book

Ninth Edition •

Real People, Real Choices Michael R. Solomon I Greg W. Marshall I Elnora W. Stuart

@ Pearson

•

Real People, Real Choices

Ninth Edition

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•

Real People, Real Choices

Ninth Edition

Michael R. SOLOMON SAINT JOSEPH'S UNIVERSITY

Greg W. MARSHALL ROLLINS COLLEGE

Elnora W. STUART UNIVERSITY OF SOUTH CAROLINA UPSTATE

Vice President, Business Publishing: Donna Battista Director of Portfolio Management: Stephanie WaU Portfolio Manager: Emily Tamburri Editorial Assistant Eric Santucci Vice Pres ident, Product Marketing: Roxanne

McCarley Director of Strategic Marketing: Brad Parkins Strategic Marketing Manager: Deborah Strickland Product Marketer: Becky Brown Field Marketing Manager: Lenny Ann Kucenski Product Marketing Assis tant Jessica Quazza Vice President, Production and Digital Studio, Arts

and Business: Etain O'Oea Director of Production, Business: Je.ff Holcomb Managing Producer, Business: Ashley Santora Content Producer: Oaudia Fernandes

Operations Specialist: Carol Melville Creative Diredor: Blair Bro\vn Manager, Leaming Tools: Brian Surette Content Developer, Learning Tools:

Sarah Peterson Managing Producer, Digital Studio, Arts

and Business: Diane Lombardo Digital Studio Producer: Monique Lawrence Digital Studio Producer: Alana Coles Full-Service Project Management and Composition:

lntegra Software Services Pvt. Ltd. Interior and Cover Des igner: lntegra Software

Services Pvt. Ltd. Cover Art: zentilia/ShutterStock Printer/Binder: RR Donnelley /Crawfordsville Cover Printer: Phoenix Color/Hagerstown

Copyright © 2018, 2016, 2012 by Pearson Education, Inc. or its affilia tes . AU Rights Reserved. Manufactured in the United States of America. Th.is publication is protected by copyright, and permission should be obtained from the publisher prior to any prohibited reproduction, storage in a retrieval system, or transmission in any form o r by any means, electronic, mechanical, photocopying, recording, or otherwise. For information regarding permissions, request forms, and the appropriate contacts within the Pearson Education Global Rights and Permissions department, please visit www. pearsoned.com/ permissions/.

Acknowledgments of third-party content appear on the appropriate page within the text.

PEARSON and ALWAYS LEARN[NG are exclusive trademarks owned by Pearson Education, Inc. or i ts affiliates in the U.S. and/ or other countries.

Unless othenvise incticated herein, any third-party trademarks, logos, or icons that may appear in this work are the property of their respective owners, and any references to third-party trademarks, logos, icons, or other trade dress are for demonstrative or descriptive purposes only. Such references are not intended to imply any sponsorship, endorsement, a uthorization, or promotion of Pearson's products by the ovmers of such marks, or any relationship between the owner and Pearson Education, lnc., or i ts affiliates, authors., licensees., or distributors.

Library of Congress Cataloging-in-Publication D ata

Names: Solomon, Michael R., author. ) Marshall, Greg W., author. S tuart,

Elnora W., author. Title: Marketing: real people, real choices / Michael R. Solomon, Greg W.

Marshall, Elnora W. Stuart. Description: Ninth edition. ) Hoboken, NJ : Pearson, (2018] Identifiers: LCCN 2016034398 I ISBN 9780134292663 I lSBN 0134292669 Subjects: LCSH: Marketing- Vocational guidance. Classification: LCC HF5415.35 .S65 2018 I DOC 658.8-<lc23 LC record available at https:/ /lccn.loc.gov /2016034398

10 9 8 7 6 5 4 3 2 1

@Pearson ISBN 10: 0-13-429266-9 ISBN 13: 978-0-13-429266-3

To Gail, Amanda, Zachary, Alex, Orly, Rose, Evey, and Arya- my favorite market segment

- M.S.

To Patti and Justin

- G.M.

To Sonny, Patrick, Gabriela, Allyson, and Marge

- E.S.

~ Brief Contents Preface xiii

PART 1 Understand the Value Proposition 2

CHAPTER 1

CHAPTER 2

CHAPTER 3

CHAPTER 3

Welcome to the World of Marketing: Create and Deliver Value 2

Global, Ethical, and Sustainable Marketing 30

Strategic Market Planning 66

Supplement: Build a Marketing Plan 90

PART 2 Determine the Value Propositions Different Customers Want 92

CHAPTER 4

CHAPTER 5

CHAPTER 6

CHAPTER 7

Market Research 92

Marketing Analytics: Welcome to the Era of Big Data! 124

Understand Consumer and Business Markets 158

Segmentation, Target Marketing, and Positioning 202

PART 3 Develop the Value Proposition for the Customer 232

CHAPTER 8

CHAPTER 9

Product I: Innovation and New Product Development 232

Product II: Product Strategy, Branding, and Product Management 262

CHAPTER 10 Price: What Is the Value Proposition Worth? 290

CHAPTER 1 O Supplement: Marketing Math 330

PART 4 Deliver and Communicate the Value Proposition 340

CHAPTER 11 Deliver the Goods: Determine the Distribution Strategy 340

CHAPTER 12 Deliver the Customer Experience: Goods and Services via Bricks and Clicks 374

CHAPTER 13 Promotion I: Advertising and Sales Promotion 410

CHAPTER 14 Promotion II: Social Media Marketing, DirecVDatabase Marketing, Personal Selling, and Public Relations 458

Appendix A Marketing Plan: The S&S Smoothie Company 492

Appendix B Your Future in a Marketing Career 505

Notes 516

Glossary 535

Name Index 553

Subject Index 559

~ Brief Contents Preface xiii

PART 1 Understand the Value Proposition 2

CHAPTER 1

CHAPTER2

CHAPTER3

CHAPTER3

Welcome to the World of Marketing: Create and Deliver Value 2

Global, Ethical, and Sustainable Marketing 30

Strategic Market Planning 66

Supplement: Build a Marketing Plan 90

PART 2 Determine the Value Propositions Different Customers Want 92

CHAPTER4

CHAPTERS

CHAPTER&

CHAPTER 7

Market Research 92

Marketing Analytics: Welcome to the Era of Big Data! 124

Understand Consumer and Business Markets 158

Segmentation, Target Marketing, and Positioning 202

PART 3 Develop the Value Proposition for the Customer 232

CHAPTER&

CHAPTER9

CHAPTER 10

CHAPTER 10

Product I: Innovation and New Product Development 232

Product II: Product Strategy, Branding, and Product Management 262

Price: What Is the Value Proposition Worth? 290

Supplement: Marketing Math 330

PART 4 Deliver and Communicate the Value Proposition 340

CHAPTER 11

CHAPTER 12

CHAPTER 13

CHAPTER 14

Deliver the Goods: Determine the Distribution Strategy 340

Deliver the Customer Experience: Goods and Services via Bricks and Clicks 37 4

Promot ion I: Advertising and Sales Promotion 410

Promotion II: Social Media Marketing, DirecVDatabase Marketing, Personal Selling, and Public Relations 458

Appendix A

Appendix B

Notes 516

Glossary 535

Name Index 553

Marketing Plan: The S&S Smoothie Company 492

Your Future [n a Marketing Career 505

Subject Index 559

vi

~Contents Preface xiii

PART 1 Understand the Value Proposition 2

CHAPTER 1: Welcome to the World of Marl<eting: Create and Deliver Value ............ 2

Real People, Real Choices: Here's my problem .. . 3

MARKETING: WHAT IS IT? 4

"Marketing ls the Activi~ institutions, a nd Processes . .. " 4

" ... rorCreating. Communicating. Delivering,

a nd Exchanging: The Marketing Mix . . . " 5 ... .. Offerings ... ": Whal Can We Market? 7

" . .. VaJuc for Customers .. . ' ' 9 WHEN DID MARKETING BEGIN? THE EVOWTION OFACONCEPT 11

The Production Era 12

The Sales Era 12 The Rclationship Era 12 The Triple-Bottom-Line Orientation 13

What's Next in the Evolution or Marketing? 14 RIPPED FROM THE HEADLINES: Ethical/Sustainable

Decisions in the Real World 15

THE VAWE OF MARKETING AND THE MARKETING OFVAWE 16

Value (mm the Customer's Perspective 16

Value from the Se:Uer's Perspective 16

Value from Society's Perspective 22

MARKETING AS A PROCESS 24

Objective Summary • Key Terms • Apply 25

Chapter Questions and Activities 27

Marketing in Action Case: Real Choices at Coca-Cola 28

CHAPTER 2: Global , Ethical, and Sustainable Marketing ........................ 30

Real People, Real Choices: Here's my problem.. . 31

TAKE A BOW: MARKETING ON THE GLOBAL STAGE 32

World Trade 33

Should We Go Global? 34 Consider Your Competitive Advantage 34

UNDERSTAND INTERNATIONAL, REGIONAL, AND COUNTRY GLOBAL TRADE CONTROLS 35

Initiatives in lntemationaJ Cooperation and Regulation 35

Protected Trade: Quotas, Embargoes, and Tariffs 36

Economic Communities 36 ANALVZE THE EXTERNAL MARKETING ENVIRONMENT 37

The: Economic Environment 37

The Corn_pctitivc Environment 41 The Technological Environment 43 The Political an d Legal Environment 43

Thi! Sociocultural Environment 46 HOW "GLOBAL" SHOULD A GLOBAL MARKETING STRATEGY BE? 48

Company-Levcl Decisions: The Market Entry Strategy 49 Marketing Mix Stratc,gics 50

ETHICS IS JOB ONE IN MARKETING PLANNING 53

Ethical l'hilosoprues 53 Codes or Business Ethics 54 Is Marketing Unethical? 55

When Is a Bribe Not a Bribe? Ethical Issues for Global Business 56

SUSTAINABILITY: MARKETERS DO WELL BY DOING GOOD 57

Sustainability Is a Sensible Business Decision 57 Developing a Sustainable Marketing Mix 57

RIPPED FROM THE HEADLINES: Ethical/Sustainable Decisions in the Real World 58

Sustainable Customer Behavior 59

Objective Summary • Key Terms • Apply 60

Chapter Questions and Activities 62

Marketing in Action Case: Real Choices at Ford 64

CHAPTER 3: Strategic Market Planning .............. ...................................... 66

Real People, Real Choices: Here's my

problem ... 67

BUSINESS PLANNING: COMPOSE THE BIG PICTURE 68

The Three Levels of Business Planning 69 STRATEGIC PLANNING: FRAME THE PICTURE 71

Step 1: Deline the Mission 71 Step 2: Evaluate the Internal and External Environment 71

Step 3: Set Organi2ational or SBU Objectives 72 Step 4: Establish the Business Portfolio 73 Step 5: Develop Growth Strategics 75

RIPPED FROM THE HEADLINES: Ethical/Sustainable

Decisions in the Real World 77 MARKET PLANNING: DEVELOP AND EXECUTE MARKETING STRATEGY 77

Step!: Perform a Situation Analysis 78 Step 2: Set Marketing Objectives 78

vi i

vi ii I CONTENTS

Step 3: Devclop Marketing Strategies: Target Markets .lnd the Marketing Mix 78

Step 4: Implement and Control the Marketing Plan 80

Action Plans 81 Operational Planning: Day-to-Day Execution

of Marketing Plans 84

Make Your Life l!asier! Use the Market Planning Template 84 Objective Summary • Key Terms • Appty 85

Chapter Questions and Activities 86

Marketing in Action Case: Real Choices at Amazon 88

Supplement: Build a Marketing Plan 90

PART 2 Determine the Value Propositions Different Customers Want 92

CHAPTER 4 : Market Research ..... .... 92 Real People, Real Choices: Here's my problem .. . 93

KNOWLEDGE IS POWER 94 The Marketing Information System 95

CUSTOMER INSIGHTS AND MARKETING 100

STEPS IN THE MARKET RESEARCH PROCESS 100 Step I: Define the Research Problem 101 Step 2: Determine the Research Design 102

RIPPED FROM THE HEADLINES: Ethical/Sustainable Decisions in the Real World 1 OS

Step 3: Choose the Method to Collect Primary Data 106

Step 4: Oc>sign the Sample 114 Step 5: Collect the Data 116 Step 6: Analyze and Interpret the Data 117

Step 7: Prepare the Research Report 117 Objective Summary• Key Terms • Apply 118

Chapter Questions and Activities 119

Marketing in Action Case: Real Choices at GetFeedback 122

A CHAPTER 5: Marketing Analytics: Welcome lo the Era of Big Data! .............. 124

Real People, Real Choices: Here's my problem... 125

CUSTOMER RELATIONSHIP MANAGEMENT (CRM): A KEY DECISION TOOL FOR MARKETERS 126

Customer-Re-lated Metrics 129 SIG DATA: TERABYTES RULE 131

Big Data Creation, Sources, and Usage 133 Data Mining 136

Primary Data 'lypes for Data M;ning 137 RIPPED FROM THE HEADLINES: Ethical/Sustainable Decisions in the Real World 137

Data Mining: Applications /or Marketers 139

Data Scientists: Transforming Big Data into Wuuung Information 140

MARKETING ANALYTICS 141

Coru,cct Digital Marketing Channels to Marketing Analytics 141

Make Marketing Accountable: Detennine the Value of

Digital Marketing Investments acnlSS Channels 146 Marketing Accountability within Nondigital Marketing

Channels 148

Predictive Analytics 149 METRICS FOR MARKETING CONTROL 150

Margin on Sales 152

Churn Rate 152 Objective Summary • Key Terms • Apply 153

Chapter Questions and Activities 1S4

Marketing in Action Case: Real Choices at Novartis 156

A ~~i!!~ M~ ~e~~·d·""'.~." d .. ~~~'.".~e;58

Real People, Real Choices: Here's my problem. . . 159

THE CONSUMER DECISION·MAKJNG PROCESS 160 Not All Decisions Are the Same 161 Step I: Problem Recognition 162

Step 2: Wormation Search 163 Stc.p 3: Evaluatioi, of Alternatives 164 Step 4: Product Choia, 164

Step 5: Postpurchasc Evaluation 165

INTERNAL INFWENCES ON CONSUMERS' DECISIONS 166

Pc.rception 166

Motivation 168

Leaming 170

RIPPED FROM THE HEADLINES: Ethicai/Sustainable Decisions in the Real World 170

Attitudes 171

Personality and the Scl/: Are You What You Buy? 172 Age 172 Lifestyle 173

SITUATIONAL AND SOCIAL INFLUENCES ON CONSUMERS' DECISIONS 174

Situational ln/lucnccs 174

Social lrulucnces on Consumers' IA>cislons 175 BUSINESS MARKETS: 8UYING AND SELLING WHEN THE CUSTOMER IS ANOTHER ORGANIZATION 179

Type, of Business-to-Business Customers 180 Factors That Make a Difference in Business Markets 182 B2B Dcm.lnd 184

BUSINESS BUYING SITUATIONS AND THE BUSINESS BUYING DECISION PROCESS 186

The Buyclass framework 186

Professional Buyers and Buying Centers 187

The Business Buying Decision Process 189 828 £.Commerce and Social Media 192

Objective Summary• Key Terms• Apply 195

Chapter Questions and Activities 197

Marketing in Action Case: Real Choices at Airbus 200

CHAPTER 7: Segmentation, Target Marketing, and Positioning ..................... 202

Real People, Real Choices: Here's my problem. . . 203

TARGET MARKETING: SELECT AND ENTER A MARKET 204

STEP 1: SEGMENTATION 205 Segment Consumer Markets 205

Segment 828 Markets 216 STEP 2: TARGETING 217

PhasesofTargeling 217 STEP 3: POSITIONING 221

RIPPED FROM THE HEADLINES: Ethical/Sustainable Decisions in the Real Wor1d 221

Steps in Positioning 222 Bring a Product to Life: Brand Personality 224

Objective Summary • Key Terms • Apply 226 Chapter Questions and Activities 227

Marketing in Action Case: Real Choices at Sprig 230

PART 3 Develop the Value Proposition for the Customer 232

CHAPTER 8: Product I: Innovation and New Product Development.. .................... 232

Real People, Real Choices: Here's my problem . . . 233

BUILD A BETTER MOUSETRAP-AND ADD VALUE 234

Layers of the Product Conc,,pt 215 HOW MARKETERS CLASSIFY PRODUCTS 237

How Long Do Products Last? 237 How Do Consumers Buy Products? 238 How Do Businc-sscs Buy Products? 240

"NEW AND IMPROVED!" THE PROCESS OF INNOVATION 241

'Types of Innovations 242 NEW PRODUCT DEVELOPMENT 244

Phase 1: Idea Generation (Ideation) 244 Phase 2: Product Concept Development and

Screening 245

Phase 3: Marketing Strategy Development 245

Phase 4: Business Analysis 246 Phase 5: Technical Development 246

CONTENTS J ix

RIPPED FROM THE HEADLINES: Ethical/Sustainable

Decisions in the Real World 246

Phase 6: Market Test 247 Phase 7: Commercialization 248

ADOPTION AND DIFFUSION OF NEW PRODUCTS 249

Stages in Consumers' Adoption of a New Product 249

Adopter Categories 252 Product Factors That Affect the Rate of Adoption 254

Objective Summary • Key Terms • Apply 256

Chapter Ques1ions and Activities 258

Marketing in Action Case: Real Choices at Facebook 260

CHAPTER 9: Product 11: Product Strategy, Branding, and Product Management •...... ..................................... 262

Real People, Real Choices: Here's my problem... 263

PRODUCT PLANNING: DEVELOP PRODUCT OBJECTIVES AND PRODUCT STRATEGY 264

Getting Product Objectives Right 2&1 Objectives and Strategics for lndividua)

Products 265

Objectives and Strategies for Multiple Products 266 Product M;x Strategics 268 Quality as a Product Obj<>etivc: TQM

and Beyond 268 RIPPED FROM THE HEADLINES: Ethical/Sustainable

Decisions in the Real World 269

MARKETING THROUGHOUT THE PRODUCT LIFE CYCLE 271

Introduction Stage 271

Growth Stage 273 Maturity Stage 273 Decline Stage 274

BRANDING AND PACKAGING: CREATE PRODUCT IDENTITY 274

What's in a Name (or a Symbol)? 274

Why Brands Matter 275 Branding Strategics 277 Packages and Label<: Branding's Little Helpers 280

ORGANIZE FOR EFFECTIVE PRODUCT MANAGEMENT 284

Manage Existing Products 284

Organize for New Product Development 2S5 Objective Summary • Key Terms • Apply 285

Chapter Questions and Activities 287

Marketing in Action Case: Real Choices at Blue Diamond 289

X I CONTENTS

CHAPTER 10: Price: What Is the Value Proposition Worth? ................................... 290

Real People, Real Choices: Here's my problem. . . 291

&.loU..- .-.1 "YES, BUT WHAT DOES IT COST?" 292 What ls Price? 292

COSTS, DEMAND, REVENUE, AND THE PRICING ENVIRONMENT 296

Step 2: Estimate Demand 296 Step 3: Determine Costs 300 Step 4: Examine the Pricing Environment 305

IDENTIFY STRATEGIES AND TACTICS TO PRICE THE PRODUCT 308

Step 5: Choose a Pricing Strategy 308

Pricing Strategies Based on Cost 308 Step 6: Develop Pricing Tactics 312

PRICING AND ELECTRONIC COMMERCE 315

Dynamic Pricing Strategies 316 rntcmet Price Discrimination 316 Online Auctions 316

Frecmium f'ricing Strategies 317 Pricing Advantages for Online Shoppers 317

PSYCHOLOGICAL, LEGAL, AND ETHICAL ASPECTS OF PRICING 317

Psychological Issues in Setting Prices 318 Psychological !'ricing Strategics 319

Legal and Ethical Considerations in 82C Pricing 320

Legal Issues in B2B Pricing 321

RIPPED FROM THE HEADLINES: Ethical/Sustainable Decisions in the Real World 323

Objective Summary • Key Terms • Apply 323

Chapter Questions and Activities 325

Marketing in Action Case: Real Choices at Disney 328

Supplement: Marketing Math 330

PART 4 Deliver and Communicate the Value Proposition 340

CHAPTER 11: Deliver the Goods: Determine the Distribution Strategy ............... 340

Real People, Real Choices: Here's my problem. . . 341

TYPES OF DISTRIBUTION CHANNELS AND WHOLESALE INTERMEDIARIES 342

Functions of Distribution Channels 342 The: Evolution of Distribution Functions 344 Types of Distribution Charu,cls 348

Distribution Channels and the Marketing Mb< 352 Ethics in the Dis tribution Channcl 353

DEVELOP A CHANNEL STRATEGY 354

Step 1: Develop Distribution

Objectives 354 Step 2: Evaluate Internal and External Environmental

Influences 354

Step 3: Choose a Distribution Strategy 355 Step 4: Develop Distribution Tactics 359

LOGISTICS AND THE SUPPLY CHAIN 360

The Lowdown on Logistics 361 Place: Pulling Jt All Together through the Supply

Chain 365 RIPPED FROM THE HEADLINES: Ethical/Sustainable

Decisions in the Real World 367

Objective Summary • Key Terms • Apply 36B

Chapter Questions and Activities 369

Marketing in Action Case: Real Choices at Target 372

STYLE 376

CHAPTER 12: Deliver the Customer Experience: Goods and Services via Bricks and Clicks ..................................... 374

Real People, Real Choices: Here's my problem.. . 375

RETAILING, TWENTY-FIRST-CENTURY

Retailing: A M;xed (Shopping) Bag 376 The Evolution o.f Retailing 377 The Evolution Continues: What's Nin Store" for the

Future? 378 Ethical Problems in Retailing 382

RIPPED FROM THE HEADLINES: Ethical/Sustainable

Decisions in the Real Wor1d 382

TYPES OF BRICK-AND-MORTAR RETAILERS 383

Oassily Retailers by What They Sell 383

Oassily Retailers by Level o! Service 384 Major Types o! Retailers 385

E-COMMERCE AND OTHER TYPES OF NONSTORE RETAILERS 390

B2C E.Commcrce 390 Direct Selling 394

Automatic Vending 395 RETAILING WHAT ISN'T THERE: SERVICES AND OTHER INTANGIBLES 395

Marketing What Isn' t There 395 Physical Elements of the Service Encounter: Scrviccscapes

a nd Other Tangibles 398

How We Provide Quality Service 398 Strategic Issues When We Deliver Service Quality 399 Marketing People, Places, and Ideas 400

Th~ Future of Services 402 Objective Summary • Key Terms • Apply 404

Chapter Questions and Activities 405

Marketing in Action Case: Real Choices at Alibaba 408

CHAPTER 13: Promotion I: Advertisir19 and Sales Promotion ............................... .. 410

AeaJ People, Aeal Choices: Here's my problem ... 411

COMMUNICATION MOOELS IN A DIGITAL WORLD THAT IS "ALWAYS ON" 412

The Communication Modcl 414

The Trarutional Promotion Mix 416 Mass Communication: The One-to-Many Model 416 Personal Colnmunication: The One.to.One ModeJ 418

OVERVIEW OF PROMOTION PLANNING 418

Step 1: Identify the Target Audiencc(s) 418 Step 2: Establish the Communication Objectives 418

Step 3: Ot!tcrminc and Allocat~ the Marketing Communication Budget 421

Step 4: Design the Promotion Mix 422

Step 5: Evaluate the Effectiveness of the Communic.ation Program 423

Multichannel Promotion Strategics 423

ADVERTISING 424 Types of Advertising 425 Who Creates Advertising? 426

Use.r.Ccne.rated Advertising Content 427 Ethical Issues in Advertising 428 Develop the Advertising Campaign 429

Where to Say It: Trarutional Mass Media 436 Where to Say It: Branded Entertainment 439 Where to Say JI: Support Media 439

Where to Say It: Digital Media 440

RIPPED FROM THE HEADLINES: Ethical/Sustainable Decisions in the Real World 442

When and How Often to Say It: Media Scheduling 443 SALES PROMOTION 445

Sales J'''romotion Dit12etcd toward Consumers 445 Trade Sales Promotion: Targeting the BZB Customer 448

Objective Summary • Key Terms • Apply 450

Chapter Questions and Activities 453

Marketing in Action Case: Real Choices at Domino's 456

CHAPTER 14: Promotion 11: Social

Social Media 461 Social Networks 461

CONTENTS J xi

Mobile Apps and Location-Bast.'Cl Social Networks 464

The Internet of Thin&$ 465 DIRECT MARKETING 465

Mail Order 466

Direct Mail 466 Telemarketing 466 Din.>ct-R,,sponse Ad"ertising 467

M.Commcrre 467 PERSONAL SELLING: ADDING THE PERSONAL TOUCH TO THE PROMOTION MIX 468

The Role of Personal Selling in the Marketing Mix 468 Tcclmology and Personal Sclling 470 Types of Sales Jobs 472

Two Approaches to Personal Selling 473 The Creative Selling Process 474

PUBLIC RELATIONS 477

Plan a PR Camp.,ign 478 RIPPED FROM THE HEADLINES: Ethical/Sustainable Decisions in the Real World 480

PR Tactics 480 Buzz Marketing 483 Evaluation of a PR Campaign 485

Objective Summary • Key Terms • Apply 487

Chapter Questions and Activities 488

Marketing in Action Case: Real Choices at Burger King 491

Appendix A Marketing Plan: The S&S Smoothie Company ............................................................................. 492

Appendix B Your Future in a Marketing Career ......... 505

NOTES 516

GLOSSARY 535

NAME INDEX 553

SUBJECT INDEX 559

This page inte11tio11al/y lefi bla11k

~Preface WHAT'S NEW IN THE NINTH EDITION? What's new in the ninth edition is what's new in marketing. To put it simply. we foe.I a newcomer to marketing today needs to g;rapple with three core issues: Value, analytics and

metrics, and ethical and sustainable marketing;. Herc's just a sample of what we changed in this edition:

• Today's marketer needs to be .. a numbers person." lncreasingly,. the field is data driven,

and sophisticated analytics are revolutionizing the options organizations have at their fingertips to create, deliver, and m<!'asure \1alue. We're proud to say that with each eJi .. tion we continue to lead the field o( marketing principles books in coverage of analytics

and metrics, and in this edition we've continued to expand that coverage significantly to show how marketers use the exciting new toots they have available to understand and ha.mess ,..Big Data" as they strive to identify and meet customer needs. To reinforce

this focus throughout the book, each chapter provides a Melr-ics Moment box that de .. scribes some important ways to measure key marketing concepts and each chapter also includes an Apply Marketiug Metrics ~erci.se at the end.

• ln U,e cighth edition, we wen~ proud to be the first marketing principles textbook to devote an entire chapter (Chapter 5) to the =crgmg and ,•ital topic of Big Data and ma.rketing anal),tics. Now in the ninth edition we've greatly expanded that chaptct's

coverage to include nwnerous new key tlmnS, many more applic.ation examples to connect concepts to practice, and several nc-w tables and figures to further iUustrate this fascinating chapter material.

• The ninth edition shines an even larg~ spotlight on the importance oJ e thical and

sustainable marketing. The topic is so important to today's students that our cover• age of ethical issues begins right up front in Chapter 2. As soon as the s tudent basically understands what marketing is, he or she begins to learn how it should be. And ead\

chapter provides a boxed feature called Ripped from the Headlines: Ethical/Sustainable Decisions in the Real World. Here we describe a questionable marketing practice and then ask students for th.cir opinion on lhe subject All 14 of these boxes arc new for the ninth edition, induding attention to such firms as Coca..Cola, ChipotJc, Volkswagen, Kimberly Oark, and Allstar (the "Snuggie").

• Each chapter continues to fcature a Marketing in Action mini.case at the end, and 13

of these are brand new for the ninth edition. Among the exciting firms with interesting problems and opportunities featured in these cases arc Getfeedback, Airbus, Sprig, Faccl>ook, Disney, Target, and Alit>aba.

• The dOOS-ion•focUSL>d Real People vignettes that frame each chapter arc one of the sig• nature features of our book. We continue this tradjtion in the ninth edition with seven

new vignettes (50 percent of the total). These new vignettes include executives from Twitter, Campbell Soup, Weight Watchers, Levi Strauss, Quaker, BOP International,

and Pitch (the advertising agency for Burger King).

• We emphasize active learning and decision making because we kn.ow that is what l?m•

ployers sc>ck in today's graduates. We further sharpen our focus on employability in the ninth edition with the debut of a new supplemental fcatute, found in MyMarkct·· ingLab, called "Rising Stars in Marketing.• Here we present video clips contributed by

xiii

XIV I PREFACE

roo,nt suc=sful graduates of marketing programs around the country. E!ach pc,son shares advice about jol,.,secking and offers "do's and do.n'ts'., to current readers. These clips are indexed by job type, so students have the option of exploring career wisdom from those who have followed the same path thei• hope to take.

• Last but-certainly not least, as always we pride ourselves on the currency of ourcontc.,,t Today's student descr1cs to know what is going on in the marketing world today-and also tomorrow to the extent we can pn.>dict il Herc is a sampling of new Key Terms we introduce in the ninth edition:

Chapter I

accountability return on marketing

investment (ROM!)

mobile marketing

usc.r•gcncratcd content corporate citizenship screen addicts growth hackers haul videos

competitive advantagt? consumer addiction Web 1.0 Web3.0 Web4.0

screen addicts

Cloud positioning

Chapter2 Arab Spring Cn.--cohousc Effect global warming World Bank International Monetary Fund (IMF)

foreign exchange rate (forex rate) balance of payments BRICS countries

drones unmanned aerial vehicles (UAVs)

Chapter3 market planning activity mettics

outcome metrics leading indicators

Chapter4 market research online

community (MROC)

mechanical observation eye tracking technology

intcmal validity external validity

Chapters mar .. tech marketing automation channel partner model

emotion analysis

digital matketing channels A/8 test landing page chum rate margin on sales

Chapter6 evoked set consideration set determinant attributes compensatory decision rules multitasking

rich media sadvertising conscientious con.$umerlsm

Chapter ? gcne:ratfonaJ marketing digital natives buying P0\ .. 1er organizational demographics

positioning statement bra.nd anthropomorphism

Chapters tech.i\ica} SUCCt.'.'SS

commercial success beta test bleeding edge technology

Chapter 9 brand dilution sustainable packaging

copycat packaging

ChapterlO vcrtica.1 integration shopping for control

keystoning high/low pricing promo pricing

price segmentation f'<"'k load pricing surge pricing

bottom of the pyramid pricing decoy pricing prestige ot premium pricing

Chapter11 direct channel

product diversion dive:rter grey market level loading subscrip tion boxes

Chapter12 experiential mcn:handising destination retailer

omnichanncl marketing organiud retail crin,c (ORC)

beacon marketing

digital walJcts fair trade goods bifurcated retailing

services

Chapter13 comparative advertising brand storytclling

slice of life advertising lifestyle advertising ad fraud

ad blocking mobile hijacking search engines

s..>arch marketing srorch engine marketing (SEM) sponsored search ads

text message advertising monetize

in•app advertising

QR code advertising

Chapter14 partner rclationship

management (PRM) telecommute virtual office

key account cross-functional team multilevel selling

direct selling video news release (VNR) sock p uppeting

paid influencer programs

Features of the Ninth Edition of Real People, Real Choices Meet Real Marketers Many of the Rt.v.il People, Real O,oices vignt."ttes arc new to this edition, featuring; a variety of decision makers., from CEOs to brand managctS. Here is just a sample of the marketers

WC feature:

• Michael Baumwoll, Twitter

• Keith Sutter, Johnson & Johnson

• Dondccna Jlradley, Weight Watchers

• 8..'Cky Frankiewicz, Quaker Foods

• Neal Goldman, Under Armour

• Jennifer Sey, Levi Strauss

• Stephanie Nashawaty, Oracle

• Stan Clark, Eskimo Joe's

PREFACE I xv

XVI I PREFACE

Ethics and Sustainability in Marketing

Because the role of ethics and sustainability in business and in 1narketing is so important, we focus on these topics not just in a single <:hapter but in ewry cltaptRr of the book. These

Ripped from tlte Headlines boxes feature real-life examples of e thical and sustainable decl· sions marketers are faced with on a day .. to-,day basis.

Easy-to-Follow Marketing Plan Template

Marketing: Real People, Real Cltoias, ninth edition, includes a handy supplement at the end of Chapter 3 that is a tc'tnplate of a marketing plan you can use as a road map as you make

your way through the book. The template provides a framework that is keyed to the major topics in the book, which will enable you to organize marketing concepts by chapter and create a solid marketing plan of your own.

Marketing Plan Appendix Appendix A, Marketing Plan: 11,e S&S Smoothie Company, provides a basic marketing

plan for this interesting, if fictitious, firm. The extended example gives s tudents the founda· tion they need to craft a complete marketing plan for a class project. ln addition, the plan includes hclpful "how to" guidcl..incs that answer many of the questions that students ask

while developing their own plans.

Career Appendix Appendix B, Your Future in a Markctu,g Career, provides guidance for students on how to plan for a succe;sful and rewarding career in the 6eld. Success is framed as de,•cl0ping a unique brand for yourself that mec'IS the nec--ds of the job market. Career guidance recommcn•

dations follow the s teps in a marketing plan with suggestions at each s tep for critical thinking and specific actions.

End-of-Chapter Study Map

Each chapter has an integrative study map for students that includes an Objective Summa• ry, Key Terms, and studeot assessment opportunities of several types: Concepts: Test Your Knowledge; Activities: Apply What You've Learned; Apply Marketing Metrics (more on this one follows); Choices: What Do You Think?, and Mini project: L.rom by Doing. 8y completing these assessments, students and instructors achieve maximum assuranw of lea.ming.

Measuring the Value of Marketing through Marketing Metrics Just how do marketers add value to a company, and how can they quantify that value?

More and more., businesses demand accountability,. and marketers respond as they develop a variety of ·'scorecards'' that show how specific marketing activities directly affect their company's return on invesunent (ROI). And on the job, ~,. decisions that marketers make

increasingly are informed by a mix of data-based facts coupled with good old markctu,g instinct. Each chapter provides a Metrics Momt'tll box that describes some important ways to measure key marketing concepts, including a short Apply lite Mttric exercise that asks the student to actually work with some of these measures. And every end-o(--chapter includes an Apply Marketing Metrics exercise th.at provides additional opportunities for students to practice measures that marketers use to hclp Ult.."tn make good decisions. Pricing excrciSL:.s included at the md of the Marketing Math Supplement following Chapter 10 provide the opportunity for students to work real-Life pricing problems.

New and Updated End-of-Chapter Cases in This Edition

Each d,apt~ concludes with an exciting Marketing in Action mini<a.,;c about a real firm fuci.J,g real marketing challenges. Questions at the c,,d lt?t you make the call to get the com .. pany on the right track.

Instructor Resources At the Pt>arson's Higher Ed catalog, https:/ /www.pearsonhigherod.com/sign•in.htrnl, in·

structors can easily register to gain access to a variety of instructor resources available v.rith the book in downloadable formal. If assistance is needed, Pearson's dedicated technical support team is ready to help with the media supplements that accompany th(' book. Visit

https:/ /supporl.pearson.com/getsupport for answers to fr<>quently asked questions and toll-free user support phone numbers.

The following supplements are available with the ninth edition:

• Instructor's Resource Manual

• Test Bank

• TestCcn"' Computerized Test Bank

• l'owerPoint J''rcse:ntation

This title is available as an eBook and can be purchased at most cBook rctaiJc-rs.

PREFACE I xvii

This page inte11tio11al/y lefi bla11k

A About the

rtathor~ C

Michael R. Solomon

I

MICHAEL R. SOLOMON, Ph.D., joined the Haub School of Business at Saint Joseph's University in

rhiladdphia as Professor of Marketing in 2006. From 2007 to

2013, he also held an appointment as Profussor of Consumer Bchaviout at the University of Manchester in the UnitOO King• dam. From 1995 to 2cn;, he was the Human Sciences Professor

of Consumer Behavior a l Aubum University. Before joining Aubum in 1995, he was chairman of the Ot."P"artment of Market• ing in the School of Business at Rutgers Universit}~ New Bruns,. wick, New Jersey. Professor Solomon's primary research intcras:ts indude consumer behavior and Lifestyle issues; branding strat• cgy; the symbolic asJX'ClS of product<; the psychology of fashion, dcco·ration,. and image; services marketing; and the development of visually oriented onlinc research methodologies. He currcn~y sits on the editorial boards of the founral of Consumer Bellaviour, the Journal far tlie Admncmrmt of Mnrkdurg £d11cntion, the Jo11r- 1tnl of Marketing Theory and Practice, and Critical Studies i11 Fashion and Benuty. In addition to other books, he is also the author of Prentice Hall's text Consumer Behavior: Buyiug. Having, and IJe... ing, which is \'o'idcly used in universities throughout the world. Professor Solomon frequently appears on television and radio shows, such as n,e Today Slunu, Good Moruing Americ.n, Channel One, the Wall Stn...t Jourml Radio Network, and National Public Radio to comment on consumer behavior and marketing issues.

Greg W. Marshall

GREG W. MARSHALL, Ph.D., is the Charles Har- wood rrofessor of Marketing and Strategy in th<, Crummcr Graduate School of Business at Rollins

College in Winter Park, Florida. For three years, he also served as vice president for strategic marketing for Rollins. Before join• ing Rollins, he was on the faculty of Oklahoma State University,

the University of South t-1orida, and Texas Christian University. He also holds a visiting professorship in the Marketing Croup at Aston BLL<iness School, Birmingham, United Kingdom. Professor

Marshall earned a BS8A in marketing and an MBA from the Uni- versity of Tulsa and a Ph.D. in marketing from Oklahoma State

Univcrsi ty. His research interests include sales management, mar• keting management decision making, and inb'aorganization.al re,. lationships. He is editor-in-chic/ of the Jourru,t of Mnrlceti11g Theory and Practice and former editor of the Jounra/ of Personal Se11i11g & S../es Mn11ngem,,,u and currcn~y serves on the editorial boards of the Jorrnra/ of tire Acade111y of Mnrkdittg Science, the Jounral cf Busi- 1rc_,ss /u.'Se(Jrdr, and Industrial M.arkt'ting Mnuage,ni,it . I>rofcssor Marshall is a member of the board of directors of the A,n.,rican Marketing Association, past president of the American Market- ing A5SOCiation Academic Division, a distinguished fellow and past president of the Academy of Marketing Scien<c, and a dis- tinguished fellow and past president of the Society for Marketing Advances. His industry experience before entering acadc-me in· dudes pmduct managcmen~ field sales management, and retail management positions with firms such as Warner-Lambert, the Mennen Company, and Target Corporation.

Elnora W. Stuart

ELNORA W. STUART, Ph.D., is professor of marketing and associate dean of the George Dean Johnson, Jr. College of Business and

Economics at the University of South Carolina Upstate. Prior to joil\ing USC Upstate in 2008, she was professor of market- ing and the BP Egypt Oil rrofcssor of Management Studies at the American University in Cairo and professor of marketing at Winthrop University in Rock Hill, South Carolina, and on the faculty of the University of South Carolil\a. She has also been a regular visiting professor at lnsHtuto de Empresa in Madrid, Spain. She earned a B.A. in theater and speech from the Uni- versity of North Carolina a t Greensboro and both an M.A. in jouma.lism and mass communication and a Ph.D. in marketing from the U11iversity of South Carolina. Ptofossor Shtart's re• search has been published in major academic journals, includ• ing the Jottrrtnl of Co11s11mer Res,arc/1, the Joumal of Adt1'1'1isi11g, the Jounrat of Business Rese,m:/J, and the Jourual of Public Policy and Markett'ng. For over 25 years, she has served as a consulta.nt- for numerous businesses and not•for-profit organizations in the United States and in Egypt.

xix

This page inte11tio11al/y lefi bla11k

~ Acknowledgments \Ne (t!ature many ta!tmted marketers and successful companjcs in this book. tn devcJoping it, we also were fortunate to work with a team of exceptionally talented and creative people at Pearson. Emily Tamburri, Portfolio Manager, was instrumental in helping us solidify the vision for the ninth edjtion, and her assistance with decisions about 001,tent, organization, featu.res, and supplements was

invaluable. Kudos to Claudia Fernandes for managing the project with great efficiency and patience. Bt.>cky Brown deserv,es thanks for marketing the book sucn,ssfullr And we'd like to add our special thanks to Stephanie Wall, Director of Portfolio Management, for working with the author t~m over the long term to ensure that our book continues its tradition as a creative and innovative leader

in the principles of marketing space. A special note of appreciation goes to Phillip Wiseman of the Crummer Graduate School of Business at Rollins College for his

substantial contributions to Chapter 5-Markeling Analytics: Welcome to the Era of Big Data!--as well as his able assistance in bring ..

ing in fresh new ideas and a "m.iUenniaJ's pers_pt..."Clive'' to other aspects of the ninth edition. Phillip's ha.rd work and commitment to exccllence are most appreciated and he was a vaJued member of the ninth ed..ition team. And thank you to Leroy Robinson of the University of How;ton-Clear Lake, who so ably devcJoped the Marketing in Action cases for this edition.

No book is complete without a solid supplements package. We extend our thanks to our dedicated supplement authors who de- voted their time and shared their teaching ideas.

Final)~ our utmost thanks and appreciation go to our families for thcir continued support and encouragement. Without them, this project would not be po,;siblc.

Many proplc worked to make this ninth edition a reality. Guidance and recommendations by the foUowing professors and focus group participants helped us update and improve the chapters and the supplements:

REVIEWERS/FOCUS GROUP PARTICIPANTS Pia A. Albinsson, Appalachian State University Norma Anderson, Ivy Tech Community College Eileen Archibald, Phoenix CoUegc Michele Arpin, Chattanooga State Community College KeUy Atkins, East Tennessee State University Jacqueline Babb, Oakton Community College Dana Bailey, Ea.st Tennessee State University Koren Borges., University of North Florida Susan Callender, Hudson VaUey Community College Ricky Caraballo, Miami Dade College Jerome Christia, Coastal Carolina University Christy Cole, Cull Coast State College Debbie Coleman, Miamj University Amy Danley., Wtlmington University Abid Din, Ivy Tech Community College Jeff Fanter, Ivy Tech Community College Monica Fine, Coastal Carolina University Thomas F. Frizzcll, Sc, Massasoit Community College Gerald Yong Gao, University of Missouri-St. Louis Roland Gau, University of Texas-El Paso Tulay Girard, Penn State Altoona Charles S. Culas, Wright State University Bonnie Guy, Appalachian State University Mary Haines, Ohio University Jennifer S. Hampton, Ivy Tech Community College Eric Harvey, Ball State Univ<>rsity Karen Hawkin.<, Miami Dade College Carol Heeter, Ivy Tech Community College Donald Hoffer, Miami University Eva Hyatt., Appalachian State University Fernando R. Jimenez, University of Texas-El Paso Sungwoo Jung, Colwnbus Sta te University Alex Kim, Long Island University- Post

Helen Koons, Miami University Trina Lynch-Jackson, Ivy Tech Community College Mark Mitchell, Coastal Carolina University Lakshmi Nagarajan-Iyer, Middlesex County College Denisse Olivas, University of Texas-El Paso Ttmucin Ozcan, Southern Illinois University- Edwardsville Courtney Pham, Missouri State University Lisa Pucurs, University of North Carolina- Wilmington Mohammed Raw,vas, University of Northern lowa Julie Rigrish, Ivy Tech Commw,ity College Kathryn Schiffcrle., California State University-Chico Sarah M. Shepler, Ivy Tech Community College Brent Smith, Saint Joseph's University Randy Stuart, Kennesaw State University Ronda Taylor, h,y Tech Community CoUege Russell C. Wahlers, Ball State University Jcfrey R. WoodaU, York College of Pennsylvania Doula Zaharopoulos, Phoenix College

EXECUTIVES In addJtion to our reviC'\-v-crs and focus group participa.nts, we want to extend our gratitude to the busy executives who gave generously of their time for the Real People, Real Choices features.

Executives Featured in Real People, Real Choices Vignettes Chapter 1: Michael BaumwolJ, Twitter

Chapter 2: Keith Sutter, Johnson & Johnson Chapter 3: Stephanie Nashawaty, Oracle Chapter 4: Cindy Bron, Campbcll Soup Company Chapter 5: Lisa Arthur, Teradata Corporation

Chapter 6: Dondccna Bradley, Weight Watchers xxi

xxii I ACKNOWLEDGMENTS

Chapter 7: Jennifer Sey, L<?vi Strauss Chapter 8: Neal Goldman, Under Armour Chapter 9: Becky Frankiewicz, Quaker Foods

Chapter 10: Betsy Fleming, Converse College Chapter 11: Michael Fon:!, BOP International Chapter 12: Stan Clark, Eskimo Joe's

Chapter 13: Sara Bamossy, Pitch Chapter 14: Rohan Oeuskar, Stylitics, Inc.

REVIEWERS OF PREVIOUS EDITIONS 'The follmvi.ng individuaJs were of immense hclp in reviewing all or part ol previous editions of this book and the supplement package:

Camille Abbruscato, Stony Brook University Roy Adler, Peppen:line University Lydia Anderson, Fresno Oty College Christopher Anicich, California State University- Fullerton Carole S. Arnone, Frostburg State University Gerald Athaide, Loyola College Nathan Austin, Morgan Sl'ate University Xenia Balabkins, Middlesex County College Fn.--d Beasley, Northern Kentucky University Cary Benson, Southeast Community College Jas Bhangal, Chabot College Gregory Speoccr Black, Metropolitan State College of Denver Creta Blake, York College of Pennsylvania Silvia Borges, Miami Dade CC- Wolfson Campus Norm Sorin, California State Polytechnic Univctsity Deborah Boyce, State University of New York Institute

of Technology, Utica, New York Tom Boyd, Califomia State University- Fullerton Henry C. Boyd Ill, University of Maryland-College Park Rich Brown, Harding University Val Calvert, San Antonio College Charles R. Canedy, University of Hartford Richard Celsi, Cali/omia State Uni,•crsity- Long flt.'ach Swtt•Lim Chia, LaSalle University Ruth Clottey, Barry University Paul Cohen, Florida Atlantic University Brian Connett, California State University- Northridg;e Robert M. Cosen2a, University of Mississippi C. Brad Cox, Midlands Technical College Brent Cunningham, Jacksonville S ta te University Mayukh Dass, Texas Tech University Mark Davis, Harding University Mark O.Fanti, Providence College George D. Deitz, University of Memphis Patricia Doney, Florida Atlantic University Michael Dotson, Appalachian State University Laura Dwyer, Rochester Institute of Technology Rita Dynan, LaSalle University Jill S. Dybus, Oakton Community College Joyce Fairchild, Northem Virginia Community College Eli2abeth Ferrell, Southwcstem Oklahoma State University Angel M. Fonseca, MSCTE, Jackson College Jie C. Fowler, Valdosta State Unjvcr.sity Joanne Frazier, Montgomery College Jon Freiden, Florida State University Marlene Frisbee, AB-Tech College Patricia Calitz, Southeast Community College Debbie Gaspard, Southeast Community College

Mike Cates, South Hills School of Business and Technology Kenneth C. Cchrt, San Jose State University Michael C',oldberg, Berkeley College Karen Welte Core, Ivy Tech Community College Kimbetly Goudy, Central Ohio Technical College Kimbedy D. Grantham, University of Georgia Arlene Creon, lndia.n River State College David Hansen, Texas Southern University John Hardjimarcou, University of Texas-El Paso Jeffrey S. Harper, Texas Tech University Dana LE. HaJTison_, East Tennessee State University Mano; Hastak_, Amcric.a.n University Kelli S. Hatin, SUNY Adirondack John Heinemann, Keller Graduate School of Management Dorothy Hetmcr-Hinds, Trinity Valley Community

College Tarique Hossain. California State Polytechnic University,

Pomona Mark B. Houston, Texas Christian University Gary Hunter_, Case \Vcstcm Reserve University Annette Jajko, Triton College Jacqueline J. Kaccn, University of Houston Jack E. Kan~ San Juan College Janice M. Karlen, LaCuardia Community College/

Oty University of New York Laura Lynn Kcmer_, Athens State University Cheryl Keymer, North Arkansas College Cail Kirby, Santa Oara University David Knuff, O"'-gon State University-Cascades Kathleen Krentlcr, San Diego State University Nancy P. LaCuardia, Capital Community College Sandra J. Lakin, Hesser College Linda N . La.Marca_, Tarleton State University De-bra A. Lavene, T{'Xa,;: Tech University Fn.--ddy U.'e, California State University-Sacramento David Lehman, Kansas State University Ron Lennon, Barry University Marilyn Liebrenz-Himcs, George Washington Univcrsity Anne Weidemanis Magi, University of South Florida Cesar Maloles, California State University- East Bay Norton Ma.rk1,, California State University- San Bernardino Doug Martin, Forsyth Technical Community College Kelly Duggan Martin, Washington State University Carolyn Massiah, University of Central Florida Jane McKay-Nesbitt, Bryant University Juan (Gloria) Meng, Minnesota State University, Mankato Mohan K. Menon,. University of South Alabama Laura M. Milner, University of Alaska iunothy R Mittan, Southeast Community College Jakki Mohr, University of Montana Rex T. Moody, Angelo State University Linda Morable, Richland College Michael Munro, Florid.a lntemational University Jeff ll. Murray, University of Arkansas Lynn M. Murray, Pittsburg State University Jun Myers, California State Polytechnic University- Pomona Mark A. Ncckes, Johnson & Wales University Linda Newell, Saddlcback College Eric Newman, California State University- San Bernardino Hieu f'. Nguyen, California State University- Long Beach David A. Norton, University of Connecticut Elaine M. Notarantonio, Bryant University

David Oliver, Edison College Seng Ong, California State University- Fresno A. J. Otjcn, Montana State University- Billings Jason Keith Phillips, West Chester University Luci.Uc Pointer, University of Houston- Downtown Abe Qastin, Lakeland College Kevin Raiford, College of Southern Nevada Rosemary P. Ramsey, Wright State University John E. Robbins, Winthrop University Matthew Roberts, California Polytechnic Statt:"

University- San Luis Obispo Bruce Robertson_, San Fra.ncisco State University L..cn,y Robinson, University of Houston-Clear Lake Carlos M. Rodriguez, Delaware Sta ti.:" University L. Renee J. Rogers, Forsyth Toclmical College Ann Renee Root, Rorida Atlantic University Barbara Rosenthal, Miami Dade Community

College-Kendall Campus S.,hrooz Saghali, Chicago State University Ritcsh Saini, George Mason University Charles Jay Schafcr,Johnson & Wales University Mary Schramm, Quinnipiac University Joseph A. Schubert., ~)aware Technical Community CoUcge,

Wilmington Campus Marcianno Schusler, Prairie State College Susan Silverstone, Nation.al University Lisa R. Simon, California Polytechnic State University Samuel A. Spralls lll, Central Michigan University Melissa St. James, California State University-

Dominguez Hills

ACKNOWLEDGMENTS J xxi ii

Frank Svcstka, Loyola Uni,•ersity of Chicago James Swartz., Califomia State Polytechnic Univets.ity- Pomona Kim Taylor,. Florida lntcmational Un.iversity- Park Campus Steven Taylor, lllinois State Univen.ity Susan L. Taylor, Belmont University Nancy J. Thanncrt, Robert MorTis University Jllinois John Thanopoulos, University 0£ Piraeus, Cn..""Cee Jane Boyd 11,omas, Winthtop University Scott Thome, Southeast Missouri State University Mary Jean Thornton, Capital Community College Judoc A. Tunm, Monterey Peninsula College Sue Umashankat, University of Arizona Sal Veas, Santa Monica College Mary K. Wachter, Pittsburg State University S.,th Ghiloni Wage, University of Hartford D. Roger Waller, San Joaquin l).,Jta College James R. Walton, Arkansas Tech University Leatha Ware, Waubonsec Community College Steve Wedwick, Heartland Community College Casey Wilhclm, North Idaho University Kathleen Williamson, University of Houston-Clear lake Mary Wolfulbarger, Califomia State University- Long Beach Kim Wong, Albuquerque TVl Community College Steve Wong, Rock Valley College Richard Wozniak, Northern Ulinoi.s University Brent M. Wren, University of Alabama in Hunstvillc Merv Yeagle, University of Maryland at College Park Mark Young, Winona Stat~ University Srdan Zdravkovk, Bryant University Marybeth Zipperer, Montgomery College

This page inte11tio11al/y lefi bla11k

Real People, Real Choices

Ninth Edition

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2

PART ONE: Understand the Value Proposition Chapter 1

Welcome to the World of Marketing Create and Deliver Value

1.1 Explain what marketing ls. the marketing mix. what con be marketed, and the value of marketing. pp. 4-11

MARKETING: WHAT IS IT? p. 4

I .2 Explain the evolution of the maketing ooncept. pp. 11- 15

WHEN DID MARKETING BEGIN? THE EVOLUTION OF A CONCEPT p. 11

I .3 Understand value from the perspectives of customers. pro- ducers, and society. pp. 16-23

THE VALUE OF MARKETING AND THE MARKETING OF VALUE p. 16

Meet Michael Baumwoll Y A Decision Maker at Twitter

1.4 Explain the basics of market planning. p . 24

MARKETING AS A PROCESS p. 24

Check out the Chapter 1 Study Map on page 25.

I am currently an Account Manager at Twiner. Aflet I graduated from Lafayette College in 2009, my caree-r focused on digital media and advertising with brief stints in entrepreneurship. For lhe fim five yeafS of my p,of es.sional fife, I wo,ked

fot an advertising technok>gy company with the goal of ,evolutionizing the digital media landscape.. Similar to exchanges like Nasdaq and eBay, lhis company built a platfOl'm that allov-•ed websites {pubfishers) to auction off their advertising space to the highest advertising biddet. I joined this young. growth startup and quickty learned the robust, technical, and (highly) relationship.dtive,n llldustry of digital advertising. Working in a tun. supportive, Google,.esque culture. J was able to grow personally and ultimately manage relatklnships with majo, adverti:s· ing agencies and their digital media-buying arms, called "trading desks.,. I was atso lucky enough to manage a smaO group of coworkets and help them develop their understanding of the adw<tising landscape, technic:aJ skills and-most i.mportantt;,, to me-themselves, professionally.

Simultaneously, I co-founded an iPhone application called BarSocial with the goaJ of aeating a social media platform for nightlife. On the a.pp, users connected with their friends and other bar-hoppets to dete!J'Oine lhe best places to go out. It was, es- sentially. Twitter for bars. SarSocial was five i.n the App Store for more than a year and was briefly featured on Wl!ed.com. I quickly 5eamed the facets of mai:ntaining and buikfing a tech.nology business. Building 8arSocial was ooe of the most exhilarating and chaDengi.ng experie,nces I've ever had: I'd highfy recommend building somethi:ng of yout own if the oppo<tunity presents it.self.

With a passion for sotial media, I now h.ave the pleasllre of 'NOOOng at one of the wortd'S roost recognized technology companies. Twiner. Twitter is a social media pfatf0tm that d(>(Ooaatizes the wotld by providing a forum for use-rs to share their experiences .and views. Similat to my previous ptofessionaJ experience, Twiner has successfully built a culture desig.ned to hetp their e~s thrive p,ofessionally. My role at Twiner is to manage and develop ,elationsh.ips with advertisers and their crNt.ive and media agencies. To simplify, I am a Twiner consuJtant helpi.ng to demystify the ever~towing workf of Twiner and showcase the power of its advertising solutions to tny clients.

Whal I do when I'm not working: Watching movies, spending time with rrry family, and breaking it down on the dance ftoor.

A Jol>reloted mistake I wish I hadn't mode: I avoided speaking up in meetings where I could have conuibu1ed value.

Business book I'm reading now: Contagious: Why Things (arch On by Jonah Berger

My motto to Dve by:

At.Nays focus on developing relationships-ilew and old. They will be the driving force in your professional and peISonal growth.

Whal drives me: The opportunity to impact the world in my own personal way.

Don' t do this when lnteNlewlng with me:

Be inauthentic

My pet peeve: Talking during movies

Twitter is a pubOc microphone that gives those with a handheki device or access to the Internet the ability to

step up and speak. It gives each of us the opportunity to share our experiences and thoughts 24 hou" a day, 7 days a week. As a result. Twitte, has become a democratized pladorm for human expression and thought.

Just like the product externally, Twiner's management team aeates an envirorvnent that encourages team members to speak up and share ideas. Employees are constantly reminded of their value and given channels to be cre- ative and productive. It's an internal cultura1 choice that was made in the eart>,, days of Twitter to reflect the founders' beliefs in transparency and cooperation.

Internally at Twine, there are muhiple ways to share ideas and feed- back. There are e-majl chains, discussion boards, water cooler conversations. feedback form~ and many other methods that allow you to express your,;elf. M hough there are a number of option~ it's (a) dllficult to navigate and select the right method to share your idea and (b} hard to determine who the ideal person is with whom to share it.

As a member of the saJes team, rrry focus is to understand the needs and concerns of my dients and relay that information to the Twitter team. It addition. and just as inportant, as an involved member of the Twitter com- munity, it's my responsiboity to conttibute to building an even stronger p<0duct and experience for users. The question then becomes: how do we harness the innovation within Twitter's wans and leverage it to solve challenges the team faces with empk>yees. consumers. and marketers? And subsequently, how can we trad: it?

Michael considered his Options 1·2 ·3

1 Make a case for the- management team to hold weekty meetings to dJscuss ideas and innovations within Twitter. This change would provide a dedicated rime fOf team members to share their opin-ions, views, and ideas in an hour-long weetJy meeting. Employees Option feel they are part of the process when they help to make decisions for the company. And different teams could interact with one anothef to come up with productive ideas because of this aoss-poOination that onty comes from

MyMarketinglab"' 0 Improve Your Grade!

face-to-face encounters. However, some employees a1e hesitant to voice their concerns and suggestions in ,uch a public forum. Also getting a bunch of busy people to give up an hour of their time each week might not go over well with some people.

Build an intemaJ onUne tool to alJOW' empklyees to share, build, and measu1e ideas {ie., a Twitter within Twitter). Like Twittei. the fon.m would allow any team member to carefully think and craft ideas he or she could then share with cov.'Orkers or with entire

Option teams. Employees could vote on ideas to showcase demand for an idea or product. And we could measure the success of the platform bit track· ing posts_ votes, commeni,. etc. On the other hand, some ernpl"'fees might be reluctant to post ideas to the group if everyone votes on the ones they like and don't 6ke. It's also not clear that there would be enough demand for mern the time and other resources to build this app that could be dewted to building business ror Twitter instead.

1 Share ideas on Twitter to gaNanize support and subsequently share findings with the Twitter team. This approach would include the ex- ternal Twitter community to help shape Twitter's product vision. We could get real-time feedback from potential rustome,s about the

Option ideas we're considering and engage chem as partners rather than just as customers.. On the other hand. we wouldn't be able to share some sensi· tive issues with non-Twitter emp!OjeeS. And we couldn't aM'ays be confident about the perspectives we get-not everyone necessarily has the experience and perspective ro v.-eigh in on how to run a complex business like oors..

Now, put yourself in Michael's shoes. Which option would you choose, and why?

0·1119,H·MJ Which Option would you choose, and why? D Option 1 D Option 2 0 Option 3

See wha t option Michael chose in My Marttetinglab1M

Over 10 million students improved their results using the Pearson Mylabs. Visit mymktlab.com for simulations, tutoriaJs. and end-of-chapter problems.

3

4 PART ONE I UNDERSTAND THE VALUE PROPOSITION

Chapter 1

consumer The ulti'nate user of a good a sef\/ice.

marketing Marketing is the activity, set of instituti~ and processes for creating, communicating, delivering. and exchanging offerilgs that have va!ue for customers. OJents. partners. and society at large. I

Marketing: What Is It? 1.1 OBJECTIVE

Marketing. l''eople either Jove it or hate it. The crazy part of this is that whether they love it or hate it, most folks really do not undctstand

Explain what market· what marketing really is! How about when a Chris Cornell concert in ing is. the marketing Australia entices fans from Peoria, Uli.nois, to travel around the globe

mix, what can be marketed, and the vafue of marketing.

a;w.,.111

just to scr~am in oc.stasy alongside the Aussies. ls that marketing? When Donald Trump and Hillary Ointon spend millions to get your vote-is that marketing? And then. o( course, there are those c,.mails that fill your inbox from Amazon.com, suggesting products that might

entice you to let go of some hard-earned cash. Yes, these arc all ex- amples of marketing. And that's just scratching the surface.

Of course you already know a lot about marketing.: it's been a part of your life from

day one. As one of millions of consumers, you are the ultimate user of a good or service. Every time you purchase or use your car, your clothes, your lunch a t the cafeteria (whether an oJd .. school burge,r or a vegan version), a mO\'ie, or a haircut, you arc part of the market ..

ing process. ln this book, we'll tell you why-and why you should care. tndeed, consumers like you (and your humble authors!) arc at the center of all mar•

keting activities. By the way, \•,then we refer to consum~, we don't just mean individu .. als. Organizations, whether a company, govcmmc.nt, sorority, or charity, are made up of consumers.

Herc's the key : Mnrkt'ling is first nud foremost about sntisfyiug cousumer nttds. We like to say that the consumer is king (or queen), but it's important not to lose s ight of the /act that the seller also has needs-to make a profit, to remain in business, and even to take pride i:n selling the highest-quality products possible. Products are sold to satisfy both consumers' and marketers' n~ds; Ws a two,.way street.

l'l'hen you ask people to dcline marketing, you get many answers. Some people say, "That's what happens \.\'hen a pushy s.ilesman tries to sell me something I don' t want. .. Many p<.'<>ple say, "Oh, that's simple-TV commercials." Students might answer, "That's a course t have to take before I can get my business degn.--e." Each of these responses has a grain of truth to it, but the official d~finition of marketing the American Marketing Association adopted in 2013 is as fol.lows:

Marketing is the activity, set of institutio1'5, and processes for creating, commu .. n.icating,. delivering.. and exchanging offerings that have value for customers, clients, partners~ and society at large.2

The basic idea behind this somewhat complicated defutition is that marketing is all about delivering value to everyone whom a transaction affocts. That's a long. .. winded explanation. let's take it apart to understand exactly what marketing is all about.

"Marketing Is the Activity, Institutions, and Processes ... " A,; we will discuss throughout this book, marketing includes a great number of activities-from top-levd market plaru,ing by the chid marketing officer (CMO) of a big company t"o the creation of a Facebook page by your university. The importance or• gani.zations assign to marketing activities varies a lot. Top management in some firms is marketing oriented (especially when the chief executive officer, or CEO, comes from the marketing ranks)_, whereas in other companies marketing is an afterthought. Ten percent of the Fortu11e 100 U.S. CEOs, more than one out of five (21%) of the Financial runes Stock Exchange (FTCE) 100 CEOs i.n the United Kingdom, and 40 percent of those wHh consumer and healthcare firms come from a marketing background-so s tic:..k with us!3

CHAPTER 1 J WELCOME TO THE WORLD OF MARKETING 5

In the text we discuss many of the activities of marketing that include:

• Better understanding of customer needs th.rough marketing research

• Selecting the pcoplt! or organizations in the market that are your best bets for success

• Developing the product

• Pricing the product

• Getting the product to the consumer

\Ne'll also learn about a variety of institutions that help finns create a better marketing program:

• Adv\!l"lising agencies that firms work w'ith to create and deliver a variety of marketing

communication activities including traditional advertisjng as well as newer digital communications, sales promotion, and research activities

• Marketing research firms such as Niel~n that provide data vital to the planning and implementation of sucre;sful marketing programs

• The traditional 1nedia

• The Internet and socia1 media

• Cove:mments that enforce laws and regulations to make sure matketing occurs in a fair and ethical manner

• Logistics fi:rms that get the p roduct to the consumer most efficiently

• Retailers that interact directly with the fin.al customer

We also talk about some of the processes marketers use in combination with these institu•

tions to satisfy customer needs-the end•aU for all marketing acHvitiL:.s.

Whether it is a giant global producer of conswncr products such as Proctor & Camble

or a smaller organization such as Eskimo Joe's of Stillwater., Oklahoma (wc'U talk more about Eskimo Joe's in Chapter 12), a n\atketcr.,s decisions affect-and arc affected by- the firm's o ther activities. Marketing managers must work with financial and accounting of· ficers to figure out whether products arc profitable, to set marketing budgets, and to deter•

mine prices. They must work w ith people in ma.nufacturing to be sure that the nc-w iPhonc

is produced. on time and in the right quantities for those avid iPhonc fans that camp out in

front of Apple stores to get lhcir hands on the new model. Marketers also must work with

n.~an:h.and«d.evclopment spt.-~tis ts to create products that n'kc..---ct consumers' nec,ds.

" ... for Creating, Communicating, Delivering, and Exchanging: The Marketing Mix . .. " As we said, marketing is about satisfying needs. To do this, marketers need many tools. The

marketing mix is the marketer's strategic toolbox. It consists of the tools the organization uses to creal'c a desil'L"'CI response among a set of predefined consumers. These tools incl udc the product itself, the price of the product, the promotional activities (such as advertising)

that introdu«- it to consumers, and the places whe:re it is available. We commonly refer to the elements of the marketing mix as the Four Ps: product, price, promotion, a.nd plna.

Although we talk about the Four l's as S<>parate ports of a firm's marketing s trategy, in reality, pnxluct, price, promotion, and place decisions are intctdependcnt. Decisions about

any single ont! of the four arc affected by, and affect evcty other marketing mix docision. For example, what if Superdry (a rapidly growing Japanesi, apparel company) decides to intro- duce a leather biker jacket fl,a t is higher end than tho ones it makes now? lf thccompany uses more expensive materials to make this item, it has to boost the selling prire to cover these higher costs; this also signals to consumers that the garment is more upscale. ~, addition, Supt.-~ would have to create advertising and other promotional strategics to convey a top•

quality image. Furthermore, the firm must include high-end retailers Uke Neiman Man:us,

marketing mix A ooml>in.ation of the produa itself, the price of the produa. the promotional activities that introduce it, and the place whece it is made available, that together create a desired response among a set of p<edefined consumefS.

Four Ps l'\'odua, price. prorootion, and place.

6 PART ONE ] UNDERSTAND THE VALUE PROPOSITION

F;gun, , . 1 @jJ Snap!ihat I The Marketing Mix The matketing mix is the marketer's strategic toolbox.

Bergdorf Goodman, and Bloomingdale's in its distribution strategy to ensure that shoppers who seek out high-end items will come across the jacket. Thus, all the pieces in the puulo we call the marketing mix work together. As :iaJJ figure I.I shows, each P is interconnected with each of the other three Ps. This shows us that the activities of each of tht" Four Ps mlli:i"'t be

coordinated with each of tho other three Ps.

Product strategies

Price strategies

product A tangible good. service, idea, or sc:me combination of these that satisfies consumer or business custome, needs th!ough the exchange process: a bundle of attributes including fea!Ufes, lunct;oo< benefit< and use<

promotion The coordination of a marketer's communkation efforts to influence attitudes oc behavicr.

place The availability of the product to the customer at the dewed ,;me and location.

channel of distr ibution The series of firms or individuals that facilitates the movement of a produa from the producer co the final customer.

price The as.sig001ent of vafue,. or the amooot the consumer must exchange to receive the offering.

Place strategies

Promotion strategies

We'll examine these components of the marketing mix in detail late:r in this book. For no\,~ let's briefly look at each o( the flour Ps to gain some morc insight into their role in lhc- market• ing mix.

Product

What have you spent your money and time to get rerently? A pizza on_ Friday night, a concert on the weekend, a new tennis racket so you can beat a.U your buddies on the court, maybe even a •wonderful" Marketing textbook? These are aD products.

A product can be a good, a service, an idea, a place, a person- whatever a person ot organization offers for sale in the exchange. Creating new products is vital to the: success and even the lile of an organization. The product, one aspect of the marketing mix, includes the design and packaging o( a good as well as its physi-

cal features and any associated scrviCt.~, such as free dclivc.ry.

The product is a combination of many different elements, all of which arc important to the procluct's success. Think about

your college education-on expe:nsivc product. You arc buy .. ing more than the boring lecture in ~,at chemistry class (or the

awesome l~urc in your mat'kcting class). You a.re also paying for the health center with a

weight room, pool and a rock-climbing wall, for the classroom building, and maybe for the bragging rights of graduating from a ·Big Ten• school.

Promotion

Although we all arc familiar with advcttising, promotion, also referred to as marketing comnmnication, includes many different activities marketers undertake to inform cons.um• c-rs about their products and to encourage potcntia) customers to buy these products. Marketing communication takes the form o( personal selling.. TV advertising, store coupons, billboards_, magazine ads, publicity relca5L:.s, web pages, socia) media sites, and a lot more.

Today marketers arc quickly moving much of their cnc.rgy and money to devising and im• plomenting digital marketing communications including mobile marketing, location-based marketing. behavioral digital marketing. and, of course, social media marketing.

Place

Place refers to the availability of the product to the customer at the desired time and loca• tion. This P relates to a channel of distribution, which is the sc-rics of firms or individuals that facilitates the movement of a product From the producer to the ftna) customer. For

clothing or eJoctronics, this cha.nncl includes local retailers as wcll as other outlets, such as retail s ite-son the web that strive to o(fct the right quantity of products in the right styles at the right time.

Price

Price-we all know what price is-it's the amount you have to pay for the pizza, the concert tickets, n,e te,,nis racket, and, yes, this book. Pric~ is the assignment of value,

CHAPTER 1 J WELCOME TO THE WORLD OF MARKETING 7

or the: amount the consumer must exchange to reccive the offering. Marketers often turn to price to increase consumers' interest in a product. Th.is happens when they put an item on sale, but in other cases marketers actually try to sell a product with a hjgher price than people: are used to if they want to communicate that it's hjgh quality or cut• ting edge. For example, designer clothes and accessories are priced so high that only a few consumers can afford them. Not many of us can afford a Prada Python/Crocodile Arcade-Stripe Frame Satchel Bag priced at $9,600 or a pair of Valentino Rockstud Metallic leather Mid-Heel Pumps at SI ,045. Jf you can, you probably don't need to take this course!

At the heart o( every marketing act- big or small-is something we refer to as an "ex• change relationship." An exchange occurs when a person gives something and g·ets some,. thing clsc in return. The buyer tC<X'.ivcs an object, service, or idea that satisfies a need and the seller receives something he or she (eels is of equivalent value. Toda)~ most exchanges occur as 1nonetary transactions in which one party sum.mde:rs currency (in the form of cash., chLX:k,. cre<Ut card, or even Bitcoin) in return for a gOOO. or a scn1ice. But there are also other kinds o( exchanges.. A _politician, for example, can agree to work toward certain goals in exchange for your vote,. city officials may offer you a cleaner environment if you n...-i.cycle, and health officials tell you that you can save lives (perhaps your own) if you wash your hands properly.

For an exchange: to occur, at least t\.,ro people or organizations must be willing to make a trade, and each must have some-thing the other wants. Both parties must agree on the value of the exchange and how it will be carried out. Each party al,;o must be free to accept or reject the other's terms for the exchange. Under these conditions, a knife.wiclding rob,. ber's offer to "exchange" your money for your life does ttol constitute a valid exchange. In contrast, although someone may complain that a store's prices are "highway robbery," an exchange occurs if he or she still forks over the money to buy something thcn..~ ven if he or she still grumbles about it weeks later.

To complicate thing...; a bit more, everyone does not always agree on the terms of the exchange. Think, for example, about movie piracy. That's what happens when a new Leonardo DiCa_prio blockbuster is available on s treet corners for a few dolJal'S--<>r free on

Bit Torrt•ul- before it even opens in thc-aters.

" ... Offerings . .. ": What Can We Market? Is the:re any limit to what markete-rs can and will market? Marketing applies to more than just the new iPhooe and the Microwavable S'Mores Maker your mother bought you before you came to coUcge.

Some of the best marketers come from the ranks o( scr ..

vices companies such as American Express or not .. for--profi t organizations like Creenpcace. PoUticians, a thletes, and per• formers use marketing to their advantage (the Kardashians have figured it out). Ideas such as poLitical systems (democ• racy, totalitarianism), rcligion (Christianity, Islam), and art (realism, abstract) also compete for acceptance in a "market•

place." In this book,. we'll refer to any good, service, person, place, or idea that we can market as a product, even though what you buy may not take a physical form.

Consumer Goods and Services

exchange The process by v.!iich some uansler of value occurs between a 00)'(1{ and a seUer.

consumer goods The goods individual consunen purchase for personal °' family use. services lntangib4e produas that are exchanged directly between the producer and the customer.

Consumer goods are the tangible products that individual J consumers purchase for personal or family use. Services J are intangible products that Wt:' pay for and use but do1,' l j

own. Service transactions contribute more than 75 percent Arcti>ecy-isNOTavalid exchange.

8 PART ONE J UNDERSTAND THE VALUE PROPOSITION

of the gross domestic product (CDP) in the U.S. and other devclopcd couotries.• Marketc-rs need to understand the special challenges that arise when they mar• ket an intangible service rather than a tangible good.5 &.'Cause both goods and

services arc products, it"s more accurate to say "goods a.nd services" rather than "products and se:rviccs."

Busines,s-to-Business Goods and Services

Business•to,..business marketing is about the exd,,mgc of goods and s1.Uviccs

from one organization to another. Although we usually think of marketing in terms of the piles of consumer goods that beg for our dollars every day, the real- ity is that businesses and other organizations buy a lot more stuff than consum· e:rs do. They purchase these industrial goods for further processing or to use in their own business operatior,s. for example, automakers buy tons of s teel to use

in the manufacturing process, and they buy coinputer systems to track manu• facturing cost,; and other information essential to operations.

