want more than just Twitter- or Facebook-like places to swap messages and pictures. They want a way to collect, organize, and share things on the Internet related to their interests and passions. So Pinterest created a social scrapbooking site, where people can create and share digital pinboards— theme-based image collections on things that inspire them. “Pinterest is your own little Internet of only the things you love,” says the company.

Thanks to this unique customer insight, Pinterest has been wildly popular. Today, more than 70 million Pinterest users collectively pin more than 5 million articles a day and view more than 2.5 billion Pinterest pages a month. In turn, more than a half-million businesses use Pinterest to engage and inspire their customer communities. Nordstrom, for example, has more than 4.4 million Pinterest followers. Some 47 percent of U.S. online shoppers have purchased something as a result of a Pinterest recommendation.

Although customer and market insights are important for building customer value and engagement, these insights can be very difficult to obtain. Customer needs and buy- ing motives are often anything but obvious—consumers themselves usually can’t tell you exactly what they need and why they buy. To gain good customer insights, marketers must effectively manage marketing information from a wide range of sources.

author comment Marketing information by itself has little

value. The value is in the customer insights gained from the information and how marketers use these insights to make

better decisions.

a

chapter 4: Managing Marketing information to gain customer insights 101

Marketing information and today’s “big Data” With the recent explosion of information technologies, companies can now generate and find marketing information in great quantities. The marketing world is filled to the brim with information from innumerable sources. Consumers themselves are now generating tons of marketing information. Through their smartphones, PCs, and tablets via online browsing and blogging, apps and social media interactions, texting and video, and geolo- cation data, consumers now volunteer a tidal wave of bottom-up information to companies and to each other.

Far from lacking information, most marketing managers are overloaded with data and often overwhelmed by it. This problem is summed up in the concept of big data. The term big data refers to the huge and complex data sets generated by today’s sophisticated information generation, collection, storage, and analysis technologies. Every year, the people and systems of the world generate about a trillion gigabytes of information. That’s enough data to fill 2.47 trillion good old CD-ROMs, a stack tall enough to go to the moon and back four times. A full 90 percent of all the data in the world has been created in just the past two years.3

Big data presents marketers with both big opportunities and big challenges. Companies that effectively tap this glut of big data can gain rich, timely customer insights. However, accessing and sifting through so much data is a daunting task. For example, when a large consumer brand such as Coca-Cola or Apple monitors online discussions about its brand in Tweets, blogs, social media posts, and other sources, it might take in a stunning 6 million public conversations a day, more than 2 billion a year. That’s far more information than any manager can digest. Thus, marketers don’t need more information; they need better information. And they need to make better use of the information they already have.

Managing Marketing information The real value of marketing information lies in how it is used—in the customer insights that it provides. Based on such thinking, companies ranging from Coca-Cola, Starbucks, and McDonald’s to Google and GEICO are restructuring their marketing information and research functions. They are creating customer insights teams, headed by a senior market- ing executive with representatives from all of the firm’s functional areas. For example, GEICO’s Customer Insights team analyzes data from dozens of sources to gain insights into the GEICO customer experience and then works with functional leaders across the organization to find ways to improve that experience.4

Customer insights groups collect customer and market information from a wide vari- ety of sources, ranging from traditional marketing research studies to mingling with and observing consumers to monitoring social media conversations about the company and its products. They mine big data from sources far and wide. Then they use this information to develop important customer insights from which the company can create more value for its customers.

Thus, companies must design effective marketing information systems that give managers the right information, in the right form, at the right time and help them to use this information to create customer value, engagement, and stronger customer relation- ships. A marketing information system (MIS) consists of people and procedures dedi- cated to assessing information needs, developing the needed information, and helping decision makers use the information to generate and validate actionable customer and market insights.

figure 4.1 shows that the MIS begins and ends with information users— marketing managers, internal and external partners, and others who need marketing information. First, it interacts with these information users to assess information needs. Next, it interacts with the marketing environment to develop needed information through internal company databases, marketing intelligence activities, and marketing research. Finally, the MIS helps users to analyze and use the information to develop customer insights, make marketing decisions, and manage customer engagement and relationships.

big data The huge and complex data sets generated by today’s sophisticated information generation, collection, storage, and analysis technologies.

customer insights Fresh marketing information-based understandings of customers and the marketplace that become the basis for creating customer value, engagement, and relationships.

Marketing information system (Mis) People and procedures dedicated to assessing information needs, developing the needed information, and helping decision makers to use the information to generate and validate actionable customer and market insights.

key customer insights have helped make social scrapbooking site Pinterest wildly successful with its 70 million users. in turn, more than a half-million brands use Pinterest to engage and inspire their customer communities. Pinterest

102 Part 2: Understanding the Marketplace and customer Value

assessing Marketing information needs The marketing information system primarily serves the company’s marketing and other managers. However, it may also provide information to external partners, such as suppliers, resellers, or marketing services agencies. For example, Walmart’s Retail Link system gives key suppliers access to information on everything from customers’ buying patterns and store inventory levels to how many items they’ve sold in which stores in the past 24 hours.5

A good marketing information system balances the information users would like to have against what they really need and what is feasible to offer. Some managers will ask for whatever information they can get without thinking carefully about what they really need. And in this age of big data, some managers will want to collect and store vast amounts of digital data simply because technology lets them. But too much information can be as harmful as too little. In contrast, other managers may omit things they ought to know, or they may not know to ask for some types of information they should have. The MIS must monitor the marketing environment to provide decision makers with informa- tion they should have to make key marketing decisions.

Finally, the costs of obtaining, analyzing, storing, and delivering information can mount quickly. The company must decide whether the value of insights gained from ad- ditional information is worth the costs of providing it, and both value and cost are often hard to assess.

Developing Marketing information Marketers can obtain the needed information from internal data, marketing intelligence, and marketing research.

internal Data Many companies build extensive internal databases, collections of consumer and market information obtained from data sources within the company’s network. Information in an internal database can come from many sources. The marketing department furnishes in- formation on customer characteristics, in-store and online sales transactions, and Web and social media site visits. The customer service department keeps records of customer satis- faction or service problems. The accounting department provides detailed records of sales, costs, and cash flows. Operations reports on production, shipments, and inventories. The sales force reports on reseller reactions and competitor activities, and marketing channel

author comment The marketing information system begins

and ends with users—assessing their information needs and then delivering

information and insights that meet those needs.

author comment The problem isn’t finding information; in this “big data” age, the world is bursting with information from a glut of sources. The real challenge is to find the right

information—from inside and outside sources—and turn it into

customer insights.

internal databases Collections of consumer and market information obtained from data sources within the company network.

Obtaining customer and market insights from marketing information

Marketing managers and other information users

Competitors Publics Macroenvironment forces

Target markets

Marketing channels

Marketing environment

Marketing information system

Developing needed information

Assessing information

needs

Analyzing and using

information Marketing

intelligence Internal

databases Marketing research in

This chapter is all about managing marketing information to gain customer insights. And this important figure organizes the entire chapter. Marketers start by assessing user information needs. Then they develop the needed information using internal data, marketing intelligence, and marketing research processes. Finally, they make the information available to users in the right form at the right time.

figure 4.1 the Marketing information system

chapter 4: Managing Marketing information to gain customer insights 103

partners provide data on sales transactions. Harnessing such information can provide pow- erful customer insights and competitive advantage.

For example, as part of its MyMacy’s customer-centricity program, Macy’s uses its huge internal database to glean customer insights and personalize customer engagements:6

Macy’s has assembled a vast shopper database containing reams of information on 33 million customer households and 500 million shopper transactions a year. Individual customer data include demographics, in-store and online purchases, style preferences and personal motivations, and even browsing patterns at Macy’s Web, mobile, and social media sites. Macy’s then analyzes the data intensely and uses the resulting insights to coordinate and hyper- personalize each customer’s shopping experiences.

For example, Macy’s now sends out up to 500,000 unique versions of a single direct mail catalogue. “My book might look very different from [someone else’s],” says Macy’s chief mar- keter. “I’m not such a great homemaker, but I am a cosmetic, shoe, and jewelry person, so what you might see in my book would be all of those categories.” Similarly, under its “Intelligent Display” initiative, Macy’s can track what customers browse on the company Web or mobile sites, then have relevant display ads appear as they are browsing on other sites. Future MyMacy’s actions will include data-informed email, mobile, and Web and social media site customizations. The ultimate goal of the massive internal database effort is to “put the customer at the center of all decisions.”

Internal databases usually can be accessed more quickly and cheaply than other infor- mation sources, but they also present some problems. Because internal information is often collected for other purposes, it may be incomplete or in the wrong form for making market- ing decisions. Data also age quickly; keeping the database current requires a major effort. Finally, managing and mining the mountains of information that a large company produces requires highly sophisticated equipment and techniques.

competitive Marketing intelligence Competitive marketing intelligence is the systematic monitoring, collection, and analy- sis of publicly available information about consumers, competitors, and developments in the marketplace. The goal of competitive marketing intelligence is to improve strategic decision making by understanding the consumer environment, assessing and tracking competitors’ actions, and providing early warnings of opportunities and threats. Marketing intelligence techniques range from observing consumers firsthand to quizzing the com- pany’s own employees, benchmarking competitors’ products, online research, and moni- toring social media buzz.

Good marketing intelligence can help marketers gain insights into how consum- ers talk about and engage with their brands. Many companies send out teams of trained observers to mix and mingle personally with customers as they use and talk about the company’s products. Other companies—such as Dell, PepsiCo, Kraft, and MasterCard— have set up sophisticated digital command centers that routinely monitor brand-related online consumer and marketplace activity (see Marketing at Work 4.1).

Companies also need to actively monitor competitors’ activities. They can monitor competitors’ Web and social media sites. For example, Amazon’s Competitive Intelligence arm routinely purchases merchandise from competing sites to analyze and compare their assortment, speed, and service quality. Companies can use the Internet to search specific competitor names, events, or trends and see what turns up. And tracking consumer conver- sations about competing brands is often as revealing as tracking conversations about the company’s own brands.

Firms use competitive marketing intelligence to gain early insights into competi- tor moves and strategies and to prepare quick responses. For example, Samsung routinely

competitive marketing intelligence The systematic monitoring, collection, and analysis of publicly available information about consumers, competitors, and developments in the marketplace.

through its MyMacy’s program, Macy’s digs deeply into its huge customer database and uses the resulting insights to hyper-personalize its customers’ shopping experiences. Bloomberg/Getty Images

104 Part 2: Understanding the Marketplace and customer Value

competitive marketing intelligence: Mastercard’s digital intelligence command center—called the conversation suite—monitors, analyzes, and responds in real time to millions of brand-related conversations across 56 markets and 27 languages around the world. MasterCard

Today’s social space is alive with buzz about brands and related happenings and trends. As a result, many companies are now setting up state-of-the-art social media command centers with which they track or even help shape the constant barrage of social media activity surrounding their brands.

Some social media command centers are event-specific. For example, Jaguar set up “The Villain’s Lair,” a social media command center for the express purpose of managing engage- ment with its Super Bowl ads featuring famous movie villains. But many other organizations, ranging from financial institu- tions and consumer products companies to not-for-profit or- ganizations, have opened permanent digital command centers to help them harness the power of today’s burgeoning social media chatter.

For example, MasterCard’s digital intelligence command center—called the Conversation Suite—monitors, analyzes, and responds in real time to millions of online conversations around the world. It monitors online brand-related conversa- tions across 56 markets and 27 languages. It tracks social networks, blogs, online and mobile video, and traditional media—any and every digital place that might contain relevant content or commentary on MasterCard and its competitors.

At MasterCard’s Purchase, New York, headquarters, Conversation Suite staff huddle with managers from various MasterCard departments and business units in front of a giant 40-foot LED screen that displays summaries of ongoing global brand conversations, refreshed every four minutes. A rotating group of market- ing and customer service people spends two or three hours a day in the command center. “It’s a real-time focus group,” says a MasterCard com- munications executive. “We track all mentions of MasterCard and any of our products, plus the competition.”

MasterCard uses what it sees, hears, and learns in the Conversation Suite to improve its prod- ucts and marketing, track brand performance, and spark meaningful customer conversations and en- gagement. MasterCard is even training “social am- bassadors,” who can join online conversations and engage customers and brand influencers directly. “Today, almost everything we do [across the com- pany] is rooted in insights we’re gathering from the Conversation Suite,” says another manager. “[It’s] transforming the way we do business.”

PepsiCo’s Gatorade was one of the first brands to set up a social media command center, called Gatorade Mission Control. The center conducts extensive real-time monitoring of brand-related

social media activity. Whenever someone mentions anything related to Gatorade (including competitors, Gatorade athletes, and sports nutrition–related topics) on major social media or blogs, it pops up in various visualizations and dashboards on one of six big screens. Gatorade Mission Control staffers also monitor digital ad, Web, and mobile site traffic, producing a consolidated picture of the brand’s Internet image. Gatorade uses what it sees and learns at the center to improve its prod- ucts, marketing, and interactions with customers.

Gatorade Mission Control also lets the brand engage con- sumers in real time, sometimes adding to or even shaping the online discourse. For example, during Game One of the 2014 NBA Finals, when then-Miami Heat forward LeBron James was carried off the court with leg cramps, Twitter exploded with comments that Gatorade had failed to prevent James’s cramps. Although the former Gatorade spokesman had recently switched to rival Powerade, a Coca-Cola brand, most fans still associated King James with Gatorade. However, at the same time that fans were Tweeting concerns about the brand, the Gatorade Mission Control team was countering with its own humorous responses, such as “The person cramping isn’t our client. Our athletes can take the Heat.” When one fan Tweet asked where Gatorade was when LeBron James needed it, the team replied, “Waiting on the sidelines, but he prefers to drink something else.” Thus, real-time social media monitoring

Marketing at Work 4.1

social Media command centers: listening to and engaging customers in social space

chapter 4: Managing Marketing information to gain customer insights 105

helped Gatorade turn potentially negative online chatter into a game-winning shot at the buzzer.

All kinds of organizations are now setting up social me- dia command centers, even not-for-profits. For example, the American Red Cross partnered with Dell to create its Digital Operations Center in Washington, DC, which helps the humanitarian relief organization improve its responses to emergencies and natural disasters. The Red Cross got serious about monitoring social media after an opinion poll revealed that 80 percent of Americans expect emergency responders to monitor social networks, and one-third presumed that they could get help during a disaster within an hour if they posted or Tweeted a request. Modeled after Dell’s own iconic social media center, the Red Cross Digital Operations Center broke new ground with an innovative digital volunteer program, adding thousands of trained volunteers around the country to help handle the massive volume of social media traffic that occurs during a disaster.

The Digital Operations Center helps improve the Red Cross’s everyday relief efforts, such as responses to an apart- ment fire in a large metropolitan area. “Not only are we scanning the social media landscape looking for actionable intelligence,” says a Red Cross manager, “we are also scanning the social space to see if there are people out there who need information and emotional support.”

But it’s the major disasters that highlight the center’s big- gest potential. For example, during the week of Hurricane Sandy, one of the biggest natural disasters in U.S. history, the Digital Operations Center played a crucial role in directing Red Cross relief efforts. In addition to the usual data from government partners, on-the-ground assessments, and dam- age reports from traditional media, the center pored through and acted on millions Tweets, Facebook posts, blog entries, and photos posted online. In all, it tracked more than 2 mil- lion posts and responded directly to thousands of people. In at least 88 cases, social media posts had a direct effect on

Red Cross actions. “We put trucks in areas where we saw a greater need, we moved cots to a shelter where we needed more supplies,” says the Red Cross manager. Even a lack of social media activity was an important indicator. A social me- dia “black hole” in a specific area probably meant that factors were preventing people in that area from Tweeting and that they needed help.

So whether it’s MasterCard, Gatorade, or the American Red Cross, a social media command center can help marketers scour the digital environment, analyze brand-related conver- sations in real time to gain marketing insights, and respond quickly and appropriately. Ultimately, social media listening gives consumers another voice, to the benefit of both custom- ers and the brand. “It enables us to give the public a seat at our response table,” says the Red Cross manager. Wells Fargo’s Director of Social Media agrees: “Consumers want to be a part of how companies serve them,” she says. “Our nirvana is that if someone offers us an idea, tip, or feedback that really helps us, we respond directly.”

Sources: “MasterCard Conversation Suite Video,” http://newsroom.mastercard .com/videos/mastercard-conversation-suite-video/, accessed September 2015; Sheila Shayon, “MasterCard Harnesses the Power of Social with Innovative Conversation Suite,” brandchannel, May 7, 2013, www.brandchannel.com/ home/post/2013/05/07/MasterCard-Conversation-Suite-050713.aspx; Giselle Abramovich, “Inside Mastercard’s Social Command Center,” Digiday, May 9, 2013, http://digiday.com/brands/inside-mastercards-social-command-center/; Anthony Shop, “Social Media Lessons from Gatorade Mission Control,” Socialmediadriver.com, August 28, 2013, http://socialdriver.com/2013/08/28/ social-media-lessons-from-gatorade-mission-control/; Evan Hanson, “PepsiCo Drinks In Gatorade’s Social Media Performance at Game One of NBA Finals,” 24/7 Wallstreet, June 7, 2014, http://247wallst.com/general/2014/06/07/ pepsico-drinks-in-gatorades-social-media-performance-at-game-one-of-nba- finals/#ixzz3O6SWtQJt; Ariel Schwartz, “How the Red Cross Used Tweets to Save Lives during Hurricane Sandy,” Fast Company, October 31, 2013, www.fastcoexist.com/3020923/how-the-red-cross-used-tweets-to-save-lives- during-hurricane-sandy; and Scott Gulbransen, “Taking Back the Social- Media Command Center,” Forbes, January 22, 2014, www.forbes.com/sites/ onmarketing/2014/01/22/taking-back-the-social-media-command-center/.

monitors real-time social media activity surrounding the introduction of Apple’s latest iPhones to quickly shape marketing responses for its own Galaxy S smartphones and tablets.7

At the same time that Apple CEO Tim Cook is on stage unveiling the latest much-anticipated new iPhone, Samsung marketing strategists are huddled around screens in a war room hundreds of miles away watching the introduction unfold. They carefully monitored not only each new iPhone feature as it is presented but also the gush of online consumer commentary flooding blogs and social media channels. Even as the real-time consumer and competitive data surge in, the Samsung team is drafting a response. Within only a few days, just as the new iPhones are hitting store shelves, Samsung is already airing TV, print, and social media response ads that rechannel the excitement surrounding the iPhone debut toward its own Galaxy line.

For example, during the iPhone 5 roll-out, Samsung launched an ad mocking iPhone fans lined up outside Apple stores buzzing about the features of the new iPhone, only to be upstaged by passersby and their Samsung Galaxy smartphones (“The next big thing is already here”). Lines in the ad were based on thousands of actual Tweets and other social media interactions concerning specific iPhone features. The real-time-insights-based ad became the tech-ad sensa- tion of the year (grabbing more than 70 million online views). Similarly, during the iPhone 6 debut, Samsung quickly launched a series of “It doesn’t take a genius” ads poking fun at vari- ous iPhone features announced at Apple’s release event.

106 Part 2: Understanding the Marketplace and customer Value

Much competitor intelligence can be collected from people inside the company— executives, engineers and scientists, purchasing agents, and the sales force. The company can also obtain important intelligence information from suppliers, resellers, and key custom- ers. Intelligence seekers can also pour through any of thousands of online databases. Some are free. For example, the U.S. Security and Exchange Commission’s database provides a huge stockpile of financial information on public competitors, and the U.S. Patent Office and Trademark database reveals patents that competitors have filed. For a fee, companies can also subscribe to any of the more than 3,000 online databases and information search services, such as Hoover’s, LexisNexis, and Dun & Bradstreet. Today’s marketers have an almost overwhelming amount of competitor information only a few keystrokes away.

