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Fourteenth Edition

J. Paul Peter University of Wisconsin-Madison

James H. Donnelly Jr. Gatton College of Business and

Economics University of Kentucky

A PREFACE TO MARKETING MANAGEMENT, FOURTEENTH EDmON

Published by McGraw-Hill Education. 2 Penn Plaza, New York, NY 10121. Copyright© 2015 by McGraw-Hill

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Library of Congress Cataloging-in-Publication Data

Peter, J. Paul.

A preface to marketing management/ J. Paul Peter, University of Wisconsin-Madison, James H. Donnelly, Jr., Gatton College of Business and Economics, University of Kentucky.-Fourteenth edition.

pages cm

ISBN 978-0-07-786106-3 (alk. paper)

1. Marketing-Management. I. Donnelly, Ja,nes H. II. Title.

HF5415.13.P388 2013

658.8-dc23

2013046644

The Internet addresses listed in the text were accurate at the time of publication. The inclusion of a website does

not indicate an endorsement by the authors or McGraw-Hill Education, and McGraw-Hill Education does not

guarantee the accuracy of the infor1nation presented at these sites.

ww,v .mhhe.com

To Rose and Angie

J. Paul Peter

To Gayla

Jim Donnelly

vi

ors

J. Paul Peter has been a faculty member at the University of Wisconsin since 1981. He was a member

of the faculty at Indiana State, Ohio State, and Washington University before joining the

Wisconsin faculty. While at Ohio State, l1e was named Outstanding Marketing Professor

by the students and has won the John R. Larson Teaching Award at Wisconsin. He has

taught a variety of courses including Marketing Management, Marketing Strategy, Con­

sumer Behavior, Marketing Research, and Marketing Theory, among others. Professor Peter's research has appeared in t11e Journal of Marketing, the Journal of

Marketing Research, the Journal of Consumer Research., the Journal of Retailing, and the

Academy o,f Management Journ.ctl, among others. His article on construct validity won the

prestigious William O'Dell Award from the Journal of Marketing Research, and he was a

finalist for this award on two other occasions. Recently, he was the recipient of the ChurchilJ Award for Lifeti1ne Achievement in Marketing Research, given by the American Marketing

Association and the Gaumnitz Distinguished Faculty Award from the School of Business,

University of Wisconsin-Madison. He is an author or editor of over 30 books, including A

Preface to Marketing Management, Fourteenth edition; Marketing Management: Krtowledge and Skills, ninth edition; Consumer Behavior and Marketing Strategy, ninth edition; Strategic

Management: Concepts and Applications, third edition; and Marketirig: Creating Value .for

Custom.ers, second edition. He is one of the most cited authors in the marketing literature.

Professor Peter has served on the review boards of the Journal of· Marketing, Jour­

nal of Marketi11g Research, Journal of Corisumer Research, and Journal of Business Research and was measurement editor for JMR and professional publicatio11s editor for tl1e

American Marketing Association. He has taught in a variety of executive programs and

consulted for several corporations as well as the Federal Trade Commission.

James H. Donnelly Jr. has spent his academic career in the Gatton College of Business a11d Econo1nics at the

University of Kentucky. In 1990 he received the first Chancellor's Award for Outstanding

Teaching given at the university. Previously, he had twice received the UK Alumni Associa­

tion's Great Teacher Award, an award one can only be eligible to receive every 10 years. He

has also received two Outstanding Teacher awards from Beta Gamma Sigma, national busi­

ness honorary. In 1992 he received an Acorn Award recognizing "those who shape the future"

from the Kentucky Advocates for Higher Education. In 2001 and 2002 he was selected as

"Best University of Kentucky Professor." In 1995 he became one of six charter members

elected to the American Bankers Association's Bank Marketing Hall of Fame. He has also

received a "Distinguished Doctoral Graduate Award" from the University of Maryland.

During his career he has published in the Journal of Marketing Research,, Journ.al o,f

Marketing, Journal of· Retailing, Administrative Science QiJ-arterly, Academy of Man­

agemerit Jourrtal, Journal of Applied Psychology, Personnel Psychology, Jourrial of

Business Researcli, and Operatio,is Research a1nong others. He has served on the edito­

rial review boa.rd of the Journal o,f Marketing. He is the author of more than a dozen

books, which include widely adopted academic texts as well as professional books.

Professor Donnelly is very active in the banking industry where l1e l1as served on the board of directors of tl1e Institute of Certified Bankers and tl1e ABA's Marketing Network. He has

also served as academic dean of the ABA' s School of Bank Marketing and Management.

re ace

We are proud to introdt1ce the fourteenth edition of A Pre.face to Marketin.g Man,agement.

Our plan has always been to deliver a clear and concise presentation of the basic princi­

ples of marketing in such a way that the core concepts and ideas are covered in sufficient

depth to ensure in-depth understanding, By offering an engaging, clear, and conceptu­

ally sound text, our book has been able to maintain its position as a leading marketing

management text.

Througl1ot1t the history of the book, feedback from botl1 students and instructors has

suggested that our plan is a good one. Our book has been used in a wide variety of set­

tings and is the best-selling book of its kind. We introduce the fourteenth edition knowing

that our book and its eight foreign translations have been used around the world vvhenever

courses require an overview of the critical aspects of marketing manage1nent.

With this edition, we seek to n1ore effectively implement our plan by building on a

strong foundation, maintaining the attributes and elements of the book tl1at make i t a very

teachable text, updating existir1g content, adding new content, and focusing the presenta­

tion. We seek to emphasize qttality content and examples and avoid excess verbiage, pic­

tures, and description.

As usual, each time we revise the book there is a11 e1nphasis on responding to feedback

from students and instructors. These two constituencies plus our own intuitions drive each

revision, Marketing is an exciting and dynamic field of study, We want to capture the

sense of excitement and at the same time respect its history.