Similarly, the growth of e-<ommerce isn't just about things people buy for

themselves-books, CDs, cars, and so forth~ n tho Internet. Just like in the of- line world; much of the real onlinc action is in the area of busincss,,ta.busincss

marketing.

Nol•for•Ptofit Marketing

As we noted previously; you don' t have to be a businessperson to use marketing principles. Many not•for•profit organizations (also known as nongovernmental Ttis British fence COfl1)30Y otters to exchange roooey for the

guarantee of privacy. organizations [NGOs]), induding muscwns, zoos, and even churches, practice the marketing concept to survive. Local governments adopt marketing techniques to at• tract new businesses and industries to their counties and cities. Even states are getting into

tl,e act: We've known for a long time o,at 1¥ NY, but recently Kentucky and Oregon hired advertising agencies to dcve:lop statewide branding c.ampajgns (the official state motto of Oregon is now "Oregon. We lovcdrcamers.").6

business-to•business marketing The marteting of goods and services from one organization to anolhet.

industrial goods Goods that inooiduals a, agani:zations buy for further proces.Yng or fa their own use when llley do business.

e,.commerce The buying or seling of goods and se<vices electronically, usually CNer the Internet

Idea, Place, and People Marketing

Marketing principles also encourage people to endorse ideas or to change their behaviors in positive ways. Many organjzations work hard to "seU" everything from fathc-rhood

involvement to shclter·pet adoption to stopping teen bullying. We arc aU familiar v.rith tourism marketing that promotes wonderful places with s logans such as, "Smile! You are in Spain! or "Live your myth in Crecce."

You ma)' have heard the expression 1'Stars are made, not bom" The-re's a lot of truth to thal Adele may have a killer voice and Chris Davis may have a rcd.-hot baseball bat, but-

talent alone doesn't make fllOusands or even millions of people

buy CDs or stadium scats. Some of the same principles that go into "cn.>ating" a cclcbrity apply to you. An entertainer-whether Miranda Lambert, Selena Gomez, or Drake-must "package" his or her talents, identify a market that is likely to be interested, and work hard to gain exposure to these potential customers by ap- pearing in the right musical venues.

Today, atnost all){lne can have their ·1s minutes of tame, online.

ln the same way, everyday people like you "package" thcmsc.Jves when they create a great social media profile. And this f>C!SOn•markct:ing perspective is more. valid than ever-

now that almost everyone can find "15 minutes of fame" on a website, a blog. or a YouTube video. \Ne even have a new word- microcelebrity-to describe those who are famous, not

necessarily to millions of people but certainly to hundreds or even thousands who follow theit comings and gojngs on

Facebook, Flickr, or Twitter. Whether it's the guy who sang the "Bed Intruder Song," Boxxy, Gary the Goat," Alex from Target; or even Grumpy Cat,

the lntomct chums out hundn.'<is of temporarily fa. mous people who probably won't be remembered for long.

" ... Value for Customers ,,

CHAPTER 1 J WELCOME TO THE WORLD OF MARKETING 9

IUlfff MEAT? NOPROIWI. J • •

Most successful firms today practice the marketing concept-that is, marketers (in.-t identify consumer

needs and then provide products that satisfy those needs to ensure the firm's long-term profitability.

Practicing the marketing concept is, of course, more

complex and requires that marketers understand the most basic clements of successful marketing.

These clcmcnts-nc..'<is, wants, benefits, de- mand, a market, and a marketplace-arc listed and explained in Table I .I.

~--------------------------~~

To.blel.1 Value for Customers

Term

Need

Want

Benefit

Demand

Market

Marketplace

Definition

The djfference between a consumer's actual state and some ideal or desired state

A desire for a particular product we use to satisfy a need in specific ways that are culturally and socially influenced

A product delivers a benefit when it satisfies a need or want.

Consumers' want for a prod- uct coupled with the means to obtain it.

All the consumers who share a common need that can be satisfied by a specific product and who have the resources, willingness, and authority to make the purchase.

Location where buying and selling occurs

This llalan ketcllJp brand Illustrates how Ille coodlment salisHes a sllTl)le need.

In Practice

If the difference is big enough, the con· sumer is motivated to take action to satisfy the need. When you're hungry, you buy a snack. If you're not happy with your hair, you get a new hairstyle.

tt two students are hungry, the first student may be a health nut who fantasizes about gulping down a big handful of trail mix, whereas the second person may lust for a greasy cheeseburger and fries. The first student's want is trail mix, whereas the second student's want is fast food (and some antacid for dessert).

After seve<al years when sales were dovvn, McDonald's responded to the number-one request of its customers, breakfast all day. The new program attracted lapsed customers back and increased lunch business.1

Demand for a snappy red BMW convert· ible indudes the people who want the car minus those who can't afford to buy or lease one. The availability of scholarships, government aid, and loans has increased the market for college education as more students can afford an education.

Today the exchange may be face-to-face, or through a mail-order catalog, a TV shopping network, an eBay auction, or a phoneapp.

not-for-profit organi zations (also known as no ngovernmental organizations (NGOs]) Orgatizations with charitable, educational convnunity, and othe, public service goals that ruy goods and ser.ices to 51JPPOn their functions and to anraa and serve their members.

marketing concept A management orientation that focuses on identifying and satisfyilg consumer needs to ensure the «9ani:zation's long-term proiitabitity.

need The recognition of al'f difference between a consumer's actual state and sane ideat Of ~red state.

want The desire to satisfy needs in specific ways mat are rulturally and socially influenced.

benefit The outcome sought by a customer that motivates buying behavior that satisfies a need «want.

demand Customers' desires fa, products coupled with the resources needed to obtain them.

market All the customHS and potentjal customers v.h> share a commoo "'1!d that can be satisfied by a specific product,. who have the resoutces to exchange for il. who are willing to make the exchange, and who have the authority to make the exchange.

marketplace AA'j locatioo oc medium used to condua an exchange.

10 PART ONE I UNDERSTAND THE VALUE PROPOSITION

For example, you may need transportation but manl a new Mazda MX·5 Miata convertible. The Miat3 will not only get you from Point A to Point B; it also will provide the benefit of a cool image. Unfortunately, it's possible that Mazda can't count you in their estimates of demand or the size of the mark.et for the MX·S be,cause you can't afford such an expensive ca.t. lo that case you need to check o ut a dlffore.nt marketplace, a used car lot.

Uber am other ride-shanng servi:es are <isrupting lhe lransportatiln marketplace.

0( course, marketplaces continue to evolve. lncrcasingly CQ1,sumcrs, CSpt.."Cially younger ones, would rather rent than pur• cha~ the products they use. One of the biggest changes is in the domain o( car sales, which are plummeting among newer drivers. lnnovalivc start•ups like Zipcar figured out that many people, es• pccially those who Jive in urban art?a.S, would rather rent a tide by the hour instead of dealing with the hassles of car loans and hunt- ing for parking spots when they wc-ren't usii,g their cars. Now rentrepreneurs

Enteq,nsio:) consumers who make money by renting out their possessions when they aren't using them.

collaborative consumption A tenn used to refer to the activities practiced

by rentrepreneurs..

utility The usefulness or benefit that consumers receive from a produa.

the big guys are testing the waters. Volkswagen's Quicar project rents cars in Hanover, Cennany, whereas BMW continues its international expansion of the DriveNow clectric vehide: car-sharing program from Europe to the U.S.

A second change in the transportatio,, marketplace is ride•sharing. Uber has be• come a global phc.nome.non based on this concept. Uber drivers use Lhcir own cars and work when the)' want to. Customers prefor Uber to traditional taxis; many say that Uber drivers treat you better than taxi drivers and bt:.--cause they use their own cars you aren't as likely to find a "science project'' in the back scat.8

Millions of entetprising consume.rs in tum 3-.n! becoming rentrepreneurs as they make money by renting out theit stuff when the)' are:n't using it; they're offering everything from barbecue grills and power toolc; to Halloween cos• tumes and who knows what e.lse on sites like Zilok in France a11d Craigslist in the United States. Some analysts rcfer to this mushrooming trend as collabora• tive consumption.

Marketing Creates Utility

Marketing transactions create utility, which refers to the usefulness or bcneJit we r'Cceive when we use a good or service. When it ensures that people have th~ type of product they want, whe:re and when they want it, the marketing system makes our lives easier. Utility is what crcatt:.'S v~lue.

Marketing processes create sevcra] different kinds of utiJity to provide value to consumers:

• t:orm utility is the benefit marketing provides by transfonning raw materials into finished products, as when a dress manufacturer combines silk, thread,

and zippers to create a bridesmaid's gown.

• Place utility is the benefit marketing provides by making products avaiJable where customers want them. The most sophisticated evening gown St?Wn in New York's garment district is of Httle use to a bridesmaid in Kans..1s City iJ it isn't ship pro to her in time.

Rent 1he f\nNa\' is a servia! starfl,d by 11\o reoent business g:hool g-ads. It rens hilh-end ctesses from desiglers like Diane \IJn fustenberg. loc aixllrt one-tenlh of lhe oost al bu)ilg lhe same g.vment in a store. A ooman can rent a <RSS le, four ni;lhts; It's 5hiJped lfirectlf to la ooorstep nu:h [Ike a Netllx video. The customer relums 1he <RSS il a p"IJ,lid envet,pe am lhe renllll p:ice roudes lhe cost ol dry cleaning. Place ulily al w!II<!

• Time utility is the benefit marketing provides by storing products until they are needed. Some women rent tru'.!ir wedding gowns instead of buying them and wearing them only once (they hope!).

• Possessiou 11tility is the benefit marketing provides by allowing the con• sumer to own, use, and enjoy the product. The bridal store provides access to a range of styles and colors that would not be available to a woman out- fitting a bridal party on her own.

As we've seen, marketers provide utility in many ways. Now, let's sec how customers and oth• <>rs "take dcli"ery" of this added value.

Value for Clients and Partners

Marketing doesn't just meet the needs of consum• crs- it meets the needs of diverse stakeholders. The tc.rm stakeholders refers to buyers, sellers, or investors in a company,. commWlity residents, and even citizens of the nations where goods and services arc made or sold- in other words, any person or organization that has a .,stake" in the outcomf". Thus, marketing is about satisfying cv ..

c-ryonc involved in the marketing process.

Value for Society at Large

CHAPTER 1 I WELC OME TO THE WORLD Of MARKETING 11

durnble

better ror your environment.

.................. ~ ........ -:~.r..w-, .......... ~ • ~ .... _.. .................... -"' ....... ~ . ..., ...

SOLO I i

ls it possible to contribute in a positive way to society and the earth and still contribute to your paycheck? Target, one of the nation' s latgt.:>St rctaiJ• ers, seems to think so. The company announced in its 2012 corporate: responsibility report that t\110 of its top five priorities arc environmental sustainability and tesponsibll:" sourcing. Fot ex .. ample, one goal Target set is to ensure that the seafood sold in its stores is 100 perccJ, t sustainable (caught without negatively impacting ecosystems) and ttaceable (fish can be traced through the sup- ply chain from point of harvest to final product). Also, the retailer gives back to its customers and helps them save money. Through its reusable-bag program., Target has returned more than S7 milHon

'-----'--'-------'-==="-----..;'-=a;"'=' ... ="'"''---'! Green nuketing in action.

to customers (those \'\1hO bring their reusable bags save five cents per bag off their b ill). And more than hall of the chain's appare.J line is labeled "machine wash cold," meaning customcts reduce energy when they wash their clothes (thereby lowering customers· cJcctricity bills).9

1.2 OBJECTIVE

Explain the evolution of the marketing concept.

GQ·Mll~il

When Did Marketing Begin? The Evolution of a Concept Now that we have an idea of how the marketing process works, let"s take a step back and see how this process worked (or didn't work) in "the old days.'., Although it just sounds like common sense to us, be· lieve it or no t, the no tion that businesses and other organizations sue•

cccd when they satisfy customers' needs actually is a pretty n.,cent idea. Before the 1950s, organizationso,,ly needed to make products fas ter and cheaper to be succe,ssful. Let's take a quick look at how the marketing discipline has developed since then. Table 1.2 tells us about a few of the more n:.--ccnt events in this marketfog history.

stakeholders BlJ'JffS, sellers. CN' investors in a CO!ll)any; commtl'lity residents; and even citizens of the nations v.here goods and services are made °' sokl; in other 'h'Ords, any person or organization that has a .. stake'" in the outcome.

12 PART ONE I UNDERSTAND THE VALUE PROPOSITION

Tobie 1.2 I Marketing's "Greatest Hits" Marketing Event Year

1961

1964 1971 1980 1981 1985

2004 2010

Procter & Gamble launches Pampers.

Slue Ribbon Sports (now known as Nike) ships its fim shoes.

Cigarette advertising is banned on radio and TV. Ted Turner creates CNN.

MTV begins. New Coke is launched: old Coke rebranded as Coca-Cola Classic is brought back 79 days late<. Online sales in the U.S. top $100 billion.

Apple launches the iPad; sells 300,000 of the tablets on the first day and 1 million iPads in 28 days-less than half of the 74 days ii took to sell 1 million iPhones. Consumers watch more than 30 billion videos online per month.

2014

2016

Facebook spends S2 billion to buy Oculus Rift, a manufacturer of virtual reality headsets, as it signals the next frontier for social networks. Microsoft buys Linkedln for $26.1 billion.

Sources: Patricia Sellers. "To A,too Trampling, Get Ahead of the Mass," Fon.une, 1994, 201- 2, except as noted. ICeith Regan, -Rep:,rt: Online Sales Top S t OO Bitlioo." June 1, 2004, http:/Nll/t'W.ecommercetimes.co~Of)'/34148.html.

production orientation A management philosophy that emphasizes the most efficient ways to produce and dis1ribute products.

selling o rientation A managerial view of marketing as a sales funaion, or a way to move products out of warehouses to reduce inventoty.

customer orientation A business approach that prioritizes the satisfaction of customers' needs and wants.

The Production Era We think about the history of marketing as moving through four distinct eras, sumrna• riu,d in Table 1.3 and briefly described here. Many people say that Henry Ford's Model T changed America forever. From the start in 1908, whc.n the "Tin Lizzie,'-' or "llivver'' as the Twas known, sold for $825, Ford continued to make improvements in production

Ford's focus illustrates a p roduction orientation, which works be:st in a seller's market when demand is greater than supply because it focuses on the most efficient \~•ays to pro,. duce and distribute products.

The Sales Era When product availability cxca")()s demand in a buyer's market, businesses may engage in the "hard sell," in which salespeople aggressively push their wares. This selling orientation means that ma.nagemcnt views marketing as a sales function, or a way to move products out of warehouses so that invent-orics do,,'t pile up. The selling orientation gain-eel in popu• larity after World War ll and prevailed well into the 1950s. But consumers as a rule don't like to be pushed, and the hard seU gave markctit1g a bad image:.

Companies that still follow a sci.ling orientation tend to be more succcssfuJ at making one- time sales rather than at building repeat business. We arc most likcly to find this focus among companies that seU ,msoug/11 goods-products that people don' t tend to buy without some prodding. For example, most of us aren't exac~y "dying" to shop for cemetery plots, so some encouragement may be necessary to splurge on a final resting place. Even in these categories, however, we stiU may find that compc-titors try to stay on top of consumers' evolving needs. That's why we sec ~,e rise in popularity of ero burials that avoid embalming and encourage cremation and also o,ilinc funerals that stream images of the loved one: on the Internet.

The Relationship Era At Plaza Fiesta outside Atlanta, Georgia, Hispanic cu.itomers are in for a tl'Lv.tt: instead of shopping at a mall, it's more like they're visiting a traditional Mexican village. With a bus station for ease o( access, services like hairdressers or a docl'Or's office, and live music on Sundays, customers come for the experience, not just the shopping.10 Plaza Fiesta found that it pays to have a customer orientation.

As the world's most successful firms began to adopt a customer orientation, marketers had a \,ray to outdo the competition, and firms bt..:.gan to develop mote of an appreciation

CHAPTER 1 I WELCOME TO THE WORLD Of MARKETING 13

Tobie 1.3

Icon

I i ,., f .., i:._·· I f •

j (tt J; I n ! h !; ,i h

The Evolution of Marketing

Era

Production Era

Sales Era

Relationship Era

Triple-Bottom Line Era

Description

Consumers have to take whatever is

available marketing plays a relatively insignifteant role.

When product availability exceeds de- mand in a buyer's market. Management views marketing as a sales function. or a way to move products out of warehous- es so that inventories don't pile up.

Businesses engage in the "hard sell,· in which salespeople aggressively push their wares.

Firms have a customer orientation that satisfies customers· needs and wants.

Business emphasizes the need to maxi- mize three components:

1. The finandal bottom f,ne

2. The social bottom line 3. The environmental bottom line

Example

Henry ford's Model T sold !0< less than S575 and owned 60% of the market.

The selling orientation gained in popularity after World War II when post-war demand had been satisfied and companies needed to sell more.

Organizations research customer needs and develop products to meet the needs of various groups.

Companies try to create financial profits for stakeholders, contribute to the communities in which the company operates. and engage in sustainable business practices that minimize damage to the environ· ment o r that even improve it.

--------------------------------------------

for the ways they could contribute to profits. Companies incn!asingly concentrated on improving the quality of their products. By the early 1990s, many in the marketing commu-

nity followed a total qua lity manage ment (TQM) approach, which is a management phi- losophy that involves all employees from the assembly line onward in continuous product

quality improvement. We'll loam more about TQM in Chapter 9.

The Triple-Bottom-line Orientation More recently, organi-zations began to wake up to the idea that ma.ki.t,g monetary profit is important, but there's more to think about ~,an just the financial bottom line. Instead, they

began to focus on a t riple-bottom-line orient ation.11 This new way of looking at business cmphasi2cs the necrl to maximize not just one, but three components:

1. n,e fimutcinl bottom line: Final"lcial profits to stakeholders

2. n,e social bottom line: Contributing to the communities in which the company operates 3. n,e enviroumi.'11tal bottom Uut: Creating sustainable business practices that minimize

damage to the environment or that even lmprove it

One result of this new way of long•tenn thinking is the societ al marketing concept. It

states that matkc-ters must satisfy customers' needs in ways that also benefit society while

tota l quality management (TQM) A management philosophy that focuses on satisfying customers through el11)0wering employees to be an active pan of contin.uoos quality i~rOYement.

triple•bottom .. line orientation A business orient.ation that looks at financial p-ofits. the community in which the organization q,erat~ and creating sustamable business pracr.ices.

societal marketing concept A management philosophy that marketers must satisfy customers' needs in ways that also benefit society and deii1-e< p,ofit to the frm.

i

14 PART ONE I UNDERSTAND THE VALUE PROPOSITION

Habi!at for lt.manity does ""11 by doing good.

sustainability A 1Yoduct design focus that seeks to crea!e ~oducts that meet present consumer needs without comprcmising the ability of future generations to meet their needs.

green marketing A marketing strategy that suppons environmental stewardship, thus creating a <ifferential benefit in the minds of consumers.

accountability A process of determining jUSI how rooch value an ocganizatioo's mWting activities ueate and their impaa on the bottom line.

return on investment (ROI) The djrect financial impaa of a firm's expenditure of a resource, such as time°' money.

they still deliver a profit to the fitm. A similar important trend now is for companies to think of ways to design and manufacture products with a focus on sustainability_, which

we define as "mcctit1g present needs without compromising the ability of future gcn(T.ltions to meet their necds."12 One

way to think about this philosophy is "doing well by doing good.• Many big and small £irms alike practice sustainability

through their efforts that include satisfying society's cnvi•

ronmental and social needs for a cleaner, safor environment.

Adidas is one of the world's most admired compa• n.ics when it comes to sustainability. In 2015, Adidas was ranked No. 3 of the Global 100 Most S11stai11able Corporatious. Adjdas's sustainability initiatives come from its '"open source" program comprist..""'CI of searching for ideas from vari• ous stakeholders. One Adidas open source partner, Parley

for the Oceans, has a primary goal o( getting plastic out o( the ocean. S..,ginning in 2016, Adidas integrated materials made from ocean plastic waste into its products.13

Sustainability applies to many aspects o( doing business, including social and eco-

nomic practices (e.g., humane working conditions and diplomacy to prevent wars that deplete (ood supplies, atmospheric quality, and of course, lives). One other crucial pil•

lar of sustainability is the envimnmci,taJ impact of the ptoduct. Green marketing means developing marketing strategics that support c,wironmental stewardship by creating an cnviron.mentaUy founded differential benefit in the minds of consumers. GtL"'<!n marketing

is one aspt:."Ct of a firm's overall commitment to sustainability.

In addition to building long-term relationships and focusing on social responsibilil)\ triple-bottom-line firms place a much gn."1ter focus on accountability-measuring just how 1nuch value an organizatioll's marketing activities create. This means that markett?rs at these

organizations ask hard questiolls about the true \ra.lue of thcir efforts and their impact on the bottom line. n,.,.., questions aU boil down to the simple acronym of ROI (return on invest· ment) or, spc'Cifically for marketing, ROM/ (ret11n, 011 t11111*"ti11g inve;tme111). Marketers now

n.>all,e that if they want to assess just how much value ti,,,y create for th., furn, they ru:..'<1 to know exactly what they are spending and what the concrete n.'Slllts of their actions are. You

will learn more about ROM! in O,apter 3.

However, it's not ah'lclys so easy to assess the value of marketing activities. Many times,

managers state thcir marketing objt..--ctivcs using vague phrases like "increase awareness of our product• or "encourage people to cat healthier snacks." These goals arc importan~ but

their lack or specificity makes it prctty much impossible for senior management to determiN,

marketing's tru~ impact fkcause management may view these efforts as costs tathc-t than investments, 1narket11"1g activities often are among the first to be cut out of a firm's budget.

To win continued support for what they do (and sometimes to keep their jobs}, marketers in

triple-bottom-line firms do their best to prove to management that they gcncrate measurable

value by aligning marketing activities with the firm's overall business objcctivt."S.H Millc.Coo,s believes that a critical part of implementing accountability is that fmanre pco-

pw respect matkcting people for their knowledge and ,•ice versa. The company has made this possible by developing a closer bond between the two groups. The CFO and CMO have ad•

jac.,nt offices and finanre people have been dispersed among thdr marketing oountcrparts.15

What's Next in the Evolution of Marketing? Although no one can really predict the future, most agree that in the years ahead we will see an acceleration of the most important factors that marketers think about today. These

predictions include: Cood conte:nt., big data, mobile marketing, marketing metrics, cus,,

tomcr interaction, and the demand for coinpanics to do good even as they do wcll 16 Let's briefly dive in and sec what these terms mean.

CHAPTER 1 I WELC OME TO THE WORLD Of MARKETING 15

Mobile marketing, interacting with consumers via mobilt:- phones, tablets, and wearable scn.""Cf\s such as smart watches, will be one of the prime factors in markctintfs future. Not only will these small screens aUow for m0tc f')t?rsonaJized relatioilShips with customers but the growth of mobile screens in developing countries will exponentially increase the number of potential customers.

Customers' demand for good content \ti.rill contu,uc to dominate onlinc marketing. User• generated content (also known as coosumcr--gmcrated. contcnt)1 in which consumers engage in markcting activities such as creating advertisements, will grow and overtake the impor• tance of branded content. Branded content has been a.t'I important oommunicatioi, strategy for a number of years. ll is produced by a brand and may even indicate the brand is the sponsor but still presents itscl! as something other than an attempt to sell a product. Tlie Lego Movie was a great example of branded content. Despite the claims that the movie was not created to selJ Lcgos_, the company did have a major say-so in decisions about details of the movie.

Consumers' use of online reviews, biogs, and social media will require more than ever that brands create a positive image with evety customer a.nd in any place that the company touches him or her whether online or offline. AU 0£ this means that branding will increas .. ing.ly become a two-way conversation allowing consumers to have a greater voice. Because this increases the ability of marketers to track co~---umer behavior, they will be able to p ro- vide a more _personalized brand communication experience.

Finns th.at do \,tell by doing: good will become more important than ever. Customers wiJJ continue the current trend of rewarding btands that do good and pun.ishj.ng those that do not. Corporate citizenship, also called corporate social responsibility, refers to a firm's responsibility to the community in which it ope-rates a.nd to socicty i.n gcn(T.11. 1n the future, good corporate citizenship will bt..."Come a major marketing function.

Th~ ability to effectively interpret the increasing volume o( consumct data will actu• aUy improve collSumer lives. Although the primary purpose of consumer big data is to increase the ability of marketers to ere.ate better products to improve customer service, the

use of that same data can provide better health care and even improved tramc. Ev~r won• dl!r w hy there arc two or th.rec Starbucks' locations only a block away from each other? Starbucks' uses big data that includes street traffic analysis and demographic information to find new store locations that will be successfuJ.17 We'll do a deeper dive into big data in O,apter 5.

Ripped from the Headlines

mobile marketing Interacting with conSt1T1ers via mobile devices {i.e .• ph~ tablets. and wearable screens such as smart watches).

user-generated content (also referred to as consumer-generated content) Marketing content and activities created by consumers and users of a brand such as advertisements, online reviews. b4og,. social media. input to new produa development or serving as vdlolesalers °' retailers.. online reviews, blog~ and social media.

branded content Marketing communication dEYeloped by a lnnd to prowle educational or entertainment vatue rather man to sell me brand in ord« to develop a relationship with constrners; may indicate the l:tand is the sponsor.

corporate citizenship A!so referred to a corporate social responsibility, refers to a finn's responsibility to the c001mulity i'I which they opera1e and to society in general

screen addicts Consumers who spend so much time on smartphones,. tablets, and COITiluters that it interferes with more normal activities and JXoductivity.

growth hacker Experts who work on apps and sites to better hook consumers and k,.p them coming back and staying long«

Ethical/Sustainable Decisions in the Real World How much time do you spend usfog your smanphone and your tablet each day? Are you one of the millions of college students who pulls out your smanphone to read your ematl, check your Facebook page, or play a game before class begins? What about during class (never!)? If so, you may be one of the millions of college students who are ad· dieted to their smaJI screens. Nearly three-quarters of Americans (7 1 %) sleep with their smartphones, and 3 percent actually hold them all night long while they're in Dreamland. And, get this: More than 1/3 of respondents to a recent survey said their phones are the first thing on their minds when they wake up (only 10 percent said their significant other was). 18

Some experts suggest when children become addicted, this can damage their physical and mental health, just as addiction to alcohol or drugs. A British Heart Foundation study found that only 1 in 10 toddle" in me iPad generatioo is active enough to be healthy. 19

Of course. it isn't just college students who are addicted to their phones and tablets. Children have traded in meir Barbie dolls, Hot Wheel\ and Ninja Turtles for small screens as well. The ixoblem is that young children, teen.s. and adults can rapidly become screen addicts.

And the tech companies continue to w01k to increase the amount of time consumers, young and old. spend on smartphones and tablets. The industry term for experts who work on apps and sites to better hook consumers. keep them coming back and staying longer is growth hackers.20

There are some company leaders and designers who woold like to do things di!· fecendy, but there are greater incentives to continue growth hacking. Is thi:s unethical? Should indusuy leaders, as good corporate citizens, work to inhibit Internet addiction? Should they develop app< to send an alert to use<s when mey stay too long or provide some othei means to stop addiction?

rntCS CIIECIC: "-

Should cnmpanie5 lry ID increase the amount of time CD!l5Ulllffl ,pertd with the.. small saeens7

D YES D NO

16 PART ONE I UNDERSTAND THE VALUE PROPOSITION

value proposition A martetplace offering tha1 fairly and accura1ely S<Jms up the value tha1 will be realil!d if the good °' service is ptKchased.

1.3 OBJECTIVE Understand value

kom the pe«pectives of customers,

producers, and

society.

liY·lf·iifi

The Value of Marketing and the Marketing of Value We said that marketing is all about delivering value to everyone who is affected by a transaction. That includes the customer, the seller, and society at large.

How do customers decide how much value Lhey will get from a purchase? One way to look at value is to think of it simply as a ratio of benefits to rosts,-that is, customers ''invest" their precious time and

money to do business with a firm, and they expect a rertain bundle of benefits in return.

Let's look at value from the diffo.rcnt perspectives of the parties that are involved it, an

exchange: the customers, the selJcrs, and society.

Value from the Customer's Perspective Think about something you would like to buy, say, a new pair of shOL""S. You have narrowed

the choice down to several options. Your purchase decision no doubt will be a{focted by the ratio of costs vc,rsus benefits for each type of shoe. When you buy a pair of shoes, you consider the price (and other costs) along with all the other benefits (utilities) that each

competing pair of shoes provides you. Markctcrscommunic.atc these benefits to the customer in the form of a value proposition,

which is a marketplace offering that fairly and accurately sums up the value that the cus-

tomer will realize if he or she purchases the product. The value proposition includes the whole bundle of beru>fits the furn promises to deliver, not just the benefits of the product itsclf. For example, although most fX'<>ple probably won't get to their destination sooner ii they drive a BMW versus a Mercedes-Benz or Audi, many die-hard loyalists swear by their favorite brand.

These archrival brands arc largely marketed in terms of their images-meaning the

images their respective marketing communkation firms have carcluJly crafted for them with the help of slickly produced commercials, YouTub<, videos, and millions of dollars. When you buy a BMW, you do more than choose a car to get you around town, you may also make a statement about the type of person you a.re or wish you were. 1n addition to providing a luxury ride or superior maintenance services, that s ta tement al,;o is part of th!! value the product delivers to you. The challe:nge to the marketer is to creal'e a killer value

proposition. A big part of this challenge is to convince customers that this value pmposi• lion is superior to others they might choose from competitors.

Value from the Seller's Perspective W<!vc seen that marketing transactions produce value for buyers, but how do sellers ex• penencc value, and how do they decide whether a transaction is valuable? One answer is obvious: They dete:m,i:nc whether the exchange is profitable to th~m. Has it made money for the company's management, its workers, and its shareholders?

That's an important factor,. but not the only one. Just as we can't measure the value o( an automobile from the COf'lsumct 's perspective only i.n terms o( basic transportation, value

from the sclJct's perspective can take many forms. For example, in addition to making a buck or tw"o, many firms measure value along other dimensions, such as prestige among rivals or pride ln doing what they do well. The online shoe retailer Zappos's top-core value

is to ''Deliver WOW th.rough service:." Some organizations by dclinition don't even care about making money, or they may not even be allowed to make money. Nonprofits like

CHAPTER 1 I WELCOME TO THE WORLD Of MARKETING 17

Greenpeace, the Smithsonian Institution, or National Publk Radio regard value in tcnns of their ability to motivate, educate, or de.light the public.

ln recent years, many fi rms have transformed the way they do business. They now n..~ard consumers as partners in the tran.,;action rather than as passive "'victims.,. That ex• plains why it's becoming more common for companies to host events (sometimes called brandfests) to thank customers for ~,eir loyalty. For example, Jeep builds strong bonds

with its Jeep 4 X 4 owners when it holds several off.•road adventure weekends evc-ry year. These Jeep Jamborees are where other Jeep owners get to challenge the limits of their 4 x 4s on off· road trails and commune with felJow brand Joyalists.21

Jeep's cultivation of its 4 X 4 enthusiasts reflects an important lesson the company understands very well: // is nrort ~xpe11sive lo attract ne'"tv customers lhau it is lo retain cur• rent oues. This notion has transformed the \<\ray many companies do business, and we'll repeat it several times in this book. However, there is an important exception to the rule: In recent years, companies have bec.n working harder to cakulate the true value of thcir relationships with customers by asking. ''How much is this customer really worth to us?-" Firms recognize that it can be costly in terms of both money and human effort to do whatever it takes to keep some customers loyal to the company. Often these actions pay off, but there arc cases in which keeping a customer is a losing proposition.

Companies that cakuJate the lifetime value of a customer look a t how much profit they expect to make from a particular buyer, including each and every purchase he or she will make from them now and in the future. To calculate lifetime value, companies estimate the amount the persor, will spend and then subtract what it will cn;-t to maintain this rclation,;-hip. The Metrics Moment box illustrates one approach to how marketers measure customer value.

Provide Value through Competitive Advantage

Firms of all types seek to gajn a compe titive advantage-an edge ovcr its competitors that allows it to have higher sales, higher profits, more customers-in short to enjoy greater success year after year. ln general, a competitive: advantage comes from either a

cost advautaKe or a differeuJUl/ adv,mtage. A firm has a cost advantage when the: fitm can produce a good or service at a lower cost than compctHors and thus charge customers a lowe:r price. A differential advantage means that the firm produces a product that differs

s ignificantly from competitors' products and customers see the product as superior. How does a 6rm go about cn.>ating a competitive advantage? The firs t s tep is to identify

what it does really well A distinctive competency is a firm's capability that is supc-rior to that

of its competition. For cxamplc, Coca.Cola's success i.n global markets-Coke CQmmands 50 _percent of the world's soft-drink business-is related to its distinctive competencies in distribution and markctil'lg communications. Coke's distribution system got a jump on

the competition during \<\'orld War ll, when Coke partnered with the military to make sure <>very soldier had access to its soft drink. The military actually paid for the transportation of Coca.Cola and hclpcd the company to build bottling plants to keep the troops happy.22

Coke's skillful ma.rketing communicatfons pn,gram, a second distinctive competency, has contributed toils global success. Coke doesn't market its product; it sells "happiness. •

The second st'cp to develop a competitive advantage is to turn a distu,ctive compe-,

te.ncy into a differential benefit-value that competitors don't offer. Differential benclits set products apart from competitors' products by providing something unique that cus• tomers want, that is the competitive advantage. Differential benefits provide reasons for

customers to pay a prcmjum for a firm's products and exhibit a strong brand prefere:nce. For many years, loyal Apple computer users benefited. from superior gl'aphics capabiJ .. ity compared to their PC•using counterparts . Later, when PC manufacturcrs caught up

with this competitive advantage, Apple relied on its inventive product designers to ere• ate another dif-fcrcntia.1 bencJit- futuristic--looking computers in a multitude of colors.

brandfests E\•ents that companies host to thank rustomers f0< their la,alty.

lifetime value of a customer The potential profit a single custome<'s purchase of a firm's produas generates <1ffl the customer's lifetime.

competitive advantage A fvm's edge over its competitors that allov.'5 it to have higher sale~ t»gher profits. and mOl'e rustome,s and enjoy gceate< success year after yeac

distinctive competency A Sl.()("lior capability of a firm in comparison to its direa competitors.

diffe rential benefit l\'.operties of produc,s that set them apan from co~titors' products by pro,nding unique customer benefits.

18 PART ON E I UNDERSTAND THE VA LUE PROPOSITION

Metrics Moment This section highlights the concepts of value and the value proposition that firms and their offerings bring to customers. But how do market· ers actually measure value? Increasingly, they develop a marketing scorecard that reports (often in the form of numerical values} how the company or brand is actually doing in achieving various goals. We can think of a scmecard as a marketing department's report card. Scorecards tend 10 be short and to the point. and they often include charts and graphs to summarize information in an easy-to-read format. They might report ·grades" on factors such as actual cost per sale, a comparison of web hits (the number of people who visit an e-commerce site) versus web conversions (the number who actually buy something at the she), a measure of customers' satisfaction with a company's repair facilities. or perhaps even a percentage of consumers who respond to a mail piece

that ask.s them to make a donation to a charity that the firm sponsors. You can see an example of a simple scorecaid in Table 1.4. Throughout this book. we'll give you the opportunhy 10 • gel your hands dirty" as you calcuJate various kinds of scores. or metrics.

Apply the Metrics

1. Using Table 1.4 as a template. develop a scorecard forstudent satisfaction whh your marketing dass. You will need 10 develop your own relevant items for satisfaction measurement.

2. Then have the students in your class complete the scorecard now and again in the mjddle of the semester.

3. Summarize, interpret. and present the resul~

marketing scorecards Feedback vehides that'"'°" (a/ten in quantified terms) how the company« brand is actually doing in achM!lling va,ious goal<

metrics Measurements or ·scorecards'" that marketers use to identify the effea;,eness of different strategies or tactic.s..

value chain A series of aaivmes involved in designing. producing, marketing. deli\'e,ing. and supporting ""I produCL Each fink in the chain has the potential to either add °' ten10\'f value from the p,-oduct the customer eventually buys.

rab1e1A I An Example of a Customer Service Scorecard Quarterly Scores

Item 1st Qtr. 2nd Qtr. 3rd Qtr.

Satisfaction with

C 1 Employee responsiveness 60% 65% 68% C2 Product selection 60% 62% 63% C3 Service quality 60% 62% 55%

C4 Cleanliness ol facility 75% 80% 85% CS Knowledge of employees 62% 62% 58% C6 Appearance of employees 6-0% 62% 63%

C7 Convenience of location 6-0% 65% 68%

Source: Adapted from C. F. l.oobdy and C. Rasinowich. '1he Missing Link: Cause and Effect Linkages Mate Mad:eting Scorecards More valuable," Mark.er.ing Research, Winter 2003, 14-19, p. 18. Copyl'qlt Cl 2003 Amecican Mart:eting Association.

This competitive advantage even tempted many loyal PC users to take a bite of the

Apple (se<? Table t.5).

Add Value through the Value Chain

Many different p layers-both within and outside a firm- need to work together to create

and deliver value to customers. The value chain is a useful way to appreciah? all the play• c.rs that work together to Ctt.Yc\te value. This tenn refers to a series of activities involved in d esigning, producing, marketing, delivering, and supporting any product. In addition to marketing; activities, the value chain includes business functions such as human resource

manage.me:nt and technology dcvelopment.23

The vaJue chain concept reminds lL<; that every product starts with raw mat'erials such as

iron ore or crude oil that arc of relatively limited value to the end cus tomer. Each link in~ chain has the potential to either add or remove value from the product the rustomcr evenhJ• ally buys. The successful firm is the one that can perform one or more of these activities bL~er

than other firms; this is its distinctive competency a nd thus provides an opportunity to gain a competitive advantage. 1ne main activities of value dlain mern.bers indude the foUowing:

• lubound logistics.· Bringing in materials or component parts necessary to make the product-

• Opt"ffltions: Convl'!rting the materials into another form or lhc final product

CHAPTER 1 I WELCOME TO THE WORLD Of MARKETING 19

Table 1.5 I How Firms Achieve a Competitive Advantage with a Distinctive Competency2•

Company

Coca-Cola

Apple

Southwest Airlines

Amazon.com

Starbucks

Distinctive Competency

Distribution and marketing communications

Product quality a nd design

Price point

fulfillment and distribution

Product quality

• Outbound logistics: Shlpping out the final product

• Mark,,ti11g: Promoting and selling the final product

Differential Benefit Convenience and brand awareness for customers all over the world

Easy access to cutting-edge technology

Appeals to budget-conscious consumers

Availability. convenience, and ease of access of product

Customer satisfaction

• Service: Meeting the customer's needs by providing any additional support required

To better understand the value chain. consider a new i.Pad you buy at your local

Appl• store. Do you think about aU the people and steps involved it, designing, produc•

ing., and dc.Jivcring that product to the store? And there arc other pt.--ople who create brand advertising, conduct consumer research to figure out what _pt.."'Oplc like or dislike aboul their small tablet, or even make the box it comes in or the _packaging that keeps the unit

from bcing damaged in shipment? Without these people, there simply would be no il'ad, only a box of raw mate.rials and parts.

As @jJ Figure 12 shows, all these activities and companies belong to Apple's ,alue chain. This means that Apple must make a lot of decisions. What electronic components will go into its music players? \Nhat accessories will it include in the package? What trucking companies, wholesalers, and retailers wilJ deliver the iPods to s tores? What service will it

F;gure 1.2 '.iaiJ Snapshot I Apple's Value Chain Apple's value chain includes inbo...-id logistics, ope,ations, outbound logistics, marketing and sales, and ~ice.

Inbound Operations

Outbound Marketing logistics logistics and Sales

• Planar lithium • Consumer • Trucking • Advertising battery (Sony) research companies • Sales force

• Hard drive (Toshiba) • New product • Wholesalers • MP3 decoder and development • Retailers

controller chip team (Portal Player) • Engineering

• Flash memory chip and production (Sharp Electronics Corp.)

• Stereo digital-to-analog converter (Wolfson Microelectronics ltd.)

• Firewire interface controller (Texas Instruments)

Competitive Advantage Other soft drinks are unable to take loyal customers away from Coke. Coca-Cola has more than 50% of the world soft-drink market.

Apple's sales of its Mac computer inaeased 28.5% as the overall market for PCs decreased.

Southwest is the number one domestic carrier in the U.S. Amazon holds about a 50% market share for books sold via the Internet.

Starbucks has just under 33% of the market share in its industry.

Service

• Computer technicians

Source: Based on information fran Eli: Sherman. "Inside the Apple iPod Design Triumph.• May 27, 2006, http:/Jwww.designchain.convCOJerstocy.asp?iisue=summer02.

20 PART ONE I UNDERSTAND THE VALUE PROPOSITION

Figure 1.3 (y) Process I Create and Deliver Value provide to customers after the sale? And what marketing strate. gics will it use? 1n some cases, members of a value chain will work together to coordi:natl? thcir activities to be more cJficient and thus

create a competitive advantage.

This book is organized around the sequeflce of steps necessary to ensute that lhe apptopriate value exchange occurs and that both parties to the transaction are satisfied. Each step co"esponds to one or the book's f ive parts. We've organized this book around the series of steps in the

marketing proo,ss. Each o( these steps i$ essential to ensuring

that the appropriate value exchange occurs and that both par• ties to the transaction arc satisfied- making it more likely they'll continue to do business in the furure. ryl Figure 1.3 shows these s teps. Basically, we're going to team ~ut what marketers do as a product makes its way through the (irm's value chain from obtaining the raw materials and component parts to p roduce the

product to dclivery into the customer's hands.

-

ti e e ,

-

Understand the Value Proposition

+ Determine the Value Propositions

Different Customers Want

[P,.,r • ,o,

+ Develop the Value Proposition for

the Customer

\~d ,T ree)

+ Deliver and Communicate the

Value Proposition ~ <)l,

We'll start in Part 1 with a focus on how companies plan for success with global and ethical marketing strategics. In Part 2, we'll

s,,e how research and Big Data help marketers under.stand and meet the different needs o( different customers. Then Part 3 takes a look a t

how firms decide to "position" the product in the marl<etplace, in·

duding choices about what it should look like, how its value should be communicated to customers., and how much to charge for iL As \\•e reach the end of our market:i.t,g journey in Part 4, we'll talk about

how the product gets delivered and proinoted to consumers.

Consumer-Generated Value: From Audience

to Community

As we discussed carlic-r, one of the most exciting changes in the world o( marketing is that everyday people actually geuerale

value instead of just buying it; consume.rs an~ turning into ad- vertising: directors, retailers, and new•product...dcvclopmcnt consultants. They create their

haul videos

own ads (some flattering. some not) for products and post th~ on sites like YouTubc.

They buy and sell merchandise ranging from Beatles memorabilia to washing machines (to body parts, but that's another story) on eBay. They share ideas for new styles with fashion designers, design new adve-rtising, and customize their own unique versions of products

on websites. Some even proudly announce the latest s tuff they've bought in "haul videos" they shoot and post on YouTubc (if you don't believe us, just search for ~haul videos'' and

sec how many people take the time to do this).

Videos. consumers post on You Tube that detail 1he latest stuff tlley bought.

Thcsc profound changes mean that marketers must adjust their thinking about cus .. tomers: They need to stop thinking of buyers as a passive audience and start thinking o( them as a community that is motivated to participate in both the production and the con•

sumption of what companies sell. They also are pa.rt of the brand communication process as they create thcir own \rideos, provide product re\riews, and participate in b1ogs. Some examples of this consumer-generated content include:

• Chirardelli Chocolate broadcast consumer•gcnc-rated comments in New York's 11mcs Square about when and where they most enjoyed eating its chocolate squarcs.25

• At iRcpor~ budding citizen journalists can upload photos and videos to CNN in re- sponse to breaking 1"1e\•,.rs. The most timely and CQ1npelling of these stories have the potential to be vetted (cleared) and aired on th~ CNN TV netv.rork.26

• Ritc.Solutio.,s, a software company that builds advanced command•and-rontrol sys,, terns for the U.S. Navy, sets up an internal '"pn.."Cl.ictioo market"' in which any employac can propose that the company acquire a new technology., enter a new business~ or make an efficiency improvement. These proposals become s tocks, complete with ticker

CHAPTER 1 I WELCOME TO THE WORLD Of MARKETING 21

symbols, discussion lists, and e-mail alerts. Employees buy or sell the s tocks, and prices change to reflect tho sentiments of the company's engineers, computer scientists, and project managers--as well as its marketers, accountants, and even the receptionist. One

"stock'' resulted in the development of a new product that now accounts for 30% of the compants saJcs.27

• For almost a decade, Doritos cashed in on its ucrash the Super Bowl" contest1 where

fans submitted their best 3(},,sccond commercials. The winning commercial (as voted on by fans) was aired during the Super Bowl game, and the winner received not only bragging rights but also took home a cool SI million. 28

Consumer-Generated Value: Social Networking

In the 1990s, the lntemct (Web 1,0) was typified by static content provided by a site's creator. Businesses and institutions permitted tittle consume:r involvement on wcbsitcs.29

These commercially and technicaUy based oro,anizations crc-atcd s ites that were crude,

s imple., and designed to accomplish one specific function. Later, Web 2.0 offored marketers twc,.way communication through social networking sites such as Faccbook.. r,eople wrote biogs and E-coinmcrce cXpanded.

Web 3.0, where we are now, offers consumers f'l.v.il •timc instant communications through live dmts and instant mcSSaging. When a marketing blunder is announced on the news such as Chipotle Grill's tainted food crisis, consumers blanket Twitter and FaC<!book

with comments and complaints. Marketers are able to track customers' browser behavior so that ii a customer searched for a sleeping bag, sle.'Ping bags would be advertised/promoted on the main page and often on a totally different web page later. Maybe you've noticed that

the things you search for tend to "follow" you a.round even as you visit other sjtes. Marketers arc now beginning to enjoy the bcnclits provided by Web 4.0, which offers

customer er1gagerncnt, cloud operations, and wCb participation as necessities. This means that

marketers can now do much more than seU products to customers and the customers post their experiences and opinions of the products. To be sllCCCS.SfuJ in our fast,changing lntcmct• connected lives, companies must engage customers with the brand through social mt.1<J.ia, biogs and other online channels. Although we may imagine the Ooud as a physical place, in reality it's a network of servcrs, all having different functions. Because the Ooud provides an almost in.finite amount of storage spare, your SL··hool may have moved your c-maiJ to the Ooud. Some

software companies have moved thcir programs to the Cloud. For example, small business owners now have the option of buying or paying a monthly subscription to QuickBooks. 30

With the: web, consume-rs create value through social media, which are lnternct•based platforms that allow use.rs to creat·c their own content and share it with others who access thcir s ites. Soc:iaJ media include, among others, socia1 networks such as Faccbook and Twitter and product review sites such as TripAd\risor. On social networtcing platforms, a

user posl,; a profile on a website and he or she provides and receives Jinks to o ther mcm· bers of the network to share input about common l.ntcn."St:S. The od.ds are that you and most of your classmates cheeked your Faecbook page before (or during?) class today.

Social media platforms like this arc VC'tY hot today; more and more advertisers realize that these sit('S arc a great way to reach an audience that tunes in regularly and cnthusiasti• cally to catch up with friends, cheek out photos of what they did at that outragoous party

Saturday night (ouch!), proclaim opinions about political or social issucS, or share discov• cries of new musical artists.31 They share scvcraJ important characteri.~tics:

• They improve as the number of use:rs increases. For example, Amazon's ability to rec• om.mend books to you based on what other people with similar interests have bought gets better as i t tracks more and more people who e1,terscatch queries.

• Their currency is eyeballs. Google makcS its money by charging advertisers according

to the number of petlplc \\.1ho St."e thcir ads after they type in a search term.

Web 1.0 The beginning phase of the Internet that offered static content provided U, the owner of the site.

Web2.0 The second generation of the World Wide Web that incorporated social networking and user interactivity via rwo-way communication.

Web3.0 The current generation of the web that offers consumers real·time instant communkations throug, li,e chats and instant messaging am marketen the ability to uack customer5' online behaviot

Web4.0 The web gives consumers access to thousands of apps and mates the abilty to use their smartphones and tablets to access brands ~· and anytime a necessity.

Ooud A networ1< of servers that provide an almost i'lfinite amoum of storage space.

social networking platforms Online platforms that allow a user to re,:resent himself or herself via a profile on a website and povide and receive links to other members of the network to share input about comrnoo iuerests.

22 PART ONE I UNDERSTAND THE VA LUE PROPOSITION

folksonomy A dassification system that relies on users rather than preestablished systems to sort contents.

wisdom of aowds Under the right cirrumstances., gr01.J1S are smaner than the smanest people in them, meaning that Large nurri>ers of consumers can predia SU<cessful products.

crowdsourcing A P'actice where firms outsource marketing activities (such as selecting an ad) to a convnooity of users..

• They arc version free and in _perpetual bcta. Unlike static websites or books, content is always a work in progress. Enthusiastic users who serve as volunteer editors coo• stant!y update Wikipedia, the online cncydopc>dia and "correct" others' errors.

• They categorize e.nlries according to folksonomy rather than utaxonomy." ln other words,. sites rely on users rather than prcestablishcd syst~ms to sort contents. Listeners at I''andora create their own "radio stations" that p lay songs by artist,;; they choose as well as othc.t similar artists.12

This last point highlights a key change in~"' way some new media companies approach their businesses: Think of it as marketing strategy by committee. The wisdom of crowds _persp,.'Ctive (from a book by that name) argues that w,der the right circumstances, groups

are smarter than the smartest people in them. If this is true, it implies that large numbers of (noncxpcrt) consumers can predict successful products.33 Marketl.!r'S rely on crowdsourdng when thc'Y outsource marketing activities to a large group of poople, often through a social networking community. For example, Lego offers up its Lego CUUSOO crowdsourcing platform to solicit product and concept ideas from fans. The company periodicaUy reviews the ideas that gamer 10,000 supporters to see which ones might merit the cha.nee to bt."COmc a real Lego product, such as the Glrl})tbusters 30th Anniversary set, and ''winners'" cam I pero,nt of the profits on net sales." We'U talk more about crowdsourcing in Chapter 13.

Value from Society"s Perspective Every company's activities influence the world around it in ways both good and bad. Therefore, we. must also consider how markct.i.ng transactions add or subtract value from

society. ln many ways, \,re as consumers are a t the mercy 0£ marketers,. because we trus t them to sell us products that are safo and perform as promised. We also trust them to price and distribute these products fairly. Confl icts often arise in business when the: pressure to

succeed in the markctplace provokes dishonest business practices; the huge faiJure of ma• jor financial services organizations like A1C and Goldman Sachs is a painful case in point.

Companies usually fu,d that stressing ethics and social responsibility also is good

business. The tntcmet and social media mean that consume.rs communicatt? about unsafe or faulty p roducts, bad service, or scams. Some find this out the hard way:

The US. Environmental Protection. Agency accUSLl(i Volkswagen AC of using software

to make 482,000 Volkswagen diescl•powcrcd cars appear cleaner than they were. After first denying the accusation, Volkswagen later admitted to the charge. VW stock lost a third of its value in one day and the company faced the possibility of billio1'5 of dollars in fines.35 rn

contrast, Procter & Camble voluntarily withdrew its Rely tampons from the market follow• ing reports of women who had suffcn.'<i toxic shock syndrome (TSS). Although scientists did not claim a c.ausal link between Rely and TSS, the company agreed with the Food and

Drug Administration that they wouJd undertake ext·~ ivc advertising notifying women of the symptoms of TSS and asking them to return their boxes of Rely for a refund. The com• pany took a $75 million loss and sacrificed a n unusually successful new product that had

aln.'3dy captured about one-quarter of the billion-dollar sanitary product market.36

The Dark Side of Marketing and Consumer Behavior

For some-hopefully not many and hopefully not y,,11 after you read this book-marketing is a four,.lettcr word. Whethct intentionaUy or not, some marketers do violate their bond of trust with consumers., and unfortunately the ., dark sidc'1 of marketing: often is the subject of

harsh critkism.37 ln some cases, these violations arc illc-gal,. such as when a retailer adopts

a "bait•and.sw"itch" selling strategy, luring COI\Sun\C.ts into the store with promises of i.t1cx • p,,nsivc p roducts with the sole intent of getting them to switch to higher-priced goods.

In other cases, marketing practices have detrimental eHccts on society even though

they arc not actually ill~. Some alcohol and tobacco companies advertise in low• income neighbomoods where abLLS<' of these products is a big problem. O thers sponsor

CHAPTER 1 I WELCOME TO THE WORLD Of MARKETING 23

commercials that depict group$ of people in an unfavorable light or sell products that en•

courage antisocial bcl\avior. An online game based on the Columbine High School massa·

ere drew criticism (rom some who say it trivializes the actions of the two tcc.n killers. We'll

talk more about marketing ethics in Chapter 2.

Despite thi' best efforts of researchers., govl!mmcnJ r"L"'glllators, and concerned industry people, sometimes consumers' worst enemies arc thcmsclves. We tend to th.ink of our•

selves as rational decision makers, calmly doing our best to obtain products and sctViccs

that will maximize our hea]th and wclJ•bcing and that of our families and society. ln real· ity, howcvet, our desires., choiet.'S, and actions often result in negative consequences to

ourselves and the society in which we live:. Some of these actions arc relatively harmless,

but others have more onerous consequences. Some harmful consumc::r behaviors., such as

cxccss:i ve drinking or cigart."tte smoking, s tem from social pressun..'.'S, and th~ cultural value

that people place on money encourages activities such as shoplifting or insurance fraud.

Exposure to unattainable ideals of beauty and success can create dissatisfaction with the

scl!. L.ct:'s briefly review some dimensions of the "dark side" of coi\Sumer behavior:

Addictive cv11.sumptio11: Consumer addiction is a physiological or psychological dcpen• dcncy on goods or services. These problems, of coursel includ~ alroholismi drug

addictioni and cigar\...--ttes, and many companies profit from addictive products or

by selling solutions. More recently, as we've already seen many have become con• ccmed about small screen addiction. Although most people equate addiction with

drugs, consumers can use virtually anythit1g to relieve (at least temporarily) some

problem or satisfy some need to the point that reliance on il bc<:omcs ~trcme ..

"Shopaholics" tum to shopping much the way addicted people tum to drugs or

alrohol.38 Numerous treatment centers in China1 South Korea, and Taiwan (and

now a few in the U.S. also) deal with cases of lntemct or small screen addiction-

some hardcore gamers have become so hooked that they literally forge t to eat or

drink and die of dehydration. There is even a Chap Stick Addicts support group

with approximately 250 active mcmbers!:w

Illegal activities: The cost o( crimes th.at consumers commit against businesses has been estimated at more than S40 bilUon per year. A survey the McCann•Erickson adver• tising agency conducted revenled the foUowing tidbits:'°

• Ninety-one porccntof proplesay they lie regularly. One in three fibs about their weight, one in four fudges thcit incoinc, and 21 percent lie about thc:ir age. Nine percent even

lie about their natural hair color.

• Four out of 10 Americans have tried to pad an insurance bill to cover the deductible:.

• Nineteen percent say they've s:nuck into a theater to avoid paying admission.

• More than three out of five pc'<>ple say they've taken credit for making something from

scratch when they have done no such thing. Accon:ling to PiUsbury's CEO, this "bchav•

ior is so prevalent that we've named a category after it-speed scratch."

S/1ri11kage: In 2014, shrinkage cost retailers an average of 1.38 percent of lhcir total sales or $44 million. Shrinkage is the industry te:rm for inventory and cash losses

from shoplifting, employee tholt, and damage to merchandise. As we'U sec in

Chapter 12, this is a massive problem £or businesses, one that they in turn pass on

to consumers in the form of higher prices. Analysts attribute about 40 percent of the IOSS<2S to employees rather than shoppers.

Anticonsumplion: Some types of destructive consumer behavior a.re anticonsumption, when people delibcratcly deface or otherwise damage products. This practice

ranges from relatively mild acts like spray-painting graffiti on buildings and sub•

ways1 lo serious incidences of product tampering or even th~ release of computer

viruses that can bring J.argi? corporations to their knees.

consumer a ddiction A physiological or psychological dependen<y on goods or se,vim induding alcohor.sm, drug addiction, cigarettes, shOjlping. and use of the Internet.

shrinkage Losses experienced tr,, retailers as a result of shoplifting. em~oyee theft. and damage to merchandise.

anticonsumption The deliberate delaa.ment of prOOOC!S.

24 PART ONE I UNDERSTAND THE VALUE PROPOSITION

mass market All posslble CUSlomer, in a mar!:et. regardless of the differences in their specific needs and wants.

martc.et segment A distrnct grot.e> of customers within a larger matktt who are similar to one another in some way and >MlC!se needs differ from other rustomers in the largH market.

target market The marh!t segments oo which an orgarization focuses its marlteling plan and toward v.!lich it directs its marketing efforts.

1.4 OBJECTIVE Explain the ba,ia

of ma,ket planning.

l@tfi

Marketing as a Process Our dcfiniHon o( market.11",g also refers to processes. This means that marketing is not a one--shot operation. When it's done right, market• ing is a decision process in which marketing managers determine the

s.trat~ics that will help the firm meet its objectives and then execute those strategics using the tools they have at their disposal. 1n this sec,,

tion, we' ll look at how marketers make business decisions and plan actions and the tools

they lL«? to execute their plans. l'\\,'U build on this bricl overview in Chapter 3.

A big part of the marketing process is market planning, where we think carefully and strategically about the ''big picture" and where our firm and its products fit within it. The first phase of market planning is to analyze tho marketing environment. This means under•

standing the firm's current strengths and weaknesses by assessing factors that might help

or hinder the development and marketing of products. The analysis must also take into ac•

count the opportunities and threats the firm will encounter i.n the marketplace, such as the actions of competitors, cultu.ra) and technoJogicaJ changes, and the: economy:

Firms (or individuals) that engage in market plarming ask questions like these:

• What product benefits \"'ill our customers look for in three to five years?

• What capabilities doos out firm have that set it apart from the competition?

• What additional customer groups might provide important market segments for w; in

the fu ture?

• How will changes in technology aHect our production process, our communication

strategy, and our distribution strategy?

• What changes in social and cultural values are occurring now that wiJJ impact our matkct in the next fo\,r years?

• How will customers' awareness of environmental issuC?'S affect thcir attitudes toward

out manufacturing facilities?

• l'\lhat legal and regulatory issues may affect ow business in both domestic and g lobal

markets?

Answers to these and other questions provide the foundation for developing an or•

ganization's markeNug plau. 11\is is a document that describes the marketing environment,

outlines the: marketing objectives and strategy, and identifies who will be responsible for carrying out each part of the marketing s trategic Marketing plan.s will be discussed in full detail in Chapter 3-in fact, in that chapter you will learn about the basic layout and content of a marketing plan. A major marketing decision for most organizations is whkh products to markct to which consumers without simultaneously turning off other consum•

e.ts. Some tlnns choose to reach as many customers as possible, so they offor the:it goods or services to a mass market that consis ts of aU possible customers in a market regardless of

the differences in their specific needs and wants. Market planning then lx.J.Comes a matter

of developing a basic product and a sing)c strategy to reach everyone.

Although this approach can be oost effective, the firm risks losing potential customers to competitors whose marketing plans instead try to meet the needs of spt.'Cific groups within

the martcct. A marl<.et segment is a distinct group of custome:rs within a largct market who ate similar to onc another in some way and whose needs diffor from other custontc..YS in the larger

market. For example, automakers such as Ford. General Motors, and BMW offer different auto-

mobiles for difforent market segments. Depending on its goals and resoum.>s, a firm may choose

to focus Of'I one or on many sc..~mcnts. A target market is th~ segment(s) on which an organi• zation focuses its marketing plan and toward whid\ it directs its matketing efforts. Marketers develop positioning strategies to create a desin.'CI J""'C"ption of the product in consumers' ininds in comparison to compt.""titors' brands. \.'\~'ll leam 1nore about these ideas in Chapter 7.

CHAPTER 1 j WELCOME TO THE WORLD OF MARKETING 25

MyMarketinglab"" Go to mymktlab.com to complete the problems marked with this icon 0 as well as additional Marketing Metrics questions only available in MyMarketinglab.

1.1 Objective Summary .;g.;.§fd Explain what marketing is, the marketing mix, what can be marketed, and the value of marketing. Marketing is the aaivity, set of institutions, and processes for creating, communicating, delivering, and exchanging of- ferings that have value for customers. clients, partners, and society at large. Therefore, marketing is all about delivering value to stakeholders, that is, lo everyone who is affeaed by a uansactioo. Organizations that seek to ensure their long-term profitability by identifying and satisfying customers' needs and wants adopt the marketing concept.

The marketing mix includes produa, price, place, and promotion. The produa is whal satisfies customer needs. The price is the assigned value or amount to be exchanged for the produa. The place or channel of distribution gets the product to the customer. Promotion is the organization's efforts 10 per- suade customers to buy the produa.

Any good, service, or idea that can be marketed is a produa, even though what is being sold may not take a physical form. Consumer goods are !he tangible products thal consumers purchase for personal or family use. Services are intangible produas thal we pay for and use but never own. Business-lo-business goods and services are sold 10 businesses and other organizations for further processing or for use in !heir business operations. Not-for-profit organizations, ideas, places, and people can also be marketed.

Marketing provides value for customers when they prac- tice the marketing concept and focus on identifying and sat- isfying customer needs. Marketing provides form, place, time, and possession utility. In addition, marketing provides value through satisfying the needs of diverse stakeholders, society, and the earth.

Key Terms consumer. p. 4 mar1<eting, p. 4

marketing mix. p. 5

CHAPTER l

study Map

Four Ps, p. 5

product. p. 6

promotion, p. 6

place, p. 6

channel of distribution. p. 6 price, p. 6

exchange, p. 7

consumer goods, p. 7

services, p. 7

business•to-business martceting. p. 8 industrial goods, p. 8

e•commerce. p. 8

not•for•profit organizations (also known as nongovernmental organizations (NGOs]. p. 8

marketing concept. p. 9

need, p. 9

want. p. 9

benefit. p. 9

demand, p. 9

market p. 9

marketplace, p. 9

rentrepreneurs. p. 10

collaborative consumption, p. 10

utility, p. 10

stakeholders, p. 11

1.2 Objective Summary IJQ·l•§hl Explain the evolution of the marketing concept. Early in the twentieth century, firms followed a production orientation in which they focused on the mos! efficient ways to produce and distribute produas. Beginning in the I 930s, some firms adopted a selling orientation that encouraged

26 PART ONE I UNDERSTAND THE VALUE PROPOSITION

salespeople to aggressively sell products to customers. In the 1950s, organizations adopted a customer orientation that focused on customer satisfaction. This led to the de- velopment of the marketing concept. Today, many firms are moving toward a triple-bottom-line orientation that includes a commitment to quality and value, a concern for both eco- nomic and social profit while protecting the environment. The societal marketing concept maintains that marketers must satisfy customers' needs in ways that also benefit society while still delivering a profit to the firm. Similarly, companies think of ways to design and manufacture prod- ucts w ith a focus on sustainability, or "doing well by doing good.• Experts believe marketing will continue to change w ith greater use of good content, big data, mobile market- ing, metrics and accountability, customer interaction and corporate citizenship.

Key Terms production orientation, p. 12

selling orientation, p. 12

customer orientation, p. 12

total quality management (TQM), p. 13

t riple .. bottom-line orientation, p. 13

societal marketing concept. p. 13

sustainability, p. 14

green marketing, p. 14

accountability, p. 14

return on investment (ROI), p. 14

mobile marketing, p. 15

user.generated content (also known as consumer.generated content), p. 15

branded content. p. 15

corporate citizenship, P·· 1 5

screen addicts, p. 15

growth hackers, p. 15

1.3 Objective Summary IW·M<·ff!j Understand value from the perspectives of cus- tomers, producers, and society. Value is the benefits a customer receives from buying a good or service. Marketing communicates these benefits as the value proposition to the customer. For customers, the value proposition includes the whole bundle of benefits the product promises to deliver, not just the benefits of the product itself. Sellers determine value by assessing whether their transactions are profitable, whether they are providing value to stakeholders by creating a competitive advantage, and whether they are providing value through the value chain. Customers generate value when they turn into ad- vertising directors, retailers, and new-product-development

consultants, often through social networking using social media. Society receives value from marketing activities when producers stress ethics and social responsibility. Criticisms of both marketing and consumer activities may be valid in a few instances. but most are unfounded.

Key Terms value proposition. p. 16

brandfests, p. 17

lifetime value of a customer, p. 17

competitive advantage, p. 17

distinctive competency, p. 17

differential benefit. p. 17

marketing scorecards, p. 18 metrics, p. 18

value chain, p. 18

haul videos, p. 20 Web 1.0, p. 21

Web 2.0, p. 21

Web 3.0, p. 21 Web 4.0, p . 21

aoud, p. 21

social networking platforms, p. 21

folksonomy, p. 22

wisdom of crowds, p. 22

crowdsourcing, p. 22

consumer addiction. p . 23 shrinkage, p. 23

anticonsumption, p. 23

1.4 Objective Summary Mlii Explain the basics of market planning. The strategic process of market planning begins with an as- sessment of factors within the organization and in the external environment that could help or hinder the development and marketing of products. On the basis of this analysis, marketer< set objectives and develop strategies. Many firms use a target marketing strategy in which they divide the overall market into segments and then target the most anractive one. Then they design the marketing mix to gain a competitive position in the target market.

Key Terms mass market, p. 24

market segment. p. 24 target market. p. 24

CHAPTER 1 j WELCOME TO THE WORLD OF MARKETING 27

MyMarketinglab ™ Chapter Questions and Activities Go to mymktlab.com to watch this chapte.r's Rising St.ar video(s) for career advice

and to respond to questions.

Concepts: Test Your Knowledge

1-1. Briefly explain what marketing is. 1-2. List and desaibe the elements of the marketing mix. 1-3. Define the terms consumer goods, services, and indus-

trial goods. 1-4. Explain needs, wants, and demands. What is the role

of marketing in each of these? 1-5. What is utility? How does marketing aeate different

forms of utility? 1-6. Trace 1he evolution of the marketing concept. 1-7. Explain how marketers practice !he societal marketing

concept and sustainability. 1-8. Describe the Internet and how Web 3.0 and 4.0 pro-

vide greater opportunities for marketers to interact wilh their customers.

1-9. To what does !he lifetime value of the customer refer, and how is ii calculated?

1-10. What does ii mean for a firm to have a competitive ad- vantage? Whal gives a firm a competitive advantage?

1-11. What is involved in marketing planning?

Activities: Apply What You've Learned

0 1-12. In Gass, 10-25 Minutes for Teams Assume 1hal you are a marketing consultant employed by a large retail chain thal offers consumers products in a number of brick-and-mortar stores and online. The retail organi- zation wishes 10 increase its loyal customer base by engaging customers through interaction opponunities on social networks. Develop a list of at least 1 o specific social network activities thal will work together to in- crease customer engagement.

1-13. In Gass, 10-25 Minutes for Teams Successful firms have a competitive advantage because they are able to identify distinctive competencies and use lhese to aeate differential benefits for !heir customers. Con- sider your business school or your university. What distinctive competencies does it have? What differen- tial benefits does it provide for students? What is its competitive advantage? What are your ideas as to how your university could improve its competitive position? Write an outline of your ideas.

1-14. In Gass, 10-25 Minutes for Teams As college students, you and your friends sometimes discuss the various courses you are laking. One of your friends says to you, "Marketing~ not important. It~ just dumb advenising.' Another friend says, "Marketing doesn't really affect peo- ple~ lives in any way.• As a role-playing exercise, present your arguments against these statements to your class.

1-15. For Further ReseaKh Ondividual) Recent repons indi- cate thal consumers including children and teens are

becoming small screen addicts. Develop a series of questions (aboul 10). Use lhese 10 Interview al least five of your fellow students about their use of sman- phones and tablets. Write up a repon on your finding and conclusions.

1-16. For Further Research (Groups) Today's marketers rec- ognize that the Internet and Big Data have changed marketing and will continue to change ii in the years to come. Your team assignment is 10 firs! f ind exam- ples of how the Internet and Big Data have improved marketing for some for-profit and o01-for-profi1 orga- nizations. Then develop your ideas on how !he Inter- net and Big Data could make contributions to society asa whole in !he future. Develop a shon presentation for your class.

Concepts: Apply Marketing Metrics

The chapter discusses the growing imponance of sustain- ability, and it notes that companies and consumers inaeas- ingly consider other costs in addition to financial kinds when they decide what 10 sell or buy. One of these cos! categories is damage to the environment. How can marketers make ii easier for shoppers to compute these costs? The answer is more apparent in some product categories than in others. For example, American consumers often are able 10 compare the power consumption and annual costs of appliances by looking at !heir EnergyStar™ rating. In other situations, we can assess the carbon footprint implications of a product or service; !his tells us how much CO2 our purchase will emit into lhe atmosphere (e.g., if a person flies from New York to London). The average American is responsible for 9.44 tons of CO2 per year!41 A carbon footprint comes from the sum of 1wo pans, the direct, or primary, footprint and 1he indirect, or secondary, footprint:

• The primary footprint is a measure of our direct emissions of CO2 from the burning of fossil fuels, including domes- tic energy consumption and transportation (e.g., cars and planes).

• The secondary footprint is a measure of 1he indirect CO2 emissions from the whole ltte cycle of products we use, from their manufacture to their evemual breakdown.42

Although many of us are more aware today that our con- sumption choices carry unseen costs, there is still a lot of con- fusion aboul the best way 10 communicate !he environmental costs of our actions, and in many cases, consumers aren't motivated to take these issues into account unless !he costs impact them directly and in the short term.

0 1-17. As a consumer, what other metrics would you suggest !hat might reflect benefits of sustainability initiatives

28 PART ONE I UNDERSTAND THE VALUE PROPOSITION

that would motivate you 10 purchase from one pro- vider or the other?

0 1-18. Would you buy from a demonstrably mote expensive provider just because they exhibited a higher level of commitment lo sustainability?

Choices: What Do You Think?

1-19.

0 1-20.

1-21.

1-22.

0 1-23.

1-24.

1-25.

Critical Thinking Journalists, government officials, and consume<s have been highly critical of companies fo, gathering and storing large amounts of data on con- sumers (I.e., Big Data). Others argue that such practices are essential fot firms to pmvide high-quality, afford- able products that satisfy consumers' varied needs. What do you think? Should the government regulate such practices? How can such practices hurl consum- ers? Hovv can these practices help consumers? Ethics Despite best efforts to ensure product safety, products thal pose a danger 10 consumers sometimes reach the marketplace. Al what point should market- ers release information about a product's safety 10 the public? Hovv should marketers be held accountable if their product harms a consumer? Critical Thinking The marketing concept focuses on the ability of marketing to satisfy customer needs. As a typical college student, how does marketing satisfy your needs? Whal areas of your life are affected by marketing? What areas of your life (if any) are not af- fected by marketing? Critical Thinking Many consumers are concerned about the environment. They demand green marketing activi- ties and more green products. Still. most do not buy green products because they are a few cents more ex- pensive. Hovv do you explain this? Whal are marketers doing wrong? Should government intervene? Whal are your suggestions for successful green marketing? Critical Thinking Consume,-genera!ed commercials seem to be part of a broader trend toward consum- er-generated content of all sorts. Examples include MySpace, Flickr (where users pos! photos and com- ment on others' pictures), blogging, and video-sharing sites like You Tube. Do you think this is a passing fad or an important trend? How (if at all) should marketers be dealing with these activities? Ethics The American Psychologi<al Association formally ,ecognizes Internet addiction as a psychological disor- der. Should it? Why or why not? Ethics Crowdsourcing has a lot of up side-for the company initialing the crovvdsourcing anyway. The

company gets 10 gene,ate buzz among i!S fans as well as generate nevv ptoduct ideas and inventive advertis- ing campaig.ns for linle 10 no investment. Is there an up side to crowdsourcing fot the customer, or are compa- nies exploiting !heir users?

Mlniproject: Learn by Doing

The purpose of this miniprojecl is 10 develop an understanding of the practice of marketing and the importance of societal marketing and sustainability to diffe,enl organizations.

1-26. Working as a team with two o, three other students, select an organization in your community. It may be a manufacturer, a service provider, a ,etailer, a not- for-profit organization-almost any organization will do. Then schedule a visit with someone within the organization who is involved in the marketing activi- ties. Atrange for a short visil during which the pe,son can give your group a tour of the facilities and explain the organization~ marketing activities.

1-27. Divide the following list of topics among you, team and ask each person to be responsible for developing a set of questions to ask duting the intervievv to learn about the company's p,ogram: • What customer segments the company targets. • How it de!e<mines customer needs and wants. • What products ii offers, including features, benefits,

and goals for custome, satisfaction. • What i!S pricing strategies are. • How it uses inte,active content to engage customers. • How it distributes products and whether it has en-

countered any problems. • How ii dele<mines whether the needs and wants of

customers are being met • Explain what marketers mean by the "societal mar-

keting concept• and ·sustainability' and ask if these are areas of concern to the organization. If so, how do they address them in their organization's actillities? If no1. ask if they have any plans to move in this direction in the future and, if so, how.

1-28. Develop a team report of your findings. In each section of the report, share what you learned that is nevv or surprising lo you compared to what you expected.