The intelligence game goes both ways. Facing determined competitive marketing intelligence efforts by competitors, most companies take steps to protect their own infor- mation. One self-admitted corporate spy advises that companies should try conducting marketing intelligence investigations of themselves, looking for potentially damaging information leaks. They should start by “vacuuming up” everything they can find in the public record, including job postings, court records, company advertisements and blogs, Web pages, press releases, online business reports, social media postings by customers and employees, and other information available to inquisitive competitors.8

The growing use of marketing intelligence also raises ethical issues. Some intelligence- gathering techniques may involve questionable ethics. Clearly, companies should take advantage of publicly available information. However, they should not stoop to snoop. With all the legitimate intelligence sources now available, a company does not need to break the law or accepted codes of ethics to get good intelligence.

Marketing research In addition to marketing intelligence information about general consumer, competitor, and marketplace happenings, marketers often need formal studies that provide customer and market insights for specific marketing situations and decisions. For example, Starbucks wants to know how customers would react to a new breakfast menu item. Yahoo! wants to know how Web searchers will react to a proposed redesign of its site. Or Samsung wants to know how many and what kinds of people will buy its next-generation, ultrathin televi- sions. In such situations, managers will need marketing research.

Marketing research is the systematic design, collection, analysis, and reporting of data relevant to a specific marketing situation facing an organization. Companies use marketing research in a wide variety of situations. For example, marketing research gives marketers insights into customer motivations, purchase behavior, and satisfaction. It can help them to assess market potential and market share or measure the effectiveness of pric- ing, product, distribution, and promotion activities.

Some large companies have their own research departments that work with marketing managers on marketing research projects. In addition, these companies—like their smaller counterparts—frequently hire outside research specialists to consult with management on specific marketing problems and to conduct marketing research studies. Sometimes firms simply purchase data collected by outside firms to aid in their decision making.

The marketing research process has four steps (see figure 4.2): defining the prob- lem and research objectives, developing the research plan, implementing the research plan, and interpreting and reporting the findings.

author comment Whereas marketing intelligence involves actively scanning the general marketing

environment, marketing research involves more focused studies to gain customer

insights relating to specific marketing decisions.

Marketing research The systematic design, collection, analysis, and reporting of data relevant to a specific marketing situation facing an organization.

Defining the problem and

research objectives

Implementing the research plan–– collecting and

analyzing the data

Interpreting and reporting

the findings

Developing the research plan for collecting information

This first step is probably the most difficult but also the most important one. It guides the entire research process. It’s frustrating and costly to reach the end of an expensive research project only to learn that you’ve addressed the wrong problem!

figure 4.2 the Marketing research Process

chapter 4: Managing Marketing information to gain customer insights 107

Defining the Problem and research objectives Marketing managers and researchers must work together closely to define the problem and agree on research objectives. The manager best understands the decision for which infor- mation is needed, whereas the researcher best understands marketing research and how to obtain the information. Defining the problem and research objectives is often the hardest step in the research process. The manager may know that something is wrong without knowing the specific causes.

After the problem has been defined carefully, the manager and the researcher must set the research objectives. A marketing research project might have one of three types of objectives. The objective of exploratory research is to gather preliminary information that will help define the problem and suggest hypotheses. The objective of descriptive research is to describe things, such as the market potential for a product or the demographics and attitudes of consumers who buy the product. The objective of causal research is to test hypotheses about cause-and-effect relationships. For example, would a 10 percent decrease in tuition at a private college result in an enrollment increase sufficient to offset the reduced tuition? Managers often start with exploratory research and later follow with descriptive or causal research.

The statement of the problem and research objectives guides the entire research process. The manager and the researcher should put the statement in writing to be certain that they agree on the purpose and expected results of the research.

Developing the research Plan Once researchers have defined the research problem and objectives, they must determine the exact information needed, develop a plan for gathering it efficiently, and present the plan to management. The research plan outlines sources of existing data and spells out the specific research approaches, contact methods, sampling plans, and instruments that researchers will use to gather new data.

Research objectives must be translated into specific information needs. For example, suppose that Chipotle Mexican Grill wants to know how consumers would react to the addition of drive-thru service to its restaurants. U.S. fast-food chains generate an estimated 24 percent of sales through drive-thrus. However, Chipotle—the sustainability-minded fast-casual restaurant that positions itself on “Food With Integrity”—doesn’t offer drive- thru service. Adding drive-thrus might help Chipotle leverage its strong brand position and attract new sales. The proposed research might call for the following specific information:

●● The demographic, economic, and lifestyle characteris- tics of current Chipotle customers: Do current counter- service customers also use drive-thrus? Are drive-thrus consistent with their needs and lifestyles? Or would Chipotle need to target a new segment of consumers?

●● The characteristics and usage patterns of the broader population of fast-food and fast-casual diners: What do they need and expect from such restaurants? Where, when, and how do they use them,and what existing quality, price, and service levels do they value? The new Chipotle service would require trong, relevant, and distinctive positioning in the crowded fast-food market.

●● Impact on the Chipotle customer experience: Would drive-thrus be consistent with a higher-quality fast- casual experience like the one Chipotle offers?

●● Chipotle employee reactions to drive-thru service: Would restaurant employees support drive-thrus? Would adding drive-thrus disrupt operations and their ability to deliver high-quality food and service to inside customers?

exploratory research Marketing research to gather preliminary information that will help define problems and suggest hypotheses.

Descriptive research Marketing research to better describe marketing problems, situations, or markets, such as the market potential for a product or the demographics and attitudes of consumers.

causal research Marketing research to test hypotheses about cause-and-effect relationships.

a decision by chipotle Mexican grill to add drive-thru service would call for marketing research that provides lots of specific information. Chipotle Mexican Grill, Inc.

108 Part 2: Understanding the Marketplace and customer Value

●● Forecasts of both inside and drive-thru sales and profits: Would the new drive-thru service create new sales and customers or simply take sales away from current operations?

Chipotle’s marketers would need these and many other types of information to decide whether to introduce drive-thru service and, if so, the best way to do it.

The research plan should be presented in a written proposal. A written proposal is especially important when the research project is large and complex or when an outside firm carries it out. The proposal should cover the management problems addressed, the research objectives, the information to be obtained, and how the results will help manage- ment’s decision making. The proposal also should include estimated research costs.

To meet the manager’s information needs, the research plan can call for gathering secondary data, primary data, or both. Secondary data consist of information that already exists somewhere, having been collected for another purpose. Primary data consist of information collected for the specific purpose at hand.

gathering secondary Data Researchers usually start by gathering secondary data. The company’s internal database provides a good starting point. However, the company can also tap into a wide assortment of external information sources.

Companies can buy secondary data from outside suppliers. For example, Nielsen sells shopper insight data from a consumer panel of more than 250,000 households in 25 countries worldwide, with measures of trial and repeat purchasing, brand loyalty, and buyer demo- graphics. Experian Simmons carries out a full spectrum of consumer studies that provide a comprehensive view of the American consumer. The U.S. Yankelovich MONITOR service by The Futures Company sells information on important social and lifestyle trends. These and other firms supply high-quality data to suit a wide variety of marketing information needs.9

Using commercial online databases, marketing researchers can conduct their own searches of secondary data sources. General database services such as ProQuest and LexisNexis put an incredible wealth of information at the fingertips of marketing decision makers. Beyond commercial services offering information for a fee, almost every industry association, government agency, business publication, and news medium offers free infor- mation to those tenacious enough to find their Web sites or apps.

Internet search engines can also be a big help in locating rel- evant secondary information sources. However, they can also be very frus- trating and inefficient. For example, a Chipotle marketer Googling “fast- food drive-thru” would come up with more than 2.8 million hits. Still, well-structured, well-designed online searches can be a good starting point to any marketing research project.

Secondary data can usually be ob- tained more quickly and at a lower cost than primary data. Also, secondary sources can sometimes provide data an individual company cannot collect on its own— information that either is not directly available or would be too expensive to collect. For example, it would be too expensive for a con- sumer products brand such as Coca- Cola or Tide to conduct a continuing retail store audit to find out about the

secondary data Information that already exists somewhere, having been collected for another purpose.

Primary data Information collected for the specific purpose at hand.

general database services such as ProQuest and lexisnexis put an incredible wealth of information at the fingertips of marketing decision makers. Copyright 2015 LexisNexis, a division of Reed Elsevier Inc. All Rights Reserved. LexisNexis and the Knowledge Burst logo are registered trademarks of Reed Elsevier Properties Inc. and are used with the permission of LexisNexis.

chapter 4: Managing Marketing information to gain customer insights 109

market shares, prices, and displays of its own and competitors’ brands. But those marketers can buy the InfoScan service from SymphonyIRI Group, which provides this information based on scanner and other data from 34,000 retail stores in markets around the nation.10

Secondary data can also present problems. Researchers can rarely obtain all the data they need from secondary sources. For example, Chipotle will not find existing informa- tion regarding consumer reactions about new drive-thru service that it has not yet installed. Even when data can be found, the information might not be very usable. The researcher must evaluate secondary information carefully to make certain it is relevant (fits the research project’s needs), accurate (reliably collected and reported), current (up-to-date enough for current decisions), and impartial (objectively collected and reported).

Primary Data collection Secondary data provide a good starting point for research and often help to define re- search problems and objectives. In most cases, however, the company must also collect primary data. table 4.1 shows that designing a plan for primary data collection calls for a number of decisions on research approaches, contact methods, the sampling plan, and research instruments.

research approaches Research approaches for gathering primary data include observation, surveys, and experi- ments. We discuss each one in turn.

observational research. Observational research involves gathering primary data by observing relevant people, actions, and situations. For example, food retailer Trader Joe’s might evaluate possible new store locations by checking traffic patterns, neighborhood con- ditions, and the locations of competing Whole Foods, Fresh Market, and other retail chains.

Researchers often observe consumer behavior to glean customer insights they can’t obtain by simply asking customers questions. For instance, Fisher-Price has established an observation lab in which it can observe the reactions little tots have to new toys. The Fisher-Price Play Lab is a sunny, toy-strewn space where lucky kids get to test Fisher-Price prototypes under the watchful eyes of designers who hope to learn what will get them worked up into a new-toy frenzy. In the lab, some 3,500 kids participate each year testing 1,200 products annually. “Our designers watch and learn from how [children] play,” says a Fisher-Price child research manager. “It really helps us make better products.”11

Marketers not only observe what consumers do but also observe what consumers are saying. As discussed earlier, marketers now routinely listen in on consumer conversations on blogs, social networks, and Web sites. Observing such naturally occurring feedback can provide inputs that simply can’t be gained through more structured and formal research approaches.

A wide range of companies now use ethnographic research. Ethnographic research involves sending observers to watch and interact with consumers in their “natural environ- ments.” The observers might be trained anthropologists and psychologists or company

observational research Gathering primary data by observing relevant people, actions, and situations.

ethnographic research A form of observational research that involves sending trained observers to watch and interact with consumers in their “natural environments.”

table 4.1 Planning Primary Data collection

research approaches

contact Methods

sampling Plan

research instruments

observation Mail sampling unit Questionnaire

survey telephone sample size Mechanical instruments

experiment Personal sampling procedure

online

110 Part 2: Understanding the Marketplace and customer Value

researchers and managers. For example, Coors insights teams frequent bars and other loca- tions in a top-secret small-town location—they call it the “Outpost”—within a day’s drive of Chicago. The researchers use the town as a real-life lab, hob-knobbing anonymously with bar patrons, supermarket shoppers, restaurant diners, convenience store clerks, and other towns- people to gain authentic insights into how middle American consumers buy, drink, dine, and socialize around Coors and competing beer brands.12

Global branding firm Landor launched Landor Families, an ongoing ethnographic study that has followed 11 French families intensely for the past seven years.

Landor researchers visit the families twice a year in their homes, peeking into their refrigerators and diving deeply into both their refrigerators and their food shopping behav- iors and opinions. The researchers also shop with the fami- lies at their local supermarkets and look over their shoulders while they shop online. The families furnish monthly online reports detailing their shopping behaviors and opinions. The Landor Families study provides rich behavioral insights for Landor clients such as Danone, Kraft Foods, and Procter & Gamble. Today’s big data analytics can provide important insights into the whats, whens, and wheres of consumer buying. The Landor Families program is designed to explore the whys. According to Landor, “There is no better way to understand people than to observe them in real life.”13

Beyond conducting ethnographic research in physical consumer environments, many companies now routinely con- duct Netnography research—observing consumers in a natural context in the Internet and mobile space. Observing people as they interact and move about in the online world can provide useful insights into both online and offline buying motives and behavior. And observing people’s shopping patterns by track- ing their mobile movement, both within and between stores, can provide retailers with valuable marketing information.

Observational and ethnographic research often yields the kinds of details that just don’t emerge from traditional research questionnaires or focus groups. Whereas tradi- tional quantitative research approaches seek to test known hypotheses and obtain answers to well-defined product or strategy questions, observational research can generate fresh customer and market insights that people are unwilling or

unable to provide. It provides a window into customers’ unconscious actions and unex- pressed needs and feelings.

However, some things simply cannot be observed, such as attitudes, motives, or private behavior. Long-term or infrequent behavior is also difficult to observe. Finally, observations can be very difficult to interpret. Because of these limitations, researchers often use observation along with other data collection methods.

survey research. Survey research, the most widely used method for primary data col- lection, is the approach best suited for gathering descriptive information. A company that wants to know about people’s knowledge, attitudes, preferences, or buying behavior can often find out by asking them directly.

The major advantage of survey research is its flexibility; it can be used to obtain many different kinds of information in many different situations. Surveys addressing almost any marketing question or decision can be conducted by phone or mail, in person, or online.

However, survey research also presents some problems. Sometimes people are unable to answer survey questions because they cannot remember or have never thought about what they do and why they do it. People may be unwilling to respond to unknown inter- viewers or about things they consider private. Respondents may answer survey questions even when they do not know the answer just to appear smarter or more informed. Or they

survey research Gathering primary data by asking people questions about their knowledge, attitudes, preferences, and buying behavior.

the landor families ongoing ethnographic study has followed 11 french families intensely for the past seven years, diving deeply into both their refrigerators and their food shopping behaviors. says landor, “there is no better way to understand people than to observe them in real life.” Landor

chapter 4: Managing Marketing information to gain customer insights 111

may try to help the interviewer by giving pleasing answers. Finally, busy people may not take the time, or they might resent the intrusion into their privacy.

experimental research. Whereas observation is best suited for exploratory research and surveys for descriptive research, experimental research is best suited for gathering causal information. Experiments involve selecting matched groups of subjects, giving them dif- ferent treatments, controlling unrelated factors, and checking for differences in group re- sponses. Thus, experimental research tries to explain cause-and-effect relationships.

For example, before adding a new sandwich to its menu, McDonald’s might use experiments to test the effects on sales of two different prices it might charge. It could introduce the new sandwich at one price in one city and at another price in another city. If the cities are similar and if all other marketing efforts for the sandwich are the same, then differences in sales in the two cities could be related to the price charged.

contact Methods Information can be collected by mail, telephone, personal interview, or online. table 4.2 shows the strengths and weaknesses of each contact method.

Mail, telephone, and Personal interviewing. Mail questionnaires can be used to collect large amounts of information at a low cost per respondent. Respondents may give more honest answers to more personal questions on a mail questionnaire than to an unknown interviewer in person or over the phone. Also, no interviewer is involved to bias respon- dents’ answers.

However, mail questionnaires are not very flexible; all respondents answer the same questions in a fixed order. Mail surveys usually take longer to complete, and the response rate—the number of people returning completed questionnaires—is often very low. Finally, the researcher often has little control over the mail questionnaire sample. Even with a good mailing list, it is hard to control who at a particular address fills out the ques- tionnaire. As a result of the shortcomings, more and more marketers are now shifting to faster, more flexible, and lower-cost email, online, and mobile phone surveys.

Telephone interviewing is one of the best methods for gathering information quickly, and it provides greater flexibility than mail questionnaires. Interviewers can explain dif- ficult questions and, depending on the answers they receive, skip some questions or probe on others. Response rates tend to be higher than with mail questionnaires, and interview- ers can ask to speak to respondents with the desired characteristics or even by name.

However, with telephone interviewing, the cost per respondent is higher than with mail, online, or mobile questionnaires. Also, people may not want to discuss personal questions

experimental research Gathering primary data by selecting matched groups of subjects, giving them different treatments, controlling related factors, and checking for differences in group responses.

table 4.2 strengths and Weaknesses of contact Methods

Source: based on Donald s. tull and Del i. hawkins, Marketing Research: Measurement and Method, 7th ed. (new york: Macmillan Publishing company, 1993). adapted with permission of the authors.

Mail telephone Personal online

flexibility Poor good excellent good

Quantity of data that can be collected

good fair excellent good

control of interviewer effects

excellent fair Poor fair

control of sample fair excellent good excellent

speed of data collection Poor excellent good excellent

response rate Poor Poor good good

cost good fair Poor excellent

112 Part 2: Understanding the Marketplace and customer Value

with an interviewer. The method introduces interviewer bias—the way interviewers talk, how they ask questions, and other differences that may affect respondents’ answers. Finally, in this age of do-not-call lists and promotion-harassed consumers, potential survey respon- dents are increasingly hanging up on telephone interviewers rather than talking with them.

Personal interviewing takes two forms: individual interviewing and group interview- ing. Individual interviewing involves talking with people in their homes or offices, on the street, or in shopping malls. Such interviewing is flexible. Trained interviewers can guide interviews, explain difficult questions, and explore issues as the situation requires. They can show subjects actual products, packages, advertisements, or videos and observe reac- tions and behavior. However, individual personal interviews may cost three to four times as much as telephone interviews.

Group interviewing consists of inviting small groups of people to meet with a trained moderator to talk about a product, service, or organization. Participants normally are paid a small sum for attending. A moderator encourages free and easy discussion, hoping that group interactions will bring out actual feelings and thoughts. At the same time, the mod- erator “focuses” the discussion—hence the name focus group interviewing.

In traditional focus groups, researchers and marketers watch the focus group discus- sions from behind a one-way mirror and record comments in writing or on video for later study. Focus group researchers often use videoconferencing and Internet technology to connect marketers in distant locations with live focus group action. Marketing executives in far-off locations can look in and listen, even participate, as a focus group progresses.

Along with observational research, focus group interviewing has become one of the major qualitative marketing research tools for gaining fresh insights into consumer thoughts and feelings. In focus group settings, researchers not only hear consumer ideas and opinions, they also can observe facial expressions, body movements, group interplay, and conversational flows. However, focus group studies present some challenges. They usually employ small samples to keep time and costs down, and it may be hard to general- ize from the results. Moreover, consumers in focus groups are not always open and honest about their real feelings, behavior, and intentions in front of other people.