Our book has become known simply as tl1e Preface. We want to believe a major reason

it has endured is that because marketing is figuring out how to do a superior job of satisfy­

ing customers, we simply try to practice what we preach. Welcorne to the Pre.face.

THE PRESENT EDITION

Every elem.ent of content in our book is designed with one thought in mind: to assist stu­

dents in analyzing marketing problems and cases and developing and writing marketing

plans. Section I of the book consists of 13 concise chapters that cover the essentials of mar­

keting management. We think of it as the "must know" content of the field. It is divided

into four parts that foct1s on strategic planning and marketing planning, ttnderstanding tar­

get markets, tl1e marketing mix, and marketing in special fields. These 13 chapters should

provide students a clear understanding of the tenninology, techniques, tools, and strategies

for effective 1narketing management and marketing strategy development.

In addition to revising and updating the text chapters, this edition contains new content as

well. There are discussions of internal and external secondary data sources, the use of social

media monitoring, a]ten1ative searcl1 in consumer behavior, key characteristics of organiza ­

tional buyers, e-procurement, global virtual teams, brand equity, using distinctive compe­

tencies in new product development, consumer databases, business-to-business databases,

mobile marketing, online retailing and multichannel marketing, franchising, the effects of t11e Internet on pricing, global account 1nanagers, and ]earning about different cultures.

In the twelfth edition, we altered two of the text elements. The changes have been well

received by instructors and stt1dents. First, "Marketing Insights" are included to assist students

as they solve marketing problems, analyze marketing cases, and develop marketing plans.

Second, we know that our book is often used with case problems, writing assignments,

and constructing marketing plans. Accordingly, there is an "Additional Resources" section

vii

viii Preface

at the end of each chapter. Our purpose is to highlight current resoLLrces that students can

use in writing assign111ents and oral presentations. The resources have been selected with

students in mind. Tl1ey include resources accessible to students at various stages of 111ar­

keting education given the wide spectrum of courses in which the book is utilized.

NEW FEATURES AND CONTENT CHANGES

Chapter 1: Strategic Planning and The Marketing Management

Process • Revised basic questions that 1nust be asked when developing a 1nission state1nent. • Marketing Insight 1-3 now contains five actual mission statements for firms of varying

sizes and industries. It provides students with a better mix of alternatives when com­

pleting the exercise in Marketing h1sight 1-4. • Updated additional resources.

Chapter 2: Marketing Research: Process and Systems for Decision

Making • Revised section on secondary data to include both internal and external sources

• Added new figure "Common Types of Information Available in a Secondary Data

Search" • Added a new Marketing Insight, "Social Media Monitoring for Marketing Insights" • Updated additional resources

Chapter 3: Consumer Behavior

Updated discussion of consumer and marketer reactions to recession • Revised and updated discussion of Alternative Search • Updated additional resources

Chapter 4: Business, Government, and Institutional Buying • Revised Marketing Insight on "Key Characteristics of Organizational Buying Behavior" • New Marketing Insight, "Organizational Buying on the Internet: E-Procurement" • Revised Discussion of "Organizational Needs" • Updated additional resources

Chapter 5: Market Segmentation • New Marketing Insight, "Segmenting the Mobile Phone Market"

Revised and updated discussion of VALS

Chapter 6: Product and Brand Strategy • Marketing Insight 6-3 now contains the latest information on the value of the top twenty

brands in the world • Contains a new section on branding and brand equity • Revised and updated Marketing Insight 6-6 • Added a new section on global virtual teams • New key terms and concepts • Updated additional resources

Preface Ix

Chapter 7: New Product Planning and Development • New Marketing Insight 7-4 which focuses on utilizing corporate strengths in the new

product development process. It includes eight firms with strengths in either technol­ ogy or markets

• Updated additional resources

Chapter 8: Integrated Marketing Communications • Revised Marketing Insight 8-1 which presents up-to-date information on the top ten

websites in Brazil, Portugal and South Korea Revised section on direct marketing as part of the pro1notion mix

• Revised Marketing Insight 8-6 • New section on direct marketing • New Marketing Insight 8-7 on the contents of a comprehensive database included are

both consumer and business-to-business databases • Added new Key Tem1s and Concepts • Updated additional resources

Chapter 9: Personal Selling, Relationship Building, and Sales

Management

New Marketing Insight 9-1 wl1ich focuses on what a salesperson actually does A new discussion of an increasingly important customer organization structure, the

global account manager

Added new Key Terms and Concepts • Updated additional resources

Chapter 10: Distribution Strategy • Added New Marketing Insight, "Advantages and Disadvantages of Franchising" • New section on "Online and Mobile Retailing" • Updated additional resources • New "Key Terms and Concepts": online retailing, mobile retailing, multichannel marketing

Chapter 11: Pricing Strategy

Added a new discussion of the Internet as an external influence on pricing decisions • A new Marketing Insight, "Ten Tips for Managing Pricing Strategy"

Chapter 12: The Marketing of Services • The chapter has been significantly revised and has been shortened for this edition • A new section on the importance of all the elernents of the marketing mix in the market­

ing of services has been added • Updated additional resources

Chapter 13: Global Marketing • Marketing Insight 13-1 has been updated with the latest data on selected U.S. companies

and their international sales • The section on cultural misunderstanding as a problem in foreign rnarkets has been

replaced with an entirely new section

x Preface

• Marketing Insight 13-3 has been replaced with a new Marketing Insight which focuses

on ways to lea111 about new cultures

• Updated additional resources

Section 11: Analyzing Marketing Problems and Cases • New Marketing Insight, "Objectives of Case Analysis" • Revised and updated discussion of SWOT analysis • Updated additional resources

Section Ill: Financial Analysis for Marketing Decisions

• Updated dates and additional resources

Section IV: Developing Marketing Plans • Updated dates and additional resources

STUDENT SUPPORT

Knowing tl1at our book is used for a variety of course levels, programs, and students, we

have assembled several elements that we believe will support students for whatever pur­

pose they use our book.