1-29. Develop a team presentation for your class that sum- marizes your findings. Conclude your ptesentation with comments on what your team believes the com- pany was doing that was particularly good and whal was not quile so good.

Marketing in Action Case Real Choices at Coca-Cola

What do you do when your customer starts to shrink, both lit- erally and figuratively? The sale of soft drinks in the U.S. is no! what it used to be. The $98 billion soft-drink industry is being challenged by changes in consumers· attitudes toward both sugar-sweetened and diet drinks. Historically, soft drinks have

been a significant portion of the American diet and sales have grovvn year after year.

In the U.S. the rates of obesity, diabetes, and other weight- related health issues are on the rise. ln 2014, the Cente<s for Disease Control and Prevention found that 35 percent of U.S.

CHAPTER 1 j WELCOME TO THE WORLD OF MARKETING 29

adults were obese. And the problem is not limited to adults; with distressing r~ularity children are being diagnosed as obese. Although obesity and its related issues are complicated and have many diffe<ent causes, soft drink manufacturers, like Coca-Cola, have been forced to bear a large share of the blame. This combined with the current consumer trend toward a healthie< lifestyle has dealt a blow to the beverage industry. Since the 1990s, the sales of soft drinks have fallen by more than 2 5 percent.

J. Alexander M. Douglas Jr., president of Coca-Cola North America, stated that the public~ change toward bener health and wellness is transforming the long-term competitive en- vironment. As many consumers have changed their anitudes toward sweetened soft drinks, they have also b~un to ques- tion the safety of artificial sweeteners used in diet soft drinks. According to Barty M. Popkin, a professor of nu1rition at the University of North Carolina, this has led to consumers chang- ing from regular to diet soft drinks and finally to other bever- ages. The decision for many consumers has ultimately been 10 choose water.

Ironically, health and wellness were a key component of the b~inning of the Coca-Cola story. In 1886, Or. John S. Pemberton, a pharmacist, created a flavored syrup that was mixed with carbonated water and sold to customers. The motivation was to create a non-alcoholic alternative to the French Wine Coca, a concoction Or. Pemberton used to cure his addiction to morphine. Or. Pemberton promoted his new product as having a variety of health benefits, claiming that it was a cure for headaches, it relieved exhaustion, and it calmed nerves.

This mixture, which would eventually evolve into Coca- Cola, was primarily sold in pharmacies. However, instead of promoting it as a medicine, Or. Pemberton decided to sell it as a fountain drink.

MyMarketinglab ™

The association of obesity and soft drinks has become so much of a problem that in some cities, politician are propos- ing ·soda taxes• 10 reduce the amount of sugar consumed. For now the soft-drink manufacturers are winning the political banles but are in jeopardy of losing overall. One of the con- sequences of these policy fights is that consumers are being reminded that soft drinks may not be the healthiest choice.

Coca-Cola has documented in a recent annual report that • Obesity concerns may reduce demand for some of our products.• It has also stated that obesity and its corresponding health concerns are important risk considerations for Coca- Cola's business growth and sustained profitability.

How will this ongoing concern by public health officials effect how Americans feel about soft drinks in the long run? Will soft drinks ever attain the negative status of tobacco products, which many consumers have abandoned? Will Coca-Cola be able to reclaim its former position as market leader or must Coke change its focus to something else?

You Make the Call 1-30. What is the decision facing Coca-Cola? 1-31. What factors are important in understanding this deci-

sion situation? 1-32. What are the alternatives? 1-33. What decision(s) do you recommend? 1-34. What are some ways 10 implement your recommen-

dation?

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Go to mymktlab.com for Auto-graded writing questions as well as the following Assisted-graded writing questions:

1-35. Creative Homework/Short Project An old friend of yours has been making and selling vitamin-fortified smoothies to acquaintances and friends of friends for some time. He is now thinking about opening a shop in a small college town, but he is worried about whe·ther just having a great smoothie is enough to be successful. Knowing that you are a marketing swdent. he's asked you for some advice. What can you tell him about product. price. promotion, and place (distribution) strategies that will help him get his business off the ground?

1-36. Creative Homework/Short Project As a marketing professional, you have been asked to write a short piece for a local business newsletter about the state of marketing today. You think the best way to address this topic is to review how the marketing concept has evolved and to discuss the triple-bottom- line orientation. Write the short article you will submit to the editor of the newsletter.

(]) 2.1 C +- =i 0 G) > ·--0 2.2 G) ·-.a 0

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ft = ·-: 30

Chapter 2

GlobaL Ethical, and Sustainable Marketing Understand the big picture of UNDERSTAND INTERNATIONAL 2.S Understand the Importance International marketing and REGIONAL, AND COUNTRY GLOBAL of ethical marketing practices. the decisions fums must make TRADE CONTROLS p. 35 pp, 53-57 When they conslder

2.3 Understand how rectors In a ElHICS IS JOB ONE IN MARKETING globallzatlon. pp. 32-35 firm's external business envl· P\ANNINGp. 53

TAKE A BOW: MARKETING ON THE ronment Influence marketing GLOBAL STAGE p. 32 2.6 Explain the role of sustalnabll-strategies and outcomes In

Uy In marketing plannlng. Explain how Internationa l 0<· both domestic ond global pp.57-fR gonlzotlons such os the World

markets. pp. 37-48 SUSTAINABILITY: MARKETERS DO

Trade Organization (Jv[O), ANALVZE THE EXTERNAL MARKfTING WELL BY DOING GOOD p. 57 economic communltles. ond ENVIRONMEl'IT p. 37

lndMdual country regulations 2.4 Explain some of the strategies Check out lhe Chapter 2 Study Map racmtate and limit a firm· s

opportunities ror globaUzatlon ond tactics that a firm can use on page 60.

pp, 35-37 to enter global mafkets, pp, 48-53

HOW "GLOBAL" SHOULD A GLOBAL MARKETING STRATEGY BE? p. 48

Keith Sutter Y A Decision Maker at Johnson & Johnson

Keith Suner is the senior product di<E!Ctor t0< sus:tainabJe b<and marketing .tt Johnson & Johnson. In that role. Keith reads Johnson & Johnson's 250 ope<ating companies in d~ing sustainable products, busines.s, and marketing sttategies.. He translates the valle of Johnson & Johnson\ extensive product stewcll'dsh~ and environmental suc- cesses to tile company\ trade cusoomers and ooosumers. "1dudi11g championing tile Earthwards" process.

Keith began h.is career at Johnson & Joh.nson in 2001 as a marketing clSsodate. He subsequootty held po- sita:>ns of increasing tesponsibility as a brand marketer on brands such as Band~Aid•. Neutrogena•, Lactai~.

and ludens•. Keith has a BS in economics ftom the Whanon School at the University of Pennsylva.nla and an MBA from the S.C. Johnson Graduate School

of Management at CotneO University. He fives in Cent(>{ City, Philadelphia, with his wife, Amy, and two sons. Leo and C.harl;e.

What I do when I'm not wolldng? Triathlons and other outdoor sports.

Flrst job out of school? Marketing associate at Johnson & Johnson on the Decorated Band-Aid® Brand bandages, which was a greai job working with licensees and cartoon charaaers like Sponge8ob SquarePants and Elmo.

Business book I'm reading now? David & Goliath by Malrom Gladwell.

What drives me? New business opportunities and innO\lative new products and business models.

My management style? Pacesetting. I like to set a good example f°' my team while allowing them tile freedom to develop innO\lative solutions to our business problems that drive results.

Don't do this when inteNlewing with me. Neglect to prO\lide detailed examples of results you drove wllen asked for specific experiences.

Johnson & Johnson is one of the world's leading manufacturers of healthcare products. It sells many

famil iar consumet brands such as Band-Aid®, Neuuogena•, Listerinee, Splenda"'. and Tylenol'°, as well as medical devices and prescription drugs. Within tllis global company, the Earthwaids'° approach motivates employ- ees to improve the sustainability of products. It defines how Johnson & Johnson thinks about and addresses its environmental and soda! impacts and challenges its people to design innovative and more sustainable solu- tions across a product's life cycle-from formulation and manufacturing to product use and safe disposal.

When Johnson & Johnson launched the Earthwards" process in 2009, Keith and his learn used it to encourage J&J's product teams to make sig- nificant improvema1ts to 60 products. Today, Johnson & Johnson has int"" grated and expanded the original proceS< acrOS< the company. It uses the Earthwardse approach to drive continuous innovation by requiring PVery new product to:

• Meet product stewardship requirements. Every new product must achieve regulatOf'( compliance and deliver on Johnson & Johnson's high standards.

• Understand fife cycle impact areas. The life cycle impacts ol products are reviewed at the category level and opporwnjties to drive improvements are conside1ed at the design, proonment, manufaauring, and marketing stages of a product's development

Inviting every product team to: • Implement and validate improvements. Product teams collabmate with

sustainability experts to implement recommended improvements. and en- vironmentaJ marketing claims are ,eviewed and approved in accordance with applicable guidelines.

Encouraging the most sustainable product teams to: • Achieve Eanhwards• recognition, an honor celebtating our most in-

novative and imptoved ptoducts. If a product ach.ieves at least three signjfKant improvements aaoss seven impact areas (materials used. packaging. energy reduction, waste reduction, water reduction, positive social impact or benefit, and product innovation). a board of intemaJ and e.xtemaJ e.x;ierts determines if the product warrants Earthwards• recognition and provides sugrstions for adcljtional improvements. Teams who receive Earthwards recognition are publicly congratulated on Earthwards.com and rewarded for their innovations by Johnson & Johnson leade" hip.

As he considered the best strategy to promote Earthwards'°, Keith knew that one of his biggest challenges was 10 convince !&J's 127,000 employees aiound the globe to buy in to the idea. He needed a way to drive awareness and inter· est in the Earthwards• approach to sustainable product development across

MyM arketinglab"' 0 Improve Your Grade!

Johnson & Johnson. Generating awareness. understanding, and adoption of the PfOCess across J&J's business units was a key performance metric against wh.ich his team would be measured.

Keith had only timited resources 10 accomplish this objective.

Keith considered his Options 1·2·3

l Continue a successful tactic from the early roll-<>ut of Earthwards•: Host regional green marketing conferences to bring together key stal<eholdeis once per year. These meetings would showcase key tools and resources available that would Option then be distributed as requested by .. mail to other employees.

This is high touch and engaging but hard to scale effectively across such a large company.

Develop a customer intranet site, including an on· line scorecard to take Earthwards• submissions from an Excel spreadsheet to an online database accessible by all employees. The site would also house all

Opllon the tools and materials Keith and his team had developed to date to explain Earthwards• and drive its adoption across J&J's varied

businesses. This solution is low-touch and not engaging, but it is efficient be- cause e\'eryone in the company can access it easi .... This database V.'Ould free up resources that Keith and his team coold use 10 furthe< develop the Earthwards® program both internaDy and in the marketplace.

a Develop a high-touch strategy of identifying 20 to 30 influential leaders within Johnson & Johnson. Then set up multiple in-person meetings and training sessions with the goal of making the case for adoption of Earthwards" OpHon into each leader's business process and then encouraging each

of these leadefs to drive adoption of the program within J&J. This option would really engage people, but its impact would be hard to measure.

Now, put yoursett in Keith's shoe~ Which option would you choose, and why?

O·illA,UI·tfi Whidl Option would you choose, and why? D Option 1 D Option 2 D Option 3

See what option Keith chose ,n MyMarket1nglab™

Over IO million students im proved their results using the Pearson Mylabs. Visit mymktlab.com for sim ulations, tutorials. and end·of·chapter problems.

31

32 PART ONE I UNDERSTAND THE VA LUE PROPOSITION

Chapter 2

Greenhouse Effect The tumi'lg of our atm()Sfbere into a kind of g,-eemouse as a rmt of the addition of carbon diol<ide and other g,eenhouse gasses.

global warming A wamvng of the planet earth that will ha,e disastrous effects on the planet

Arab Spring A series of anti-government protests and ~ riSi'lgs in a number of Alab countries facilitated by new social media tools available to people in the region.

2.1 OBJECTIVE

Under<tand the big picture of intema· tional mari<eting and the decisions firms

must make .men they mnsidet globalization.

;;;•+t#f.il

Take a Bow: Marketing on the Global Stage Here's an important question: Do you primarily sre yourself only as a resident of S,nalltown, USA, or as a member of a global community? 11,e reality is that you and all your classmates are citizens of the world and participants in a global marketplace. It is likely that you eat bananas from Ecuador, drink beer from Mexico, and sip wino from Australia, South Africa, or Chile. When you come home,. you may take off your shoes that were made in Thailand, put your feet up on the cocktail tab1" imported from Indonesia, and watch the World Cup football (soccer)

match being p layed in Brazil or Canada on your Smart TV whik chock·

ing your Facebook page on your smartphone, both made in China. Hopefully, you also have some knowledge and concern for important world events such as the: recent Ebola epidemic

in Africa, terrorist a ttacks in Europe, and n.--cent developments in North Korea and Syria. And

you may even be looking for an exciting career with a firm that docs business a.round the globe. Firms doing business in this globaJ economy face unccttainty in the fu ture o( the

g lobal marketplace. For a number of years, consumers and world leaders have argued that

the development of fn.,., trade and a single g lobal marketplace wW benefit us all because it allows people who live in developing coW\trics to enjoy th12 same economic benefits as

citi:zcns of more developed countries.

There are oth!!r reasons tha t many leaders want a sing le marketplace. One importan t-

reasoi, comes from fears that the Greenhouse Effect may lhreaten the future of the planet What is the Crcenhousc Effect? In simple terms, our factories and a utomobiles continue

to pump more and more ca.rbon dioxide (tho most important of the greenhouse gasses)

into our atmosphere \•+'hile a t the same time we cut down the rain forests and reduce the

amount of oxygen the trees add to the atmospher'C. This increase i.n g·n..""Cru\ousc gas...;cs

causes the earth to get warmer., just like a greenhouse provides a warm place for tendi?r

plants. The result, many believe, is global warming, a wanning of the earth which will have disastrous effects on the p lanet. These fears have cauSt."<i many to demand interna.• tional agreements that wouJd force industries and governments to dcvc.Jop and adhere to

the same environmental standards to proted the future of the planet Of course., there is another s ide to the issue of a single marketplace. The Arab Spring,

a series of anti•gove:mmcnt protests and uprisings in a number o( Arab countries that were

largely aided by new social media tools available to people in the n:..'gion, gave hope to many that dictatorships in countries in the Middle East wouJd bt..--comc dcmOO'acics and bring a better life to peoples of the countries. instead, new violent radical groups such as ISIS took

over large portions of these countries. This was accompanied by a growing n umber o/ ter• rorist a ttacks in other parts of the world, causing citizens and coun try leaders to propose

greati?r restrictions on immigration and on trade with countries that aid or harbor terrorists.

At the sainc time, the: decrease in the: price of oil has inCJ'f.."'ascd conce:ms about a downturn in the global e<:onoiny where each individual coWltry will want to protect its own industries.

You may be asking, "What do these current events have to do with a marketing

course?" Whether we like it o r not, we are a global community. Everything that happens in

any part of the world has a potential to influence what marketers need to do to be success,,

ful a t home and around the globe. We'll be talking about these influences in this chapter

and throughout the book.

'Inc global marketing game is exciting.. the stakes are hjgh, and it's easy to lose your

shirt. Competition comes from both local and foreign firms, and differences in national

laws, customs, and consumer preferences can make your head spin. ln this section, we will first discuss the status o( world trade today. Then, w~·u look a t th~ decisions Finns must make as they consider their global opportunities.

CHAPTER 2 J GLOBAL, ETHICAL, AND SUSTAINABLE MARKETING 33

World Trade World trade refers to the Aow of goods and services among different countries-the total value of all the export,; and import,; of the world's nations. In 2009, the world suffered a

global economic crisis that resulted in dtamatic decreases in worldwide exports. Today, we sec increasing growth in world trodc with world exports or mcrc::handise incr~asing from S12 trillion in 2009 to =rly S19 trillion in 2014.Just how much is$19 trillion? Think about it this way: A rce<>nt lottery prize grew to a whopping SI billion. If a lottery awarded a SJ billion priz<> every day, it would take more than 50 years to equal $19 trillion. Of course,

not-all countries participate equally in the trade flows among nations. Understanding the "big picture" of who docs business with whom is impottant to marketers when they devise global trade. s trategies. ~ Fi~ 2.1 shows the valu~ of merchandise North American countries traded with major partners around the world in 2014.

It's often a good thing to have customers in remote markets but to serve: their needs well requires flexibiUty and the ability to adapt to local social and economic conditions. For example, you may ha\•e to adapt to the net.-'Ci.s of foreign trading partners when those firn,s can"'t pay cash for the products they want to purchase. Believe it or not, the: curreocies of as many as 100 countries-from the Albanian ~'}ck'' to the Uzbekistan ,..sum"- arc not convtrta ible; you can't spend or exchange them outside the country's borders. ln oth~ countries, because sufficient cash or credit s imply is not available, trading firms work out elaborate deals in which they trade (or barter) their products with each other or even supply goods in return ror tax breaks from the local governmcnl This countertrade accounts for as much as 25 p,,rrent of aU world tradc.1

Our ever-incrcasjng access to products from a.round the world docs have a dark side: The growth in world trade in rce<>nt years has bc<,n accompanied by a glut of unsafe prod· ucts-toys with lead paint, toothpaste containing poisonous diethylcne glycol, and more n.."CC'ntly, crayons laced with canccr-<:ausing asbestos-many of which have come from

China.2 ln 2014, the European Commission's early warning system for dangerous products (RAJ'EX) reported a notable increase in alerts of unsafe products; of the more than 2,000 alert issues the commission r"L""Ccived, al.most two--thirds of the unsafe products came from

China.3 Although most Chinese manufacturers make quality products, some unscrupulous producers have damaged the rcputatioo of Chinese manufacture.rs and prompted US. and European officials to increase their inspocHons of Chinese. imports.

F;gure 2.1 @] Snapihot I North American Merchandise Trade Flows (in Billions S) Knowing 'Nho does business with whom is essential to devek>p .an overseas mclfketing strategy. As this figu,e shows. No,lh America trades most hecl\lily with Asia, Europe, and Latin America.

Southand c.rtral America

Europe

Asia

504

North America

17 28

Commonwealth of Independent

States (CJS•)

Mldclle East

Africa

• Armenia, Azerbaijan, Belarus. K.az:akhstan, Kyrgyzstan, Repub-lic of Moldova. Russian Federation. and Ukraine

world trade The flow of goods and services amoo9 different countries-me value of all the export< and inportS of the world's nations.

countertrade A l)'pe of trade in whkh goods are paid for with other iiems instead of with cash.

34 PART ONE I UNDERSTAND THE VALUE PROPOSITION

Figure 2.2 ~ Process ( Steps in the Decisio n Process to Enter Global Markets

Should We Go Global? IJl ~igurc 2.2 shows that when firms CQnsider going global they must think about this in four steps: Ente1in9 gkID.11 ma,kets involves a sequence

of decisions.

Step 1: Whether to Go Global

t Step 2: Which Market(s) to Enter

t Step 3: level of Commitment

t Step 4: How to Adapt Marketing Mix

Strategies • Localize • Standardize

• Step 1. "(;o" or ,,.no go'·'-is it in our best intcn:."St to focus exclusively or, our home market or should we C.1St our net clse\vhcre as well?

• Step 2. Lf the decision is "go, N which g.lobal markets arc most a tt-ract:ive? Which

country or countries offer the greatest opportunity for us?

• Step 3. What market.entry strategy, or rather, what level of commitment is best? As we'll sec., it's pretty low risk to simpl)' export products to overseas mar kets. On the o ther ha.nd, although the CQmmitmcnt and the risk is substan• tia) iJ the firm decides to build and run manufacturing focili tics in other coun• tries, the potentially greater payoff may be worth the extra risk.

• Step 4. How do we devcJop succcssfuJ marketing mix strategies in these foreign mar kets-should we standardize what we do across a ll the countries where

we operate or devc)op a unique localized marketing SlTategy for each country?

Wc'U look at the first of these decisions now- whether o r not to go global.

The Globalization Decision

Although the prospect of miUions-or even billions-of consumers salivating for your goods in other countries is tempting, no t a ll firms can o r should go global.

When they make these decisions, marketers n!X'<:1 to co,,sider a number of factors that may

enhance or detract from their success abroad. Let's review two that arc critical to the deci• sion: domestic demand and th12 competitive advantag~ the firm enjoys at home.

Look at Domestic and Global Market Conditions and Opportunities

Many times, a fi rm decides i(s time to go global because the opportunity for growing the business and greater profit w ith.in its domestic ma.r"kct has already peaked and may even

be declining while forcign markets offer opportw>itics for large growth. Of course, if there is still room to grow business and profit,; at home, it may not be a good idea to invest in the larger g lobal market for now.

Starbucks has served. coffee to just about every American who drinks coffee. The com• pany opened its first st·ore in 1971 in Seattle. After conquc-ring its home city, the company spread across the U.S. The company's g lobal expansion lx'S"n in 1996 when it opened its

first store outside of North America in Tokyo. Starbucks has opened stores in additional countries every year since. Toda)~ Starbucks operates more than 24,000 stores in 70 coun• tries.4 That's a lot oflattcs.

Consider Your Competitive Advantage ln Chapter 1, we discussed how firms hope to cr~te a compet:itiv'" advantage over

rivals. When firms enter a global marketplace, this challenge is even greater. Thete are more players involved, and typically local firms have a "homc,.court advantage." Ir's like soccer-increasing numbers of Ame:ricans play the game, but they arc up against an

ingrainOO tradition of soccer fanaticism in Europt? and South America, where kids start dribbling a soccer ball when they start to walk.

If it wants to go g lobal, a firm needs to exam.inc th~ competitive adVtlntage that ma.kcs it suCC('SSful in its home country. Will this I~ up "travel" we:ll to other countries? Uthe answer is ye,s, then a firm is probably wise to consider globalization more seriously. Starbucks, long known for its product quality., superior customer service, fair treatment of employees, and respt...""Ct for local cultut('S, is experiencing gre.at growth overseas as well as strong sales in the U.S.5

CHAPTER 2 J GLOBAL, ETHICAL, AND SUSTAINABLE MARKETING 35

Now that we've discussed this first step in the global decision process, we'll look at important factors that help 1narkctcrs make decisions about what markets to enter, including global trade controls that governments have in place a1,d the various c.lc• ments of the external environment that influence marketing decisions both at home and abroad. Finally, we'll examine marketers' decisions on the level of commitment and if and how to adapt marketing strategies used in the domestic market for success in other countries.

2.2 OBJEcnVE

Explain how interna· tional organizations such as the World Tiade Organization (WTO), economic convnunities,. and

individual country regulations lacititate and limit a firm's opportunities for globalization.

li§·if!Fd

Understand International, Regional, and Country Global Trade Controls Even the most formJdablc competitive advantage does not guar• antec: success in foreign markets. Many governments patticipate in activities that support the idea that the \'\torld should be one big ope:n marketplace where companies from every country arc free to compete for business. The actions of others Frequently say the reverse. ln many countries, the local government may "stack the deck" in favor of domestic competitors. Often, they erect roadblocks (or at least those pesky speed bumps) designed

to favor local businesses over outsiders, making it even more dif• ficult to expand into foreign markets. lndccd, here in the U.S. the issue of whether to regulate trade to give American companies an advantage-or to lessen the advantage lhat companies based in

other countries have from their own governments-is one of Lhc most divisive issues in political and business circles.

Initiatives in International Cooperation and Regulation ln recent years, a number of intemationaJ initiatives have diminished barriers to unfcl· ten'!d \'\rorld L·rade.. Most notably, after World War 11, the UnHcd Nations established the General Agreement o n Tariffs and Trade (GATT), wh..ich did a Jot to establish free trade among nations. During a meeting in 1984 known as the Uruguay Round, GAIT created the World Trade Organization (WYO). With 161 members, the WTO member na•

lions account for 98 percent of ,,•orld trade. The W10 has made giant strides to create a single, open world market. It is the only international organization that deals with the global rules of trade between nations. Its main function is "to ensure that trade flows as smoothly, predictably and frccly as possible.'"'

The wro also tackles other issues that s tand in tho way or an open and fair world m.1.rkct. U you spend any time in Asia, you immediately notice the huge numbers of luxury watches, le:athcr bags, and current music CDs that sc-U for ridiculously Jow prices. Who can resist a Rolcx watch for $20? or course, there is a catch: They're fake or pirated ill<>gally.

Protection of copyright and patent rights is a huge headache for many companies, and it's a priority the wro tries to tackle. Pirntiug is a serious pmbli!m for U.S. companjes because illegal sales significantly erode their profits. All too often, we SL'C news hcadUncs from New York, Rome, or Dubai about police confiscating millions of dollars' worth of goods-from counterfoil luxury handbags lo fake Viagra.7

Two additional organizations have a strong in!luence on the advancement of global trade.: the World Bank and the International Monetary Fund (IMF). The World Bank,

founded in 1944 and owned by its 181 member countries, is an int-cm.ationa! lending insti• lution. Tho goal of the IM:>rld Bank is to reduce poverty and improve the Uvcs of people by

General Ag reement on Tariffs and Trade (GATT) lmemational treaty to reduce import tax ~s and trade restrictions.

World Trade Organization (WTO) An organization that replaced GAIT: the WTO sets trade rules for its member nations and mediates disputes beM-een nations..

World Bank AA in!emational lending institution that seeks to reduce povecry and improve the lives of people by imp,0\/ing economies and (l<Omoting sustainable developT1ent.

Internat ional Monetary Fund (IMF) AA intem.ational organization that seeks to ensure the stabifity of the international mone,ary exchange by con110mn9 fluaua1ions in exchange rates.

36 PART ONE I UNDERSTAND THE VA LUE PROPOSITION

foreign exchange rate (forex rate) The price of a natioo's currency in terms of another currency.

balance of payments A sta.tement of how fTNJCh trade a country has going out compared to how much it has coming in. If a country is buying more than it is setling, it will have a negative baiance of paymems..

protectionism A policy adopted by a goveroo,ent to give domestic companies an advantagt.

import quotas limitations set by a government on the amount of a product allowed to enter a country.

embargo A q,ota completely prollibiting specified goods from entering or lea•Jing a cot.rnry.

tariffs Taxes oo i~oned good~

economic communities Groups of countries that band together to promo1e trade among themselves and to make it easier for member nations to compete elsev.llere.

improving economies and promoting sustainable development. ln pwsu.it of this goal, the World Bank lends about $20 billion a year to development projects. The poon.."St countries may have up to SO years to repay the loans without intercst.8

·1ne primary purpose of the IMF, also founded in 1944, is to cn.~urc tht!stability o( the

international monetary exchange by controlling fluctuations in foreign exchange rates, also referred to as forex rates. E.xchangt:' rates a.re simply the price o( one curTency in

terms o( another currency. Stabilizing exchange rates can hclp to prevent ~vere balance of payments problems and thereby make it possible for countries to trade with t!ach othc.r. A country's balance of payments is a s tatement o( how much trade a country has going

out compared to how much it has coming in. If a country is buying more th.an it is selling, it will have a negative balance of payments (which is not necessarily a bad thing).9 When we look in figu re 2.1 at the amount of me.rch.andisc various tcgions of the world import

and export, we can get a good picture of the inequality of the balance of paymci,ts around the globe.

Protected Trade: Quotas, Embargoes, and Tariffs Whereas the wro works for free trade, some gov~mcnts adopt policies o( protectionism when lhC)' enforce rules on foreign £inns to give home companies an advantage. Many govc.rnments set import quotas on foreign goods to reduce competition for their domestic industries. Quotas can make goods more expensive to a country's citizens because the

absence o( cheaper foreign goods n.'Ciuet.'.\S pressure on domes-tic firms to lower thcir priet."S. While we normally think of import quotas that protect manufacturing and agricul-

tural producers within a country, China also has strict import quotas on foreign films. A Hollywood.China e<>-production is exempt Crom the quota. Matt Damon created bU22 in China when he began production as the star of a film in March 2016. The s tory of the co·production is a.bout an army of elite warriors who must tra.nsfonn the Creat Wall into a weapon "in order to combat wave after wave o( othenvorldly creatufi:."'S hellbent on de•

vouring humanity. ·•0

An embargo is an extreme quota that prohibits commetce and trade with a specified

country altogether. for over 50 ycats, hardcore cigar smokers in the U.S, have had to do without as the U.S. government prohibited the import of Cuban cigars as well as rum and other pmducts bccaw;e of political differenc,.,s with its island neighbo~ Now that the U.S.

government has moved toward the normalization o( relations between the two oounttics,

Americans may again enjoy these uniquely Cuban products. Gov~mcnts also use tariffs, or taxes on imported goods, to give domestic competi•

tors an advantage in the marketplace by making foreign competitors' goods more c-xpen• s ive than their own products. New Balance maki.'.'S the only sneakers produced exdusivcly in the U.S. To protect this domestic industry, there is a 48 percent tariff on foreign shoes im ..

ports. No wonder those "Nike's Air Jordan ll1 Retro lnlrared 23" shoes are so expensive!11

Economic Communities Croups o( countries may also band together to promote trade among themselves and make it easier for member nations to compete- elsewhere. These economic communities coordi·

natc trade policies a nd ease restrictions 01, the flow of products and capital across their borders. Economic communities arc important to marketl!l'S because they set policies in areas such as product content, package labcling, and advertising n.?g:ulations. The U.S., for example, is a member of the North American Fret Trade Agn-eme11t (NAFTA), which includes the U.S. Canada, and Mexico. Tlte E11ropem, U11ion (E,U) represents 490 mmion consumers, 1nore tha n 300 million of whom use the cum as their currency. ln June 2016, voters in the

U.K. approved. the U.K.'s withdrawal from the European Union, causing alarm and con• rem around the globe. The long-term effects of this move will only be known alter the pas• sage of time. Table 2.1 lists the world's major economic communities.

CHAPTER 2 J GLOBAL, ETHICAL, AND SUSTAINABLE MARKETING 37

rabt• 2.1 I Some Major Economic Communities around the World Community M ember Countries

Bolivia, Colombia, Ecuador, Peru Andean Community (www.comunidadandina.org) Association of Southeast Asian Nations (ASEAN) (www.aseansec.org)

Brunei, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, Philippines, Singapore, Thailand, Vietnam

Central American Common Market (CACM) Common Market for Eastern and Southern Africa (COMESA) (www.comesa.int)

Costa Rica. El Salvador, Guatemala, Honduras, Nicaragua, Panama Burundi, Comoros, Democratic Republic of Congo, Djibouti, Egypt, Eritrea, Ethiopia, Kenya, Libya, Madagascar, Malawi, Mauritius, Rwanda, Seychelles, Sudan, Swaziland, Uganda, Zambia, Zimbabwe

European Union (EU) (www.Europa.eu.int) Austria, Belgium, Bulgaria, Croatia, Cyprus. Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden

MERCOSUR (www.mercosur.org)

NAFTA

(The United Kingdom was a member until it withdrew from the EU in 2016.)

Brazil, Paraguay, Uruguay, Argentina

North American Free Trade Agreement (NAFTA) (www.nafta·sec-alena.org)

Canada. Mexico. United States

SAPTA Alghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, Sri Lanka South Asian Preferential Trade Arrangement (SAPTA) (www.saarc-sec.org)

2.3 OBJECllVE

Undersrand how factors in a firm's external business en-

vironment influence marketing strategies and outcomes in both domestic and global

Analyze the External Marketing Environment Whether or not you decide to venture out o( your own CQuntry (at

least for now), to sU<:C<!<'d you can't simply bury your head in the sand and ignore what's going: on in the rest of the world. You can be Sll.re your compctitors aren't! Marketing planning dL'>fflands that marketers understand the Finn's internal and external environments. We'll talk about the inttmlal environment of a firm in Ch.apt~ 3. ln this chapter we'll look at how an understanding of a firm's external c:1wim,:une:nt is

even more important if your firm has decided to go g lobal.

li§·iiikd Things can happ<!n very quickly, and new developments can trip

up even the most sophisticated markctcrs. Just ask Tata Motors, which is a major player in the lnclian auto industry. In 2016, Tata prepared

to launch a nc-w hatchback with the name Zica. Oops, too dose to the Zika virus that's spreading headaches around the world so the company has to rename the car quicldy.12

Aru:I, if you have decided to go global, understanding local conditions in a potential new country or in regional markets helps you to figure out where to go. [c8l] Figure 2.3 pro,. vides a snapshot of these different external environments we'll dive into now.

The Economic Environment After several rocky years of economic stumbling caused by the Great Recession of 2008- 2009, the global cco,,omy is finally starting to make a comeback. Jt's a slow process-the g lobal economy grew by only 2.6 percent in 2014 and 3.0 percent and 3.3 percent in 2015 and 2016, respectively. Countries w ith the highest incomes have experienced lower growth rates (2.4 percent in 2016) compared to much higher growth rates in lower income ooun• tries (5.3 percent) and 5.9 percent in countries with the lowest level of development, the least developed countries (LDCs).

least developed country (LDC) A country at the lowest stage of econcmic ooieloixnent.

38 PART ONE I UNDERSTAND THE VALUE PROPOSITION

Figure 2.3 !§ii Snapshot ( Elements of the External Environment It's esse.ntial to undel'Stand e4ements of the fitm's external envitoomoot to succeed in both domestic and gk>bal ma<kets. Sou.rte: ·wodd Trade Report," WOrld Trade Organization. hnps://www.wto.org/englishltes_eJpublications_et,.w1 S_e.htm

Economic Environment • Indicators of economic health • Level of economic development • Business cycle

Competitive Environment • Competition in the

microenvironment • Competition in the

macroenvironment

gross domestic product (GDP) 1he total dollar value of goods and se<Vices produced by a nation within its borders in a yeas.

Technological Environment

Otdsions In the Domestic. Market

• Target market

• Product dedsioos • Price decisions • Promotion decisions • Distribution decisions

Decisions In 1he Global -· • What marke:t(s) to enter • level of commitment • How to adapt

marketing strategies

Political/Legal Environment

• National laws of commerce • International regulations • Regional agreements • Political stability • Regulatory issues • Human rights issues

Sociocultural Environment • Demographics • Values • Social norms • Ethnocentrism

When we look a t the future of U,e world economy, hvo areas of conrern may impact fu ture growth: the decline in oil prices because of a decrease in demand coupled with an inctt.".1SC in supply and the disruptive effects on trade d ue to geopolitical tensions in some regions of tht! world.13 Marketers need to understand the state of the economy from two dilforent perspectives: (1) the overall economic health and level of development of a ooun• try and (2) the current stage of its business cycle. Le~s take a look a t each now.

Indicators of Economic Health

Just as a doctor takes your temperature d uring a medical checkup, companies need to know about the: overall .,.health" of a country's economic euvironm,mt before they conduct a more detailed exam. You can easily find infonnation about most countries in the World Fadboolc of the Central Intelligence Agency (CIA) (no, you don't need high-level security clearance to access this information online).

The most commo1,ly used measure o f economic health is a oount.ry's gross domestic product (GOP): the total dollar vaJue o( goods and services it produces w ithin its borders in a year. Table 2.2 shows the CDP and o ther economic and demographic characteristics of a sampling of countries. In addition to total CDP, marketers may also compare countries on the basis of p,r capita CDP: the total GDP divided by the number of pc'<>plc in a country. The p,r capita GDP is the better ind icator of economic health because it is adjusted for the population size of each country.

Still, these comparisons may not tell the \11thote story. Per capita GDP can be deceiving. because of the income equality where the wealth o( a country may be concentrated in the hands of a fow, whereas most of its citizens don't have the means to obtain basic nccessi- th~. Furthermore, the cos.ts of the same goods and services arc much lower in some g lobal markets. This is why it's important for companies that want to enter a foreign .market to consider exchange rates as wcll.

The foreign exchange rate that we mentioned earlier is simply the price of a nation's currency in terms of what a bank will exchange it for with anothc-r currency. For example, if we want to know how much a U.S. doUar is worth in countries that are members of the

CHAPTER 2 J GLOBAL, ETHICAL, AND SUSTAINABLE MARKETING 39

rabt• 2.2 I Selected Comparisons of Economic and Demographic Characteristics Democratic Republic United of Congo India China Brazil Russia States Qatar

Ranking• 2 61 103 107 135 177 185 Total GOP $63.27 Billion SB.027 Trillion S 11.38 Trillion $3, I 66 Trillion $3,471 Trillion $17.97Trillion S324 Billion Per capita GDP $800 $6,300 $14,300 $15,800 $23.700 $56,300 $145,000

Population below poverty level 63% 29.8% 6.1% 21.4% 11.2% 15.1% NA 1nflation rate 1.1% 5.6% 1.5% 10.6% 15.4% 0.2% 1.6%

Unemployment rate NA 7.1% 4.2% 6.4% 5.4% 5.2% 0.45

Population 79 Million 1,251 Million 1,367 Million 204 Million 142 Million 321 Million 2.2 Million Birthrate per 1,000 population 34.88 19.55 12.49 14.46 11.6 12.49 9.84

Population growth rate 2.45% 1.22% 0.45% 0.77% - 0.04% .78% 3.07% Population aged 0-14 42.65% 28.09% 17.08% 23.27% 16.68% 19.0% 12.52% Population aged 15-24 21.41% 18.06% 13.82% 16.47% 10.15% 13.64% 12.96%

Population aged 25-54 29.75% 40.745 47.95% 43.80% 45.54% 37.76% 70.23%

Population aged 55-64 3.56% 7.16% 11.14% 8.66% 14.01% 12.73% 3.39%

Population aged 65 and older 2.63% 5.95% 10.01% 7.8% 13.61% 14.88% 0.89%

Life expectancy 56.93 yrs 68.13 yrs 75.41 yrs 73.53 yrs 70.47 yrs 79.68 yrs 78.59 yrs Literacy rate 63.8% 71.2% 96.4% 92% 99.7% NA 97.3%

School life expectancy 10 yrs 12 yrs 13 yrs 14 yrs 15 yrs 16 yrs 14yrs Mobile phones per 100 population 48 76 94 139 155 94 156

Internet users <1% 19.2% 46.0% 53.4% 59.3% 86.8% 96.7%

•Based on values expressed in current intemationol d:JNars. reflecring a single )Ea("S (the current year) currency exchange rates and ~powe,-,p;ttiry (PPP) aqi:lslme.nts.. The rank;ng goes from the poorest (I 1) ro the wealthiesr (# 185).

Source for ranking: V'alentina Pasquali, "The Poorest ( OU"ltrie-s in the World," Global Fioooce M~ Apri 2, 2016, http!./M'WW.gfmag.com/global~ataleconomk~ata lthe-~-countri~the-world?pa,ge-=12 (accessed Apd 2, 2016); da1a based on. https:IMWN.cia.gov(libraryJpublicationsfthe-wat;Uaabook/geo&l'ts.html (accessed April '2, 2016). The ~rld Factbook G 4.41datro biweekly.

European Union, we might find that it is only worth 87.8 cents in Europe ($1 = E.'0.878). If out ncighbors in Europe look at the same exchange rate with the e:uro as the base currency,

they would find that a curo is worth about 15 percent more in the U.S. (i.e., the forex rate would be €1 = Sl.14). Why docs the exchange rate matter? The rate determines the price o/ a product in a different country and thus a firm's ability to sell outside its borders. II the

dollar becomes stronger so that for example jt takes fewer dollars to equal one Euro, a dol• lar can buy more French wine or csca.rg:ot, and customers in the U.S will buy more of it. If the dolJar drops in value compared to the curo, then the dollar will buy less when you hike

through ltaly, whereas European tourists will flock to the U.S for a "cheap" vacation. Of course, CDP and exchange rates alone do not provide the information marketers

need to decide if a country's economic environment makes for an attractive market. They also need h> consider whclher they can conduct "business as usual" in another country.

40 PART ONE I UNDERSTAND THE VA LUE PROPOSITION

economic infrastructure The quafity of a counuy's distribution, financi<l( and comroonications systems.

level of economic development The broader economic picture of a country.

standard of living An indiGltO( of the average quality and quantity of goods and services canst.med in a counuy.

developing countries Countries ro which the economy i.s shifting its emphasis from agricuJture to industry.

bottom of the pyramid (BOP) The collective name for the grOl.4) of consumers throU<j>out the world Vlllo live on less than S2 a day.

sachet Affordable one-use pad:ag,s of deaning products. fabric soltenen, shampoo. etc., f0< sale to consumers in least deveioped and developing countries.

BRICS countries Also referred to as the bncs, Brazil Russia, India. China, and Sooth Africa are the fastest growing of the developc,g countries. With m0<e than 3 billion people. they represe<tt over 42% of the world's population and about 20% of the gross world product.

A country's economic infrastructure rele.rs to the availability of the resources that make doing business in a country possible. These resources include transportation., distribution networks, fmancial institutions, communications networks, and energy n.--sourccs. for ex• ample, countries with less-developed financial institutio,,s may operate as a cash c-c:onomy in which consumers and busi.nC$ customers must pay for goods and services with cash rather than w ith credit cards or checks. ln poorer countries without good road systems, sc-Uers may use donkey carts,. hand trucks, or bicydes to deliver goods to the man)' small retailers who are their customers.

Level of Economic Development

When marketers scout the world for opportunities, it helps to 001,sider a country's level of economic development. Economists look past simple facts such as growth in GDP to decide thi,;; they also look at what steps the country is taking to reduce poverty, inequaHl)~

and unemployment. Analysts also take into account a country's standard of living, an indi• cator of the average quality and quantity of goods a.nd services a country consumes. They dcscribi.? the following three basic levcls of development:

1. As we said earlier, a country at the lowest stage of cco,,omic developmeill is a least developed country (LIX). In most cases, its economic base is agricultural. Analysts consider many nations in Africa and South Asia to be LOCs. In LOCs, the standard

of living is low, as arc literacy le,•cls. Opportunities to sell many pnxlucts, especially luxury items such as diamonds and caviar; are minimal because most pt."<>ple don't- have enough Spt."nding mon-cy. They grow what they net.~ and barter for the n.--st ·1ncse countries arc attractive markets for staples such as rice and incxpcnsivt:" goods such as shoes and fabrics from which people can make clothing. In addition, they pres- ent opportunities for new products that these consumers need, such as solar.operated

mobile phones and compute-rs that will survive without air conditioning.

2. When an economy shifts its emphasis from agriculture to industry, s tandards of living, education, and the use of technology rise. These cow,tries arc developing countries. In such locales, there may be a viable middle class, often composed largely of cntre•

prencurs working ha.td to run successfuJ smaU businesses. Because more than 8 out of 10 consumers now live in devcJoping countries, the number of potentiaJ customers and the prcst.")JlCC of a skiUcd labor force attract many firms to these areas. Marketers

sec these developing countries as the future nl.lrke-t for consumer goods like skin care products and laundry detergents.

Wiiltin these LOC.s and dcvcloping countries is a group of consumers known as fl,e bottom of the pyramid (BOP), which is the collective name for the group of more

than 4 biUio.n consume.rs throughout the world who Hveon It:'$ than $2 a day.1' These BOP consumers represent a potentially huge marketing opportunity with purchasing

power parity of $5 billion. They also pres.,nt a big challenge for marketers, as unlike other consumer groups,. they generally arc unable to afford to purchase .,inventory~.,. such as a bottle of shampoo. Procter & Gamble, Unilever, and other companies meet these needs whe.n they offer cleaning products, fabric softeners, and shampoo that can be used in cold water in affordable one-tLSC sachet packaging.

The largest of the developing or newly industrialized countries-Brazil, Russia, (ndia, China and South Africa-are referred to as the BRICS countries, or simply as the

BRICS. Originally known as "BRIC," they became BRlCS wru,n South Africa joined in 2010. These five countries are the fastes t growing of the developing countries; with more

fl,an 3 billion people, they n.'Present over 42 percent of the world's population. Their total CDP of S16.039 trillion is equivalent to about 20 percent of the gross world product (CWP). Marketers are attracted to these countries because of the masses of consumers

who arc not wealthy but who a.re beginning thcir move toward economic prospcrity.15

The 8RICS present exciting opportunities to marketers, but we must approach with

CHAPTER 2 J GLOBAL, ETHICAL, AND SUSTAINABLE MARKETING 41

caution because of th~ many ups..and~owns that ma.kc these economics unstabJc. As examples, the poHtical crisis in Brazil discourages forcign investment, Russia's "oil rush" has been reduced to a trickle because of the drop in oil prices, and China's

exploding ccono,ny is starting to sputter. A developed country boasts sophisticated marketing systems, s trong private

enterprise_, and bountiful market potential for many goods and setviccs. Such countries

are economically advanced, and they offer a wide range of opportunities for intema• tionaJ matketc.rs. tn 1976, the most econoinically deveJopcd oounl'rics in the world- France, West

Germany, Italy, Japan, the U.K, and the U.S.- formcd what became known as the Croup of Six, or C6. Later with the addition of Canada in 1976 and Russia in 1998, the G6 b«ame the Croup of Eight (CS). In 2014, Russia's membership was revoked because of its involvement in the Crimean crisis, so we are down to the Group of Seven (G7).16 Thc purpose of the G7 is to provide a way for these countries, dcmocracie-s with highly developed economics, to deal with major economic a.nd political issues that oth£!t countries and the international

community face. In addition to topics of the world economy and international trade, C7 summits have mote recently induded discussions of other issues, such as energy, terror• ism, unemployment, the infonnation highway, crime and drugs, arms control, and the

cnvirorunent.17

The Business Cycle

The business cycle describes the overall pattern of changes or fluctuations of an economy.

All economies go through cycles of prosperity (high levels of demand, employment, and income), recession (fulling demand, employment, and income), and rec.crony (gradual im• provcment in production, lowering unemployment., and increasing income). A sevc-re

recession is a depn..>ssion, a period during which prices fall but there is little de1nand because few people have money to spend and many arc out of work.

luflatio,, occurs whe:n prices and the cost of Uving rise while money loses its pu.rchas• ing powct because the cost of goods escalates. During inflationary periods, dollar incomes may increase, but real income-what the dollar will buy--dccreascs because goods and services cost more.

The business cycle is especially important to marketers because o( its clfcct on cus .. tomcr purchasing behavior. During times of prosperity, consumers buy more goods and services. Markctets try to grow thcir businesses, maintain inventory levels and develop

new products that meet customers' willingness to spend. During periods of recession, such as that experienced by cou.ntrics all over the g lobe beginning in 2008, consumers simply buy less. They may also "trade down" as they substitute less expensive or lower-quality brands to strctcl, a dollar (or euro, etc.).

The Competitive Environment A secoild important elcme:nt of a firm's external environment is the competitiVt? enviroumml. For products ranging Erom toothpaste to sport utility vehicles, firms must keep abn.,ast of what the competition is doing so they can develop new product features, new pricing schedules, or new advertising to maintain or gain markc-t share. A.,;; we will see., marketers need to understand their competitive position among product alternatives in their micro,. ctwiron.ment and i.n the structure of their indust:l'ics, that is, their macrociwironment.

Like players in a g lobal chess game, markcting managers size up ~,cir competitors ac-

cording to their strengths and weakncs<c--s, monitor their marketing strategics, and try to predict their next moves. To do this, an increasing number oE firms around the globe engage in competitive inte lligence (CQ activities where they gather and analyze publicly available

information about rivals from such sources as the lnterru?t, the news media, and publicly available government documents, such as building permits and patents. Successful 0

developed countries A country mat boasts sophisticated marketing systems, suong prWate enterprise, and bOll\tifuJ market potential for many goods and Sffiices.

Group of 7 (G7) An informal fOfum of the sewn most ecooomic,Jly developed COLrltri<s mat meets annually to dis<uss major economic and political issues facing the mtemational community. f,ormerly the GS, Russia was exduded from the 9'0UP as a result of its invasion of Crimea i'I 2014.

busine,ss cyde The overaU patterns of change in the economy-including pe<iods of prosperity, recession, dep<ession, and rec~hat affect consumer and business purchasing power.

competitive intelligence (0) The process of gathering and ana!y,ing publicly available information aboot rivals.

42 PART ONE I UNDERSTAND THE VA LUE PROPOSITION

discretionary income The ponion of income people have left over after pai;ng fo, n«essities such as hoo<Jng. utilities, food, and doming.

product competition When f11ms offering different products compete to satisfy the ~me consumer needs and wants.

brand competition When f11ms offering similar goods or servkes co•ie on 1he basis of their brand's reputation or perceived benefits.

monopoly A market situation in which one firm. the only suppaer of a particular produa, is able to control the price, quality, and supply of that pcoduct

oligopoly A marl<et strucrure in which a celatively small oomber of sellers. each hording a substantial share of the market. compete in a martet with many buyers.

monopolistic competition A market strucwre rn which many firms. each having slightly different J>'Ockts. offec unique consumer benefits.

means that a firm lt!ams about a competitor's new products, its manufacturing proces..~, or the management styles of it,; executives. Then the finn uses this information to dcvcJop superior marketing strategies (we'll learn more a.bout collecting marketing intelligen<:t:!

in Chapter 4).

Competition in the Microenvironment

Competitioi, in the mic-roenvironment means the product alternatives from which members of a target market may choose. \.·\fc think of these choice.,; a t three different levels:

1. Competition for consumers' discretionary income or the amount of money _people have left after they pay for necessities such as housing, utilities, food, and clothing.

Do we plow "leftover" money into a new computer tablet, donate it to charity, or tum over a new leaf and lose those extra pounds by investing in a healthy lifo.style? These choices vary by country. For Russians, the bulk of monthly income goes to food, aJco,.

hol, and tobacco. In the United Stah.'S, health care is the biggest expenditure. In Japan, housing costs take just over a quarter of the average income$ while in Saudi Arabia almost 10 percent is spent on fumiture.13

2. Product competition: Other organizations offer different ways to satisfy the same

consumers' needs and wants. So, for example, if a couch potato decides to use some discretionary income to gl'.'t buff, he or she may consider either joining a health club or buying a used SoloAcx machine on eBay to pump iron a t home might be a good idea.

3. Brand competition, where competitors offor similar goods or services., vying for con· sumer dollars. So, our flabby friend who decides to join a gym still must choose among competitors within this industry, such as Gold's Gym, Soul Cycle, or the humble YMCA, or he or she may forgo the exercise thing altogether and just buy bigger pants.

Competition in the Macroenvironment

When we talk about examining competition in the mncn:,,._-.,,vironment., \Vt'.' mean that market• cts need to understand the big pictur<.-thc overall stn.tcture of their industry. This struc•

tu.re can range (rom one firm having total contro1 to numerous firms that compete on an even playing field.

1. No., it's not just a board game: A monopoly exists when one sc.ller controls a market &.>cause the seller is #the only game in town," it feels little pressure to keep prices low

or to p roduce quality goods or services. In most U.S. industries today_, the government a ttempts to ensure ro1'5umers' wclfarc by limiting. monopolies through th12 prosecu•

t.ion of firms that engage in activities that would limit competition and thus violate antitrust regulations.

2. In an oligopoly, there are a relatively small number o( sell<>ts, each holding substantial matkct sharf", in a market with many buyctS. Because there are few sellers, U,e actions of each di.reedy affect the othe.rs. Oligopolies most often exist in industries th.at require substantial investments in equipment or technology to produce a product. The airline industry is an oligopoly.

3. ln a state of monopolistic competition, many sellers compete for buyers in a market

Each firm, however, of(cts a slightly different product, and each has only a small share of the market. For example, many a thletic shoe manufacturers, including Nike, New Balance, and Under Armour, vigorously compete with one: another to offer conswncrs

some unique bencfit--cven though only Adidas (at least for now) offers you a S250 computerized running shoe that senses how hard the ground is where you arc run .. ning and adapts to it.

CHAPTER 2 J GLOBAL, ETHICAL, AND SUSTAINABLE MARKETING 43

4. F"maUy, perfect competition exists when there are many small sellers, each offering basically the same good or service. ln such industries, no sing le firm has a significant- impact on quality, price, or supply. AJthough true conditior1s of perfect competition

are rare, agricultural markets (in which there are many individual farmers, each pro-, d ucing the same corn or jalapeno peppers) come the close.'t.

The Technological Environment The f«llnological e11viro11ment profoundly affects marketing activities. Of cou rse, the Internet is the biggest technological change in marketing within rt.:.ccnt times- even bigger than hovc.tboatds! Online sales offer consumers virtually anything they want (and even soine

things they don't want) without ever leaving home. Some people believe the next innovation to be a game changer in marketing is al•

ready here. In 2013, Amazon CEO Jeff Bezos surprised CBS journalist Charlie Rose with

thl? announcc..ment that Amazon had been St.>crt:'tly working on '"'Prime Air," a project to use "octocopters" or drones to deliver packages to homes all ovc.r the country within 30 minutes.19 A drone: is an unmanned aircraft or flying robot controUed remotely us--

ing CPS. Drones, aJso known as unmanned aerial vehicles or UAVs, are already in de- mand by hobbyist~ and businesses. Drones have been equally successful at Filming the Golden C)obes and monitoring lowa cornfields. They have been on the sets of Game of TJrro,res and the newest Siar Wars films. While originally placing a ban on commercial use of small drones, more recently the FAA has dropped the ban and established rules for their use, opening the way for companies like Amazon to use dro,,cs for dclivery.20

Successful marketers continuously scan the: external business environment in search of ideas and trends to spark their own research efforts. When inventors fee.I they have come across something exciting, they usually want to protect their exdusi ve right

to produce and sell the invention by applying for a patent. This is a legal document that grants inventors exclusive rights to produce and scll a pa.rticular invention in that cowltry.

The Political and Legal Environment The political tl1'd legal enviro11meut refers to the local., state, nationat and global laws and l"t.~ulations that affect businesses. Legal and regulatory controls can be prime motivators for many business decisions. Although firm.,; that choose to remain a t home ha\,e to worry

about local regulations only, global marketers must understand more complex political is- sues that can a.Hect how they ar~ allowed to do business arow,d the world.

American Laws

US. laws governing business generally have one or both of h,•o purposes. Some, such as

the Sherman Antitrust Act and the Wheeler•Lca Act, make sure that businesses compete fairly with each other. Others, such as the Food and Drug Act and the Consumer Products Safoty Commission Act_, make sure that businesses don' t take advantage of consumers. Although some busincssfX"'Ople argue that excessive lcgislaHon only ti.mi~ co.mpctition,

others say that laws ultimately help firms because they maintain a level playing field for businesses and support troubled industries.

Table 2.3 lists a few of the major federal Jaws that protect and preserve the rights of U.S. consumers and businesses. fecll!ral and state governments have created a host of l"t."gtllatory agencies-gov\!l'runent bodies that monil'or business activities and cnfon:c laws. Table 2.4 lists some of th12 agencies \ .. •hose actions a.ffect marketing activiHcs.

perfect competition A market structW"e in which m~ smal sellers, all of whom offer simil.at p-oducts. are unable to have an i~t on the quali1y, price, or suwly of a product.

drones Unmann<d aerial vehicles or flying robots controlled remoll'i'f using GPS technology.

unmanned aerial vehides (UAVs) Anoth« name for drones.

patent A legal mechanism to prevent competitors from ~oducing Of selling an invention. aimed at reducing or eliminating ccwnpetitioo in a market f0< a period of time.

44 PART ON E I UNDERSTAND THE VALUE PROPOSITION

Tobie 2.3 Significant American Legislation Relevant to Marketers

Law Sherman Antitrust Act (1890)

Food and Drug Act (1906)

Federal Trade Commission Act (FTC) (1914)

Robinson-Patman Act (1936)

Wheeler-lea Amendment to the FTC Act (1938)

Lanham Trademark Act (1946)

Child Protection and Toy Safety Act (1969)

Consumer Credit Protection Act (1968)

National Do Not Call Registry (2003)

Credit Card Accountability, ResponsibiUty, and Disclosure Act of 2009

The Affordable Care Act of 2013

Data Broker and Accountability Act of 2014 (DATA Act)

USA Freedom Act of 2015

Purpose

Developed to eliminate monopolies and to guarantee free competition. Prohibits exclusive territories (if they restrict competition), price fixing, and predatory pricing. Prohibits harmful practices in the production of food and drugs.

Created the Federal Trade Commission to monitor unfair practices.

Prohibits price discrimination (offering different prices to competing whole- salers or retailers) unless cost justified.

Revised the FTC Act. Makes deceptive and misleading advertising illegal.

Protects and regulates brand names and trademarks. Sets standards for child-resistant packaging.

Protects consumecs by requiring full disdosure of credit and loan terms and rates.

Established by the Federal Trade Commission to a llow consumers to limit number of telemarketing calls they receive.

Bans unfair rate increases, prevents unfair fee tr'aps, requires dlSClosures be in pla in language, and protects students and young people.

Mandates health care coverage for Americans who do not receive benefits through an employer. Revises insurance regulations by eliminating denial of coverage for preexisting conditions, ending lifetime limits on coverage, and so on.21

Gives consumers access to files of personal information a data broker com- piles, the ability to correct inaccuracies, and the chance to opt out of the sale of that data to other companies. A result of Edward Snowden's revelations. about the National Security Agency's (NSA) practices regarding collecting and mon~oring of phone conversations. Requires that phone metadata be stored by phone companies, not the U.S. government.

Tobi• 2., I U.S. Regulatory Agencies and Responsibilit ies Regulatory Agency Responsibilities

Consumer Product Safety Commission (CPSC) Protects the public from potentially hazardous products. Through regulation and testing programs. the CPSC helps firms make sure their products won't harm customers.

Environmental Protection Agency (EPA) Develops and enforces regulations a imed at protecting the environment. Such regulations have a major impact on the materials and processes that manufactur- ers use in their products and thus on the ability of companies to develop prod· ucts.

Federal Communications Commission (FCC) Regulates telephone, radio, TV and more recently the use of the Internet. FCC regulations directly affect the marketing activities of companies in the communi- cations industries, and have indirect effects on aU firms that use these media.

Federal Trade Commission (FTC) Enforces laws, primarily through fines, against deceptive advertising and product labeling regulations.

Food and Drug Administration (FDA) Enforces laws and regulations on foods, drugs, cosmetics, and veterinary prod· ucts. FDA approval is required before marketers can introduce many products to the market.

Interstate Commerce Commission (ICC) Regulates interstate bus, truck, rail, and water operations and therefore affects the ability of a firm to efficiently move products to its customers.

CHAPTER 2 J GLOBAL, ETHICAL, AND SUSTAINABLE MARKETING 45

Political Constraints on Trade

Global firms know that the political actions a government takes can drastically affoo their

business operations. At the extreme, of course, when two countries go to war, the business cnvimrlment changes dramatically.

Short of war, a country may impose economic sauctious that prohibit trade with another country as the U.S. has done with scvetal countries, including Cuba, North Korea, and, more recently, Russia. After Russia invaded eastern Ukraine in 2014, the U.S. and European countries increased. economic sanctjons against the country. 1n retail•

ation, Russia banned the import of certain foods from the European Union and other countries.22

ln some situation.,;, intcn,aJ pressures may prompt the government to take over the

operations of foreign companies that do bush'1ess within its borders. Nationalization occurs when the domestic govcmment reimburses a foreign owned company (often not for the full vaJue) fot its assets aJtct taking. it ove.t. One of the more famous examples of nation .. alization occurred when Egyptian president Carnal Abdel Nasser nationalized the Suez Canal Company in 1956. Similarly, foUowing World War U, Germany and other European countries nationalized privately owned businesses. Expropriation is when a govenunent

seizes a foreign company's assets without any reimbutsl.?ment (and that firm is just out of luck). In 1959, following the Cuban Revolution, the Cuban government expropriated aU foreign.awned private companies, most of which were owned by U.S. firms or individuals. Now that the U.S. has nonnalized relations with Cuba, wiU these £itms SL'Ck reimburse,. ment £or their lost property?

Regulatory Constraints on Trade

Covl!mments and economic communities regulate what products ate allowed in the coun•

try, what products should be made of, and what claims marketers can make about the.m. Other regulations ensure that the host country gets a piece of the actio.n.. local content rules are a form of protectionism that stipulates that a certain proportion of a product must

oonsb;t of component,; s.upplfod by industries in the host country or economic community. For example, Brazil has recmtly tightened its local content rules regarding the manufacture and assembly of wind turbines. Under these rules, a minimum of 70 percent of the steel

plates and HK) pe:rcmt of the cement used to build the towers must be of Brazilian origin. In addition, the tower's nacelles (the assemblies that house the machinery) must be assem· bled Jocally.23 Such rules ensure that Brazil is able- to create more domestic manufacturing

jobs for its citizens.

Human Rights Issues

Some governments and companies are vigilant about denying businass opportunities to countries that mistreat theit citizen.,;. They are concerned about conducting trade with Jo,, cal firms that exploit their workers or that keep costs down by employing children or pris• one:rs for slave wages or by subjecting workers to unsafe working conditions, like locked factory doors. Nike, once the poster child for unsafe labor practices# has spent almost two decades admitting to and com.--cting its formerly abusive practices with increased wages

and factory audits., and is now a company others can learn from and look up to.z.a

The U.S. Generalized System of Preferences

The U.S. Gene ralized System o f Preferences (GSP) is a program Congress established to

promote economic growth u, tho developing world. CSP regulations allow developing

nationalizatio n When a domestic govenvnent reimburses a foreign company (ohen not for the full value) for its assets after taking it <Ner.

expropriation When a domestic government seizes a foreig, co~any's assets without any reimbursement.

local content rules A fo<m of p<otectionism stipulating tha, a certain proportion of a prod:ua must consist of co~nents supplied by industnes in the host counuy or economic commooity.

U.S. Generalized System of Preferences (GSPJ A p-ogram to promote economic growth in developing counlries by aOowing duty-free enuy of goods in10 the US.

46 PART ONE I UNDERSTAND THE VA LUE PROPOSITION

countries to export goods duty fn..~ to the U.S. The catch is that each country must constantly demons trate that it is 1naking progress toward improving the rights of its workers. On the other s ide of the coin, the low wages that U.S. firms can pay

to local workers often entices them to expand or entirely move their operations overseas. Although they provide needed jobs., some companies have bt."'Cn criti .. ci2ed for exploiting workers when they pay wages that fall below local poverty levels, for damaging the c,wironment, or for selling poorly made or unsafe items to consumers.

The Sociocultural Environment

The sociocultural environment refers to the characteristics of the society, the pea• pie who lio.;re in that socie ty, and the cultu re that reflects the values and bcLic:fs of the society. \\fhether at home or in g lobal market.:,, marketers need to under•

stand and adapt to the customs, characte ristics, and practices of its citizens. Basic beliefs about cu ltural priorities, such as the role of family or proper reJa .. tions between the sexes, affect people's responses to products and promotional

messages in any market.

A rullure's tislxl<y otten ililJences lhe way peope respond lo podJcts. What does Spam mean lo yoo?

To understand some of these values n.""quirt:."'S a knowledge of a culture's his• tory. For example, someone who appreciates that South Korea has Jong had a sig•

nificant U.S. military presence might not be as surprised to )cam that SPAM- that American mystery meat-sells $235 million of the pork shoulder product there every year. During the Korean War, food was scarce and only a select (cw Koreans

demographics Statistics that measure observable aspects of a populatioo. indudiilg size. age. gender, ethnic 9'0Up, income, education, occupation, and family structure.

cultural values A society's c!,epiy held beliek about right and wrong Wa-JS to live.

could gain access to PX s tores on U.S. military bases. As a result the humble prod• uct became a status symbol; and it remains so today though many young Koreans who love to order "military stew" have no idea of its origins.25

Demographics

'Int:' first s tep toward understa nding the characteristics of a society is to look a t its demographics. These a.re statistics that measure observable aspects of a population, such

as population size:, age, gender, ethnic group, income, education, occupation, and £am .. ily s tructure. The information demographk s tudies reveal is of g reat value to marketers whl'n they want to predict the size of markets for many products, from home mortgages

to brooms and can openers. We'll talk more about how demographic factors impact mar• kcting strategies in Chapter 7.

Tupperware's explosive growth in ovl:'!rscas markets illustrates the importance of de,.

mographics. faced with a static market (for one thing, many American women work so having Tupperware parties isn' t as easy as it used to be), the company is prospering by planting its flag in other countries where the.re are more favorable condition..;. One such

sweet spot is lndonesia. It turns out the.re is an Cndoncsian tradition called an arlsan ("gath • ering") w here women meet with a group of Friends to socialize, share n.'cipes and even pool their money to buy gifts for one another. Tupperware, which relies on social networks like

these, sends scllers to arisans to promote their products and to recruit new agents. For the container company, it's a na tural fi t.26

Values

Every society has a set of cultural values, or dccpl}' held beliefs about right and wrong ways to live, that it imparts to its membcrs.27 Those beliefs u,Aucn-ce v irtually every aspect o( our lives, even the way we mark the time we live them. For example, for most

CHAPTER 2 J GLOBAL, ETHICAL, AND SUSTAINABLE MARKETING 47

Americans, pm,cJualily is a core value; indeed, business leaders often proc.Jajm that "time is mo.ncy.'' fior countries in Latin America and other parts of the world, this is not at all true. If you schedule a business meeting at 10:00, you can be assured most people will not arrive until around 10:30-or later.

These differences in values often explain why market• ing efforts that are a big hit in one country can flop in an- other. li'I 2009, Mattel sought to invade China with a 36,000 square foot store in the most fashionable area o( Shanghai. Barbie could get all h~ needs met in the store From a fashion consultation to getting lots of Barbie dolls and clothes.

Two years later the House of Barbie closed. What went wrong? MattcJ failed to understand differences in value:s of Chinese and American families. The doU was too frivolous Armesty trtematioM ca~ for human rights a-ruld the world. This SMss ad aims to

for parents who only have one child and who emphasize combat <i:lmestic ab.5e.

education over style. Two yea.rs aftc.r the House of Barbie dosed, Matte:1 rcinb'oduced Ba.rbie as "Violin Soloist'' Ba.rbie, targeting Chinese parents who want thcir daughters to be

"geniuses:"28

One important dimension on which cultures differ is their emphasis on collectivism versus individualism. In collectivist cultures., such as those we find i:n Vrot.."Zucla, Pakistan,

Taiwan, Thailand, Turkey, Crec'Ce, and Portugal, people tend to subordinate their personal goo.ls to those of a stable community. In contrast, consumers in individualist cultures, such as the U.S., Australia, Crcat Britain, Canada, a.nd the Netherlands, tend to attach more im• portance to personal goals, and people are more likely to change memberships when the demands of the group bcoome too costly.29

You may not do the Downward Facing Dog., b ut if like n,any o ther consumers you love to shop at Lululemon, you p robably look like you do. The yogn craze is sweep• ing America, but not surprisingly it's (for now at least) even bigger in India, where it originates. Yoga is closely tied to other long-standing spiritual practices in that country that link to food, medicinal treatments (Ayun.1tda), and even home futni<;hings. Indian

consumers crave modern versions of these products, and a new wave of businesspt.."<>ple known as the "Baba Cool Movement" ate giving them what they want as they n,arkct

healthy items based upon ancient beliefs. For example, Baba Ra..mdev is a swtwti (holy man), but he's also an effective marketer who tra.nslat'es traditional values into modem

versions. He and other entrepreneurs have been so successful thal sales of large multinationals have suffered. They in tum have to adapt or die-that is why Colgate recently introduced toothpastes contain• ing the extract of nccln, an lndian tree, and charcoal that lndian villag;•

cts use to clean their teeth.30

Social Nonns

collectivist cultures Cdtures Ml which people subadinate their pe,,onal goals 10 those ol a stable community.

individualist cultures CtAtures in which people tend to attach more inportance to personal goals than to those of the larger community.

social norms Specifk ruk!s dictating what is right °' v.tong, acceptable °' unacceprab1e.

Values are general ideas about good. and bad behaviors. From these values flow social nonns, or spt...,cific rules that dictate what is right or wrong, acceptable or unacceptable, with.in a society. Social norms in·

die.ate what ways to dress_, how to s_pe.ak, what to cat (and how to eat), and how to behave. For example, Joe.al customs dictate the appropriate hour a t which the meal should be served- many Europeans, Middle Easterners, and Latin Americans do not begin dinner until around 9:00

It's comrrm kr store e~ees il Japan to wear unifams, which ~ to symlxile lhe collecli'le cultl.re in lhat ax.ntry.

I f

I • f i ~

48 PART ONE I UNDERSTAND THE VALUE PROPOSITION

p.m. or latc-t, and they arc amused by American visitors whose stomachs growl by 7:00 p.m. Customs tell us how to cat the meal, including such details as the u tensils, table etiquette, and even the appropriat~ apparel for dinnertime (no thongs at the dinner table!).

Conllicting customs can be a problem when U.S. markctcts try to conduct business in other countries where c:.-xecutivcs have different ideas

about what is proper or expected. These difficulties even include body language; people in Latin countries tend to stand much closer to each other than do Ame:ricans, and they will be insulted if their counterpart tries to stand farther away.

In many countries, even casual friends grec-t each other with a kiss (or two) on the check. In the U.S.,one should kiss only a person of the op-

posite sex- and one kiss only, p lease. ln Spain and other parts of Europe, kissing includes a kiss on each cheek for both people of the same and the opposite sex, whereas in the Middle East., unless a special friend, it is un .. aeet.1)table for a man to kiss a \'\roman or a woman to kiss a man. Instead,

it is the norm t·o sec two men or two women holding hands or walking down the street with thcit arms entwined.

Marke.ters often ·borrow" inagery from other cultures to ccmmunicate with local rustomers. This ad is loc a Mexican restaur.llt in Brazil. Language

consumer ethnocentrism Consumers' feeling that products from theif own country are superior or that it is wrong to buy p-oducts produced in another country.

11,e language barrier is ore obvious problem that confronts marketers

who wish to break into foreign n,arkc-ts. A notice at a hote:1 in Acapulco proclaimed, ~c manager has personally passed all the water served here." These translation snafus are not just embarrassing. They can affect product labeling and usage instructions, advertising.

and personal selling as well. It's vital for marketers to work with local people who under- stand the subtleties of language to avoid confusion. Tell that to Audi, which may cncoun• tct a bit of trouble when it sells its 1,ew c--tmn line of electric cars in France. ln the French

language, the word lt1011 doesn't <Mjure up images of spet.xl, sustainability, or sophistica- tion-it means another four-letter word that s tarts with s.31

Consumer Ethnocentrism

EJ!moceutrism refers to the belief that one's own national or ethnic group is superior to others. Similar!}~ consumer ethnocentrism re.fors to consumers' beliefs about products pro,.

duccd in their country versus those from another. Consumers may fee.I that products from their own country are superior, or they may fccl it is wrong, immoral, or unpatriotic to buy products produced in another oounl'ry. Coi'\Sumer ethnocentrism can cause consumers to be unwilling to try products made elsewhere.

2.4 OBJECTIVE Explain some of !he

strategies and tactics that a firm can use to e,,ter global marke15.

a;g.;,f;liii

How "Global" Should a Global Marketing Strategy Be? Going global is not a simple task. Even a company known for its keen marketing prowess ca.n make blunders when it reaches beyond its familiar borders. Disney, for example, learned severa] lessons from

mistakes it made when it opened Hong Kong Disncyland:32

• Bigger is bettor. Unlike giant American parl<s, which Chiru= visitors to the U.S. are ac- customed to, Hong Kong Disneyland is Disney's smallest patk,. easily seen in a single day.

CHAPTER 2 J GLOBAL, ETHICAL, AND SUSTAINABLE MARKETING 49

• CindcteUa who? Chinese visitors know characters from recent movies Ukc Toy Story, but they didn't grow up hearing about Ondcrclla, so that emotional cormec• tion to Disney's traditional characters is lacking, even though they're seen th.rough ..

out the park.

When Disney opened its first mainland China Disney theme park in June, 2016, in Shanghai, it was clear U,at the company lcamed its lesson. Unlike U,e Hong Kong

Disneyland, the new park includes the Enchanted Storybook Castle-the largest Disney castle on the planet, and six uniqu.:- and unforgettable lands that rclatc to Disney characters

Chinese famiUes arc familiar with: Mickey Avenue, Gardens of imagination, Fantasyland,

Adventure Isle, Treasure Cove, and Tomorrowland. There is also a Toy Story hotel.33

Company-Level Decisions: The Market Entry Strategy

l.f a finn decides to expand beyond its home country, it must make important decisions about how to structure its business and whether to adapt its product marketing strategy to

accommodate- local needs. Just like a romantic relationship, a firm must dcterrn.iru! the level of commitment it is \\filling to make to operate in another country. ThL,; commitment ranges from casual involvement to a full-scale "marriage..'' At one extreme the fi.nn s imply exports

its products, whereas at the other extreme it din.'Ctly invests in another country by buying a foreign subsidiary or opening its own stores or manufacturing facility. This decision about the extent of commi~nt entails a trade-off bet,,rcen cou/ro/ and risk. Direct Uwo)vement gives the

firm more control over what happens in the country, but its risk also increases if the operation is not successful.

let's review four globalization strategics representing u,creast."<i levels of involveme:nt: exporting, contractual an-angements, strategic alliances., and direct investment. Table 2.5 summarizes these options.

Exporting

lf a firm chooses to export., it must decide whether it wHI attempt to sclJ its products on its own or rely on intermediaries to represent it in the target country. These spt.."Cialists, or export merchants, understand the local market and can find buyl!l'S and negotiate terms. An exporting strategy allows a. firm to seU its products in globaJ markets and cushions it against downturns in its domestic market. Because the firm actually makes the products at home, it is able to maintain control over design and production decisions.