To overcome these problems, many researchers are tinkering with the focus group de- sign. Some companies are changing the environments in which they conduct focus groups to help consumers relax and elicit more authentic responses. For example, Lexus hosts “An Evening with Lexus” dinners in customers’ homes with groups of luxury car buyers to learn up close and personal why they did or did not buy a Lexus. Other companies use immersion groups—small groups of consumers who interact directly and informally with product designers without a focus group moderator present. Research and innovation consultancy The Mom Complex uses such immersion groups to help brand marketers from

companies such as Unilever, Johnson & Johnson, Kimberly- Clark, Kellogg, Playskool, and Walmart understand and con- nect with their “mom customers”:14

According to The Mom Complex, America’s 80 million moms control 85 percent of household purchases, yet three out of four moms say marketers have no idea what it’s like to be a mother. To change that, The Mom Complex arranges “Mom Immersion Sessions,” in which brand marketers interact directly with groups of mothers, who receive $100 in compensation for a two-hour session. Rather than the usual focus group practice of putting the marketers behind a one-way mirror to observe groups of moms discussing their brands, the participants and marketers sit in the same room. Guided by a discussion facilita- tor, the moms begin by educating the marketers about the re- alities of motherhood—“the raw, real ugly truth about being a mom.” Then the moms and marketers work together to address specific brand issues—whether it’s new product ideas, current product problems, or positioning and communications strategy. The goal is to “turn the challenges of motherhood into growth opportunities for brands.”

focus group interviewing Personal interviewing that involves inviting small groups of people to gather for a few hours with a trained interviewer to talk about a product, service, or organization. The interviewer “focuses” the group discussion on important issues.

new focus group designs: the Mom complex uses “Mom immersion sessions” to help brand marketers understand and connect directly with their “mom customers” on important brand issues. © caia image/Alamy

chapter 4: Managing Marketing information to gain customer insights 113

Individual and focus group interviews can add a personal touch as opposed to more numbers-oriented, big data research. They can provide rich insights into the motivations and feelings behind the numbers and analytics. “Focus groups are the most widely used qualitative research tool,” says one analyst, “and with good reason. They foster fruitful discussion and can provide unique insight into customers’ and potential customers’ needs, wants, thoughts, and feelings.” Things really come to life when you hear people say them.15

online Marketing research. The Internet has had a dramatic impact on how marketing research is conducted. Increasingly, researchers are collecting primary data through online marketing research: Internet and mobile surveys, online panels, experiments, and online focus groups and brand communities.

Online research can take many forms. A company can use the Internet or mobile tech- nology as a survey medium: It can include a questionnaire on its Web or social media sites or use email or mobile devices to invite people to answer questions. It can create online panels that provide regular feedback or conduct live discussions or online focus groups. Researchers can also conduct online experiments. They can experiment with different prices, headlines, or product features on different Web or mobile sites or at different times to learn the relative effectiveness of their offers. They can set up virtual shopping environ- ments and use them to test new products and marketing programs. Or a company can learn about the behavior of online customers by following their click streams as they visit the online site and move to other sites.

The Internet is especially well suited to quantitative research—for example, conduct- ing marketing surveys and collecting data. More than 87 percent of all Americans now use the Internet, making it a fertile channel for reaching a broad cross-section of consumers.16 As response rates for traditional survey approaches decline and costs increase, the Internet is quickly replacing mail and the telephone as the dominant data collection methodology.

Internet-based survey research offers many advantages over traditional phone, mail, and personal interviewing approaches. The most obvious advantages are speed and low costs. By going online, researchers can quickly and easily distribute surveys to thousands of re- spondents simultaneously via email or by posting them on selected online and mobile sites. Responses can be almost instantaneous, and because respondents themselves enter the infor- mation, researchers can tabulate, review, and share research data as the information arrives.

Online research also usually costs much less than research conducted through mail, phone, or personal interviews. Using the Internet eliminates most of the postage, phone, interviewer, and data-handling costs associated with the other approaches. Moreover,

sample size and location have little im- pact on costs. Once the questionnaire is set up, there’s little difference in cost between 10 respondents and 10,000 re- spondents on the Internet, or between local or globally distant respondents.

Its low cost puts online research well within the reach of almost any business, large or small. In fact, with the Internet, what was once the domain of research experts is now available to almost any would-be researcher. Even smaller, less sophisticated researchers can use online survey services such as Snap Surveys (www.snapsurveys.com) and SurveyMonkey (www.surveymonkey. com) to create, publish, and distribute their own custom online or mobile sur- veys in minutes.

Internet-based surveys also tend to be more interactive and engaging, easier to complete, and less intrusive

online marketing research Collecting primary data online through Internet surveys, online focus groups, Web-based experiments, or tracking of consumers’ online behavior.

online research: thanks to survey services such as snap surveys, almost any business, large or small, can create, publish, and distribute its own custom online or mobile surveys in minutes. Reproduced with permission from Snap Surveys. www.snapsurveys.com

114 Part 2: Understanding the Marketplace and customer Value

than traditional phone or mail surveys. As a result, they usually garner higher response rates. The Internet is an excellent medium for reaching the hard-to-reach consumer—for example, the often-elusive teen, single, affluent, and well-educated audiences. It’s also good for reaching people who lead busy lives, from working mothers to on-the-go execu- tives. Such people are well represented online, and they can respond in their own space and at their own convenience.

Just as marketing researchers have rushed to use the Internet for quantitative sur- veys and data collection, they are now also adopting qualitative Internet-based research approaches, such as online focus groups, blogs, and social networks. The Internet can provide a fast, low-cost way to gain qualitative customer insights.

A primary qualitative Internet-based research approach is online focus groups. For example, online research firm FocusVision offers its InterVu service, which harnesses the power of the Internet to conduct focus groups with participants at remote locations, any- where in the world, at any time. Using their own Webcams, InterVu participants can log on to focus sessions from their homes or offices and see, hear, and react to each other in real- time, face-to-face discussions.17 Such focus groups can be conducted in any language and viewed with simultaneous translation. They work well for bringing together people from different parts of the country or world at low cost. Researchers can view the sessions in real time from just about anywhere, eliminating travel, lodging, and facility costs. Finally, al- though online focus groups require some advance scheduling, results are almost immediate.

Although growing rapidly, both quantitative and qualitative Internet-based research have some drawbacks. One major problem is controlling who’s in the online sample. Without seeing respondents, it’s difficult to know who they really are. To overcome such sample and context problems, many online research firms use opt-in communities and respondent panels. Alternatively, many companies have now developed their own custom social networks and are using them to gain customer inputs and insights. For example, in its relentless “Pursuit of Perfection,” Lexus has built an extensive online research

community called the Lexus Advisory Board, which consists of 20,000 invitation-only Lexus owners representing a wide range of demographics, psychographics, and model owner- ship. Similarly, NASCAR has built an online community of 12,000 core fans called the NASCAR Fan Council. Both companies survey these online communities regularly to obtain quick and relevant feedback from customers about everything from brand perceptions to proposed marketing initiatives.18

online behavioral and social tracking and targeting. Thus, in recent years, the Internet has become an important tool for conducting research and developing customer insights. But today’s marketing researchers are going even further— well beyond online surveys, focus groups, and Internet communities. Increasingly, they are listening to and watch- ing consumers by actively mining the rich veins of unsolic- ited, unstructured, “bottom-up” customer information already

coursing around the Internet. Whereas traditional marketing research provides more logical consumer responses to structured and intrusive research questions, online listening provides the passion and spontaneity of unsolicited consumer opinions.

Tracking consumers online might be as simple as scanning customer reviews and comments on the company’s brand site or on shopping sites such as Amazon.com or BestBuy.com. Or it might mean using sophisticated online-analysis tools to deeply ana- lyze the mountains of consumer brand–related comments and messages found in blogs or on social media sites, such as Facebook, Yelp, YouTube, Instagram, or Twitter. Listening to and engaging customers online can provide valuable insights into what consumers are saying or feeling about a brand. It can also provide opportunities for building positive brand experiences and relationships. Many companies now excel at listening online and responding quickly and appropriately. As noted previously, more and more companies are

online focus groups Gathering a small group of people online with a trained moderator to chat about a product, service, or organization and gain qualitative insights about consumer attitudes and behavior.

nascar has built an online research community of 12,000 core fans called the nascar fan council, which it surveys regularly for inputs and insights. NASCAR

chapter 4: Managing Marketing information to gain customer insights 115

setting up social media command centers with which they scour the digital environment and analyze brand-related comments and conversations to gain marketing insights.

Information about what consumers do while trolling the vast digital expanse—what searches they make, the online and mobile sites they visit, how they shop, and what they buy—is pure gold to marketers. And today’s marketers are busy mining that gold. Then, in a practice called behavioral targeting, marketers use the online data to target ads and offers to specific consumers. For example, if you place an Apple iPad in your Amazon.com shopping cart but don’t buy it, you might expect to see some ads for that very type of tablet the next time you visit your favorite ESPN site to catch up on the latest sports scores.

The newest wave of Web analytics and targeting takes online eavesdropping even fur- ther—from behavioral targeting to social targeting. Whereas behavioral targeting tracks consumer movements across online sites, social targeting also mines individual online social connections and conversations from social networking sites. Research shows that consumers shop a lot like their friends and are much more likely to respond to ads from

brands friends use. So, instead of just having a Zappos.com ad for run- ning shoes pop up because you’ve recently searched online for running shoes (behavioral targeting), an ad for a specific pair of running shoes pops up because a friend that you’re connected to via Twitter just bought those shoes from Zappos.com last week (social targeting).

Online listening, behavioral targeting, and social targeting can help marketers to harness the massive amounts of consumer information swirl- ing around the Internet. However, as marketers get more adept at trolling blogs, social networks, and other Internet and mobile domains, many critics worry about consumer privacy. At what point does sophisticated online research cross the line into consumer stalking? Proponents claim that behavioral and social targeting benefit more than abuse consumers by feeding back ads and products that are more relevant to their interests. But to many consumers and public advocates, following consumers on- line and stalking them with ads feels more than just a little creepy.

Regulators and others are stepping in. The Federal Trade Commission (FTC) has recommended the creation of a “Do Not Track” system (the on- line equivalent to the “Do Not Call” registry)—which would let people opt out of having their actions monitored online. However, progress has been mixed. Meanwhile, many major Internet browsers and social media have heeded the concerns by adding extended privacy features to their services.19

sampling Plan Marketing researchers usually draw conclusions about large groups of consumers by studying a small sample of the total consumer population. A sample is a segment of the population selected for marketing research to represent the population as a whole. Ideally, the sample should be representative so that the researcher can make accurate estimates of the thoughts and behaviors of the larger population.

Designing the sample requires three decisions. First, who is to be studied (what sam- pling unit)? The answer to this question is not always obvious. For example, to learn about the decision-making process for a family automobile purchase, should the subject be the husband, the wife, other family members, dealership salespeople, or all of these? Second, how many people should be included (what sample size)? Large samples give more reli- able results than small samples. However, larger samples usually cost more, and it is not necessary to sample the entire target market or even a large portion to get reliable results.

Finally, how should the people in the sample be chosen (what sampling procedure)? table 4.3 describes different kinds of samples. Using probability samples, each popula-

tion member has a known chance of being included in the sample, and researchers can cal- culate confidence limits for sampling error. But when probability sampling costs too much or takes too much time, marketing researchers often take nonprobability samples even though their sampling error cannot be measured. These varied ways of drawing samples have different costs and time limitations as well as different accuracy and statistical prop- erties. Which method is best depends on the needs of the research project.

behavioral targeting Using online consumer tracking data to target advertisements and marketing offers to specific consumers.

sample A segment of the population selected for marketing research to represent the population as a whole.

Marketers watch what consumers say and do online, then use the resulting insights to personalize online shopping experiences. is it sophisticated online research or “just a little creepy”? Andresr/Shutterstock.com

116 Part 2: Understanding the Marketplace and customer Value

research instruments In collecting primary data, marketing researchers have a choice of two main research instruments: questionnaires and mechanical devices.

Questionnaires. The questionnaire is by far the most common instrument, whether admin- istered in person, by phone, by email, or online. Questionnaires are very flexible—there are many ways to ask questions. Closed-ended questions include all the possible answers, and subjects make choices among them. Examples include multiple-choice questions and scale questions. Open-ended questions allow respondents to answer in their own words. In a survey of airline users, Southwest Airlines might simply ask, “What is your opinion of Southwest Airlines?” Or it might ask people to complete a sentence: “When I choose an airline, the most important consideration is. . . . ” These and other kinds of open-ended questions often reveal more than closed-ended questions because they do not limit respon- dents’ answers.

Open-ended questions are especially useful in exploratory research, when the re- searcher is trying to find out what people think but is not measuring how many people think in a certain way. Closed-ended questions, on the other hand, provide answers that are easier to interpret and tabulate.

Researchers should also use care in the wording and ordering of questions. They should use simple, direct, and unbiased wording. Questions should be arranged in a logical order. The first question should create interest if possible, and difficult or personal ques- tions should be asked last so that respondents do not become defensive.

Mechanical instruments. Although questionnaires are the most common research instru- ment, researchers also use mechanical instruments to monitor consumer behavior. Nielsen Media Research attaches people meters to television sets, cable boxes, and satellite sys- tems in selected homes to record who watches which programs. Retailers use checkout scanners to record shoppers’ purchases. Mondelez International—maker of Chips Ahoy!, Ritz crackers, Oreos, and other goodies—is even building supermarket “smart shelves.”

The shelves use sensors to analyze facial structures and other characteristics that iden- tify a shopper’s age and sex and determine if and when the shopper selects a product off the shelf. Along with supplying a wealth of insights into consumer shopping behavior, based on who’s buying what, the smart shelves allow marketers to deliver real-time, per- sonalized promotions via video screens on the shelves.20

table 4.3 types of samples

Probability sample

simple random sample every member of the population has a known and equal chance of selection.

stratified random sample the population is divided into mutually exclusive groups (such as age groups), and random samples are drawn from each group.

cluster (area) sample the population is divided into mutually exclusive groups (such as blocks), and the researcher draws a sample of the groups to interview.

nonprobability sample

convenience sample the researcher selects the easiest population members from which to obtain information.

judgment sample the researcher uses his or her judgment to select population members who are good prospects for accurate information.

Quota sample the researcher finds and interviews a prescribed number of people in each of several categories.

chapter 4: Managing Marketing information to gain customer insights 117

Other mechanical devices measure subjects’ physical responses to marketing offerings. Consider this example:21

Time Warner’s MediaLab at its New York headquarters looks more like a chic consumer electronics store than a research lab. But the lab employs a nifty collection of high-tech obser- vation techniques to capture the changing ways that today’s viewers are using and reacting to television and Web content. The MediaLab uses biometric measures to analyze every show subjects watch, every site they visit, and every commercial they skip. Meanwhile, mechanical devices assess viewer engage- ment via physiological measures of skin temperature, heart rate, sweat level, leaning in, and facial and eye movements. Observers behind two-way mirrors or using cameras that peer over each subject’s shoulder make real-time assessments of Web brows- ing behavior. In all, the deep consumer insights gained from MediaLab observations are helping Time Warner prepare for marketing in today’s rapidly changing digital media landscape.

Still other researchers apply neuromarketing, measuring brain activity to learn how consumers feel and respond. Marketing scientists using MRI scans and EEG devices have learned

that tracking brain electrical activity and blood flow can provide companies with insights into what turns consumers on and off regarding their brands and marketing.

Companies ranging from PepsiCo and Disney to Google and Microsoft now hire neuromarketing research companies such as Neurons Inc., Sands Research, and Nielsen NeuroFocus to help figure out what people are really thinking. For example, PepsiCo’s Frito-Lay worked with Nielsen NeuroFocus to assess consumer motivations underlying the success of its Cheetos snack brand. After scanning the brains of carefully chosen consum- ers, Nielsen NeuroFocus learned that part of what makes Cheetos a junk-food staple is the messy orange cheese dust—that’s right, the neon stuff that gloms onto your fingers and then smears on your shirt or the couch cushions. As it turns out, the icky coating triggers a power- ful brain response: a sense of “giddy subversion” that makes the messiness more than worth the trouble it causes. Using this finding, Frito-Lay successfully framed an entire advertising campaign—called “The Orange Underground”—around the mess Cheetos make. For its part, Nielsen NeuroFocus won an award for outstanding advertising research.22

Although neuromarketing techniques can measure consumer involvement and emo- tional responses second by second, such brain responses can be difficult to interpret. Thus, neuromarketing is usually used in combination with other research approaches to gain a more complete picture of what goes on inside consumers’ heads.

implementing the research Plan The researcher next puts the marketing research plan into action. This involves collect- ing, processing, and analyzing the information. Data collection can be carried out by the company’s marketing research staff or outside firms. Researchers should watch closely to make sure that the plan is implemented correctly. They must guard against problems with data collection techniques and technologies, data quality, and timeliness.

Researchers must also process and analyze the collected data to isolate important infor- mation and insights. They need to check data for accuracy and completeness and code them for analysis. The researchers then tabulate the results and compute statistical measures.

interpreting and reporting the findings The market researcher must now interpret the findings, draw conclusions, and report them to management. The researcher should not try to overwhelm managers with numbers and fancy statistical techniques. Rather, the researcher should present important findings and insights that are useful in the major decisions faced by management.

Using mechanical instruments to monitor consumers: some marketers are building supermarket “smart shelves” that track shopper demographics and purchases, supplying a wealth of insights into consumer shopping behavior. Associated Press

118 Part 2: Understanding the Marketplace and customer Value

However, interpretation should not be left only to researchers. Although they are often experts in research design and statistics, the marketing manager knows more about the problem and the decisions that must be made. The best research means little if the manager blindly accepts faulty interpretations from the researcher. Similarly, managers may be biased. They might tend to accept research results that show what they expected and reject those that they did not expect or hope for. In many cases, findings can be interpreted in different ways, and discussions between researchers and managers will help point to the best interpretations. Thus, managers and researchers must work together closely when interpreting research results, and both must share responsibility for the research process and resulting decisions.

analyzing and Using Marketing information Information gathered from internal databases, competitive marketing intelligence, and marketing research usually requires additional analysis. Managers may need help applying the information to gain customer and market insights that will improve their marketing decisions. This help may include advanced analytics to learn more about the relationships within sets of data. Information analysis might also involve the application of analytical models that will help marketers make better decisions.

Once the information has been processed and analyzed, it must be made available to the right decision makers at the right time. In the following sections, we look deeper into analyzing and using marketing information.

customer relationship Management (crM) The question of how best to analyze and use individual customer data presents special problems. In the current big data era, most companies are awash in information about their customers and the marketplace. Still, smart companies capture information at every possible customer touch point. These touch points include customer purchases, sales force contacts, service and support calls, Web and social media site visits, satisfaction surveys, credit and payment interactions, market research studies—every contact between a cus- tomer and a company.

Unfortunately, this information is usually scattered widely across the organization or buried deep in separate company databases. To overcome such problems, many compa- nies are now turning to customer relationship management (CRM) to manage detailed information about individual customers and carefully manage customer touch points to maximize customer loyalty.

CRM consists of sophisticated software and analysis tools from companies such as Salesforce.com, Oracle, Microsoft, and SAS that integrate customer and marketplace information from all sources, analyze it, and apply the results to build stronger customer relationships. CRM integrates everything that a company’s sales, service, and marketing

customer relationship management (crM) Managing detailed information about individual customers and carefully managing customer touch points to maximize customer loyalty.

linking the concePts Whew! We’ve covered a lot of territory. Hold up a minute, take a breather, and see if you can apply the marketing research process you’ve just studied.

●● What specific kinds of research do Chipotle Mexican Grill’s marketing managers use to learn more about its customers’ preferences and buying behaviors? Sketch out a brief research plan for assessing potential reactions to a new drive-thru service.

●● Could you use the marketing research process to analyze your career opportunities and job pos- sibilities? (Think of yourself as a “product” and employers as potential “customers.”) If so, what would your research plan look like?

author comment We’ve talked generally about managing customer relationships throughout the book. But here, “customer relationship

management” (CRM) has a much narrower data-management meaning. It refers to

capturing and using customer data from all sources to manage customer interactions,

engage customers, and build customer relationships.

chapter 4: Managing Marketing information to gain customer insights 119

teams know about individual customers, providing a 360-degree view of the customer relationship. For example, MetLife recently developed a CRM system that it calls “The MetLife Wall”:23

One of the biggest customer service challenges for MetLife’s sales and service reps used to be quickly finding and getting to customer information—different records, transactions, and interactions stored in dozens of different company data locations and formats. The MetLife Wall solves that problem. The Wall uses a Facebook-like interface to serve up a consolidated view of each MetLife customer’s service experience. The innovative CRM system draws customer data from 70 different MetLife systems containing 45 million customer agreements and 140 million transactions. It puts all of a given customer’s information and related links into a single record on a single screen, updated in near real time. Now, thanks to The MetLife Wall—with only a single click instead of the 40 clicks it used to take—sales and service reps can see a complete view of a given customer’s various policies, transactions, and claims filed and paid, along with a history of all the interactions the customer has had with MetLife across the company’s many touch points, all on a simple timeline. The Wall has given a big boost to MetLife’s customer service and cross-selling efforts. According to a MetLife mar- keting executive, it’s also had “a huge impact on customer satisfaction.”