Key Terms and Concepts

New to the previous edition, we decided to add a section of key terms and concepts at the conclusion of each chapter. There was mucl1 debate as to wl1ere they sl1ould be placed in

the book. We decided to place them at the end of the chapter in which they appear. In this

way, they are more visible to students than as an appendix at the end of the book. More

than a glossary, it also presents key concepts covered in the chapter.

Analyzing Marketing Problems and Cases

Section TI presents a very practical and comprehensive framework for analyzing, prepar­

ing, a.nd presenting case analyses. It includes discussions of what a case is, preparing for

the class discussion and written analysis, pitfalls to avoid in case analysis, and preparing

to do an oral presentation. It has been praised by both instructors and students.

For courses utilizing marketing problems and cases, we encourage students to read this

guide before discussing a problem or case. Tl1us, it could l1ave been placed at the begin­

ning of the book, but because it is often referred to throughout the semester, we have

placed it after the text chapters. And for those courses that do not utilize cases, the book

1nay be used without reference to tl1is section.

Financial Analysis for Marketing Decisions

It is absolutely critical for marketing students to understand. and appreciate the fact that

the ultimate objectives of marketing are usually expressed in financial terms. Section ill

enables students to assess a company's financial position. It presents important financial

calculations that are useful in evaluating the financial position of a finn and the financial

impact of various decisions and strategies. Included are discussions of breakeven analysis,

net present value, and ratio analysis.

Developing Marketing Plans

Given the purpose of this book and the needs of users, Section IV enables students to develop practical planning skills so they are able to construct a quality marketing plan for

Preface xi

any product or service. It provides a complete format for structuring and presenting one,

including specific questions to ask in competitive analysis, the development of well-stated

objectives, analyzing custo1ners, and implementation and control. As with Section II, we

know that this section has become a valuable take-away resource for many students long

after their course has been completed.

A Value-Added Website

We encourage students to view the student section of tl1e Online Leaming Center (OLC)

at website www.mhhe.com/peterdonnelly14e, which contains a number of useful aids for

facilitating learning and supporting student achievement. We believe you will find it a

useful resource.

INSTRUCTOR SUPPORT

The Preface has been used as a resotrrce in college courses and professional development

programs that require an overview of the critical "need-to-know" aspects of marketing

management and marketing strategy development. It has been used:

As the primary introductory text at the undergraduate level.

• At both the undergraduate and MBA level, where several AACSB core curriculum

courses are team-taught as one multidisciplinary 9- to 12-hour course.

• At the advanced undergraduate and MBA level where it is used as the content founda­

tion in courses that utilize marketing cases.

• In short courses and executive development programs.

The instructor section of www.mhl1e.com/peterdonne1Jy14e inc]udes an instructor's

manual and other support material. It includes two expanded suppletnents. They were

developed in response to instructors' requests. We offer a test bank of nearly 1,300

multiple-choice, true-false, and brief essay questions. It is available in both print and

EZ Test Online. We also offer Power Point slides that highlight key text material. Your McGraw-Hill representative can also assist in the delivery of any additiona1 instructor

support materia1.

xii

nowe

Our book is based on the works of many acade1nic researchers and marketing practitioners.

We want to thank those individuals who conuibuted tl1eir ideas to develop the field of mar ­ keting throughout the years. Indeed, our book would not be possible without their contri­

butions. We would also like to thank our teachers, colleagues, and students for their many

contributions to our education. We would also like to publicly acknowledge those individu­

als who served as reviewers of this and previous editions. We appreciate their advice and counsel and have done our best to reflect their insightful com111ents.

Roger D. Absmire

Sam Houston State University

Anna Andriasova

University of Ma,ylarid University College

Catherine Axinn

Syracuse University

Mike Ballif

University o_f Utah

Andrew Bergstein

Pennsylvania State University

Edward Bond

Bradley University

Donald Brady

Millersville Universitv

Tim Carlson

Judson University

Glenn Chappell

Meridith College

Newell Chiesl

Indiana Stc,te University

Reid P. Claxton

East Caroline, University

Larry Crowson

University of· Central Florida

Mike Dailey

University of Texas, Arlington

Linda M. Delene

Western Michigan University

Gera.rd DiBartolo

Salisbury University

Casey Donoho

North.ern Arizona University

James A. Eckert

Western Mich.igan University

Matthew Elbeck

Troy University Dothan

Karen A. Evans

Herkimer County Community College

R. E. Evans

University of· Oklahoma

Lawrence Feick

University of· Pittsbitrgli

Robert Finney

California State University, Hayward

Stephen Goldberg

Fordham University

David Good

Grand Valley State University

David Griffith

University of Oklahoma

Perry Haan

Tiffin University

Lawrence Hamer

DePaul University

Harry Harmon

Central Missou,ri

Jack Healey

Golden State University

Betty Jean Hebel

Madonncl University

Catherine Holderness

University of North Carolina-Greensboro

JoAnne S. Hooper

Western Carolina University

David Horne

Wayne State University

Nasim Z. Hosein

Northwood University

Nicole Howatt

UCF

Fred Hughes

Fciulkner U,iiversity

AnupamJaju

GMU

Chris Joiner

George Mason University

Benoy Joseph

Cleveland State University

Sol Klein

Northeastern Uriiversity

Robert Brock Lawes

Cha,ninade University of Hc)nolulu.