Contractual Agreements

The next level of commitment a firm can make to a for· cign market is a conttachJal agreement with a company

in that country. lwo of the most commoi, forms of con• tractual agnhlm.cnts arc licensing and franchising:

1. ln a licensing agreement., a firm (the licensor) gives another furn (the licensee) tho right to produce and market its product in a specific country or region in return for royalties on goods sold. The licensee

is able to avoid many of the barriers to entry that the licensor would have but the licensor also loses contml over how the product is produced. and m.1.rkcted.

export merchants lmermed.afies a fm uses to represent it in other countries.

licensing agreement An agreement illwhicfl one firm <jles another firm the right to produce and milffl ils produa in a specifu: cooouy or region in return for royahi<s.

franchising A form of 6censing im,ol,ing the right to adapt an entire system of doing business.

2. Franchising is a form of Jirensing that gives the franchisee the right to adopt an entire way o( doing

Many consumers loday lmgef for new variations of larriiar products from aranl the worti. Th~ German ad lex aisps Q.e., po!ato ~) reads, "Discover Anica's spiciesl secret.·

50 PART ON E I UNDERSTAND THE VALUE PROPOSITION

Tabte2.5 I Ma rket-Entry Strategies Strategy Level of risk

Exporting Strategy Contractual Ag,...,ments Strategic Alliances Direct Investment Low Medium Medium High

Level of control low

Options Sell on its own Rely on export mer- chants

Advantages low investment. so presents the lowe.st risk of financial loss Can control quality of product

Disadvantages

strategic alliance

Avoid difficulties of producing some products in other countries May limit growth opportunities Perceived as a "foreign·· product

Relationship developed between a firm s,eking a deeper commitment to a foreign 11\aOO?t and a domestic firm in the target coonuy.

joint venture A strategic alfiance in v.tiich a new entity owned by two or more finns allows the partners to pool their resources for commoo goals.

Medium Licensing License a local firm to produce the product

Avoid barriers to entry Limit financial inVe5tment and thus risk

Lose control over how product is pro- duced and marketed, which could tarnish company and brand image Potential unauthorized use of formulas. designs, or other intellectual property

Franchising A local firm adopts your entire business model Local franchisee avoids barriers to entry Limit financial investment and risk

Franchisee may not use the same-quality ingredients or proce- dures, thus damag- ing brand image

Medium Joint venture, where firm and local partner pool their resources Easy access to new markets Preferential treatment by governments and other entities

High level of financial risk

High Complete ownership often buying a local company Maximum freedom and control Avoid import restrictions

Highest level of commitment and financial risk Potential for nationalization or expropriation if government is unstable

busin{'SS in the host country. 'firms need to monitor these operations carefully to en• sure the partnc-t maintains their brand image:.

Strategic Alliances

Finns that choose to develop an even deeper commitment to a foreign market ent~ a strategic a lliance with one ot more domestic firms in the form of a joint venture, in which two or more fir-ms create a new entity. Strategic alliances also allow companies easy access to new matkcts and preferential treatment in the partner's home country.

Direct Investment

An even d~pc.r level of commitment occurs when a firm t!Xpands intemationaUy thtough ownership. When a firm buys all or part of a domt..--sHc firm, it can take advantage of a do,. mestic company's political savvy and market position in the host country.

Marketing Mix Strategies In addition to ''big•picture/i decisions about how a company will operate in other cow, ..

tries, manage.rs must decide on how to market thc:ir product in each country. Do they need to modify or create new Four Ps--product, price., promotion, and place-to suit local conditions?

Standardization versus Localization

When they go global, mark<>ters ask such ques'tions as these:

1. To what extent will the company need to adapt its marketing communications to the

SJl""ifiC styles and tastes of each local market?

CHAPTER 2 J GLOBAL, ETHICAL, AND SUSTAINABLE MARKETING 51

2. Will the same product appeal to p<>0ple there?

3. Will it have to be priced differently?

4. And, of course, how docs the company get the product into _people's hands?

Marketers mlL<;t decide which is ~ttcr-stand.a-rdizatiou or localizatlo11? Advocates of standardization argue that basic needs and wants are the same evcry\,;hcre. A focus on the similarities among cultur12S means a firm doesn't have to make any changes to its mar• keting sttategy to compete in foreign colU'ltrics and can realize Large economics of scale because it can spread the C()Sts of product dcvclopment and promotional materials over many markets. Widespread, consistent exposure also helps cn.'ate a global brand like Coca Cola because it forges a strong. unified image all over th<, world.

ln contrast_, those in favor of localization flX'l that the world is not tllnl small; you need to tailor products and promotion.al messages to local cnvironme!lts. These marketers argue that eat:h culture is unique, with a distinctive set of behavioral and pt."'J'SOnality character .. istics. lf you visit the World o( Coke in Atlanta, you can sample the products Coke sells around the glob<?.

To P or Not to P: Tweak the Marketing Mix

Once a ft.rm decides whether it will adopt standardization or a localization strategy, it is time to plan for the Four l's.

Product Decisions

A firm has th.n."C localization/standardization choires when it decides on a product strat• cgy: to offet the same, a modified, or a new product:

1. A straight exte nsion strategy (standardization) retains the same product for domestic and foreign markets. The Apple iPad is a good example of a straight extension strat• egy. No matter whc-re you go in the world, e\lery iPad is bas icaUy the same.

2. A product adaptation strategy (modified localization) recognizes that in many cases people in different cultures do have s trong and different product preferences.

Sometimes these differences can be subtle yet important. Jn South Korea, for ex• ample, the familiar pink and orange noon Dunkin' Donuts sign beckons customers inside to sampJc its gourmet coffee and traditional glazed donuts, but also on the

menu is more Korean fare, such as black rice donuts, ;alapefto sausage pie donuts, and rice sticks.34

A product adaptation s trategy also means a company adapts the same basic product to sync with local sensibilities. You may fondly n.'Call Thomas the Tank Engine and his locomotive pals

from your youth. Thomas is, in fact, one of the world's largest toy and TV franchises that deliv• cts more than Sl billion per year to Mattel, which

bought the company in 2012. Mattel s tarted to catch some heat about the lack of diversity of Thomas's friends, who arc primariJy male and white. Mattel's answer: The company i,; introducing 14 new friends

(four are female) who tc-pre:sent different countries. You can decide whether these new characters are valuable additions to the team, or ii they just reflect cultural stereotypes. Here's a sample of them:35

Raul of Brazil: "feisty"; "strong and agile."

straight extension strategy Product strategy in wflich a firm offers the same product jn both domestic and foceign markets.

product adaptation strate gy Product strategy in v.tiich a firm offers a sinilar but roodifl<d J¥oduct in foreign mart.ts.

• Yong Bao of China: If driven to achieve and make ____ .._ ______________ ..._.,! progress." Tlis Turkish ad for CNN injlies that ""'fl'One has at least some lli,gs in common.

52 PART ONE I UNDERSTAND THE VA LUE PROPOSITION

product invention strategy Product strategy in vdtich a firm develops a new p-oduct for foreign markets.

backward invention Product strategy in vdtich a firm develops a less aa.ianced product to serve the ne<!ds of people &ving in countries Vt'ithout electricity or other elements of a developed infrastructure.

free trade zones Designated areas whe<e foreign companies can warehouse goods withoUl paying taxes°' customs duties until they move the goods into the marl:i1place.

gray market goods Items manufactured ootside a country and then inported without the consent of the trademark holder.

Ashima of Ind ia (female): "shows no fear"; "h appy to help out." Carlos of Mexico: "'proud"; ''always wearing a smile.''

3. A product invention strategy (localization) means a company develops a new product as it expands to foreign markets. ln some cases, a p roduct invention strategy takes the

Corm of backward invention. For example, there arc still nearly one and a halC billion people or more than 20 percent of the world's population who have no access to reli• able electricity, primarily in Africa, Asia, and the Middle East. This provides a chal-

lenge lot finns to devclop products such as refrigerators, smartphones, and computers that can operate without cloctric powcr.36

Many of iru,se prople use kerosene lamps for Light that are hazardous to both them• selves and the environment. He-re arc just a few startling statistics:

• Fwnes from kerosene lamps kill approximately 1.5 million African women and chiJ ..

dren annually.

• More than 1.5 million _pt..~ple in lndia suffer bums from kerosene lamps each year.

• Kerosene lamps bum fossil fuels and emit carbon dioxide (more than two pounds an• nually when used daily for lour hours), contributing to greenhouse gas emissions.37

To combat these and other serious _problems co,,a'Calors Jim Reeves and Martin Riddi/ord developed the S5 Cravityl.ight, a small, batteryless LED that is powered by

gravity. The light, which is a ttached to a bag filled with up to 28 pounds of sand, dirt, or rock (or whatever you have handy), works when the bag is hoisted into the air. A,; gravity pull,; the weight of the bag downward, a notched be.It spins a series of gears that drives

the motor for the light. After you've used up approximately 25 minutes of light, you sim• ply raise up the weight for another go.38 As long as you've got a little muscle, you've got sustainable light.

Promotion Decisions

Marketers must also decide whe ther it's necessary to modify how they speak to consum• ets in a foreign market. Some firms endorse the idea that the same message will appeal to cvc-ryonc around the world, whc-reas others fccl then&..~ to customize it. Unilever, maker of U pton tea, is doing a bit of both in its first.ever global ad campaign to en.courage its cur• rent and would•be tea drinkets to "Be Mort? T~"- that is, to ''gct off autopilot."' The ads,

which st.>r Kermit the Frog fro.m 77,e Muppels, truget both hot-tea and ic<>d-tea drinkers. Although all of the globa l ads will include the same "Be More Tea" s logan (or translations fl,ercol), only those global markets where Tlte Muppels are well known will feature ads starring Kennit.:w

Price Decisions

It's often more expensive to man ufacture a product in a fore:ig-n marke t than a t home. This may occur when the.re arc higher rosts s temming from transportation, tar1£(s, dif•

forences in currency exchange rates, a nd the- need to source loca.J materials. To ease the financial burden of tarilfs on companies that import goods, some colll'\tries have established free trade zones. These are designated areas where foreign companies can wareh ouse goods without paying taxes or customs duties u ntil they move the goods into the marketplace.

One danger of pricing too high is that competitors will fin d ways to offer their prod·

uct at a lower price, i.;oven i( they do so illegally. Gray market goods are items that ate imported without the consent of the trademark holder. Although gray market goods arc not counte..tfc.it, they ma y be different from a uthorized products in warranty coverage

CHAPTER 2 J GLOBAL, ETHICAL, AND SUSTAINABLE MARKETING 53

and co.mpliance with local regulatory requirements. Products such as toothpaste and pharmaceuticals may have the same formula but consist of infe.rior ingredients. The Internet offers exceptional opportunities for marketers o( gray market goods ranging from toothpaste to textbooks. But, as the saying goes, "II it seems too good to be true, it probably is."

AnoU,er unethical and oflen illegal practice is dumping, through which a company

prices its products lower than it offers them at home. This removes cxce-ss supply from home markels and keeps prices up U,erc. And dumping isn't rclcgated to just rct.lll products-agricultural products can be dumped, too.

Place/Distribution Decisions

Cc-tting your product to consumers in a remote location can be quite a ch.aJJenge. It's essc.n•

tial for a firm to establish a reliable distribution system if it's going to succa""Ci in a foreign market. Market~ used to dealing with a handful of la.tgc wholesalers or retailers in their domestic market may have to rely instead on thousands of small "mom•and•_pop" stotcS

or distributors, some of whom transport goods to remote rural areas 01, oxcarts, wheelbar• rows, or bicycles. ln LDCs, marketers may run into problems when they want to package, refrigerate, or s tore goods for I01,g periods.

So fa.r we've talked about ma.rkt."f.ers' need to understand U,e external environment and make good marketing mix decisions to be successful both a t home and globally. In the next section, we-'ll discuss an even mote important part of long•tcrm marketing success: ethical marketing practices.

2.5 OBJECTIVE

Undeistand the importance of ethical marketing practices.

GZ·iiltd

Ethics Is Job One in Marketing Planning It's hard to overemphasize the importance of ethical marketing decisions. Businesses touch many s takeholders, and they need to do what's best for all of them where possible. On a more selfish level, un•

ethical decisions usuaJly come back to bite you later. The COnst."'qUCl'\CCS of low e thical s tandards become visible \.\'hen you consider the num•

ber of highly publicized corporate scandals that have made news headlines s ince the tum of the century. The fallout from unethical practices often moans people lose their jobs and even thcir pensions. Stockholders lose their investments and consumers pay for worthless merchandise or services.

In 2015, the U.S. Environmental Protection Agency (EPA) accused Volkswagen AC of dodging air-pollution requirements by fitting about 482,000 U.S. dicscl•power..'<l vehicles with a "'dcfoat device" in the form of computer software that would make the ca l's appear

to be running cleaner than they were. Later Volkswagen admitted that they had fi tted 8 million vehicles \'\.tith the sofhvare. The result Volk.,;wage:n's stock value plunged, sales dropped, car owners and investors filed lawsuits, and Volkswagen was last in Fortuue magazine's 2016 ranking of the 100 largest companies by business rcputation.40

Ethical Philosophies Of course, what constitutes ethical behavior is of1en different for dilfcrcnt people. We can point to various ethical philosophies and look a t how each guides people to make their decisions. Table 2.6 presents a few of these different philosophies and how they reflect on

ethical dccisioll making.

dumping A co~any tries to get a toellold in a foreign market by pncing its p<0ducts lower than it offers them at home.

54 PART ON E I UNDERSTAND THE VALUE PROPOSITION

rabt• 2.6 I Some Common Ethical Philosophies Ethical Philosophy

UtiHtarian approach

Rights approach

Fairness or justice approach

Common good approach

Virtue approach

utilitarian approach

Description of the Ethical Decision

The decision that provides the most good or the least harm (i.e., the best balance of good and harm).

The decision that does the best job of protecting the moral rights of all affected. These include the following:

• The rights to decide what kind of life to lead

• The right to be told the truth

• The right not to be injured

• The right to privacy

The decision that treat all human beings equally-or, if unequally, then fairly based on some standard that is defensible.

The decision that contributes to the good of all in the community. The decision is in agreement with certain ideal virtues. Honesty. courage, compassion, generos- ity, tolerance, love, fidelity, integrity, fairness, self-control, and prudence are all examples of virtues.

Questions for Decision Making

Which option will produce the most good and do the least harm?

Which option best respects the rights ol all who have a stake?

Which option treats people equally?

Which option best serves the community as a whole, not just some members?

Which option leads me to act as the sort of person I want to be?

Ethical philOSOj)hy that atlwcates a decislon that p<ovides 1he most good o, the least harm.

For example1 if one uses the 11tilitariatt approad, to make a decision on diffc-ft'.'nt safety features to include in a new product, the ethical choice is the one that provides the inost good and the least harm. The faimes.s or j11slice appmacl, suggests that the ethical decision about employee compensation is to pay everyone the same or to be able to justify why one salary is higher than another.

rights approach Ethical philosophy that advocates the decision that does the best job of p<otecting 1he m0<al rights of au fairness o r justice approach Ethical philosophy that advocates the decision that treats all human beings equally.

common good approach Ethical philosophy that advocates the decisioo that conuibutes to the good of all in 1he community.

virtue approath Ethical philosophy that advocates the decision that is in agreement wi1h <Main ideal values.

ethical relativism Suggests that wh.at is ethical rn one culture is not necessarily the same as in another culn.re.

business ethics Basic values that gwde a fwm's behaviOf.

Of course, there a.re other £actors that influence behavior. Ethical relativism suggests that what is cthicaJ in one culture is not necessarily the same as in another culture. tn other words, what is right or wrong is relative to the moraJ norms within the culture. Business leaders who have experienced a sheltered lifo in American companies arc often shocked to find that they cmmot ~t the same ethical standards of others in the global community. 'A'estemcrs, for example, a.re often pain.fully honest 1£ an American business co1"1tact cannot meet a dead• line or a ttend a meeting or provide the needed services, he or she will nonna.lly say so. ln othc-r culh.Jres, the answer, even if tmtruc, will aJways be ''yes." Westcmcrs St..--C such dishon· est answers as unethical, but in some areas of the world, pt.""Ople believe saying "no .. to any

request is cxt:rcmcJy rud~en if there's no way they intend to honor the request.

Codes of Business Ethics Ethics arc rules o/ conduct-how mo,;t people in a culture judge what is right and what is wrong. Business e thics are basic values that guide the behavior of individuals within a

business organization. EthicaJ values govern alJ sorts of marketing plannit,g dccish>1\S that managers make, including \•,that go...~ into their products, where they source raw material$, how they advertise, and what type o/ pricing they establish. Developing sound business

ethics is a major step toward creating a strong relationship with customers and others in

the marketplace.

C HAPTER 2 J GLOBAL, ETH ICAL, AND SUSTAINABLE MARKETING 55

To Jet employees and other stakeholders know dcfrnilively what is •X)"'Ctcd o( them,

many finn.s develop their own code of ethics-written standards of behavior to which ev• cryo1,e in the organ.ization must subscribe-as part of the planning process. for example, AT&T's Codt of Busiuess Co11dud, an l l •pagc document available via its website at www.au .com, details its commitments to honesty and to each other (to act with integrity and ere,. a te a safe workplace), to the business and its shareholders (to work JawfuUy and to protect

physical assets and intelloctual property), to its customers (to follow ethical sales practices

and guard customer communications), to its communities (to be responsible for the envi• ronme:nt), to others (to maintain integrity in n:.--cordir,g and reporting and to CQ1nply with antitrust laws), and to th!! code it.self.41

To hclp marketers adhere to ethical behavior in their endeavors, the Ame:rican Marketing Association (AMA) developed a code of ethics for marks'ters. We present the

highlights of that code in Table 2.7.

Is Marketing Unethical? Most marketers want to be ethical. Some follow the Rights Approach Philosophy and

behave ethic.ally because it's the right thing to do, whereas others a.re motivated by a desire not to get into trouble with consumcts or govcmmcnt regulators. StilJ there are

code of ethics Written standards of behavio< to whi<h eve,yone i'I the organization roost subscribe.

Tobie 2.7 I Highlights of the American Marketing Association Statement of Ethics

Ethical Norms and Values for Marketers

PREAMBLE

The American Marketing Association commits itself to promoting the highest standard of professional ethical norms and values for its members (practitioners, academics, and students). Norms are established standards of conduct that are expected and maintained by society and/or professional 0<ganizations. Values represent the collective conception of what communities find desirable. important and morally proper. Values also serve as the criteria for evaluating our own personaJ actions and the actions of others. As marketers, we recognize that we not only serve our organizations but a lso act as stewards of society in creating. faci ln:ating. and executing the trans- actions that are pa.rt at the greater economy. In this role, marketers are expected to embrace the highest professional ethical norms and the ethical values implied by our responsibility toward multiple stakeholders (e.g., customers, employees, investors, peers, channel members, regulators, and the host community).

ETHICAL NORMS

As Marketers, we must:

1. Do no harm.

2. Foster trust in the marketing system.

3. Embrace ethical values

ETHICAL VALUES

Honesty- to be forthright in dealings with customers and stakeholders. Responsibility- to accept the consequences of our marketing decisions and strategies. Respect- to acknowledge the basic human dignity of all stakeholders. Transparency- to create a spirit of openness in marketing operations. Citizenship-to fulfill the economic, legal, philanthropic, and societal responsibilities that serve stakeholders.

IMPLEMENTATION

We expect AMA members to be courageous and proactive in leading and/or aiding their organizations in the futfillment of the explicit and implicit promises made to those s1akeholders.

The Ameriun Marketing Associaiion helps its members adhere to ethical s.andards of business thtough its Code cf Ethics.

Source: C01¥igh'I O American Matteting Association.

56 PART ONE I UNDERSTAND THE VALUE PROPOSITION

bribery When someone '-'Oluntarily offers payment to get an illegal advantage.

extortion Yttien someone in authority extracts payment lllder dtr"ess.

examples of questionable or unethical marketing. We'll discuss some 0£ these crlti• cisms hcri:":

1. A1ark.etiug serot!S tlte riclr and exploits Ore poor: Many marketers arc concerned about thcit bottom lin~, but they also want to provide a b<.-tter quality of life for all consumers,

that is, the societal marketing concept that we di$cussed in Chapter 1. But there are exceptions. For example, bc..""Causc ol decreasing sales of cigarettes in dcvc.lopt...~ ooun• tries, tobacco compan..ies target smokers in LOCs and developing countries and thus

contribute to the health problems ol those populations."2

2. Producls art ttol snft: Whether marketers ate truly dedicated. to providing their custom .. crs with the safest products possible or because of the fear of government regulation and Uability issues, most firms do make safo products and, ii they find a problem,

quickly notify customers and recall the defective product.

3. Poo,.,,mlily producls: Many people bemoan ~,e loss of U.S. manufacturing, feeling that imported products such as textiles and furniture arc of poor quaUty. Product quality, hO\'\.'CVet_, is dctcrmi.n.cd by what oon.,;umcrs want in a product. Do you want

a refrigerator that lasts 50 years? Home appliance manufacturers could design and sell that, but would con.$ume:rs be wilHng to pay what it would cost? Until consumers are willing to pay for higher qualil)~ marketers have to provide products at the prices

consumers wanl

4. Plaum>d obsoh"Scet1ce: To remain profitable, marketers must offer new products after an existing product has hL~ on the market a period of time. The iPhone is an example. Have you noticed that about U,e time your ccl.Jular providl!r contract runs out, there

is a ncwct and better iPhone that you just must have? For many people this is a good thing because new phones have better features. There are others who still like their old flip phone and will use it until if falls apart in their hands.

S. Easy consumer credit makes people buy things they dou't uttd and can't afford: Many are concerned about businesses such as payday loan and car title loan companies that charge interest rates that can exceed 400 percent annually. Th.cir customers typically are people wilh limited financial resources and even l~..;s knowledge about how to

manage their money. Ont! firm leases tires to con.,;umers who can't afford to buy thc.m. Of course1 by the time the tires arc paid oft the customer has spent c.noug:h to buy several sets of tires.

When Is a Bribe Not a Bribe? Ethical Issues for Global Business

ln many LDCs and developing: countries, salaries for midlcvcl people are, sadly, very low; the economy runs on a system we would call blataut bribery or extortiou. Some of these

"paymimts" are on)y petty corruption, and the ''favors" are inconsequential, whereas others may involve higJ\..lcvel government or business officials and can have devastating consequences. If you ne..'<i to park your car or your delivery truck illegally where there is no parking space, you give a little money to the police.man.. If the shopkeeper wants the policeman to watch out for his store, he gives the policeman a shirt from his stock once in a while. lf an importer wants to ge-t her merchandise out of customs bcfotc it spoils, she pays off the government worker who can hold up her shipment for weeks. And if someone wants the contract to build a new building or wants an unsafe building to pass inspec· tion-well, you get the idea.

Bribery occurs when someone voluntarily offers payment to get an illegal advantage. Extortion occurs when someone in authority extracts payment under duress. The Foreign Corrupt Practices Act of 1977 (FCPA), however, pulS US. businesses at a disadvantage

CHAPTER 2 J GLOBAL, ETHICAL, AND SUSTAINABLE MARKETING 57

because it bars them from paying bribes to sell overseas. The FC.PA docs, howe\1cr, allow paymen ts for ''routine governmental action .. . such as obtaining pc.rm.its, licenses, or other official documents; processing governmental papers, such as visas and work orders; (and)

providing police protection. "43

2.6 OBJEcnVE

Explain the role of

SUitainability in marketing planning.

Sustainability: Marketers Do Well by Doing Good In Chapter 1, we saw that many firms today have adopted a lriple- bottom•line orit'tllaliou. These Finns don't jus t look a l thcir financial successes but also focus on how they contribute to their communiHcs

(their social bottom line) and create sustainable business practices (the environmental bottom line). Today, many believe that sustainability is

no longer an option. It's necessary, il''s happening, and it will continue to be a part of st:ra .. tegic planning int-o the future:.

Why arc sustainable business practioo; so important? It's really simple. All or the things we need today or in the: future to maintain Life as we know it depend on the natural

resources of our planet-air, water, our mineral resou.n:es in the earth, and ore reserves that we mine. Today, our earth's population continues to grow a t staggering: rates. Economic growth, esp..""Cially the growth in developing countries, means we consume our natural

rasources at higher rates. The massive growth of developing countries like China and India doesn't just pro\'idc expanding marketing opportunities; the growing midc!Je classes in these countries look at the lives of consumers in developed countries and want that same

life, thus creating even greater Jcvc-ls of unsustainable consumption.

Sustainability Is a Sensible Business Decision To understand sustainable marketing bcttet, we might go back to the market• ing concept: identifying and satisfying consumer net."<is to e:nsu.rc the organi• zation's long-term profitability. Sustainability adds to this the n"-"<i or the firm to sustain itself and the Jong-term future of society.

Today we see an increasing number of firms moving toward greater su.,:;. tainability by increasing operational efficiencies, decreasing their use of raw

materials, conserving energy, increasing the use of recycled materials, and prevc.nting the discharge of wastes into the natural and social cnvironmcnt.44

Developing a Sustainable Marketing Mix We can examine how some companies aJrcady implement sustain.able n\atket-• ing practices to galhc-r some clues about the best ways to do that as we tweak

our target marketing and Four Ps to do well by doing good:

• Target nwkeling strategies: Marketers need to understand the: attitudes of their customers toward sustainability. They must know which conswncrs are willing to pay a few cents more for an environmentally friendly prod· uct? This aUows marketers to successfully target green customers-those consumers who a.re most like:I}' to actively look for and buy products that

a.re cco-fricndly.

green customers 1'hose consumers v.bo are most likefy to actively look for and bu)' products that are eco-rnendi'(.

• Product strategies: Sustainable product strategics include the use of envi- ronmentally friendly and n.,cyclcd materials in products and in packaging. Marketers need to develop and put into production more environmentally A campaign fc, fair trade bananas from New Zeal;n!.

I i

58 PART ONE I UNDERSTAND THE VA LUE PROPOSITION

Ripped from the Headlines Ethical/Sustainable Decisions in t he Real World Are you a smombie? That's smartphone plus zombie-a le<m the Germans have crafted for people who I ext and walk al the same time. For a w,,ae, it was a joke when we saw You Tube videos of people n.J1ning into walls oc falling a..., fences and into hole~ aD because of walking while

ElH1CS CHECK: ,._

Do jOtJ 11,inllphone makl!rshavean etl1lcalobligatlonl0 CUL down Injuries and deall1s from walking while l2JCIIM'!

O ves O NO

texting (WWT}. But when garages hke guards just to save pedestrians from walking in front of a car and governments pass laws against texting while walking, it's no longe< a joke.

As smartphone makers develop new phone features and there are more and more apps. the ptoblem is increas.ing. Emergency room visits and even deaths of distracted pedestrians using cell phones are up. And it's not just a lack of attention. Studies show

,._ __________ ;.... _______ .... American oonsumers' va.&eS are manging as many mere of us are prioritizing •nab.lal' food ,mltcts thal don't <Xlfllain extra additives.

that using a smartphone changes the way we walk: we walk slower and we can veer way off course.

The big question is what should be done about it? Some cities ha\•e put signs in stairwells and at intersections. New York has reduced speeds for cars and San Francisco has made some corridors pedesuian only. Hawaiian lawmakers have prnposed a S2SO fine for anyone who crosses a street with an eleruonic device.

More imponant however, is whether the smartphone makers have an obligation 10 addres.s the problem, just as auto manufacturers have de- signed cars with air bags. automatic braking systems, rear view cameras. drih warning signals and warning lights if another car is close by. Aher all the product enginee<s have developed the phones to get and keep your attention. Could phones not be designed to prevent injuries? If an activ- ity band can detect a wearer's waD::ing and count the steps. why can't a smartphone do the same and 1ell you to watch out for traffic?

Should phone companies voluntarily do this? If not, should there be government intervention?

friendly products., such as electric automobiles. Some firms also strive to choose fair trade suppliers. This term refers to com pa· nics that outsource pnxluction only to firms that pay workers in developing countries a fair/living wage.

• Prict strategies: Many oonswners would like to buy green products, but they don't because the price is higher than comparable traditional products. Sustainable marketing

practices aim to establish prices for green products that are the same or close to the prices of other products. A truly sustainable strategy actually reduces prices in the long

term because it c!lcourages more efficiency and less waste.

• Place/distributio11 strategies: Susta inable distribution stratc,. g ics can include retailers who focus on a reduction in the use of encrgy to benefit from both monetary savings and

the loyalty of green consumers. Both producers and retail• Cl'S can choose to buy from nearby suppliers to reduce de. i""'dence on Jong-haul trucking, a major source of air pol•

lution. Within the food industry in particular, the growing trend of locavorism means that many shoppers actively look for products that come from farms w ithin 50 to 100

miles of where they live."

• Promoliou slrategie.s: The most obvious sustainable promo,, tion strategics a.re those that inform customers o( the firm's

commitment to the planet and future generations through

advertising and other messages. But there arc other op_por· tunitics. The cost of creating a 1V commercial is tm.ormous and may lake two or three days of shooting to complete. Some firms have begun to "rew;e" o ld commercials while Jetting customers know that this is their way of practicing sustainability.

CHAPTER 2 J GLOBAL, ETHICAL, AND SUSTAINABLE MARKETING 59

Metrics Moment Most organizations today measure business success using the traditional bottom line-profitability-as profits are essential for the survival of both nonprofit and for-profit organizations. However, sustajnable busi· nes.ses rake two other bottom lines into consideration: natural capital and social capital As we said in Chapter 1, this concept is called the triple-bottom-fine orientation. Every decision made by a sustainable busi- ness must not harm (or miff even improve) environmental quality and must have a sociaVcommunity bui10lng component. Companies should treat their employees as vatuable resources and give bad:. to their com- munity. l uckily, the same business practices that improve environmental and social capital have been shown to also ifT'1rDVe long-term firm pl'Of- itability. When impJemented, sustainable business practices provide an avenue to achieve mutual benefits in the natural world, the communjty, and the ecooomy.

Sustainability metrics are tools that measure the benefits an organization achieves through the implementation of sustainability. Unfortunatetj, unfike many widety used fmandal metrics. today there is no standardized method of measuring the other IWO elements of the triple- bottom·line. Hence, it is ex.tJemety hard to compare one company working to·Nard sustainaboity with another. The social capital metrics are possibly the hardest set of metrics to develop; there are s'1Tlpty too many variables to measure societal pi ogress. and as a result. it is extremely difficuh to de· velop standardized metrics. Nonetheless, here are &re examples of fairly common sustainability metrics:

Sustainable Customer Behavior

• Material intensity: Pounds of mate1ial wasted per unit of organi· zational output

• Energy intensity: Net fuel energy ., 8TUs consumed to provide organizational heat and power requirements

• Water consumption: Gallons of fresh water consumed per unit of ocganizational ou1put

• Toxic emissions: Pounds of toxic mateJials emitted in the process of creating organizational output

• Po/lutant (greenhouse gas) emissions: Pounds of poOutants emitted in the process of creating organizational output

(O«.Jlementary metrics within each of these categories can be developed by a firm to customize a dashboard of metrics to meet its needs.46

Apply the Metrics

1. Today, most large firms have a section on their website that points to their StJstainability initiathte. Select any large company that manufac· tuJes products (i.e., not a p1..1ely service firm tike a bank or retail store). Review their website and find their section on sustainability (if the f,st firm you select doesn't have one. pick another firm to invest;gate).

2. What are several of the key specific activities the f•m points to as evidence that they a1e engaged in sustainabilittrelated activities?

3. What specific evidence do they report (.e., what metrics do you fmd reported) that quantify their lewl of success in sustainabiUty?

A sustainability approach doesn't end with an improvement in manufacturing: processes. Marketers also need to motivate customers to seek out, pay for, and use sustainable options. Many do buy products that minimize the use o( natural resources; en-courage the use of recycloo, reused, and rcpurposecl products; purchase fair trade and organic food; use: ciwironmentally Friendly cleaning products and toiletries not tested on animals; and share cars, even at the expense o( higher prices, less convcnjcnce, and lower product per .. formance. Consumers can be an important part of sustainable marketing practices when they become knowlcdgeabl~ about environmental concerns and enviroiunentally friendly

products.

fair trade suppliers Companies that pledge to P"/ a fair price to producer5 in developng countries. to ensure that the WO!l:ers Vl!lO i,oduce the goods receive a far wage. and to ensi.re th.at the'Se marufaaurers rely where possible on erwironmemaUy sustainable proruction practice~

locavorism The trend for shoppers to aawely look fa, ~oducts that come from farms within 50 to 100 miles of v.flere they li,e.

MyMarketinglab ™ Go to mymktlab.com to complete the problems marked with this icon 0 as well as additional Marketing Metrics questions only available in MyMarketinglab.

sustainability metrics Toots that measure the benefits an «gani:zation achieves through the implementation of sustainatxlny.

60 PART ONE I UNDERSTAND THE VALUE PROPOSITION

2.1 Objective Summary I\J·Eflfi) Understand the big picture of international mar- keting and the decisions firms must make when they consider globalization. The increasing amount of world trade-the flow of goods and services among countries- may take place through cash, credit payments, or countertrade. A decision to go global often comes when further domestic growth opportunities dwindle and the firm perceives likelihood for success in foreign markets as a result of a competitive advantage. After a firm has decided to go global, they must consider which markets are most attractive, what market-entry strategy is best, and how to best develop the marketing mix.

Key Terms Greenhouse Effect. p. 32

global warming, p. 32

Arab Spring, p. 32

world trade, p. 33

countertrade, p. 33

2.2 Objective Summary I\J·E&IW Explain how international organizations such as the World Trade Organization (WTO), economic communities, and individual country regulations facilitate and limit a firm's opportunities for glo- balization. Established by the General Agreement on Tariffs and Trade (GATn in 1984, the World Trade Organization with its 161 members seeks to create a single open world market where trade flows "smoothly, predictably and freely as possible.· Some governments, hovvever. adopt policies of protectionism with rules designed to give home companies an advantage. Such policies may indude trade quotas. embargoes, or tariffs that increase the costs of foreign goods. Many countries have banded together to form economic communities to promote free trade.

Key Terms General Agreement on Tariffs and Trade (GA TI'), p. 35

World Trade Organization (WTO), p. 3S

World Bank, p. 3S

International Monetary Fund (IMF), p. 35

foreign exchange rate (forex rate). p. 36

CHAPTER 2

Study Map

balance of payments, p. 36

protectionism. p. 36 import quotas. p. 36

embargo, p. 36

tarif fs, p. 36

economic communities, p. 36

2.3 Objective Summary ijQ.fiii:11 Understand how factors in a firm's external business environment influence marketing strat- egies and outcomes in both domestic and global markets. The economic environment refers to the economic health of a country that may be gauged by its gross domestic product (GDP), its economic infrastructure, level of economic develop- ment, and stage in the business cycle. Marketers use competi- tive intelligence to examine brand, product, and discretionary income competition in the microenvironment. They also con- sider the structure of the industry in the macroenvironment. A counuy's political and legal environment includes laws and regulations that affect business. Marketers must understand any local political constraints, that is, the prospects for nation- alization or expropriation of foreign holdings, regulations such as local content rules, and labor and human rights regula- tions. Because technology can affect every aspect of market- ing, marketers must be knowledgeable about technological changes, often monitoring government and private research findings. Marketers also examine a country's sociocultural en- vironment, including demographics, values, social norms and customs. language, and ethnocentricity. The ethical environ- ment in some countries can cause problems for marketers ii they do not understand the dttferences in the ethical perspec- tive on such things such as honesty. In many least developed and developing countries, corruption is a major stumbling block for Western businesses. Bribery and extortion present ethical dilemmas for U.S. companies who must abide by the Foreign Corrupt Practices Act of 1977 (FCPA).

Key Terms least developed country (LDC), p. 37

gross domestic product (GDP), p. 38

economic infrastructure. p. 40

level of economic development. p. 40

standard of living, p. 40

developing countries, p. 40

bottom of the pyramid (BOP), p. 40

CHAPTER 2 j GLOBAL, ETHICAL, AND SUSTAINABLE MARKETING 61

sachet. p. 40

BRICS countries, p. 40

developed countries, p. 41

Group of 7 (G7), p. 41

business cyde, p. 41

competitive intelligence (O). p. 41 discretionary income, p. 42

product competition, p. 42

brand competition, p. 42

monopoly, p. 42

oligopoly, p. 42

monopolistic competition, p. 42

perfect competition, p. 43

drones,p. 43 unmanned aerial vehides (UAVs), p. 43

patent. p. 43

nationalization. p. 45

expropriation, p. 45

local content rules. p. 45

U.S. Generalized System of Preferences (GSP), p. 45

demographics, p. 46

cultural values, p. 46

collectivist cultures. p. 47

individualist cultures, p. 47

socialnorms.p. 47 consumer ethnocentrism. p. 48

2.4 Objective Summary kib·i+lii\1 Explain some of the strategies and tactics that a firm can use to enter global markets. Different foreign-market-entty strategies represent varying levels of commitment for a firm. Exporting of goods entails little commitment but allows little control over how products are sold. Contractual agreements such as licensing or fran- chising allow greater control. With strategic alliances through joint ventures, commitment inaeases. Finally, the firm can choose to invest directly by buying an existing company or starting a foreign subsidiary in the host country. Firms that operate in two or more countries can choose to standardize their marketing strategies by using the same approach in all countries or to localize by adopting different strategies for each market. The firm needs to decide whether to sell an ex- isting product, change an existing product, or develop a new product. In many cases. the promotional strategy, the pricing strategy, the place/distribution strategy, and the product itself must be tailored to fit the needs of consumers in another countty.

Key Terms export merchants. p. 49 licensing agreement, p. 49

franchising, p. 49

strategic alliance, p. 50

joint venture, p. 50

straight extension strategy, p. 51

product adaptation strategy, p. 51

product invention strategy, p. 52

badcward invention. p. 52 free trade zones, p. 52

gray market goods, p. 52

dumping, p. 53

2.5 Objective SummarykJQ·i£1ffl Understand the importance of ethical marketing practices. Ethical business practices are important in order for the firm to do the best for all stakeholders and to avoid the consequences of low ethical standards for the firm and to society. Differing philosophies of ethics provide different results in ethical deci- sion making. Business ethics, values that guide the firm, are often used to develop a business code of ethics. Although most marketers do make ethical decisions, there are examples of actions that justify some of the criticisms of marketing. In many countries, bribety and extortion are an accepted way of doing business.

Key Terms utilitarian approach, p. 54

rights approach, p. 54

fairness or justice approach, p. 54

common good approach, p. 54

virtue approach, p. 54

ethical relativism, p. 54

business ethics, p. 54 code of ethics, p. 55

bribery, p. 56

extortion, p. 56

2.6 Objective Summary 09·1£248 Explain the role of sustainability in marketing planning. With growing world populations and increasing demand for products, sustainable business practices are necessaty for life in the future. Many firms practice sustainability when then de- velop target marketing. product, price, place/distribution, and promotion strategies designed to protect the environment and the future of our communities.

Key Terms green customers, p. 57

fair trade suppliers, p. 59

locavorism, p. 59

sustainability metrics, p. 59

62 PART ONE I UNDERSTAND THE VALUE PROPOSITION

MyMarketinglab ™

Chapter Questions and Activities Go to mym ktlab.com to watch this chapte.r's Rising Star 'lideo(s) for career advice and to respond to questions.

Concepts: Test Your Knowledge

2-1 . Describe the market conditions that influence a firm's decision to enter foreign markets.

2-2. Explain what world trade means. What is the role of the WTO and economic communities in encouraging free trade? What is the role of the World Bank and the International Monetary Fund in global trade? What is protectionism? Explain import quotas, embargoes, and tariffs.

2-3. Explain how GDP, the categories of economic develop- ment, and the business cyde influence marketers' deci- sions in entering global markets. Whal are the BRICS countries? Whal is the Group of Seven (G7)?

2-4. Explain the types of competition marketers face: dis- cretionary income competition, product competition, and brand competition.

2-5. Whal are a monopoly, an oligopoly, monopolistic com- petition, and pure competition?

2-6. Whal aspects of the political and legal environment influence a firm's decision 10 enter a foreign market? Why are human rights issues important lo firms in their decisions to enter global markets?

2-7. Whal do marketers mean when they refer to techno- logical and sociocultural environments? Why do they need to understand these environments in a global marketplace?

2-8. What is ethnocentrism? 2-9. Describe the four globalization strategies representing

different levels of involvement for a firm: exporting, contractual agreements, strategic alliances, and direct investment.

2-10. What are the arguments for standardization of market- ing strategies in the global marketplace? What are the arguments for localization? What are some ways a firm can standardize or localize its marketing mix?

2-11 . Describe !he utilitarianism, rights, fairness or justice, common good, and virtue approaches to ethical deci- sion making. What is ethical relativism?

2-12. Why is it increasingly important that firms engage in sustainability? What are some ways that strategies for the Four Ps can include sustainability?

Activtties: Apply What You've Learned

2-13. In Class, 10-25 Minutes for Teams Using the data in Table 2.2, select two countries that are substantively dissimilar. Then select one of the products below. Use the data for the two countries to develop arguments why each of the !WO countries would and would not be a good opportunity for expansion of the market for your product. 1. New and more environmentally friendly method for

heating and cooling houses. 2. A small automobile that runs on electricity.

3. Barbie and Ken dolls and accessories 4 . A low-priced, easy to use, sewing machine that

does no! require electricity. 2-1 4. Creative Homework/Shon Project With several mem-

bers of your class, assume you are in the marketing department for a low end retail store chain; you might think of a chain similar to Dollar General. Your firm has decided 10 begin an expansion into the global market Currently you are considering building stores in France, Ecuador, Brazil and Australia. Gather infor- mation about these countries using the CIA Factbook available online and other sources. Using the data you have about each country, develop ideas on the pros and cons of entering each country. Which country do you feel is bes!? Present your findings to your class.

2-15. For Further Research Ondividual) Consider the six differ- ent ethical philosophies described in the chapter. Apply these six philosophies to one of the following ethical dilemmas. What would be the most ethical decision for each? Explain why you think so. Which would you be most likely 10 follow? Decisions: 1. You see a fellow student cheating. Should you ig-

nore what you saw, report it, or do something else? 2. You are the president of a school club, which gives

you access 10 the dub~ money. You need 10 buy a new lire for your car but you won't have enough money for a week. You are considering borrowing the money from the dub and paying it back in a week.

3. You have been assigned to a class project team. In a different class, you have been on a team with one of the members of your current team, and you know he or she refuses to do any work but expects others on the team 10 help him or her out. What are your options, and what should you do?

2-16. In Gass, 10-25 Minutes for Teams Assume you are the director of marketing for a U.S. firm that produces one of the products listed below. Your firm is considering going after the Indian market and is faced with the decision of the bes! entry strategy. Should your firm simply export their products, or would a strategic al- liance, licensing, a joint venture, or direct investment be a better choice? Develop your ideas for a best en- try strategy. Be specific in your recommendations for a strategy, how to implement the strategy, and your reasons for your recommendations. Products: 1. Tablets (similar to the iPad) targeting the consumer

market 2. Expansion of your discount retail store chain 3. Short-term (from an hour up) auto rentals

2-17. Creative Homework/Shon Project Consumer eth- nocentrism is the tendency for individuals to prefer products from one~ own culture. Sometimes people think products made at home are better than imported goods. Develop a small study to find out what students

CHAPTER 2 j GLOBAL, ETHICAL, AND SUSTAINABLE MARKETING 63

at your university think about products made at home and abroad. Develop a suivey that asks other students to evaluate 10 or more products (not brands) that are imported versus made at home. You might wish to ask if they feel the domestic or imported products are su- perior in quality and which they would purchase. Pre- pare a report on your study for your class.

2-18. In Class, 10-25 Minutes for Teams Some people argue that our environment is not in jeopardy and that sus- tainability efforts will only make products more expen- sive. Plan a debate in your dass with two teams, one arguing for sustainability efforts and one against.

2-19. For Furcher Research (Individual) You are planning a trip to another country for your summer vacation. You are considering ttaveling 10 Greece, to Peru. to Eng- land and to Egypt. Determine the current forex rate f0t all four countries as well as the average forex over the past five years for each. Based solely on the informa- tion you collect about forex rates, explain where you would go and why.

2-20. For Furcher Research (Groups) You are part of an up- and-coming coffeehouse chain in the United States, and you know that you need 10 participate in com- petitive intelligence activities 10 learn more about your competitors. Using the Internet, collect at least five dis- tinct pieces of information about either Starbucks a, Dunkin' Donuts that will enable you 10 improve your marketing strategy.

Concepts.: Apply Marketing Metrics

Many Western firms see their futures in the growing popula- tions of developing countries, where 8 out of t O consumers now live. Consumers from the BRICS countries-Brazil, Russia, India, China, and South Africa-offer new opportunities for firms because growing numbers are accumulating significant amounts of disposable income. Firms such as worldwide cos- metics giant Beirsdorf, the producer of Nivea products, are adapting their products and their marketing activities to meet the needs of these populations. Often this means selling min- iature or even single-use sachet packages of shampoo, dish- washing detergent, or fabric softener for only a fevv cents. The huge Swiss company Nestle sells shrimp-flavored instant soup cubes for two cents each in Ghana; similarly the financial com- pany Allianz, in a joint program with CARE, sells microinsur- ance for five cents a month to the very poor in India.

How do these firms measure their success in these nevv markets? f irms in developed countries normally use standard marketing metfics such as customer awareness. customer satisfaction, increases in market share or profits, Of return on customer investment or return on marketing investment. Bui these metrics are based on standard market-entry strategies with full-size products and correspondingly typical pricing and promotional strategies- very different from !he approach just described. Hence, these metrics are likely not 100 useful for the nevv markets in !he developing world, where many mil- lions of people buy streamlined versions of a firm's products at a fraction of their usual price.

O 2-21. Do you think the approach described is effective for entering BRICS markets to appeal to consumers with small but growing disposable income?

0 2-22. How would the success of this approach be bene, measured- that is, what metrics would be more useful than the typical metrics used in developed countries? Be creative and develop a list of several possible metrics that firms might use 10 measure their success in these nevv developing markets. Hine: Keep closely in mind what firms hope 10 accomplish by increasing their pres- ence and sales in those markets.

Choices: What Do You Think?

0 2-23. Critical thinking and Ethics Assume you are the CMO for a firm that is a major producer of chocolate can- dy and baking chocolate. The bulk of your chocolate products are sold in the United States and Europe. for many years, your firm has purchased cocoa beans (from which chocolate is made) from Country A. Country A produces 30 percent of the world's choco- late but recent reports of child labor have concerned many country leaders and consumers. On some farms, children are made 10 work as much as 100 hours a week and are physically abused. Furthermore, some receive no education whatsoever. You are considering whether or not your company should change suppliers and buy cocoa from Country B. Country Bis the leader in ethically produced cocoa. Cocoa is produced in an environmentally sustainable manner and the country is the world leader of •fair-trade certified" cocoa pro- duction. Unfortunately, the price of cocoa from Coun- try B is nearly twice that of Country A. This means you would have 10 significantly increase the price of your products which you expect to negatively affect !he firm's sales. This, in turn would likely lead to clos- ing some company facilities and laying off workers. On the other hand, consumers in your markets are in- creasingly concerned about human rights abuses and seek to buy fair tfade products. Develop your thoughts on the following: a. The positive and negative outcomes (in addition 10

those already discussed) of continuing 10 purchase cocoa from Country A.

b. The positive and negative outcomes (other than those already discussed) of changing suppliers and purchasing cocoa from Country B (in addition 10 those already discussed).

c. Which country would you choose using the Utilitar- ian approach to decision making? Why?

d. Which country would you choose using the Rights approach to decision making? Why?

e. Which country would you personally choose? Why? 2-24. Critical Thinking What role has technology played in

the globalization of businesses? Has technology lev- eled !he economic playing Held, or has it merely in- creased the distance between the "haves• and the ·have-nots'? Give al least one example of each and explain your position.

2-25. Critical Thinking LOCs are not required by the WTO to meet the same environment standards as developed countries. Do you think LDCs should be excluded from WTO standards for pollution and other environmental protection issues? Why or why not?

64 PART ONE I UNDERSTAND THE VALUE PROPOSITION

2-26. Critkal Thinking Some countries have been critical of the export of American culture via movies, television, music and many American consumer goods by U.S. businesses. What about American culture might be ob- jectionable? Can you think of some products that U.S. marketers export that can be objectionable to some foreign markets? What is the solution to the problem?

2-27. Critical Thinking Some of the U.S. population sup- ports free trade, whereas others are unhapppy, even angry, that the government has reduced regulations on imports of such products as textiles and furniture, causing factories to shut down and employees to lose their jobs. They feel that the U.S. government should legislate greater regulation of imported goods to give American companies an advantage o, at least to lessen the advantage that companies in other countries re- ceive from their government. What do you think? How do you justify your answer?

2-28. Critical Thinking In 1999, several single European na- tions banded together to form the European Union and converted their individual monetary systems over to the euro. Do you believe there will ever be other economic communities that would follow this path? Explain your reasoning and, tt necessary, provide some possible ex- amples. What about the possibility of a single world currency? Could this happen? Why or why not?

2-29. Ethics Ethical relativism suggests that what is ethical in one rulture may not be considered ethical in another. What should the attitude of businesses be when dif- ferences occur? Should businesses follow the ethical values and practices of their own countty or those of the host country? What should governments do about this if anything? What is the role of the WTO?

2-30. Ethics Review the AMA Code of Ethical Norms and values for Marketers, available on the AMA website, https://www.ama.org/AboutAMA/Pages/Statement

-of-Ethics.aspx. Which of the areas represented within the document do you anticipate are the most chal· lenging to, manc:eters to consistently follow? What makes these issues particularly troublesome? Do you think marketing in general does a good job adhering to the AMA Code? Provide specific evidence from your knowledge and experience to support your position.

Miniproject: Learn by Doing

The purpose of this miniproject is to gain experience in un- derstanding what it takes to move a product that is success- ful in its home market into a global market in which it will continue to be successful. Assume that you are the director of marketing to, a firm that produces its own high-end brands of makeup, skin care, and hair care products for both men and women. The products have been endorsed by a number of male and female musicians who are highly popular with young people. The products are sold only in the company's own retail outlets. 2-31. Describe your local competitive advantage and why

you believe this competitive advantage will serve you globally.

2-32. Determine which global market(s) isor are most attrac- tive for your products. Will you target a single country o, an economic community? Describe your reasoning.

2-33. Decide which manc:et-entry strategy you will pursue. Again, explain your reasoning.

2-34. Describe your marketing mix strategy: • How might you need to adapt your product? • What other product decisions do you need to make? • How will you promote your products? • How will you price your products? • What place/distribution decisions must you consider?

Prepare a shon presentation to share with your class.

Marketing in Action Case Real Choices at Ford

Ford Motor Company has committed to investing $1.6 billion to construct a small car plant in the San Luis Potosi State in Mexico. This will result in the creation of more than 2,800 jobs in the country. The Center for Automotive Research states that U.S. automotive labor costs average around $30 per hour and are substantially higher than those in Mexico which average around $5 per hour. This means that moving production to Mexico will allow F0<d to lower its cost to, small cars and make Ford more competitive in the global auto marketplace. The move will, in turn, allow Ford to reallocate its U.S. facil~ies to- ward large, vehicles with higher profit margins, like SUVs and F-Series trucks. Furthermore, Mexico has the necessary trans- portation infrastructure to efficiently export the cars back to the U.S. and other manc:ets.

Mexico has been a pan of Ford's manufacturing history since 1925 when the company became the first automobile manufacture, in the country. Acc0<ding to Gabriel Lopez, pres- ident and CEO of Ford of Mexico, "Ford of Mexico is the fourth largest producer of vehicles, the fourth largest producer of en- gines and the second country in the global auto parts supply

company facilities.• Over the past 90 years Ford has provided more than $8 billion to build and develop its production capa- bilities in the country. Currently, F0<d has two assembly plants, two stamping plants, and an engine plant in Mexico. Increas- ing production output in the country is consistent with Ford's long-term manufacturing plans.

The additional investment in Mexico is not without its crit- ics. The issue of jobs leaving the country has always been a part of political debate in Washington, D.C. The announcement of Ford~ plans was made during the most recent presidential campaign and created dissent among the candidates. One can- didate called to, increased tariffs and penalties for U.S. firms, like Ford, that choose to relocate manufacturing to foreign markets to lower costs. Ford has reacted with a vigorous de- fense of its business practices. As pe, CEO Mark Fields, "more than 80 percent of our North American investment annually is in the U.S., and 97 percent of our North American engineering is conducted in the U.S."

Dennis Williams, President of the United Auto Work· ers (UAW) union, is another voice of dissent to the move.

CHAPTER 2 j GLOBAL, ETHICAL, AND SUSTAINABLE MARKETING 65

He states that as production moves outside of the U.S. to low-wage countries, American workers suffer at home. This is a serious issue for the company, but it is projected that UAW members will see their wages grow domestically. This will make Ford's move to Mexico even more advantageous for the company. Moreover, top management at the company explained that over the next few years, Ford will spend more than $9 billion in the U.S., which is expected to create or maintain 8,500 jobs.

Increasing its presence in Mexico is not the only initiative Ford is implementing. As a part of its strategic ·one Ford· plan the company has allocated billions of dollars to expand its global production capabilities in places like Spain, Gennany, China, the Middle East, and Africa. While Ford's improves its financial outlook, how will it deal with the negative attention generated by moving jobs outside the United States? ls it pos- sible for the company to increase its profitability and reduce

MyMarketinglab"'

its dependence on foreign production? In the current political climate should the company rethink its plans?

You Make the Call 2-35. What is the decision facing Ford? 2-36. What factors are important in understanding this deci-

sion situation? 2-37. What are the alternatives? 2-38. What decision(s) do you recommend? 2-39. What are some ways to implement your recommen-

dation?

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Go 10 mymktlab.com for Auto-graded writing questions as well as the following Assisted-graded writing questions:

2-40. Creative Homeworl<!Short Project. As a marketing manager, you must con- sider whether to delay the production and introduction of a new automer bile because of a small problem with the door locks; they could become nonfunctional when temperatures drop very low. Using ( I) the utilitarian approach. (2) the rights approach, and (3) the common good approach. what would the different decisions be?

2·41. Ethics. Some companies have been criticized for moving their manufacwring to other countries where laws protecting the environment are more lenient and goods can be produced more che.aply because the firms do not have to invest in ways to protect the environment. What do you think of this prac- tice? What can governments and/ or consumers. do to prevent such actions?

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66

Chapter 3

Strategic Market Planning 3.1 Explain business p lanning and

tts three levels. pp. 68-70

BUSINESS PLANNING: COMPOSE THE BIG PICTURE p. 68

3.2 Describe the steps In strategic planning. pp. 71 - 77

STRATEGIC PLANNING: FRAME THE PICTURE p. 71

Stephanie Nashawaty ...,. A Decision Maker at Orade

3.3 Descfibe the steps In market planning. pp. 77-84

MARKET PLANNING: DEVELOP AND EXECUTE MARKETING STRATEGY p. 77

Check out the Chapter 3 Studr Map on page 85.

Stephanie Stewart Nashawaty is 91oup vice pr-es.ident of customef experience {CX) transformation sales at Oracle. She has mo,e than 15 years of software sales expe'l'ienc.e and extensive expertise in enterp<ise marketing solu-

tions for Global 2000 leading companies. Stephanie is cutrently tesponstl>le fot CX sales at Otad e (this includes Otade's application solutions for

customer-facing funa;ons. such as sales, services, and marketing). She leads an elite sales team of enterprise

sales executives who are tasked with creating and delivel'tng S.1 mi!lion to S30 million Cloud deals with Orade's most strategic customers. In this capacity, Stephclrue also \NOtks on joint business deve,iopment opportunities with selected systems integrators, such as Accooture and Deloitte, as well as digital agencies.

Prior to joining Oracle, Stephanie was a vice president with Unica Corporatk)n, wh.ich was acquited by IBM in 2010. She helped to bujld and launch 18M's Enterprise Marketing Managemem{EMM) business unit. The unit\ focus on "Smarter Marketing .. i::s a key foundational piUar of IBM'S current "Srn.111er Planet" campaign and 90,.to-rnari.:et strategy. Stephanie fed the EMM global sales team ($400 miBion in annual revenues), which focused on seBing to the office of the chief marketing officer (CMO). She was recognized f0< her achievements and team contribution by he< selection f0t 18M'sAcqu:isition Talent Acceleration Progtam. During this time. she was also the exe<:utive sales leader f0t the acquisibOO and Integration of three companies In the marketing domajn (Dema.nd'Te<:, Tealeat. and Xtify). Stephanie has significant inter- national expe,ieoce \'VOtking with CMOs in retail, travel, telecommunications, and othe-t industries focused on optimizing the customer experiooce with a brand .across all channels.

Stephanie holds a BA in political science from the University of vermont and was a candidate in the maste,'s degree program at Stanford

University. She and her famit, reside in Needham, Massachusetts.

What I do when I'm not working? Spend time with my two teenage daughters, ideally doing something outside like hiking, swimming, skiing, and tenni~

Rrst job out of school?

Management trainee, Enterprise Rent-A-Car.

Career high? Selected for IBM's Acquisitioo Talent Acceleration Program. less than 1 percent of IBM employees were seleaed for this program.

Business book I'm reading now?

Converge: Transforming Business ac che lnrerseaion of Marketing and Technology by Bob Lord and Ray Velez.

My motto ta live by? "Don't let the perfect be the enemy of the good,· that is, execute and iterate rather than be srudc in overanalyzing decisions.

What drives me? li!ar of failure.

My management style?

Collaborative and decisive.

O,ade is a huge player in a booming industry that helps businesses manage the vast amount of information they

need to operate. Its initial business focus was on relational databases. For ex- ample. me global communications company British Telecom (Bl) uses Oracle's database solution to increase control and improve customer service with a streamlined global information technology (11) infrastructure and standardized database administsation. With Oracle's help, BT can now deploy a darabase in 20 minutes as compared to the several weeks this task required before the COfJ\1any used Oracle's solution.

Companies now have the ability to access an incredible amount of infor· mation al:xlut customeis and prospects. These data points come from aD of our interactions with a brand, including online web-surfing behavior, interactions in stores and kiosks, our calls into service call centers. and even when we tweet about an airline losing our baggage. Marketing departments need automation technology to help diem make sense of all of the data and to interact wim their loyal customers on an almost constant basis. Tcx:lay, U.S. companies spend more than S 1. S trillion per year on marketing technologies. The research f1m Garmer predicts that by 2017, a typical firm's CMO will spend more on tech- nology than will its chief information office, (CIO).

As business operations become more complex. the demand for change in IT increases. along with the associated risks a company has to address. Today's IT professionals are asked to manage a Hood of information and to deliver it 10 their users in a timety manner with ever·increasing quality of service. And in today's economic cfimate. IT must also reduce budgets and derive greater value out of existing investments.

Over the years. Oracle has moved into offering software applications that help all of the various lines of business. such as human resources and sales. to do their jobs better. Oracle acquired its customer relationship management (CRM) appfication when it bought Siebel Systems in 2005. Siebel CRM is an on·premise application that allows salespeople 10 manage their prospects and accounts and fDfecast their business. It is the key to maintaining contact with the dient's customeis. for example. a company mat maintains a loyalty program wheff it tracks consumess' transactions and awards points and other goodies in return has to monitor thous.ands and sometimes even mil6ons of interactions every month.

It's a huge understatement to sa'f that the technologicaJ environment is changing rapidly. In particular, the industry ~ moving toward a new model called software as a service (SaaS). Instead of purchasing and instalfing sohware on its own computers., this "software"n-demand'" approach allows a company to take advantage of new • distriluted computing• technology. This approach stores these programs remotely so that a use:r can access the software from arry location. Users can customize the software, obtain faster answers. and analyze larger votumes of data, making it easier for dients with global operations to coordinate data management across locations. Many people refer to this revolution in information storage as • cloud computing" be- cause data live •in the cloud· rather than being physically stored in a machine in the building.

This sea change in the technological environment creates both a huge opportunity and a big headache for O,acle. The opportunity is that O,ade

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t1aditionally sold its products exclusively to the CIO. Now that the CMO and his team is so attuned to data-dri,en decision making, O,ade suddenly rinds itself with an entirely new set of potentiaJ customers.. Companies will be increasing meir ·spend" on sophisticated technology 10 keep up with a wired world, and me relative amount of this money they spend across func1ions will shift t01Vard fatter marketing oodgelS for data·relai.d products and services.

The downside: Orade ironically faces a challenge because it is so suc· cessful in the on-premjse product space. with hundreds of major corporate dients that equate the company with this traditional solution to data manage· menL The company has faced challenges for the past few years as it stsuggles with concerns about its ability to compete in a new cloud-based business environment.

If Orade tries to change with the times and move its vast number of di· ents "to the cloud," these companies may now think twice about sticking with me company. A CIO who wants to totally revamp the way his or her company man09es information probably will explore what competing Saas solutions companies have to offer. In that case. it would be open season on Orade's dients.

Orade needs to make important adjustments in its strategic planning to move to whe1e the market is going. It needs to figure out how to sttuctt1e its sales force to go after this new source of reve-nue and at the same time Oracle has to rebrand itself as a leader in cloud computing technology. The company needs to increase its focus on developing new cloud-computing capabilities or perhaps acquiring other companies that akeady have SaaS-based solutions and a saJes team that understands this new marketing space.

Oracle needs to win in me emerging cloud-based market but at the same time retajn the loyalty of its existing dient base. The COfl\1any needs to convince CMOs mat it still has the ability to solve their most pressing database marketing challenges and that Oracle's solutions will help them acquire, upsell and retain customers as the business world continues to move to the cloud.

Stephanie considered her Options 1·2 ·3

1 Stay the course with marketing dients. Oracle is ex· tremeJy successful as a premi~based solutions prcwider. The c,xn. pany still boasts a huge roster of corporate dients that are satisfied wim what it does for them. A shift to dood-based solutions will Option confuse these clients and open the door to a host of competitors.

Of course. the long-term writing is on the wall: CMOs will continue to mo\'e their operations to the cloud and over time Orade may be stuck with obsolete technologies and lose its reputation as an industry iMovator.

L,iiiff ,M,MJ Which Option would you choose, and why? D Option 1 0 Option 2 D Option 3

See what option Stephanie chose 1n MyMarketinglabna

Over IO million students improved their res.ufts using the Pearson Mylabs. Visit mymktlab.com for simulations, tutorials. and end-of-chapter problems.

67

68 PART ONE I UNDERSTAND THE VA LUE PROPOSITION

Chapter 3 Acquire companies that already offer new Saas marketing technologies. Go to maiket with a dedicated saJes team that focuses only on selling cloud solutions to current and new dients. If Oracles buys up companies with this expenise, it will quicktj acquire a customer base, piodum. and organization that v.~re designed exdusively foe this technology. These new

Option products als.o will aos.s·pollinate across Oracle so that its own software engineers will come up to speed quickly an state-of-the-an applications. This choice would also create an immediate revenue stJeam from SaaS clients. and Orade will be able to rebrand itseff as an organization that truly is on the cutting edge of database management. On the other hand. it wiO be expensive to acquire these companies.. Oracle's biggest rivals. including IBM, Saleslorce.cocn, Adobe, and SAP, also are on the lookout for them, so the company might find itself in bidding wars that could up the ante quite a bit An acquisition strategy might also create market confusion about what Oracle sells, and in addition the comparry's strategic partners are not as familiar with these new offerings as they are with legacy applications like Siebel In faa, Oracle might lose clients who use the Seibel system now tt they decide the company is not committed to the plarlorm for the long haul. Finally, it was unclear ii the salespeople at these smallercompanies would stick with Oracle after it acquired their empl"'f· ers. Some of them might prefer to work for a young start-up ratha than a huge corporation.

a Stick to your knitting. Continue to piomote the Siebel system for basic data management function. · De-invest· in the ma1keting solutions category, where it will be expensive to compete against the numerous other companies that were gearing up to swoop into this market. thi:s would be a much less costly decision because Orade would not have to spend the billions of doOais it Option would probably take to acquire new companies as in option 2.As is the case with option I, Oracle already is wen known as a marl<et leader in database solutions. The messages it would send to the market would be much simpler and more suaightforwa,d, and it would benefrt from a sales force that already knows the product and is fammar to clients.

How..,.,. Oracle would have to counter the perc'l'lion that the company is trying to "ride an old hocse" in a techoology industty that richly rewards innovative solutions. In a few yean, it may fmd itself the market leade< in an obsolete category as all kinds of businesses ...,entually migrate to the cloud. Oracle might well find itself · penny wise and pound foolish" if it foruses on what it does well right now but fails to invest in the marketing categO!)'. By all indicalion~ marketing functions will account for a steadily increasing share of the money that ocganizatbns spend on technology. If Oracle deddes to enter this luaati11e but competitive category down the road, it may d',sc°"' that the ship has already sailed.

Now, put yourseff in the team's shoes. Which option v.<>uld you choose, and why?

3.1 OBJECTIVE Explain busines!) planning and its three level~

Business Planning: Compose the Big Picture There's an old saying in business that "planning is cverything"- wcll, almost. Planning allows a firm like Oradc. to de(ine: its distinctive identity and purpose. Careful planning enables a finn to speak in a clear voice in the matkctplao.:- so that customc.rs understand what the firm is and what it has to offer that competitors don't--cspccially as it decides how to create value for customers, clients, partners, and society

at large. ln this chapt~. you \',rill cxpetiencc the power of cffoctive business plaMing-and espc>cially market planning-and lay tho groundwork for your own capability to do sue• ccssful planning.

We think this process is really important. That's why we're starting with a disc.us~ sion about what planners do a.nd the q uestions they nred to ask to be sure thc.y keep their companies and products on course. ln many ways, developing great business planning is like taking a.n awesome digital photo with your smartphone (maybe a .,sclfie''?)- hence

the title of this section. The metaphor works bt.>causc success in photography is built around captur ing the right information in the 11.?:1\S of your camera, positioning the image correctly, and snapping the picture you'll need to set things in motion. A business plan is a Jot like that.

Tho knowledge you gain from going through a fonnal planning proces.s is worth ils weight in gold. Without market planning as an ongoing activity in a business, there's no

C HAPTER 3 I STRATEG IC MARKET PLANNING 69

real \'\.tay to know where you want the firm to go, how it wiU get there, or even if it is on the right or wrong track right now. There's nothing like a clear road map when you're lost in the wilderness. And speaking of rood maps, we even include a handy guide as a supple•

mc:nt at the end of thi~ chapter that shows you s tep-by-step how to build a marketing plan and where to find the information throughout the book to be able to do it. This rood map will be highly useful as you make your way through the book, keeping the "big-picture" viewpoint of marketing in mind no matter which chapter you're reading.

Wha t exactly is business planning? Put simply, it's an ongoing process o( decision maku,g that guides the firm in both the short tcnn and the long term. Planning identifies

and builds on a firm's strengths, and it helps managers at all levels make informed dcci· s ions in a changing business environment. PIJJtt11i11g means that an organization develops objectives before it takes action. In la'l,>e firms like IBM and Ford, which operate in many markets, planning is a complex process involving many people from diffcn,nt areas of the company's operations. At a smalJ busine,ss like Mac's Diner in your hometown., however, planning is quite different in scope. Yet regardless o( firm size or industry, great planning

can only increase the chances of success. In the sections that fo llow_, we'll look at the diffo:rent steps in an organization's

planning . .First, we'll sec how managers dcvclop a business plan to specify the dcci•

sions that guide the cntite organization or its business units. Then we'll examine the entire strategic planning process and the stages in that proet.">SS that lead to the dcvclop• ment and imple1ncntation of a marketing plan-a process and resultii,g document that

describes the marketing ciwironmcnt_, outlines the marketing objectives and strategies, and identifies how the company will implement and control the strategies embedded in the plan.

The Three Levels of Business Planning We all know in general what planning is-we plan a vacation or a great Saturday night

party. Some of us even plan how wc1 re going to s tudy and get our assignments completed without stressing out at the last minute. When businesses plan, the process is more com• plex. As liaiJ Figure 3.1 shows, planning occurs at three levels: strategic, functional, and operational The top level is big .. picture stufl:, whereas the bottom level specifics the "nuts,, and-bolts" actions the firm wiU need to take to achieve these lofty goals.

Figure 3.1 'caj' SMpshot ) Levels of Business Planning

business planning AA ongoing process of making decisions that g..iides the firm born in the short mm and in the long term.

business plan A plan that includes the decisions that guide the entire organization.

martc.eting plan A document that describes the marketing environment, outlines the marketing objectives and strategy, and identifies how the company will inplement and control the straieg.ies embedded in the plan.

Ou ring planning. an organization deteanjnes its obj«tives and then develops coul'SeS of action to accompl.ish them. Jn large, firms, planning lakes place at the suategic,. functional, and opecational levels.

Strategic Planning

Planning done by top-level corporate management

1. Define the mission 2. Evaluate the internal and

external environment 3. Set organizational or

seu objectives 4 . Establish the business

portfolio (ij applicable) 5. Develop growth

strategies

Functional {Market) Pla nning

Planning done by top functional-level management such as the firm's chief marketing officer (CMO)

1. Perform a situation analysis

2. Set marketing objectives 3. Develop marketin9

strategies 4. Implement and control the

marketing plan

Source: Copyrigh.1 0 Ametican Matteting Association.

Operational Planning

Planning done by supervi,o,y managen

1. 00\/elop action plans to implement the marketing plan

2. Use marketing metrics to monitor how the plan is VIIOfking

70 PART ONE I UNDERSTAND THE VA LUE PROPOSITION

strategic planning A managerial decision pcocess that matches an aganizatioo's resources and capabilities to its marl<et opportunities for long-term growth.

strategic business units (SBUs) lndNid.Jal units within the finn that opHate 5ke separate businesses, with each having its own mission, business d>jectives. resources, managers. and competitors.

functional planning A decision process that concentra1es on delleloping detailed plans f0< strategies and tactics fer the short term, supporting an ocganization's long-term strategic pJan.

market planning The functional planning marketers de> Marl<et planning typically indudes both a broad three· to five-year marketing plan to support the finn's wategk plan and a detailfd anrual plan for the coming year.

operational planning A decisioo process that focuses on developing detailed plans for day-to-day activities that cany out an org.a,ization's funaion.al plans..

First-Level Planning

Strategic planning is the manager ial decision process that matches the fi rm's resources (such as its financial assets and workforce) and capabilities (the things it is able to do well because of its expertise and experience) to its market opportunities for long• term growth. ln a strategic plan, top management- usually the chic( executive officer (CEO), president, and other top executives-ddinc the firm's purpose and specify wha t the firm hopes to achieve over the next five: yea.rs or so. For example, Oracle's strategic plan may set an objective to increase total revenues by 20 percent in the next five years.

Large £inns., such as the Walt Disney Company, have a number of sclf.-conta.incd divi .. sions called strategic business units (S8Us)-individual units that represent different areas of business within a £inn that are unique enough to each have their own mission, business objectives, resources, man.agers, and competitors. Disney's SBUs include parks and resorts, medfa nctworks, consumer products and inte..ractivc n,cd.ia, and studios. Hence, stratc• gic p lanning occurs both a t the overall corporate level (Disney headquarters in Burbank, Cali!omia, plans for the whole corporation g lobally) and at the SBU level We'll discuss these two levels later in the chapter.

Second-Level Planning

The next level of planning is functional planning. This level gets its name because it in .. volves the various functional areas of the firm, such as marketing, finano.?, an d human resources. Vice presidents or functional d irectors usuaJly do this. We refer to the functional planning that marketers do as market planning. The: pt.""J'Son in charge of such planning may have the title of director of marketing.. vice prosidci,t of marketing, chief matkct.i.ng olficcr, or something simiJar. Such marketers might set an objective to gain 40 percent of a particular market by successfully introducing three new products during the coming year. This objective would be part of a marketing plan. Mark<>! planning typically includes both a broad three- to live-year marketing plan to support the firm's strategic plan and a detailed annual plan /or the coming year.

Third-Level Planning

Still farther down the planning ladder are the manage.rs who arc reSpo.nsible for plan• ning a t a third level calJed operational planning. In marketing, these include people such as sall"S managers, mark~ting co.mmunicat ion managers, brand managers, and market research managers. This level of planning focuses on the day•to .. day execution of the func tiona l plans and includes detailed annual, scmiannuat or quarterly plans. Operational plar\S might show exactly how many units of a product a salesperson net..'lis to sell per month o r how many TV commercials lhe firm will p lace on certain networks during a season. At the operational p lanning Jcvcl, a manag:e:r may develop p lans for a marketing campaign to p romote the product by creating buzz via social media.

Of course., marketing managers don't just sit in thcir offices dtL"amirtg up plans with• out any concc..rn for the rest of the organization. Even though we've described. each layer scparatel}~ all busiltb--s planning is au integrated activlly. This means that at an organization like Oracle, strategic, functional, and operational plans must work together for the benefit of the w hole, always within the context of the organization's mission and objt..~tives. So planners a t al! levels must consider good principles of accounting.. the va)ue of the com• pany to its stockholders, and the requirements Cot staffing and human resource man.age,. ment- that is, they must keep the big picture in mind even as they plan for their little comer of the organization's world.

tn the next sections, we'll further explore planning at ~ach of lhc three levels that we've just introduced.

C HAPTER 3 I STRATEG IC MARKET PLANNING 71

3.2 Strategic Planning: Frame the Picture Figure 3.2 ()'J Process I Steps in Strategic Planning - OBJECTIVE Many large firms realize it's risky to put aU thcir eggs in 01,e Descri:ie lhe Sleps in basket and rely on only one product, so they have become muJ .. strategic planning. tiproduct companies with sclf.-containcd divisions organizL""<i

The sttategic planning pfocess indudes c1 series of sreps that results in the development of growth strategies.