By using CRM to understand customers better, companies can provide higher levels of customer service and develop deeper customer relationships. They can use CRM to pinpoint high-value customers, target them more effectively, cross-sell the company’s products, and create offers tailored to specific customer requirements.

big Data and Marketing analytics Today’s big data can yield big results. But simply collecting and storing huge amounts of data has little value. Marketers must sift through the mountains of data to mine the gems— the bits that yield customer insights. As one marketing executive puts it, “It’s actually [about getting] big insights from big data. It’s throwing away 99.999 percent of that data to find things that are actionable.” Says another data expert, “right data trumps big data.”24 That’s the job of marketing analytics.

Marketing analytics consists of the analysis tools, technologies, and processes by which marketers dig out meaningful patterns in big data to gain customer insights and gauge marketing performance.25 Marketers apply marketing analytics to the large and complex sets of data they collect from Web, mobile, and social media tracking; customer transactions and engagements; and other big data sources. For example, Netflix maintains a bulging customer database and uses sophisticated marketing analytics to gain insights,

which it then uses to fuel recommendations to subscribers, decide what programming to offer, and even develop its own exclusive content in the quest to serve its customers better (see Marketing at Work 4.2).

Another good example of marketing analytics in ac- tion comes from food products giant Kraft, whose classic brands—from JELL-O, Miracle Whip, and Kraft Macaroni and Cheese to Oscar Meyer, Philadelphia Cream Cheese, Lunchables, and Planters nuts—are found in 98 percent of all North American households:26

Kraft has a treasure trove of marketing data, gathered from years of interactions with customers and from its social media monitoring hub called Looking Glass. Looking Glass tracks consumer trends, competitor activities, and more than 100,000 brand-related conversations daily in social media and on blogs. Kraft also reaps data from customer interactions with its Kraft Food & Family magazine, email communications, and the more than 100 Web and social media sites that serve its large brand portfolio. In all, Kraft has 18 years’ worth of customer data across 22,000 different attributes.

Marketing analytics The analysis tools, technologies, and processes by which marketers dig out meaningful patterns in big data to gain customer insights and gauge marketing performance.

Marketing analytics: food products giant kraft reaps a treasure trove of data from customers of its classic brands, then applies high-level marketing analytics to mine nuggets of customer insights. Bloomberg/Getty Images

120 Part 2: Understanding the Marketplace and customer Value

netflix, big data, and crM: While members are busy watching netflix videos, netflix is busy watching them—watching them very, very closely. then it uses the big data insights to give customers exactly what they want. © OJO Images Ltd/Alamy (photo); PR NEWSWIRE (logo)

Americans now watch more movies and TV programs streamed online than they watch on DVDs and Blu-ray discs. And with its rotating library of more than 60,000 titles, Netflix streams more movie and program content by far than any other video service. Netflix’s 62 million paid subscribers watch more than 3.3 billion hours of movies and TV programs every month. During peak hours on any given day, a remarkable one-third of all downloads on the non-mobile Internet are devoted to streamed programming from Netflix.

All of this comes as little surprise to avid Netflixers. But members might be startled to learn that while they are busy watching Netflix videos, Netflix is busy watching them— watching them very, very closely. Netflix tracks and analyzes heaps of customer data in excruciating detail. Then it uses the big data insights to give customers exactly what they want. Netflix knows in depth what its audience wants to watch, and it uses this knowledge to fuel recommendations to subscribers, decide what programming to offer, and even develop its own exclusive content.

No company knows its customers better than Netflix. The company has mind-boggling access to real-time data on mem- ber viewing behavior and sentiments. Every day, Netflix tracks and parses member data on tens of millions of searches, rat- ings, and “plays.” Netflix’s bulging database contains every viewing detail for each individual subscriber—what shows they watch, at what time of day, on what devices, at what loca- tions, even when they hit the pause, rewind, or fast-forward buttons during programs.

Netflix supplements this already-massive data- base with consumer information purchased from Nielsen, Facebook, Twitter, and other sources. Finally, the company employs experts to classify each video on hundreds of characteristics, such as talent, action, tone, genre, color, volume, scenery, and many, many others. Using this rich base of big data, Netflix builds detailed subscriber profiles based on individual viewing habits and preferences. It then uses these profiles to personalize each cus- tomer’s viewing experience. According to Netflix, there are 53 million different versions of Netflix, one for each individual subscriber worldwide.

For example, Netflix uses data on viewing history to make personalized recommendations. Wading through 60,000 titles to decide what to watch can be overwhelming. So when new customers sign up, Netflix asks them to rate their interest in movie and TV genres and to rate specific titles they have al- ready seen. It then cross-references what people like with other similar titles to predict additional movies or programs customers will enjoy.

But that’s just the beginning. As customers watch and rate more and more video content, and as Netflix studies the details of their viewing behavior, the predictions become more and more accurate. Netflix often comes to know individual cus- tomer viewing preferences better than customers themselves do. How accurate are Netflix’s recommendations? Seventy- five percent of viewing activity results from these suggestions. That’s important. The more subscribers watch, the more likely they are to stay with Netflix—viewers who watch at least 15 hours of content each month are 75 percent less likely to can- cel. Accurate recommendations increase average viewing time, keeping subscribers in the fold.

Increased viewing also depends on offering the right content in the first place. But adding new programming is expensive— content licensing fees constitute the lion’s share of Netflix’s cost of goods sold. With so many new and existing movies and TV programs on the market, Netflix must be very selective in what it adds to its content inventory. Once again, it’s big data and marketing analytics to the rescue. Just as Netflix analyzes its database to come up with subscriber recommendations, it uses the data to assess what additional titles customers might enjoy and how much each is worth. The goal is to maximize subscriber “happiness-per-dollar-spent” on new titles. “We always use our in-depth knowledge about what our members love to watch to decide what’s available on Netflix,” says a Netflix marketer. “If you keep watching, we’ll keep adding more of what you love.”

Marketing at Work 4.2

netflix streams success with big Data and Marketing analytics

chapter 4: Managing Marketing information to gain customer insights 121

To get even more viewers watching even more hours, Netflix uses its extensive big data insights to add its own ex- clusive video content—things you can see only on Netflix. In its own words, Netflix wants “to become HBO faster than HBO can become Netflix.” For example, Netflix stunned the media industry when it outbid both HBO and AMC by pay- ing a stunning $100 million for exclusive rights to air the first two seasons of House of Cards, a U.S. version of a hit British political drama produced by Hollywood bigwigs David Fincher and Kevin Spacey.

To outsiders, the huge investment in House of Cards seemed highly risky. However, using its powerful database, Netflix was able to predict accurately which and how many existing members would watch the new House of Cards regularly and how many new members would sign up be- cause of the show. Netflix also used its viewer knowledge to pinpoint and personalize promotion of the exclusive new series to just the right members. Before House of Cards premiered, based on their profiles, selected subscribers saw one of 10 different trailers of the show aimed at their specific likes and interests.

Thanks to Netflix’s big data and marketing analytics prowess, House of Cards was a smash hit. It brought in 3 million new subscribers in only the first three months. These new subscribers alone covered almost all of the $100 million investment. More important, a Netflix survey revealed that for the average House of Cards viewer, 86 percent were less likely to cancel because of the new program. Such success came as no surprise to Netflix. Its data had predicted that the program would be a hit before the director ever shouted “action.”

Since then, House of Cards has become Netflix’s hottest program. Based on its success, Netflix developed a number of other original series, including Hemlock Grove, Lillyhammer, Orange Is the New Black, Bad Samaritans, Marco Polo, and the animated series BoJack Horseman. For traditional broad- cast networks, the average success rate for new television shows is 35 percent. In contrast, Netflix is batting almost 70 percent. To continue the momentum, Netflix has commit- ted $300 million a year to developing new original content.

The digital video giant now has 12 exclusive or original shows on the air, with another 24 scheduled for the next two years, including drama series, comedy specials, movies, and documentaries.

Netflix’s success has thrown a scare into competitors such as leading cable-subscription network HBO. Although Netflix still lags HBO in profits, its U.S. online-only membership has reached 36 million compared with HBO’s 30 million cable subscribers, and Netflix recently passed HBO in U.S. rev- enues. Such numbers, along with its unconventional methods for producing content, have earned Netflix the nickname “The Red Menace” among competitors. It’s no surprise, then, that HBO announced that it will soon start selling online-only subscriptions.

As more and more high-quality video streams out of Netflix, more success streams in. Netflix’s sales have surged 53 percent during the past two years. Last year alone, mem- bership grew by more than 20 percent. Netflix thrives on using big data and marketing analytics to know and serve its customers. The company excels at helping customers figure out just what they want to watch and offering just the right content profitably. Says Netflix’s chief communications of- ficer, “Because we have a direct relationship with consum- ers, we know what people like to watch, and that helps us [immeasurably].”

Sources: Nicole Laporte, “Netflix: The Red Menace,” Fast Company, January 7, 2014, www.fastcompany.com/3024158/netflix-the-red-menace; Anders Bylund, “Netflix, Inc. Is Paying Huge Sums to Produce Original Shows,” Motley Fool, October 6, 2014, www.fool.com/investing/general/2014/10/06/netflix- inc-is-paying-huge-sums-to-produce-origina.aspx; David Carr, “Giving Viewers What They Want,” New York Times, February 25, 2013, p. B1; Zach Bulygo, “How Netflix Uses Analytics to Select Movies, Create Content, and Make Multimillion Dollar Decisions,” Kissmetrics, September 6, 2013, blog.kiss metrics.com/how-netflix-uses-analytics/; Craig Smith, “By the Numbers: 40 Amazing Netflix Statistics and Facts,” Expanded Ramblings, October 24, 2014, http://expandedramblings.com/index.php/netflix_statistics-facts/; Marcus Wohlsen, “Netflix Is Beating HBO in Revenue, but It’s Still the Underdog,” Wired, August 7, 2014, www.wired.com/2014/08/netflix-is-beating-hbo-in- revenue-but-its-still-the-underdog/; 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 www.netflix.com, accessed September 2015.

Kraft applies high-level marketing analytics to this wealth of data to mine nuggets of customer insight. Then it uses these insights to shape big data–driven marketing strategies and tactics, from developing new products to creating more focused and personalized Web, mobile, and social media content. For example, Kraft’s analytics have identified more than 500 custom target segments. Within these segments, Kraft knows in detail what consumers need and like. Says one analyst, it knows “their dietary [characteristics and] restrictions—gluten free, a dia- betic, low calorie, big snacks, feeding a big family, whether they are new cooks.” Kraft uses this knowledge to personalize digital interactions with individual customers, down to the fine details. “If Kraft knows you’re not a bacon user,” says the analyst, “you will never be served a bacon ad.” Thus, sophisticated analytics let Kraft target the right customer with the right mes- sage in the right medium at the right moment.

The benefits of customer relationship management and big data analytics don’t come without costs or risks. The most common mistake is to view CRM and marketing analytics

122 Part 2: Understanding the Marketplace and customer Value

as technology processes only. Yet technology alone cannot build profitable customer rela- tionships. Companies can’t improve customer relationships by simply installing some new software. Instead, marketers should start with the fundamentals of managing customer relationships and then employ high-tech data and analytics solutions. They should focus first on the R—it’s the relationship that CRM is all about.

Distributing and Using Marketing information Marketing information has no value until it is used to make better marketing decisions. Thus, the marketing information system must make information readily available to managers and others who need it, when they need it. In some cases, this means providing managers with regular performance reports, intelligence updates, and reports on the results of research studies.

But marketing managers may also need access to nonroutine information for special situations and on-the-spot decisions. For example, a sales manager having trouble with a large customer may want a summary of the account’s sales and profit- ability over the past year. Or a brand manager may want to get a sense of the amount of the social media buzz surrounding the recent launch of a new product. These days, therefore, information distribution involves making information available in a timely, user-friendly way.

Many firms use company intranet and internal CRM systems to facilitate this process. These systems provide ready access to research and intelligence information, customer transaction and experience information, shared reports and documents, and more. For example, the CRM system at phone and online gift retailer 1-800-Flowers. com gives customer-facing employees real-time access to customer information. When a repeat customer calls, the system immediately pulls up data on previous transactions and other contacts, helping reps make the customer’s experience easier and more relevant. For instance, if a customer usually buys tulips for his wife, the rep can talk about the best tulip selections and related gifts. Such connections result in greater customer satisfaction and loyalty and greater sales for the company. “We can do it in real time,” says a 1-800-Flowers.com executive, “and it enhances the customer experience.”27

In addition, companies are increasingly allowing key customers and value-network members to access account, product, and other data on demand through extranets. Suppliers, customers, resellers, and select other network members may access a

company’s extranet to update their accounts, arrange purchases, and check orders against inventories to im- prove customer service. For example, online shoes and accessories retailer Zappos considers suppliers to be “part of the Zappos family” and a key component in its quest to deliver “WOW” through great customer service. So it treats suppliers as valued partners, including shar- ing information with them. Through its ZUUL extranet (Zappos Unified User Login), thousands of suppliers are given full access to brand-related Zappos’ inventory levels, sales figures, and even profitability. Suppliers can also use ZUUL to interact with the Zappos creative team and to enter suggested orders for Zappos buyers to approve.28

Thanks to modern technology, today’s marketing managers can gain direct access to a company’s informa- tion system at any time and from virtually anywhere. They can tap into the system from a home office, customer loca- tion, airport, or the local Starbucks—anyplace they can connect on a laptop, tablet, or smartphone. Such systems allow managers to get the information they need directly and quickly and tailor it to their own needs.

extranets: Zappos shares marketing information and insights with suppliers through its ZUUl extranet. it considers suppliers to be “part of the Zappos family.” Zappos

chapter 4: Managing Marketing information to gain customer insights 123

other Marketing information considerations This section discusses marketing information in two special contexts: marketing research in small businesses and nonprofit organizations and international marketing research. Then we look at public policy and ethics issues in marketing research.

Marketing research in small businesses and nonprofit organizations Just like larger firms, small organizations need market information and the customer insights that it can provide. Managers of small businesses and not-for-profit organizations often think that marketing research can be done only by experts in large companies with big research budgets. True, large-scale research studies are beyond the budgets of most small organizations. However, many of the marketing research techniques discussed in this chapter also can be used by smaller organizations in a less formal manner and at little or no expense. Consider how one small business owner conducted market research on a shoestring before even opening his doors:29

After a string of bad experiences with his local dry cleaner, Robert Byerley decided to open his own dry-cleaning business. But before jumping in, he conducted plenty of market research. He needed a key customer insight: How would he make his business stand out from the others? To start, Byerley spent an entire week online, re- searching the dry-cleaning industry. To get input from potential customers, using a local marketing firm, Byerley held focus groups on the store’s name, look, and brochure. He also took clothes to the 15 best competing cleaners in town and had focus group members critique their work. Based on his research, he made a list of features for his new business. First on his list: quality. His business would stand behind everything it did. Not on the list: cheap prices. Creating the perfect dry-cleaning establishment simply didn’t fit with a discount operation.

With his research complete, Byerley opened Bibbentuckers, a high-end dry cleaner positioned on high-quality service and conve- nience. It featured a bank-like drive-through area with curbside delivery. A computerized barcode

system read customer cleaning preferences and tracked clothes all the way through the clean- ing process. Byerley added other differentiators, such as decorative awnings, TV screens, and refreshments (even “candy for the kids and a doggy treat for your best friend”). “I wanted

author comment We finish this chapter by examining three special marketing information

topics.

linking the concePts Let’s stop here, think back, and be certain that you’ve got the “big picture” concerning marketing information systems.

●● What’s the overall goal of a marketing information system? How are the individual components linked, and what does each contribute? Take another look at Figure 4.1—it provides a good organizing framework for the entire chapter.

●● Apply the MIS framework to Converse (a Nike company). How might Converse go about as- sessing marketing managers’ information needs, developing the needed information, and helping managers to analyze and use the information to gain actionable customer and market insights?

before opening bibbentuckers dry cleaner, owner robert byerley conducted research to gain insights into what customers wanted. first on the list: quality. Bibbentuckers

124 Part 2: Understanding the Marketplace and customer Value

a place . . . that paired five-star service and quality with an establishment that didn’t look like a dry cleaner,” he says. The market research yielded results. Today, Bibbentuckers is a thriving eight-store operation.

Thus, small businesses and not-for-profit organizations can obtain good marketing insights through observation or informal surveys using small convenience samples. Also, many associations, local media, and government agencies provide special help to small organizations. For example, the U.S. Small Business Administration offers dozens of free publications and a Web site (www.sba.gov) that give advice on topics ranging from start- ing, financing, and expanding a small business to ordering business cards. Other excellent research resources for small businesses include the U.S. Census Bureau (www.census.gov) and the Bureau of Economic Analysis (www.bea.gov). Finally, small businesses can collect a considerable amount of information at very little cost online. They can check out online product and service review sites, use Internet search engines to research specific companies and issues, and scour competitor and customer Web, mobile, and social media sites.

In summary, secondary data collection, observation, surveys, and experiments can all be used effectively by small organizations with small budgets. However, although these informal research methods are less complex and less costly, they still must be conducted with care. Managers must think carefully about the objectives of the research, formulate questions in advance, recognize the biases introduced by smaller samples and less skilled researchers, and conduct the research systematically.30

international Marketing research International marketing research has grown tremendously over the past few decades. International researchers follow the same steps as domestic researchers, from defining the research problem and developing a research plan to interpreting and reporting the results. However, these researchers often face more and different problems. Whereas domestic

researchers deal with fairly homogeneous markets within a single country, international researchers deal with diverse markets in many different countries. These markets often vary greatly in their levels of economic development, cultures and customs, and buying patterns.

In many foreign markets, the international researcher may have a difficult time finding good secondary data. Whereas U.S. market- ing researchers can obtain reliable secondary data from dozens of domestic research services, many countries have almost no research services at all. Some of the largest international research services operate in many countries. For example, The Nielsen Company (the world’s largest marketing research company) has offices in more than 100 countries, from Schaumburg, Illinois, to Hong Kong to Nicosia, Cyprus.31 However, most research firms operate in only a relative handful of countries. Thus, even when secondary infor- mation is available, it usually must be obtained from many different sources on a country-by-country basis, making the information dif- ficult to combine or compare.

Because of the scarcity of good secondary data, international researchers often must collect their own primary data. However, obtaining primary data may be no easy task. For example, it can be difficult simply to develop good samples. U.S. researchers can use current telephone directories, email lists, census tract data, and any of several sources of socioeconomic data to construct samples. However, such information is largely lacking in many countries.