Eunkyu Lee

Syracuse University

Tina Lowrey

University of Texas at San Antonio

Franklyn Manu

Morgan State Un.iversity

Edward J. Mayo

Western Michigan. University

Edward M. Mazze

University o_f Rhode Island

Donald J. Messmer

College of William & Mary

Albert Milhomme

Texas State Vn.iversity

Chip Miller

Drake University

David L. Moore

LeMoyne College

Johannah Jones Nolan

University of.Alabama, Birmingham

R.Stephen Parker

Southwest Missouri State University

Joan Phillips

Uriiversity of'Notre Dame

Thomas Powers

University o.f Alabama at Birmingham

Debu Purohit

Ditke Un,iversity

John Rayburn

University o_f Ten.nessee

Martha Reeves

Duke

Ga.ry K. Rhoads

Brigh.am Young University

Lee Richardson

University of Baltimore

Henry Rodkin

DePaul University

Ritesh Saini

Gec>rge Mason U11iversity

Matthew H. Sauber

Eastern Michigcin University

Alan Sawyer

University of' FlcJrida

Ronald L. Schill

Brig/iam Young University

Mark Spriggs

University of· St . Tho,nas

Vernon R. Stauble

Cal(fomia State Polytechnic University

David X. Swenson

College of· St. Scholastica

Ann Marie Thompson

Northern. Illin.ois U11iversity

John R. Thompson

Memphis State University

Gordon Urquhart

Cornell College

Sean Valentine

University of· Wyoming

Ana Valenzuela

Baruch College, CUNY

Stacy Vollmers

University of.St. Thomas

Jacquelyn Warwick

Andrews University

Kevin Webb

Drexel Urziversity

Kathleen R. Whitney

Central Michigan University

J.B. Wilkinson

University of Akron

Dale Wilson

Micliigan State University

It is always easy to work with professionals. That is why working with tl1e profession­

als at McGraw-Hill is always enjoyable for us. Sankha Basu, publisher, and Jane Mohr,

project manager, support what we do and we are very grateful. Thank you Heather Darr,

develop1nent editor, and welcome to our team. We also wish to acknowledge Francois

Ortalo-Magne, dean of the School of Business at the University of Wisconsin, and David

Blackwell, dean of the Gatton College of Business and Economics at the University of

Kentucky, who support what we do.

J. Paul Peter

James H. Donnelly, Jr.