Step 1: Define the Mission

ll$·1illil around product lines or brands. t Step 2: Evaluate the Internal and

External Environment

t Step 3: Set Organizational or

SBU Objectives

t

In firms with multiple SBUs (as illustrated previously by Disney), the first step in strategic planning is for top management to establish a

1nission for the entire corporation. Top managers then evaluate the intemal and external environments of the business and set corporate.level objectives that guide decisio,, making within each individual SBU. ln small firms that arc not

large enough lo have sc'Parate SBUs, strategic planning simply takes place a t the overall firm lcvcl. Whether or not a firm has SBUs, the process of s trategic plan• n.ing is basically the same. Let's look at the _planning s teps in a bit mote detajl,

guided by }:] Figure 32.

step 1 : Define the Mission ~ tep 4: Establish the Business Portfolio I

t Ideally, top management's first step in the strategic planning stage is to answer ques• liol\s such as the following: Step S: Develop Growth Strategies

• What business arc we in?

• What customers should we serve?

• How should we develop the firm's capabilities and focus its efforts?

ln many firms, the answers to questions such as these become the lead items in the org:ani• zation's strategic plan. The answ~ become part of a mission statement-a formal docu•

inent that describes the organization"s ovcralJ purpose and what it intends to achieve i:n terms of its customers, products, and resources. For example, T\'\til-tcr's mission statement is ,.To give everyone the power to create and share ideas and infonnation instantly, without

barriers ... 1 The ideal mission statement is not too broad, too narrow, or too shortsighted.

A mission that is too broad will not prO\ride adequate focus for the organization. ft doesn't do much good to claim, •we arc in the business of making high-quality pnxlucts• or ·our business is keeping customers happy/' because it is hard to £ind a firm that doesn't make these claims. It's al'tO important to remember that the need for a clear mission statement applies to virtually any type o( organization.

step 2: Evaluate the Internal and External Environment The ~nd step in s trategic planning is to assess the firm's in te.mal and external en .. vironmc.nts. Vle refer to this process as a situation a nalysis, envirorrmeutal analysis, or sometimes a busiuess review. The analysis includes a discussion of the nrm's inte.m.al cnvironmoot, which can identify a firm's strengths and weaknesses, as well as the ex• tc.rnal environment in which the firm docs business so the firm c;in identify opportuni ..

ties and threats. By internal environment we mean aU U,e controllable elements inside a firm that influ•

ence how well the firm op<!rates. lntcmal s trengths may lie in the firm's technologies. What is the firm able to do well that o ther firms would find difficult to duplicate? What patents

docs it hold? A firm's physical facilities can be an important strength or weakness, as can its level of fma.ncia) stability, its relationships with suppliers, its corporate reputation, its ability to produce consistently high-quality products, and its ownership o( strong brands

mission statement A formal statement in an orgarization's suategk plan that describes the overall purpose of the organization and what it intends to achieve in tenns of its custo~ produ~ and resources.

situation analysis AA assessment of a firm's internal and external environments..

internal environment The controllable elements inside an ocganization, induding its peopie. its facitit.ies. and how it does things that inllue<Ke !he operations of the c:wganization.

72 PART ONE I UNDERSTAND THE VA LUE PROPOSITION

external environment The unconuoUabte elements outside an organization that may affect ns pedormaoce eilher po~tively or negatively.

SWOT analysis AA analysis of an ocganization's streng~ and weaknesses and the awonunities and threats in its external environment.

in the markctpla~. lntemal elements illclude a firm's structute, organizational culture, and all sorts of asscts--financial and othe:n'\'ise:.

tntemal strengths and weaknesses often reside i:n the firm's employees-the firm's

lwmau aud btlellectual capital. What skills do the employees have? What kind o( training have they had? An, they loyal to the firm? Do they f.,.,J a sense of ownership? Has the firm been able to attract top researchers and good decision makers?

The external environment consists of clements outside the firm that may affect it either positively or negatively. For Oracle and many other firms, the external environment for todats businesses is global. so ma.nagers/ma.rketers mu...:.t consider elements such as

the economy, competition, technology, law, ethics, and socioculturaJ trends. Unlike ele,. ments of the intemaJ environment that management can control to a large deg~, the firm can't directly control these external factors, so management must n.'"Spond to U,em through its planning process.

ln Chapter 2, you read about the various clements of the external environment in w hich marketing takes pla<X!, withi.J, the context of today's global enterprise. You gained

an appreciation of why it is important for you to be aware that opportunities and threats can come from any part of the externaJ environment. On the one hand, trends or currently unserved customct needs may provide opportunities for grov,.ith. On the other hand, if changing customer needs or buying patterns mean customers a re tu.ming away from a firm's products, it's a signed of possible danger or threats down the road. Even successful nrms have to change to k&..-,> up with external environmental pn..~surcs. Oracle's business,

like that of most marketing-related suppliers, is greatly impacted by the marketing budgets of its clients., which in tum are driven by economic conditjons and uJtimatcly consumer demand.

What is the outcome of an analysis of a firm's internal a.nd e:xtemaJ enviro,,ments?

Manage.rs ofte n synthesize their findings from a situation analysis into a format called a SWOT analysis. This document summarizes the ideas from the situation analysis. It

aUows managers to focus dearly on tho meanin gful s trengths (S) and weaknesses (W) in the firm's intemaJ environment and opportunities (0) and threats (T) coming from

outside th~ firm (the external environment). A SWOT analysis en ..

ables a firm to develop strategies that make use of w hat the firm does best in seizing opportunities for growth while at the same time avoiding external thr~ts that might hurt the firm's sales

and profits.

Step 3: Set Organizational or SBU Objectives

Soollwrest /wlines has always been very focused oo hirilg and de'lel(lling em- pbjees who reflect lhe "SouttMest Spiit' lo customer... Anyooe "'10 has 1101,n oo Soothwest can attest to the laci that the atrmsphere is lil'ely ard fun, and flight attendants are likety to do most any aazy stunt-bowling in the aisle or serenading the captail and first officer {and passengers) \Wlh a favorite llre. One ol M favorites ~ a 'Pt who does galojilg lose oooves and neighing scmds during tal<eott and laroing. For Srullwresl a real streogth-ooe that's hard le, the compelililn lo crack-lies il this employee spin!.

Alter they construct a mission statement, top management trans• !ates it in to organizalitmal or S8U objectives. These goals are a direct outgrowth of th!! mission statement and broadJy identify what the firm hopes to accomplish within the general lime frame of the firm's long .. rang;e business plan. lf the firm is big enough to have separate SBUs .. each W'lil will have its own objectives relevant to its operations.

To be effective, obj«tives need to be specific, measurable (so firms can tell whether they've met them), attainable,. and sustainablt> oVt>r time. Attainability is especially important- firms that establish "pic .. in•th~sky" objectives they can't realistically obtain can create

frustra tion for their employees (who work ha.rd but get no satisfac• tion of accomplishment) and other stakeholders in the firm, such

C HAPTER 3 I STRATEG IC MARKET PLANNING 73

as vendors and shareholders who are affected when the firm doesn't meet its objectives. That a firm's objectives are sustainable. ovc-t time is also crilical- usually there's Uttle advantage to investing in attain .. ing an objt'Ctivc for only a very short term? This often happens when a firm underestimates the HkcJihood that a competitor will come to market with a b<.-ttc.r offering. Without some assurance that an objec•

t.ivc is sustainable ovct time, the financial return on an investment likely will not be positive.

Objectives may relate to revenue and sales. profitability, the firm's standing in the market, return on investment, producti\rity, product devclopmcnt, customer satisfaction, social responsibil• il)~ and many other attributes. To ensure mcasurability, markt."t·crs

u,creasingly try to state objectives in numerical terms. For example, a firm mjght have as an objective a 10 percent increase in profit· &nsung hasheftygrm\1hobjectivesfortheremameroithedecade.

ability. It could reach this objective by increasing productivity, by

reducing costs, or by selling off an unprofitabl~ divisio,,. Or it might meet this 10 per-- cent objective by developing new products, investing in new technologies, or entering a new market.

Samsung Electronics rcccntly identified as part of its vision for 2020 two ambitious goals that include reaching S400 biUion in annual revenue and achieving a position as one o( the top five brands in lhe world. Samsung's plan to more than double its annual

revenue by 2020 may seem ambitious, but the finn has identified an aggressive roadmap for c.nhancing its position within its current industries and markets as well as entering into new opportunitics.2

step 4: Establish the Business Portfolio For 001npanics with several different SBUs, strategic plaru\i.ng includes making dcdsioi\S

about how to Mt allocate: resources across these businesses to cn.~urc growth for the total organization. Each SBU has its own focus within the firm's overall strat~c plan., and each has its own target market and strategics to reach its objL"Ctivcs. Just like an independent

business, each SBU is a separate profit center within the larger corporation-that is, each SBU within the firm is responsible for its own costs., rcvenUt?s, and profit.:;. These items can

be accounted for separately for each SBU.

Just as we call the collection of different s tocks an investor owns a portfolio, the range of different businesses th.at a large Hrm operates is its business portfolio. These different businesses usually represent different product lines, each of which operates

with its own budget and management. Having a divctsificd business _portfoUo reduces the firm's dependence on one product line or one group o( customers. For example, if the economy sours and consumers don't travel as much in a bad year for Disney theme

park at-tcndance and cruises, its managers hope that the sales " .. ,m be made up by stay• at•homers who watch Disney's TV networks and who p urchase Mickey Mouse coU~· iblcs from the Dis1"~Y website.

Portfolio analysis is a tool management uses to assess the potential o( a firm's business portfolio. It he:lps management decide which of its cummt SBUs should receive more-or less-of the firm's resources and which of its SBUs are most consistent with the firm's overall missio,,. There a.re a host of portfolio models available. To illustrate how one works,

let's examine the especially popular model the Boston Consulting Croup (BCC) developed: the BCG growth-market share matrix.

The BCC model fOCUS<!S on determining the potential of a firm's existing successful SBUs to gt?ncrate cash that the (irm can the-n use to invest in other businesses. The BCC

business portfolio The group of diffe<ent proructs or brands ooned by an organizatioo and charaaerized by different incomo-generating and growth capabiliti<s.

portfolio analysis A management 1001 for evaluating a firm's business mix and assessing lhe potential of an organization's strategic business units.

BCG growth-market share matrix A ponfolio analysis model developed by the Boston C~ng Group that assesses the potential of surussful products 10 generate cash that a firm can then use to invest in new 1Yoducts.

74 PART ONE I UNDERSTAND THE VALUE PROPOSITION

F;guro 33 @ Snapshot I BCG Matrix matrix in @jJ Figure 3.3 shows that the vertical axis repre. The Boston Consulting Group's (8CG) grow'th-mclfket share matrix is one way

sen.ts the attractiveness of the market: the markt .. t growtlt rate. Even though the figure shmvs "'high" and .. low-" as mca•

surcments, marketers might ask whether the total market for the SBU's products is growing at a rate of 10, 50, 100, or

200 percent annually.

a fitrn can examine its portfolio of different S8Us and their related .P(oc!'ucts. 8y categ0<i2in9 S8Us as stars. cash cows. question matks, or dogs, the matrix helps ma.nagetS make good decisions about how the fll'm should gtaw.

Stars: SBUs whose products have a

dominant market share in high-growth markets

Cash Cows: SBUs whose products have a dominant market share

in a low.-growth market

rllgll

Question Maries: SBUs whose products have a

low market share in high-growth markets

Dogs: SBUs nobody wants

Low

The horizontal axis in figure 3.3 shows the SBU's current strength in the market through its relative mar,, ktH share. Here, marketers might ask whether the SBU's

share is 5, 25, or perhaps 75 percent of the current market. Combining the two axes creates four quadrants represent· ing four different types of SB Us. Each quadrant of the BCC

grid uses a symbol to desig·nate business uruts that fall

within a certain range for market growth rate and market

share. Let's take a closer look at each cell in the grid:

Relative Market Share

• Stars a.re SBUs with products that have a dominant- market share in high .. growth markets. Because the S8U has a dominant share of the market, stars gener ..

ate large revenues, but they also require large amounts

of funding to ~P up with p roduction and promotion

demands. Hence, stars need investment capi taJ from other parts of the business bc...,cause they don't gcner ..

ate it themselves. Of course, any profits generated cli· rectly by stars presumabl)' would be reinvested right

back in the star. For example, in rccent years, Disney Source: Product Portfolio Matril(. 0 1970, The Boston Consutting Group.

stars S8Us with products that have a dominam market share in high-growm markets.

cash cows S8Us with a dominant market share in a Jow- growm-potential market.

question marks S8Us with low market shares in fast-growm markets..

has vie.wed its studios as a star and has been able to generate significant revenues from its acquisition of Lucasfilm and the intclloctual

property within the Star Wars universe. Star Wars Epis.ode VII: T11e Forre Arvnkms broke the domestic box office n.'.>Cord, ousting Avatar and generating well more than $2 billion in revenue world\•vidc.3

• Cash cows have a dominant market share in a low-growth potential market. l:3ccause

there's not much opportunity for new companies, competitors don't often enter the

market. At the same time, the SBU is well established and enjoys a high market share that the firm can sustain with minima] funding. Firms usually mUk cash cows of their

profits to fund the growth of other S8Us. Of oourse, if the firm's objective is to increase revenues; having too many cash cows with little or no growth potential can become a

liability. For Disney, its theme parks unit fits into the cash cow category in that sa1C$

have bet,n basically steady for an oxtcndcd period of time. Walt

Disney World in Orlando's Hollywood Studios dosed a number of a t1ractio1\S to make way for the construction of a 14 .. acrc sec-

tion of the part dedicated to the Star Wars Universe so the park will remain fresh and appealing for its visitors."

Disney's retai stores are questicn marks for the diversified company.

• Question marks-sometimes called Nproblem children .. - are

SBUs with low market shares in fast .. growth markets. When

a business unit is a question mark, lhcy key issue is whether

through invt?stment and new strategy it can be transformed into 3 star. For example, the firm couJd pump more money

into marketing the product and hope that relative market-

share will improve. But the problem with question marks

is that despite investment many times they make a beeline

straight int·o the aMals of market FaiJurcs. Hence, the firm

must carefully cvaJuate the likelihood that investment in a question mark will pay off cl~ it may find itself ''throwing good money after bad" if it g,tins nothing but a negative cash Flo\. .. , and disappointment. For Disney, its brick•and·mortar retail operation falls into the qucstion .. mark cat'cgory because its performance compared to the overall s_pt..'<.'.'ialty rt."taiJ market has somewhat lagged. Like most tetaH operators toda}~ the online version of the Disney Store provides a better growth traj~tory than the four walls version.

• Dogs command a sm.all share of a slow .. growth market. They a.re businesses that offer specialized products in limited markets that arc not likely to grow quickly. When possible, large firms may sell off their dogs to smaller £imtS that may be able to nu,..

turc thcm~ r they may take the SBU's products off the market Disney, being a savvy strategic planner, apparently identified its Miramax film studio as a long-term dog (to Pluto and Goofy: no

C HAPTER 3 I STRATEG IC MARKET PLANNING 75

The recent aapsitim d Marvd Comics by Disney most ll<ely will :DI to the entertainment company's sttie of stars.

pun intended) because they sold it off in 2010 ending a 17-year involvement with that studio.5 In addition, in 20ll, Disney Vacation Club (its timc-shan, unit) scrapped plans to launch a major new facility at NationaJ Harbor near 11./ashington, D.C.6 This move was no doubt reflective of the general malaise in th!! time,.shate market (also called

"vac.ation ownership'') since the Great Recession.

dogs S8Us wih a small shale of a slow-grow1ll marke<. They are bJsinesses mat offer specialized prodlJas in inited mail:ets that are not liicfff togowqliddy.

Like Disney; Oracle could use the BCC matr ix to evaluate its product lines to make important decisions about where to invest for future growth. It would look across Oracle's various offerings to assess the market growth rate and relative markct- share, determi.J,c the degree to which each is a cash generator or a cash user, and de,. cidc whether to invest further in these or other business opportunities.

Step 5: Develop Growth Strategies market penetration strategies

Although the BCC matrix can help managers decide which SBUs they should inv,,st in for growth, it doesn't tell them much about /,ow to make that growth happen. Should the

Growth suategies designed to increase sales of existing products to ruTl!f'll rustomers. noousers. and users of competitive ttands in served markets.

growth of an SBU come from Finding new customers, from develop• ing new variations of the product, or &om some other growth strat• egy? Part of strategic planning at the SBU le\'cl entails evaluating growth st':ra tcgics.

Marketers lL<;e the product- market growth matrix .. shown in I@] Figure 3.4, to analy:ze different growth strategies. The vertical axis in the matrix represents opportW\itics for growth either in existing markets or in new markets. The horizontal axis considers whether the

firm would be better off putting its r\.."SOu.rccs into existing products or whether il should acquire new products. The matrix provides four fundamental marketing: strategies: market penctratioo, market dcvcl• opment, product deve.lopment, and diversification:

• Market penetration strategies seek to increase sales of exis t• ing products to exis ting markets, such as current users, non• users_, and users of competing brands within a market. The voice assistant market is relatively crowded with the likes of Apple's Siri, Microsoft's Cortana, and Google Now, but Amazon has found a way in recent years to introduce a stand• alone product that has been able to gain increasing adoption. Amazon's CC.ho (and the software it runs on called Alexa) L-. a

Figure 3.• [@) S~pshot I Product- Market Growth Matrix Marketers use the product-market growth mauix to analyze different growth sua1eg;es.

Product Emphasis

Existing Products N.:!w Products

ll ., -l! • ::;; "'

Market Product penetration development

strategy strategy

• Seek to increase • Create growth _,a C . ., 18 -~ • .s::. w Q. E w

sales of existing by selling new products to products In existing markets existing markets

~ .. -l!: ll "' ., :::;; -l!

Market Diversification development strategy

strategy

• ::;; I

• Introduce exjsting • Emphasize both products to new new products and markets new markets to

achieve gro\vth

76 PART ONE I UNDERSTAND THE VA LUE PROPOSITION

voice assistant speaker that cnablc-s users to communicate verbally with the device to make requests to play a specific song on Spotify or hail an Uber. Through Echo, Amazon has been able to gain greater market by developing and highlighting the growing list of integrations available for the device aimed at adding greater levels of convenience to different tasks. For Super Bowl 50, Amazon spent big money on a primetime television spot to feature the Echo and the AJexa sof-h\larc that it utilizes.7 ln the not too distant fu ture, a user may be able to treat the product as, among other things, a ''virtual te.llct" capable of perform .. ing different banking activitics.8

CUba is a jXOf11ising market #or Americcll oo"1)31lies OC1N that government restmions have been lifted.

• Marie.et development strategies introduce cxistii,g products to new markets. This stra tegy can mean expanding into a new geogrilphic area, or it may mean reaching new cus- tomet segments within an existing geographic market. For

market development strategies Growth strategies th.at introduce exis-ting products to new markets.

product development strategies Growth strategies that focus on selling new p-oducts in existing markffl.

diversification strategies Growth strategies lhat emphasize bolh new p-oducts and new markets.

example, Boeing sells its airplanes in many countries throughout the world., but it just recently entered the African market for the first time. 1n recent years as the U.S. relationship with Cuba has improved, many American companies have begun to look at this nearby idand as a new opportunity for growth close to home. Early in 2016 Starwood Hotels and Resorts edged out Marriott to become the firs t U.S. company in about 60 years to take over the operation of a hotel in Cuba. For global hotelier Starwood, Cuba represents an attractive market that for decades has bce:n artificially constrained due to goven,mentaJ policies.9

• Product development strategies create growth by selling ne,,r p roducts in exist• ing markets. l'rod11cl development may mean extending the firm's product line by deve.Joping new variations of the item, or it may mean altering or improving the product to provide enhanced performance. ln Southern California, McDonald's started a test of healthier breakfast bowls that feature kale, egg whites, and other nontraditional Mickey D ingrcdicnts.10 Riding on the success of their all-<iay breakfast menu., such product development tests have the opportunity to gen- e.rate considerable additional revenue in this case from more health-conscious consumers.

• Diversification strategies emphasize both new products and new markets to achieve growth. Coke offers a wide range of brands and products beyond the high fructose corn syrup goodness of its namesake Coca.Cola, largely in response to a g lobal backlash on poor nutrition and obesity. With declining sales of the core brand, recently Coke stepped up efforts to acquire companies such as China's Culiangwang Beverages Holding Ltd. that is well known for il<; mu)tigrain bever .. ages branded as hcallh drinks.11 In addition, Coca.Cola developed products in recent years such as Coca•Cola Life that shifts to a sweetener called Stevia, a pur- portedly healthier plant c.xt.ract. As the demand for hcalthic.r products accelerates, cow,t on Coke to turn to more divc.rsification strategies including opportunities in emerging economies to replace growth that is waning i.n its portfolio of traditional high.calorie pmduc-ts.12·

To review what we've leamcd so far, strategic planning includes deveJoping the ·Jnis... sion statement., assessing the internal and cxtemal environment (rcsultit,g in a SWOT analysis), setting objectives, establishing the business portfolio, and developing growth strategies. 1n th!! next section, we'll look at marketers' functiooal plans as we examine the process of market planning.

C HAPTER 3 I STRATEG IC MARKET PLANNING 77

Ripped from the Headlines Ethical/Sustainable Decisions in the Real World Previously in this chapter, you learned about portfolio management and the drfferent ways that stars. cash cows. question marks. and dogs are identified and managed by firms. Within the pharmaceutical industry a cash cow am take the form of a drug that has been around for a while and is considered a staple for ueating a specific medical coocHrion. This particular drug might not have a substantially large market. but for those who suffer from a specifK condition it may be the only option. In this ,egard we could argue that this drug enjoys a monopolistic position and that the sensitivity to price for this product is most likely extremely low. This may especially be ttue if the drug is prescribed by doctors who view it as the only suitable option for the conditKln it treats.

drugs that serve small specia6zed markets with low or no growth poten· tial but because of the overwhelming need of those patients for the medicine no drop in revenue would be anticipated (in Chapter 10 we'll talk about price changes that do not cause much change in demand as price ineJastidty). Recentty, in a scenario played out heavily in the media, Turing Pharmaceuticals argued that an increase in the price of a dose of its product Daraprim from S 13.50 to a whopping S750 would help the company invest in the development of new drugs that woukt benefit far more cons.umets. At the time Oaraprim served fewer than ten thousand individuals, but for them it was indeed a potential lifesaver in fighting a parasitic infection encountered by folks whose immune systems were compromised. Publk outcry against Turing was extreme. The CEO (who

Pharmaceutical mns are under increasing pthk and goYemmental scrutiny to balance societal needs with the profit motive. Traditionally, the pharma industry argues back that product de\,ebpment costs in bringing innovative new drugs to market are sl:y high and approval timelines are very long. A study by the Tufts Center for the Study of Drug o.v.lopment pegged total cost of bringing an appr.,,,,ed drug to market at S2.6 biDion ,vith a typi· cal deYelopmentaf timesjlan more than 10 yeais. 13

Pharma is a high-risk business model but ·when a firm does hit on the • next big drug,· the payoff is astronomical One way to help fund in· novation in this environment is to S1.1bstantially raise the prices of existing

3.3 Market Planning: Develop and Execute Marketing Strategy

ultimately resigned and was later indicated on unrelated charges) was reviled as the 'bad boy of biotech • and many other names unfit to print in a family textbook.14

Ahhough they may be wijdly unpopula, such huge price increases are not illegal. Pharma fums. assume h;gh finandaJ risks, and not every new medication is a bJockbuster. Most failing along the long road to product development, forcing those that do succeed to pay for themselves and also the products that didn't make it to the finish line.1s

OBJECTIVE

Describe the steps in market planning.

IIZ·fii:MJ Until now, we have fOCtJSro on fairly brood strategic plans. This big• picture pcrsf)L""Ctivc, however, docs not provide details about how to roach the objc,ctives we s<.'t. Strategic plans "talk the talk" but put the

pressure on lowcr .. }cvcl functional-area man.agers, such as the marketing manager, pro,. ducHon manager, and Cina.nee manager, to .,.walk the walk" by developing th12 flllclionaJ plans-the nuts and bolts-to achieve organizationaJ and SSU objt.~tivcs. 8t.'Causc you' re taking a marketing course and this is a marketing book, our focus at the functional pla.n• ning level is naturally on developing markctit1g plans, which is the next step in planning as we showed back in Figure 3.1.

The Four Ps of the: marketing mix we discussed in Chapter 1 re.mind us that success• ful Ci:rms must have. viable products at pria'S consumers are willing to pay, a \<\ray to promot~ the produclS to the right consumers, and the ability to get the produclS to the place where consumers want to buy them.

Making this happen requires a tremendous amount o( planning by the marketer. The steps in this market planning process a.re quite similar to the steps at the strategic planning

level An important distinction between strategic planning and market planning, however, i$ that marketing professionals locus much of their p lanning efforts on issues related to the

EJHK:5 CHECK:'-

Is 11 approptlale far phanna COffll*1les Ill set prices of pre- ~IIOn drugs 81 anyleYelllleyW81ll based art lhe needs ol lhefr business?

D YES O NO -

I •

78 PART ONE I UNDERSTAND THE VALUE PROPOSITION

Figure 3.5 [iJ Process Steps in Market Planning

Step 1: Perform a Situation Analysis

t Step 2: Set Marketing Objectives

t

mnrkeling mix-the firm's product, its price., promotional approach, and distribu• tion (place) methods. In the end, as you learned in Chapter 1, marketing /oeusc,s on creating, communicating, delivering, and exchanging offerings that have value, and

market planning plays a central role in making these critical comporK!nts of market• ing successful. Let's use [B Figure 3.5 as a guide to look at the steps involved in the market planning process in a bit more detail.

Step 1 : Perform a Situation Analysis

Step 3: Develop Marketing Strategies

The first s tep to develop a marketing plan is to conduct an analysis of the marlceti11g environmcnL In Chapter 2, you learned about four key external clements that impact marketers: the economic, technological, political and legal, and sociocultural environ•

meats. To do this, managers build on ~,. company's SWOT analysis and search out information about the environment that spc...-xifically affects the marketi.1'18 ptan. For example, for Oracle to develop an effective marketing communication program for

any one of its products, it's not enough to have just a general understanding of the target market. Oracle needs to know specifically what media potential customers like

t Step 4: Implement and Control the

Marketing Plan

Lee jeans otters a very di\ffie pro<b:I por1folio.

to connect with, what messages about the product are most Likely to make them buy, and how they prcfc.r t·o communicate with the firm about new services and customer

care issues. Oracle also must k:nO\,, how competitors market to customers so that the com•

pany can plan ef/ectivcly.

Step 2: Set Marketing Objectives Once marketing managers have a thorough understanding of the marketing environ• ment, the next step is to develop specific marketing objectives. How do marketing ob;ec.

tives differ from corporate objectives? Generally, marketing objectives arc more specific to the firm's marketing mix- related clements. Think o( the col\ncctfon between business objectives and marketing objectives this way: Business objectives guide the en.ti.re firm's

operations, whereas marketjng objectives s tate what the marketing func .. tion must acco1nplish if the firm is ultimately to achieve these overall business objectives. So for Oracle, set-ting marketing objectives means

deciding what the firm wants to accomplish in terms of a product line's marketing mix-related clements: ptoduct development, pricing st:rate• gies, or specific marketing communication approaches.

Step 3: Develop Marketing Strategies: Target Markets and the Marketing Mix Ln the next stage of the market planning process, marketing managers dcvclop their actual marketing strategi~- that is, they make decisions about what activities they must accomplish to achieve the marketing objectives. Usually this means they decide which markets to target and actually develop the marketing mix s tTategi~ (product, price, promo• lion, and place [supply chain]) to support how they want to position

the- product in the market. At this stage, marketers must figure out how they want consumers to think o( their product compared to competing products.

As we mentioned in Chapter 1, the target market is the market scgmcnt(s) a firm selects b«ausc it bclio,,es its offerings are most likely to

win those customers. The linn assesses the potential demand- the num• ber o( consume.rs it believes ar~ willing and able to pay for its products-- and decides i! it is able to create a sustainable competitive advantage in the marketplace among l'arget consumers.

Marketing mix decisions identify how marketing will accomplish its objectives in the firm's targct markets by using product, price, pro- motion. and place. To make the point, we11 compare several different airlines' approaches:

• Because fl,e product is fl,e most fundamental part of the market•

ing mix-f,rms simplj• can't make a profit without something to sell-<arelully developed produd strategies are essential to achieve marketing objectives. Product strategies include decisions such as

product design, p;,ckaging, branding, support services (e.g., mainte- nance); if~ will be variations of the product; and what product features will provide the unique benefits ta,geted customers wanl For example, Alaska Airlin<'S bocan,e the first carrier to Oya v.,.,;ion

of the Boeing 737 aircraft that offers a type of overhead bin that can hold -l8 percent more luggage than a standard pivot bin.16 1( you',,c

ever packed a carry.on bag v,rith the express purpose of not ha,,ing to deal with the cost and hassle of checking a bag, only to find when

C HAPTER 3 I STRATEG IC MARKET PLANNING 79

Many ainine passengers loday aave a liggef luggage bin as a product leati.re.

you get to the gate that the bins arc full and you end up chocking the bag anyway, you

might be tempted by Alaska's bigger bins and book fl,em over other carriers.17

• A priciug slrategy det~mincs how much a firm charges for a product. Of course, that price has to be one that cust·omers arc willing to pay. ll not, all the other marketing efforts are futile. In addition to sctting prices for the final consumer, pricing strategies

usually establish prices the company will charge to wholesalers and retailers. A firm may base ils pricing strategies on costs, demand, or the prices of competing products. In recent years, most airlines have been charging extra fees (checked baggage any•

one?) for services and perks they ~ to indude in the ticket price, a practice known as deb1mdli11g1 in an effort to increase their revenues. Consumer backlash on such "nickel-and-diming" for everything led Delta Air Lines began offering a new option for travelers called Comfort+TM that includes many benefits built back into its price; these include Sky Priority boarding, premium content on the entertainment console, Wi•Fi access, alcoholic beverages and premium snacks., and seating with greater leg room. Travelers can easily add up the individual costs of these ''rebund.Jed" services to determine if Comfort+™ is a good deal for them.18

• A promotim,al sfrat~ is how marketers communicate a product's value proposition to the target inarkct. Marketers use promotion strategics to develop the product's mes,, sage and the mix of advertising, sales promotion, public relations and publicity, direct marketing, and personal selling that will deliver the message. Many firms use all these elements to communicate t:hcit n\CSS.lge to consumers. Emirates., an international airline oomp;,ny that operates flights to destinations all around the world, has cultivated a strong asscx:iation with luxury and comfort through a focus on foah.J.rCS and cxperle:nccs within its airplanes that are clearly lmcommon in today's oominoditized world of air travel. To hcightcn public awareness that Emirates is di!feren~ the airline launched a major advertising campaign featuring its new brand ambassador Jenni/er Aniston. In the ad Aniston (on an Emirates plane) emerges from a nightmare in which she was fly· ing: a U.S. carrict that had no walk-up bar, no private bedrooms in the first class cabin, and no in-flight showers (oh,~'° horror!). The ad closes with her kibitzing with the bar• tender about her horrible dream, asking him if~,. pilots can fly around for another hour or so to allow her to take advantage of Emirates' luxury proctuct amenities. JC)

• Dis1ributio11 strategies outline ho,,~ when_, and where the firm will ma.ke the product available to targeted customers (the pine, component). When they develop a distribution strategy, marketers must decide whether to sell the product directly to the final customer or to sell through retailers and wholesalers. And the choio, of which retailers should be

involved depends on the product, pricing, and promotion decisions. Back in the day,

I I

80 PART ONE I UNDERSTAND THE VA LUE PROPOSITION

airlines used to sell tickets in person or by phone din..~ly to customers or through independent travel agents, b ut customers now largely purchase tickets onllre, often through third-party vendors such as travelodty. And there arc benefits to this strategy, especially for consumer.;. For example, traveler.; can sec a t a glru,ce the best airlines fares a nd flight sdtedules; they can gs't discounts for booking multiple travel services, such as flights, hotels, and car rentals; and the)' can get acC\.'SS to top deals such as when Expedia of• fomd 29 percent off on select hotel reservations made using the Expedia app on Fcl,ruary 29, 2016, in ccld,ration of the extra leap year day."'

Step 4: Implement and Control the Marketing Plan Once the marketing plan is developed, it's time to get to work and make it succccd. 1n practice, marketers spend much of their time managing the vari•

ous elements involved in implementing the marketing plan. Once Oracle understands the marketing environment, determines the most appropriate objoctivcs and strategies, and gets its ideas organized and on paper in the

formal p lan, the rubber really hits the road. l ike all firms, how Oracle actu• ally implements its plan is wha t will make or break it in the marketplace.

caJifomia's almcnd l}lJWers have a marketing strategy to inaease consump!ion by pomoling the nut's health benefits.

During the implementation phase, marketers must have some. means

to determine to what degn..""<' they act ually meet their stated mat keting objectives. Often called control. this formal p rocess of monitoring p rogress cnl'3ils three st eps:

control A i:rocess that entails measuring actual pe<formance. comparing this pe<formance to the established marl<eting ol>jeahoe~ and then making adjustments to the strategies or objective< on the basis ol this analysis.

activity metrics Metrics focused on meaStl'ing and tracking specific aa:Mties taken within a firm that are part of different marketing processes.

outcome metrics Metrics focused on meaStl'ing and tracking specific events identified as key business outcomes that result from marketing processes.

1. Measure acrual performance:.

2. Compare th.is performance to the established marketing objectives or strategies.

3. Make adjustments to the objt'Ctives or strategics on the basis o( this analysis. This issue of making adjustments brings up one of the most important aspects of successful mar• ket planning: Marketing plans aren't wr:itten in stone, and matkctcts must be flexible

Cf\ough to ma.ke such changes when changes a rc warranted.

For effective control, Oracle has to establish appropriate mefrics rela ted to each of its marketing objectives and then track those metrics to know how successful the marketing

strategy i,r; and determine wheth<?r it needs to change the s trategy along the way. For ex• ample, what happens if Oracle sets an objt.>ctivc for the first quarter of a year to increase its matkct share for a particulat product line by 20 _percent but after the first-quarter sales arc only even with those of last year? The control proctss means that mat kct planners would have to look carefully a t why the company isn't meeting its objectives. ls it due to inter• naJ factors, external factors, or a combination of both? Depending on the cause, Oracle

would then have to adjust the marketing plan's strategics (such as to implement product alterations, modify the price, change distribution channels, o r increase or alter promo- tion). Altemativcly, Oracle couJd decide to adjust the marketing objective so that it is more

realistic and a ttainable. This scenario iUustr.atcs the important point we made earlier in our discussion of s trategic p lanning: Objectives must be specific and measurable but also attainable (and susfainnble ouer lime) in the sense that if an objective is not realistic, it can

bt..'Come demotivating for everyone involvOO in the marketing plan. For Oracle: and au firms, effective control requires appropriate marketing metrics,

which, as we discussed in Chapter 1, arc measurements that mar keters use to identify

the effectiveness of different s ttatcgics o r tactics. Two com.moo. ways that metrics can be c.atcgoriZt."><i include: (1) activity metrics, which a re: focused on measuring and tracka ing specific activities taken w ithin a firm that arc part of different marketing procc...;ses;

a nd (2) outcome metrics, which arc focused on measuring and tracking specific events identified as key business outcomes that result from marketing processes. An example

C HAPTER 3 I STRATEG IC MARKET PLANNING 81

of an activity metric is the number of calls that a salesperson makes to customers ovct a month, whereas a related outcome metric is the number of ord~ gained from sales calls made du.ring that month.

Metrics are so important in marketing today that you will find extensive treatment of the topic (a.tong with marketing analytics and ''Big Data") in Chapter S. For now, it is important to understand that marketers must balance attention to marketing control

and the measurement o( ma.rkcting _pe.rformance against sustainability a.nd corporate social responsibility (CSR) objectives, which you read about in Chapter 2. Recall that sustainability has to do with firms doing well by doing good- that is, paying attention to

important issues such as c.thics, the cnvirol\mcnt, and social responsibility as well as the bottom line. ln market planning, we certainly don't want to drive firms toward stratc,. gies that compromise sustainabiLity l>y focusing only on controlling relatively short-term aspects of performance.

Today's CEOs are keen to quantify just how an investment in marketing has an impact on the firm's success, financially and othcnvise, over the Jong haul. You've heard of the financial term rrtum on btves.tment (ROJ)-i.n a marketing context we rclcr to return on mar• keting investment (ROMI). In /net, it's crltical lo consider mnrketi11g as au invtSlment ratlter limn an expense; this distinction drives finns ta use marketing more strategically to e,\hance the business. For many firms today, ROMJ is the metric du jour to analyze how tho marketing function contributes to th~ bottom line.

So, what exactly is ROMl? It is the revenue or profit margin (both are widely used)

generated by investment in a specific marketing campaign or program divided by the cost of that program (expenditure) at a given risk level (the risk levcl is determined by manage- ment's analysis of the particular progTam). Again, the key word is investment- that is, in the p lanning process, thinking of marketing as an investment rathct than an expense keeps managers focused an using marketing dollars to achieve spt.>ci£ic objcctives.21

Herc's a quick and simple example of the ROMl concept Let's say that a relatively

routine markcti1,g campaign casts $30,000 and generates $150,(X)O in new revenue. 11,us, the ROM! for the program is 5.0 (the ROI is five times the investment). lf the firm has a total marketing budgs>t of S250,000 and an objective for new revenue of Sl,000,000, then

fl,e ROMI hurdle rate could be considered 4.0 (Sl,000,000/$250,000), meaning that each program shouJd strive to meet or exceed that ROMl benchmark of $4.00 in revenue for every $1.00 in marketing exp,endihtre. Because the marketing campaign exceeds l~ ROMI hurdle rate, it would be deemed aca,ptablc to proc,,cd with that investment.22

For an organization to use ROMI properly it must (I) identify tho most appropriate and consistent measure to apply, (2) combine review of ROMJ with other critical marketing

metrics (one example is marketing payback- how quickly marketing oosls are recovered), and (3) fully consider the potential long-term impact of the actions ROMJ drives (i.e., is the impact sustain.able: for the organization over the long tcnn).23 Fortunately for the marketer,

there arc many other potential marketing metrics beyond RO:vn that measure specific as .. poets of marketing performance. In Chapter 5 you will cncow,ter other useful metrics that matkete.rs can use to gauge the levcl of success of their plans, strategics, and tactics.

Action Plans How does the implementation and control s tep actually manifest itself within a marketing

plan? One co1wenient way i~ through the inclusion of a series of action plans that support the various marketing objt..X'tives and strategics with.in the plan. The best way to use action plans (\,1hich also are sometimes called ''marketing programs'') is to include a separate

action plan for each important clement involved in implementing the marketing plan. Table 3.1 provides a template for an action plan.

For example, let's consider the use of action plans in the context of supporting the ob--

jcctivc we came up with for Orac-Je earlier to increase market share of a particular product line by 20 percent in the first quarter of the year. To accomplish this, the marketing plan

return on marketi ng investment (ROMI) Quantifying just hcm an investment in marketing has an impact on the firm's success, liflancially and otheMise.

action plans Individual support plans included in a marketing plan that provide g,idance for imj)lementation and control of the various marketing strategies within the plan. Action plans are sometimes referred to as• marketing programs.."

82 PART ON E I UNDERSTAND THE VA LUE PROPOSITION

Metrics Moment Is ROMI always appropriate or sufficient 10 jud<Je marketing's effective- ness and efficienc.y? Here are six common objections to retying exdusively on ROMI to measure marketing success:

5. ROMI, by nan•e. ignores the effect of marketing assets of the firm (e.g .. its brands) and tends to lead managers towaid a more short-term decision perspective. That is, it typically considers only short-term incremental profits and expenditures without looking at longe<·term effects or any change in brand equity.

1. In a company's accounting statements, marketing expenditures tend 10 appear as a cost. not an investment. This practice perpetuates the •marketing-is-an-expense'" mentality in the firm. 6. And speaking of shon-te,m wsus long-term decision~ ROMI Oike a

number of other metrics focused on snapshot information-in this case, a particular marketing campaign) often can lead to actions by management to shOle up short-term performance to the detriment of a firm's sustainability commitment. Ethics in marketing shouk:I not be an oxyrnoron-llut ohen unethical behavior is driven by the demand for quick, short-term marketing results.24

2. ROMI requires the profit to be divided by expenditure, yet all other bottom-line performance measures (like the ones you learned in your finance course) consider profit or cash flow after deducting expenditures.

3. Cakulating ROMI requires knov.ing what would have happened ii the marketing expenditure in question had neYer taken place. few marketers have those figures. Apply the Metrics

4. ROMI has become a fashionable term for marketing productivity in genei'al yet much evidence exists that firms interpret how 10 calculate ROMI quite differently. When executives discuss ROMI with different calculations o( it in mind, only confusion can result.

1. Review the six objections to ROMI above and discuss them with your classmates.

2. Select any two of the objections and d=lop a specific example of how they might lead to a bad decision in market planning.

would likely include a variety of strategics related to how Oracle wil1 use the marketing mix c.lcments to reach this objective. lmportant qucstio,,s will include the foUowing:

• What are the important needs and wants of this target market?

• How will the product be positioned in relation to this market?

• What wiU be the product and branding strategics?

• What will be the pricing strategy for this group?

• How will the product be promoted to them?

• What is th~ best distribution strategy to aOCt..--ss the market?

Any one of these important strategic issues may require several action plans to implcm~nt. Action p lans also help managers when they need to assign n._~ponsibilitics, time lines,

budgets, and measurement ai,d control processes for market planning. In Table 3.1, notice

Toble3.1 I Action Plan Template Title of action plan

Purpose of action plan

Description of action plan

Responsibility for the action plan

Timeline for the action plan Budget for the action plan

Measurement and control of the action plan

Give the action plan a relevant name.

What do you hope to accomplish by the action plan- that is, what specific marketing objective and strategy within the marketing plan does it support?

Be succinct- but still thorough-when you explain the action plan. What are the steps involved? This is the core of the action plan. It describes what must be done in order to accomplish the intended purpose of the action plan. What person(s) or organizational unit(s) are responsible for car,ying out the action plan? What external parties are needed to make it happen? Most importantly, who specifically has final ·owner.;hip" of the action plan- that is. who within the organization is accountable for it? Provide a specific timetable of events leading to lhe completion of the plan. II different people are responsible for drff'erent elements of the time line, provide that information. How much will implementation of the action plan cost? This may be direct costs only or may also include indirect costs, depending on the situation. The sum of all the individual action plan budget items will ultimately be aggregated by category to create the overall budget for the marketing plan. Indicate the appropriate metrics, how and when they will be measured, and who will measure them.

CHAPTER 3 I STRATEG IC MARKET PLANNING 83

that these four clements arc the H.na.1 items that an action plan documents. Sometimes when we view a matketing plan in total, it can seem daunting and nearly impossible to ac• tually implement. Like most big projects, implementation of a marketing plan is best done

one step a t a time, paying attention to maximizing the quality of executing that step. ln practice, what happens is that markcte:rs combine: the input from these last four clemc.nts of each action pla.n to form the overall implementation and control portion of the market•

ing plan. Lct's examine each element a bit further.

Assign Responsibility

A marketing plan can't be implemented without people. And not everybody who will

~ involved in implementing a marketing plan is a marketer. The truth is, matkcting plans touch most areas o( an organization. Upper m.anagc-.mcnt and the human resources department will need to deploy the necessary employees to accomplish the plan's objec•

tivcs. You lcamt!d in Chapter 1 that n,arkcting isn't the responsibility only of a marketing

department. Nowhere is that idea more apparent than in marketing plan implementation. Sa.Jes., production, quaHty control, shipping, customer service:, finance, infonnation tech .. nology-the list goes on-all will likely have a part in making the plan successful.

Create a Timeline

Notice that each action plan require.,; a timcline to accomplish the various tasks it rcquin.'S. This is essential to include in the overall marketing plan. Most marketing plans portray the

timing of tasks in flowchart form so that it is easy to visualize when the pieces of the plan

will come together. Marketers often use Gnnll charts or PERT clmrts, popular in operations managc.me:nt, to portray a plan's timelinc. These are the same types of tools that a gen• craJ contractor might use to map out the different e]ements of building a house from the

ground up. Ultimately, managers devclop budgets and th!! hJiancial management of the marketing plan around the ti.melinc so they know when cash outlays arc required.

Set a Budget

Each element of the action plan links to a budgd item, asswning; there are costs involved in carrying out the plan. Forecasting the n&.'<led expenditures related to a marketing plan is dif• 6cult, but one way to improve accuracy in the budgeting process overall is to ensure estimates for expenditures for the individual action plans that are as accurate as possible. At the overall marketing plan level, manage.rs crt:.v.ltc a master budget and track it throughout the market planning process. They report variances From ~., budget to the parties responsible for each

budget item. For example, a firm's vice pl'tc.'Sidcnt of sales might receive a weekly or monthly n..i,ort that shows each sales area's pcrformru,ce against its budget allocation. The vice presi• dent would note patterns of budget overage ai>d contact affected sales managers to determine what, if any, action they need to take to get the budget back on track. The san,c approach would be repeated across all the difforont Functional an.'3s of the finn on which the budget has an impact. In such a manner, ~,e budget itself becomes a critical clement of control.

Decide on Measurements and Controls

Previously, we described the concept of control as a formal process of monitoring progress

to measure actual performance, compare the performance to the established marketing objectives or strategies, and make adjustments to the objectives or strategies on the basis o( this analysis. The metric(s) a marketer uses to monitor and control individual acHon plans

ultimately forms the overall control process for the marketing plan. Metrics can serve as leading indicators or lagging indicators of marketing outcomes. Leading indicators pro,. vidc insight into the performance of curreut efforts in a way that allows a marketer to adjust relevant marketing activities (hopefully) resulting in performance improvements against the current action plan. Lagging indicators n,Oect the performance of an action plan based

on outcomes realized. Lagging indicators provide a basis for re\licw and analysis of the

leading indicators PerfOffllance indicators that provide insight into the perlormance of currem effons in a W<f'f that allows a marketer to adjust relevant marketing activities (hoptfully) resulting in performance inprovements against the current action plan.

lagging indicators Performance indicators that provide insight into tile performance of an action plan based on outcomes realized.

84 PART ONE I UNDERSTAND THE VA LUE PROPOSITION

operational plans Plans that focus on the day-to-day execution of the marl:eting plan. Operational plans include detailed cfrections fa the specific activities to be carried oui. who will be responsible foc them, and time lines to accomplish the tasks.

action plan \'\tith in,plications for improvement that arc focused beyond the scope of the current action plan itself. That is, they provide post hoc insights for next actions.

It is a.n unfortunate fact that n,any marketers do not consistently do a good job of measurement and control, which, of course, compromises their market planning. And remember lha t sc-Jcction of good metrics neL">ds to take into account short.term objectives balanced against the fi rm's focus on long .. tcrm sustainability.

Operational Planning: Day-to-Day Execution of Marketing Plans Recall that planning hap_ix,ns a t three levels: str.ltegic, functional (such as market plan• ning), and operational. In the previous section, we discuss.'<i market planning- the process by which marketers perform a situation analysis,. set marketing objectives, and devclop,

implement, a nd control marketing strategies. But talk is cheap: The best plan ever written is useless if it's not properly carried oul That's wha t o perational plans are for. They put the pedal to the motal by focusing on the day-to-day execution of the marketing plan.

The task of operational planning falls to firs t-line managers such as sales managers, marketing: communications managers., brand managers, and market research managers. Operational p lans generally cover a shorter period of time than either str.1tcgic plans or

marketing plans-perhaps only one or two months-and they include detailed directions for the specific activities to be carried out_, who will be responsible for them, and timclincs for accomplishing the tasks. 1n reality, the action p lan template we provide in Table 3.1 is

most likely applied a t U,c operational level. Significantly, many of the important marketing metrics managers use to gauge the suc-

cess of plans actually get used a t the operational planning level For examp1", sales managers in many firms are charg,.'<i with the responsibility of tracldng a wide range of metrics relat.'<i to the firm-a.tStomer relationship, such as number of new customers, sales calls per month, custoo\er turnover, and customer loyalty. The data arc collected at the operationaJ Jcvcl and

then sent to upper management for use in p lanning a t the functional level and above.

Make Your Ufe Easier! Use the Markel Planning Template Ultimately, the planning process we've described in this section is documented in a for-, ma), ,vritten marketing plan. You'll find a template for build ing a marketing plan in the Supplement at the end of this chapter. The template will come in handy as you make your

way through the book, as each ch.apter will give you information you can use to "fill in the blanks" of a marketing plan. You will note that the template is cross-referenced with the questions you must answer in each scctio1, of the p lan. 1t also provides you with a general

road map of the topics covered in each ch.apter that need to flow into building the market• ing plan. By the time you're d one, we hope that all these p ieces will come together and you' ll understand how reaJ marketers make rcaJ choices.

As we noted previous!)\ a marketing p lan should provide the best possib1" guide for the firm to succcssluUy market its products. 1n Ja,gc !inns, top management often requu.-s such a written plan bL"Causc putting the ideas on paper encourages marketing managers to fommlatc

concrete objectives and strategics. (n sm.all entrepreneurial 6.nns, a \-.rell•thought.aut marketing plan is often the key to attracting investors who will help tum the firm's dreams into reality.

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3.1 Objective Summary IW·i-l'INJ Explain business planning and its three levels. Business planning is the ongoing process of decision making that guides the firm in both the short term and the long term. A business plan, which includes the decisions that guide the entire organization or its business units, is different from a marketing plan, which is a process and resulting document that describes the marketing environment, outlines the mar- keting objectives and strategies, and identifies how the com- pany will implement and control the strategies embedded in the plan.

Planning takes place at three key levels. Strategic plan- ning is the managerial decision process that matches the firm~ resources and capabilities to its market opportunities for long-term growth. Large firms may have a number of self- contained divisions called strategic business units (SBUs). In such cases, strategic planning takes place at both the overall corporate level and within the SBU. functional planning gets its name because the various functional areas of the firm, such as marketing, finance, and human resources, get involved. And operational planning focuses on the day-to-day execution of the functional plans and includes detailed annual, semian- nual, or quarterly plans.

Key Terms business planning, p. 69

business plan, p. 69

marketing plan, p. 69

strategic planning, p. 70

strategic business units (SBUs), p. 70

functional planning, p. 70

market planning. p. 70

operational planning, p. 70

3.2 Objective Summary IW·Wlid Describe the steps in strategic planning. for large firms that have a number of self-contained business units, the first step in strategic planning is for top manage- ment to establish a mission for the entire corporation. Top managers then evaluate the internal and external environment of the business and set corporate-level objectives that guide decision making within each individual SBU. In small firms that are not large enough to have separate SBUs, strategic plan- ning simply takes place at the overall firm level.

The first step in strategic planning is defining the mission-a formal document that describes the organization's

C HAPTE R 3 I STRATEGIC MARKET PLANNING 85

CHAPTER 3

Study Map

overall purpose and what it hopes to achieve in terms of its customers, products, and resources. Step 2 is to evaluate the internal and external environment through a process known as situational analysis, which is later formatted as a SWOT analy- sis that identifies the organization's strengths, weaknesses, op- portunities, and threats. Step 3 is to set organizational or SBU objectives that are specif ic, measurable, attainable, and sus- tainable. Step 4 is to establish the business portfolio, which is the range of different businesses that a large firm operates. To determine how best to allocate resources to the various busi- nesses, or units, managers use the Boston Consulting Group (BCG) growth- market share matrix to classify SBUs as stars, cash cows, question marks, or dogs. The final step, Step 5, in strategic planning is to develop growth strategies. Marketers use the product- market growth matrix to analyze four fun- damental marketing strategies: market penetration, market development, product development, and diversification.

Key Terms mission statement. p. 71 situation analysis, p. 71

internal environment. p. 71

external environment, p. 72 SWOT analysis, p. 72

busine-ss portfolio, p. 73

portfolio analysis, p. 73

BCG growth-market share matrix. p. 73

stars, p. 74

cash cows, p. 74

question marks, p. 74

dogs, p. 75

market penetration strategies, p. 75

market development strategies, p. 76

product development strategies, p. 76

diversification strategies, p. 76

3.3 Objective Summary lW·&,f,ij Describe the steps in market planning, Once big-picture issues are considered, it's up to the lower-level functional-area managers, such as the marketing manager, production manager, and finance manager, to develop the functional marketing plans-the nuts and bolts-to achieve organizational and SBU objectives. The steps in this market planning process are quite similar to the steps at the strategic planning level. An important distinction between strategic

86 PART ONE I UNDERSTAND THE VALUE PROPOSITION

planning and marl<et planning, however, is that marketing pmfessionals focus much of their planning efforts on issues related to the Four Ps of the marketing mix. Managers start off by performing a situational analysis of the marketing envi- ronment. Next, they develop marketing objectives specific to the firm~ brand, sizes, and product features. Then marketing managers select the target market(s) for the organization and decide what marketing mix strategies they will use. Product strategies include decisions about produas and product char- acteristics that will appeal to the target market. Pricing strate- gies state the specific prices to be charged to channel members and final consumers. Promotion strategies include plans for advertising, sales promotion, public relations, publicity, per- sonal selling, and direct marketing used to reach the target marl<et. Distribution (place) strategies outline how the product will be made available to targeted customers when and where they want it. Once the marketing strategies are developed, they must be implemented, which is the last step in develop- ing the marketing plan. Control is the measurement of ac- tual performance and comparison with planned performance. Maintaining control implies the need for concrete measures of marl<eting performance called •marketing metrics.•

Operational planning is done by first-line supervisors such as sales managers, marketing communication managers, and market research managers and focuses on the day-to-day execution of the marketing plan. Operational plans generally

cover a shorter period of time and include detailed directions for the specific activities to be carried out, who will be respon- sible for them, and time lines for accomplishing the tasks. To ensure effective implementation, a marketing plan must include individual action plans, or programs, that support the plan at the operational level. Each action plan necessitates providing a budget estimate, schedule, or time line for its implementation and appropriate metrics so that the marketer can monitor progress and control for discrepancies or varia- tion from the plan. Sometimes, variance from a plan requires shifting or increasing resources to make the plan work; other times, ii requires changing the objectives of the plan to recog- nize changing conditions.

Key Terms control, p. 80

activity metric. p. 80

outcome metric. p. 80

return on marketing investment (ROMI), p. 81

action plans, p. 81

leading indicator, p. 83

lagging indicator, p. 83

operational plans, p. 84

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and to respond to questions.

Concepts: Test Your Knowledge

3-1, What is a marketing plan, and how does ii differ from a business plan?

3-2. Describe the three levels of business planning: strate- gic, functional, and operational planning.

3-3. What is a mission statement? What is a SWOT analysis? What role do these play in the planning process?

3-4. What is a strategic business unit (SBU)? How does strategic planning differ at the corporate and the SBU levels?

3-5. Describe the five steps in the strategic planning pro- cess.

3~. How do firms use the BCG model for portfolio analysis in planning for their SBUs?

3-7. Describe the four business growth strategies: market penetration, product development, market develop- ment, and diversification.

3-8. Explain the four steps in the market planning process. 3-9. What is return on marketing investment (ROMI)? How

does considering marketing as an investment instead of an expense affect a firm?

3-10. Give several examples of marketing metrics. How might a marketer use each metric to track progress of some important element of a marketing plan?

3-11. What is an action plan? Why are action plans such an important part of market planning? Why is it so impor- tant for marketers to break the implementation of a marketing plan down into individual elements through action plans?

3-12. How does operational planning support the marketing plan?

Activtties: Apply What You've Learned

0 3-13. Creative Homework/Short Project As a marketing stu- dent, you know that large firms often organize their operations into a number of strategi< business units (SBUs). A university might develop a similar structure in which different academic schools or departments are seen as separate businesses. Consider how your uni- versity or college might divide its total academi< units into separate SBUs. What would be the problems with implementing such a plan? What would be the advan- tages and disadvantages for students and for faculty? Be prepared to share your analysis of university SBUs to your class.

3-14. Creative Homework/Short Project Pick a firm of your choice that operates on a global level for which you have interest in its products or services. Use the matrix

provided in Figure 3.4 in the textbook and accompany- ing discussion to identify an example of a strategy that the company offers or has offered that fits within each of the cells (Market Penetration, Market Development, Product Development, Diversification). Provide your rationale/justification for placing it in that particular category of sttategy.

3-15. Creative Homework/Shofl Project Pick your favorite restaurant. Identify two or three activity metrics and two or three outcome mettics that you believe the restaurant could use to better monitor and control its performance in the area of service. Explain why you believe each mettic selected is well suited for evalu- ating service performance (including why it is well suited to serve as an activity metric as opposed 10 an outcome metric in this context). Identify as well which of these metrics would most likely be easier to track, and why.

3-16. In Class, 10-25 Minutes for Teams As an employee of a business consulting firm that specializes in helping people who want to start small businesses, you have been assigned a client who is interested in introduc- ing a new concept in health clubs--0ne that offers its customers both the usual exercise and weight-training opportunities and certain related types of medical assistance, such as physical therapy, a weight-loss phy- sician, and basic diagnostic testing. As you begin think- ing about the potential for success for this client, you realize that developing a marketing plan is going to be essential. Take a role-playing approach to present your argument 10 the client as to why he or she needs to spend the money on your services 10 create a formal marketing plan.

3-17. For Further Research (Individual) All businesses- big and small-need to plan if they want to be profitable and sustainable. Contact one of your fa- vorite local businesses and make an appointment with someone who has a hand in developing the firm's business plan. Find out how much time the planning process takes, how often the business plan is updated, and what types of information the business plan contains. Summarize your findings in a short report.

3-18. For Furrher Research (Groups) Identify a large compa- ny, like Disney, that has several SBUs. Using the BCG model, assign at least one SBU to each category in the model: star, cash cow, question mark, and dog. Include at least two pieces of data for each to justify your cat- egorization. Prepare a short presentation to share with your class.

Concepts: Apply Marketing Metrics

You learned in the chapter that most marketers today feel pressure to measure (quantify) their level of success in market planning. They do this by setting and then measuring market- ing objectives. One popular metric is market share, which in essence represents the percentage of total product category sales your products represent versus category competitors. Fo, example, recent statistics indicate that Lenovo holds the num-

C HAPTE R 3 I STRATEGIC MARKET PLANNING 87

ber-one market share in global PC sales with about 21 percent, topping HP with about 19 percent. Ranked third through fifth are Dell, Apple, and Acer, ,espectively.25 But, despite its com- mon appearance in marketing objectives, market share has been heavily criticized as a metric. Often it can become more of a "bragging right" for a firm than a profit enhance,. This is beca~specially in situations like the global PC market that is seeing heavy annual declines in sales as tablets and other devices replace PCs-investing in being number one in market share may deflect focus away from more lucrative new and growing product lines.

0 3-19.

0 3-20.

Under what conditions do you believe market share as a metric is important to a firm? What are the potential pitfalls of relying too much on market share as a key metric? What self-defeating behaviors might this over- reliance lead a firm to undertake? Come up with some other product categories besides PCs that are declining and identify the firms within those categories that have the highest market share. What does their profit picture look like?

Choices: What Do You Think?

0 3-21. Defining the mission is identified as the first major step in the strategic planning process. Many companies display their mission statement on their website. mak- ing it readily accessible to the public. Do you think a company should make it available for everyone to see? Why or why not? Are there any specific situations or factors to consider that would lead you 10 recommend not doing so?

3-22. The Boston Consulting Group (BCG) growth-market share matrix identifies SBUs and their related products as stats, cash cows, question marks, and dogs. Do you think this is a useful way for organizations 10 examine their businesses? What are some examples of product lines that fit in each category?

3-23. Within the BCG matrix, products that earn the dog label have limited market potential for the firm and also only hold a small relative market share. Products identified as dogs within this framework are typically obvious candidates for divestment, but are there any cases where doing so would not be wise for an orga- nization? That is, why would a firm want to hold onto a dog?

3-24. In this chapter, we talked about how firms do strategic, functional, and operational planning. Yet some firms seem to be successful without formal planning. Do you think planning is essential to a firm~ success? How might planning hurt an organization? Under what cir- cumstances do you believe that formal planning is and is not important to an organization?

3-25. Most planning involves strategies for growth. But is growth always the right direction to pursue? Can you think of some organizations that should have contraction rather than expansion as their objective? Do you know of any organizations that have actually planned to get smaller rather than larger to increase their success?

88 PART ONE I UNDERSTAND THE VALUE PROPOSITION

3-26. When most people think of successful marketing, in- ternal firm culture doesn't immediately come 10 mind as a contributing factor. You may have learned about corporate culture in a management course. What is a corporate culture? What are some reasons a firm's culture is important to the capability of doing good marketing? Give some examples of aspects that you consider indicate a good corporate culture for marketing.

3-27. Many companies operate on the mentality that •mar- keting is an expense." Do you agree that marketing is an expense, or should marketing be treated as an investment? Should there be a business standard as to whether marketing is treated as an expense/invest- ment, or should individual organizations be given the freedom to choose which line item to assign it to? Ex- plain your reasoning.

3-28. A common saying among managers is "if we can't measure it, we can't manage it.• Is the<e such a thing as an overreliance on marketing metrics? Are there cases or specific aspects of marketing where a single- minded focus on metrics is inappropriate or detrimental to the firm?

Miniproject: Learn by Doing

The purpose of this miniproject is to gain an understanding of market planning through actual experience.

3-29. a. Select one of the following for your mat1cet plan- ning project: • Yourself (in your search for a career) • Your university • A specific department in your university

b. Next, develop the following elements of the market planning process: • A mission statement • A SWOT analysis • Objectives • A description of the target market(s) • A positioning strategy • A brief outline of the mall<eting mix strategies-

the product, pricing, distribution, and promotion strategies-that satisfy the objectives and address the target market

c. Prepare a brief outline of a marketing plan using the basic template provided in this chapter as a guide.

Marketing in Action Case Real Choices at Amazon

In marketing, yesterday's success quickly becomes old news. How should one of the world's largest retailers plan to build on its' previous achievements? In the retail marketplace, it is be- coming harder for companies to differentiate themselves from the competition beyond simply price. Amazon is now faced with this challenge and must develop offerings 10 protect and grow its customer base. One of its primary offerings to meet this task has been the creation of Amazon Prime. The seNice was created in 2005 offering free two-day shipping within the U.S. on qualified purchases. The initial annual membership fee was $79 and also allowed discounted one-day shipping rates on those same purchases. In 2014, the fee was increase to $99 and more services were added to increase customer value.

Prime Instant Video allows customers to stream movies and TV shows to their web brovvsers or multiple Amazon video- compatible devices. The current library of tens of thousands of titles provides a wide array of choice to lure potential custom- ers. Subscribers can also purchase online video subscriptions from premium content providers like Showtime, Starz, and other streaming entertainment channels. The objective of the add-on services is to anract new customers to Amazon Prime in a crowded competitive environment. As of 2016, Netftix is the world's largest provider of streaming video content with more than 75 million subscribers. In addition, Hutu is a joint venture of Walt Disney, 21st Century Fox, and Comcast's NBCUnive<sal that similarly provides streaming seNices.

One of Amazon's latest additions to its Prime service is the Prime Store Card. The card rewards subscribers with 5 percent cash back on all Amazon purchases. Or, in lieu of the 5 percent cash back, members can choose a tiered financing option for purchases more than S 149. In this plan, when customers reach cost thresholds they can avoid paying interest if the outstand- ing balance is paid within 6, 12, 0< 24 months, as applicable.

In addition, periodically on select items sold by Amazon offers O percent APR financing with 12 equal monthly payments. One of the key benefits to Amazon is that compared to the use of traditional cards like Visa, MasterCard, or AmEx, transaction processing costs for its Prime Store Card are lower.

One of the best benefits that brick-and-mortar retail stores have maintained over online retailers is the ability to provide customers with instant gratification. Amazon aims to decrease that advantage through its services. Recently introduced in select cities is Prime Now. a service that allows customers to receive their order within one hour for a fee of $7.99, or within two hours for no additional fee. Currently, the products available for Prime Now delivery are limited to 15,000 to 40,000 available items, which may seem like a lot but Prime members currently have access to millions of items to select from for two-day shipping. Prime Now is definitely an innovative seNice, but in some markets it is faced with other competitors for on-demand delivery offerings, like Google Express and UberRush.

Amazon continues to establish more services under the Prime umbrella. Prime Pantry is an option by which members can fill a virtual box with groceries and household products and have them delivered for $5.99 per box. Prime Music offers ad-free access 10 playlists and a catalog of more than 1 mil- lion songs and albums. Prime Photo provides unlimited photo storage on the Amazon Cloud. This wide variety of associated services draws the anention of numerous varied competitors, and the key question as Amazon move foNVard is: How will the company successfully manage such a large portfolio of of- ferings? For success to be sustained over time, Amazon must carefully consider what long-term strategies are necessary to continue to make Amazon Prime a profitable winner in a com- petitive marketplace.

You Make the Call 3-30. What is the decision facing Amazon? 3-31. What factors are important in understanding this deci·

sion situation? 3-32. What are the alternatives?

MyMarketinglab"'

C HAPTE R 3 I STRATEGIC MARKET PLANNING 89

3-33. What decision(s) do you recommend? 3-34. What are some ways to implement your recommendation?

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Go to mymktlab.com for Auto-graded writing questions as well as the following Assisted-graded writing questions:

3-35. Creative Homework/Short Project Assume that you are the marketing dire<tor for Mattel Toys. Your boss. the company vice president for marketing, has decided that it's time to develop some new objectives for some of their produ<t lines as the company begins market planning. Your VP has asked you to help out by writing several initial objectives. Select any product line at Mattel and develop severaJ objectives that fuffill the criteria for objectives discussed in the chapter.

3-36. Creative Homework/Short Project An important part of planning is a SWOT analysi.s.. understanding an organization's strengths. weaknesses. opportunities. and threats. Prepare a SWOT analysis for Panera Bread that includes three or four items in each of the four SWOT categories.

Chapter 3 Supplement

OUTLINE I C. DEVELOP MARKETING STRATEGIE S t 3. Pridng Strategies

QUESTION

i • How will we price our ptodoa to the COt'lsume, and lli<oogll 1he chaooel? CHAPTER

Chapter 10: Prke: What is the Valut Proposition WOOh?

The Marketing Plan OUTLINE

A. PERFORM A SITUATION ANALYSIS 1. Internal Environment

2. External Environment

3. SWOT Analysis

B. SET M ARKETING OBJECTIVES

C. DEVELOP MARKmNG STRATEGIES 1. Select Target Markets and Positioning

2. Product Strategies

3. Pricing Strategies

4. Distribution Strategies

5. Promotional Strategies

D. IMPLEMENT AND CONTROL THE MARKETING PLAN

1. Action Plans (for all marketing mix elements)

2. Responsibility

3. Timeline

4. Budget

5. Measurement and Control

C HAPTER 3 I STRATEG IC MARKET PLANNING 91

QUESTIONS the Plan Addresses CHAPTERS Where You'll Find These Questions • How does marketing support my company's mission, objectives, and

growth strategies? • \!\'hat is the corporate culture and hOW' does it influence marketing

activities? • What has "'f company done in the past with its: Target markets? Chapter 1: Welcome to the World of Marketing: Create

Products? Pricing? Promotion? Supply chain? and Deliver Value • What resources induding management expertise does my company

Chapter 2: Global, Ethical, and Sustainable Marketing have that make us unique? How has the company added value through its offerings in the past? Chapter 3: Strategic Market Planning

• What is the nature of the overall domestic and global market for our Chapter 4: Market Research product? How big is the market?Who buys our produa?

• Who are our competitors? What are their marketing strategies? Chapter 5: Marketing Analytics: Welcome to the Era • What are the key trends in the economic environment? The

technological environment? The regulatory environment? The social of Big Data

and aJJturaJ environment?

• Based on this analysis of the internal and external ern,ironments, 'IM'lat are the key Strengths. Weaknesses. Opportunities, and Threats (SWDl}?

• What does marketing need to accomplish to support the objectives Chapter 2; Global, Ethical, and Sustainable Marketing of my firm?

Chapter 3: Strategic Market Planning

• How do consumers and organizations go about buying, using, and Chapter 4: Market Research disposing of our products?

Chapter 5: Marketing Analytics: Welcome to the Era of Big Data! • Vv1iich segments should we select to target? If a consumer market: What are the relevant demographic, psychographic, and behavioral segmenta· Chapter 6: Understand Consumer and Business Markets tion approadles and the media habits of the targeted segments? ~ a

Chapter 7: Segmentation, Target Marketing, and Positioning business market What are the relevant Ofga,,izatiooal demographics? • How will we position our product for our market(s)?

• What is our core product? Actual product? Augmented product? Chapter 8: Product I: Innovation and New Product • What product line/product mix strategies should we use? Development • How should we package, b<and, and label our product?

Chapter 9: Product II: Product Strategy. Branding, • How can attention to service quality enhance our success? and Product Management

• How wiU we price our product to the consumer and through the Chapter 10: Price: What Is the Value Proposition Worth? channel? How much must we sell to break even at this price? What pricing tactic.s should we use?

• How do we get our product to consumers in the best and most Chapter 11: Deliver the Goods: Determine the Distribution efficient manner? Strategy

• How do we integrate supply chain elements to maximize the value we Chapter 12: Deliver the Customer Experience: Goods and

offer to our GJstomers and other stakeholders? • What types of retaile,s, d any, should we work with to sell our product? Services via Bricks and Clicks

• How do we develop a consistent message about our product? How Chapter 13: Promotion I: Advertising and Sales Promotion do we best generate buzz?

Chapter 14: Promotion II: Social Media Marketing, Direct/ • What approaches to Advertising, Sales Promotion, Social Media,

Direct/Database Marketing, Personal Selling, and PIJblic Relations Database Marketing, Personal Selling, and

should we use? Public Relations

• What role should a sales force play in the ma.li:etjng communications plan? HowshouJd direct marketing be used?

• How do we make our marketing plan happen? Chapter 3: Strategic Market Planning • Who is responsible for accomplishing each aspect of implementing Chapter 4: Market Research

the marketing plan?

• What is the timing for the elements of our marketing plan? Chapter 5: Marketing Analytics: Welcome to the Era of Big Data!

• What budget do we need to accomplkSh our marketing objectives?

• How do we measure the actual performance of our marketing plan and compare it to our planned performance and progress t01Nard reaching our marketing objectives?

(]) C += ::, 0 G) > ·--g ·-.0 0

92

PART TWO: Determine the Value Propositions Chapter 4 Different Customers Want

Market Research 4.1 Explain the role of a markeHng

lnfarmaHan system and a marketing decision support system In markettng decision making pp. 94-99

KNOWLEDGE IS POWER p. 94

4.2 Understand the concept of customer lnslghts and tne role It plays In making goad marketing decislons p. 100

CUSTOMER INSIGHTS AND MARKETING p. 100

Meet Cindy Bean

4.3 Usf and explain the steps and key elements of the market research process pp. 100-116

STEPS IN THE MARKET RESEARCH PROCESS p. 100

Check out the Chapter 4 Study Map on page 118.

,,. A Decision Maker at Campbell Soup Company

Cindy Bean is manager of Consumer Insights at Campbell Soup Company. Siflce join.ing Campbell in 201 0, Cindy has spent most of her time leading Consumer lnSights on one of 1v.o New V~tures te.1ms responsible for shaping and driving an enterprise-wide, innovation pipeline against M1entified areas of consumer need. Cindy's team is made up of a oss-functional teade-ts wtlo iterativefy identiiy areas of expfotation, a.fld ,apK:lly ptototype and validate ideas that result in solutions ot new product opponurities. Cindy has been a part of launching the successfuJ Oin00< Sauce line of products tha1 includes Skillet Sauces, Slow Cooker Sauces, Oven Sauces, and most tecently Grill Sauces.

Prior to Campbell. Cindi/ worked in a variety of industries, managing a variety of businesses. Gndy vvor1::ed as a Qualitative Research Consultant. achieving her moderating cet1ifkation. She synthesized and inte<pteted sales and matket share data, competitive inte11igence, syndk.ated research, ament industry conditions, a.nd other relevant information to deliYet the monthly state of the vision ca,e business 10 Johnson & Johnson"s Vestakon executives (J&J's Vision Cate Division). She imptoved marketing effectiYeness for Wyeth Pharmaceutical\ {now Pfizer) WOmen"s Health Cate products by planning. designing. and managing a portfolio-wide consumer segmentation s1udy and led the insights ror the anti-depressant drug. Pristiq. She led research activities for McNeil Consume, HeaJthc.are's Tylenol pediatrics, upper respiratory. and the~ frandlise (Tyloool PM and Simply Sleep). And. she managed research functions within The Vanguard Group\ Institutional business, i.nclu<flllg company 401(k) and 403(b) plans.

Cindy holds a bache,lor's degree from Drexel UnivetSity and an MBA from Pe<lnsy1vania State university.

What I do when I'm not wo11dng: When I'm not spending time with my husband and lWO kids, I'm practicillQ yoga, reading a boolt, or trying out a new recipe.

First Job out of school: Financial Analyst at The Vanguard Group

A jOtrrelated mistake I wish I hadn't made: Taking too long to launch a new product. Perfection does nm exist, bot it's easier to get closer co what the collSIJmer wants by seeing them interact with it in real 1ime and tweaking as we go.