Once the sample is drawn, the U.S. researcher usually can reach most respondents easily by phone, by mail, online, or in person. However, reaching respondents is often not so easy in other parts of the world. Researchers in Mexico cannot rely on phone, Internet, and mail data collection—most data collection is conducted door to door and concentrated in three or four of the largest cities. In some

some of the largest research services firms have large international organizations. nielsen has offices in more than 100 countries. Copyrighted information ©2016 of The Nielsen Company, licensed for use herein.

chapter 4: Managing Marketing information to gain customer insights 125

countries, few people have computers, let alone Internet access. For example, whereas there are 84 Internet users per 100 people in the United States, there are only 43 Internet users per 100 people in Mexico. In Madagascar, the number drops to 2 Internet users per 100 people. In some countries, the postal system is notoriously unreliable. In Brazil, for instance, an estimated 30 percent of the mail is never delivered; in Russia, mail delivery can take several weeks. In many developing countries, poor roads and transportation systems make certain areas hard to reach, making personal interviews difficult and expensive.32

Cultural differences from country to country cause additional problems for interna- tional researchers. Language is the most obvious obstacle. For example, questionnaires must be prepared in one language and then translated into the languages of each country researched. Responses then must be translated back into the original language for analysis and interpretation. This adds to research costs and increases the risks of error. Even within a given country, language can be a problem. For example, in India, English is the language of business, but consumers may use any of 14 “first languages,” with many additional dialects.

Translating a questionnaire from one language to another is anything but easy. Many idioms, phrases, and statements mean different things in different cultures. For example, a Danish executive noted, “Check this out by having a different translator put back into English what you’ve translated from English. You’ll get the shock of your life. I remember [an example in which] ‘out of sight, out of mind’ had become ‘invisible things are insane.’”33

Consumers in different countries also vary in their attitudes toward marketing re- search. People in one country may be very willing to respond; in other countries, non- response can be a major problem. Customs in some countries may prohibit people from talking with strangers. In certain cultures, research questions often are considered too personal. For example, in many Muslim countries, mixed-gender focus groups are taboo, as is videotaping female-only focus groups. In some countries, even when respondents are willing to respond, they may not be able to because of high functional illiteracy rates.

Despite these problems, as global marketing grows, global companies have little choice but to conduct these types of international marketing research. Although the costs and problems associated with international research may be high, the costs of not doing it—in terms of missed opportunities and mistakes—might be even higher. Once recog- nized, many of the problems associated with international marketing research can be overcome or avoided.

Public Policy and ethics in Marketing research Most marketing research benefits both the sponsoring company and its consumers. Through marketing research, companies gain insights into consumers’ needs, resulting in more satisfy- ing products and services and stronger customer relationships. However, the misuse of mar- keting research can also harm or annoy consumers. Two major public policy and ethics issues in marketing research are intrusions on consumer privacy and the misuse of research findings.

intrusions on consumer Privacy Many consumers feel positive about marketing research and believe that it serves a useful purpose. Some actually enjoy being interviewed and giving their opinions. However, oth- ers strongly resent or even mistrust marketing research. They don’t like being interrupted by researchers. They worry that marketers are building huge databases full of personal information about customers. Or they fear that researchers might use sophisticated tech- niques to probe our deepest feelings, track us as we use our mobile devices or browse and interact on the Internet, or peek over our shoulders as we shop and then use this knowledge to manipulate our buying. A recent survey showed that more than 90 percent of Americans feel that they have lost control over the collection and use by companies of their personal data and information they share on social media sites.34

For example, Target made some of its customers very uneasy recently when it used their buying histories to figure out that they had a baby on the way, including eerily accu- rate estimates of child gender and due date:35

Target gives every customer a Guest ID number, tied to his or her name, credit card, or email address. It then tracks the customer’s purchases in detail, along with demographic information

126 Part 2: Understanding the Marketplace and customer Value

from other sources. By studying the buying histories of women who’d previously signed up for its baby registries, Target found that it could develop a “pregnancy prediction” score for each customer based on her purchasing patterns across 25 product cat- egories. It used this score to start sending personalized books of coupons for baby-related items to expectant parents, keyed to their pregnancy stages.

The strategy seemed to make good marketing sense—by hooking parents-to-be, Target could turn them into loyal buy- ers as their families developed. However, the strategy hit a snag when an angry man showed up at his local Target store, complaining that his high school–aged daughter was receiving Target coupons for cribs, strollers, and maternity clothes. “Are you trying to encourage her to get pregnant?” he demanded. The Target store manager apologized. But when he called to apologize again a few days later, he learned that Target’s marketers had, in fact, known about the young woman’s pregnancy before her father did. It turns out that many other customers were creeped out that Target knew about their pregnancies before they’d told even  family and close friends. And they wondered what else Target might be tracking and profiling. As one reporter con- cluded: “The store’s bulls-eye logo may now send a shiver . . . down the closely-watched spines of some [Target shoppers].”

When mining customer information, marketers must be careful not to cross over the privacy line. But there are no easy answers when it comes to marketing research and pri- vacy. For example, is it a good or bad thing that marketers track and analyze consumers’ on- line browsing or buying patterns to send them personalized promotions? Should we worry when marketers track consumer locations via their mobile phones to issue location-based information, ads, and offers? Should we care that some retailers use mannequins with cam- eras hidden in one eye to record customer demographics and shopping behavior? Similarly, should we applaud or resent companies that monitor consumer posts on Facebook, Twitter, Instagram, YouTube, or other social media in an effort to be more responsive?36

Increasing consumer privacy concerns have become a major problem for the market- ing research industry. Companies face the challenge of unearthing valuable but potentially sensitive consumer data while also maintaining consumer trust. At the same time, consum- ers wrestle with the trade-offs between personalization and privacy. They want to receive relevant, personalized offers that meet their needs, but they worry or resent that companies may track them too closely. The key question: When does a company cross the line in gathering and using customer data? One recent study shows that nearly half of U.S. adults worry that they have little or no control over the personal information that companies gather about them online. Another survey found that 86 percent of Internet users have taken steps to remove or mask their digital footprints, such as removing cookies or encrypting email.

Failure to address privacy issues could result in angry, less cooperative consumers and increased government intervention. As a result, the marketing research industry is considering several options for responding to intrusion and privacy issues. One example is the Marketing Research Association’s “Your Opinion Counts” and “Respondent Bill of Rights” initiatives to educate consumers about the benefits of marketing research and dis- tinguish it from telephone selling and database building. The industry also has considered adopting broad standards, perhaps based on the International Chamber of Commerce’s International Code of Marketing and Social Research Practice. This code outlines re- searchers’ responsibilities to respondents and the general public. For example, it urges that researchers make their names and addresses available to participants and be open about the data they are collecting.37

Most major companies—including Facebook, Apple, Microsoft, IBM, American Express, and even the U.S. government—have now appointed a chief privacy officer (CPO), whose job is to safeguard the privacy of consumers who do business with the company. In the end, however, if researchers provide value in exchange for information, customers will gladly provide it. For example, Amazon.com’s customers don’t mind if the

consumer privacy: target made some customers uneasy when it used their buying histories to figure out things about them that even their family and friends didn’t know. the chain’s bulls-eye logo may now “send a shiver . . . down the closely-watched spines of some target shoppers. © Jonathan Larsen/Diadem Images/Alamy Stock Photo

chapter 4: Managing Marketing information to gain customer insights 127

firm builds a database of products they buy as a way to provide future product recommen- dations. This saves time and provides value. The best approach is for researchers to ask only for the information they need, use it responsibly to provide customer value, and avoid sharing information without the customer’s permission.

Misuse of research findings Research studies can be powerful persuasion tools; companies often use study results as claims in their advertising and promotion. Today, however, many research studies appear to be little more than vehicles for pitching the sponsor’s products. In fact, in some cases, research surveys appear to have been designed just to produce the intended effect. For example, a Black Flag survey once asked: “A roach disk . . . poisons a roach slowly. The dying roach returns to the nest and after it dies is eaten by other roaches. In turn these roaches become poisoned and die. How effective do you think this type of product would be in killing roaches?” Not surprisingly, 79 percent said effective.

However, few advertisers openly rig their research designs or blatantly misrepresent the findings—most abuses tend to be more subtle “stretches.” Or disputes arise over the validity and use of research findings. Consider this example:

The FTC recently charged POM Wonderful—the pomegranate juice sold in the distinctive curvy bottle—and its parent com- pany with making false and unsubstantiated health claims in its advertising. The disputed ads suggest that POM Wonderful Pomegranate Juice can prevent or treat heart disease, prostate cancer, and even erectile dysfunction. For instance, one ad boasted that POM has “Super Health Powers!” while another proclaimed, “I’m off to saveprostates!” POM has stood behind its ad claims, asserting that they are backed by $35 million worth of company research showing that antioxidant-rich pomegranate products are good for you. The brand even retaliated during two years of legal wrangling with ads disputing the FTC and its allegations. But the FTC isn’t buying the research behind POM’s claims—it recently issued a final ruling ordering the brand to refrain from making claims that its products could improve a user’s health un- less backed by more stringent research. “When a company touts scientific research in its advertising, the research must squarely support the claims made,” says the agency. “Contrary to POM Wonderful’s advertising, the available scientific information does not prove that POM Juice . . . effectively treats or prevents these ill- nesses.” POM Wonderful is currently appealing the FTC ruling.38

Recognizing that marketing research can be abused, several associations— including the American Marketing Association, the Marketing Research Association, and the Council of American Survey Research Organizations (CASRO)—have developed codes of research ethics and standards of conduct. For example, the CASRO Code of Standards and Ethics for Survey Research outlines researcher responsibilities to respondents, including confidentiality, privacy, and avoidance of harassment. It also outlines major responsibili- ties in reporting results to clients and the public.39

In the end, however, unethical or inappropriate actions cannot simply be regulated away. Each company must accept responsibility for policing the conduct and reporting of its own marketing research to protect consumers’ best interests and its own.

Use of research findings: the ftc recently ruled against PoM Wonderful’s research-based advertising claims that the brand could improve a user’s health. PoM is appealing the ruling. Christopher Schall | Impact Photo

MyMarketingLab If assigned by your instructor, complete the questions marked with the from the EOC Discussion Questions section in the MyLab. To complete the Marketing by the Numbers problems found in this section, go to your Assignments in the MyLab.

128 Part 2: Understanding the Marketplace and customer Value

chaPter reVieW anD critical thinking

To create value for customers and build meaningful relation- ships with them, marketers must first gain fresh, deep insights into what customers need and want. Such insights come from good marketing information. As a result of the recent explo- sion of “big data” and marketing technology, companies can now obtain great quantities of information, sometimes even too much. Consumers themselves are now generating a tidal wave of bottom-up information through their smartphones, PCs, and tablets via online browsing and blogging, apps and social media interactions, and texting and video. The challenge is to transform today’s vast volume of consumer information into actionable customer and market insights.

objectiVe 4-1 explain the importance of information in gaining insights about the marketplace and customers. (pp 100–101)

The marketing process starts with a complete understanding of the marketplace and consumer needs and wants. Thus, the com- pany needs to turn sound consumer information into meaning- ful customer insights by which it can produce superior value for its customers. The company also requires information on com- petitors, resellers, and other actors and forces in the market- place. Increasingly, marketers are viewing information not only as an input for making better decisions but also as an important strategic asset and marketing tool.

objectiVe 4-2 Define the marketing information system and discuss its parts. (pp 102–106)

The marketing information system (MIS) consists of people and procedures for assessing information needs, developing the need- ed information, and helping decision makers use the information to generate and validate actionable customer and market insights. A well-designed information system begins and ends with users.

The MIS first assesses information needs. The MIS pri- marily serves the company’s marketing and other managers, but it may also provide information to external partners. Then the MIS develops information from internal databases, marketing intelligence activities, and marketing research. Internal data- bases provide information on the company’s own operations and departments. Such data can be obtained quickly and cheap- ly but often need to be adapted for marketing decisions. Mar- keting intelligence activities supply everyday information about developments in the external marketing environment, including listening and responding to the vast and complex digital envi- ronment. Market research consists of collecting information relevant to a specific marketing problem faced by the company.

reVieWing anD extenDing the concePts

objectives review Last, the marketing information system helps users analyze and use the information to develop customer insights, make market- ing decisions, and manage customer relationships.

objectiVe 4-3 outline the steps in the marketing research process. (pp 106–118)

The first step in the marketing research process involves de- fining the problem and setting the research objectives, which may be exploratory, descriptive, or causal research. The second step consists of developing a research plan for collecting data from primary and secondary sources. The third step calls for implementing the marketing research plan by gathering, pro- cessing, and analyzing the information. The fourth step consists of interpreting and reporting the findings. Additional informa- tion analysis helps marketing managers apply the information and provides them with sophisticated statistical procedures and models from which to develop more rigorous findings.

Both internal and external secondary data sources often provide information more quickly and at a lower cost than pri- mary data sources, and they can sometimes yield information that a company cannot collect by itself. However, needed infor- mation might not exist in secondary sources. Researchers must also evaluate secondary information to ensure that it is relevant, accurate, current, and impartial.

Primary research must also be evaluated for these features. Each primary data collection method—observational, survey, and experimental—has its own advantages and disadvantages. Similarly, each of the various research contact methods—mail, telephone, personal interview, and online—has its own advan- tages and drawbacks.

objectiVe 4-4 explain how companies analyze and use marketing information. (pp 118–123)

Information gathered in internal databases and through market- ing intelligence and marketing research usually requires more analysis. To analyze individual customer data, many companies have now acquired or developed special software and analy- sis techniques—called customer relationship management (CRM)—that integrate, analyze, and apply the mountains of individual customer data to gain a 360-degree view of custom- ers and build stronger the customer relationships. They apply marketing analytics to dig out meaningful patterns in big data and gain customer insights and gauge marketing performance.

Marketing information has no value until it is used to make better marketing decisions. Thus, the MIS must make the infor- mation available to managers and others who make marketing

chapter 4: Managing Marketing information to gain customer insights 129

decisions or deal with customers. In some cases, this means pro- viding regular reports and updates; in other cases, it means mak- ing nonroutine information available for special situations and on-the-spot decisions. Many firms use company intranets and extranets to facilitate this process. Thanks to modern technol- ogy, today’s marketing managers can gain direct access to mar- keting information at any time and from virtually any location.

objectiVe 4-5 Discuss the special issues some marketing researchers face, including public policy and ethics issues. (pp 123–127)

Some marketers face special marketing research situa- tions,  such as those conducting research in small business,

not-for-profit, or international situations. Marketing research can be conducted effectively by small businesses and non- profit organizations with limited budgets. International marketing researchers follow the same steps as domestic re- searchers but often face more and different problems. All or- ganizations need to act responsibly concerning major public policy and ethical issues surrounding marketing research, in- cluding issues of intrusions on consumer privacy and misuse of research findings.

key terms objective 4-1 Big data (p 101) Customer insights (p. 101) Marketing information system

(MIS) (p. 101)

objective 4-2 Internal databases (p 102) Competitive marketing intelligence

(p 103)

objective 4-3 Marketing research (p 106) Exploratory research (p 107) Descriptive research (p 107) Causal research (p 107) Secondary data (p 108) Primary data (p 108) Observational research (p 109) Ethnographic research (p 109) Survey research (p 110)

Experimental research (p 111) Focus group interviewing (p 112) Online marketing research (p 113) Online focus groups (p 114) Behavioral targeting (p 115) Sample (p 115)

objective 4-4 Customer relationship management

(CRM) (p 118) Marketing analytics (p 119)

4-1. What is big data, and what opportunities and challeng- es does it provide for marketers? (AACSB: Communi- cation; Reflective Thinking)

4-2. What is a marketing information system (MIS), and what characteristics should it possess? (AACSB: Com- munication)

4-3. Name and describe the three types of research objec- tives and give an example of a research study for each. (AACSB: Communication; Reflective Thinking)

4-4. What impact has the Internet had on how marketing research is conducted? What advantages does the Inter- net provide over traditional marketing data collection methods? (AACSB: Communication)

4-5. Why are marketing analytics so important in the age of big data? (AACSB: Communication)

Discussion Questions

critical thinking exercises 4-6. In a small group, identify a problem faced by a lo-

cal business or charitable organization and propose a research project addressing that problem. Develop a research proposal that implements each step of the marketing research process. Discuss how the research results will help the business or organization. (AACSB: Communication; Reflective Thinking)

4-7. Go to www.bized.co.uk/learn/business/marketing/ research/index.htm and review the various resources

available. Select one activity and present what you learned from that activity. (AACSB: Communication; Use of IT; Reflective Thinking)

4-8. Research the marketing research industry and develop a presentation describing various marketing research jobs and compensation for those jobs. Create a graphi- cal representation to communicate your findings. (AACSB: Communication; Use of IT; Reflective Thinking)

130 Part 2: Understanding the Marketplace and customer Value

People have been using Twitter’s social media platform to Tweet short bursts of information in 140 characters or less since 2006 and now average 500 million Tweets a day. The full stream of Tweets is referred to as Twitter’s fire hose. Various firms analyze data from the fire hose and sell the information gleaned from that analysis to other compa- nies. Twitter recently purchased Gnip, the world’s largest social data provider and one of the few companies that had access to the fire hose. Gnip also mines public data from Facebook, Google+, Tumblr, and other social media platforms. Analyzing social data has become a big busi- ness because companies such PepsiCo, Warner Brothers, and General Motors pay to learn about consumers’ sentiments toward them. According to the CEO of social media analysis company BrandWatch, “We’re at the bottom of the foothills in terms of the kind of global demand for social data.” Twitter

alone earned more than $70 million last year from licensing its data. Perhaps Mark Twain’s character, Mulberry Sellers, summed it up nicely—“There’s gold in them thar hills”—and Twitter and other social media platforms and data analytic companies are mining that gold.

4-9. Discuss the value of social data for marketers. (AAC- SB: Communication; Reflective Thinking)

4-10. A “dark social channel” refers to a private channel or a channel difficult to match with other digital chan- nels. An example of a dark channel is email. However, Google routinely mines its roughly half-billion Gmail users’ emails. Research how Google scans email data and the fallout from those actions, then summarize your findings. (AACSB: Communication; Use of IT; Reflective Thinking)

Minicases anD aPPlications

online, Mobile, and social Media Marketing social Data

Marketing ethics Metadata Everyone generates metadata as they use technologies such as computers and mobile devices to search, post, Tweet, play, text, and talk. What many people don’t realize, however, is that this treasure trove of date, time, and location information can be used to identify them without their knowledge. For example, in analyzing more than a million anonymous credit card transac- tions, researchers at the Massachusetts Institute of Technology were able to link 90 percent of the transactions to specific users with just four additional bits of metadata, such as user locations based on apps such as Foursquare, the timing of an activity such as a Tweet on Twitter, or playing a mobile game. Since there are more mobile devices than there are people in

the United States and 60 percent of purchases are made with a credit card, marketing research firms are gobbling up all sorts of metadata that will let them tie a majority of purchase trans- actions to specific individuals.

4-11. Describe at least four applications you use that provide lo- cation, time, and date information that can be tied to your identity. (AACSB Communication; Reflective Thinking)

4-12. Debate whether it is ethical for marketers to use meta- data to link individual consumers with specific credit card transactions. (AACSB: Communication; Ethical Reasoning)

Marketing by the numbers the Value of information Conducting research is costly, and the costs must be weighed against the value of the information gathered. Consider a com- pany faced with a competitor’s price reduction. Should the company also reduce price in order to maintain market share, or should the company maintain its current price? The com- pany has conducted some preliminary research showing the financial outcomes of each decision under two competitor re- sponses: the competition maintains its price or the competition lowers its price further. The company feels pretty confident that the competitor cannot lower its price further and assigns that outcome a probability (p) of 0.7, which means the other outcome would have only a 30 percent chance of occurring (1 – p = 0.3). These outcomes are shown in the table below:

Competitive Response

Company action Maintain Price

p = 0.7 Reduce Price (1 – p) = 0.3

Reduce Price $160,000 $120,000

Maintain Price $180,000 $100,000

For example, if the company reduces its price and the com- petitor maintains its price, the company would realize $160,000, and so on. From this information, the expected monetary value (EMV) of each company action (reduce price or maintain price) can be determined using the following equation:

chapter 4: Managing Marketing information to gain customer insights 131

Video case nielsen Most people know Nielsen as the TV ratings company. In reality, however, Nielsen is a multiplatform market research company that has constantly been evolving since 1923. Its goal is to measure and track a wide range of consumer activity in order to establish a 360-degree view of individuals and market segments. To accomplish this, Nielsen has to follow consumers wherever they may be—watching TV, online, in their homes, or in stores.