SECTION

ESSENTIALS OF MARKETING

MANAGEMENT 1

PART A

INTRODUCTION 3

Chapter Strategic Planning and the Marketing Man­ agement Process 4

The Marketi11g Concept 4

What Is Marketing? 5

What Is Strategic Planning? 6

Strategic Planning and Marketing Manage,nent 6

The Strategic Planning Process 7

The Complete Strcitegic Plan 16

The Marketing Management Process 16

Situation Analysis· 16

Marketing Planning 19

Implementation and Control of the Marketing Plan 20

Marketing lnforniation Systems and Marketing

Research 21

The Strategic Plan, tl1e Marketing Plan, and

Other Functional Area Plans 21

Marketing's Role in Cross-Functional Strategic

Planning 21

Summary 22

Appendi,

Portfolio Models 27

PARTS

MARKETING INFORMATION, RESEARCH, AND UNDERSTANDING THE TARGET MARKET 31

Chapter 2

Marketing Research: Process and Systems

for Decision Making 32

Tl1e Role of Marketing Research 32

The Marketing Research Process 33

xiv

Purpose o,f the Research 33

Plan of· the Research 34

Pe,formance o,f the Research 37

Processing of Researcli Data 39

Preparation of' the Research Report 40

Limitcitions o,f the Reselirc/1 Process 40

Marketing Information Systems 42

Summary 43

Chapter 3 Consumer Behavior 45

Social Influences on Consumer Decision

Making 46

Culture and Subculture 46

Social Class 47

Re,ference Groups and Fa,nilies 48

Marketing Influences on Consumer Decision

Making 48

Product lnfluences 48

Price Influences 48

Promotion Influences 49

Place Influences 49

Situational Int1uences on Consumer Decision Making 51

Psychological Influences on Conswner Decision

Making 51

Product Kno�vledge 51

Product Involvement 52

Consruner Decision Making 52

Need Recognition 53

Alternative Search 54

Alternative Evaluation 55

Purchase Decision 55

Postpurchase Evctluation 56

Summary 58

Chapter 4 Business, G overnment, and Institutional Buying 60

Categories of Organizational Buyers 60 Prollucers 60

Intermediaries 61

Government Agen.cies 61

Other Institutions 61

The Organizational Buying Process 61

Purchase-Type Influences on Organizational

Buying 62

Straight Rebuy 62

Modi f

ied Rebuy 62

New Task Purchase 62

Structt1ral Influences on Organizational Buying 63

Purchasing Roles 63

Organization-Specific Factors 64

Purchasing Policies ancl Procedures 65

Behavioral Influences on Organizational Buying 65

Personal Motivations 65

Role Perceptions 66

St.ages in the Organizational Buying

Process 68

Or < (?anizational Need 68

Vendor Analysis 68

Purchase Activities 69

Postpurchctse Evaluation 70

Summary 70

Chapter 5 Market Segmentation 72

Delineate the Firm's Current

Situation 72

Detenuine Consumer Needs and Wants 73

Divide Markets on Relevant Dimensions 73

A Priori versus Post Hoc Segnientation 74

Relevance of Segmentation Diniensions 75

Bases for Segmentation 75

Develop Product Positioning 81

Decide Segmentation Strategy 82

Design Marketing Mix Strategy 84

Summary 84

PARTC

THE MARKETING MIX 85

Chapter 6 Product and Brand Strategy 86

Basic Issues in Product Ma11agement 86

Product Definition 86

Procluct Classification 87

Product Quality and Value 88

Procluct Mix and Product Line 89

Bran.cling and Brand Equity 90

Packaging 96

Product Life Cycle 97

Product Adoption and Diffusion 99

Tl1e Product Audit 100

Deletions 100

Product lmprovenient 101

Organizing for Product Management 10 l

Su1nmary 103

Chapter 7 New Product Planning and Development 105

New Product Strategy 106

New Product Planning and Development

Process 108

Idea Generation 108

Idea Screening 110

Project Planning 111

Product Develop,n.ent 112

Test Marketing 112

Comniercialization 113

The /1nportance l?f Ti,ne 113

Contents xv

Some Important New Produ.ct Decisions 114

Quality Level 114

Product Features 115

Product Design I 16

Product Safety 116

Causes of New Product Failure 116

Needfor Research 117

Summary 118

Chapter 8 Integrated Marketing Communications 120

Strategic Goals of Marketing

Co1n111unication l 20

Create A ivareness 120

Build Positive Images 120

Identify Prospects 120

Build Channel Relationships 121

Retain Custoniers 121

The Promotion Mix 121

Integrated Marketing Communications 122

Advertising: Planning and Strategy 124

Objectives of Advertising 724

Advertising Decisions 126

The Expenditure Question 126

The Allocation Question 127

Sales Promotion 132 Push versus Pull Marketing 132

Trade Sales Proniotions 133

Consunier Pro,notions 133

What Sales Promotion Can and Can't Do 134

Public Relations 135

Direct Marketing 136

Summary 137

Appendix

Major Federal Agencies Involved in Control

of Advertising 139

xvi Contents

Chapter 9 Personal Selling, Relationship Building, and Sales Management 140

Importance of Personal Selling 140

The Sales Process 141

Objectives of the Sales Force 141

The Sales Relationship-Buildirig Process 142

People Who Support the Sales Force 146

Managing the Sales and Relationship-Building

Process 147

The Sales Management Task 148

Con.trolling tlie Sales Force 149

Motivating and Compensating Perjorrnance 152

Summary 154

Chapter 10 Distribution Strategy 156

Tl1e Need for Marketing Intermediaries 156

Classification of Marketing Intermediaries and

Fttnctions 156

Channels of Distribution 158

Selecting Channels of Distribution 159

Spec�fic Considerations 159

Managing a Channel of Distribt1tion 162

RelationshiJJ Marketing in Channels 162

Vertical Marketing Systenis 162

Wholesaling 164

Store and Nonstore Retailing 165

Store Retailing 166

Nonstore Retailing 167

Summary 170

Chapter 11 Pricing Strategy 172

Demand Influences on Pricing Decisions 172

Deniographic Factors 172

Psychologiccil Factors 172

Price Elasticity 174

Supply Influences on Pricing Decisions 174

Pricing Objectives 174

Cost Considerations in Pricing 174

Product Considerations in Pricing 176

Environmental Influences on Pricing

Decisions 177

The Internet 177

Conipetition 177

Government Regulations 178

A General Pricing Model 178

Set Pricing Objectives 179

Evaluate Product-Price Relationships 179

Estiniate Costs and Otlier Price Liniitations 180

Analyze Proftt Potentictl 181

Set Initial Price Structure I 81

Change Price as Needecl 181

Summary 181

PARTD

MARKETING IN SPECIAL FIELDS 183

Chapter 12

The Marketing of Services 184

Important Characteristics of Services 186

Intangibility 186

Inseparability 187

Perish.ability and Fluctuating De,nand 188

Client Relationship 188

Customer Effort 189

Un(formity 190

Providing Quality Services 190

Custo1n.er Sati.�faction, Measurement 192

Th.e Importance of Internal Mcirketing 192

Overcoming the Obstacles in Service Marketing 194

Liniited View o,f Marketing 194

Li,nited Co,npetitiori 194

Noncreative Management 195

No Obsolescence 195

Implications for Service Marketers 196

Swnmary 197

Chapter 13

Global Marketing 199

The Competitive Advantage of Nations 200

Organizing for Global Marketi11g 201

Problems with Eriterin,g Foreign Markets 201

Organizing the Multinational Company 204

Programming for Global Marketing 206

Global Marketing Research 206

Global Product Strategy 209

Global Distribution Strategy 209

Global Pricing Strategy 210

Global Advertising and Sales Promotion

Strategy 210

Entry and Growth Strategies for Global Marketing 211

Summary 214

SEC ION II

ANALYZING MARKETING PROBLEMS

AND CASES 215

A Case Analysis Framework 216

1. Analyze and Record the Current Situation 217

2. Analyze and Record Problems and Their Core

Elements 221

3. Formulate, Evaluate, and Record Alternative Courses

of.Action 222

4. Select and Record the Chosen Alternative and l1nple­

mentation Details 223

Pitfalls to A void in Case Analysis 223

Communicating Case Analyses 226

The Written Report 226

The Oral Presentation 228

Su1nmary 228

SECTION Ill

FINANCIAL ANAL Y.SIS FOR MARKET­

ING DECISIONS 229

Financial Analysis 230

Breakeven Analysis 230

Net Present Value Analysis 232

Ratio An.alysis 234

Summary 238

Contents •vii

SECTION IV

DEVELOPING MARKETING PLANS 239

A Marketing Plan Fra1nework 240

Title Page 241

Executive Sunimary 241

T,1ble of Contents 242

Introduction 242

Situational A,ialysis 242

Marketing Planning 242

Implementation and Control o_f the Marketing Plan 244

Sunim.ary 246

Appendix-Financilll Analysis 246

References 249

Summary 249

Chapter Notes 251

Index 256

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Es ent1als

of Marketing

Management

Section

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Part

Introduction

I Strategic Planning and the Marketing Management Process

Chapter

• •

ann1n

ana emen rocess

The purpose of this introdL1ctory chapter is to present the marketing management process and outline what 111arketing managers 111ust manage if tl1ey are to be effective. In doing so,

it will also present a framework around which the remaining chapters are organized. Our

first task is to review the organizational philosophy known as the marketing concept, since

it underlies much of the thinking presented in this book. The remainder of this chapter will

:focus on the process of strategic planning and its relationship to tl1e process of marketing

planning.