Business book I'm reading now: Thinking, Fast and Slow by Daniel Kahneman

My motto to Rve by: Worry only about what you can control

What drives me: Besides being a positive role model for my kids, I have a constant need to understand people to the point of knowing how to make their lives better.

My management style:

Highly collaborative and action-oriented

Don't do this when inteNlewlng with me: Tell vague stories about your past when I'm looking for clear examples of your actions

My pet peeve: People not being accountable for their actions

A few years ago, Campbell set out on a mission to grow an otherwise stagnant soup business. Canned soup stiD

is popular among Baby Boomers. However. younger consumers just aren't as interested. They tum to alternatives like microwaveable and mini meals (sud, as pizza and tacos). Campbell realized its c01e business is at risk if the com· pany can't come up with products to entice the emerging group of mil&ennial consumers who are belween the ages of 18 and 34. These customers are 2S percent of the U.S. population, or approximately 80 million people. Thf'j spend a lot of money on food. but very 6ttle of it on S0'4".

To understand what makes mulennials tick. Campbell went through a deep immetsion. We scrutinized millenniais' culture and habits to learn what kind of soups appeal to them. I lead a cross-functional innovation team that conducted dozens of exten.si,;e face-to-face in-depth interactions with young consumers. both one-on-one and in groups. We ate meals with young people in their homes. cllecked out their pantrie~ and 1a9ged along with them on shopping nips to the supermarket.

After that immetsion, the team listed all the pain points millenniaJs associated with canned soup. For example, they told us they think these products are 100 "processed" and they taste bland. homogeneou~ and unex- citing. Another common complaint was the lack of healthy ingredients these consumers look foe. such ~ quinoa and on-treod veggies like kale. We found this g1oup includes •t1exitarians, • (hat is. they eat ve9eta1ian for a few days and then eat meat on the weekends. special occasions. to satisfy a craving, etc. They tend to care about sustainabHity, local sourcing. and company practices.

As a result of these insights, we then created concepts and prototypes to test our potential solutions for the pain points we identified. We continued to put these ideas in front of a series or focus groups as we fine-tuned our solu- tions based on the feedback we got horn actual millennial,.

This prncess gave us some great insights about what we could do to boost our appeal to millennial,. One no-brainer was to cllange the packaging born a can to a pouch; our respondents told us that a pouch communicates a •heshe, ingredients· message. And, we knew the flavor profile of the soup had to be bolder than the varieties that Baby Boomers are used to. We ultimately aligned on the follD'Ning as our guarchils to create this new product platform:

• Young aduhs looking for satisfying. easy meals for one • Satisfies demanding taste.s £or a more flavorful life • />mays delive<s of-the-moment flavors and packaging from a trusted

brand

However, given Campbell's current ponfolio of sou~ we needed to posi- tion this rniDemial-focused platform differently horn existing products we a~ ready sold under the Campbell's name. Specifically. most of the ideas we tested overlapped with CampbeH's Slow Kettle brand. The Slow Kettle brand was cre- ated to bring Campbell's into the packaged premium soup calegoiy. Because consumers were becoming more interested in the rich. complex flavors they enjoy from restaurant soups. we saw an opportunity to bring that experience home. Our culinary team created Slow Kettle to bring a "prepared with care· feeling even though it still comes from the supermarket soup aisle. The flavors are fammar, they are hearty and filling, the quality is better than other canned soups, and the package is meant to convey homemade (rt comes in a ttti, like

MyMarketinglab"' O Improve Your Grade!

C;tnpbell's S1<111 l(ettle ,nd Go brands.

Tupperware). The brand skews toward higher-income m~lennials. Because the price point is at a premrum for the category, Sl2S, it represents a small but interesting opponunity for Campbell

Clearly we would need to do more work to figure out the best way to create a new ottering that would grab miHennials' attention, make it dea, that this is • not your father's soup,* but at the same time avoid confusion with the Slow Kettle brand.

11·111H,M{1fi Which Option would you cho05e, and why?

D Option 1 D Option 2 D Option 3

See what option Gndy chose in MyMarketingLabt"'

Over IO million students imp-roved their results using the Pearson Mylabs. Visit mymktlab.com for simulations, tutorials. and end-of-chapter problems.

93

94 PART TWO I DETERM INE THE VALUE PROPOSITIONS DIFFE RENT CUSTOMERS WANT

Chapter 4 Cindy considered her Options 1·2·3

1 Carve out a new space within the soup portfolio for this millennial•driven soup offering. We would have to demonstrate that the new offering serves a unique need for prepared soup that is not already available in Campbell's other brands. This strategy would give us an opportunity to build a new brand from scratch entirely based on mmennials' needs.

Option The brand could indude soups but also possibly other food products such as mini-meals and hearty on-the-go snacks, positioned to meet the needs of the millennial. This new product line wouJd be so distinct that we wouldn't have to worry about cannibalizing sales from other parts of our ponfolio, especially Slow Kettle. However: it's expensive and risky to build a bland. We would have to commit to at least a three· year investment to build awareness and encourage trial Because we do offer somewhat s.imjlar products like Slow Kettle. if we fall to create a really tight message to set apart the new brand we might shoot oursel,;es in the foot by injecting some confusion into the marketplace.

1 Reposition an existing brand to be the face of the millennial portfolio. Our Slow Kettle Brand already has many elements that could meet the needs of these young consumers. With a few tweaks, we could probabfy uansform it into the kind of product that would resonate with this target market. This approach would involve less investment than

Option building an entirely new brand, and we already have the inlernal manufacturing capability to turn out these soups. On the other hand, we coukf commit the cardinal sin when marketing to millennia ls: offer a product they perceive as inauthentic. Because the Slow KettJe brand has afready been on the mar· ket, these savvy young consumers might decide that a few tweaks to an existing offering doesn't really speak to them. Millennials run from products they view as *fake .. faster than soup boils on a hot stove.

a Oon·t take the risk. and stick with our existing solutions. Investing in a unique miUenniaJ product might be just too costty and time--cons.uming, and it's possible that a new solution wouldn't deliver enough return on investment to justify our efforts. This conservative solution would allow us to focus our resources on maintaining our solid (though stagnant) Option base business. We could ramp up our advertising to appeal to the nostalgia of the familiar Campbell brand, because millennials sometimes do respond well to this kind of appeal. On the other hand, if this stay·the·course strategy backfires we risk becoming irrelevant to an entire generation of new con· sumers. In that event we would continue to experience a decline in our bottom line as an aging group of loyal consumers eventually died off. And. if competitors eventually enter the millennial space we might be forced to sit on the side-lines as they capture this valuable target. We know that most consume, packaged goods {CPG) companies are taking similar steps to satisfy this new generation. Many traditional brands ate transitioning to natural colors. removing artificial sweeteners and high fructose com syrup. and in some cases moving toward a non-GMO label to address consumeis' concerns about genetically modified food. There's no doubt that changes are coming.

Now, put yourseff in Cindy's slloes. Which option would you choose, and why?

4.1 OBJECTIVE Explain the role of a

marketing informa- tion system and a marketing decision

suppon system in marketing decision making.

Knowledge Is Power By now we know that suoccssfuJ market planning means that managers make infonru.."<I decisions to guide the organization. But how do mar• kctcrs actually ma.ke these choices? Specifically, how do 1""y Hnd out what they need to know to develop marketing objectives, sclect a targct market, position (or reposition) their produc~ and develop product,

price_, promotion, and place strategics? The answ~ is (drum.roll ... ): information. Information is the fuel

that runs the marketing engine. There's a famous acronym in the markcting information systems lield: C!CO, which stands for Car/Jag, Ju, Garbage Out. To make good decisions, marketers must have infor• mation that is not ,.garbag~"- ratht?r, it must ht'! accurate, up to date,

and relevant. To understand these needs, marketers first must engnge in various forms o( research and data collection to identify them.

C HAPTER 4 I MARKET RESEARCH 95

In this chapter, we will discuss some of the tools tha t marketers use to get that in .. formation. Then in Chapter 5, we'll drill down further on applying market research for decision making via marketing analy tics. ln the chapters that follow, we will look doscly

at how and why both consumers and organizations buy, and then how marketers sharpen their (ocus via target marketing.

Before we jump into the topic of market research,. here's a question for you. A marketer

w ho conducts research to learn more about his custome.rs shouldn't encounter any ethical challenges, right? Well, maybe in a perfect world. In reality though, s..-vcral aspects of mar- ket research are fraught w ith the poh--nlial for ethics breaches. Marte.et research ethics refers

to taking an ethical and aboveboard approach to conducting market rest."'<lrch that docs no harm to the participant in the process of conducting the research.

When the organization collects data, important issues of privacy and confidential•

ity come into play. Marketers must be clear when they work with research respondents about how they will use the data and give respondents full disclosure on their options for confidentiality and anonymity. For example, it is unethical to colJect data under the

guise of market research when your real intent is to develop a database of potential cus .. tomers for direct markeHng. A database is an organized collection (often electronic) of data that can be searched and queried to provide infonnation about contacts, products,

customers, inventory, and more. Finns that abuse the trust of respondents run a serious risk of damaging their reputation when word gets out that they arc engaged in unethical research practices. This makes it difficult to attract participants in future research proj•

ects-and it "poisons tht" well" for o ther companies whim consumers believe that they can't trust them.

The Marketing Information System Many firms use a marke ting information system (MIS) to coUcct infonnation. The MIS is a process that first determines what information marketing managers need. Then it gath·

crs, sorts, anaJyzcs, ston..~, and distribu tes rcl~ant and timcJy marketing information to users. As shown in ~ Figure 4.1, the MlS system includes three important components:

1. Four types of data (intcmaJ company data, market intemgcnce, market research, and acqum-d datal:>ascs)

2. Computc:r hardware and software to analyze the data and to create reports

3. Output ror marketing decision make.rs

martc.et research et hics Taking an ethic.,! and abo;eboard approach to conducting mari:tt research that does no harm to the participant in the process of conducting the research.

database An organized collectioo (often electronk) of data that can be searched and queried to provide information about contacts. products. customers. inventory, and m()(e.

mar1<eting information system (MIS) A p-ocess that first detennines what infamation marketing managers need and then gathers, sons. analyzes, stores, and mstributes relevant and timely marketing inloonation to system ......

Various sources "fet..'ti." the MlS with data, and then the system's software "digests" it. MlS analysts use tho output to generate a series of regular reports for v·arious decision make.rs.

Figure 4.1 ~ Process I The Marketing Information System

let's take a closer look at each of the four different data

sources for the MlS.

Internal Company Data

The iJtt~nnl compa,ry data sysln,1 uses infonnation from

within the organization to produce reports on the results of sales and marketing activities. Internal company data include a firm's sales records-information such as which

customers buy which products in what quantities and a t what intervals, which items arc in stock and which arc back-ordered bccatL.;;c they arc out of stock, when items we.re shipped h) the customer, and which items have been

returned because they are defective.

A fitm's marl::eting information sys·tem (MIS) stores and analyzes data from a vatiety of sources clfld turns the data into ltlformation. for useful marketing decision making.

Internal Company

Data

Marketing lntelligena,

Marketing Research

Compute, Hanlwan, and Softwan,

lnfonnation for Marketing De<islons

Acquired Databases

96 PART TWO I DETERM INE THE VALUE PROPOSITIONS DIFFERENT CUSTOMERS WANT

intranet An internal corporate convnooication network that uses Internet tecmology to lilk company departments, employees. and databases.

martc.et intelligence system A method by which marketers get information about what's going on in the world that is cefevam to their OOsiness.

reverse engineering The proce,s of physically deconstructing a competitor's product to determine how H's put togethet

martc.et research The process of colleaing. analyzing. and interpreting data about customers. competitors, and the busines.s enYiranment in order to improve marketing effeaiveness.

Often, an MIS allows salespeople and sales managers in the field to access internal rt.~ cords through a company intranet. This is an internal corporate communications network that US..'S lntcm.,t technology to link company departmcilts, employees, and dat-abases.

lntranets arc secured so that only authorized employees have acc12SS. When salespeople and sales manago,rs in the field can use an intranet to access thcir company's MIS, they can bc>ttcr serve their rustome:rs lx"Cause they have immediate access to information on pricing, inven- tory levels, production sdlroules, shipping dates, and the customer's sales history. Related to the company intra.net concept is the concept of ertstomer relatkmship mauagemttJt (CRM), which we'll develop more fully in Chapter 5.

Marketing man.ag;ers a t company headquarters also can see daily or weekly sales data by brand or product line from the into,mal company dat-a system. They can view monthly sales reports to measure progress toward sales goals and market share ob}octivcs. For ex•

ample, buyers and managers at Walmart's headquarters in Arkansas use u_p-,to•tllc-minute saJes information they obtain from store cash registers a.round the country so they can quickly detect problems with products, promotions, price competitiveness, and even the firm's distribution system.

Market Intelligence

As we saw in Chapter 2., to make good decisions, marketers need to have info,mation

about the marketing environment.. Thus, a St..'COnd important elcme:nt of the MIS is the martc.et intelligence system, a method by which marketers get information about what's going oi, in the world that is relevant h> their business. Although the name iult!Ugence may suggest doak .. and-<laggcr spy activities, in reality nearly aU the information that compa· nies need about their environment-including the competiHvc environment- is available by monitoring everyday soun.'eS: company websites, industry trade publication.,;, or direct

field observations of the competitive marketplace. And lx.>cause salespt."lOple are the ones "in the trenches" every da}~ talking w ith cus-

to1ners, distributors, and p rospective customers, they are a key to sourcing; this valuable information. Retailers often hire "mystery shoppers" to visit their stores and those of their comp<?titors posing as customers to sec how people are treated. (Imagine being paid to shop!) Other information may come from speaking with organizational buyers about

competing products, attending trade shows, or simply purchasing, using, and even reverse engineering competitors' products, which means physically deconstructing the product to determine how it's put togcther.

Marketing managers may use market intelligence: data to predict fluctuations in sales as a result of a variety of external environmental factors you read about in Chapter 2, including economic conditions, political issues., and events that heighten consumer

awar~c.,;s, or to forecast the future so that they will be on top of developing trends. Television network,; have observed how consumers increasingly "binge .. watch'' shows through plat·fonns such as Netflix, and as a result have begun to offer their shows in

ways that appeal to the changing preforc.nces and expectations of con.'tume..rs when they watch. For instance, TBS premiered all of the episodes for its comedic sc.ries Angie Tribeca in a single 25•hour event that they labeled a "binge.a•thon." The strategy worked to attract tons of young viewers; one•third of the audience was totally new to T8S!1

Market Research

Market resean:h refers to the process of collecting, analyzing, and interpreting dat-a about customers, competitors, and the business environment to improve marketing effectiveness. (Note that the term nuirkt•ling reSt*tlrch is often used int'erchangt.."<lbly with market research, bul to be Pl\..~ marketing rest.."aJ'ch is broader in scope and often rcfots to the type of research

C HAPTER 4 I MARKET RESEARCH 97

that academics in marketing conduct about the fie ld., whcreas ma.rkct research refors to the type ol research that marketing pmfcssfonaJs conduct about markets and consum• crs.) AJthoug:h companies collect market intelligence: data continuously to keep n,anagers

abreast of happenings in the marketplace, market research also is called for whro manag• crs n~d unique information to hcJp them make specific decisions. Whether their business is selling cool Fash.ion accessories to teens or industrial coolant to factories, £inns succeed when they know what customers want, when they want it, whcte they want it-and what competing firms an~ doing: about i t Ln other words, the better a firm is at obtaining valid market information, the more successful it will be. Therefore, virtually all companies rely on some fonn 0£ market rasearch, though the amount and type of t('SW.rch they conduct varies dramatically. Cn genera.I, market n..~arch data available in an MIS come in two fla• vors: syndicated research reports and custom research repotts.

Syndicated research is genera) information s_pecializcd firms collect on a regular basis and then sell to other firms. !NC/The QScores Company, for instance, reports on consum• ers' perceptions of more than 1,800 celebrity performers for companies that want to foa• turc a well•knm'\,rn person in their advertising. The company al,;o rates consume., appeal of cartoon charactc-.r.s, sports stars, and even deceased celcbritics.2 Comedian Bill Cosby holds the record for tl,c highest QScorc ever recorded. Unlortw-.atcly, in light of recent

criminal allegations and the related onslaught of negative media a ttention, the previously beloved comedian's QScorc dropped into oblivion, possibly the greatest QScore change in history.3 Other examples of syndicated r.'SC3rch reports include Nielsen's TV ratings and

Nielsen Audio's (formerly Amitron's) radio ratings. Experian Simmons Market Research Bureau and C!K Mediamark Research & ln tcUigcnce are l\vo syndicated research firms that combine information about consumers' buying behavior and their media usage with

geographic and demographic characteristics. As valuable as it may be, syndicated re.search doesn't provide aU the answers to

inarkcting qucstiolls bt.'Cau.se the information it collects typicall)' is broad but shallow. For example:, it gives good insights about general trends, such as who is watching what TV shows or what brand of perfume is hot this year. 1n contrast, a firm conducts custom researth to provide answers to specific questions. This kind of research is especially help· ful for firms when they need to know more about wiry ccrtain trends have surfaced.

Some firms maintain an in•housc research department that conducts studfos on its behalf. Many firms, however, hire outside research companies that Spt.'.'ICialize in de. signillg and coJlducting projects based on the needs of the clicnt. Hint: This is a great carcc.r path i( you Love solving puzzles and getting into the weeds about what makes consuiners tick! These cu.sto1n research reports are another kind of information an MIS

includes. Marketers may use market research to identify opportunities for new products, to promote existing ones, or to provide data about the q uality of their products, who uses them, and how.

Acquired Databases

A large ainount of information that can be use:ful in inatketing decision making is available in the form of extc.mal databases. Firms may acquire these databases from any number of sources. For example, some companies are willing to sell thcir cus•

tamer database to noncompeting firms. Cove.m.ment databases, including the massive amounts of econo1nic and demographic information the U.S. Census Bureau, Bureau of Labor Statistics, and o ther agencies colle,ct, are availabJt? at littJe or no cost. State and

local governments may make information such as automobile license data available for a fee.

ln recent years, the use of databases for marketing purposes has come under in-

creased govcm.mcnt scrutiny bt:..""Cause: som~ consumer advocates are q uite conccmed

syndicated research Research by fltffls that coltect data on a regular basis and sell the repons to mlAtiple firm<

custom research Research conducted for a single firm to provide specific information its managers need.

98 PART TWO I DETERM INE THE VALUE PROPOSITIONS DIFFERENT CUSTOMERS WANT

about the potential i.Jwasi0t, of privacy these may cause. Using the data to analyze: overall COllSumcr trends is one thing-using it for outbound direct mailings and unsolicited phonl! calls and e•mails has evoked a backlash resulting in a tidal wave of "do.not.call" lists and anti-spam laws. Maybe you have noticed that when you sign up for most anything online that requites your contact information, you receive an invitation

to ''opt out" o( rece.iving pnlmotional mailings from the compan)' or from others who may acquire your contact information from the organi• zation later. By law, if you decide to opt out, companies cannot use your information for marketing purposes.

'¥\'1.:''U further develop the overall issue of database usage by mar• kctcrs in the context of the popular phrase ·Big Data" in Chapter 5. For

now, just know that it's a good bet that every website or mobile link you sca.rch-a.nd maybe even every t\\l'eet or Facebook message you post to,, day- will wind up in a marketer's database.

Marketing Decision Support System

Soptislicaled C1111paries ti., Harrah's cklo2ly back what people do i"I ,eiu,s Ike Las Vegas. R lhe dala shall ltet soo,e of lhe ampany's m,nlel, lawr "" pq,er!yo,eranofher, one loon of gamilg DIEf ancther, ere.en"" l)lle ci shlwo,er arolher. 1illoe ll.lSl:llms\\il rece;,,, promo&JnaJ maieri:js lailored lo lhe< specii;: preeaa,s. 9ol P3)e!Sarencii'ied of skJI toumamenls, .tile msci magi:shllvsget a heads up v.ten t.ana, a.m, is- ID;wear.

As we have seen, a firm's MIS generates "-'gWar reports for decision makers oi, what is going on in the intcmal a.i,d external environment. But sometimes these rt.--ports alone arc inadequate. Oiiforcnt managers may want different information, and in some cases the problem they must address is too vague or unusual for the MIS process to easily answer: As a n,sult, many firms beef up their MIS with a marketing decision support system (MOSS). GiJ Figure 42 shmvs the clements of an MDSS. An MDSS includes analysis and inter- active software that allows marketing managers, even those who arc not computer experts, to access MlS data and conduct thcir own analyses, often within the context of the company intranot.

A few years ago MasterCard developed an application of an MOSS it called the 1'Co.nversation Suite." This product offered. marketers

marketing decision support system (MOSS) The data, analysis software, and ftlteraai\ie software that allow managers to conduct analyses and find 1he information they need.

Figun,4.2 0 Process I The MOSS Although an MIS provides many reports managets need for decision making, it doesn't answer all their infa<mation needs. The matketing decision support sys-tem (MOSS) is a.n enhancement to the MIS that makes it easy for marketing manage,s to access the MtS system a.nd find answe<.s to their questions.

MIS Data • lntemal company data • Marketing Intelligence • Market ,~arch • Atqui,~ databases

Marketing Manager/ Dedslon Maker

Information Needed for

Decision Making

a single, inte1\sive source of data and insights to further inform decisions about allocating a firm's massive global advet'lising budget. The Conversatio,, Suite includes features such as a 40.

foot display showcasing various marketing met• rics and data visualizations grouped by market; as well as a number of touchscreen computers programmed to make digging into th~ various sources of information shown on the massive platfonn easy to pcrform.4

Typically, an MOSS includes sophisticated statistical and modeling software tools. Statistical

software allows man.agers to examine complex re,, lationships among factors in the marketplace. For example, a marketing manager who wants to know

how consume.rs petceivt:" his or her company's brand in relation to the rompetltion's brand might use a sophisticated statistical tedutiq_uc called 11111/• tidimensionnl scaling to create a .. perceptual map," or a graphic presentation of the various brands in relaHonsrup to each other. You'll sec an l!Xamplc of

a perceptual map in Chapter 7.

C HAPTE R 4 I MARKET RESEARCH 99

For MasterDatd. the Conversation SUite povides a readily accessible way for marketing manage,s to see and interact \Will high-value da1a ,m insights \\ill'oot """iring the tochni.:al skills that are fyJEally necessaiy to perlorm these ac!Mties.

Mode-ling software allows decision makers to examine possible or preconceived ideas about relationships in the data-to ask "what•if'' questions. For example, media modeling

software aUows marketers to see what wou]d happen if they made certain decisions about where to place their advertising. A manager may be able to use sales data and a model to find out how many consumers stay with his brand and how many switch, thus developing

projections of rnatkct share over time. Table 4.1 gives some examples of the different mar• keting questions an MIS and an MOSS might answer.

rable4.1 I Examples of Questions an MIS a nd a n MDSS Might Answer Questions an MIS Answers

What were our company sales of each product during the past month and the past year?

What changes are happening in sales in our industry, and what are the demographk characteristics of consumers whose purchase patterns are changing the most?

What are the best media to reach a large proportion of heavy. medium, or light users of our product?

Questions an MOSS Answers

Has our decline in sales simply reflected changes in overall industry sales, or is there some portion of the decline that industry changes cannot explain?

Do we see the same trends in our different product categories? Are the change.sin consumer trends similar among all our prod· ucts? What are the demographic characteristics of consumers who seem to be the most and the least loyal?

If we change our media schedule by adding or deleting certain media buys, will we reach fewer users of our product?

100 PART TWO I DETERMINE THE VALUE PROPOSITIONS DIFFERENT CUSTOMERS WANT

data Raw, unorganized facts that need to be processed.

information Interpreted data.

customer insights The collectiOI\ deployment, and interpretation of infonnation that allows a busines.s to acquire, deYelop, and retain their customers.

4.2 OBJECTIVE Understand lhe concept of customer

insights and the role it plays in making good marketing decisions.

ldilf •ii

Customer Insights and Marketing It's getting easier all the time for organizations to collect huge amounts of data. Data are raw, unorganiud facts that nc'Cd to be processed. Analysts then process, orgaruz,c, structure and pn,sent the data so that it

is useful for decision making. This transformation creates infonnation,

which is interpreted data. But, there is a downside to knowing too much! All of these data can be ovcrn,helming-and not ve:ry useful-if no one: has any idea what they al) mean. As some describe the ocean, ''water. water everywhere and not a drop to drink!" can be repurposed "data, data everywhere and nothing insightful to find!"

Enter the customer insight specialists to save the day. At its essenre, the idea of customer

insights refers to the collection, deployment., and interpretation of infonnation that allows a

business to acquire, develop, and retain its customers. like Cindy Bean at Campbell's, most companies today maintain a dedicated team of experts whose jobs are to sift thn,ugh a ll the infom,ation available to support market planning decisions. This group does its best to u n•

dcrstand how customers interact with the organization (including the nasty encounters they may have) and to guide planners when they think about future initiatives.

The job is more co.mplicatcd than it sounds. Traditfonally, most companies have opcr•

ated in "'silos," so that, for example, the people in new product development would have

zero contact with anyone in customer service who actually had to deal with complaints

about the items they designed. The insights n,anagcr is like an artist who has to work with

a lot of different colors on a palette-the job Ls to integrate feedback from syndicated stud•

ies, marketing research, customer service, loyalty programs, and o ther sources to paint a

more complete p icture the organization can use. As such, this function in the organization

usually plays a supporting role across the firm's strategic bus iness units (SBUs).

For example, to gain greater insight into the preferences and characteristics o( those con• sumcrs who made purchases within a specific product line of soups, a product line manager a t Campbell's could reach out to Cindy Bean's consumer insights team for help. 11,c team

would then gather a wide array of data about the SJX"'Cific types of consumers who enjoy soup from that product line as wcll as otl,er data such as fn.'<juency of purchases by consumer segment and what key factors influence consumption of specific types of soup by consumer segment. Cindy's team no doubt would deliver this information in an easy-to,.undc-rstand

format to highlight the most actionable insights. This analysLs would enable the manager of the product line to determine how to better allocate resources to drive market perfonnancc of the products. Like Campbell's, many organizations arc "catching the wave" by adding

customer (consumer) insights departments-this growing trend in tum offers a lot of promis-

ing job opportu.nitics for graduates who know how to fish for usable knowledge in the huge information ocean. More on using data to gain customer insights in Chapter 5.

4.3 OBJECTIVE List and explain the steps and key ele- ments of the market research process.

(pp. 100-118)

Steps in the Market Research Process The collection and interpretation of information is hardly a 0 1,e• shot deaJ that managers engage in "just out of curiosity." Ideally, market re.search is an ongoing process; a series of steps marketers

take repeatedly to learn about the marketplace. Whether a company

conducts the r~arch itself or hires another firm to do it, the goal is the same: to help managers make info.nned marketing decisions.

~ Figure 4.3 provides a gn~at road map of the steps in the research pro• cess. You can use it to track our discussion of e:ach step.

Step 1: Define the Research Problem The first step in the market research process is to clearly understand what information managers need. This s tep is called defining the research prob· ll!m. You should note that the \.'\'Ord problem here does not necessarily refer to ''something that is wrong" but instead refers to the overall questions for which the firm needs answers. Defining the problem has three components:

1. Sprofy tlie n>searc/1 objectives: What questions will the research attempt to answer?

2. Identify lhe consumer populnliou of iutffl!'SI: What a.re lhe characteristics of the consumer group(s) of interest?

3. Place 11,e problem iu au e11viroume11tal coutexJ: What factms in the firm's in· ternal and external business environment might influence the situation?

It's not as simple as it may seem to provide th~ right kind of infotmation for each of these p ieces of the problem. Suppose a luxury car manufacturer wants to futd out why its sales fell off dramatically over the past year. The n.>search objective could center on any number of possible questions: ls the firm's advertising failing to reach the right consumers? ls the right message bcing sent? Do the firm's cars have a particular feature and related benolit (or lack of one) that n ,ms customers away? Does a competitor offer some features

and bene-fits that have better captured cw;tome:r imaginations? (s there a prob• lcm with the firm's reputation for providing quality service? Do consumers believe the price is right for the value they get? The particular objective re,,

searchers choose depends on a variety of factors, such as the feedback the firm gcts from its customers, the information it rcccivcs from the marketplace, and some.times t:'V~ the intuWon of the people who design the research.

Often the focus of a research question comes from marketplace feedback u,at identifies a possible problem. Volvo, long known for the safety n.>cords of its cars, had a tough time competing with luxury brands like Mcrcedes•Bcnz,

BMW, Lexus, and Audi How could Volvo improve its market share among luxury car buyers?

The resrurd, obj,ctiv, detemurw,s the consumer population the company will study. In the case of Volvo, the research could have focusad on current owners to find out what they esp«ially like about the car. Or it could have boon directed a t non,owncrs to understand tlieir lifestyles, what they look for in a lwrury

automobile, or thcir beliefs about the Volvo brand that discourage them from buying the cars. Instead, the comf"lny chose to focus on why consumers didn' t buy the competing l>rands. Managers figured it would be a good idea to identify

the "J"'in points" shoppers experienced when they looked a t rivals so that they could tty to address these Qbjcctions with their own marketing activities.

So what did Volvo find out? Its research showed that many car shoppers were too intimidated by the "ostentatious" image of Mercede,s and BMW to consider actually buying one. Others felt that too many of their neighbors were driving a Lexus, and they wanted to make more of an individual state,.

ment. Volvo's vice president or marketjng explained that Volvo owners' "interpretation of luxury is different but very real. 11,cy're more into life's expc-ricnccs, and more into a Scandinavian s imple design rof vehicles I versus

C HAPTER 4 I MARKET RESEARCH 101

figure 4..3 (& Process I Steps in the Market Research Process

The market research p,ocess includes a se<ies of steps that

begins with defining the problem or the infonnation needed and e,nds with lhe frnished research repott for managers.

Define the Research Ptoblem

• Specify the research objectives • Identify the consumer' population of inten~st • Place the proble-m in an environmental context

Detonnlno the lloseatth Design

• o.t«mlne whether secondary data are: available • Detennlno whether primary data are required

-&pla<atory ,.search -l>Mcrlptlw researc;h -causal research

Choose the Method to Collect Primary Data

• Determine which survey methods are most appropriate -Mail questionnairM -Telephone interviews- ~ace-t~t.Ke Interviews ~line questionnaires

• Determine which observational methods are mO<t appropriate -Personal observation -OnobtrusJw measures -Mechanic.al observation

Design the sample

• Choose betwffn probability sampling and nonprobabillty sampling

Collect the Data

• Translate questionnaires and responses if necessa,y • Combine data from multlpte sources (if available)

Prepare the Researth Report

• In general, the research report includes the following: - An e>te<otive summary -A descriptloo of the research methods -A diS<ussion of the results of the study -limitations of the study -Conclusions and ,ecommendations

a Jot of clutter. They are very much luxury customers and love luxury products, but they dol't' t feel a need to impress others.'' BaS.00 on the ~"'<lrch findings, Volvo developed a

102 PART TWO I DETERMINE THE VALUE PROPOSITIONS DIFFERENT CUSTOMERS WANT

research design A plan that specifies what information marketers will collect and what type of study theywiYdo.

secondary data

new ad campaign, showing consumers that it was OK-and even desirable-to be differ .. cnt. The company even poke-s fun at rival luxury brands. ln one TV commerdal, a sophis• ticatt:-d woman sits at a stoplight ii\ he:r Mercedcs.-Bcnz SUV and checks out her ma~up in the rear•view mirror. Another woman pulls up next to her in a Volvo XC60-but she's more down to earth. The Volvo drivt'!r looks into her own rcar•view mirror. The dtffcrtmce is she makes a funny face to make her kids in the backseat crack up. The voice-over says, "Volvos

aren't for evc.ryon.c, and we kinda like it that way. "5

step 2: Determine the Research Design Once we isolate specific problems,. the SL""COrid step of the research process is to decide on a "plan of attack." This plan is lhc research design, which specifics exactly what information marketers will collect and what type o/ study they will do. Research designs fall into two broad categories based on whether the analysts wiU use primary or secondary data (SL'>t!-

g Figure 4.4). AU marketing problems do not call for the same resrorch techniques, and marketers solve many problems most effectively with a combination of approaches.

Research with Secondary Data

Thi.:" first question marketers must ask when they detc.rm.in12 their research dcsig·n is whether the infonnation lhC)' require to make a decision already exists. For example, a coffee producer who needs to know the diffc.rc.nces in coffoc consumption among differ• cnt demographic and geographic s..--gments of the market may find that the information

it nl!Cds is available from one or more s tudies already conducted by the National Coffee Association, the leading trade association of U.S. coffee companic:s and a major ge:ncrator o/ industry r,search. Information that has been colleded /or so.me purpose otl,er than the

problem a t hand is secondary data. Data that haw been cotlec1ed for some purpose other than the problem at hand.

Many 1narke.ttm. thrive on going out and collecting new, .,fresh" data from consumers. tn fact, getting new data seems to be part of the markeling DNA. However, if secondary data arc available, it saves the fi.nn time and money because it has already incurred the expense to design a study and collect the data. Sometimes the informal-ion that marketers need may be "hiding'' right under the organization's nose in the form of company reports;

pr'Cvious COJnpany research studies; feedback received from customers, salespt:..~ple, or stores; or even in the mcmoril.'>s of longtime employees (it's amazing how many times a 1n.:1.nager commissions a s tudy without knowing that someone else who was working 01, a

different problem already submitted a similar report!).

Figure 4.4 ~ Process I M arket Research Designs FOt some research problems, secondary data may p,<Mde the information needed. At other times. one of the primary data coOection methods may be needed.

Secondary Primary Research R-«h

/ "' I Internal External Exploratory Descriptive causal Sources Sources Research Researth Research I I I I I

• Company n,ports • Published research • Customer interviews • Cross-sectional • Laboratory resean:h • Previous company • Trade organizations

research • Syndicated research • Salesperson feedbadt • Government sources

• Focus groups • Longitudinal • Field studies • Projective techniques • Case studies

• Customer feedback • Ethnographies

C HAPTER 4 I MARKET RESEARCH 103

Moro typically, though, researchers n<><'Cl to look elsewhere for secondary data. They may obtain reports published in the popular and business press, studies that private resc-atm organiz.ations or government agencies conduct, and published research on the

state of the indu.o;-try from trade organizations. for example, many companies subscribe to reports such as the National Consumer Study, a survey conducted by S)'Tidicated research firm Experian Simmons. Th12 company publishes rcsuJts that it t:he:n sells to marketers,

advertising agencies, and publishers. Access to its data is even available in some college libraries. This database contains more than 60,000 data variables with usage behavior on aU major mcdfa, over 5(X) product categories, and over 8,CXX> brands. Data from Experian Simmons can give a brand manager a profile of who uses a product, identify heavy users, or even provide data on what information sources a target market is likely to consult prior to purchase.• As examples, popular online sources of useful data for marketers in•

dude Opinion Research Corporation (ORC), the U.S. Census Bureau and Bureau of Labor Statistic.,;_, the American Marketing Association, and LexisNexus.

Research w ith Primary Data

Of course, secondary data arc not always the answct. When a company needs to make a specific decision, marketers often collect primary data: infonnation they gather directly from n.>spondents to spt.'Cifically address the question at hand. Primary data include demographic

and psychological information about customers and prospt..--ctivc customers, customers' at• titudes and opinions about products and competing products, as well as their awareness or knowJ..--dge about a product and their beliefs about the people who use those products. In the next fow sections, w~1J talk brieEly about the various design,; options to CQllect prb.nary data.

Exploratory Research

Marketers use exploratory research to come up with ideas for new strategics and op_por•

tunitics or _perhaps just to get a bcttl!r handle on a problem they are currently expctienc• ing with a product. s...~ausc the studies arc usually small scaJe and less costly than other techniques, marketers may do this to test th~ir hunches about what's going on without too

much risk or expense:. Exploratory studies often involve in..,depth probing of a fow consumers who fit the

profile o( the ''typical" customer. Researchers may interview consumers, sa1csprople, or

other employees about products, services, ads, or stores. They may simply "hang out'' and watch what people do when they choose among competing brands in a store aisle. Or they may locate places where the consume.rs of interest tend to be and ask questions in these

settings. For example, some researchers find that younger people often a.re too suspicious or skeptical in traditional research settings, so they may interview them while they wait in line to buy concert tickets or in clubs.7

We refor to most exploratory research as qualilati~; that is, the results of the research project tend to be nonnumcric and instead might be detailed vcrbal or visual informa· tiOl'I about conswncrs' attitudes., feelin~, and buying behaviors in the form of words

rather than in i,umbers. For example, consumer packaged goods (CPG) company Reckitt Benckiser came to bcli~ve lhat for their finish® dishwashing detergent the: best way to

compete for market share was to focus on the fw,ctional perfonnance of the product.

Through their ads, they typically would demonstrate how effective it v,.ras at cleaning dishware a.nd glassware, in some ca~--s comparing results to those of direct competi• tors' products such as l'&....C (who as a compctitor in soap is no slouch). But then, Reckitt Benckiser brought in a market t('SC3.fch Firm to conduct a series of ethnographic s tudies (we: will cover cth.nography later in this section) focused on the observation of families in their homes actually using the product. The result of this research was the realization

that a Functionally oriented focus on the deanness of dishwarc and glasS'\\fatC products n.~ulting from the u.,;c o( Finish® was masking a more compelling advertising me:ssagc. This related to the dishwasher's role (and in turn the dishwashing dctergcn(s role) as a

prima ry data Data from research conducted to help make a specific decision.

exploratory research A te<hnique that rnafketers use to generate i'tsights for future, more rigorous studies..

104 PART TWO I DETERMINE THE VALUE PROPOSITIONS DIFFERENT CUSTOMERS WANT

focus group A i:rodl.Jct·oriented discussion among a smaD f'OUP of coosumers led by a trained moderatOl.

martc.et research online community (MROC) A p:ivatefy assembled group of people. usually by a market research firm or department, utilized to gain i'tsight into customer sentiments and tendencies.

case study A comprehensive examination of a particular firm or agani:zation.

ethnography AA approach to research based on obsetvations of people in their oon homes or communities.

descriptive research A tool that p-obes more systematicatty into the p:oblem and bases its conduslons on la!ge oombers of observations.

ccntraJ part of the home, one that spanned a wide range of soda] and family events. As a n.~ult or this iJ\sight, a whole new advertising campajgn was launched that showcased all of the small and big life events in which dirty dishes are producro, dosing with the mes,. sage: "Everything in lifo creat~ dirty dishes. Love your dishwasher. Give it "Fit,i.-;h•:~ The campaign met with positive responses From consumers, and even ea.med industry acclaim in th12 form of a sHvct trophy at the Cannes Lions Festival of Creativity.8

A focus group is the technique that market rcscarch12rs employ most often for explor .. a tory [email protected]. Focus groups typically consist of five to nine consumers who have been re,, cruitcd bt...~usc they share certail'1 characteristics (they all p lay golf at least twice a month,

arc women in thcir twenties, etc.). These people sit together to di...cuss a product, ad, or some other marketing topic a discussion leader introduces. Typical!)~ the leader records (by videotape or audiotape) these group discussions,. which may be held a l spc...--cial interview•

ing facilities that allow for observation by the client who watches from behind a one..way mirTor. A,; a n."Sult of insights gathered from locus groups, MillerCoors decided to revise the packaging design for one of ilS brands to brighten it up and bettor appeal to consum•

ers. Tho company heard from millcnnials in focus group sessions that the packaging on its Blue Moon BcJgi:an White Ale. was perceived as #dark/' ''lonely," and "mystical," which

prompted the change in packaging to a more "perky" motif.9

Today it's common to find focus groups in cyberspace as well as in person. Firms such as fKE:A and Volvo use online focus group s ites that resemble other social network• ing sites. lKEA lL'iCd coJlsumer consulting boards, also known as a market research online community (MROC) in Five different countries to solicit feedback for an updat·c of its cata•

log. to An MROC is a privately assembled group of people, usually by a market research firm or department, used to gain insight into customer sentiments and te:ndencies. The

MROC-bascd research is generally thought of as exploratory in nature and as a qualita• tive method. MROC's a.re u.w:ful for many market research questio1,s including product idea..;;, branding strategics, and packaging de.cis ions.11 ln a different approach fro1n Ikea's, Volvo launched a focus group via l\vitter Chat to gather fa"'Ciback about advertisements that the firm had developed. Volvo markctcts said that the instant feedback they got from consumers helped strike the right balance in the ads. 11,c rapid back.and-forth between the company and the online comnuu,ity allows for real•timc data collcction.12

The case study is a comprehensive examination of a particuJar firm or organization. In business•to-busincss market n.--search in which the: customers are other Firms, for example,

rascarchc.rs may try to learn how 01,c particular company makes its purchases. The goal is to identify the key decision makers, to learn what criteria they emphasize when they choose among suppliers, and perhaps to learn something about any conflicts and rivalries

among these docision makers that may influence: their choices. Another qualitative approach is ethnography, which uses a technique that marketers

borrow from anthropologists who go to "live with the natives" for months or even yea.rs.

Some market researchers visit people's homes or participate in rcaJ..lifc consumer activities to get a handle on how they really use products. lmagine having a rcscarchtY folJow you around while you shop and then, while you use the products you bought, Sf'C what kind

of consumer you arc. This is basically marketing's version of a reality show- though, we hope, the people they study arc a bit more ''realistic" than the ones oo TV!

Descriptive Research

We've scca, that marketers have many qualitative tools in their arsenal, including focus groups and observational techniques, to help them better define a problem or opportunity. These are usually modest studies of a s1nall number of people, enough to get soine: indica .. tion of what is going on but not enough for the mar-keter to feel confident about gcnctaJ .. izing what she observes to the r,st of the population.

The next s tep in market research, then, often is to conduct descriptive research. This kind

of rcsca.rch probes systematically into the marketing problem and bases ilS conclusions on a

C HAPTER 4 I MARKET RESEARCH 105

Ripped from the Headlines Ethical/Sustainable Decisions in the Real World Sllould companies that offer produrn or services that may pose health rists be allowed to fund research lhat could suggest that those products share little or no tesponsibility for those heahh risks? Are there any po· tential conflicts of interest that could manifest in the form of unethical practices on the part of the funamg company or lhe company conducting the research?

disclosure came soon after it was documented that a group called the Global Energy Balance Netw0<k had failed to initially disclose that its work was funded by Coca-Cola. The Ol'ganization maintained as one of its positions that Ameficans held an illegitimate fixation on calorie

In the soft-drink industry, Coca-Cola disclosed early in 2016 that it spent more than S 132 million on scientific research on soft drinks from 2010 to 201 5.13 Coke. like its industry cornpetito", has had to adapt to increasing societal concerns over the health effects of consuming large amounts of sugar and high fructose corn syrup, which are found in many of the firm's best-selling products. For many soft beverage companies this has meant diversifying into offerings that are lower in sugar and perceived to be healthier. Coke CEO Muhtar Kens says lheir disdosure ol all research funding contJibutions was a step taken to help avoid arr, publK feelings of "confusion and mistrust."' The tining of the

consumption and were losing sight of the importance of exeidse.14

Some have suggested that Coke's fund- ing of anti-obesity sesearch is an atten-.:,t to place greater focus on the role that a lack of exercise has on obesity to shift focus away horn the role that sweetened soda beverages have on obe~ty. Absent solid proof of such ac· cusations. it is worth considering the ethics of exerting influence on research groups funded by an Ol'ganization with a conflict of interest that explicitly or implicitly makes it clear that the desired results would suppon a friendlier position for a potentially harmful produCL

large sample of participants. R<sults typically are expresst.>d in quantitative tcnns-averages, _percentages, or other statistics that result from a large set of measurements. ln such quantita· live approadu:'S to research, the project can be as simple a~ counting the number of Listerine bottles sold in a month in clifforent regions of the country or as CQmplex as statistical analyses of respo1'lSeS to a survey mailed to thousands of consumers about thci.r flavor prcfo.rcnces in mouthwash. In each ca.sci market ers oonduct the descriptive research to answer a specif-tc question, in CQntrast to the "fishing cx~>dition" they may undertake in exploratory research. However, don' t downplay the usefulness of qualitative appro..1ches--initia) qualitative mar•

kct research serves to greatly inform and shape subs<!qU<?nt quantitative approaches.

Ell!K:S Cl!ECK:"'-

AsamakeUng

-. fs tt OK Ill commission trld ml resean:h Iha! !UJlPMS lite posl- Uon Iha! lite proiu:I poeed no heallh risk whenl'Ollare- lltal odler Indepen- dent researdt sades COIIIUdcl Iha! 1ileW?

D YES D NO

Market researchers who employ descriptive techniques most often use a cross- sectional design. This approach usuaUy involves the systematic collection of n.-sponscs to a

consumer survey instrumenti such as a qutslionnairt, from one or more samples of respon• dents a t one point in time. They may collect the data on more than one occasion but usually

not from the same pool of respondents.

cross,.sectional design

In contrast to these one-shot studies, a longitudinal design tracks the responses of tti.? same sample of respondents over time. Market researchers sometimes create consumer

panels to get information; in lhis case, a sample of respondents tha t are representative of a larger m,,rkct agrees to provide information about purchases on a weekly or monthly basis. Major consumer package goods firms like P&G, Unile,,.,.., Colgate Palmolive, and Johnson & Johnson, for example, n..:-.cruil consumer advisory panels on a market .. by .. market basis to keep their fingers on the pulse of local shoppers. P&G maintains two key advisory pan,,Js: one for teens (Tremor) and 01\t? for moms (Vocalpoint). With more than 750.1000 tnt..mbcrs weighing in on everything from pacl<.-.ge design to promotional material, P&C estimates that the loy• alty and advocacy of these members have boosted P&C's sales by 10 to 3() percent 15

causal Research

It's a fact U,at purchases of both diapers and brer peak bchvecn 5:00 P.M. and 7:00 r .M. Can we say that purrllasing one of these products caused shoppers to purchase the other as wcll-and, if so, which caused which? Does taking care of a baby drive a parent to drink? Or is the answer simply U,at this happens to be the time when young fathers stop at the

A l)'pe of descriptive technique that invo4ves the systematic coUeaion of quantitative information.

longitudinal design A technique that tracks the responses of the same sa~le of respondents ai,er time.

106 PART TWO I DETERMINE THE VALUE PROPOSITIONS DIFFERENT CUSTOMERS WANT

store on thcir way home from work to pick up some bn..->w and Pampers?16

And what about hemlines? Since the 1920s,

Crorge Taylor's "hemline theory" has posited that the length of women's hem.lines reflects overall economic health. The theory originated at a time when women wore silk s tockings-when the econ• omy was strong, they shortened their hemlines to show off the stocking.$; when the economy took a

dive, so did the hemlines, to rover up the fact that womon couldn't afford the foncy stockings. Don't bclit?vc it? The same was true in 2009-whc:n run·

way designs were "shockingly short''- the stock market rallied 15 percmt for the ycar.17

Sales of diapers and - are correlaled, but ooes one cause !he <the(?

The descriptive techniques wc;ve mentioi,ed

do a good job of providing valuable information about what is happening in the marketplace, but by its nature, descriptive r~rch can on.ly describe a

causal research A te<hnique that attelll)ts to understand cause- and·effea relationsh{)S.

experiments A tedlnique that tests predicted relationships among variabJes in a controlled envirOA'llent

neuromarketing A l)'pe of brain research that uses technologies such as hnaional magnetic resonance imaging (!MRI) to measure brail acti<il)' to beite< ooderstand why conwmeJS make the decisions they do.

marketplace phenomenon- it caMot tell us why it occurs. Sometimes marketers need to know if something they've done has brought about- some change in behavior. For example, does placing oJ\c product next to another in a store

mean that people will buy more of each? We can't answer this questio,, through simple observation or description.

causal research attempts to identify causc--and-effcct relationships. Marketers use causal research techniques when they want to know if a change in something (e.g., placing cases of beer next to a diaper display) is n.>sponsible for a change in something else (e.g., a big increase in diaper sales). They call the foctors that might caLL$C such a change indepen· deut variables and the outcomes dtpendenl variables. The independent variablc(s) cause some change in the dependent variable(s). In our example, then, the beer display is an indel"'n· dent variable, and sales data for the diapers arc a dcpe:ndcnt v.1.riable-that is, the study

wouJd investigate whether an increase in diaper sales "depends" on the prox.i.mjty of beer. Researchers can gather data and test the causal relationsrup statistically.

This form 0£ causaJ ~arch often i1wolves using experimental designs. Experiments attempt to establish causality by ruling out aJte.mative ~planations, and to maintain a high level of control, experiments may entail bringing subjects (participants) into a lab so that rescan:hc.rs can control precisely what the}' experience. For the diaper example, a group of

men might be paid to come into a testing facility and enter a "virtual store" on a computer screen. Researchers would then ask the men to fill a grocery cart as they click through the v irtual aisles. The: experiment might vary the placemcJ,t of the diapers-nl!xt to shelves o(

bt.."'er in one scenario and near paper goods in another scenario. 'J"he obj,t.>ctivc of the experi• ment is to find out which placement gets more of the guys to put diapc-.rs into thcit carts.

Step 3: Choose the Method to Collect Primary Data When the researcher decides to work with primary dat.1., the next s tep in the mJtket re,, search proet.'SS is to figure out just how to collect it .. We broadly describe primary data

collection methods as cither suroey or observation. There: arc many ways to collect data, and marketers try new ones all the- time. In fact, toda}~ more and mar(' marketers are tu.ming to sophisticated bta.i.n scans to dirl-'Ctly measure a consume-rs' brain for reactions to vari ..

ous advertisements or product,;. This neuromartc.eting approach uses technologies such as functional magnetic resonance imaging (fMRl) to measure brain activity to better un• derstand why consumers make the decisions they do, and some firms have even invested

in their ov.'1\ labs and i.n•housc scientists to establish an 01\going neurom.arketing research program.

C HAPTER 4 I MARKET RESEARCH 107

NcuromarkcHng has gained increasing _popularity among companies such as Facebook, Twitter, and Time Warner as a tool to understand consumer reactions to ele• ments of various Forms of marketing communication.. Faccbook, for example, learned in recent years that people take more away from ad information provided. on a mobile phone compared to ad information provided on a TV. This insight came as a result o( research the company commissioned from a firm called SaJesBrain. SalesBrain's ana· lysts attached a number of sensors to volunteers' bodies to measure such factors a.s per .. spiration, heart rate, eye movemc.nt., and brain activity as they watched ads on phones and televisions.18 Because most of us don't have access to fMRJ machines to conduct market research, in this section we'll focus more on explaining othe., methods to coUcct primary data.

In rontrast to neuromarkcting as a primary data rollcction approach, surveys p,ovidc a more "traditional" approach. Survey methods involve some kind of interview or other direct contact with respondents who answer questions. Questionnaires can be adminis• tered on the pho"", in person, through the mail, or over the lntcmct. Table 42 summariu,s the advantages and disadvantages of diffcreilt survey methods to collect data.

rable4.2 I Advantages and Disadvantages of Survey Data Collection Methods Data Collection Method

Mail questionnaires

Telephone interviews

Face•to•face interviews

Online questionnaires

Advantages

• Respondents feel anonymous

• Low cost • Good for ongoing research

• Fast

• High flexibility in questioning • lowcost

• Limited interviewer follow-up • Limited questionnaire length

• Flexibility of questioning

• Can use long questionnaires • Can determjne whether respondents have

trouble understanding questions

• Take a lot of time • Can use visuals or other materials

• Instantaneous data collection and analysis • Questioning very flexible

• Lowcost

• No interviewer bias

• No geographic restrictions • Can use visuals or other materials

Disadvantages

• It may take a long time for questionnaires to be returned

• low rate of response; many consumers may not return questionnaires

• Inflexible questionnaire format • length of questionnaire is limited by respon-

dents' interest in the topic

• Undear whether respondents undemand the questions

• Undear who is responding

• No assurance that respondents are being honest • Decreasing levels of respondent cooperation • High likelihood of respondent misunderstanding

• Respondents cannot view materials

• Cannot survey households without phones • Consumers screen calls with answering ma·

chines and caller ID

• Oo-not-call lists allow many research subjects to opt out of participation

• High cost

• Interviewer bias a problem

• Unclear who is responding

• No assurance that respondents are being honest • Limited questionnaire length

• Unable to determine whether respondent understands the question

• Self-selected samples

108 PART TWO I DETERMINE THE VALUE PROPOSITIONS DIFFERENT CUSTOMERS WANT

Questionnaires

Questiom,aires differ in their degtcc of s tructure. With a total]y 1msl1t1ct11red questiomtoire, the researcher looscly determines the items in advan~. Questions may evolve from the respondent's answers to previous questions. At the o ther extreme, the re.searcher uses a complett•ly structured queslio,mairt, asking every respondent the ex• act same qucsti0t\S, and each participant responds to the same set o( fixed choia,s. You have probably experienced this kind of questionnaire, where you might have had to respond to a s ta tement by saying if you ... strongly agree,'' ''somewhat agrre," and so on. Moderately s/ruct-11red ques• Jionnain'S ask each respondent the same questions, but the respondent is allowed to answ~ th12 questions in his or

her own words.

Sophisticated new technologies like Wrtual stores allo'N marketers to re-create shOA)ing ecperiences oo a respondent's oorr.,uter screen or mobile device.

Mail questiom,aim arc easy to ad.minister and offer a high degree of anonymity to r.-spondents. On the down-

side, because the questionnaire is printed and mailed, l't!S<'archors have little flexibility in the types of questions

telemarlc.eting The use of die telephone to sell direaly 10 consumers and business customers.

mall intercept A srudy in which researchers recruit shoppers in maUs or other public areas.

U,ey can ask and HttJe control over the cirrumstances un·

der which the n."'.>S_pondcnt answe:rs them. Mail questionnaites also take a long time to get back to the company and are likely to have a much lower response rate than othet types of data collection methods because people tend to ignore them.

Telephone interviews usually consi,r,t o{ a brie:( phone oonversatio,, in which an inter• viewer reads a short list of questions to the respondent There are several ptoblcms with using telephone intcr\liews as a data colJcction method. The respondent also may not feel comfortable speaking directly to an i.ntc.rvic\!\rcr, especially ii thl.? survey is about a sensitive subject.

Another problem with this method is that the growth o( telemarketing, in which busi•

nesscs scll directly to consumers over the phone, has eroded consumers' willingness to participate in phone surveys. In addition to aggravating pt.'<>plo by barraging them with telephone sales messages (usually d uring dinnertime!), some unscrupulous telema.rkete.l'S

disguise thcir p itches as research. They contact consumers under the pretense of doing a study when_, in fact, thcir real intent is to se:lJ the respondent something or to solicit funds for some cause. Trus in tum prompts increasing numbers of people to use voice mail and

caller ro to screen calls, further reducing the response rate. And, as we noted prcviousl}~ state and federal do-nol -ca/1 /isls aUow many would-be research subjects to opt out of par- ticipation in both legitimate market research and unscrupulous tclemarketing.19

Using Jace..Jo.fnce interviews, a live interviewer asks questions of one respondent a t a time. Although in "the old days" rcsea.rchl!r'S often went door•to-door to ask questions, that's much less common today because o( fears about security and because the large

numbers of two-inco,ne famiHe:s make it Jess likely to find people at hon'IC during the day. Typically, today's foc~to.facc interviews occur in a mall intercept study in which research· ers recruit shoppers in malls o r otl,er public areas. You've p robably sren this going on in

your local mall, where a smiling person holding a clipboard s tops shoppers to sre if they are willing to answer a few questions. For example, have you seen pictures of supcr•hot models that show off cars at auto shows? Although you might think this strategy or using

what the industry refers to as "booth babes" to get buyers' attention is prelly "old school" and probably obsolete, in fact car companies have doubled their use of what they euphe- mistically call "product specialists." A,;:piring mode.ls ot actors eam as much as $1000 per day to answer questions about new vehicles. The difference is that toda)' the}"re as likely to be asklng the questions; many companies now want the models to extract as ,nuch

C HAPTER 4 I MARKET RESEARCH 109

information as they can from visitors about their preferences. Do they like the car's color options? Wha t about the style? Are they still worried about

the economy? Many product spcdalists record each show goer's responses the minute he or she leaves the booth. O thers write daily briefs or file a com•

prehcnsive report at the end of a show. These re- searchers offer more than just a pretty lace.'"

Mall intercepts offer good opportunities to gct

fcedoock about new package designs, styles, or even rt..."actions to new foods or fragtances. However, bc,cause only certain groups of the population fn,.

quently shop at malls, a mall intercept s tudy does not provide the resea.rchc~r with a representative sample of the J><>pulation (unless the population of

interest Ls mall shoppers). 1n addition to being more expensive than mail or phone surveys, respondents may be reluctant to answer questions of a personal nature in a face,,.to-,fare oonte:xl

Auto shcwt models today double as •poru:t speaalists:

Online q11est-ion11nires arc growing in popularity, but the use of such questionnaires is not without concerns. Many researchers question the quaUty of responses they will re ..

ccivc-particularly because (as with mail and phonl! in.tcl'Views) no one can be really sure who is typing in the responses on the computer. In addjtion, Ws uncertain whclher savvy online conswne:rs arc truly representative of the general .f>Opulatio:n.21 However, these

concerns a.re rapidly evaporating as research firms devise new ways to verify identities; present surveys in novel formats, including the use of images, sound, and a.nimation; and n.."Cruit inore diverse respondents.22

Observational Methods

A second majo, primary data collection method. is obser~tiou. TI'Us term refers to situations where the researcher simply records the consumer's behaviors.

When researchers use ~rscual obsentation, they simply watch consume.rs in action to

understand how they rea.ct to marketing activities. Although a laboratory allows research· crs to exert control over what test subjects sec and do, markctc_rs don't aJways have the luxury of CQnducting this kind of "pure" research. But it is possible to conduct field sh.1dies in the fi."'31 world, as Jong as the r('SW.rchers still can control the independent variables. For

example, a diaper company might choose two grocery stores that have similar customer bases in terms of age, income., and so on. With the cooperation of the grocery store's man .. agemcnt., the company might place its d iaper display next to the beer in one store and next to the paper goods in the other and then n.'Cord dia_pc-t purchases 1nen make over a two-week period. U a lot more guys buy diapers in the first s tore than in the second (and the company was sure that nothing else was different between the hvo stores, such as a dollar-off coupon for diapers being rustributed in one store and no t the other), the diaper manufacturer might conclude that the presence of beer in the background does indeeJ re•

sult in increased diaper sales. Whoo tl,ey suspect that subjects will probably alter ~lcir beha,'ior if they know someone

is watching them_, rest..v.irchcrs may use unobtrusive measures to record traces o( physical evidence that remain after people have consumed something. For example, instead of ask• ing a person to report on the alcohol products currently in her home, the researcher might go to ~,e house and perform a "pantry check'' by actually counting the bottles in her Uquor

cabinet. Another option is to sift through garooge to search for clues about each family's con• sumption habits. The "garbologists" can tcU, for example, \.,,hich soft drink is accompanied

unobtrusive measures Measuring traces of physical evidence that remain after some action has been taken.

1 i g ~ !

110 PART TWO I DETERMINE THE VALUE PROPOSITIONS DIFFERENT CUSTOMERS WANT

by what kind or food. Because people in these studies don't know that resean:hers are looking through products tru!y'vc discarded, the information is totally objective-although a

bit smelly! Mechanical observation is a method of primary data

collecHon that reljes on nonhuman devices to record bchav•

Nelsen's "People Meler" rrailors what a large sarrpe of American cmsumers watch.

ior. For example., one of the classic applications of mcc.hani• cal observation is th~ Niclscn Company's famous use of "pt.'<>ple meters"-boxcs the company auachcs to the TV sets of selected viewers to record patterns of TV watching. The data lhat Nielsen obtains from these devices indicate who is watching which shows. These "television ratings·•

help network clients determine how much lo chatge adver .. tisc:rs for commercials and which shows to cancel or renew. Nie.I.sen also measures user activity on digital media. The rOS<.¾lrch company's U.S. panel alone is comprised of more than 200,000 lntc..met US4!l'S across 30,000 s ites covering all the potential devices that a COt\Sumer would use to access digital media.n This aUows Nielsen to give client,; a more

updated understanding of how viewers interact with their favorite TV shows. For example, it tracks the: number o(

TV-related hvccts people post and provides demographic information including age and gender of individuals who post nt. rc_lated twa"ts.24

mechanical observation A method of primary data collection that reties on madlines to capture human behavior in a form that allows for future analysis and ilterpretation.

eye tracking t echnology A type of mechanical observation technology that uses sensors and sophisticated software to track the position and movement al an individual's eyes to gain cootext-specif1C i'lsights imo how individuals interaa with and respond to different visuaJ elements and stimuli.

•

Similarly, Nielsen Audio (formerly Arbitn>.n) deploys thousands of "portable people meters" (PPMs).25 f'PMs resemble pagers and automati• caUy record the wearer's exposure to any media that has inserted an inaudible code into

its promotion such as TV ads or shelf displays. Tirns, when the consumer is exposed to a broadcast commt:ttial, cinema ad, or other form of commercial, lhe PPM registers, records, and time.stamps th12 s ignal. ·Portability ensures that all exposures register; this cli..mi..natcs

obtrusive: people meters and written diaries that participants ofte-n forge t to fill out.26

Another form of mechanical observation that some Finns use is eye tracking technology. This method relies on portable or stationary equipment to track t~ movement of a partici•

pant's eyes and can provide greater insight into what people look and for how long tru!y look a t it. For marketers this provides the opportunity to better understand how consumers en• gage with various fonns of marketing of a visual nature. Examples of its use include tracking

fl,e viewing of print, television, and mobile ads, and product placement in televised sporting even.ts. lmprovements in the portable or wearable version of eye tracking technology offer g"'-v.iter op-

portunities /or data to be gathered outside or Jab set• tings-in the "1\.>al world" - thus offering potential /or more applicable insights for marketers."

Some retailers use sophisticated technology to observe where shoppcrs travel in their s tores so they can identify places that attract a lot or traffic and

thoSt:" that are dead spots. 1n some cases these "heat maps" uso the signals from shoppers' mobile phon.,s to record thcir movements through the aisles.

Online Research

i-~---~- Many companies find that an online approach is a supc.rior way to collect data- it's fast, it's relatively cheap, and it lends itself well to forms of Sqtisticated eye trad<ing technology gives marketer.; a dose-up perspectjye on what people klok at

C HAPTER 4 I MARKET RESEARCH 11 1

research from. simple q uestionnaires to onlinc focus gnlups. ln fact, some large companies like P&C now coHect a la.rgl? portion of their consumer intelligence onlinc. Devclopmcnts in onlinc tesearch are happening quickly, so lc-t's take some time now to see where things are headed.

There are two major types of onlinc research. One type is infonnation that organi· zations gather \•+'hen they track consumers while they surf the web. The second type is information they gather more sc-Jective.ly through questionnaires on websites, including

of course sociaJ media sites, through e,.mail, or from focus groups that virtuaJ moderators

conduct in chat rooms. Most social media platfonns, such as Twitter or Faccbook, offot nu•

merous ways to analyze trends and conduct market rescatch. By simply searching the lat• est posts and popular tcnns-or, as markctc-.rs re.fer to it, ,..scraping the web" - you can gain

insight into cmctging trends and sec what customers are talking about in real time. One

example of this approach is conducting hashtag searches on Twitter. By setting up a fow searches with hashtags related to your brand, industry, or product, you can n:.--ccive instant-

notifications when customers, dient1o, or competitors use key terms.28

For marketers who want to collect data via surveys on the web, a platform such as Amazon Mechanical Turk (MTurk) is an effective medium. MTurk provides a place on the web where market researchers can post requests for one.off tasks that are typi· cally not ti.me intensive, but do require human intelligence to be completed effectively.29

Using MTurk or a simiJar platform for collecting market- research data couJd be poten•

tially quicker and less costly than other methods uSL'Cl to gather large amount of ro• sponses because ol the audience o( workers available to the firm and the relatively lower prices for the performance of required tasks (in some cases, participants engage in quick tasks in return for what amounts to pocket change for completing each assig1,ment). For market research that requires the inclusion of a specific group of respondents, such

a platform may not be well suited and instead seeking out focused panel data may be

more appropriate.

You may like to share sclfies with friends, but it"s possible companies are diving into lns-tagram and Pinterest to take. a close: look at your latest gems as we.IL Some firms use

special software to scan photos to identify logos, facial expressions., and contexts so that

they can learn more about how consumers use a client's brands in daily life. The.re are huge

numbers of photos to look at; lnstagram alone has about 20 billion photos to share with another 60 1nilHon being added every day. The practice is so nc-w that privacy oonccms arc just st.artit1g to bubble up. For now, think twice about what you post.30

Across alJ of its platforms and forms, the Jn tcmct offers unprecedented ability to

track consume.rs as they St!afCh for in.formation on Google, Bing, Ask, and other search engines. We've become so accustomed to just looking up stuff online that google has be- come a verb (as has frieud). As consumers entl.!r search terms like '"lowest prices on J Brand jeans" or "home theaters," these queries become small drops in the ocean of data available

to marketers that engage in online: behavioral tracking. How do they know what we're looking at onHne? Beware the Cookie Monster! Cookies are text files that a website spon•

sor inserts into a user's hard drive when the user connects with the s ite. Cookies re.au?m•

bcr details of a visit to a website and track which pages the user visits. Some sites request or require that visitors ,,register' on the site by answering questions about themselves and

their likes and dislikes. ln such cases, CQokies also allow the site to access these details

about the customer. The technology associated with cookies aUows websites to customize scnrices, such as

when Amazon n.~mmends new books to use-rs Ol"l the basis of what books they have or• de red in the past. Consider this one: It is late evening, and you should be studying, but you just can't make yourself do it. So you grab your tablet and sign in to Net/lix. And like every other time you sign in, Nctflix offers up a bunch o( movies and TV shows to tempt you

away from the textbooks. But how does Net£lix know what you want to see-sometimes

they St."'Cm to anticipak' your tastes better than your friends can!

cookies Text files insened by a website sponsor into a web surfer's hard drive that allows the site to trade lhe surfer's m<l'lfS.

112 PART TWO I DETERMINE THE VALUE PROPOSITIONS DIFFERENT CUSTOMERS WANT

predictive technology Analysis tedlniques lhat use shopping panems of large numbers ol people 10 deteonine which products ate likely to be puf(l\ased tt olhers ate.

No, lhcte: isn't someone sitting a t their officc whose only job is to follow you arotmd online to guess what you'll want to see nt~xt. These surprising connections are the results of predictive t echnology, which uses shopping patterns of large numbers of people to de-

termine which products arc likely to be purchased if others are-except in this cas., what you' re "shopping'' for is movies to watch. To figure out what movies or TV shows you are likely to enjoy, Netflix trained teams of people to watch thousands of movies and rag them

according to attributes such as "gor'incss" or '"'plot conclusiveness." Nct.rux then combines those attributes with the viewing habits ol millions of usc.rs.31 And voila- Netfli.x knows just what to scn1c up to satisfy your viewing fix.

You can block cookies or curb them by changing settings on your computer, although this makes life difficult ii you are trying to log on to many sites, such as online newspapers or travel agencies that requite this infonnation to admit you. n,c in!onnatj01, generated from tracking consumers' online journeys has become big business, and in massive quanti• ties it has become popularly known as "Big Data/' a topic we will discuss in more: detail in Chapter 5. To date, the Federal Trade Commission has relied primarily on firms and industries to dcvclop and maintain its own standards instead of developing its own ex• tensive privacy regulations, but many would like to see that situation changed, and much discussion is afoot at aU levels of gov~mcnt regarding 01\linc privacy rights. r1roponcnts advocate the following guiding principles:

• l.nlormation about a consumer bclongs to the consumer.

• Consumers should be made aware of infonnation collection.

• Consumers should know how infonnation about them wi.lJ be used.

• Consumers should be able to refuse to allow information colloction.

• l.nlormation about a consumer should never be sold or given to another party without- the permission of the consumer.

No data collection method is perfect, and 01,line research is no ~ccption-though many of the criticisms of online techniques also apply to ofilinc techniques. One potential problem is the representativeness of the respondents. Many SL--gments of the consumer

population, mainly the economically disadvanragcd and elderly, do not have the same levcJ of access to the Internet as other groups.

tn addition, in n,any studies Qust as with maH surveys or nialJ intercepts), there is a

selfselectio11 bibs in the sample. That is, bt..--calL-;e n.-spondcnts have agreed to rcccive invita• lions to rake part in online studies, by definition they tend to be the people who like to participate in surveys. As with other kinds o( reseat~ such as live focus groups or panel

members, it's not unusual to encoWlter "professional rospondents"- _pcople who just enjoy raking part in studies (and getting paid for it). Quality o,ilinc research spc--cialists such as Harris interactive, SS1- Survey Sampling International-and Toluna address this

problem by monitoring their participants and regu lating how often they arc allowed to participate in different studies over a period of time. However, unfortunatcly, with the proliferation of online data rolJcction, many new and w,proven data providers continue to

come into the industry- therefore, in terms of 01,line research, the venerable phrase cnveal emptor (let the buyer beware) rules.

There are other disadvantages of 0 1,llne research. Hackers can actually try to in.flu ..

cnce research results. Competitors can learn about a firm's marketing plans, products, advertising. and other proprietary clements when they intercept information from these studies (though this can occur in offti.nc studies just as easily). Because cheating has become so rampant, some companies today use fraud•busting software that cre- ates a digital fingerprint of each compute:r involved in a survey to identify respondents who fake responses or professionals who game the industry by doing as 1nany surveys

as possible.32

C HAPTER 4 I MARKET RESEARCH 113

Metrics Moment More and more, marketing is responsible for the e-commerce aspea of firms· web strategies. Bounce rate is a marketing metric for analyzing website traffic. It represents the percentage of visitors who enter the s.ite (typically at the home page) and "bo1.11ce· Qeave the site) rather than continuing to view other pages on the site. It is a straightforward metric 10 understand and is based on the foOowing fo,mula:

without viewing any other pages. An enuy page with a low bounce rate means that this first page encourages visitors to view still mOfe pages and continue deeper into the website. High bounce rates, on the other hand, typicalty indKate that whatever visitors encol.Ultff on that first •hit• isn't interesting enough to make them want to check out mace. 33

Total number of visitors viewing one page only Apply the Metrics

Bounce rate = . Total enu,es to the w,,b page

A site's bounce rate is ea"{ to track with tools like Google Analytics. They can show the bounce rates on different pages of a website, how the user came to the site (organic search, pajd search, banner ad, etc..), how the bounce rate has changed OYer time, and other data so that the marketer can really dig into where the leak is occurring.

1. A rule of thumb 10< website effectiveness is that great websites should fulfill three basic criteria: (I) the site should be attractive, (2) the site >hould be easy to navigate and get where you want to go, and (3) the site should have up-t<Hlate information (no old stuff). When you bounce off ol a website, does it tend to be for one or mote of these reasons? Are any of them more important than others to )OU?

Marketers use bounce rates to determine whether an entry page effectively generates visitors' interest. A bounce rate, simply put. is the measure of how many visitors come to a page on a website and Jeave

2. Consider the bounce rate metric we describe. Like any marketing met· ric, decisions should not be made based on the boooce rate alone. What other considerations should the marketer use to evaluate the effectiveness of a website?

Data Quality: Garbage In, Garbage Out

We've seen that a finn can collect data in many ways, including focus gnlups, ethnographic approad,es, observational studies, and controlled experiments. But how much fu.ith should marketers place in what they find out from the research?

All too often, marketers who commission a study assume that bL'lCausc the researchers give them a massive report full ot impressive.looking numbers and tables, they must be looking at the "truth.'J Unfortunately,. there are times when this "t:l'uth" is really just one

person's interpretation of the facts. At other times, the data researchers use to generate n.~omme:ndations an~ flawed. Previous!)' in the chapter we brought up C IGO: "garbage in., garbage out."3' That is, your conclusions can be only as good as the quality of the m .. formation you use to make them. TypicaUy, three factors influenc., the quality of n:scardl results-validity, re.liability, and representativeness.

Validity is the c..xte:nt to which the: research actually measures what it was in tended to measure. Validity can be further broken down into intern.al validity and exte:mal validity. Internal validity relates to the extent that the research design was set up in such a manner that what was inteJlded to be measured was accurately mt.v.isured and not obscured (for instance, by tht! accidental in<:lusion o( any factors not intended to be included in the study). This is typicaUy accomplished in a highly controlled setting (such as a laboratory) where it is easier to avoid the introduction of extraneous factors thal could muddy the results obtained. External validity relates to the extent that research results are practically applicable to the relevant target market (and not just the sp«ific study participants who were intended to represent that target market). Another way o( thinking about this is whether the research findings would hold up when levetagcd out in the real world.

Validity was part of the problem underlying the famous New Coke fiasco in the 1980s, in which Coa,.Cola underestimated pt.>ople's loyalty to its flagship soft drink after it rt.~ placed "Old Coke"' with a new, Slvcete:r formula. This b lunder was so huge that we still talk about it today even though it happened before your humble authors were even bom (well, not quite ... )! 1n a blind taste t~"'i, the company assumed testers' preferences for one

bounce rate A marketing metric fa( analyzjng website traffic. It represems the percentage of i,isitors who enter the site (tyPically at the home page) and "bounce'" Oeave the site) rather than continuing to view additional pages on the site.

validity The extent to vmich research actually measures what it was intended to measure.

internal validity The extent to wt»ch the results of a research srudy accurately meaSLre what the study ilrended to measure by ensuring proper research de5agn. including efforts to ensure that any poientially confounding factots were no< included or introduced at a">' point during the execution of the researd'I study.

external validity The extent to vmich the results of a research srudy can be generalized to the population its sample was intended to represent, providing a higher level of confidence that the findings can be applied outside of the setting where the research was conducted.