How does Nielsen track all this activity? The veteran research firm has established effective methods of recording consumer activity, from retail scanner data to household pan- els to monitoring social networks. As data are captured, they are transferred to a Nielsen data warehouse, where they are

matched to the right individual and added to the terabytes of information Nielsen already possesses. Through data sorting and analytics, Nielsen cuts through billions of daily transac- tions to deliver clear consumer insights to clients.

After viewing the video featuring Nielsen, answer the following questions:

4-15. What is Nielsen’s expertise? 4-16. Providing a real-world example, describe how Nielsen

might discover a consumer insight. 4-17. What kinds of partnerships might Nielsen need to form

with other companies in order to accomplish its goals?

company cases 4 campbell’s/8 3M/14 alibaba See Appendix 1 for cases appropriate for this chapter.

Case 4, Campbell’s: Watching What You Eat. The pillar of product development at Campbell’s is deep dive research— field research where observations lead to consumer insight.

Case 8, 3M: Where Innovation Is a Way of Life. Few companies provide more support for research-based product development than 3M.

Case 14, Alibaba: The World’s Largest E-Tailer Is Not Amazon. The largest customer base provides ecommerce giant with the largest database and endless possibilities.

EMV = ( p)(financial outomep) + (1 - p)(financial outcome(1 - p))

The company would select the action expected to deliver the greatest EMV. More information might be desirable, but is it worth the cost of acquiring it? One way to assess the value of ad- ditional information is to determine the expected value of perfect information (EMVPI), calculated using the following equation:

EMVPI = EMVcertainty - EMVbest alternative where

EMVcertainty = ( p) (highest financial outcomep) + (1 - p) (highest financial outcome(1 - p))

If the value of perfect information is more than the cost of conducting the research, then the research should be under- taken (that is, EMVPI > cost of research). However, if the value of the additional information is less than the cost of obtaining more information, the research should not be conducted.

4-13. Calculate the expected monetary value (EMV) of both company actions. Which action should the company take? (AACSB: Communication; Analytical Reasoning)

4-14. What is the expected value of perfect information (EMVPI)? Should the research be conducted? (AACSB: Communication; Analytical Reasoning)

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

4-18. What is neuromarketing and how is it useful in marketing research? Why is this research approach usually combined with other approaches? (AACSB: Communication)

4-19. Describe an example in which marketing research could cause harm to par- ticipants. Many companies have a review process similar to that required for following the government’s “Common Rule.” Write a brief report explaining this rule and how you would apply it to your example. (AACSB: Written and Oral Communication; Reflective Thinking)

Part 1: Defining Marketing anD the Marketing Process (chaPters 1–2) Part 2: UnDerstanDing the MarketPlace anD cUstoMer ValUe (chaPters 3–5) Part 3: Designing a cUstoMer ValUe-DriVen strategy anD Mix (chaPters 6–14) Part 4: extenDing Marketing (chaPters 15–16)

5 objectiVe 5-1 Understand the consumer market and the major factors that influence consumer buyer behavior. Consumer Markets and Consumer Buyer Behavior (134); Model of Consumer Behavior (134–135); Characteristics Affecting Consumer Behavior (135–148)

objectiVe 5-2 identify and discuss the stages in the buyer decision process. The Buyer Decision Process (149–151)

objectiVe 5-3 Describe the adoption and diffusion process for new products. The Buyer Decision Process for New Products (151–153)

Understanding consumer and business buyer behavior

objectiVe 5-4 Define the business market and identify the major factors that influence business buyer behavior. Business Markets and Business Buyer Behavior (154); Business Markets (154–156); Business Buyer Behavior (156–159)

objectiVe 5-5 list and define the steps in the business buying decision process. The Business Buying Process (159–161); E-Procurement and Online Purchasing (162); Business-to-Business Digital and Social Media Marketing (162–163)

Previewing the concepts you’ve studied how marketers obtain, analyze, and use information to develop customer insights and assess marketing programs. in this chapter, we take a closer look at the most important element of the marketplace—customers. the aim of marketing is to engage cus- tomers and affect how they think and act. to affect the whats, whens, and hows of buyer behavior, marketers must first understand the whys. We first look at final consumer buying influences and processes and then at the buyer behavior of business customers. you’ll see that understanding buyer behavior is an essential but very difficult task.

to get a better sense of the importance of understanding consumer behavior, we begin by looking at harley-Davidson, maker of the nation’s top-selling heavyweight motorcycles. Who rides these big harley “hogs”? What moves them to tattoo their bodies with the harley- Davidson bar and shield logo, abandon home and hearth for the open road, and flock to harley rallies by the hundreds of thousands? you might be surprised by the answers to these questions, but harley-Davidson knows them very well.

chaPter roaD MaP objective outline

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first stop harley-Davidson: Selling Freedom, Independence, Power, and Authenticity Few brands engender such intense loyalty as that found in the hearts of Harley-Davidson owners. Harley buyers are granitelike in their devotion to the brand. You don’t see people tattooing “Yamaha” on their bodies, or “Kawasaki” or “Honda.” Harley-Davidson riders don’t want just any motorcycle—it’s got to be a Harley. The iconic Harley-Davidson brand is that strong.

In August 2013, an estimated 100,000 to 200,000 people flocked to Harley-Davidson’s 110th anniversary celebration in Mil- waukee, the city where it all began. One reporter described the epic event’s opening parade as “one of the greatest spectacles in America, . . . a thunder of Harley-Davidson pride you could literally feel as nearly 7,000 [riders] rolled through downtown Milwaukee.” During the three days of rumbling fun, bikers from across the nation lounged on their low-slung Harley’s, swapped biker tales, and sported T-shirts proclaiming things like “Screw it, let’s ride!” and “I’d rather push a Harley than ride a Yamaha.”

Riding such intense emotions, Harley-Davidson has long domi- nated the U.S. motorcycle market. The brand captures 30 percent of all U.S. bike sales and nearly 55 percent of the heavyweight seg- ment, and its sales and profits are growing at a smooth-riding pace. Over the past three years, sales have grown more than 20 percent and profits have jumped sixfold.

Harley-Davidson’s marketers have spent a great deal of time thinking about customers and their buying behavior. They want to know who their customers are, what they think and how they feel, and why they buy a Harley-Davidson Softail rather than a Yamaha or a Kawasaki or a big Honda Gold Wing. What is it that makes Harley buyers so fiercely loyal? These are difficult questions; even Harley owners themselves don’t know exactly what motivates their buying. But Harley-Davidson management puts top priority on understanding customers and what makes them tick.

Who rides a Harley-Davidson? You might be surprised. It’s not the outlaw bad-boy biker that some people still associate with Har- leys. The brand’s motorcycles attract a different breed of bikers— older, more affluent, and better educated. Remove the helmets and the leathers of a hard-core Harley enthusiast, and there’s no telling whom you’ll find. It might be a guy with tattoos and unruly hair, but it’s just as likely to be a CEO, investment banker, or gour- met chef.

The average Harley customer is a 50-something male with a me- dian household income of $87,000. More than 12 percent of Har- ley purchases today are made by women. “Harley brings together all walks of life,” says Harley’s chief marketing officer. “You’ll find a neurosurgeon talking and riding with a janitor. It’s a family.” And a big family it is. The Harley Owners Group (H.O.G.)—the official rid- ing club of “Harley owners around the world, bound by a passion to ride”—has more than a million members. The brand’s Facebook site counts more the 7 million Likes.

In recent years, the company has been extending the Harley- Davidson family beyond the core segment of older Caucasian males who now account for about two-thirds of buyers. It has craft- ed products and programs specifically designed to attract what it

harley-Davidson’s market dominance

market comes from a deep understanding of the emotions and motivations that underlie

consumer behavior. harley doesn’t just sell motorcycles; its sells

freedom, independence, power, and authenticity.

calls  “outreach customers,” segments such as young adults ages 18 to 34, women, African Americans, and Hispanics. Last year, sales to those outreach groups grew at more than twice the rate of sales to its traditional core customers. For example, to broaden its reach, Har- ley-Davidson recently introduced its first all-new motorcycle platform in 13 years—its Street models—smaller, lighter, more agile, and more efficient motorcycles designed for the riding needs of young urban riders. Though smaller, these new motorcycles still carry the Harley mystique. “These new bikes are leaner, yet still have a mean streak,” says Harley’s CMO. “They’re the real deal, made of real steel.”

Harley-Davidson makes good bikes, and to keep up with its shifting mar- ket, the company has upgraded its showrooms and sales ap- proaches. But Harley cus- tomers are buying a lot more than just a quality bike and a smooth sales pitch. To gain a better un- derstanding of custom- ers’ deeper motivations, over the years Harley- Davidson has conducted seemingly endless surveys, focus groups, and interpretive studies that plumb the depths of customers’ feelings about their Harleys. Beyond research, everyone connected with the Harley-Davidson brand—from the CEO and CMO to ad agency copywriters—attend biker events and immerse themselves deeply in the biker culture. They spend countless hours in the saddle to gain a first-hand under- standing of what moves and motivates core customers.

All of the research yields strong and consistent results. No matter who they are, what they do, or where they come from, Harley- Davidson disciples share a common, deeply held attraction to the brand. The universal Harley appeals are these: freedom,

for harley-Davidson enthusiasts, it’s all about the experience. More than just bikes, the iconic company is selling self-expression, lifestyle, aspirations, and dreams. Scott Olson/Getty images

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independence, power, and authenticity. Harley-Davidson doesn’t just sell motorcycles. It sells self-expression, lifestyles, aspirations, and dreams. “It’s all about the experience,” says an analyst, “one forged in heavy metal thunder, living free and peeling wheel down Route 66. It’s an experience that allows middle-aged accountants to don black, studded leather and forget about debits and credits for a little while.”

To hard-core enthusiasts, a Harley is much more than a machine. It’s a part of who they are and where they want to go in life. A Harley renews your spirits and announces your freedom and independence. A popular line at Harley-Davidson is that “Thumbing the starter of a Harley does a lot more than fire the engine. It fires the imagination.” The classic look, the throaty sound, the very idea of a Harley—all contribute to its mystique. Owning this “American legend” makes you a part of something bigger, a member of the Harley-Davidson family.

The strong emotions and motivations underlying Harley consum- er behavior are captured in a classic old Harley-Davidson print ad- vertisement. The ad shows a close-up of an arm, the bicep adorned with a Harley-Davidson tattoo. The headline asks, “When was the last time you felt this strongly about anything?” The ad copy out- lines the problem and suggests a solution: “Wake up in the morning and life picks up where it left off. . . . What once seemed exciting has now become part of the numbing routine. It all begins to feel the same. Except when you’ve got a Harley-Davidson. Something strikes a nerve. The heartfelt thunder rises up, refusing to become part of the background. Suddenly things are different. Clearer. More real. As they should have been all along. Riding a Harley changes you from within. The effect is permanent. Maybe it’s time you started feeling this strongly. Things are different on a Harley.”1

he Harley-Davidson example shows that factors at many levels affect consumer buying behavior. Buying behavior is never simple, yet understanding it is an essen- tial task of marketing management. First we explore the dynamics of the consumer

market and the consumer buyer behavior. We then examine business markets and the busi- ness buyer process.

consumer Markets and consumer buyer behavior Consumer buyer behavior refers to the buying behavior of final consumers—individuals and households that buy goods and services for personal consumption. All of these final consumers combine to make up the consumer market. The American consumer market consists of more than 320 million people who consume more than $11 trillion worth of goods and services each year, making it one of the most attractive consumer markets in the world.2

Consumers around the world vary tremendously in age, income, education level, and tastes. They also buy an incredible variety of goods and services. How these diverse con- sumers relate with each other and with other elements of the world around them affects their choices among various products, services, and companies. Here we examine the fas- cinating array of factors that affect consumer behavior.

Model of consumer behavior Consumers make many buying decisions every day, and the buying decision is the focal point of the marketer’s effort. Most large companies research consumer buying decisions in great detail to answer questions about what consumers buy, where they buy, how and how much they buy, when they buy, and why they buy. Marketers can study actual con- sumer purchases to find out what they buy, where, and how much. But learning about the whys behind consumer buying behavior is not so easy—the answers are often locked deep within the consumer’s mind. Often, consumers themselves don’t know exactly what influ- ences their purchases.

The central question for marketers is this: How do consumers respond to various mar- keting efforts the company might use? The starting point is the stimulus-response model of buyer behavior shown in figure 5.1. This figure shows that marketing and other stimuli enter the consumer’s “black box” and produce certain responses. Marketers must figure out what is in the buyer’s black box.

Marketing stimuli consist of the four Ps: product, price, place, and promotion. Other stimuli include major forces and events in the buyer’s environment: economic, technological, social, and cultural. All these inputs enter the buyer’s black box,

author comment In some ways, consumer and business

markets are similar in their buyer behavior. But in many other ways, they differ a lot. We start by digging into consumer buyer behavior. Later in the chapter, we’ll tackle

business buyer behavior.

consumer market All the individuals and households that buy or acquire goods and services for personal consumption.

consumer buyer behavior The buying behavior of final consumers—individuals and households that buy goods and services for personal consumption.

author comment Despite the simple-looking model in Figure 5.1, understanding the whys of

buying behavior is very difficult. Says one expert, “The mind is a whirling, swirling,

jumbled mass of neurons bouncing around. . . .”

t

chapter 5: Understanding consumer and business buyer behavior 135

where they are turned into a set of buyer responses—the buyer’s attitudes and prefer- ences, brand engagements and relationships, and what he or she buys, when, where, and how much.

Marketers want to understand how the stimuli are changed into responses inside the consumer’s black box, which has two parts. First, the buyer’s characteristics influence how he or she perceives and reacts to the stimuli. Second, the buyer’s decision process itself affects his or her behavior. We look first at buyer characteristics as they affect buyer behavior and then discuss the buyer decision process.

characteristics affecting consumer behavior Consumer purchases are influenced strongly by cultural, social, personal, and psychologi- cal characteristics, as shown in figure 5.2. For the most part, marketers cannot control such factors, but they must take them into account.

cultural factors Cultural factors exert a broad and deep influence on consumer behavior. Marketers need to understand the role played by the buyer’s culture, subculture, and social class.

culture. Culture is the most basic cause of a person’s wants and behavior. Human behavior is largely learned. Growing up in a society, a child learns basic values, perceptions, wants, and behaviors from his or her family and other important institutions. A child in the United States normally is exposed to the following values: achievement and success, freedom, individualism, hard work, activity and involvement, efficiency and practicality, material comfort, youthfulness, and fitness and health. Every group or society has a culture, and cultural influences on buying behavior may vary greatly from both county to county and country to country.

author comment Many levels of factors affect our buying

behavior—from broad cultural and social influences to motivations, beliefs, and

attitudes lying deep within us. For example, why did you buy that specific

phone you’re carrying?

culture The set of basic values, perceptions, wants, and behaviors learned by a member of society from family and other important institutions.

figure 5.1 the Model of buyer behavior

figure 5.2 factors influencing consumer behavior

136 Part 2: Understanding the Marketplace and customer Value

Marketers are always trying to spot cultural shifts so as to discover new products that might be wanted. For example, the cultural shift toward greater concern about health and fitness has created a huge industry for health-and-fitness services, exercise equipment and clothing, organic foods, and a variety of diets.

subculture. Each culture contains smaller subcultures, or groups of people with shared value systems based on common life experiences and situations. Subcultures include nationalities, religions, racial groups, and geographic regions. Many subcultures make up important market segments, and marketers often design products and marketing programs tailored to their needs. Examples of three such important subculture groups are African American, Hispanic American, and Asian American consumers.

The U.S. African American population is growing in affluence and sophistication. The nation’s more than 42 million black consumers wield almost $1.2 trillion in annual buying power. Although more price conscious than other segments, blacks are also strongly motivated by quality and selection. Brands are important. African American consumers are heavy users of digital and social media, providing access through a rich variety of marketing channels.3

Many companies develop special products, appeals, and marketing programs for African American consumers—from carmakers like Ford and Hyundai to consumer prod- ucts companies like P&G to even not-for-profits and government agencies such as the U.S. Forest Service. For example, the U.S. Forest Service and the Ad Council recently joined forces to create the “Discover the Forest” public service campaign to raise aware- ness among families of the benefits for children of getting outside and enjoying nature. One round of the campaign specifically targeted the parents of African American tweens:4

Although more than 245 million Americans live within 100 miles of a national forest or grassland, research shows that a majority of children in some population segments are not spending active time outdoors. For example, only 37 percent of African American children ages six to twelve participate frequently in outdoor activities compared with 67 percent of the broader U.S. population in that age group. To help close that gap, the U.S. Forest Service and the Ad Council created the “Discover the Forest” campaign, a series of public service messages ranging from billboards and radio commercials to interactive social media and Web site content. With headlines such as “Unplug,” “Where curiosity blooms,” and “Where imagination sprouts,” the ads targeting African American families promote the discovery and imagination wonders of connecting with the great outdoors and the resulting physical, mental health, and emotional well-being benefits. “The forest is one of those amazing places where kids can flex their imagination mus- cles through exploration and discovery,” says a marketer associated with the campaign.

Hispanics represent a large, fast-growing market. The nation’s more than 55 million Hispanic consumers (almost one out of every six Americans) have total annual buying power of $1.7 trillion. The U.S. Hispanic population will surge to more than 120 million by 2060, close to one-third of the total U.S. population.5 Within the Hispanic market, there exist many distinct subsegments based on na- tionality, age, income, and other factors. A company’s product or message may be more relevant to one nationality over another, such as Mexicans, Costa Ricans, Argentineans, or Cubans.

Although Hispanic consumers share many characteristics and behaviors with the mainstream buying public, there are also distinct differences. They tend to be deeply family oriented and make shopping a family affair—children have a big say in what brands they buy. Older, first-generation Hispanic consumers tend to be very brand loyal and to favor brands and sellers who show special interest in them. Younger Hispanics, however, have shown increasing price sen- sitivity in recent years and a willingness to switch to store brands. Hispanics are more active on mobile and social networks than other segments, making digital media ideal for reaching this segment.6

Companies such as P&G, McDonald’s, Walmart, State Farm, Chrysler, Google, and many others have developed special targeting efforts for this fast-growing consumer segment. For example, Walmart and Target both spend

subculture A group of people with shared value systems based on common life experiences and situations.

targeting african american consumers: the U.s. forest service and ad council joined forces to create the “Discover the forest” public service campaign to raise awareness among african american families of the benefits for children of getting outside and enjoying nature. The Forest Service, an agency of the U.S. Department of Agriculture and the Ad Council.

chapter 5: Understanding consumer and business buyer behavior 137

heavily to cultivate the Hispanic market. Both use Spanish-language ads and social media, place bilingual signs in stores, and stock their shelves with products that appeal to the spe- cial preferences of Hispanics. And Chrysler’s successful three-year “A Todo, Con Todo” campaign markets the company’s Ram trucks to the important Hispanic segment:7

Pickup trucks are Ram’s biggest market, and Hispanics are crucial to the brand’s success in that segment. The “A Todo, Con Todo” Ram truck campaign targets Hispanic pickup- truck owners with Spanish- and English-language TV, magazine, radio, and digital ads in major Hispanic markets, such as Albuquerque, Miami, Phoenix, New York, Los Angeles, Denver, and numerous Texas communities. “A Todo, Con Todo”—which translates as “To everything, with everything” (or “Give it all you’ve got”)—appeals to authentic Hispanic values. The first ads in the series featured two Hispanic truck owners—Ascension Banuelos and Arturo Barcelo—who use their Ram trucks day in and day out for work and recreation. Banuelos manages a horse training ranch in Jacksboro, Texas, and owns a Ram 3500; Barcelo drives a Ram 1500 and owns a home-improvement construction company in Dallas. In the ads, these truck owners give unscripted, real-life testimonials about values that are important to them and how their Ram trucks fit those values. An announcer con- cludes: “Finding a way to rise above, to push our limits further. The Ram 1500. Because success is not a destination, it’s our journey. Ram. A Todo, Con Todo.” Thanks largely to this campaign, Ram pickup-truck sales to the important Hispanics segment were up 33 percent last year.