THE MARKETING CONCEPT

4

Simply stated, the marketing concept means that an organization shoitld seek to make a

profit by serving the needs of· customer groups. The concept is very straightforward and

has a great deal of commonsense validity. Perhaps t11is is wl1y it is often misunderstood, forgotten, or overlooked.

The purpose of the marketing concept is to rivet the attention of marketing ma.nagers on

serving broad classes of customer needs (customer orientation), rather than on the firm's

current products (prodLtction orientation) or on devising methods to attract custo1ners to

cu1Tent products (selling orientation). Thus, effective marketing starts with the recogni­

tion of customer needs and then works backward to devise products and services to satisfy

these needs. In this way, marketing managers can satisfy customers more efficiently in

the present and anticipate cl1anges in customer needs more accurately in the future. This 111eans that organizations should focus 011 building long-tenn customer relationships in

which tl1e i11itial sale is viewed as a beginning step in the process, not as an end goal. As a

result, the custorner will be more satisfied and the firm will be more profitable.

The principal task of the marketing function operating under the marketing concept is

11ot to 1nanipL1late custo1ners to do . what suits the interests of the firm, but rather to :find

effective and efficient meai1s of making tl1e business do what suits tl1e interests of custom­

ers. This is not to say that all firms practice marketing in this way. Clearly, many firms still

emphasize only production and sales. However, effective marketing, as defined in this text,

requires that consumer needs come first in organizational decision making.

.MARKETING INSIGHT Some Gµideli_nes_ for lrr1pl�n1enti17g the

·Mara�etimg Comcegt· d1--�,

1 . Create customer focus throughout the business.

2. Listen to the customer.

3. Define and nurture your distinctive competence, that is, what your organization does well, better than competitors.

4. Define marketing as market intelligence.

5. Target customers precisely.

6. Manage for profitability, not sales volume.

7. Make customer value the guiding star.

8. Let customers define quality.

9. Measure and manage customer expectations.

10. Build customer relationships and loyalty.

11. Define the business as a service business.

12. Commit to continuous improvement and innovation.

13. Manage the culture of your organization along with strategy and structure.

14. Grow with strategic partners and alliances.

15. Destroy marketing bureaucracy.

Source: For a very early discussion of the marketing concept, see Robert L. King, "The Marketing Concept: Fact or Intelligent Platitude," The Marketing Concept in Action, Proceedings of the 47th National Conference (Chicago: American Marketing Association, 1964), p. 657. Also see Frederick E. Webster Jr., "Defining the New Marketing Concept," Marketing Management 2, no. 4 (1994) pp. 22-31; William 0. Bearden, Thomas N. Ingram, and Raymond W. LaForge, Marketing: Principles and Perspectives, 5th ed. (Burr Ridge, IL: McGraw-Hill/Irwin, 2007), p. 9; and William D. Perreault Jr., Joseph P. Cannon, and E. Jerome Mccarthey, Basic Marketing: A Managerial Approach, 19th ed. (Burr Ridge, IL: McGraw-Hill Education, 2014), pp. 19-26.

One qualification to this statement deals with the question of a conflict between con­ sumer wants and societal needs and wants. For example, if society deems clean air and water as necessary for survival, this need may well take precedence over a consumer's want for goods and services that pollute the environment.

WHAT IS MARKETING?

Everyone reading this book l1as been a customer for most of lus or l1er life. Last evening you stopped at a local supermarket to graze at the salad bar, pick up some bottled water and a bag of Fritos coin clups. Wlule you were there, you snapped a $1.00 coupon for a new flavor salad dressing out of a dispenser and tasted som.e new breakfast potatoes being cooked in the back of the store. As you sat down at home to eat your salad, you answered the phone and so1neone suggested that you need to have your carpets cleaned. Later on in the evening you saw TV commercials for tires, soft drinks, athletic shoes, and the dangers of smoking and drinking during pregnancy. Today when you enrolled in a marketing course, you found tl1at tl1e instruc­ tor has decided that you 1nust purchase this book. A friend has already purchased the book on the Internet. All of tl1ese activities involve marketing. And each of us knows something about marketing because it has been a part of our life since we had our first dollar to spend.

Since we are all involved in marketing, it may seem strange tl1at one of the persistent problems in t11e field has been its definition. The American Marketing Association defines marketing as "the activity, set of institutions, and processes for creating, co1nmunicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large.''1 This definition takes into account all parties involved in the marketing effort: members of tl1e prodt1cing organization, resellers of goods and services, and custom­ ers or clients. While the broadness of the definition allows the inclusion of nonbusiness

5

6 Part A Introduction

FIGURE 1.1

Major Types of

Marketing

Type Description Example

Product Marketing designed to create exchange Strategies to sell for tangible products. Gateway computers.

Service Marketing designed to create exchanges Strategies by Allstate for intangible products. to sell insurance.

Person Marketing designed to create favorable Strategies to elect actions toward persons. a political candidate.

Place Marketing designed to attract people to Strategies to get places. people to vacation

in national or state parks.

Cause Marketing designed to create support Strategies to get for ideas, causes, or issues or to get pregnant women not people to change undesirable to drink alcohol. behaviors.

Organization Marketing designed to attract donors, Strategies designed to members, participants, or attract blood donors. volunteers.

exchange processes, the primary emphasis in this text is on marketing in the business environ-

1nent. However, this emphasis is not meant to imply that marketing concepts, principles, and techniques cannot be fruitfully en1ployed in other areas of exchange as is clearly illustrated i11

Figure 1.1.

WHAT IS STRATEGIC Pl.ANNING?