114 PART TWO I DETERMINE THE VALUE PROPOSITIONS DIFFERENT CUSTOMERS WANT

reliability The extent to vmich research measurement techniques are free of errors.

representativeness The extent to vdich consumers in a study are simi1ar to a larger group in vdtich the organization has an interest.

sampling The process of soleaing respondents for a study.

anonymous cola ovc-t another \,,as a valid measure of consumt!l's' prc.forcnccs for a cola brand. Arguably, we can also say thal the use of a sip lest is flawed (and lacking degrees of external validjty) in that it is set up so that consumers try the colas in smaU quantities, as

opposed to the larger quantities more typically experienced by consumers when enjoying a can, a bottle .. or a glass of cola in a more leisurely sctting.35 Coca.Cola found out the hard way that measuring taste only is not the same as measuring people's deep all~ances to their favorite soft drinks. After alt Coke is a brand that elicits strong consumer loyalty and is nothing short of a cultural icon. Tampering with th~ flavors was like assaulting mom and apple p ie. Sales evenhaally recovered after the company brought back the old version as "Coca.Cola Classic.1' 36

Reliability is the extent to which the ri.."'Search measurement techniques arc free of er- rors. Somctimes, for example, the way in which a researcher asks a question creates error by biasing people's responses. Imagine that an atttactivc (cmalc interviewer who works for Trojans condoms stops male college students on campus and asks them if they use con• traceptive products. Do you think their answers might change if they were asked the same questions on an anonymous survey they n.""'Ceived in the mail? Most likely, their ansv.1ers would be different b«ause people are reluctant to disclose what they actually do when their n.>sponses are not anonymous. Researchers try to maximize reliability by thinking

o( St."'"Vcral d.i.fferent ways to ask the same questions, by asking these questions on several occasions, or by using scvcraJ analysts to interpret the responses. Thus, they can compare responses and look for consistency and stability.

Reliability is a problem when the researchers can't b<.' sure that lhe consumer popu• lation they're studying even understands the questions. For example, kids arc difficult subjects for market researchers b«ause they tend to be undependable reporters of U,eir

own behavior* they have poor recall, and they often do not understand abstract ques,. Hons. ln many cases, the children cannol explain why they prefor one item over another (or they1rc not willing to share these secrets with grown .. ups).37 For these reasons, tc•

searchers have to be espt.~ally crt?ativc when they design studies involving younger con.$umers. ~ Figure 45 shows part of a completion test that a set of researchers used to measure children's preferences for TV programming

Figure 4.5 ~ Snapshot I Completion Test in Japan.

Representativeness is the extc.nl to which oonsum~ in the study are similar to a larger group in which the organization has an interest. This

criterion underscores th!! importance of sampling: the process of selecting respondents for a study. The issue then becomes how large the sample should be and how to choose these people. We'll talk more about sampling

It can be especially difficult to get accufate infoonation from ch0dren. Researchers often use visuals, such as this Japanese completion test. to encourage chiktten 10 ~ess their foolin9s.. The test asked boys to write in the empty baJloon what they think lhe boy in the drawing will answe1 when the gill asks, "What prog,am do you want to watch ooxt?'"

in the next section.

Step 4: Design the Sample Once the researcher defines the problem, decides on a research design, and determines how to collect the data, the next s tep is to decide from whom to obtain the needed information. 0( course, he or she could collect

data .from every single customer or pnlSpcctive customer, but this would be extremcJy expc.nsive and time consuming if possible a t aU (thi~ is what- the US. Census spends millions of dollars to do cve.ry IO years). Not ev- eryone has the resources of the U.S. gove:rnment to polJ moryout in their market. So they typically collect most of their data from a small propor• lion, or sample, of the population of interest. Based on the answers From tltis sample, researchers generalize to the larger population. Whether st1ch inJcrences are accurate or inaccurate depends on the type and quality of the study sample. There are two main types of samples: probability and

nonprobability samples.

C HAPTER 4 I MARKET RESEARCH 115

Probability Sampling

In a probability sample, each member of the population has some known chance of being

induded. Using a probabiLity sample ensures that the sample represents the population and that inferences we make about the population from what members of the sample say or do arc justified. For example, if a larger percentage of males than fo,nales in a probability sample say they prefer action movies to "chick flicks,'' one can infer with confide.nee lhat· a larger pen:entage of males than fomales in the general population also would rather see a character gs>t sliced and diced than kissed and dissed (okay, we wouldn"t really uS<? these

descriptions in a study, but you get the idea). The most basic type: of probability sample is a simple random sample, in which every

member of a population has a known and equal chance of beit,g included in the study.

For example, if we simply take the names of all 40 s tudents in a class, put them in a hat, and draw one out, each member of the class has a 1 in 40 chance of being included in the sample. In most studies, the population from which the sample will be drawn is too large

£or a hat, so marketers use a computct program to gene.rate a random sample from a list of members.

Sometimes researchers use a .:.-ystemnfic sampling proctdurt to select 1nembers of a population; they select the nth member of a population after a random start. for ex• ample$ i( we want a sample of 10 members of your class, we might begin with thc SL~ond person on the roll and select every fourth name after that- the second, sixth, tenth, four•

tecnth, and so on. Rcscarchc.rs know that studies that use systematic samples arc just as accurate as those that use simple random samples. But unless a list of 1nembcrs of the population 0£ interest is already in a computer data file. it's a lot simpler just to create a s implt:' random sample.

Yet another type of probability sample is a stratified sample, in whid1 a researcher ru• vides the population into segments that relate to th~ study's topic. For example, imagine

you want to study what movies most theatergoers like. You have learned from previous s tudies that men a.nd women in the population differ in their attitudes toward different- types of movics--1nen like action fUcks, and women like romantic comedies. To create a stratified sample, you \'\rould fitst divide the population into male and fo:ma]c segments.

Then you would randomly select respondents from each of the two segments in propor• ti.on to thcir percentage of the population. In thi,; way, you have created a sample that is

proportionate- to the population on a chara<:tetistic that you know will make a difference in the study results.

Nonprobability Sampling

Sometimes researchers do not believe that the ti.me and effort required to develop a probability sa1nple is justified, perhaps because they na."loCl an answer quickly or

jus t want to get a general sense of how people feeJ about a topic. They may choose a nonprobability sample, which entails the use of persona] judgment to select re.spon• dents-in some cases, they just ask anyone they can find. With a nonprobabiUty sample,

some membl!rs of the population have 1\0 cha.nee at all of being included. Thus, there is no way to ensure that the sample is representative of the population. Results from non• probability studies can be generally suggestive of what is going on in the real world but

arc not necessarily definitive. A convenience sample is a nonprobability sample compoS42-d of individuals who

just happen to be available when and where the data arc being colloctod. For example,

ii you were to simply stand in front of the student union and ask students who walk by to complete your questionnaire, the "guinea pigs'' you get to agree to do it would be a COIWCf\icllCC sample.

Finally, researchers may also use a quota samplt>, which includes lhc same, proportion of individuals with certain characteristics as in the _population. For example, if you are

probability sa mple A sample in which eadl member of the population has sane known chance o/ be~ included.

nonprobability sample A sample in which personal judgmen1 is u"1I 10 select re,pondents.

convenience sample A nonprobabl1ity sample composed of individuals who just happen 10 be available when and where the data are being collected.

116 PART TWO I DETERMINE THE VALUE PROPOSITIONS DIFFERENT CUSTOMERS WANT

back•translation The process of translating material to a f0<eign language and theo back to the onginal language.

studying attitudes of s tudents in your univc.rsity, you might just go on campus and find freshmen, sophomores, juniors, and seniors in proportion to the number of members of each class in the university. The quota sample is much like the stratified sample except

that, with a quota sample, the rcsean:hct uses his or her individual judgment to select respondents.

Step 5: Collect the Data At thi~ point, the researcher has determined the nature of the problem to address. She chose a research design that will specify how to investigate the problem and what kinds of information (data) she will need. The researcher has also selected the data coucc ..

tion and sampling methods. Once she's made these docis.ions., the next task is to collect the dat.>.

We noted previously that the quality of your conclusions is only as good as the dam you use. The same logic applies to the people who collect the dat.>: Tl,e quality of researd, n>sults is ouly as good as tllt poorest interviewer in lite study. Careless interviewers may not read qu~"'iions exactly as written, or they may not tt."COtd respondent answers correctly. So marketers must train and supervise interviewers to make sure they foUow the research proccdutes exactly as out-lined. ln the next section, we'll talk about some of th12 problems in

gathering data and some solutions.

Challenges to Gathering Data in Foreign Countries

Conducting market research around th12 world is big business for U.S. firms- for the

top 50 co.mpanies (as measured by revenue), more than half of their income comes from work done outside the U.S.38 However, as we saw in Chapter 2 market conditions and consumer prcforences vary worldwide., and there arc major differences in the so,.

phistication of market research operations and the amount of data available to global markett!r"S. In Mexico, for instance, because there are still large a~as where native tribes speak languages oU,er than Spanish, researchers may e.nd up bypassing these groups

in surveys. In Egypt, where the government must sign of! on any survey, the approval process can take months or years. And in many developing countries, infrastructure is an impc...'rument to executing phone or mail surveys, and lack of online connectivity blocks

web.t>ascd rest.v.irch. For these and other reasons, choosing an appropriate data cotJection method is difa

ficult. ln some countries, many people may not have phones., or low literacy rates may

interfere with mail surveys. Understanding loc,al cuslonts can be a challenge., and culturdl differences also affect rcspon.,;cs to survey items. Both Danish a.nd British consumers, for example, agree that it is impottant to cat breakfast. However, the Danish sample may

be thinking of fruit and yogurt, whereas the British sample has toast and tea in mind. Sometimes markete rs can overcome these problems by involving local researchers in decia sions about the research design.

Another problem with conducting market research in global markets is /a11g11nge. Sometimes translations jus t don't come out right. ln some cai;cs, entire subcultures within a country inight be excluded from the rcsc.arch sample. ln fa.ct., this issue is becoming more and more prcvalmt inside the U.S. as non-English speakers increase as a percentage of the population.

To overcome language difficulties, researchers use a process of back·translation, whkh

requires two steps. First, a native spt.....iker translates the questionnaire in to the tanguag12 of the targeted responden ts. Then someone fluent in the second language translates this new version back i:nto the original lat,guage to ensure that the correct mcani.t,gs survive the pro,.

cess. Even with precautions such as these, r12Searchcrs must interpret the data they obtain from other cultures with care.

C HAPTER 4 I MARKET RESEARCH 117

Step 6: Analyze and Interpret the Data Once market n.:.searchcrs collect the: data, what's next? lt's like a spin on the old "if a tn."')(! faUs in the woods" question: ,.l( rt."Sults exist. but thcrc~s no one to interpret them, do they

have a meaning?" Let's leave the philosophers out o( it and just say that marketers would answer ,..no." Data need interpretation if the results a.re going to be useful

To understand the important role al data analysis, let's take a look at a hypothetical research example. Say a company that markets frozen foods wishes to better understand consumers' preferences for varying: levels o( fat content in their diets. They conducted a descriptive research study where they collected primary data via telephone interviews. &.>cause they know that dietary preferences relate to gender (among other aspects), they used a stratified sample that includes 175 males and 175 lemalcs.

Typically, marketers first tabulate the data as Table 4.3 shows- that is, they anange the data in a table or other summary form so they can get a broad picture al the overall responses. The data in Table 4.3 indicate that 43 percent of the sample prefers a low-fat meal. In addition, them may be a dcsW to cross classify or cross tabulate the ans\vcrs to questions by other Vari• ables. Cmss tabulation means that we examine the data that we break down into subgroups, in this case males and females separately, to see how results vary between categories. The cross- tabulation in Table 4.3 reveals that 59 percent ol females versus only 27 percent of males prefer a meal ,vith low•.fat con lent. Researchers ma)' wish to apply additional statistical tests that you may learn about in subsequent courses (now there's something to look forward to!).

Based on the tabulation and cross tabulations, the researcher interprets the fl."S-ults and makes n.'COmmcndations. flor example, the study results in Table 4.3 may lead to the con• clusion that females arc more li.kcly than males to be concerned about a low.fat diet. Based

on these data, the researcher might then recommend that the firm target fo:malcs when it introduces a new line o( low.fat foods.

Step 7: Prepare the Research Report ·1nc final step in th!! market research pr'OCQSS is to prepare a report of the research results. In

general, a res<>arch report must clearly and concisely tell the readers-top managemcn~ cli• cnts, creative departments, and many o thcrs--what they net."<I to know in a way that they

rable4.3 I Examples of Data Ta bulation and Cross-Ta bulation Tab les Fat Content Preference (number and percentages of responses)

Do you prefer a meal with high-fat content, medium-fat content. or low-fat content? Questionnaire Response

High fat

Number of Responses

21 Percentage of Responses

6 Medium fat 179 51 Low fat 150 43 Total 350 100

Fat Content Preference by Gender (number and percentages of responses)

Do you prefer a meal with high-fat content, medium-fat content. or low-fat content? Questionnaire Number Percentage Number Percentage Total Response of Females of Females of Males of Males Total Number Percentage High fat 4 2 17 10 21 6 Medium fat 68 39 111 64 179 51 low fat 103 59 47 27 150 43 Total 175 100 175 100 35-0 100

118 PART TWO I DETERMINE THE VALUE PROPOSITIONS DIFFERENT CUSTOMERS WANT

can easily understand and that won't bore you lo tears Qust like a good textbook should krep you engaged). A typical research report includes the following SL'Ctions:

• An executive summary of the rc-pott that covers the high points of the totaJ rcpott

• An understandable description of the research methods

• A complete discussion of the results of the study, induding the tabulations, cross tabu• lations, and addiHoi\al statistical analyses

• Limitations of tho study (no study is perfect)

• Conclusions drawn from the resu]ts and the l't.."'COmmcndations for managerial action based on the results

MyMarketingLab™ Go to mymktlab.com to complete the problems marked with this icon 0 as we.II as additional Marketing Metrics questions only available in MyMarketinglab.

4.1 Objective Summary iiD·i/ikii Explain the role of a marketing information sys- tem and a marketing decision support system in marketing decision making. A marketing information system (MIS) is composed of inter- nal data, market intelligence, market research data, acquired databases, and computer hardware and software. Firms use an MIS to gather, sort, analyze, store, and distribute informa- tion needed by managers for marketing decision making. The marketing decision suppon system (MOSS) allows managers to use analysis software and interactive software to access MIS data and lo conduct analyses and find the information they need about their products and seivices.

Key Terms market re.search ethics, p. 95

database, p. 95

marketing information system (M IS). p. 95

intranet. p. 96 market intelligence system, p. 96

reverse engineering, p. 96

CHAPTER 4

Study Map

market research, p. 96

syndicated re-searc.h, p. 97 custom re-search, p. 97

marketing decision support system (MOSS), p. 98

4.2 Objective Summary Wlu/•il Understand the concept of customer insights and the role it plays in making good marketing decisions. Organizations today are collecting massive amounts of data, bul they need customer insight specialists 10 sift through thal data in order to make il useful. The concept of customer in- sights refers to the collection, deployment, and interpretation of information that allows a business to acquire, develop, and retain its customers. This information supports market planning decisions and guides planners about future business initiatives.

Key Terms data, p. 100

information, P·· 100

customer insights, p. 100

4.3 Objective Summary (PP 100-118) List and explain the steps and key elements of the market research process. The research process begins by defining the problem and de- termining the research design or type of study. Next. research- ers choose the data collection method-that is, whether there are secondary data available or whether primary research with a communication study or through observation is necessary. Then researchers determine what type of sample is to be used for the study and then collect the data. The final steps in the research are to analyze and interpret the data and prepare a research report.

Exploratory research typically uses qualitative data col- lected by individual interviews, focus groups, or observational methods, such as ethnography. Descriptive research indudes cross-sectional and longitudinal studies. Causal research goes a step further by designing controlled experiments to under- stand cause-and-effect relationships between independent marketing variables, such as price changes, and dependent variables, such as sales.

Researchers may choose to collect data via survey methods and observation approaches. Survey approaches include mail questionnaires, telephone interviews, face-to- face interviews, and online questionnaires. A study may use a probability sample, such as a simple random or stratified sample, in which inferences can be made to a population on the basis of sample results. Nonprobability sampling meth- ods include a convenience sample and a quota sample. The researcher tries to ensure that the data are valid, reliable, and representative.

Internet-based research, including via various social me- dia platforms, accounts for a rapidly growing proportion of all market research. Online tracking uses cookies to record where consumers go on a website. Consumers have become increasingly concerned about privacy and how this informa- tion is used and made available to others. Online approaches also provide an anractive alternative to traditional communi- cation data collection methods because of its speed and low cost. Many firms use the Internet to conduct online focus groups.

C HAPTER 41 MARKE T RESEARCH 119

Key Terms research de-sign, p. 102

secondary data, p. 102

primary data, p . 103

exploratory research, p. 103

focus group, p. 104

market research online community (MROC), p. 104

case study, p. 104

ethnography, p. 104

descriptive research, p. 104

crosso.Sectiona.l design, p. 105

longitudinal design, p. 105

causal research, p. 106

experiments, p. 106

neuromarketing, p. 106

telemarketing, p. 108

mall intercept, p. 108

unobtrusive measures, p. 109

mechanical observation. p. 110

eye tracking technology, p. 110

cookies, p. 111

predictive technology, p. 112

bounce rate, P·· 113 validity, p. 113

internal validity, p. 113

external validity, p. 113

reliability, p. 114

representativeness. p. 114

sampling, p. 114

probability sample, p . 115

nonprobability sample, p. 115

convenience sample, p. 115

back-translation, p. 116

MyMarketinglab ™ Chapter Questions and Activities Go to mymktlab.com to watch this

chapte.r's Rising St.ar video(s) for career advice and to respond to questions.

Concepts: Test Your Knowledge

4-1. What is a marketing information system (MIS)? What types of information does it indude?

4-2. How does a marketing decision support system (MDSS) allow marketers to easily get the information they need?

4-3. Define the concept of customer insights and the role i t plays in market planning decisions.

4-4. Why is defining the problem to be researched so im- portant to ultimate success with the research project?

4-5. Explain the difference between primary data and sec- ondary data.

4-6. What techniques can marketers use to gather data in exploratory research? How is this type of data collec- tion useful?

4-7. Explain what descriptive research is.

120 PART TWO I DETERMINE THE VALUE PROPOSITIONS DIFFERENT CUSTOMERS WANT

4-8. Describe the purpose of casual research. How does it differ from descriptive research?

4-9. What are the main methods 10 collea prima,y data? 4-10. GIGO-garbage in, garbage out-is mentioned in the

chapter. What is the significance of this concept to market research?

4-11 . What is a (computer} cookie? What ethical and privacy issues relate to cookies?

4-12. What important issues must researchers consider when they plan to collect data online?

4-13. When we consider data quality, what are the differenc- es among validity, reliability, and representativeness? How can you know the data have high levels of these characteristics?

4-14. How do probability and nonprobability samples differ? What are some types of probability samples? What are some types of nonprobability samples?

4-15. What is a cross tabulation? How are cross tabulations useful to analyze and interpret data?

Activities: Apply What You've Learned

4-16. In Class, 10-25 Minutes for Teams Your firm is plan- ning to begin marketing a consumer produa in several global markets. You have been given the responsibility of developing plans for market research to be conduct- ed in South Africa, in Spain, and in China. In a role- playing situation, present the difficulties you expect to encounter. if any. in conducting research in each of these areas.

0 4-17. Creative Homework/Shore Project Select a multination- al company that sells products to consumers. a. Identify a particular produa and a research ques-

tion related to that product that is most appropri- ately studied using a cross-seaional design. Justify your reasoning for selecting this design.

b. Identify a particular product and research question related to that product that is most appropriately studied using a longitudinal design. Justify your rea- soning for selecting this design.

4-18. Creative Homework/Short Project As an account exec- utive with a market research firm, you are responsible for deciding on the type of research to be used in vari- ous studies conducted for your dients. For each of the following client questions, list your choices of research approaches. a. Will TV or mobile device advertising be more effec-

tive for a local bank to use in its marketing com- munication plan?

b. Should a California winemaker operating on a na- tional scale switch from bottling its mid-tier wine ($9 to $15 per bottle} with corks to bottling it with screwcaps?

c. Are consumers more likely to buy brands from firms that support strong sustainability initiatives?

d. What existing features of an e-commerce site sell- ing clothing to women are most important for mak- ing a purchase decision?

4-19. Creative Homework/Short Project For each of the top- ics you selected in item 4-17. how might you use a

more passive (observation) approach to support the communication methods you employ?

4-20. Creative Homework/Shon Project To what degree could seconda,y data sources be used to address the topics you selected in item 4-17? Whal specif ic sec- ondary sources (if any) might be most useful to help address your seleaed issues?

4-21. In Class, 10-25 Minutes for Teams Your market re- search firm is planning to conduct surveys to gather information for a number of clients. Your boss has asked you and a few other new employees to do some preliminary work. She has asked each of you to choose three of the topics (from among the fol- lowing six listed} that will be included in the project and to prepare an analysis of the advantages and dis- advantages of each these communication methods of collecting prima,y data: mail questionnaires. tele- phone interviews. face-to-face interviews, and online questionnaires. a. The amount of sports nutrition drinks consumed in

a city b. Why a local bank has been losing customers c. How heavily the company should invest in manu-

faauring and marketing home fax machines d. The amount of money being spent .. over the state

line .. for lotte,y tickets e. What local doctors would like to see changed in the

city's hospitals f. Consumers' attitudes toward several sports

celebrities 4-22. For Further Research Ondividual) Some companies use

neuromarketing to gain an edge over their competi- tors. Research at least two companies that employ this technique. Explain how they use neuromarketing to gain a competitive advantage and assess whether the value of the information these marketers gained was worth the investment. (Hint: Just start by googling the term neuromari<ering.)

4-23. For Further Research (Individual) For each of the types of mechanical observation listed within the chapter (people meters, portable people meters, eye tracking technology), condua research online to identify (and document) the benefits and limitations of using each method.

Concepts: Apply Marketing Metrics

Marketers historically have tended to rely too much on dick- through rates as a metric for success o( web advenising. Click- through rate means the proportion of visitors who initiated aaion with respect to an advertisement that redirected them to another page where they might purchase an item or learn more about a produa or service. Technically, click-through rate is the number of times a click is made on the advenise- ment divided by the total impressions (the times an advertise- ment was served up to the consumer during the visit to the website). Thus,

Number of click-throughs Click-through rate(%) = ---------

Number of impressions

Although providing useful inf0<ma1ion, click-through rates merely measure quantity, not quality, of consume, response. Consider what you learned in this chapter about various ap- proaches lo market research.

4-24. What other two or three data collection approaches 10 measuring the success of a web advertising campaign might be fruitful in providing more meaningful data than just clicks? Hint: Just because the metric relates to the web doesn't mean non-web-based research ap- proaches are inappropriate.39

Choices: What Do You Think?

4-25.

4-26.

0 4-27.

4-28.

4-29.

4-30.

4-31 .

4-32.

4-33.

Critical Thinking This chapter introduces QScores, which are used to track the way that the public per- ceives different celebrities. A positive (and ideally high) QScore indicates a positive perception, whereas a neg- ative QScore indicates a negative perception of a celeb- rity. Is it possible for a celebrity to have a particular type of image or reputation for which a negative QScore might be beneficial from a commercial standpoint? Explain your answer and provide examples. Ethics Some marketets attempt to disguise themselves as market researchets who want lo ask you questions when their real intent is 10 sell something to the con- sumer. What is the impact of this practice on legitimate researchers? What do you think might be done about this practice? Critical Thinking Do you believe that there could be a relationship between the amount of compensation received for actively participating in a research study and the level of effort put forth by a participant in thal study? Are there forms of research that are more or less susceptible to such a relationship? Critical Thinking What is your overall attitude toward market research? Do you think it is a beneficial activ- ity from a consumer's perspective? Or do you think ii merely gives marketers new insights on how to con- vince consumers to buy something they really don't want or need? Critical Thinking More and more companies are starting to employ customer insight specialists to make sense of the data collected about their cus- tomers. Do you think this position is really needed within companies, or is ii just a fad? Explain your reasoning. Ethics Marketets in numerous industries can benefit from conducting market research on children. What do you think is the youngest age that would be appropri- ate to conduct research on a child? Why did you select this age? Critical Thinking Ate you willing 10 divulge personal in- formation to market researchers? How much are you willing to tell, or where would you draw the line? Critical Thinking Would you be willing to participate in an ethnographic research study within your own home? Why or why not? Critical Thinking Would you alter the settings on your computer to disallow cookies? Why or why not?

C HAPTER 41 MARKE T RESEARCH 121

0 4-34. Critical Thinking During the 2014 legislative session, the Data Broker and Accountability Act of 2014 was introduced in the hopes of giving consumers more control <Yver the types of information data brokers col- lect about them as well as letting consumets opt out of the sale of such information lo other companies. Would you support such legislation? Why or why not?

4-35. Ethics One unobtrusive measure mentioned in this chapter involved going through consumers' or com- petitors' garbage. Do you think marketers should have the right to do this? ls it ethical?

4-36. Critical Thinking Consider the approach to tracking consumers' exposure 10 promotions via portable peo- ple meters (PPMs). Would you be willing 10 participate in a study that required you to use a PPM? Why or why not?

4-37. Ethics One of the potential opportunities offered by neuromarketing is the capability to look at patterns in brain activity and identify (a) how the presence of different product attributes and variations of those at- tributes can help 10 predict what choices a consume, prior to their actually making those choices, (b) and how those attributes can be manipulated to influence other choices without the consumer realizing the im- pact that those changes are having on their choices. Do you believe that marketets should be able to use this type of knowledge to their advantage? Would you have any personal qualms with doing so?

Miniproject: Learn by Doing

The purpose of this miniproject is 10 familiarize you with mar- ket research techniques and to help you apply these techniques to managerial decision making.

4-38. With a group of three other students in your class, select a small retail business or quick-seNe restaurant to use as a · client· for your project. (Be sure 10 get the manager's permission before you conduct your re- search.) Then choose one topic from among the fol- lowing possibilities 10 develop a study problem: • Employee-customer interactions • The busiest periods of customer activity • Customer perceptions of service • Customer likes and dislikes about the menu • Customer likes and dislikes about the environment

in the place of business • The benefits customets perceive 10 be important • The age-groups that frequent the place of business • The buying habits of a particular age group • How customer complaints are handled

1. Develop a plan for the research. a. Define the research question as you will study it. b. Choose the type of research approach you will use. c. Select the techniques you will use 10 gather data. d. Develop the mode and formal for data collection.

2. Conduct !he research. 3. Write a report (or develop a class presentation) that

includes the five pans shovvn in step 7 of the mar- ket research process covered in the chapter.

122 PART TWO I DETERMINE THE VALUE PROPOSITIONS DIFFERENT CUSTOMERS WANT

Marketing in Action Case Real Choices at GetFeedback

We all know that the world has gone mobile! But how does this change impact the way market research is done? According to the Pew Reseatch Center, 30 percent of cell phone owners use their phones as their primary Internet ac- cess point. Consumers are changing how they interact with companies, products, and services and recent research indi- cates that about 38 percent of all market research surveys began on mobile devices. In particular. when considering traditional market research data collection methods (mail, phone). millennials have the lowest reported response rates of any group. However. they are more willing to respond to studies offered on mobile devices. Amazingly though, Forrester Research estimates that as little as 17 percent of market researchers have taken their survey processes mobile, indicating that most market research companies still use out- dated technology and techniques.

In 2013, Kraig Swensrud and Sean Whiteley recognized the information collection gap in the marketplace and de- cided to close the gap with mobile-first customer surveys. The two former Salesforce.com employees created a startup called GetFeedback with a goal to be on the fronUines of the changeover to mobile computing. GetFeedback is a service that aeates surveys for smartphones, tablets, and mobile web browsers. Campaign Monitor, an online e-mail market- ing application and software firm. acquired GetFeedback about a year later. Currently, Getfeedback has more than 1,000 enterprise users that includes high profile organiza- tions like United Way, ESPN. Facebook, linkedln, and Nike. Available data collection services include package sizes from Personal ($25/month) for up to 100 responses/month to Enterprise ($150/month) for up to 10,000 responses/month. Additionally, service plans may include web, e-mail. and tele- phone technical support.

Swensrud knew that mobile surveys present many challenges including how to optimize them for smaller screen sizes to allow for quick scrolling and processing. GetFeedback offers templates to integrate video clips, pho- tographs, or other images to rein force a company's market- ing. Clients can create surveys and then add style through colors, fonts, logos, and images. To attain deeper participant engagement and higher completion rates of online surveys, imagery and video are essential. The objective is to have the survey reflect the personality of the brand. Other key fea- tures of Getfeedback include push notifications that provide alerts and a set of analytical tools that allows customers

to more fully use the collected information. All of this can happen in real-time, which gives Getfeedback's customers a speed advantage over their competitors. Collected infor- mation is owned by the customer and is readily available to share within their company. The information can easily be downloaded and exported into Microsoft Excel or any analyt- ical software that can handle comma separated values (CSV).

In its 2015 Global Market Research Report, ESOMAR estimates total annual global expenditures of $43 billion on telephone polls, online surveys, questionnaires, and other market research- $19 billion in the U.S. alone. The market to, consumer research is immense and steadily growing especially in the online and mobile devise space. SurveyMonkey is the current market leader w ith more than 25 million customers including Kraft Foods, Samsung, and Facebook. The CEO of SurveyMonkey, Zander Lurie, stresses ·Now it's about execu- tion. We have all the opportunity to thrive and succeed but if we're not super-focused and crisp about how we do it, then competition w ill take it.•

To continue to be successful. Getfeedback has to chal- lenge the market leader, make surveys as efficient to answer as possible for respondents, maintain information quality, and deliver great value to its customers. At the same time. the company must help its parent Campaign Monitor gener- ate attractive shareholder gains. In a competitive, change- able growth environment as dynamic as this one, it's often dttficult to decide what the next strategic move should be. GetFeedback needs to step back. consider the competitive environment, weigh opportunities and risks. and formulate its growth plans for the future.

You Make the Call 4-39. What is the decision facing GetFeedback? 4-40. What factors are important in understanding this deci-

sion situation? 4-41. What are the alternatives? 4-42. What decision(s) do you recommend? 4-43. What are some ways to implement your recommendation?

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C HAPTER 41 MARKE T RESEARCH 123

MyMarketinglab"'

Go to mymktlab.com for Auto-graded writing questions as well as the following Assisted-graded writing questions:

4-44. Creative Homework/Short Project Your company recendy launched a new "dry" shampoo. Although initial sales were strong. they have steadily declined over the last year and a half. You have decided to conduct further market research. but first you have to define the research problem. What are your research objectives? What is the population of interest! How does the problem fit within the environmental context! Prepare a short report that dearly and fully defines the research problem for your produa.

4-45. Creative Homework/Short Project You work for a small company that designs and sells womens trendy rubber rain boots throughout the U.S. Sales have been strong, but you think they could be stronger. You have begun the market research process and are now ready to design the sample. Will you design a probability sample or a nonprobability sample? What type of prob- ability or non probability sample will you use? What are the advanuiges of the method that you chose? What are the limitations of the method you chose?

(l) C += ::, 0 G) > ·--0 G) ·-.0 0

5.1

5.2

Chapter 5

Marketing Analytics · Welcome to the Era of Big Data! Explain haw marketers can put these techniques ta 5.4 Identify haw organizations Increase long-term success good use. pp. 131- 140 can use mcrkettng metTics to and profits by practicing

BIG DATA: TERABYTES RULE p. 131 measure peilormance and

customer relationship achleve marketing control. management. pp. 126-131

5.3 Describe what mcrkettng pp, 150-152

CUSlOMER RELATIONSHIP MANAGE- analytlcs lndude and how 0<- METRICS FOR MARKETING MENT (CRM): A KEY DECISION ganizatlons can leverage both CONTROL p. 150 TOOL FOR MARKETERS p. 126 marketing analytics and predlc-

tlve analytics to Improve mcrket- Check out the Chapter 5 Study Map Understand Big Doto. data lngperformance.pp. 141- 150 on page 153. mining. and how marketers

MARKETING ANALYTICS p. 141

Lisa Arthur Y A Decision Maker at Teradata Corporation

As Te,adata~ cl'iel marketing offic:et ((MO). Lisa Artl1ur d!i,es global ma<l(et and demand strategy, product and sotitions marketing, and customer-a,ntric ini!iatives and""""' as global industry lhought leader around daia-d,;,,,n matketing

and Te<ada!a~ Integrated Marketing Cloud sotJtions. A .JO.year marketing veteran, she has also se,ved as CMO f0< Internet leader Alolmai Technologies, 8282( applic.ation prow!e< Mindje~ and most ll!Cently, Aprimo (now Teradata). Sile is lhe aulhor of Big Dara Marl:eling; Engage Your Custome,s More Effroively to Drive 11:lh.e (2013).

Lisa spent neatly seven yea,s at o,ade, whe,e as a vice president of marketing she managed the market entry and growth for Oracle CRM and £-Business Suite On-Oemand. Also, as lhe foundet of Ci.nterim. she applied her matket<entric processes and insight to ptOVKfe strategk counsel for Silicon Valley start-ups and fortune 50 technology companies.

A seasoned keynote speaker, Lisa has addressed cfrverse topics at Web 2.0, Offic.e 2.0, the Direct Marketing Association, the Australian Oitect Market· ing Association. the America.n Marketing Association (AMA) Strategy Confefence, Stanford UniYMity, and the MIT Sloan CMO Summit and various CMO Executive forums. She is frequen tly quoted in industry media, has a syndjcated blog in 82C Community, and has appeared oo Asia's \Iv.lit Street Journal broadcast and published numefous papers with the AMA. Her industry thought-leadership biogs have appeated on the Forbes.com CMO Netwolk, and she is a cootfibutot 10 Loon back. a marketing blog of The Economist Gro1.4>. Lisa's recent honocs include the Direcr Ma1kecing News 2013 ·Marketing HaJI of Femme,• honoring today's top women marketefs, and the American Business Association's 201 2 Gold · Stevie Awafd" for MaJ'lc:eting Executive of the Year. And, in 2014, 2012, and 2011, she was named a .. Woma.n to Watch· by the Sales and Lead Management Association. She is also a U1JStee wir.h the

Marketing Sciences tnstitute. She earned a BA degree from Ohio State University.

124

What f do when 1·m notworklng? Writing, cooking. and photography.

First Jab out al school? I had school loans, and it was a tough job market. so I began my professional c.ireer as a temporary employment recruiter and placement professional Needless 10 sey, I'm thrilled I switched to marl<etir,g.

Career high?

Publishing my first book, Big Data Marketing, in October 2013.

AJotHelated mistake f wish I hadn' t made?

Nol lisll!ning to my imition. I've made this mistake a co'4)1e of times. and while data is essem,al !or decisilo making, so is gut instinct

Business book I'm reading now?

The Singularity Is Near b'f Ray Kurtzweil My hero? My husband. Every day, he is the ·super- man· in my life. and I couldn·t do what I do without his love and support.

My motto to live by?

It's never too late.

What drives me?

I'm oo a quest along with my company, Teradata. to make marketing a more valued function through the use of data to innovate and uansform customer engagement and experiences.

My management style?

Collaborative coach.

My pet peeve? The word can't.

When Lisa joined Aprimo in 2009 (now part of Tera· data Corporation, a public company listed on the

New York Stock Exchange} as its CMO, the company had been in business for 11 years and had enjoyed strong success in the marketing resource management (MRM), the multichannel campaign management, and in the enterprise marketing management space. It boasted a blue-chip dient list of more than 200 companies that used its marketing software and services to improve their marketing results and effectiveness. Acquired in 2011 by Teradata, the applications have expanded to also include Big Data discov- ery and marketing attribution through its TeradataAster solutions.. Market- ers are both the consumers and the generators of Big Data and can gain insight and then take action with consumers and buyers to engage in real time to provide next-best offer or next-best message. Because Teradata is the leader in data and anatytic platforms as welJ as its own leading mul· tichannel campaign management solution, the combination of marketing applications along with Big Data and advanced analytics adds value to the comparrt's already robust marketing solution.

Berore the Teradata acquisition, Lisa was recruited to be a change agent-to reposition Aprimo, the company, and its band as the platform for marketer. There had been branding and positioning work that had created a great logo, but the company still was missing a dear connection between what it could offer to marketing executives and their teams.

The company was growing quickly and needed to broaden its appeal to a wider market. At the same time. it was laundiing a next-generation cloud of- fering comprised of marketing operation~ c~aign management. and digital messaging solutions. along with as50Ciated anatytics to help make real·time sense of customer data. The doud analytics category was an emerging market with all the hallmarks of a sector ready to explode. But the Aprirno brand was not well known, and most people in the mari<eting analytics industry perceived that the firm was only an MRM technology solutions provider. In reality. the company offered a lot more-a marketing software platform to enable global companies to manage the entire business of marketing, immediately and for the long term. Beyond managing marketing operations, Aprimo offered clients advanced campajgn management capabHities to communicate online or offline with their consumers and prospects as well as integrated digital messaging for its onfine platform to simplify and acceJerate the delivery of e-mails and Shon Mes5a9e Service.

The company was gearing up for the launch of Aprimo Marketing Studio On Demand, a doud-based platlorm. The launch of its cloud product was stra· tegically imponant to the company to provide mo,e flexible implementation and usage of its mari<eting solutions. The launch was scheduled to happe<1 within the quane, during which Lisa joined the company, and the annual global user conference was justs.ix months away. Resoc.rces in the marketing depart- ment were extremely limited because the leadership team of the company had awaited the arrival of the incoming CMO to staff up. In Lisa's strategic view, the Aprimo brand needed to be refreshed, evolved, and invigorated. Clearly, this mari<et was ready for a true thought feadet The challenge was limited human and capital resources and not mud, time to "relaunch the company."

MyMarketinglab"" 0 Improve Your Grade!

Lisa considered her Options 1 ·2·3 Continue on the current course and pace and focus only on the launch of the product for the short term to provide more time and resources to relaunch the brand. Wait 9 to 12 months to do the more ex·

Option tensive brand work that would do a better job of commurucating the company's abilities. This choice Vt'Ould allow Lisa and her team

to focus on a "big-bang• product launch that would generate a lot of interest among potential dients in the short term. Because the marketing department was understaffed, this choice would allow the team to focus on getting the product launch right. On the other hand, the new doud product was going to spearhead a major repositioning for Aprimo,. and Lisa feared that the impaa of the launch would get lost without a more fuD-scale. integrated approach.

1 launch the product and the brand in a ·two-prong" release. Aprino could use the revenue it ,vould earn from the new cloud product to fund aggressi"' growth plans it had for the follov,ing year. This d1oice would allow the ~ny to meet its revenue goals

Op lion and also provide tv.o (rather than ooe} anchor points for the relaunch of the company; there woul:l be some buzz generated by the rew

cloud product, and then the brand relaunch a few months later could build on that. This decision v..oofd also gi.., the company time to tweak its cloud product among early ado1>er clients so it coul:l be confrdent that it was rollilg on all cylinders when the entire Aprino brand relaunched. Str1l it wasn't dear n the team's minimal staff could puO off tv.o separate launches within a fairly short period of time. And, this was a fairt, unusual strategy, so it was a high-risk mo,e for a brand-new CMO.

1 Delay the cloud product launch, accelerate efforts to rebrand Aprimo, and then launch both the cloud product and the new brand together. This option was a big-bang approach that would energize the company. The relaunch

Option 11\0uld be e....,, more impactfuf because it 11\0Uld be accompanied by the release of an innovative product to signal the company's arrival in

the cloud. All of the ~ny's event planning resources could focus on one truly integrated plan. On the other hand, this delay would probably result in a loss of reYenue for Aprimo. The time lag might give competitors an opportunity to bring out similar products beforehand and steal Aprimo's thundet Also. the delay woofd focce Teradata to miss the industry's big autumn trade show, OreamForce, where people in the indusuy traditionally e,pected to see big new launches announced.

Now, put yoursett in Lisa's shoes. Which option would you choose, and why?

LIHIA,ltl,Mi Which Option would you choose. and why? D Option 1 D Option 2 D Option 3

See what Option Lisa chose 1n MyMarketinglabTM

Over IO million students improved their results using the Pearson Mylabs. Visit mymktJab.com for simulations, wtoriaJs. and end-of-chapter problems.

125

126 PART TWO I DETERMINE THE VALUE PROPOSITIONS DIFFERENT CUSTOMERS WANT

Chopter 5

customer relationship management (CRM) A sys!ematic track.ing of consumers' preferences and behaviors CNer lime to tailor the value proposition as dosely as possible to each indi'lidual's u,ique wants and needs.

mar-tech Shon 10< ·mar\:eting tecmology." this te<m is commonly us~ to denote the fusion of marketing and technology. A panirular focus is placed on the application of marketing through digital technologies.

one .. to-one marketing fao1itated by CRM, one-to-one marketing allows for customization of some aspect of the goods or swices that are offered to each customer.

touchpoint Any point of direa interlace between rustomers and a company (onlin~ by phone. or in peoon).

5.1 OBJECTIVE Explain how mar'~ters increase long-term success and profits by practicing

Customer Relationship Management (CRM): A Key Decision Tool for Marketers A good place to kick off our discussion of how marketers use large quantities of data and adva,,ced analytic tools is by introducing the concept of customer relationship management (CRM). CRM

customer relationship systems sc.rve as a central hub of customer data for most success,. management.

(pp. 121>-131)

ful firms., integra ting various data sources that can be used to de,. velop power£ul analy tical capabilities oriented toward enhancing an organization's relationship with its customers. Vast amounts

of data have enabled marketers to understand and interact with customers in ways that \•vould never have bcc.n possible in the past. Did you know that chief marketing officers (CMOs) now spend more on technology than do chief information officers

(C!Os)? There arc roughly 3000 vendors that sell technology specifically for nrark,ting analytics (we'IJ formaJly define this term later in the chapt·c r) and this numbers grows by 300 to 500 each year! This explosion has created a new category ol lcchnology

called mar•tec.h. 1

ln Chapter 1, you lt!arned that a consumerorie11tatio11 is a business approach that pri .. oritizes the satisfaction of cus tomt!rS' needs and wants. Now it's time to drill down a bit

more on how firms actually accomplish this prioritization. Toward thi,; end, most highly successful firms embrace CRM programs that involve systematically tracking oonsum• ers' preJcrcnces and behaviors over time to taiJor the value proposition as closely as

possible to each individual's unique wants and needs. CRM aUows firms to talk to in• dividuaJ cu.~tom~s and to adjust clemc-nts of their marketing ptogl'ams in light of how each customer rcacts.2 The- CRlvt trend facilitates one•to .. one marketing, which includes

several steps:3

1. fdcntify customers and get to know them in as much detail as possible.

2. Differentiate among these customers in terms of both their needs and their value to the

company.

3. lntl.!r.lct with custome.rs and find ways to improve cost efficiency and the clf~tivefl()SS of the interactiOJ'I.

4. Customize some aspect of the goods or services that you offer to each customer. This means treating each customer differently based on what the organization has learned about him or her through prior interactions:'

Remember, successful onMo-one marketing depends on CRM., which allows a company to identify its best customers, stay on top of their needs, and increase their satL,;fuction.5

At its core, CRM is about communicating w ith cust·omcrs and about customers being able to communicate with a company "up close and personal.'' CRM systems are appHca .. tions that use computers, specialized. computer software, databaSL>s, and often the lntemct

to capture informatioo a t each touchpoint, which is any point of direct interface bt:.~vcen customers and a company (on.line, by phone., or in person).

These systems include- everything from websites that let you check on the status of a bill or package to call centers that solicit your business. When you tog on to the FedEx website to track a Jost package, that's part of a CRM system. When you gt.'t a phone mes- sage from the dentist reminding you about your appointment tomorrow to get a root canal, that's CRM (sorry about that). And when you get a call from the car dealer asking how you

like your new vehicle., that's also CRM. Rcmembc.r how we said i.n Chapter 4 th.at infonna• tion is the fuel that runs the marketing c-ngine? 1t is through CRM th.at companies act on and manage the information they gather from their custo,ners.

CHAPTER 5 I MARKETING ANALYTICS: WELCOME TO THE ERA OF BIG DATA! 127

It quickly can become ovet\\1helming to think about how to both maintain and utilize all of the data that can be collected from customers through all potential touch• points. To help reduce the cognitive load (and clerical effort) required to fully take advantage of all this data, firms deploy marketing automation. Marketing automation is a sc.t of systems and technologies that the organization can use to put in place a set of rules for handling d ifforcnt processes in an automated fashion. These rules can re.late

to the collection and processing of data, as well as the execution of different customer .. oriented actions.

Consider for ~mple a potential customer who has subscribed to receive an e-mail notification whenever a new post is made on your company's blog. A fow weeks later he or she reads and comments on a blog post that discusses the value that a dient obtained from one of your company's products. Then in a few mote days he or sh12 downloads a document from your website that outlines the technical features of that same product. At this point if you're on your toes it should be increasingly clear that the potential customer has a fair amou,,t o( interest in one o( your company's products, but with everyt.h.u,g elsc

that's going on it's often easy lot managers to miss these activity patterns. In this example an organization could use a marketing automation system from the onset to watch for sequenced events like this, and based on an w,derstanding o( their contextual significartcc- and relationship with each o ther, managers could instruct the system to send out an c.mail to the potential customer inviting her to speak to a sales repn.'.>Se1lt.'ttive, a ttt.--nd a webi.tlar, or other follow-up options. Such customizro responses greatly increase the likelihood of customer follow through.

On the e-commerce front, direct shopping company JD WiLUams deployed Otaclc's marketing automation technology to advance the targeting and pctson- alization capabilities for its e•mail marketing campaigns. The organizatio,, went from a basic level of pc..rsonalization in communications that involved using very simple data such as the customer's name, to being able to thoroughly cus .. tomize communicatio1,s bas'-"d on lifccyclc stage of the customer, the channel(s) customers were using to explore and shop, and other customer behavior data. The rcsuJt of this investment in marketing automation has been incredible-JD Willia.ms saw a 268 percent increase in e•mail click•thmugh tatcs and a 92 per· cent increase in purchases attributed to customers who dicked on one of these e-maHs . .For a company like JD Williams that sends more than 42 million c,..mails per month and wishes to take a pctsonalizcd approach, tht!tC's no doubt that greater automation of analytical and operational marketing processes is not just desirable in today's competitive matketplace; it's a ne<X>Ssity.6

As we noted pteviously, CRM doesn't just drive automated methods, it also plays a key role in e.nabling employees to maximize high•touch and personal relationships with customers. For example, consider the experience of USAA,. which began as an insurance company catering to the military market and today is a leading global financial services _powerhouse. In 1922, when 25 army of-firers met in San Antonio and decided to insure each othct's vehicles, they could not have imagined that their tiny organization would onc day serve 6 m.illio,, members and become the on.ly Fully integrated financiaJ services company in America. Unlike State Farm, Allstate, and other traditional insurance provide.rs, USAA does not provide fieJd agents with an office you can go to, sit down, and shoot the breeze about your latest fishing trip. In Fact,. USAA's employees conduct business almost entirely over the phone. But just ask any USAA member how they feel about the service, and you'll get a glowing report.

The secret sauce in USAA's success is largely il'> state,.of•thc,.art CRM system. No matter where on the globe you are, no mat-ter what time o( day or night, a USAA rcprc• scntative will pull up your profile, and you'll feel that he ot she knows you. Of course, it takes a good dose of employee training to enable those folks to use the system to its

marketing automation A 410~ of systems and technologies that can be used to establish a set of rules for handling <iffe<em marketing related processes in an automated fashion.

128 PART TWO I DETERMINE THE VALUE PROPOSITIONS DIFFERENT CUSTOMERS WANT

potential. But USAA docs a great job of building and maintaining long-term customer relationships and, more important, getting customers to move many or all of their busi .. ncss over to USAA, including banking., crt:-dit cards, money manageincnt, investments,

and finar,cial planning. To further build loyalty, USAA even runs an onlinc company store that sclls aU sorts of popular product Unes and brands /or which members get purchase discounts.7

USAA's success helps Wusttatc and explain why CRM has become a driving philosophy in many succes.<lul firms. Gartner, a lead ing information technology (In research firm, notes that the CRM market gmv from $20.4 billion to $23.2 billion from 2013 to 2014.8 Clearly, CRM has increasingly be-come an important part of how busi• ncsscs operate, and lhere does not seem to be: any signs of that trend slowing down. Gartner predicts that more organizations will adopt or migrate towards cloud .. bascd c.RM systems, which will make them even more powerfol.9 Herc are some great ex• amplcs of CRM at work:

• Amazon.com is the world champion master of the happy customer apptooch

to CRM. For loyal users, Amazon tracks visits so that it can customize product reoornm~dations on the website as we.LI as enable the delivery or rclevant product reoornmendaHons and promotions via c•mail.10 On Amazon's homepage, a user

can find product recommendations organized into sections that relate to such foe• tors as past browsing and shopping behavior and observed relationships between a product that the user recently purchased and one or more products that the user

has not yet purchased. These sections include: "Related to Items You've Viewed," "Inspired by Your Shopping Trends," and "lnspired by Your Wish Ust."11 This fo. cus on personalizing the customer exper'ience helps keep customers engaged dur·

ing each of thcir visits and helps ensure that they continue to come back for more.

• Tommy Bahama's focus on customer service is facilitated by CRM•relatcd tcchnoJo,. gics that enable the brand to collect a wide array of data around customers and to respond more agilely and precisely to customer feedback. If a customer rates his or her new martini glass camp shirt unfavorably or posts negative comments about it on social media_, the company automatically contacts him or her to detc.nnine how it can fix the problem. Tommy Bahama also uses technology integrated with its Cl~M system

that can capture customt!r feedback in retail locations, outlets, and in.store kiosks and provide it to employ""' in real-time. This capability offers instant opportunities /or employC<'S to become heroes to customers by addressing problems and providing SU•

pcrior service immcdiatel)' after the feedback has come in, ideally while the origin.at~ ing customer is still in the store.12

Disney's Magic Barnl is a wea-""11j>Jler lhat allows visilors to nteract with the theme pal1l

• Disney launched MyMagic+, a system that allows Disney World visitors to more clficiently plan oul their vac.ation experience and reduce the need to catty arow,d lickcts and other items previously nee• cssary to tour the park. Visitors c.an book events in advance. reserve times on rides, and review the park activities that they havt:" experic,nced in the past, to name a fc\,r of the main features. MyMagic+ is de• signed to be partnered with a wearable computer called the Disney Magic Band, which cnabJes users to

verify all of the actions they have taken through the MyMagk+ system without carrying around r~cipts or o ther forms of proof. In addition, they can use the

wearable Magic Band to make transactions while in the par-k. The benefits and convenience for visitors is obvious, but for Disney anothc.r big advantagl.:" is

CHAPTER 5 I MARKETING ANALYTICS: WELCOME TO THE ERA OF BIG DATA! 129

the amount of data it can collect on visitors' behavior and actions. These data bettt!r en.able the firm to understand how to co.mmunicatc with each customer and man• age each relaHonship more cffot.'tive:ly.13 Yep-one,.to--onc marketing even within a

massive theme park!

Customer-Related Metrics In addition to having a difft!n?nt mind-set, companies that succ~,;s. fully practice CRM have different goal<, use dilforent measures of success, and look at customers in so1nc different ways (rom firms that do not. CRM facili ta tes the capability for users to look at three critical customer-related metrics (sec@ Figure 5.1): share of cus- to1ncr_, customer lifetime vaJue (CLV), and customer prioritization.

Let's have a look at each of these ideas now.

Share of Customer

&.""Cause it is always easiet and less cx_pc.f1sivc to keep an existing

customer than to get a new one, CRM firms try to increase thcit share of customer1 not share o( market; this is the percentage of Shara of an individual customer's purchase of a product over time that is customer the same brand. Let's say that a consumer buys six pairs of shoes a year-two pairs from each of three different ma.nufacturc.rs. Assume that one shoemaker has a C.RJ\'t system that allows it to send letters to its current custom• cts inviting them to receive a special price discount or a gift i( they buy more of the firm's shoes duting the year. U the firm can get the consumer to buy three or four or perhaps aU six pairs from it, it has in creased its short of cuslomer. And that n,ay not be too di(JjcuJt be<:ause the customer already likes the firm's shoes. 1A'ithout the CRM system, the shoe company would probably use tradHionaJ advertising to increase saJes., which would be far costlier than the custome:M>nly direct mail l.-ampaign.. So the company can increase

sales and profits at a much Jowc-r cost than it wouJd spend to get one, two, or th.n:.>e new customers.

Customer Lifetime Value (CLV)

As you' lJ recall from Chapter 1, cuslonter lifelimt wlue (CLV) represents how much profit a firm expects to make from a particular customer, including each and every purchase he or she will make from them now and in the future. Thus, this metric

describes the potential profit that a single customer's purchase o( a firm's products gene.rates over the customer's lifetime. It just makes sense that a firm's profitability and long.·term success wW be far g reater if it develops long-term relationships with its customers so that those customers buy from it again and again. Costs will be far higher and profits lower if each customer's purd,ase is a fi..rs t•time sale. That's why we keep repeating this mantra: It's mucl1 more projilable to retain au exisliug customer Illan to acquire a tJtW ont.

How do marketers calculate the lifetime value o( a customer? Herc's an example us-

ing an auto dealer we'll caU Millen.n.iaJ Motors, so buckle your seatbelt because it's time to put the pedal to the metal on this critical conc.,pt in marketing. Using data frorn the CRM system, a M.illoonial Motors marketing manager would first estimate a customer's future purchases across all products from the firm over the next 20 or 30 years. The goal is to try to figure out what profit the company could make from the customer in the fu ture (obviously this will just be an estimate).

For example, Millennial might calculate the l.ifcHme value of a single customer by

first calcu lating the total profit the customer will generate for the company during his or her lifo. This figure includes the number of automobiles he or she will probably buy

Rgure 5.1 @ Snapshot I CRM· Enabled Customer Metrics

FoOowets of CRM look at sha~ of customer, lifetime value of a customer, and customer priotitization.

Customer lifetime value (a VJ

Characteristics ofCRM

share of customer

Customer prioritization

The percentage of an individuat customer's pnchase of a product that is a single brand.

I i

i

130 PART TWO I DETERMINE THE VALUE PROPOSITIONS DIFFERENT CUSTOMERS WANT

times their average gross margin (the price of th~ related automobiles less what the dealer paid for them and the costs associated with selling thc.m to the customer). We add to this figure an es-timah? of any service and repairs that Millennial wouJd provide for the cars over the years and even possibly the income from auto lo.an financing. We would subt.ract the cost of initially acquiring the customer in tc.rms of sales and marketing effor ts. The rc:;ulting figure would also need to take into account the Ukefi.• /JoCHi that MHlcn.niaJ will retain the customer for the calcuJate,d period (this can be csti• mated based on historical data o( all customers), as wt?lt as any other unique p<>tc.ntial risks or uncertainties associated with the expected value of the customer through the life of the relationship. The lifetime value o( the customer would be the total profit the

revenue stream generates. He.re's what the process of calculating CLV looks Like as a formula:

CLV ($) = Margin ($)/[l + Discount Rate(%) - Retention Rate (%) ] - Acquisition Cost ($)14

'Inc '-'discount rate'' calculation is lhc one that takt."S into account the risk ot uncertainty

factors mentioned previously.

ln practice CLV ca.Jculations companies use may be more complex because they factor in changes that occut in the relationship with a customet from one period of time to the next that do not assume constant values over the whole relationship (such

as the preccd;ng Millennial Motors example). The loyalty program that might be used by an airline company and the tiets contained vdthin that program provide us with a suitabl~ framework for exploring one type of approach to cakuJating custome-r lifetime

value that can more accurately captu re how a c-ustom~r·s relationship with a company may change from one point in time to the next. A customer w ith.in a loyalty program may move over time from one tier in a given loyalty program into another tier (with

the American Airlines AAdvantage program, for example, from Gold to Pl.iti num to Executive Platinwn in status) bas'-"d on speci£ic purchase behaviors. Progression

A bank's cust001ers,... not e<JJ•I when tt comes ID prolilablity. Some use it p<imariy as a place 10 pick up cash for lhe weekerd.

through the status ranks is dearly associated with increasing leve.Js of a cus•

tome:r's value to the airline. A more complex vcrsio,, of a CLV calculation might combine the defined

tie:rs within its customer loyalty program, the likelihood that in a given period of time a customer will move from one tic.r to another, and the value assocfated

with a customc.r being in a gio.;ren tier during a given period of time to ~trapo• l.ite what that customer's va.lue will be over the lifotime of his or her relation•

ship with the airline. This type o( approach is tricky to represent as a simple formula; instead, marketers rely on more complex statistical approaches such as Markhov chain modeling to estimate CLV. Nevertheless, the example should

provide you with a gi.?ne:ral idea o( how a company can engage in a more nu• anred approach to calculating customer lifetime value that is not limited to the assumption of constant values over the course of the company's relationship

with a customc.r. With all that in mind, the calculation of CLV that was initially provided da<>s

offer a suitable starting: place to understand the basics of how companies work

to determine the value o( customers and the implicatio!'\S for marketing managc-- ment A key to the. importance of CLV is that nobody sets out to acquire a cus• tomer that will cost them more money than they bring in! But without an effective cstitnate such as CLV, one might invest a lot of marketing dollars in the wroi,g

customers over time.

Customer Prioritization

Using a CRM approach, the organization prioritizes its customers and custom ..

i.zcs its communications to them accordingly. For example, any b.inkcr will

CHAPTER 5 I MARKETING ANALYTICS: WELCOME TO THE ERA OF BIG DATA! 131

tell you that not all customers arc equal when it comes to profit.ability. Some gcncr .. ate a lot of revenue because they pay interest on loans or credit cards, whereas others simply use the bank as a convenient place to store a small amount of money and take out a little bit each week to buy beer. Banks use CRM systems to generate a profile of each customer based on foctol"S such as value, risk, attrition, and interest in buying new finaru:ial products. This automated system helps the bank decide which current or potential customers it wiU target with certain communications or how much effort it will expend to retain an account-all the while cutting its costs by as much as a third. It just make:s sense to use different types a£ communication contacts based on the value of each individual custome..r. For example, personal selling (the most expensive form of marketing communic.ation per contact) may constitute 75 percent of all contacts with high•volumc customers., whereas din..--ct mail or telemarketing is more often the best way to talk to low•volume custome:rs.

5.2 Big Data: Terabytes Rule CRM systems _provide a great internal organizational data reposi• OBJECTIVE tory. But as more consumer experiences shift into the digital space Understand Big Data, and new means of connecting and interacting with both individu•

data mining, and how marketers can put

these techniques to good use.

(pp. 131-140)

als and corporations becomes possible and widely accepted,. it is no surprise that Big Data is b-i..'Coming an increas ingly important concept. You we.re briefly introduced to Big Data in Chapter 1, where you learned that it is the popular term to describe the ex .. ponentiaJ growth of data- both structured and uns tructured- in massive a.mounts that arc hard or impossible to process usillg tra ..

ditional database techniques. According to SAS, a leading provider of data analytics software, ,.Big Data refers

to the e.vcr•increasing volume, ve:locity, variety, variability and complexity of inform.a• tion." 15 Think about the amount of time that you spend onlinc looking up information th.rough search engines such as Google_, coMccting with friends through social media sites such as Facebook and 1\vitte.r, listening to music on sites such as Spotify and YouTube, or myriad other act.ivitie:s on the web or through a mobile app that all of us c.ngage in, and you'll begin to comprehend the sheer volume of data that we (perhaps unwittingly) create each and eve.ry day. Each action you take online: leaves a digital footprint, and all of your footprints-especially when analysts combine them with the footprints of thous.ands or eve:n millions of others-have the potential to y ic.Id va)u .. able insights for a wide range of stakeholders within society. Table 5.1 provides some examples of common user actions that create these valuable footprints for marketers to follow.

The hugcly successful Netflix show House of Cards became one of Netflix's first origi• nal programs thanks in part to the use of Big Data. This is because Netflix is able to use a treasure trove of consumer data pull~ from its site to he.Ip inform content acquisitions, induding consumer viewing habits (e.g., when, where, a.nd with what de.vices do they watch) and content preferences (recall Chapter 4's coverage o( predictive technology and how Netflix trained teams o( people to watch thousa.nds of movies and tag them according to attributes such as "goriness(' or .,plot conclusiveness" to figure out what movies or TV shows you are likely to enjoy-and thus be able to make better recommendations). All of th.is data helped Nctflix to more accurately pn..~ct whether buying U,e rights to House ef Cards was a sound decision based on a highe:r degree of confidence that the coinpany could find a suitable group of current (and perhaps potential) customers who would enjoy the shO\l\.j and promptly start binge•\',tatching it. Nctflix leverages large quantities of data to

Big Dat a A popular term to de5aibe the exponential 9'0\vth of data-both structured and msuuaured--in massive amounts that a.re hard Of impossible to process using traditional database techniques.

I • !

132 PART TWO I DETERMINE THE VALUE PROPOSITIONS DIFFERENT CUSTOMERS WANT

rabtes.1 I Examples of Data Created on Digita l Platforms Facebook

Examples of User Actions

"Like" an Internet celebrity·s Facebook page

Potential Use of the Related Data for a Marketer

Data representing each .. like" are recorded and associated with 1he individual user who committed the action. For example, if a marketer believes that the related Internet celebrity is well suited to endorse a product for female miUennials. the Internet celebrity could show the marketer the related "like" data that would show that the majority of her followers fall within the correct age range and gender for which the marketers product is designed to appeal.

YouTube Watch a video

Skip an ad displayed before a video

Internet of Things Describes a system in whi<h e,,eryday ol>jeru ate connected to the Internet and in tum are able to com1Wnicate information throughout an interconnected system.

•

Data are recorded representing the view of the video and based on the characteristics of the video (e.g., its topic) related videos will be recommended to the user in the future that have the potential to increase the user's engagement on the platform (e.g., views of videos and time spent). A marketer could see that a large enough group of users view videos within the given topic and choose to use YouTube to distribute a video ad to users within this group (based on the assumption that the related video topic attracts a group of consumers with interests relevant to the product being advertised). Data are recorded representing the action of pressing the "Skip Video" button for the user. If the marketer saw that a particular video ad was being sl<ipped often enough through a review of this data in aggregate (across all users who were exposed to the ad), this could provide a good basis to dig deeper and determine if there are specific issues with the content of the video ad or the audience(s) to which it is delivered.

drivt:" a wide array o( choices on what shows and movies to license, as well as which ones

to buy ~,e rights to and produoe.16

For marketers, Big Data has potential to providc competitive advantages in thn.~ ma.in areas:

1. Identifying new opportunities through analytic.c; th.at yield greater return on invest• ment (ROI) on marketing efforts

2. Turning insights they gain into products and services that are better aligned with the desires of consumers

3. Delivering communications on products and services to the marketplace more cffi.

ciently and effectively

·smart refTigeratois· that can scan product codes are part m lhe "Internet of ll*lgs: It may not be 1mg before )<ll.f lndge \\ill compile a shJA)ilg list lor you as )'Cl! n11 out ol staples and even e-mail the grocery store to arrange for a dewery.

The: amount of data that all of us produce does not appear to be slowing down either, as new technologies continue to enhance the \,rays we connect to people, ma•

chines, and organizations. The Internet of Things is a term that increasingly appears in articles and stories on technology trends. It describes a system in which everyday

objects a.re connected to the ln temct and in tum arc able to communicate information throughout an interconnected system.17 Areas that would become part of this network i:ncJudc medical de,riccs, cars, toys., video games, and even a six•pack of beer in your refrigerator- the list goes on and on. Within the context of Big Data, this means that an even

larger amount of data will be accessible, offering insight into the extent and ways in which consumers use everyday objects. Like the marketing automation technologies we mentioned previously, this knowledge wW allow com .. panies to automat'f• pmet..--sses that \,rcrc pre\riously done

manually. Wclre al.ready seeing these changes in small

CHAPTER 5 I MARKETING ANALYTICS: WELCOME TO THE ERA OF BIG DATA! 133

ways; just ask anyone who uses a Google Nest system to automatically regulate the thermostats in their home so that the A/C kicks in JO minutes before the owner walks through the door!

For marketers, this intercol\ncction of objt?cts and collection of data could mean gaining insights into how we use products via data captured through sensors embed· ded in products that track a user's interaction with the product. This information would then be transmitted via an lntl.?rnet co,,ncction at or ,,car real time. Not only would this enable us to gain greater knowledge about how pt..'Ople use products, but this also could be done on a scale that traditional market research can achieve only through astronomical financial invcs-tments--esscntiaUy tracking the actions o( each and every product user!

So it's easy to begin to see how much data we wouJd produce in a world where the Internet of Things has fully taken hold. Consider the following quote from Jan Wassc.n, Director of Business Analytics at automobiJc manufacturer Volvo, about the possjbilities s temming from the Internet of Things: "We can learn from it how custom• ers a.re driving their car; at \"'hat speed it's being dtiven, which types of behavior that the customers have and learn it for developing future mode.ls. We can learn whether thl?y're utilizing the center screen for getting at thcir different entertainment funcHons or if they use the turn button of the stcc.ring wheel or the voice control. We can also utilize the particular data for this particular customer l'o tcl1 them_, 'You actually have a function in your vehicle. It doesn't St.--cm like you're utilizing this and it works like this,' and we could provide: them with a vidoo showing that 'This is something you shouJd know.'" 18

Big Data Creation, Sources, and Usage The millions of pieces 0£ information that make up Big Data originate from a number of different sources. Some of the 1nost important sources of Big Data for marketers arc listed here and illustrated in~ Figure 5.2:

1. Social media sources.: With an increasing array o( social media sires that boast a large number of consumers interacting with each other, with brands, and with o ther en .. titics, a wealth of information is being produced about how individuals £eel about products and just about everything else in their lives. lt is not uncommon today for consume.rs to c.ithc.r praise or condemn a product online. That il\formation can be

web scra.ping The process of using compU'!er software to extraa large amounts of data from websites.

sentiment analysis The process of identifying a follower's attitude (e.g., • positive; • negativ~ • °' · neutral") toward a product or brand by assessing the context Of emotion of his or her convnents.

vc.ry valuable to markct·ers not onJy in terms of what they're saying but also in terms of factors that triggered thc-m to say it. Today, several companies engage in web scraping (using computer software to extract large amounts of data from websites), sentiment analysis (a process of identifying a fol .. lm'\tcr's attitude (e.g., "positive," "negative_," or "neutral") toward a product or brand by assessing the context or emo- tion o( comments they post), and o ther advanced techniques that involve analyzing and mapping millions of posts on Facebook, Twitter, and other social media platforms to track what pt...'Ople say about their experiences with product,; and services. They depict the themes in these posts visually so that managers can easily SCf' the kinds of words customers use in their posts. (Hint: H your brand's name appears a lot of time with terms like .,.awful" or #sucks," you probably have a problem.)

Figure 5.2 @ snap.mot I Sources of Big Data for Marketers

2. Corporalt IT s.o1,rces: These are the sources of data that live within the organization and might include: CRM databases, web analytic databases (e.g., Google Analytics), enterprise

Big Data can come f<om many sources. These sources can be both within and outside of the organization and eteated and compiled from diffetent groups.

Government and Nongowmmental Organizations

Co,ponb!LT. CommetdaJ Entit ies

'\. ,/ 7 \

S0uta!S 5ocla1Medla . ofBlg . Partners

Data

134 PART TWO I DETERMINE THE VALUE PROPOSITIONS DIFFERENT CUSTOMERS WANT

scanner data Data derived from items that are scaMed at lhe ca,11 register when you check out v.;th your loyalty c.vd.

channel partner model A celatiooship between channel panners in which a two·wa, exchange of information betwH'n purchasing organizations and their respective vendors is faciJita1ed through shared 0t integra1ed rr systems.

resource planning databases, and even accoun.ting•te.latcd databases. Each o( these sources can contain a lr~asure trove of information on an organization' s consum• crs. Unfortunately, too often these systen,s live in departmental "silos"; one group

in the company may not share this information with others in the firm., so each group gets only an incomplete picture o( its cust·ome.rs. He:ncc, marketing needs to be the function within the organization that cuts across these groups to mine these-

databases and connect the dots.

3. Gave.mmenl amt nongoverumentnl organi.zaliou sources: Provided by the govemme:nt, these types of data could be most anything from extracted U.S. Census results (quickly check out www.census.gov to begin to be overwhelmed with rensus data) to data on

the economic conditions in developing countries that allow marketers to bctter wl• dorstand the demographics of consumers at home and the opportunities for global expansio1\. Ever•incrcasing types and amow'1s of govcmment•generated data that arc

accessible and machine readable will continue to provide ne" .. , opportunities for enter• prising marketl!l'S.1CJ

4. Commercial entily soi,rus: M.any companies today collect data in large quantities to sell to organizations that can derive value from the.m. For some provider nrm.~. this activity is their primary source of revenue; for others, it is a nice additional source of revenue over and above their principal business activities. For example (and this may or may not come as a surprise to you), many credit card companies,

such as American Express and MasterCard, se:IL your purchase data to advertise.rs so that they can better target thc.ir ads. And supermarkets like Safe·way for years have sold scanner data-data derived from aU those items you scan at the cash

regLster when you check out with your loyalty card (which just happens to have your demographic profile information in its record!). Supermarkets sell lhe data in aggregated form so that it's not possible to idc-1ltify the actions of a specific

customer, but scanner data still provide extremely use.fol information to both I manufacturers and retailers about how much shoppers buy in different cat•

cgories and which brands they choose.20

S. Partner database sources: rn Chapter 111 you will read about different members of a cha,mcl of distribution. Many firms today have adopted a channel partner model in which the-re is a two-way exchange of in.lorma• lion betw~n purchasing organizations and their vendors through shared

or integrared IT systems (more on channel relationships in Chapter 11). lf you're the producer of a product that is sold by a large retailer such as Wal.mart, think about the information and insights you could gain from

access to the consumer information that Wal.mart gathcts from its inte:rac• lions with shoppers in its stores.

tndccd, Walm.art in particular is already we:ll known for e1nployi:ng this

approach through its vendor management system known as Retail Link, which provides real•timc purchase data to suppliers1 making it possible for them to track purchase data for their products in real lime. Vendors arc able

man.age the process of replenishment so that they can ensure that their prod· ucts are available for consumers exactly whc-.n and where they need thc.m. tn addition, for marketc.rs1 this provides a valuable source o( purchase data

in real lime that they can use to analyze purchase- patterns within different Walmart locations. 1t also saves Walmart the costs of having to manage this pmcess thcmsclves.21

The loyalty card you use at 1he ,....,,,arl<e! provides the stce with val~ data about ycu JUChase history.

For organi2ations1 being able to leverage large amounts of data to yield new insights and provide a clearer understanding o( bolh consumers and in• tcrnal business operatiorls is an attractive proposition and a potc-ntial source

CHAPTER 5 I MARKETING ANALYTICS: WELCOME TO THE ERA OF BIG DATA! 135

of competitive advantage. As we noted in the previous sect-ion, increased integration within supply chains allows organizations to more efficic.ntly track the movement of goods at every point. This helps them to create a more efficient balance between supply and de:mand and can create greater confidence among supply chain members whc.n it comes to supplying either raw materials or producl<; at exactly the point when Lhcy arc needed (more on this whet, we discuss distribution, and in particular jusl in time (/IT) delivery and inventory techniques in Chapter 11). Ultimately, this means cost savings that retailers can pass down to the consumer in the form oF lower prices.

A little known-and also q uite importallt-source o( Big Data for marketers is an aspect of daily IHc you may not have con.,;idercd from a marketing pc.rspt'Ctivc. Specifically, weather data coJJoocd in real time can be a great asset to marketers thanks to advances in technology (i.e., marketing automation) that makes its use in micro•local contexts marl? cost effective and valuable. You may be surprised to lcatn that vcncr .. able tech firm IBM, who is bes·t known for its Big Data and business analytics capabiJi .. ties, n.'<:ently purchased the digital assets of the Weather Company (aka, The Weather Cha1mcl). It's a brilliant move! Among other things it enables Big Blue (that's IBM's historical nickname) to integrate. a vast amount of weathc.r•relate<I data into a number

Brand Association Map

. ....... ~ ..... . .....