Asian Americans are the most affluent U.S. demographic segment. A relatively well- educated segment, they now number more than 18 million (5 percent of the population), with annual buying power expected to approach $1 trillion by 2017. Asian Americans are the second- fastest-growing subsegment after Hispanic Americans. And like Hispanic Americans, they are a diverse group. Chinese Americans constitute the largest group, followed by Filipinos, Asian Indians, Vietnamese, Korean Americans, and Japanese Americans. Yet, unlike Hispanics who all speak various dialects of Spanish, Asians speak many different languages. For example, ads for the 2010 U.S. Census ran in languages ranging from Japanese, Cantonese, Khmer, Korean, and Vietnamese to Thai, Cambodian, Hmong, Hinglish, and Taglish.8

As a group, Asian American consumers shop frequently and are the most brand conscious of all the ethnic groups. They can be fiercely brand loyal. As a result, many firms now target the Asian American market. AT&T learned that young Asian Americans are more than just a lucrative technology market in themselves—they also influence other consumers. So it created an innovative marketing campaign aimed at improving perceptions in this influential young segment:9

To raise perceptions of AT&T as an innovative and preferred brand among Asian-American youth, key influencers in its tech markets, AT&T created an engaging crowd-sourced, boy-meets-girl Web series called “Away We Happened.” The low-cost series featured popular Asian youth celebrities Victor Kim and Jen Chae of Frmheadtotoe. AT&T partnered with Asian YouTube producer Wong Fu Productions to create the first episode. It then encouraged viewers to visit a Facebook app to submit their ideas for what happened next and vote on the best ideas for future episodes. The Effie- winning, six-episode series went viral, grabbing more than 13 million views over its six-week run and raising AT&T brand perceptions by 50 percent among young Asian American consumers.

Beyond targeting segments such as Hispanics, African Americans, and Asian Americans with specially tailored efforts, many marketers now embrace a total market strategy—the practice of integrating ethnic themes and cross-cultural perspectives within their mainstream market- ing. An example is general-market commercials for Cheerios and Swiffer that feature interracial families.10 A total market strategy appeals to con- sumer similarities across subcultural segments rather than differences.

total market strategy Integrating ethnic themes and cross- cultural perspectives within a brand’s mainstream marketing, appealing to consumer similarities across subcultural segments rather than differences.

targeting asian american consumers: to improve perceptions among young asian americans, key influencers in its tech markets, at&t created an engaging crowd- sourced, boy-meets-girl Web series called “away We happened.” Courtesy of AT&T Intellectual Property, interTrend Communications, Wong Fu Productions, Inc., and Rezonate Media. Female talent: Jen Chae (Jen of FrmHeadtoToe). Used with permission.

138 Part 2: Understanding the Marketplace and customer Value

Many marketers are finding that insights gleaned from ethnic consumer segments can influence their broader markets. For example, today’s youth-oriented lifestyle is influ- enced heavily by Hispanic and African American entertainers. So it follows that consum- ers expect to see many different cultures and ethnicities represented in the advertising and products they consume. For instance, McDonald’s takes cues from African Americans, Hispanics, and Asians to develop menus and advertising in hopes of encouraging main- stream consumers to buy smoothies, mocha drinks, and snack wraps as avidly as they con- sume hip-hop and rock’n’ roll. Or McDonald’s might take an ad primarily geared toward African Americans and run it in general-market media.

social class. Almost every society has some form of social class structure. Social classes are society’s relatively permanent and ordered divisions whose members share similar val- ues, interests, and behaviors. Social scientists have identified the seven American social classes: upper upper class, lower upper class, upper middle class, middle class, working class, upper lower class, and lower lower class.

Social class is not determined by a single factor, such as income, but is measured as a combination of occupation, income, education, wealth, and other variables. In some social systems, members of different classes are reared for certain roles and cannot change their social positions. In the United States, however, the lines between social classes are not fixed and rigid; people can move to a higher social class or drop into a lower one.

Marketers are interested in social class because people within a given social class tend to exhibit similar buying behavior. Social classes show distinct product and brand prefer- ences in areas such as clothing, home furnishings, travel and leisure activity, financial services, and automobiles.

social factors A consumer’s behavior also is influenced by social factors, such as the consumer’s small groups, social networks, family, and social roles and status.

groups and social networks. Many small groups influence a person’s behavior. Groups that have a direct influence and to which a person belongs are called membership groups. In contrast, reference groups serve as direct (face-to-face interactions) or indirect points of comparison or reference in forming a person’s attitudes or behavior. People often are influenced by reference groups to which they do not belong. For example, an aspirational group is one to which the individual wishes to belong, as when a young basketball player hopes to someday emulate basketball star LeBron James and play in the NBA.

Marketers try to identify the reference groups of their target markets. Reference groups expose a person to new behaviors and lifestyles, influence the person’s attitudes and self-concept, and create pressures to conform that may affect the person’s prod- uct and brand choices. The importance of group influence varies across products and brands. It tends to be strongest when the product is visible to others whom the buyer respects.

Word-of-mouth influence can have a powerful impact on consumer buying behavior. The personal words and recommendations of trusted friends, family, associ- ates, and other consumers tend to be more credible than those coming from commer- cial sources, such as advertisements or salespeople. One recent study showed that 92 percent of consumers trust recommendations from friends and family above any form of advertising.11 Most word-of-mouth influence happens naturally: Consumers start chatting about a brand they use or feel strongly about one way or the other. Often, however, rather than leaving it to chance, marketers can help to create positive conver- sations about their brands.

Marketers of brands subjected to strong group influence must figure out how to reach opinion leaders—people within a reference group who, because of special skills, knowl- edge, personality, or other characteristics, exert social influence on others. Some experts call this group the influentials or leading adopters. When these influentials talk, consum- ers listen. Marketers try to identify opinion leaders for their products and direct marketing efforts toward them.

social class Relatively permanent and ordered divisions in a society whose members share similar values, interests, and behaviors.

group Two or more people who interact to accomplish individual or mutual goals.

Word-of-mouth influence The impact of the personal words and recommendations of trusted friends, family, associates, and other consumers on buying behavior.

opinion leader A person within a reference group who, because of special skills, knowledge, personality, or other characteristics, exerts social influence on others.

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Buzz marketing involves enlisting or even creating opinion leaders to serve as “brand ambas- sadors” who spread the word about a company’s products. Consider Mercedes-Benz’s award-win- ning “Take the Wheel” influencer campaign:12

Mercedes-Benz wanted get more people talking about its all-new, soon-to-be-launched 2014 CLA model, priced at $29,900 and aimed at getting a new generation of younger consumers into the Mercedes brand. So it challenged five of Instagram’s most influential photographers— everyday Gen Y con- sumers whose stunning imagery had earned them hundreds of thousands of fans—to each spend five days behind the wheel of a CLA, documenting their journeys in photos shared via Instagram. The pho- tographer who got the most Likes got to keep the CLA. The short campaign really got people buzz- ing about the car, earning 87 million social media

impressions and more than 2 million likes. Ninety percent of the social conversation was positive. And when Mercedes launched the CLA the following month, it broke sales records.

Sometimes, everyday customers become a brand’s best evangelists. For instance, Alan Klein loves the McDonald’s McRib—a sandwich made of a boneless pork patty molded into a rib-like shape, slathered in BBQ sauce and topped with pickles and onion. The McRib is sold for only short time periods each year at McDonald’s restaurants around the nation. Klein loves it so much that he created the McRib Locator app and Web site (mcriblocator.com), where McRib fans buzz about locations where they’ve recently sighted the coveted sandwich.13

Over the past several years, a new type of social interaction has exploded onto the scene—online social networking. Online social networks are online communities where people socialize or exchange information and opinions. Social networking communities range from blogs (Consumerist, Gizmodo, Zenhabits) and message boards (Craigslist) to social media sites (Facebook, Twitter, YouTube, Pinterest, and LinkedIn) and even communal shopping sites (Amazon.com and Etsy). These online forms of consumer-to- consumer and business-to-consumer dialogue have big implications for marketers.

Marketers are working to harness the power of these new social networks and other “word-of-Web” opportunities to promote their products and build closer customer rela- tionships. Instead of throwing more one-way commercial messages at consumers, they hope to use the digital, mobile, and social media to interact with consumers and become a part of their conversations and lives.

For example, Red Bull has an astounding 46 million friends on Facebook; Twitter and Facebook are the primary ways it communicates with college students. JetBlue listens in on customers on Twitter and often responds; one consumer recently Tweeted “Thanks for taking me home for the holidays @JetBlue. And thanks to the crew in Austin for giv- ing me a row to myself so I can sleep!” JetBlue Tweeted back “You’re most welcome, Nancy! Thanks for letting us be your ride! Happy Holidays to you and your family! #VIPTreatmentForNancy.” Even the Mayo Clinic uses social media extensively. It main- tains Facebook, Pinterest, and Twitter pages; a YouTube channel; smartphone patient apps that “put Mayo in your pocket wherever you are”; and a Sharing Mayo Clinic blog on which patients share their Mayo Clinic experiences and employees offer a behind-the-scenes view.

Most brands have built a comprehensive social media presence. We will dig deeper into online and social media as marketing tools in Chapter 14. However, although much of the current talk about tapping social influence focuses on the digital, mobile, and social media, most brand conversations still take place the old-fashioned way—face to face. So  most effective word-of-mouth marketing programs begin with generating person- to-person brand conversations and integrating both offline and online social influence strategies. The goal is to create opportunities for customers to get involved with brands and then help them share their brand passions and experiences with others in both their real and digital worlds (see Marketing at Work 5.1).

online social networks Online communities—blogs, social networking Web sites, and other online communities—where people socialize or exchange information and opinions.

creating word of mouth: Mercedes-benz’s “take the Wheel” influencer campaign really got people buzzing about its all-new cla model, helping to create millions of positive social conversations and record sales. © Courtesy of Daimler AG

140 Part 2: Understanding the Marketplace and customer Value

sparking word of mouth: chubbies spreads its “shorts revolution” manifesto through both a booming social media presence and an army of face-to-face brand ambassadors on college campuses. Chubbies Shorts

People love talking with others about things that make them happy—including their favorite products and brands. Say you really like JetBlue Airways—it flies with flair and gets you there at an affordable price. Or you just plain love your new little GoPro HERO4 Black Edition video camera—it’s too cool to keep to yourself. So you spread the good word about your favorite brands to anyone who will listen. In the old days, you’d have chatted up these brands with a few friends and fam- ily members. But these days, thanks to the online, mobile, and social media, anyone can share brand experiences with thou- sands, even millions, of other consumers digitally.

In response, marketers are now feverishly working to har- ness today’s technologies and get people interacting with each other about their brands, both online and offline. The aim is to inspire, nurture, and amplify brand conversations. Whether it entails seeding a product among high-potential consumers to get them talking, creating brand ambassadors, tapping into existing influentials and the social media, or developing con- versation-provoking events and videos, the idea is to get people involved with and talking about the brand.

Generating successful word of mouth might be as simple as prompting Facebook Likes and Shares, Twitter streams, Pinterest boards, online reviews, blog commentaries, or YouTube videos. Even companies with small budgets can earn global exposure in the social media. For exam- ple, little-known start-up DollarShaveClub.com— which ships quality razors directly to customers for as little as $1 a month—became an overnight sensation thanks largely to a single YouTube video. Founder Michael Dubin scraped together $4,500 to produce a clever video featuring himself, some corny props, a guy in a bear suit, and very salty language to pitch the new service. “Are the blades any good?” Dubin asked in the video. “No. Our blades are f***ing great,” he answered. “So stop forgetting where you’re going to buy your blades every month and start deciding where you’re going to stack all those dollar bills I’m saving you.” The edgy video went viral, and the word-of-mouth fire- storm earned DollarShaveClub.com more than 17 million YouTube views, 60,000 Twitter followers, 1.5 million Likes on Facebook, dozens of response videos, and $10 million in venture capital fund- ing. DollarShaveClub’s success has even prompted giant Gillette to begin its own blade subscription program.

But most successful social influence campaigns go well beyond a YouTube video or Facebook Likes.

For example, many companies start by creating their own brand evangelists. That’s what Ford did to introduce its Fiesta subcompact model in the United States. Under its now-classic Fiesta Movement campaign, Ford handed out Fiestas to 100 young Millennial drivers—the target audience for the car— selected from 4,000 applicants. These “Fiesta Agents” lived with their cars for six months, all the while sharing their experi- ences via blogs, Tweets, Facebook updates, and YouTube and Flickr posts. The highly successful Fiesta Movement campaign generated 58 percent prelaunch brand awareness among Fiesta’s under-30 target consumers. The Fiesta ambassadors posted 50,000 items, generating 28 million social media views, 52,000 test drives, and 10,000 online vehicle reservations. The Fiesta Movement was so successful that Ford created similar social media evangelist campaigns for the Ford Escape (“Escape Routes”) and the Ford Fusion (“Random Acts of Fusion”).

Beyond creating their own ambassadors, companies look- ing to harness influence can work with the army of self-made influencers already plying the Internet—independent bloggers. Believe it or not, there are now almost as many people making a living as bloggers as there are lawyers. No matter what the interest area, there are probably hundreds of bloggers covering it. Moreover, research shows that 90 percent of bloggers post about their favorite and least favorite brands.

Marketing at Work 5.1

Word-of-Mouth Marketing: sparking brand conversations and helping them catch fire

chapter 5: Understanding consumer and business buyer behavior 141

As a result, most companies try to form relationships with influential bloggers and online personalities. The key is to find bloggers who have strong networks of relevant readers, a credible voice, and a good fit with the brand. For example, companies ranging from P&G and McDonald’s to Walmart work closely with influential “mommy bloggers.” And you’ll no doubt cross paths with the likes of climbers and skiers blog- ging for Patagonia, bikers blogging for Harley-Davidson, and foodies blogging for Whole Foods Market or Trader Joe’s. Sometimes, bloggers and other social media mavens focus exclusively on a given brand. For example, StarbucksMelody. com is “an unofficial fan site for any and all Starbucks enthusi- asts everywhere.” TUAW is “The Unofficial Apple Weblog—a resource for all things Apple and beyond.” Thanks to their in- dependence, such blogs often generate more trustworthy buzz than a company’s own blogs or online sites can.

Much of the word-of-mouth marketing frenzy today seems to center on creating online buzz. However, the majority of brand conversations still take place offline. According to one expert, some 93 percent of brand conversations still happen in the real world rather than the virtual one. So many marketers look beyond the digital world to create good old face-to-face brand conversations.

For example, Chubbies is a small but trendy and fast- growing startup that targets young men with a line of “anti- cargo shorts” (and a retro 5 1/2-inch inseam). So far, the brand has marketed itself only through its social media presence. Avid Chubsters actively swap influence via pictures, videos, and stories on YouTube, Facebook, Twitter, Instagram, Pinterest, and the Chubbies Web site and ChubsterNation blog. But now, Chubbies is building an army of face-to-face influencers in the form of 250 student ambassadors at college campuses across

the country. The ambassadors—what it calls “thigh-liberating patriots”—spread the Chubster manifesto that “We don’t do pants. We don’t do cargos. We don’t do capris. We do shorts and only shorts.” “Pants are for work,” they preach. Chubbies “are for having fun, or jumping off rocks, or playing beer pong, or climbing Everest.” The ambassadors personally rally the faithful at tailgate parties and other campus events, expanding the ChubsterNation and sparking even more word of mouth for the irreverent brand.

Whether offline, online, or both, effective word-of-mouth marketing isn’t something that just happens. And it’s more than just building a following on Facebook. Marketers must build comprehensive programs that spark person-to-person brand conversations and then help them catch fire. The goal of word- of-mouth marketing is to find the company’s best customers, give them opportunities to become more involved, and help them spread their brand passion and enthusiasm within their in-person and digital networks. It’s all about sparking brand conversations and helping them catch fire.

Sources: Jefferson Graham, “Dollar Shave Club’s Dubin: From YouTube Star to CEO,” June 14, 2014, www.usatoday.com/story/money/business/ 2014/06/09/ceo-profile-dollar-shave-clubs-michael-dubin/9993045/; Giselle Abramovich, “Why Ford Credits Social Media in Turnaround,” Digiday, October 10, 2012, www.digiday.com/brands/why-ford-credits-social-media- in-turnaround/; Iris Mansour, “The New Face of Word-of-Mouth,” CNNMoney, August 2013, http://management.fortune.cnn.com/2013/08/28/word-of- mouth-marketing/; Nellie Bowles, “Chubbies Shorts Popular with Troops,” June 28, 2013, www.sfgate.com/style/article/Chubbies-shorts-popular-with- troops-4634821.php; Jim Dougherty, “9 Ways to Improve Word-of-Mouth Communications,” Cision, January 5, 2015, www.cision.com/us/2015/01/9- ways-to-improve-word-of-mouth-communication/; www.chubbiesshorts.com/ pages/manifesto, www.dollarshaveclub.com, and www.chubbiesshorts.com/, accessed September 2015.

family. Family members can strongly influence buyer behavior. The family is the most important consumer buying organization in society, and it has been researched extensively. Marketers are interested in the roles and influence of the husband, wife, and children on the purchase of different products and services.

Husband–wife involvement varies widely by product category and by stage in the buying process. Buying roles change with evolving consumer lifestyles. For example, in the United States, the wife traditionally has been considered the main purchasing agent for the family in the areas of food, household products, and clothing. But with 71 percent of all mothers now working outside the home and the willingness of husbands to do more of the family’s purchasing, all this has changed in recent years. Recent surveys of men show that nearly half do at least 50 percent of their household’s grocery shopping, 39 percent handle most of their household’s laundry, and about one-quarter say they are responsible for all of their household’s cooking. At the same time, today women out- spend men three to two on new technology purchases and influence more than 80 percent of all new car purchases.14

Such shifting roles signal a new marketing reality. Marketers in industries that have traditionally sold their products to only women or only men—from groceries and per- sonal care products to cars and consumer electronics—are now carefully targeting the opposite sex. Other companies are showing their products in “modern family” contexts. For example, one General Mills ad shows a father packing Go-Gurt yogurt in his son’s lunch as the child heads off to school in the morning, with the slogan “Dads who get it, get Go-Gurt.” And the recent General Mills “How to Dad” campaign for Cheerios presents a

142 Part 2: Understanding the Marketplace and customer Value

dad as a multitasking superhero around the house, a departure from the bum- bling dad stereotypes often shown in food ads. This dad does all the right things, including feeding this children healthy Cheerios breakfasts. “Being a dad is awesome,” he proclaims in one ad. “Just like Cheerios are awesome. That’s why it’s the Official Cereal of Dadhood.”15

Children may also have a strong influence on family buying decisions. The nation’s kids and tweens influence up to 80 percent of all household purchases, to the tune of $1.2 trillion of spending annually. Kids signifi- cantly influence family decisions about everything from clothing, cars, and entertainment to where they eat out and take vacations.16

roles and status. A person belongs to many groups—family, clubs, organi- zations, online communities. The person’s position in each group can be de- fined in terms of both role and status. A role consists of the activities people are expected to perform according to the people around them. Each role car- ries a status reflecting the general esteem given to it by society.