Before a production manager, marketing manager, and personnel manager can develop plans

for their individual depa1t1nents, some larger plan or blueprint for the entire organization

should exist. Otherwise, on what would the individual departmental plans be based? In other words, there is a larger context for planning activities. Let us assun1e that we are

dealing with a large business organization that has several business divisions and several

prod11ct lines within each division (e.g., General Electric, Altria). Before individual divi­

sions or departments can implement any marketing planning, a plan has to be developed for

the entire organization.2 Tl1is 1neans that senior 1n.anagers must look toward the future and evaluate their ability to shape their orga1lization' s destiny in the years and decades to come.

The output of this process is objectives and strategies designed to give the organization a

chance to compete effectively in the future. The objectives and strategies established at the

top level provide the context for planning in each of tl1e divisions and departments by divi­

sional and departmental n1anagers.

Strategic Planning and Marketing Management Some of the most successful business organizations are here today because many years

ago tl1ey offered the right product at the right time to a rapidly growing market. Tl1e

same can also be said for nonprofit and governmental organizations. Many of the criti­

cal decisions of the past were made without the benefit of strategic thinking or planning.

Whether these decisions were based on wisdom or were just luck is not important; they

worked for these organizations. However, a worse fate befell countless other organiza­ tions. More than three-quarters of the 100 largest U.S. corporations of 70 years ago have

fallen from the list. These corporations at one time donlinated their markets, controlled

vast resources, and had the best-trained workers. In the end, they all made the same criti­

cal mistake. Their managements failed to recogruze tl1at bttsiness strategies need to reflect

1 . It costs a great deal more to acquire a new customer than to keep an old one.

2. Loyal customers buy more from your firm over time.

3. The longer you keep a customer, the more profitable they become over time.

4. It costs less to service loyal customers than new customers.

5. Loyal customers are often excellent referrals for new business.

6. Loyal customers are often willing to pay more for the quality and value they desire.

Source: One of the earliest works on the value of the loyal customer was Frederick F. Reichheld, The Loyalty Effect, BOSTON: HBS Press, 1996. Also see Roland T. Rust, Katherine N. Lemon, and Valerie A. Zeithaml, "Return on Marketing: Using Customer Equity to Focus Marketing Strategies," journal of Marketing, January 2004, pp. 76-89; William 0. Bearden, Thomas N. Ingram, and Raymond W. LaForge, Marketing: Principles and Perspectives, 5th ed. (Burr Ridge, IL: McGraw-Hill/Irwin, 2007), p. 8; and W. D. Perreault Jr., J. P. Cannon, and E. Jerome McCarthy, Basic Marketing: A Marketing Strategy Planning Approach, 19th ed. (Burr Ridge, IL: McGraw-Hill/Irwin, 2013), pp. 42-43.

changing environments and emphasis 111ust be placed on developing bt1siness systems that

allow for continuous improvement. Instead, tl1ey attempted to carry on business as usual.

Present-day managers are increasingly recognizing that wisdom and innovation alone

are no longer sufficient to guide the destinies of organizations, both large and small. These

same managers also realize tl1at the true mission of the organization is to provide value

for t11ree key constituencies: customers, e1nployees, and investors. Witl1out this type of

outlook, no one, including shareholders, will profit in the long run.

Strategic planning includes all the activities that lead to the development of a clear

organizational mission, organizational objectives, and appropriate strategies to achieve

the objectives for the entire organization. T11e form of the process itself has come under

criticism in some quarters for being too stru.ctured; l1owever, strategic planning, if per­

formed successfully, plays a key role in achieving an equilibrium between the short and

the long term by balancing acceptable financial performance with preparation for inevita­

ble changes in markets, technology, and competition, as well as in economic and politi­

cal arenas. Managing p1incipally for current cash flows, market share gains, and earnings

trends can mortgage the firm's future. An intense focus on the near term can produce an

aversion to risk that dooms a business to stagnation. Conversely, an overemphasis on the

long run is just as inappropriate. Companies tl1at overextend themselves betting on the

future may penalize short-te1m profitability and other operating results to such an extent

that the company is vulnerable to takeover and other threatening actions.

The strategic planning process is depicted in Figure 1.2. In the strategic planning process,

the organization gathers information about the changing elements of its environment.

Managers from all functional areas in the orga11ization assist in this infonnation-gathering

process. This infon11ation is useful in ruding the organization to adapt better to tl1ese changes

througl1 the process of strategic planning. The strategic plan(s)3 and supporting plan are

then implemented in the environment. The end results of this implementation are fed back

as new information so that continuous adaptation and improvement can take place.

The Strategic Planning Process The outpt1t of the strategic planning process is the development of a strategic plan. Figure 1.2

indicates four components of a strategic plan: mission, objectives, strategies, and portfolio

plan. Let us carefully examine each one.

Organizational Mission

Tl1e organization's environment provides the resources that sustain the organization,

whether it is a business, a college or university, or a government agency. In exchange 1

8 Part A Introduction

FIGURE 1.2 The Strategic Planning Process

The environment

Cooperative Competitive Economic Social Pol itica I Legal

I

- - The organixation's strategic plan -

- Organ izationa I

Information . .

m1ss1on .

I

Organizational ,_

r

objectives

I -

-

Organizational r

strategies

-

. Organizational r

portfolio plan

I

I

Implementation

for these resources, the organization must supply the environment with quality goods

and services at an acceptable price. In other words, every organization exists to accom­

plish something in the larger environment and that purpose, vision, or mission usually is

clear at the organization's inception. As time passes, however, t11e organization expands,

and the environment and managerial personnel change. As a result, one or more things

are likely to occur. First, the organization's original purpose may become irrelevant as

the organization expands into new prodLLCts, new markets, and even new industries. For

example, Levi Strauss began as a manufacturer of work clothes. Second, the original

mission may re1nain relevant, but managers begin to lose interest in it. Finally, changes

in the environment may make the original mission inappropriate, as occurred with the

March of Dimes when a cure was found for polio. The result of any or all three of these

conditions is a "drifting" organization, without a clear mission, vision, or purpose to guide critical decisions. When this occurs, 1nanagen1ent must search for a purpose or emphati­

cally restate and reinforce the original purpose.