People usually choose products appropriate to their roles and status. Consider the various roles a working mother plays. In her company, she may play the role of a brand manager; in her family, she plays the role of wife and

mother; at her favorite sporting events, she plays the role of avid fan. As a brand manager, she will buy the kind of clothing that reflects her role and status in her company. At the game, she may wear clothing supporting her favorite team.

Personal factors A buyer’s decisions also are influenced by personal characteristics such as the buyer’s occupation, age and life-cycle stage, economic situation, lifestyle, and personality and self-concept.

occupation. A person’s occupation affects the goods and services bought. Blue-collar workers tend to buy more rugged work clothes, whereas executives buy more business suits. Marketers try to identify the occupational groups that have an above-average interest in their products and services. A company can even specialize in making products needed by a given occupational group. For example, Duluth Trading Company makes rugged, durable work clothes with a “no-bull” guarantee. From its “Ballroom Jeans” that give you “room to crouch without singing soprano” to its “Longtail T-shirts” that fix your “plumb- er’s butt,” Duluth’s products are designed and tested by tradesmen. “Taking care of work- ing guys is priority #1 at Duluth,” says the company.

age and life stage. People change the goods and services they buy over their lifetimes. Tastes in food, clothes, furniture, and recreation are often age related. Buying is also shaped by the stage of the family life cycle—the stages through which families might pass as they mature over time. Life-stage changes usually result from demographics and life-changing events—marriage, having children, purchasing a home, divorce, children going to college, changes in personal income, moving out of the house, and retirement. Marketers often define their target markets in terms of life-cycle stage and develop appropriate products and marketing plans for each stage.

One of the leading life-stage segmentation systems is the Nielsen PRIZM Lifestage Groups system. PRIZM classifies every American household into one of 66 distinct life-stage segments, which are organized into 11 major life-stage groups, based on afflu- ence, age, and family characteristics. The classifications consider a host of demographic factors such as age, education, income, occupation, family composition, ethnicity, and housing; and behavioral and lifestyle factors, such as purchases, free-time activities, and media preferences.

The major PRIZM Lifestage groups carry names such as “Striving Singles,” “Midlife Success,” “Young Achievers,” “Sustaining Families,” “Affluent Empty Nests,” and “Conservative Classics,” which in turn contain subgroups such as “Brite Lites, Li’l City,” “Kids & Cul-de-Sacs,” “Gray Power,” and “Big City Blues.” The “Young Achievers”

changing family buying influences: one go-gurt ad shows a father packing go-gurt yogurt in his son’s lunch as the child heads off to school. “Dads who get it, get go-gurt.” Use with permission of General Mills Marketing lnc. (GMMI).

chapter 5: Understanding consumer and business buyer behavior 143

group consists of hip, single 20-somethings who rent apartments in or close to metropoli- tan neighborhoods. Their incomes range from working class to well-to-do, but the entire group tends to be politically liberal, listen to alternative music, and enjoy lively nightlife.17

Different life-stage groups exhibit different buying behaviors. Life-stage segmentation provides a powerful marketing tool for marketers in all industries to better find, under- stand, and engage consumers. Armed with data about the makeup of consumer life stages, marketers can create targeted, actionable, personalized campaigns based on how people consume and interact with brands and the world around them.

economic situation. A person’s economic situation will affect his or her store and product choices. Marketers watch trends in spending, personal income, savings, and interest rates. In today’s more value-conscious times, most companies have taken steps to create more customer value by redesigning, repositioning, and repricing their products and services. For example, in recent years, upscale discounter Target has put more emphasis on the “Pay Less” side of its “Expect More. Pay Less.” positioning promise.

Similarly, in line with worldwide economic trends, smartphone makers who once offered only premium-priced phones are now offering lower-priced models for consumers both at home and in the world’s emerging economies. Microsoft’s Nokia division recently targeted emerging markets with lower-end Lumia models priced well under $100. And Apple introduced a lower-end, lower-priced version of its iPhone, the iPhone 5C. As their more affluent Western markets have become saturated and more competitive, the phone makers hope that their lower-priced phones will help them to compete effectively and grow in less-affluent emerging Eastern markets such as China and Southeast Asia.18

lifestyle. People coming from the same subculture, social class, and occupation may have quite different lifestyles. Lifestyle is a person’s pattern of living as expressed in

his or her psychographics. It involves measuring consumers’ major AIO dimensions—activities (work, hobbies, shopping, sports, social events), interests (food, fashion, family, recreation), and opinions (about themselves, social issues, business, products). Lifestyle cap- tures something more than the person’s social class or personality. It profiles a person’s whole pattern of acting and interacting in the world.

When used carefully, the lifestyle concept can help marketers understand changing consumer values and how they affect buyer behavior. Consumers don’t just buy products; they buy the values and lifestyles those products represent. For example, you may know KitchenAid by its high-performance mixers and other kitchen ap- pliances. But KitchenAid sells much more than just appliances. It sells an entire cooking and entertainment lifestyle:19

KitchenAid cultivates “Kitchenthusiasts”—a lifestyle community of “hosts with the most” who thrive on cooking and entertainment chal- lenges. Its Kitchenthusiast blog, Facebook pages, and 11 Pinterest boards are brimming with recipes, cooking challenges, tips and tech- niques, and coverage of the latest cooking lifestyle news and events by key contributors. KitchenAid’s “There’s So Much More to Make” marketing campaign highlights how the brand’s appliances contribute to the lifestyles of passionate Kitchenthusiasts. Says one ad: “When enter- taining elates you, when every machine does incredible things, there’s so much more to make.”

Marketers look for lifestyle segments with needs that can be served through special products or marketing approaches. Such seg- ments might be defined by anything from family characteristics or outdoor interests to the foods people eat. For example, fast-food chain Taco Bell recently repositioned itself as an experience brand, consis- tent with the lifestyles of its primary target customers, Millennials (see Marketing at Work 5.2).

lifestyle A person’s pattern of living as expressed in his or her activities, interests, and opinions.

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Find more information and culinary inspiration at kitchenaid.com.

lifestyles: kitchenaid sells much more than just high- performance kitchen appliances. it sells an entire cooking and entertainment lifestyle to “kitchenthusiasts.” Courtesy of Whirlpool Corporation. Photo © Melanie Acevedo/Stockland Martel

144 Part 2: Understanding the Marketplace and customer Value

taco bell’s innovative “live Más” positioning targets the lifestyles of the brand’s key target customers, Millennials. Taco Bell Corporation

Years ago, Taco Bell practically invented the fast-food “value menu,” with its “59¢-79¢-99¢” pricing structure. With slogans such as “The Cure for the Common Meal,” “Make a Run for the Border,” and “Think Outside the Bun,” Taco Bell firmly estab- lished its affordable Mexican-inspired fare as a unique, “more- for-your-money” alternative to the mostly burgers and fries offered by dominant McDonald’s and other fast-food competitors.

In the early 2000s, however, consumer tastes began to change. Americans were looking for fresher, better-tasting, healthier eat- ing options and more contemporary fast-casual atmospheres. Taco Bell’s “food-as-fuel” marketing philosophy—its “fill them up, move them out” thinking—made the chain seem out of step with the times. After three straight years of flat sales, Taco Bell ended 2011 with a 1.4-percent decline in systemwide revenues. These dire results called for a shift in Taco Bell’s strategy.

The shift began with the realization that customers want more from a fast-food restaurant than just lots of food on the cheap. More than “calories per dollar,” they are seeking a food- eating experience, one that fits with and enhances their life- styles. So in early 2012, Taco Bell shifted its positioning from “food as fuel” to “food as experience and lifestyle.” It crafted a new tagline—“Live Más” (“más” is Spanish for “more”). As part of its $280 million annual marketing budget, the “Live Más” slogan is designed as a lifestyle rallying cry for Taco Bell’s core customers, Millennials—young adults who consume a disproportionate share of fast and fast-casual food.

Taco Bell’s aspirational “Live Más” message is crafted to inspire Millennials to try new things and to live life to the full- est. The first “Live Más” ad, called “Pockets,” showed a hip, 20-something man coming into a dim apartment as dawn breaks. He emptied his pockets onto a table as he thought back over the night he’d had. Along with the standard wallet, keys, and smart- phone, he tossed out a concert ticket stub, a matchbook from a 24-hour psychic, a pair of Kanji dice, and a strip of photo-booth images of himself with a young woman. The last item he pulled out was a blister pack of Taco Bell Fire Sauce, adorned with the new “Live Más” logo and the message “You have chosen wisely.” It was this last item that brought a smile to his face.

Support for the “Live Más” lifestyle tagline goes well be- yond just advertising. For example, it includes new menu items aimed to please Millennial palates. In early 2012, Taco Bell unveiled cobranded Doritos Locos Tacos, like a standard Taco Bell taco or Taco Supreme but wrapped in a tasty shell made from Nacho Cheese Doritos. Hungry Millennials gobbled up 100 million Doritos Locos Tacos in just the first 10 weeks, at the time making it the most successful new-product launch in the company’s 50-year history. The brand quickly added Cool Ranch and Fiery versions.

Recognizing that customers who want to “Live Más” might be looking to eat at just about any time of day, Taco Bell has

focused on more day parts. For example, after a long absence from morning hours, Taco Bell has rolled out a 7 am (or earlier) to 11 am breakfast menu. Initial options included breakfast burritos, waffle tacos, the A.M. Crunchwrap, the A.M. Grilled Taco, and bite-size Cinnabon Delights. Similarly, Taco Bell’s “Happier Hour” initiative targets between-meal-snack appe- tites from 2 pm to 5 pm daily, featuring new Mountain Dew Baja Blast and Dr Pepper frozen beverages and $1 Loaded Grillers. And for the late-night “Live Más” crowd, there’s Fourthmeal, as in “You’re out. You’re hungry. You’re do- ing Fourthmeal.” In one ad—titled “After-Wedding Party”—a newlywed couple feasts on Taco Bell fare in the back of a limo along with their groomsmen and bridesmaids. The announcer concludes, “Fourthmeal—sometimes the best dinner is after the dinner.”

To better engage targeted Millennials, Taco Bell now reaches them where they hang out—online, digital, and mobile. Befitting the Millennial lifestyle, it recently added a new mobile ordering app. And a significant portion of the “Live Más” promotion budget goes to social media, digital tools, and other nontraditional channels. Beyond the usual Facebook and Twitter, Taco Bell uses social media such as Vine, Instagram, and Snapchat for buzz- building announcements, limited-time promotions, and sneak peeks at new products. The revitalized

Marketing at Work 5.2

taco bell: More than just tacos, a “live Más” lifestyle

chapter 5: Understanding consumer and business buyer behavior 145

chain watches and participates in online brand conversations with its “Fishbowl”—Taco Bell’s own command center for monitoring social media and generating digital dialogue. For example, the brand achieved more than 600 million social- media impressions for Cool Ranch Doritos Locos Tacos alone before the product even officially launched.

Some analysts suggest that with “Live Más,” Taco Bell is stretching too far beyond its core affordable fast-food positioning. “They’re trying to suggest a lifestyle aspira- tion, but this seems an overreach for Taco Bell,” says one restaurant- marketing consultant. “A tagline should embrace the DNA of the brand, which for Taco Bell is extraordinary value.” Not so, says Taco Bell. Rather than abandoning the brand’s “value” roots, says the company, the new tagline and other elements of “Live Más” underscore brand values dat- ing back to its founding—“value, quality, relevance, and an exceptional experience.” The “value” message still resonates in the tagline, but “Live Más” also energizes the “relevance” and “experience” aspects of Taco Bell’s long-standing value proposition.

The early results suggest that Taco Bell is right on track with the “Live Más” lifestyle positioning. The year following the introduction of the tagline saw sales soar 8 percent, more than twice the gain of industry leader McDonald’s. And ad

industry magazine Advertising Age recently named Taco Bell its Marketer of the Year for going “into innovation overdrive, churning out a string of hot new products, game-changing menus, and an aggressive mix of traditional, social, and digital media that’s hitting the mark with Millennials.”

But for Taco Bell, becoming an experience and lifestyle brand isn’t just about reversing sales declines and reaping marketing honors. It’s about building for the future. Taco Bell recently announced plans to nearly double its business to $14 billion by 2022 with 8,000 restaurants domestically. Accomplishing that lofty objective will have both Taco Bell’s customers and Taco Bell marketers shouting “Live Más!”

Sources: Kate Taylor, “KFC, Pizza Hut, and Taco Bell Want Even More Millennial Customers in 2015,” Entrepreneur, December 11, 2014, www .entrepreneur.com/article/240835; Maureen Morrison, “Sales Are Going Loco at Taco Bell, Ad Age’s Marketer of the Year,” Advertising Age, September 2, 2013, p. 2; Shirley Brady, “Taco Bell Promotes New ‘Live Más’ Tagline in New Campaign,” Brand Channel, February 24, 2012, www.brandchannel .com/home/post/2012/02/24/Taco-Bell-Live-Mas-Doritos-Locos-Tacos- Spots-022412.aspx; Maureen Morrison, “Taco Bell to Exchange ‘Think Outside the Bun’ for ‘Live Más,’” Advertising Age, February 21, 2012, adage. com/print/232849; Mark Brandau, “Yum Plans to Double U.S. Taco Bell Sales,” Restaurant News, May 22, 2013, nrn.com/quick-service/analysts-yum- plans-double-us-taco-bell-sales; and various pages at www.tacobell.com and www.tacobell.com/livemas, accessed September 2015.

Personality and self-concept. Each person’s distinct personality influences his or her buy- ing behavior. Personality refers to the unique psychological characteristics that distinguish a person or group. Personality is usually described in terms of traits such as self-confidence, dominance, sociability, autonomy, defensiveness, adaptability, and aggressiveness. Person- ality can be useful in analyzing consumer behavior for certain product or brand choices.

The idea is that brands also have personalities, and consumers are likely to choose brands with personalities that match their own. A brand personality is the specific mix of human traits that may be attributed to a particular brand. One researcher identified five brand per- sonality traits: sincerity (down-to-earth, honest, wholesome, and cheerful), excitement (dar- ing, spirited, imaginative, and up-to-date), competence (reliable, intelligent, and successful), sophistication (glamorous, upper class, charming), and ruggedness (outdoorsy and tough). “Your personality determines what you consume, what TV shows you watch, what products you buy, and [most] other decisions you make,” says one consumer behavior expert.20

Most well-known brands are strongly associated with one particular trait: the Ford F150 with “ruggedness,” Apple with “excitement,” the Washington Post with “com-

petence,” Method with “sincerity,” and Gucci with “class and sophistication.” Hence, these brands will attract persons who are high on the same personality traits. JetBlue projects a “human” personality. Its recent “Air on the Side of Humanity” marketing campaign affirms that the airline cares about people. The airline is committed to award-winning customer ser- vice “for everyone, at every stage of the flying experience.” It has been “inspiring humanity since 2000.”21

Many marketers use a concept related to personality—a person’s self-concept (also called self-image). The idea is that people’s possessions contribute to and reflect their

Personality The unique psychological characteristics that distinguish a person or group.

brand personality: customers are likely to choose brands with personalities that match their own. jetblue projects a “human” personality. it’s been “inspiring humanity since 2000.” JetBlue

146 Part 2: Understanding the Marketplace and customer Value

identities—that is, “we are what we consume.” Thus, to understand consumer behavior, marketers must first understand the relationship between consumer self-concept and possessions.

Psychological factors A person’s buying choices are further influenced by four major psychological factors: motivation, perception, learning, and beliefs and attitudes.

Motivation. A person has many needs at any given time. Some are biological, arising from states of tension such as hunger, thirst, or discomfort. Others are psychological, arising from the need for recognition, esteem, or belonging. A need becomes a motive when it is aroused to a sufficient level of intensity. A motive (or drive) is a need that is sufficiently pressing to direct the person to seek satisfaction. Psychologists have developed theories of human motivation. Two of the most popular—the theories of Sigmund Freud and Abraham Maslow—carry quite different meanings for consumer analysis and marketing.

Sigmund Freud assumed that people are largely unconscious about the real psycho- logical forces shaping their behavior. His theory suggests that a person’s buying decisions are affected by subconscious motives that even the buyer may not fully understand. Thus, an aging baby boomer who buys a sporty BMW convertible might explain that he sim- ply likes the feel of the wind in his thinning hair. At a deeper level, he may be trying to impress others with his success. At a still deeper level, he may be buying the car to feel young and independent again.

Consumers often don’t know or can’t describe why they act as they do. Thus, many com- panies employ teams of psychologists, anthropologists, and other social scientists to carry out motivation research that probes the subconscious motivations underlying consumers’ emo- tions and behaviors toward brands. One ad agency routinely conducts one-on-one, therapy- like interviews to delve the inner workings of consumers. Another company asks consumers to describe their favorite brands as animals or cars (say, a Mercedes versus a Chevy) to assess the prestige associated with various brands. Still others rely on hypnosis, dream therapy, or soft lights and mood music to plumb the murky depths of consumer psyches.

Such projective techniques might seem pretty goofy, and some marketers dismiss such motivation research as mumbo jumbo. But many marketers use such touchy-feely approaches, now sometimes called interpretive consumer research, to dig deeper into con- sumer psyches and develop better marketing strategies.

Abraham Maslow sought to explain why people are driven by particular needs at particular times. Why does one person spend a lot of time and energy on personal safety and another on gaining the esteem of others? Maslow’s answer is that human needs are arranged in a hierarchy, as shown in figure 5.3, from the most pressing at the bottom to the least pressing at the top.22 They include physiological needs, safety needs, social needs, esteem needs, and self-actualization needs.

A person tries to satisfy the most important need first. When that need is satisfied, it will stop being a motivator, and the person will then try to satisfy the next most important need. For example, starving people (physiological need) will not take an interest in the latest hap- penings in the art world (self-actualization needs) nor in how they are seen or esteemed by others (social or esteem needs) nor even in whether they are breathing clean air (safety needs). But as each important need is satisfied, the next most important need will come into play.

Perception. A motivated person is ready to act. How the person acts is influenced by his or her own perception of the situation. All of us learn by the flow of information through our five senses: sight, hearing, smell, touch, and taste. However, each of us receives, organizes, and interprets this sensory information in an individual way. Perception is the process by which people select, organize, and interpret information to form a meaningful picture of the world.

People can form different perceptions of the same stimulus because of three percep- tual processes: selective attention, selective distortion, and selective retention. People are exposed to a great amount of stimuli every day. For example, individuals are exposed to an estimated 3,000 to 5,000 ad messages daily. The cluttered digital environment adds 30 bil- lion online display ads shown each day, 500 million Tweets sent daily, 144,000 hours of

Motive (drive) A need that is sufficiently pressing to direct the person to seek satisfaction.

Perception The process by which people select, organize, and interpret information to form a meaningful picture of the world.

chapter 5: Understanding consumer and business buyer behavior 147

video uploaded daily on YouTube, and 4.75 billion pieces of content shared on Facebook every day.23 People can’t possibly pay attention to all the competing stimuli surrounding them. Selective attention—the tendency for people to screen out most of the information to which they are exposed—means that marketers must work especially hard to attract the

consumer’s attention. Even noticed stimuli do not always come across in the intended

way. Each person fits incoming information into an existing mindset. Selective distortion describes the tendency of people to interpret infor- mation in a way that will support what they already believe. People also will forget much of what they learn. They tend to retain information that supports their attitudes and beliefs. Selective retention means that consumers are likely to rememb