The mission statement, or purpose, of an organization is the description of its reason

for existence. It is the lon g -run vision of what the organization strives to be, the unique

ai1n tl1at differentiates tl1e organization from si1nilar ones and the means by which this

differentiation will take place. In essence, the 1nission statement defines the direction in

which the orga.nization is heading and how it will succeed in reaching its desired goal.

While some argue that vision and mission statements differ in their purpose, the per­

spective we will take is that both reflect the organization's attempt to guide behavior, create a culture, and inspire commitment. However, it is more i1nportant that the 1nis­

sion statement comes from the heart and is practical, easy to identify with, and easy to

remember so that it will provide direction and significance to all members of the organi­

zation regardless of their organizational level. The basic questions tl1at must be answered when an organizatio11 decides to examine and

restate its mission are, What is our business? Who are our customers? What do customers

value? and What is our business? The answers are, in a sense, the assumptions on which ilie

:MARKETING INSIGHT :.s·.om.e: A.G<t,ual M<iss:io:n' ~ . •. • - • • • • -, • - • 0 • • • • . • • • • • • J' • • r • - - . - · . . . . . - .. , ' Sta·t·e rime m � s

Organization

Large pharmaceutical firm

Mission

We will become the world's most valued company to patients, cus­ tomers, colleagues, investors, business partners, and the communities where we work and live.

Community bank To help citizens successfully achieve and celebrate important life events with education, information, products, and services.

Skin care products

Hotel chain

Mid-size bank

We will provide luxury skin-care products with therapeutic qualities that make them worth their premium price.

Grow a worldwide lodging business using total-quality-management (TQM) principles to continuously improve preference and profitability. Our commitment is that every guest leaves satisfied.

We will become the best bank in the state for medium-size businesses by 2017.

organization is being run and from which future decisions will evolve. While such ques­

tions may seem simplistic, they are st1ch difficult and critical ones that the major respon­

sibility for answering them must lie with top management. In fact, the mission statement re1nai11s the 1nost widely used 1nanagement tool in business today. ln developing a state­

ment of mission, management 1nust take into account three key elements: the organiza­

tion's history, its distinctive competencies, and its environment.4

1. The organization's history. Every organization-large or small, profit or nonprofit­

has a history of objectives, accomplishments, mistakes, and policies. In formulating a

mission, the critical characteristics and events of the past must be considered.

2. The organ.ization 's distinctive co,npetencies. While there are many things an

organization may be able to do, it should seek to do what it can do best. Distinctive

con1petencies are things that an organization does well-so we]] in fact tl1at they give it an

advantage over similar organizations. For Honeywell, it's their ability to design, manufac­

ture, and distribute a superior line of thermostats. Si1nilarly, Procter & Gamble's distinctive

co1npetency is its knowledge of the market for low-priced, repetitively purchased consumer

products. No tnatter how appealing an opportunity may be, to gain advantage over competi­

tors, the organization 1nust. formulate strategy based on distinctive co1npetencies.

3. The organization's environment. The organization's environment dictates the oppor­

tunities, constraints, and threats that must be identified before a mission statement. is

developed. For example, managers in any industry that is affected by Internet technology

breakthroughs should continually be asking, How will the changes in technology affect 1ny

customers' be]1avior and tl1e means by which we n.eed to conduct our business?

However, it is extremely difficult to write a useful and effective mission statement. It is

not uncommon for an organization to spend one or two years developing a useful mission state1nent. When completed, an effective 1nission statement will be focused on ,narkets

rather th.an products, achievable, m.<>tivating, and specific. 5

Focused on Markets Rather Than Products The customers or clients of an organiza­

tion are critical in determining its mission. Traditionally, many organizations defined their

business in terms of what they made ("our business is glass"), and in many cases they

nained the organization for the prod11ct or service (e.g., A1nerican Tobacco, Hormel Meats,

National Cash Register, Harbor View Savings and Loan Association). Many of these

organizations have found that, when products and technologies become obsolete, their

mission is no longer relevant and the name of the organization may no longer describe

what it does. Thus, a more enduring way of defining the mission is needed. In recent years, 9

10

I

1. Incomplete-not specific as to where the company is headed and what kind o f com­ pany management is trying to create.

2. Vague-does not provide direction to decision makers when faced with product/market choices.

3. Not motivational-does not provide a sense of purpose or commitment to something bigger than the numbers.

4. Not distinctive-not specific to our company.

5. Too reliant on superlatives-too many superlatives such as #7, recognized leader, most successful.

6. Too generic-does not specify the business or industry to which it applies.

7. Too broad-does not rule out any opportunity management might wish to pursue.

Source: Adapted from Arthur A. Thompson Jr. Margaret A. Peteraf, John E. Gamble, and A. J. Strickland 111, Crafting and Executing Strategy, 19th ed. (Burr Ridge, IL: McGraw-Hill/Irwin, 2014), p. 22.

Examine the mission statements in Marketing Insight 1-3. Do any of these shortcomings apply to them?

therefore, a key feature of mission statements has been an external rather than internal

focus. In other words, the mission statement should focus on the broad class of needs

that tl1e organization is seeking to satisfy (external focus), not on the physical product or service tl1at the orga1tizatio11 is offering at present (internal focus). These market-driven

firms stand out in their ability to continuously anticipate market opportunities and respond

before their competitors. Peter Drucker has clearly stated this principle:

A business is not defined by the company's name, statutes, or articles of incorporation. lt is

defined by the want the customer satisfies when he buys a product or service. To satisfy the

custo1ner is the mission ru1d purpose of every business. The question "What is our business?"

can, therefore, be answered only by looking at the business from the outside, fro1n the point

of view of customer and 1narket.6

While DrLtcker was referring to business organizations, the same necessity exists for