·-·-

·-· ·-

- -

.... ,_

-· ...... -· ,_. -- · -· Nielsen's BAM (Brand As&JCiatioo Map) analy,es coosume, conversations online aoo plols the words and phrases that most dosely relate to a dient's brand. The doser a word appears to lhe nws oerner, lhe stronger lhe association. And lhe proximity of words 1o each other also indicates the strength of lheir retationship il online posts..

i j i 6 j .. <

136 PART TWO I DETERMINE THE VALUE PROPOSITIONS DIFFERENT CUSTOMERS WANT

information overload A state in which the marketer is buried in so mudl data that it becomes nearly paralyzing to decide which of the data provide useful information and whkh do not

data mining Sophisticated analysis techniques 10 take advantage of the massi.,.oe amount of transaction information now available.

data warehouse A system to store and process the data that resuft from data min~.

of its current products and setviccs, as we:lt as develop new offerings that make use of the data.22

To fully appreciate the value of this acquisition to lBM, think about how consumer

behavior may shift as a result of the weather. For ~ample, a national spa company might docide to use location-specific weather data to trigger the delivery of a rainy day pro1notion to potential customers whc1, the weather in U,e related area has taken a tum

for the worse. Imagine if you had plans to go hiking (or some other outdoor activity) on a Saturday. Upon rolling out of bed you look out the window to see that the sun is nowhere to be found. New plan: a spa day! Oh, and tha.nks to the c,,.mail promotion you

just rcccived it is a top~f .. mind alternative to salvage the day as a result of the inclement wcathc.r. This approach also comes in handy in more extreme situations. For example.- when part of the country lies in the path of a hurricane, Wal.mart knows From experience- what products to quickly load on its trucks that sc-rvice stores in that rt:.."gion- two top• scllers are strawberry Pop Tarts and bcer.23

Data Mining Who says you can't have too much of a good thing? For organizations today, the challenge with data is not about having enough of il To the contrar~ many have fat too much info.rm.a•

tion than they can handle! Big Data can easily exacerbate the pmblem of information over· load, in which the marketc.:r is buried in so much data that it becomes nearly paralyzing to dccidc, which of it provides usc:fuJ information and which does not.

Most markeliug inform,ztion systems include internal custom~r transaction data• bases, and many include acquired databases. Often, these databases are extrc:mely large. To take advantage of the massive amount of data now available, a sophisticated

analysis technique called data mining is now a priority for many firm.s. This rt?.fers to a process in which analysts sift through Big Data (often measured in tcrabytcs-much larger than kilobytes or even gigabytes) to identify unique patterns of behavior among

diffore:nt custom.er groups. To give you a sense of the scale, 1 h?rabytc is equal to 1,024 gigabytes!

To get a flavor of how data mining aids in marketing decision making, let's consider a

couple of cxamples

• The supermarket chain Safeway learned from its data mining efforts in the United Kingdo1n that the upper 25 percent of most valuable customers for the: chain fn.'.>,,. qucntly purchased a cheese that ranked only 209th in sales. Without knowing that this it~ was heavily prefort\..>d by the most profitable customers., Safeway would. have no doubt dropped it from invent-ory for poor overall performance.24

• The web-based travel company Orbitz discovered by mining its data that Mac users

spend as mu.ch as 30 pt...~nt mort:" than PC users on nightly hotel accommodations. This insight led Orbit2 to offer higher-end options more fn.'quently to Mac users. Clearly Orbitz made a sound business decision, but it was met with a fair amount of criticism at the time of its implementation as a result of perceived unfairness.is Data

mining can yicJd valuable insights, but it is important for marketers to remember that data-<l.riven decisions shouJd not occur in a vacuum and they must still consider the

full scope of the impact that can result from putting strategies in place that a single result &om data mini.ng suggests.

ln a marketing; context, data mining uses computers that run sophisticated programs

so that analysts can combine diHc.re:nt databases to understand relationships among buy .. ing decisions, exposure. to marketing messages, and in-store promotions. These opera• tior\s are so CQ1np lex that ofte.n compa1Ues need to buiJd a data warehouse (which can

cost mor~ than $10 million) simply to s tore a.n.d process the data.26 As you've no doubt

CHAPTER 5 I MARKETING ANALYTICS: WELCOME TO THE ERA OF BIG DATA! 137

read in the ne-ws because it can be controversial, mar· ketcrs at powerful consumer data generators GoogJe, Nctflix, Amazon, Facebook, and Twitter are int·o data

mining big time. For example, Faccbook has access to vast sums of data created as a result of the various posts., comments, and reactions by the one billion plus users that use, the social media platform on a daily basis.27

Primary Data Types for Data Mining As data mining techniques improve and software t>c.. comes more adept a t understanding and analyzing

information in its various formats, the ability to gain j deeper insights about consumers from data is incrcas- ~ ing. Data in e.lectronic format cM, be conside red c-ithcr j structured o r unstructured. Structured data arc what Massive data wareh:luses (<1' seNer farms} store the huge amounts oe informatiln lhat mar"2ters you might find in an Excel spreadsheet or in a statis-- need to data nile and exarrile purdlasing patterns to ~d insights atn.rl lheir rustomers tics table on a sports website such as ESJ''N.com. These IJ'eferences.

datasets typically are either numeric or categorical; they usually are: organized and Conn.a ttcd in a way

structured data

that is easy for computers to read, organize, and understand; they can be inserted into

a dat:abase in a seamless fashion; and typically they can be easily p laced within rows

Data that (1) are typically numeric or categorical; (2) can be organized and formatted il a ~ that is easy for compu1ers to read, organiz~ and understand; and (3) can be i'lserted into a database tn a seamless fashion.

and columns.

Ripped tr· ;,n, tl1(~ Headlines Ethical/Sustainable Decisions in the Real World $oftwa1e algorithms have become a significant part of our daily lives and a major source of advancements in personaJ and organizational produc· tivity. Algorithms comb thiough vast amoums of data to find hidden pat· terns and determine how to use those patterns. The formula ma'f PfOmpt the system to offer a highly personalized experience to a user when shop· ping or to provide new conlent on the user's website or phone based on what has already been viewed.

T-shin company Solid Gold Bomb learned this the hard way v,nen it used an algorithm to automate the design of thousands of variations of a T-shin. all around the concept of modifying the wel~known saying "keep calm and cany on." The British used this phrase during Wo~d War II to keep up civilians' morale during German bombing runs. The algorithm generated all kinds of variations including "keep calm and play football" and "keep calm and dance." These and thousands of other alternatives lived on the web-including at least one version that featured a distaste· ful saying (we can't publish it here!}. The shin went viral and needless to ""I many people weren't happy. The company received a lot of criticism horn those who sttoogly feh the fom should oot be let off the hook just because the offending variation was the accidental result of an algorithm. In the end, the negativity this incident generated was too much for the small company to handl~ and a few months later Sor.d Gold Bomb closed down shop. za

Algorithms also placed Facebook in the middle of some controversy. A source publicly claimed lhat some contraaors within Facebook known as •news curators" may have selectively excluded news stories from the platform's "Trending Topics" module based oo the view that those stories would be of interest to individuals with conservative pofltical Jeanings.29 Even if the dajms were true that Facebook's workers were selectively excluding stories from the "Trending Topics" module based on their own personaJ biases or the company's biases. such activity would not have been ille<Jal Re<Jaidless, the situation does point out a potentially gray ethical area that can arise when algocithms require human intervention in order to effectively serve their purpose. El10CS CHECK: ,

It is al,o worth considering that an algorit!vn may oontail systemic biases as a result of the Should 90Cfal media peoonal preferences of the desi;Jners, develop- ers. and testers involved in it:s aeation. This leads to other potential ethical cpandaries about the algorit!vn's use and perf0<mance.30 As sudl, it's podlle that even without human intesven- tion ii Faceboolc's process of selecting "Trending T epics; the algorithms used coold have e,hit,. heel a bias toward one or more partirular views because the foonula was programmed to li<Jh· fight some terms or phrases ow, others.

companies who use algori11tms Ill selecl

- stories for dis- play and distribution oo !heir platlonns be required Ill provide lnlnspatency onlD llte Inner~ of the related ainorilltms?

D YES O NO

138 PART TWO I DETERMINE THE VALUE PROPOSITIONS DIFFERENT CUSTOMERS WANT

Figure 5.3 ~ Process I Structured and Unstructured Data Examples ln contrast, unstructured data contain nonnumcric infonnation that is typically for• matted in a way that is meant for human eyes

and not easily understood by oomputers.31 A

Fclf mo,e unstructUl'ed data than structuted data are created on a daily basis through ditfe<ent business p,oc.esses. but both haYe the potential to offer marketers greate< insights into lheir customers and rnaitets.

Structured Data

• Date

• Time

• Census Data

• Facebook "Likes"

unstructured data Nonnumeric information that is rypicalfy formatted in a W1!f that is ~t for human "J'S and not easily undentood by computers.

emotion analysis A sophislicated process for identifying and categorizing the emotions a follower possesses in relation to a product or brand by assessing the content of that communicarm

Unstructured Data

• Body of Emails

• Tweets

• Facebook Status Update Messages

• Video Transcripts

good example of unstructured data is the body of an c,..mai! message. The e.mail carries a Jot o(

meaning to a human, but poses a greater chal• lenge for a machine to understand or organize. ~ Figure 5.3 lists other examples of different types of structured and unstructured data.

In the past, data mining and data analysis \1,•erc focused on structured data because co.m•

putcrs could easily analyze a large number of data points at one time. For instance, a base• ba.LJ statistician can put into a co1nputcr alJ of the "at bats" that a player has had throughout the course of a season along with the.it out• comes and easily tell the computer to predict his batting average for the year (as well as a

number of other useful measures). Thi,; output yields a better understanding: of each player's performance on the field.

It becomes more challenging- but also potentially more interesting- to derive meaning from large quantities of 1mstr11cturt!d data. for instance, imagine that you arc the social media manager for a company that sells candy bars and you spend a lot of time engaging with customers through Facebook and Twitter. You arc lucky to have a lot of likes and followers and a hjgh level o( interaction as well, but you're not satis• Hed with these data a.nd believe that this is 01,ly the t:ip of the iceberg. ln addition, you know that all of thesl? comments from your customers could be a source of a Jot of great information- the only problem is that there arc thousands of them flooding in, and you're only one person. How could you possibly find the time to effectively ana- lyze the:it contents and discern valuable patterns from all of this i.n.formation? Even a huge team would have sig·nificant challenges trying to cull lhrough the vast a.mount- of unstructurt .. ~ data customers create every day when they talk about diffotcnt com .. panics online.

Technology to lhe: rescue! Significant advances in data•analytic technologies make the process of unstructun..~ data analysis easier through the di.!ve.lopme:nt of computer logic that can search through and extract patterns from large amounts of textual data. It also makes it more cost effective through the use of automated processes as opposed to manual inl'crve:ntion (imagine having to sift through every message by hand to pull out a.nd record the information that you believed was mea.ninglul).32 The other advan .. tagc is that these types of technologies gi·vc unstructured data a "structure," enabling it to be shared and leveraged whc.i, combining it with data sources hcld elsewhere in an orga.nizatjon.

Previously in the chapter we introduced sentiment analysls which is co1nmonly used with social media data to determine the attitudes heJd by consumers ii\ rcla• tion to a brand. As technology becomes even more advanced, marketers are moving beyond sentiment (which might simply be recorded as either "positive," "negaHve,"' or "1,euttaJ") into a wide range of more compl~ fceHngs and emotions. This method, known as emotion analysis, can analyze the content of social media communications within the context of a specific brand or product and determine what emotional cat• cgory or categories the communication fits within. The media conglomerate Viacom (which includes MTV, Nicke]odeon, and BET to name a fow) tt.~ently chose to use: a tcc::hnology startup called Canvs for emotion analysis to offer its advertising partners

CHAPTER 5 I MARKETING ANALYTICS: WELCOME TO THE ERA OF BIG DATA! 139

greater insight into how viewers arc reacting to the advertisements they place through Viacom's programming and o ther content offerings. Canvs is able to categorize com• ments into 56 categories (in other words provide and translate 11nstn1cf11r~d data into structured d,ztn) that include such categories as ''trippy," "awkward/' "guilty pleasure;" and ... mind blown." The company is able to do this by allowing its algorithm to look at social media comments within the context of the company's own database of more than 4 million words and phrases, which includes short•hand expressions popular on social media as well as generation specific vernacular (e.g., "'bac.., and "'on Acck'').33 Being able to leverage both structured and u nstructured data in data mining efforts offers

marketers the opportunity to gain a deeper understanding of their customers.

Data Mining: Applications for Marketers A key theme of this chapter and the previous chapter is that better understanding of both current and potential customers should be a centra.J goal for all markcte.rs. Every intcrac .. tioi, the firm has with a consumcr--every touchpoint, regardless of which department

might facilitate the interaction--c:an provide valuable information for marketers to lever• age. Data mining tcchniqw,s that cnhano, the value of Big Data provide opportuniHcs for marketers to increase orgunizational performance. To help identify the data n"'-'Cled for

these efforts and bring them together, organizations often as.~cmb]c teams of individuals from different functions, such as marketing, sales, in .. sto~ operations, and JT to help idc.n• lify and gather the needed data sources for analysis."'

As illustrated in ~ figure 5.4, data mining has four important applications for markcters:35

1. Custamer acquisit-iou: Many Hm'lS include demographk and o ther information about customers in their database. For example, a number of supermarkets offer wce.k.Jy spc,- ciaJ price discounts for store "members." These s tores' membership application fotms n..--quire that customers indicate thcir age_, famiJy size, address., and so on. With this information, the supe.rm.arket determines which of its current cuo;-tomc-rs respond be;-t

to specific offers and then sends the same offers to noncustomcrs who share the same demographic d'latacteristics. You read previously that Safeway's U.K division learned

through mining supermarket scanner data that many of their most valuable customers prefer a particular ty)'<' of chcesc. This insight is quite handy to create special promo- tional offers on that cheese to a ttract 1nore noncus tomers that match the characteris tics

of the current cheese fans.

2. Cuslomer retention oud lo-yalty: The firm identifies big.spending customers, who may or may not be at risk of defecting, and then targets them with special offers and induce- ments other customers won't reccive to reward them for their loyalty and increase

Customer Acquisition

.__B_as_k_~_:_~_k:_:_,Y_•_i• _ _,_.11 ... __ D_a_~-ses~M_i'::_i_n_g _ __,H Ret..::=~alty I "

Customer Abandonment

Figure 5.4 ~ Snapshot ( Uses of Data Mining

Oata mjning has four primary appli(ations for matketets..

140 PART TWO I DETERMINE THE VALUE PROPOSITIONS DIFFERENT CUSTOMERS WANT

data scientist AA individual ..tio searches through rooltij)le, disparate data saorces to disCO'to'er hidden ilsights that will provide a competitive advantage.

fl,eir likelihood o/ retcntion.36 Keeping the most profitable customers coming back is a great way to build business success becau.,;e-hc.n:~ we go again!-kecping good cus• tomcrs is less expensive than constantly finding new ones.

3. Custamer abandottmeut: Strange as it may soundi sometimes a fi:rm wants customers to take thcir business elsewhere because servicing them actually costs the firm too much. Today, this is popularly called "firing a customer." For example, a department store may use data 1ninit,g to identify unprofitablll' custome:rs-those who don't spend

enough or who return most of what they buy. Data minit1g has allowed Sprint to fa. mously identify its customers as "the good, the bad, and the ugly" (we're not sure who the ugly are ... ).37

4. Market basket analysis: Develops focused promotional strategics based on the records of whkh customers have bought certain products. Hewlctt•Packard, for example, ca.re• fully analyzes which of its customers recently bought new printers and targets the:m to n.~ve e .. mails about specials on ink cartridges and tips to get the most out of their

machines. Anothe-t example is when a user purchases one item on Amazon and then is recommended a sc-t of itc.ms that other users who purchased the first item also pur• chaSt.'Cl (such as recommending a Rachcl Ray Coolcing Pan after a customer purchas..>s

a Rachel Ray Coolcing Pot).

Data Scientists: Transforming Big Data into Winning Information ln Chapter 4, we ta)ked about the important tole of customer insights for marketing decision making. Being a.ble to transform data into insights and leveraging data to en• hanre the: way that organizations interact \ti.rith consume.rs is a really challenging propo·

s ilion. It is one that analysts execute with the help of powerful databases and complex software. These analysts (also known as business illt,llige11ce dm>lop,rs) arc employed by the biggest names in technology. A data scientist is someone w ho searches through muJ ..

ti pie, disparate: data sources to discovc.r hiddc.n insights that will provide a competitive advantage.38 These individuals frequently have Ph.D.s, often command six•figurc start• ing salaries (according to Classdoor.com, the median salary as o/ 2016 was $113,43639),

and are beco.ming an increasingly impottant source of competitive advantage for orga• nizations that want to leverage- Big Data. Traditional data analysts often look~ at one data sou rce, whereas data scientists typically look at multiple sources of data across the

organization. lf you have ever used Linkedln, you'll be interested to learn that one: of the most {re,.

quently used features 01, the site was devc)opcd through experimentation by one: of the organization's data scientists named Jonathan Goldman. Spc'Cifically, C'.oldman developed the "People You May Know.., feature on the site, where Linked.In use.rs whom you may

know in n.--al li!e are shown nvo profiles at a time. C,oldman accomplishro this by devcloP'"' ing a way to assess and scort? use.rs based on commo,, clements, such as shared tenure.,; at

educational institutions, and then sorting the profiles displayed through the feature from the rughost to the lowest scores (to a limit). The idea was originally implemented as an

advc.rtisc-.mc-nt on the site to ge-nctate interest in the message:. Sure enough, the site's mar, .. agers discovered that this feature had a click rate that was 30 percent higher than average. Soon after that, top ma.nagement within the organization signed off on addii,g "t>eople You May Knm.,..., as a standard featurc.40

Those and many other insights exemplify what data scientists are able to generate and the value they can yield for organizations. As more data become available from

multiple sources,. organizations will most likely continue to need people: with the skill and curiosity to transform data into information (any interest on your pa.rt in being a data scientist ?).

CHAPTER 5 I MARKETING ANALYTICS: WELCOME TO THE ERA OF BIG DATA! 141

5.3 OBJECTIVE

Descrile what marketing analytics indude and how

Marketing Analytics tvfarketing analytics have bt..."Comc an increasingly important part of a

marketer's toolbox as tC!Chnological advances c.nable consume.tS to en•

gage in an increasing number of activities online that were previously possible only within the physical space. ln a general sense we can

think of analytics as the identification. interpretation, and articulatio.n

of patterns within data that one or more groups v iew as mcaningfuJ.41 organizations can leverage both market- ing analytics and

At its COfi\ marketing analytics comprises a group of technolo- gies and processes that enable marketers to collect, measure, analyze,

and assess the c£(cctivencss of marketing efforts. Marketing analytic

to impnwe marketing solutions provide marketers with a holistic means to look at the performance. performance of difforent marketing injtiatives.42 They arc capable o(

predictive analytics

(pp. 141-150) providing a level of analysis and a degree of accuracy and spe,,d that is

crucial in our data.driven world. Put simply, then, marketing an.alytics takes the Big Data and makes sense out of it for use in marketing doci·

s io.n making! 11,at is, the breadth and depth of information that today's marketers have at

their disposal requires the ability to leverage technology that can move through massive and often disparate data sets to provide useful infonnation th.at can power decisions and hc.Jp marketers better understand the value o( their investments.

The need to be able to tic specific actions in advertising to measurable results (such as sales) has been a long-standing challenge for marlretors. Especially for those who have spent

money on TV advCl'lising, billboards, and othcr forms of traditional advertising, there is a

n..v.il challenge to quantify the value of those efforts. You inay have seen a TV adve-rtisemcnt for McDonald's featuring a Big Mac and chosen the next day to purchase one because of the advertisement, but how would anyone else know that it was lhal oommcrrial that pushed you over the fast-food edge, as oppos«l to any of the other marketing investments that McDonald's has made? Digital marketing offors an attractive solution due to the easy application of market•

ing analytics it brings. lt enables marketers to get a bettor sense of the specific ROI they receive

when they use a specific channel as opposed to the guesswork of earlier days.

Connect Digital Marketing Channels to Marketing Analytics One of the perennial challenges marketers face is being

able to determine the cffectivcne$ of different marketing campaigns and channels. This is bt."Causc it is not always clear where a lead came from, or what Jed to a purchase by a consumer, without being able to track it from its origin. For instance,did a consumer lcamabout and uJtj.

matcly purchase a product because o( the comm~tdal he or she saw on TV, because o( the ad he or she viewed in

a magazine, or perhaps both? For traditional media such as TV and magazines, it is still not aJways dear what ac•

t:ions yield th~ greatest impact for the marketer.

marketing analytics A g:oup of technologies and process,s that en.able malteters to coUect, measure, analyze, and assess the effectiveness of marketing efforts.

digital marketing channels The paths of distribution through which a co~s digital markemg comroonications can be deli\'eted to reach their respective audiences.

However, with the proliferation of digital media and digital marketing channels, it has become more straightfor- ward to understand what actions on the pa.rt 0£ marketers drive consumers to ultimately make a decision that aligns with the interests of the organization. Digital marketing

channels arc those specific means o( distribution th.rough P.etailers increasingly send promotional codes k> custom~ mobile phones to entice them to buy<rine.

142 PART TWO I DETE RMIN E TH E VALUE PROPOSITIONS DIFFERENT CUSTOMERS WANT

Figure 5.5 ~ Process J Digital Marketing Channel Example

This figure illusttates examples of seve,al aspeas of a digital matketing channel initiative for a fictional clothing company.

@ ,_, ~'-,U.)!9't• .. .t01> ff- -ov.ol11S>t• ... ni:ao1Mo,t0.coM

,.,1,; .. t:o...~wn..c._rdltoa..-

Gene ric:: Clothing Company

which djgital marketing co1nmunications can be delivered to current and potential customers.

The d istribu tion of communications through d igital marketing channels often n.'quires the use

of one or more technology platforms that serve as intermediaries.

let's COl\.'Sider as an example a fictional dothing company that has decided to send out a promotionaJ c,.ma.il to Jc t you know about its new faU collection (and hopefully ind uce a p urchase). n,e c,.mail includes images of a few mode.ls who wear some of the clothing items, a link to a spccilic part of the website that d isplays the FaU collection, as well as a special prom otional code to input a t checkout (e.g., FALL20) that will take 20 percent off of any fall colfoctioJl items that the recipient chooses to purchase.

Now, let's see how marketing analytics kick in to help this retailer. Hint: In the next paragraph, we are going to note some of lhe key parts o f the process in which data is n."'COrdcd (watch for th~hrase "data recorded" ) based on your hypothetical actions in the

scenario we des.cribe. ~ Figure 5.5 illustrates this process in terms of the relationship

User Action a. Open the email and tevi@W its contents (Image Dlspla~ed).

b. CIiek the "Get Started Shoppl.ng Now!" button to go to the company's website.

Example of ~. Opening of email.

Check Out The New Fall Collection! C>ata Ftecorded (Considered in b. Specific butto.n selected.

1"e •- rall Coi1.ctio11has Am voct

1'#111ft11_.lfflllthll1J"'O~Ckfll"t°'"'*"' IIIU)Oll-1•W10ffl1,;,;,01i1 f •Offl-lll!l: lllj~ MlliW'eflt li:(lb-MIYU11IIO,.,~.

lo """""'10V"I'"·" ••01t '""""llllt,ft"'~ cwt...blO. ~6'-~6""•'••• • a ....,.oott,.,,~~

Generic Cloth ing Company

The Fall Collection

h i swe&ta-,.,, "''•

I.kt ft'ket H9,9

ri,I ~<&Its,~ Him)

t.t., ,rk~ S19H

All •<~• 1r« IWl 1111 ,....._~$At.,

All Ju:llo:t {fer ltlflll)

U..t Ptit."!' s .. , ''

hllkart (Wo;- ...,.,

\ioll'tl.t: $H t,

Aggregate fo, all Recipients of the Email)

Marketing Analytics Application

Example Consideratfon for Marketers related to Analytics Application

User Action

a. The percentage of recipients who opened the email).

b. The petcentage of email recipients who ope-ned the email who then dicked on the link to the webslte.

a. Was the subject line of the emaU effective at capturing the attention and lnte,est of the email's recipients'?

b. How effective was the content o'f the email at conveying the purpose of the emaU and its relevance to its recipients?

c. Review the "Fall Collection• page and click on the "Fall S...veate, (for Her)" image/link to go to its individual page.

Example of Data Reco,ded (Considered in Aggregate for all Recipients of the Email)

c. Specific tmage/Unk clicked on and the page that the link is on.

Matketing Analytics Application

Example Conslde,ation for Marketets r elated to Analytics Application

c. The pe,centage that each page (clothing item) accounted for of the total page:s that usets visited from thjs page (for all users directed to the site by the promotional email)~

c. Which pages (dothing i tems) are consume<s visiting afte, being directed to the " FaJI Colle<.tlon• page from the promotional email? If some are more ftequMtty being visited to a significant deg,ee, what might that suggest about the content of the promotional email or the audience being targeted?

CHAPTER 5 I MARKETIN G ANA LYTICS: W ELCOME TO THE ERA OF BIG DATA! 143

The Fall Collectioa > Fall Sweater (For Her)

Oe11e1ic Clothlny Company

Checkout

Item Summary

0Ut.1ijltlOI\

• •1S-wealer(f<1rtt«.1

r all Swe11ter {f'Or H.et )

Utt Pric•: $19,99

Q.ua1,ttty: I

0 Addto Shopping C•rt

Checkout ~

Ubttr.t: '1U9

lhfl,c,lnrOHti $4"

Input •~mo Codo (if A ppficablo~

@ Conlinu•t P•yan.nt

User Action

Exampl• of Data Recorded (Conslder•d In Aggregat• !0< all Re,cipients of the Email)

Mar-ketlng Analytics AppJicatiOtl

Exampl• Consl~ration for Marketers related to Analytl<:s Application

User Action

Example of Data Recorded (Consldeted In Aggregate fot all Ftedplents of the Email)

Marketing Anatytks Application

Exampl• Considel'ation for Matketers related to Anafytks Application

d. SelKt the "Add to Shopping cart· bunoo to add the clothing Item to the shopping cart.

e. Select the · Che&:out" link to go to the checkout ~ge.

d. Specific clothing Item add•d to shopplng cart.

e. Specific link dicked on and tht- page that the tink ison.

d The p@r<Mt.age that each individual dothing item ae<ounted for of the totaf dothlng items- added to each user's shopping <art {for all use<s directed to the site by the promotional email).

e. The percentage o f dicks that ea<h page ae<ounted fot out of the total <ount of dkks that directed usets to the .. Chec:kout page" ( for au users directed to the site by the promotiooal email).

d. Which clothing items appear to be the most popular among consumers and why? e. Whkh pages do consumers tend to visit last bef0<e making the dedslon to pr0<eed to the "Checkout .. page to flnallze a purchase and why?

f. Enters Promotional Code (FALL20).

g. Select the -continue to Payment .. link to go to the page where the payment Is made and llnaliz•d.

f. NIA {the re<ording of the promotional <ode used is dependent on the user selecting the · continue to Payment .. link).

g. The promotional <ode i n.put: the s.pedfk link dkked on al\d the page that the link is on.

f. NIA.

9. The percent.age of usets that Input the va11d promotional <ode out o·f those users who selected the "Cootinue to Payment"' link (for all users directed to the site by the promotiooal email).

f. NIA.

g. How effe<tive is the promotional code a t motivating consumetS to make a pul'chase? Do consumetS seem to purchase more i tems ot spend mote when using the p.r'Of'notlonal code (compared to those who did not use it)?

behvecn some of your actions in this sce-nario, lht- specific data creah."CI as a result of those actions_, and the data's potentiaJ analy tics,.rcl ated applications.

OK, here goes. You receive the e.maU in yout inbox_, read the subject line and decide to open the e.mail (data recorded). After reviewing the c,.maiJ 's contents you decide tha t you are int'cres.tcd. in checking out the new falJ collection so you d ick on the: link to that part of the w ebsite (data recorded). Yo u take a look at a fcv,r o f the spt.--cific de-tails related to the

144 PART TWO I DETERMINE THE VALUE PROPOSITIONS DIFFERENT CUSTOMERS WANT

A/8 test A method to test the effeaiveness of ahe~ one d"iaracteristic of a marteting as.set (e.g., a web page. a baMer advenisemen,. or an e-mail).

items by clicking on links corresponding to their individual product pages (data recorded) and ultimately choose to add a sweater to your shopping cart (data recorded). You go to the checkout page (data mord,d), input the promotional code and select a button to proct.>ss it (data recorded), and then pay for the item (data rerorded).

AU of the data the preceding paragraph identified as "recorded" now can be trans- formed using marketing analytics to gain a greater understanding of whether U,e related

c.mail campaign is achieving a satisfactory ROl for this retailer. Presumabl)' you were not the only one who rcce:ived the promotional ~mail and it is likcly that other variations o( it- were distributed (perhaps with higher and lower discounts, as well as different images o( models in different clothing items). Each of these variations would be identifiable within the data and the markc-tcr could analyze at a more detailed level how each variation performed in tenns o( the ultimat~ goal of driving sales as well as along ~ch step in the process lead ..

ing to a sale. Pctha_ps best o( all, the marketer can now measure the investment associated with each variation or the c•mail promotion (and lhe effort as a whole) relative to its cost and idciltify how the company might make further improvements. In its simplest form, the retailer might conduct an A/8 t est, \'\•hich is a method to test the effectiveness of altering one characteristic o( a marketing asset (e.g., a we:b page, a banner advertisement, or an c,,.mail). Essentially, this involves sending out two variations of the same message to determine if ont? vc.rsio,, '-'pulls higher'' than the other. The test is conducted by random.I)' exposing soinc users to the original version and o ther users to an altered version. The behavior of users within t?.ach group is recorded and the results are used to determine if the altered version performs better on some measure of intctc:Sl (e.g., dick•th.rough rates). When you compare the power of this test to the old-fashioned, "let's run an ad in the Sunday paper and Sl.'C what store traffic looks like on Monday." you can easily appreciate the benefit of this approach.

Omni-channel Connectivity

To help W'lderstand the increasing value that marketing analytics offers to organizations, it is important to recogni~ how much the way that we ingest information has changed over time. As we'll see in later d,apters, today's consumer has evolved into an omni<ha.n.nel media user. This means that most of us g<.'I our information about the world from multiple SOW'l.'CS including computers, tablets_, and phones, and we freely inovc from one to another

in the course of a day. With more indjviduals having access to and spending time on the Internet, digital marketing has bc"'Comc an increasingly important clement of the marketer's toolbox. According to one survey conducted in 2013 by ~,e Pew Research Center, if7 percent of Americans use the Internet (up !rom 14 percent in 1995), and 74 percent of Americans use a t least one sociaJ networking site, with 42 percent using multiple social networking sites.'°

Across the g lobe, more pt.""Oplc use the Internet for an increasingly wider array of pur•

poses. Who knows how many m.ore: functions will be made faster, easier, or more intuitive as developers continually introduce new ap_ps? A survey of marketing executives for organiza• tions in North America and the U.K. (with annual revenue greater than $500 million) ron·

ducted by Gartner, a leading IT resc>arch and consulting firm, noted that 98 percent of rcspon• dents vie\\.' onli.ne and off1.inc marketing as merging. ln addition, the survey indicates that- ovcraU marketing budgets grew by 10 percent in 2015. Gartncr's group vice president notes within the cont~t or the survcy's results that "marketers no longer make a clear distinction between ofllinc and online marketing disciplines. As customers opt for digitally led expcri• cnces, digital marketing stops being a discrete discipline and instead bcron,cs the context

for all marketing. Digital marketing is now marketing in a digital wo.rld. • That change helps to i,xplain why digital commeroe (or the purchase and sale of products and services using digital technologies) has seen an int::reasc in investment with it accou,,ting for 11 percent of

the digital marketing budget, up from 8 percent in the prior year." As marketers continue to feel pressure to demonstrate the ROI of their efforts, the emphasis on digital marketing and spt:."Ci..6.caJJy digital com.mercc wiU most likely conti,, uc into t~ future.

CHAPTER 5 I MARKETING ANALYTICS: WELCOME TO THE ERA OF BIG DATA! 145

Th~ options for investment in digital marketing channels arc diverse with consumers spending large amounts across a variety of options. ~ Figure 5.6 illustrates five major groupings of dif- ferent digital marketing channels: social media, digital ad net• works, c,,.mail, search engines, and short message sc-.rvice: (SMS), which are digital messages dclivcred to mobile phones as text

Flgu,e 5.6 @ Snapshot I Major Digital Marketing Ch annels Digital marketing cha.nn&ls are typicafl)i broke-n up into frve mai.n categories. Within these. lhe,e are multiple types of matkeling efforu and campaigns that matketetS can develop .and track.

messages. Note that we will di$cuss digital advc.rtising options that are available to marketers in detail in Chapter 13. For all of these entities, there is a lot of money to be made by se.lling adver• ti.sing space to organizations. Faccbook, which more than a bil• lion prople use, offers users the ability to create a profile for fn.-e, but its business model re.lies heavily on being able to generate

revenue by sclling advertise.men ts on the site. Increasingly, social networking sites are looking for creative ways to provide advcr• tisements on their sites in a way that docs not tum off use-rs. The

objective is to create a source of value for organizations that docs not compromise lhe: website's user experience and rclevance.

In addiHon, most if not all social networking sites invest a

lot of effort to oUcr their advertise.rs access to analytic tools and capabilities that will help them to assess and further optimize the performance of their marketing efforts. For instance, the

popular lntemet meme &enerator and image sharing platform Lm&ur added advanced analytic capabilities to hclp its us- e rs and advertisers better understand how their images were spreading. Tho added capabilities allowed users to &o beyond

Short --Service (SMSJ Search

Engine<

just knowing: how many views an image has to understanding things such as how many of those ,rie:ws are being captured in a given day and in a given hour, which websites arc

linking back to thc original version of the image, and where within those websites the image is shared. Bottom line, advertisers can use lmgur's analytics to track thc perfor• mance of their imagt..'S and bt:-tter understand the specific stages on the path to going viral (or not viral) and also where the imagc was best received.45

Business Models for Digital Marketing

For marketers, investments in digital marketing are: CS(>l.--Cially attractive b...--causc thcir oost is ofim directly tied to specific actions users take. For instance, Google's paid search ads can be purchased or bid upon on a cost .. per<lick basis. This means the cost of the advertisement is charged only each time an individual dicks on the advertisement and is directed to ~,c web page that the marketer placed within the advertisemenl This mc~,od o( charging for ad,•cr-

tisetncnl~ is common for online vendors of advertisement space. Other methods of pu.rcha,s. ing advertisements digitally include cost•per•impressioni in which the cost of the advertisement is charged each time the

advertisement shows up on a page that the user vie-ws. Companies that sell online advertising space com•

monly use both of these methods to charge for advcr•

tisements. Cost·per•click purchases of advertisements are typically more expensive, as they demand a higher level of interaction from the user (i.c.i the use-rs have

actually visited the page on which the ad appears and hence are one s tep closer to beco1ning a customer). In contrast, oost•per•imprcssion purchases of advcrtise--

ments can provide a good value b ut they typically

Sodal Media

Dlgltal Marketing Chann•ls

cost .. p,er-dick

Email

Digital Ad Networks

AA ontine ad purchase in which the cost of the a<mnisement is charged only each time an individual dicks on the advertisement and is directed to the web page that the marketer paced within the a<t;ertisement

cost ... per-impression An ooJine ad purchase in which the cost of the advi!rtisement i.s charged each time the advertisement shows up on a page that the user views.

require a greater leap oi faith because it's not so easy lmgur is a popular image-sharing plat1orm thal providespaHertul araytic:s to malketefs.

146 PART TWO I DETERMINE THE VALUE PROPOSITIONS DIFFERENT CUSTOMERS WANT

search engine optimization (SEO) A systematic process to ensure that your fr-m comes up at ex near the top of Usts of typical search phrases related to YOll' business.

to measure the value of an impression (or view of an advertisement). For instance, if a marketer knl'w (or had a good idea) that a certain number of impressions from an advertisement translated into a spcci£ic number of clicks, then he or she would be

able to more accurately estimate the cost of the ad in terms of clicks even while us• ing a cost .. per•imprcssion structure to price advertisements. In this way, the markcl'c.r would be able to obtain a better value through cost•pcr•imprcssion pricing as opposed

to cost•pcr-click pricing. One advantage of digital marketing is that data come in at the spt.""00 at which data

travel, which is al.most instantaneous. This me.ans that marketers can track the perfor•

ma.nee of digital marketing initiatives and determine their perfonnancc both in the very short term and over the long term. Marketing analytics enable them to capture these data across all of the c:hat1.ncls in which they have invested and pn..'.'Se.nt the data. in a way thal provides valuable insights into the petfonnance of each channel.

Make Marketing Accountable: Determine the Value of Digital Marketing Investments across Channels lmagine you have an c-c:01nmerce website to selJ spt-'Cialty headphones and you have begun to i.Jwcst in attracting new customers to your website. You've purchased some online banner advertisements that arc being stratcgic:aUy shown to individuals who visit different music websites, and you've also purchased some ads on Facebook that arc showing up as sponsored posts in people's (o..'<ls who frequently "like" different indic

rock bands' pages. You've even looked into searc.h engine optimization (SEO), which is a systematic process to ensure that your lirm comes up at or near the top of lists of typi• cal search phrases related to your busil\e.o,;s. As a resuJt, you've hi.red a SEO specialist to help ensure that your website ranks highly on search engines such as Google and Bing when prople t}'J'<' in search phrases such as ·high-quality headphones" and "best way to listen to music.,.

Now that you have invested in your different marketing chaMcls, you start to see that saJes are increasing. It seems as though your investment in all of these different digital marketing channels is paying off, but what if some are paying off more than others because they are engaging more clfoctively with your target audience and in tum helping to create more sales? How would you determine which channcls to invest in even more, and whic:h to drop like a hot potato?

Answer: Marketing analytics would enable you to analyze the performance o( all of these channels to help you make the best investment o( your marketing dollars moving fon\lard. To undc.rstand what's really working on your e--co1nmerce site, you might look to St."<" whether more sales come from your customers who arrive at your site because they typed a search term into Google or whether those who come there because tht?y clicked on a Facebook ad spend more. Or you might find that the banner advertisements bring in relatively few customers and that the transactions they make arc. rclative.Jy small.

l( you compare the average cost per customer transactio,, from each of these chan ..

ncls against the averagt:' value o( the customer transactio1'1 from each channel, it would become clear which channel provides your c,.commcrce site with the most value. You might evc.n discover that one of these channels costs more th.an it wins in sales! Table 5.2 provides sample data for the above example as an illustration of how you could perform the relevant calculations for each digital marketing channel 1n the example you wm sec that SEO provides the highest sales, but Facebook ads actually provide the greatest

amount of value per customer transaction (or profitability per transaction). 1his insight might encourage our speciaJty headphone company to invest mor(' heavily in Facebook advertising in the future.

CHAPTER 5 I MARKETING ANALYTICS: WELCOME TO THE ERA OF BIG DATA! 147

rabt• s .2 I Sample Marketing Performance Calculation and Comparison

Digital Marketing Channel

Banner Ads

Facebook Ads

Search Engine Optimization

Total across Channels (Sum of Total Values in Each Channel Input into the formulas)

Average Customer Transaction (Total Sales Attributed to Channel/Total Number of Customers Acquired Through Channel)

$450,000 (Sales)/10,000 (Customer Transactions) = S45 (Average Customer Transaction)

S 1,200,000 (Sales)II S,000 (Customer Transactions) = S80 (Average Customer Transaction)

$2,100,000 (Sales)/40,000 (Customer Transactions) = SS5 (Average Customer Transaction)

S3, 75,000 (Sales)/65,000 (Customer Transactions) = S57.69 (Average Customer Transaction)

Average Cost per Customer Transaction (Total Spend Attributed to Channel/ Total Number of Customers Acquired Through Channel)

$100,000 (Spent)/10,000 (Customer Transactions) = 510 (Average Cost per Customer Transaction)

$240,000 (Spent)/15,000 (Customer Transactions) = S16 (Average Cost per Customer Transaction)

$200,000 (Spent)/40,000 (Customer Transactions) = 55 (Average Cost per Customer Transaction)

$440,000 (Spent)/65,000 (Customer Transactions) = 56.77 (Average Cost per Customer Transaction)

Without marketing analytic.<; and the data digitaJ marketing initiatives produce, this result would have been more challenging to determine, and as a result the.re would have been more waste within your c..commerce site's markcting mix. These are the types o(

challenging questions that companies such as Zappos.com and Overstock.com dcaJ \,'1th every day as they look to ensure that thcir marketing: investments provide a ht.v.ilthy ROL Marketing analytics help them to better understand how their different marketing chan·

nels P<'rform. It is worth noting: that some caution can be beneficial when .relying on marketing

analytics data to attribute a specific effort to a related outcome. For example, suppOSC' an

individual sees a TV advc.rtiscment for a product and decides to go online to !cam more about iL At that point, he or she comes across a banner advertisement onJinc that includes a coupon for the product Then he or she clicks on the banner advertisc.me:nt to redeem the

coupon and buy the product. On the surface, h> a marketer it might look as though all o( the credit for the sale should go to the banner advertisement because the marketer has no awatene$ of the influence that the TV advertisement has had on the consumer,. but, as we

can see, that is not entirely accuratt?. The risk illustrated here is the misappropriation of the value that one particular clfort has had in de.livering a specific result.

Being able to determine the effectiveness of digital marketing dep,nds on having clear

goals that can be tracked and measured. ln the case of an e-commerce site, one: defined goal would most likely be the completion of a transaction with a consumer: However, for a business consulting company's wcbsit~, it might be getting a prospective: client to submit

a n."q_ucst for information about what the consulting company can do to hclp with thc-ir

Average Value of Digital Marketing Channel Investment (Average Customer Transaction - Average Cost Per Customer)

$45 (Avg. Customer Transaction) - S 10 (Avg. Cost per Customer Transaction) = 535 (Average Value of Digital Marketing Channel Investment)

$80 (Avg. Customer Transaction) - S16 (Avg. Cost per Customer Transaction) = S64 (Average Value of Digital Marketing Channel Investment)

$55 (Avg. Customer Transaction) - S5 (Avg. Cost per Customer Transaction) = 550 (Average Value of Digital Marketing Channel Investment)

$57.69 (Avg. Customer Transaction) - S6. 77 ( Avg. Cost per Customer Transaction) = 550.92 (Average Value of Digital Marketing Channel Investment)

148 PART TWO I DETERMINE THE VALUE PROPOSITIONS DIFFERENT CUSTOMERS WANT

landing page A silgle page oo a website lhat is built for a particular direa mart.ting opponunity.

particular problem. And bcing able to tic these data into a C!u\1 system ~,at tracks tho ill•

dividual from the point of filling out a request for information to when he or she ultimately bcco1ncs a customer enables the co1npany to look back at the specific digital marketing ini• ti.alive (or injtiativcs) that motivated that customer to come to the website in the first place,

providing greater insight into what particular channels and factors help create new business.

This example serves to illustrate how different pieces of Big Data-in the !om, of the com• p~ive: lnfonnation about a customer that resides in different parts of the organization (in

this case, in the CRM system along with what is curren~y captured in the marketing analytics system for web-based intcractions)-can be brought together. Through the use of marketing analytics, these data can be transformL-'Ct into a more complete picture of each customer as well as each marketing channel to better understand where Furu.re invf'Stments should be made or how current marketing campaigns should be adjusted. Undcrstaoding each customer's full story enables marketers to better understand how to weave thcir own actions and communica•

tions into the fabric of that s tory in a way that cs meaningful and compelling.

Marketing Accountability within Nondigital Marketing Channels Although we have paid a lot of attention to n,arkc-ting analytics witMn the context of digi•

ta] marketing channels and clforts, we would be remiss not to take a little time to di"iCuss

how \\IC can also use marketing analytics generate insights re.lated to nondigital marketing chat1.ncls. ln particular, ditcct mail- which we wiU discu$ as a promotion tool in Chapter 14-is one type of nondigital marketing channcl that can be set up so that its value can be more effectively measunc'<i using marketing analytics. You might be asking yourself at

this stage, how can you know that a direct mail marketing campaign led to a sale (or some

other desired action)? The key is to put in place a mechanism to identify those current or

potential customers who were targeted by a spt.""<'-lfic dir...."C't mail campaign and tic them to the specific desired goal (e.g., making a purchase).

A great example of how this works relates to an ex.ample we gave previously in the

chapter of a clothing compa.ny that sent out a promotio.nal c•mail to alert consumers of its

new fall collection. As you may recall., one of its components was a promotionaJ code that a customer could l?nter to redeem a discount. A direct mail campaign intended to generate

sates of a pnxtuct or service ran use similar tactics by creating a unique promotional code to measure the effectiveness of the campaign. When that code is ust.")(J by a customer (ei- ther in an online s tore or a physical s tore) the company can effectively attribute that trans•

action to the related direct mail campaign using marketing analytics. Knowing how many direct mail items were sent out w ith the related promotional C()dc (and the cost of doing

so) along with how many times the code was used (and the total dollar amount of the re•

lated transactions) gives the company strong evidence of how e:ffoctlvc the campaign was. AnoU,er c..xa.mplc wou.ld be to use a spt."Cific URL ,•,.rithin a direct maU campaign that is

not used or dcsplaycd elsewhere. The URL could lead to a landing page, which is a single page on a website that is bullt for a particular direct marketing opportunity. I.anding pages

arc usually designed to include spt.'Cific infom>ation that is logically connected to the con•

tent of the marketing communic.ation that led the user to the page, and typically feature

one or more interactive cle-ments that provide the user with a means of engaging in one or more actions desired by the marketer (e.g., filling out a contact form). Through markctu,g

analytics, each visitor to the landing pagt:' can then be associated with the related d.irect

mail campaign. Then the company can de:tc-tmine how effective the specific campaign was

a t encouraging people to (a) RSVP for the event and (b) actually show up for the event). We can apply similar tactics to other typc>s of nondigital marketing channels to get a

better picture of how effective they are a t reaching lhe marketer's particular goals for a

campaign. Essential to such an approach is bcing able to isolate the relationship between

a specific markeHng cffott and its desired outcome. Hence, using identifiers such as unique

CHAPTER 5 I MARKETING ANALYTICS: WELCOME TO THE ERA OF BIG DATA! 149

campaign.spt,."Cific promotional codes, campaign.specific URL<.;, or campaign•spcci.fic

phone numbers for customer follow up allows the direct marketer t·o tic a specific e:(fort to a specific respon.se. This link provides maximum opportunity to apply marketing analytic

capabilities to understand the performance of the campaign.46

Predictive Analytics Can we predict the future? Up to this point, we've looked a t how organi.7.ations can lever--

age marketing analytics to better understand how current marketing channels and initfa•

tives are performing-in other words, to understand how to validate the vaJue o( decisions

we have already made and potentially to create fact-based triggers that will enable us to better d~crmine how to make Future investments. Another inb'iguing area for any mar•

keter is the ability to actually prrdict the future and thus better understand the value of their marketing ca.mpajgns even before they implement them.

One interesting application of predictive analytics that may be implemented in the

future comes in the form of a highly publicized patent application by Amazon for a process it calls •anticipatory package shipping." The idea is to develop a data driven system that

will allow for starting delivery of packages even bclore customers click "buy." Essentially,

Amazon wHI ht'! able to box and ship products it expects customers in a spi..~ic area will want but for which a specific customer order has not actually yet been placed. Cetting the

right goods moving like this could cut dclivcry time and thus dissuade customers from visiting brick-and•mortar n..:.tailers instead of shopping online:. 47

This crystal•ball scenario is where predictive analytics can increasjngly provide signifi•

cant value to marketers. These techniques use large quantities of data and ,•ariables that the

analysts know relate to one another to more accurately predict specific future outcom~ (~ key with •pr.'<iictive• analytics is this focus on the future, not just the present)." Certainly.

org:ani7..ations have used these techniques for decades to help forecast sales and other impor•

tant measures of business performance and outcomes, but don't fool youtself into thinking

there's nothing new or exciting within this area. Thanks to Big Data and the new.age data mining capabilities we've discussed, the typ..>s of future outcomes that we can predict, and

the level of accuracy possible with those predictions now enable marketers to obtain more ac• curacy than ever before when they fot'L"CclSt successful future marketing investments.

Vodafone: Netherlands is the socond•largcst mobile carrier in the Netherlands, and

predictive analytics solu tions sec.med to be a strong choice to bett(':r understand the

behavior of its customers and better predict Future behaviors. As the organization's se- nior infonnat:ion architect for business intelligence noted., ,..We have a reasonably large

number of customers, a limited marketing budget, and the need to understand how to

apply the money c:ffectivcly and get the best results.'-' Vodafone had a wealth o( infor• mation and wanted to have the capabilities to identify opportunities to more effectively

predict consumer behavior and better tailor service offc.rings to consumers based on the

information. One way that Vodafone was able to create value through predictive analyt• ics was to better understand winter roaming patterns and, in particular, which of their

customers were most likely to go skiing during that time. Through the firm's analysis,

Vodafone was better able to identify and predict which customers would faU within the

category of going skiing in the winter and target them exclusively with a campaign that

was tailored to offor great value for winter roamers.4'1 What if the company had reached out with this offering to customers within their base who had no plans to hit the slopes?

Most like.ly, the: campaign would have been a disaster because of wasted money and the risk of potentially aggravating couch potato customers who d idn't want to ht'! bom• barded with images of happy skiers while they sat a t home (Marketing Rule #1: Never

upset your current profitable customers).

Anothc..r potential application of predictive analytics involves using 'Big Data to predict the likelihood that a customer \,riJI defect. T his invaluable '-'heads up" aJlows

predictive analytics Uses large quantities of da1a wi1hm variables lhat have identified relationships to more accurately predict specifK future ootcomei.

150 PART TWO I DETERMINE THE VALUE PROPOSITIONS DIFFERENT CUSTOMERS WANT

churn rate The percentage of a company's customers (for a gven span of time) who by ,he eod of 1hat lime span can no longer be considered customers of the co~ any (e.g. because they have cancelled their contract for a service oc they h.we stopped shopping at the related retail location).

marketing metrics Specific measures that help marketers watch the perlormance of their marke<ing campaigns, ilitiatiws, and channels and. when appropriate,. serve as a control mechanism.

a company to identify those customers most at risk and take steps to proactively bting them back into good s tanding before they actualJy bail out. XO Communications, a Sl.5 billion per year enterpdse,.Jevcl provider of voice. data, a!ld rP services lever• aged pred ictive analytics t-o do just this. The company knt!w that the signals of defcc .. tion we.re embedded within the data, but it needed a more advanced method to ide:n• tify these s igns and transform them into usable insights that the company's account representatives could then act on to reduce customc.r defection rates. Some o( the pre .. d ie-tors included "support call patterns'1 and "delinquent payment patterns." The key to effcct:ively apply p redictive analy tics for XO Communications was to give its ac• count representatives the insights in a timely ma1,ne.r so they could get ahead of the curve. A controlled rolloul of the effort saw a 47 pe.rcent decrease: in the. company's

churn rate, which is the percen tage of a company's customers (within given a span of time) who by the e.n.d of that time span have defected (note that i.n thl.? next section we w ill provide a formuJa for churn rate and elaborate o n the concept furthcr). For

XO Communications the Joss of a customer would have most likely counted as the cancellation of a customer's service cont·ract with the company. The reduction in cus• tomer chu_rn from the controlled rolJout t ransla ted int·o XO holding onto $15 million

in revenue that would o therwise have ~n lost had chum rates re.mained where they were before.50

For companies such as Vodafone and XO Communication.st as well as most all market•

c.rs, finding that sweet spot of providing valuable services and support to customers when tho~ particular customers need them is mission critical in today's g lobal competitive mar• ketplace. Predictive analytics and marketing analytics in general enable great execution. of

marketing strategies.

5.4 OBJEcnVE

Identify how orga· nizations can use marketing metrics

to measure pe{for· mance and achieve marketing control

(PP 150-152)

Metrics for Marketing Control Throughout this chapter and also at d ifferent points throughout the

text, we touch on different types of metrics and the benefit they pro,. vide to marketers (e.g., the "Metrics Moment" features in each chapter and the "Apply the Metrics" exercises a t the end of each chapter). In

a data•rich a.n.d data•driven world, organizations have the ability to gain a more dct.ailed understanding than L"Ver before of what's going on both inside and outside their operations. For marketers, this means

having the abi.Uty to show more clearly a retum on thcir various in• vestments and to lL'it? this knowledge to develop and execute markct• ing plans and strategics.

ln Oiapter 3., you learned that marketing control is a process that entails measuring ac• tual performance, comparing this performance to the established marketing objectives, and then making adjustments to th!! strategies or objoctivcs based on this analysjs. Marketing

metrics a re specific measures that help marketers keep an eye on the pcrfonnance of their marketing campaigns, initiatives, and chan.ncls and, when appropriate, serve as a control m~hanism for when corrective action is necessary.

Hence, m.arktting coutrol is the ability to calculate and track relevant marketing metrics to identify deviations in expected perfonnance, both positive and negative, as soon as they occur. This important process enables marketers to adjust their actions bc:fore gt'l.--ater losses

or inefficiencies occur. Another reason digital marketing is seeing increased growth in i.n• vestment from marketers is the speed at which they can modify their investments in differ• ent media channels. for example, a charitable organization that dc-tccts an unusually high

fJow of donations from a Facebook campaign can almost instantly shift more resources to that cha..-tnel to capitalize on the sudden interest.

CHAPTER 5 I MARKETING ANALYTICS: WELCOME TO THE ERA OF BIG DATA! 151

Metrics Moment

Three Examples of Metrics Here are three great examples of metrics that are relevant to a chapter on Big Data and marl<eting analytics. In !hem, the following synbols are used: S = a moneta,y figure, % = a percentage figure, and # = a figure in units.

Click-Through Rate Within digital marketing. the click~through rate is a metric that in· dicates the percentage of use,s (viewers of the advertisement or the page that the fink is on) who have decided to click on the advertise· ment in order to visit the website or web page associated with the advertisement:51

Click-through rate (%) = (Oick-throughs (#Wlmpressions (#)} X 100 Most digital marketing campaigns or initiatives use cfick-through rates as a means of determining marketing effectiveness. Specifically. they in- dicate what percentage of users who viewed the ad found it relevant and interesting enough to did on it in order to be redirected to anol.her web page. How...,,. from that point of landing on the web ""9e or website, the visitor could have chosen to immediately leave the web page because of a lack of interest in the content on the page or for some other reason. Other metrics taken in tandem with dick-through rates can pf<wide a more complete picture.

Conversion Rate A popular metric used to look at the effectivenes.s of digital marketing is the conversion rate. which is expressed as a percentage.A conversion based on a consumer's interaction with a web page might be the pur- chase of a product or a service (or muttiple purchases in one sitting}, the choice to sign up for a mailing list, or the decision to become a follower of the company via soda I medja. 52 The conve-!sion rate is calculated by taking the number of visitors to a website who complete the identified desired activity and dividing that by the total number of visitors to the

website and then multiplying the result by 100 to arrive at a percent- age value:

Conversion rate (%) = (Number of goal achievements/ Number of website visitors) X 100

Conversion rate can be tracked on a day-to-day basis or provided as a cumulative vatue and tied bad:. to different marketing campaigns or chan· nek to measure the impaa of those activities and to answer questions. such as what is bringing customers to your site. It can also aJert marketers 10 opportunities to take corrective actKln in order to inprOYe the perfor· mance of their marketing efforts.

Cost-per-Order

Cost•per"'°rder indicates the cos.t of gaining an order in terms of the marketing investment made to turn a visitor to a website into a customer who has chosen to make a transaction. s3 Within digital marketing, this metric can be broken down by specific campaigns or marketing channels to help marketers to get a more precise idea of how effective their market· ing investments are:

Cost-per•order (S) = Advertising costs (SVOrders (#)

For marl<eter~ it provides a clearer idea of what the average cost in ad· vertising dollars is to generate an order. For instance. one might learn that Facebook ads have a lower cost per order than You Tube video ads,. and as a ,esult more resources are directed towa1d Facebook.

Apply the Metrics

Consider the information generated by calculating dick-through rate, con- version rate. and cost per order. 1. How does knowledge of the results of calculating these three aid

marketers in making bener investment decisions in web strategies? 2. Do you think one of these metrics is more useful than the others?

If so, what leads you to this opinion?

Be.fore we dive into more marketing metrics, one point worth making is that it is typically not practical to use too many metric.~ at once to measure marketing effective• ness. rdentifying the right metrics that align w ith the desired outcomes of your marketing

strategies ensures that the right controls arc in place and that the organization focuses on synchronizing the most important outcomes with the oom."'Ct marketing decisions.

dick-through A metric that indicates the percentage of website users who ha\•e decided to dick on an advertisemem 10 visit the website or web page associa1ed with it

For instance, imagine you're the CMO for a laundry detergent producer. To bring in

more business, you have decided to give your team full latitude to use the department's resoums to ramp up sales. You tell them that they are going to be judged by their ability to increase the number of detergent bottles they sell. ln the foUowing few weeks, you're

p leased to see that the detergent seems to be flying off of supermarks't shelves. But on further inspection, you also learn that despite the surge in sales, profits have not increased. As it tu.ms out, your marketing team has been saturating the market with coupons for

half-off detergent bottles, and this price promotion is what drove the influx of business. You console yourself that, although profits may not have oocn positively impacted d ue to the reduced prices people arc paying for the brand, surely this effort will bring in more

business over the loug ruu as new customers try the brand because they rcccivcd a coupon.

conversion Signifies an event that occurs on a web page that indicates the meeting of a p-edefined goal associated with the consume<'s interaction with that page.

cost•per--0rder The cost of gaining an orde, in terms of the mad:eting ilvestment made to tum a website visitor into a OJStome, who has chosen to make a transaction.

152 PART TWO I DETERMINE THE VALUE PROPOSITIONS DIFFERENT CUSTOMERS WANT

margin on sales The difference between the price at which a pcoduct ~ sold and 1he cost of 1he product.

Unfortunately, the marketing team did not do an effective job of targeting new customers. It turns out that the shoppers who redeemed the coupons were primarily regulars (existing users) of the product who just bought as they normally would but at a reduced price. As a

result, sales actually docline: over the next month. Thi! r~son; Custom~ who stocked up on laundry detergent in the past month continue to use their reserves o( the product they purchased a t a promotional price! Had the goals of the clfort b<!en more clearly defined and the right mcttics selected related to both gaining market shate and increas ing sales, then perhaps a more targeted approach with better controls could have been implemented.

No\ .. ~ let's consider a couple of additional metrics. For each, the following symbols arc

used:$ = a monetary figure,% = a percentage figure, and# = a figure in units.

Margin on Sales Margin on sales represent,; the difference between the price a t which a product is sold and its cost. This metric can be represented. as either a dollar amount or as a pc.rccntagc of the price that the product is sold for.

Margin on Sales(#) = Selling Price per Unit ($) - Cost per Unit($) Margin on Sales(%) = (Unit Margin on Sales/Selling Price per Unit) X 100"

ft is crucial for marketers to have a. strong Wldcrstanding oft~ margin on sales associ· ated with a product or service lot a number o( decisions. Examples of relevant decisions may include pricing a product within the different distribution channels and regions it is sold in, determining the RO};U of a particular marketing investment, and evaluating the profitability

of a customer or segment of customers. We'll discuss margins in greater detail i.t1 Chapter 10.

Churn Rate Chum rate, introduced previously in the chapter, is an important metric for many compa• nies given the expense associated with acquiring new customers compared to the cost of retaining cutreJ'\t customers. Redudng the chum rat'c can be an important financial goal

for an organization and a sign that customer retention efforts are working (as was seen in the XO Communications example). An increase in a company's churn rate can also serve as an indicator that there has been a shift in the competitive environment, such as when a

competitor offers large incentives to customers to S\Vitch to their product or service. A good example of this is when Sprint launched a marketing campa.ign around the claim that it would halve the bills of any customers who switched from using AT&T and Verizon to us,,

ing Sprint for their wireless phone scrvices.55

Chum Rate(%) = (Number of Customers Lost at the end of the Prior Period/ Total Number of Customers at the Beginning of the Prior Period) X Joo56

In the pn..--ceding formula we can define a petiod as any given span of time, but it is commonly defined as the period o( time in which we can accurately observe customer churn. Depending on the specific product or service this may be a quarter or a year.

Examples of customer behaviors (or Jack the.roof) we can use to identify that a customer has lx"en lost at the end of a period may include unsubscribing from a service, not rtmew• ing a service contract, or the passing; of a set number of days without a pun:hase (where the

normal expectation would be that the customer would make another purchase at least once within a given span of time: s ince the last purchase).

MyMarketinglab ™ Go to m ymktlab.com to complete the problems marked with this 0 icon as w ell as additional Marketing Metrics questions only available in MyMarketinglab.

CHAPTE R 5 I MARKETING ANALYTICS WELCOME TO THE ERA OF BIG DATA' 153

5.1 Objective Summary (pp, 126-131) Explain how marketers increase long-term success and profits by practicing customer relationship management. Companies using CRM programs establish relationships and differentiate their behavior toward individual custom - ers on a one-to-one basis through dialogue and feedback. The abili ty to effectively manage all of the available data has been greatly aided by marketing automation capabili - ties, which facilitate the capability of sales and marketing professionals to gain crit ical insights from customer data. Success of CRM is often measured one customer at a time using the metrics of share of customer, customer lifetime value (CLV), and customer prioritization. CRM also pro- vides marketers w ith the means to better tailor their com- munications to customers based on the weal th of data that is being effectively captured and organized within the system.

Key Terms customer relationship management (CRM), p. 126

mar-tech, p. 126

one~to-one marketing. p. 126

touchpoint. p. 126

martc.eting automation. p. 127

share of customer. p. 129

5.2 Objective Summary (pp, 131-140) Understand Big Data, data mining, and how mar- keters can put these techniques to good use. Big Data refers to data that are growing in terms of both volume and velocity. It comes from a w ider range of sources within dttferent functions within organizations as well as society at large. Big Data offers marketers the ability to gain a deeper understanding of their customers when properly leveraged through methods such as data mining. When mar- keters use data mining, they methodically sift through large data sets using computers that run sophisticated programs to understand relationships among things like consume, buying decisions, exposure to marketing messages, and in-store pro- motions. Data mining leads to the ability to make important decisions about which customers to invest in further, which to abandon. and where the greatest opportunities for new investments lie.

CHAPTER 5

Study Map

Key Terms Big Data, p. 131

Internet of Things. p. 132

web scraping, p. 133

sentiment analysis, p. 133

scanner data, p. 134

channel partner model. p. 134

information overload. p. 136

data mining. p. 136 data warehouse, p. 136

structured data, p. 137

unstructured data. p. 138

emotion analysis, p. 138

data scientist. p. 140

5.3 Objective Summary (PP 141-150) Describe what marketing analytics include and how organizations can leverage both market- ing analytics and predictive analytics to improve marketing performance. Marketing analytics offer marketers the means of better under- standing and analyzing the weahh of data that are now at their disposal. With the proliferation of digital marketing and the speed at which data can be captured and analyzed, marketers are able to gain insights at or near real time in regard to the per- fonnance of their marketing investments. This capability to ana- lyze across channels (both physical and digital) the pe<f0<mance of their different marketing init iatives provides a means through which to more precisely identify where value is being created. Predictive analytics have the potential to help marketffi identify outcomes before they occur and in tum make smarter decisions as they plan marketing campaigns and investments.

Key Terms marketing analytics, p. 141

digital marketing channels, p. 141

A/8 test, p. 144

cost-per-click, p. 145

cost·per•impression. p . 145

search engine optimization (SEO). p. 146

landing page, p. 148

predictive analytics. p. 149

churn rate, p. 150

154 PART TWO I DETERMINE THE VALUE PROPOSITIONS DIFFERENT CUSTOMERS WANT

5.4 Objective Summary (pp, 150-152) Identify how organizations can use marketing metrics to measure performance and achieve marketing control. Marketing metrics provide marketers with the means to further understand the performance of their marketing cam- paigns and channels and a means of identifying potential red flags or opportunities as they arise. Increases in the popularity of digital marketing as well as tools that are able to easily cap- ture data online have enabled marketers to track marketing performance at a level of detail that was either not possible or not cost effective in the past. The marketing metrics provided in this section were just a small sampling, but they do provide some examples of what kinds of metrics can be used to help

ensure that marketing control is achieved. Through the selec- tion of the right metrics, marketers are better able to under- stand the performance of their marketing activities, identify opportunities for improvement, and take corrective actions at a point where greater benefits can be realized.

Key Terms marketing metrics. p. 1 SO click-through, p. 151 conversion, p. 151

cost-per-order, p. 151 margin on sales. p. 152

MyMarketinglab ™ Chapter Questions and Activities Go to mymktlab.com to watch this chapter's Rising Starvideo(s) for career advice

and to respond to questions.

Concepts: Test Your Knowledge

5-1 . What is CRM? How do firms practice CRM? 5-2 . Explain the concepts of share of customer, customer

lifetime value (CLV), and customer prioritization. 5-3. How would you describe Big Data? What are some of

the most significant sources of competitive advantage that Big Data offers?

5-4. Describe the various sources of Big Data for marketers. 5-5. What is data mining? For marketers, what are some of

the most important applications? 5-6. What is the difference between structured and un-

structured data? What are some examples of each? 5-7. What are marketing analytics, and what kinds of in-

sights are enabled by today's marketing analytics solu- tions? What are predictive analytics?

5-8. What is the difference between purchasing digital ad11ertisements with a cost-per-impression structure versus a cost-per-dick structure? Is one better than the other?

5-9. Define marketing metrics. How can marketing met- rics help marketers understand the performance of different marketing initiatives and provide greater control?

5-10. What is a click-through rate, and how is it calculated? 5-11. What isa conversion? What are some examples of con-

versions on an e-commerce website? 5-12. What is a cost-per-order? What kind of information do

marketers gain from this metric?

Activities: Apply What You've Learned

5-13. For Further Research (lndividuaQ For this assignment you are going to act as a manual version of a software program that conducts sentiment analysis. Select a

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sample of comments (between three and five that do not contain any explicit words or expressions) created by users in response to a specific brand"s post on their Facebook page. Copy the comments down and cate- gorize the sentiment within each comment as • posi- tive," •negative,· or "'neutral.• Include what specific elements of each comment most clearly support your categorization of it (e.g., use of punctuation, context, inclusion of specific words, use of slang, etc.). What insights should a marketing manager responsible for the related brand take away from these comments? Crea rive Homework/Short Projecc Imagine that you are building your own e-commerce site. Having a keen understanding of the importance of de- fining and putting in place a set of conversions and metrics in advance of launching the site, you have incorporated the definitions and develop- ment or specific conversions for tracking into the planning of the website. list which actions on the site would indicate a conversion for track- ing purposes and how they would align with the goals of your business. Because this is your web- site, feel free to assume the inclusion of any sons of featu res or elements (conventional or uncon- ventional) that you believe would be valuable in terms of the website's look and feel that would enable better tracking and analysis of marketing performance. Creative Homework/Short Project Consider that you are in charge of all paid search advertising through Google for your company. One of your colleagues is in charge of lnstagram advertising. Your boss is in the process of putting together the marketing budget and has asked you to weigh in on how much should be allotted for lnstagram advertising. He tells you that he feels that the organization's funds would be better

CHAPTE R 5 I MARKETING ANALYTICS WELCOME TO THE ERA OF BIG DATA' 155

put toward increasing spending on lnstagram as op- posed to Google paid search advertisements. He says, 'Pictures on lnstagram are just more compelling than little blocks of text in a search engine's results.• You couldn't agree less with that sentiment, and you have the data to back it up. a. How would you go about making the argument

that Google paid search advertisements should re- ceive more of the marketing budget compared to lnstagram advertisements? What factors in your boss's statement are potentially not taking this into consideration?

b. What metrics would you use to help make your case, and how would you explain their relevance and importance?

5-16. In Class, 10-25 Minutes for Teams As an admissions manager for a college or university, you are interested in exploring the use of predictive analytics within the admissions process to bring in students with a higher likelihood of graduating from the school and achiev- ing greater levels of success both during and after their studies. With another student who is acting as your boss the admissions director, discuss the specific reasons that predictive analytics might be of value to making admissions decisions on students. Be sure to discuss any areas where you might need to proceed with caution.

Concepts: Apply Marketing Metrics

In the chapter discussion about CRM, you read about four key characteristics of CRM: share of customer, lifetime value of a customer, customer equity, and customer prioritization. Each of these elements is discussed in the context of monitoring and assessing the effectiveness of a CRM initiative.

Consider J.C. Penney's loyalty program, JCP Rewards. Go to their website (www.jcprewards.com) and review the infor- mation about their reward program. 5-17. In what ways could J.C. Penney expect to measure the

four elements of CRM within the context of a reward program such as this?

5-18. How would data be collected for each element, and how might management at J.C. Penney use that data to provide loyal customers with a very strong relation- ship with the firm?

Choices: What Do You Think?

5-19. Ethics CRM relies on data collected from customers to create customized or one-to-one experiences for those customers. Data are collected at various touch- points-places in which the customer interfaces with the firm to provide infotmation, such as at a check- out lane, on the phone, on the website, and so on. Do firms have an obligation to explain to custom- ers that they are collecting information from them to populate and drive their CRM initiative, or is it inher- ently obvious in today's world that such practices are toutine? In general, what is your personal viewpoint

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0 5-23.

5-24.

5-25.

of database-driven positioning strategies? What are the potential pros and cons to the company and to the customer? Critical Thinking Are there any potential challenges that could arise related to the use of customer lifetime value (CLV) as a means of determining the allocation of resources to current or potential customer groups? If so, what might these challenges be? Ethics The Internet of Things refers to the incteased proliferation of devices that are connected to the Internet and that in turn can be connected to each other. Although there are a number of benefits to thi.s level of connectivity for both society and busi- nesses, there are also a number of risks and ethical issues. What are some of the risks and ethical is- sues that stem from this? Do the benefits outweigh the downsides? What physical objects would you consider not allowing to be connected through the Internet, and why? Ethics Many technology applications (such as social me- dia platforms) are able to remain free in part because they are able to monetize the data of those individuals who use the technologies. Do you believe that there is a limit to what these companies should be allowed to do with the data that they collect? If so, what specific uses of data should be off limits? Critical Thinking Spending on digital marketing has trended upward in recent years, and with so many individuals using the Internet for extended periods of time, it is easy to understand why. In some cases, some organizations spend more than hatt of their budget on digital marketing. How do you think they justify committing more than half of their marketing budget to digital efforts? Do you believe that more companies should invest primarily in digital market- ing? What groups o, factors w ould indicate to you that digital marketing does not make sense as an investment? Critical Thinking A study conducted by Adobe found that 77 percent of marketers surveyed believe that data on customer purchase histories can improve marketing performance, yet only 21 percent actually use it. Similarly, 88 percent believe that behavioral data can have a similar impact, but only 20 percent use it. 57 These statistics highlight a contradiction be- tween the perception of marketing analytics' value and the actual frequency of execution of marketing analytics. Why do you think this is? If you we,e in charge of implementing marketing analytics into an organization, w hat hurdles would you expect to en- counter and from whom, and how would you over- come them? Critical Thinking If a company of which you are a cus- tomer suffered a data breach (in which some of the data customers created ot shared by customers with the company we,e compromised), would your percep- tions of that company change and if so, why? Would it matter what type of data was compromised? A!e there other factors that would lessen or heighten your view of the severity of the event? If so, what might they include?

156 PART TWO j DETERMINE THE VALUE PROPOSITIONS DIFFERENT CUSTOMERS WANT

5-26. Ethics Do you believe it is right for companies to target a higher (or lower) cost service to a consumer based on a data driven observation that the consumer pos- sesses characteristics typically associated with a willing- ness to spend more (or less) money on the related ser- vice? Does this constitute a form of discrimination that would make you uncomfortable as a marketer who is exploring the possibility of employing this strategy? What about if you were the consumer on the receiving end of it?

Miniproject: Learn by Doing

Different types of businesses use different approaches to en- gaging with both current and potential consumers online. A company's website is usually a key source of information for potential and current customers. The purpose of this project is to gain a deeper understanding of how marketing analytics can be implemented in order to gain greater insights into and enable more effective control of marketing efforts.

a. Select three company website. These should include one ecommerce site (e.g., Amazon), one consulting company (e.g., IBM), and one consumer packaged goods company (e.g., Tide).

b. For each company's website, list what you believe the ob· jectives of the organization are as communicated through

the website and identify specific conversion actions on the website that would most closely align with these goals. For example, customer acquisition might be sup- ported and ultimately achieved by getting users to sign up for an e-mail newslener, which ,•,ould be defined as a conversion action.

5-27. Rank the conversion actions in order of imponance and include an explanation of why you have ordered them as such. Identify whether they are short-term oriented as they relate to the organization's objec- tives or long term-oriented (or, in some cases, both) and why.

5-28. If you could choose only two marketing metrics (re- member metrics, not conversions) to track for each of these websites, identify which two you would select for each website and explain why.

5-29. Some of the websites visited should have a request- for-information form on them. Often, this is one of the ways that marketers begin to collect information on a customer to place within their CRM system. Locate this form and identify what information it is asking for. Write down the different potential uses of this infor- mation for the organization and in what ways it might be used by marketers to further engage with the cus- tomer. What are some creative ways that you would recommend leveraging these data for each website analyzed in terms of future communications?

Marketing in Action Case Real Choices at Novartis

How would you like it if every time you used your medication somebody knevv about it? Novartis wants to collect information in the cloud whenever someone uses its Breezhaler inhaler. The company has entered into an agreement with Qualcomm Life. Inc. to create an inhaler with Internet connectivity that will trans- mit information when patients use the Breezhale!. The device delive!s chronic obstructive pulmonary disease (COPO) treat- ments of Onbrez, Seebri. and Ultibro. The companies will be able to accumulate data concerning the user's medical condition, the efficacy of the drug, and the device itseW from a huge number of patients. The collaboration may lead to broad healthcare ben· efits, but patient confidentiality will be an important issue.

The roots of Novartis go back over 250 years. The mod- ern day enterprise is the union of three Swiss companies: Ciba, Geigy, and Sandoz. Headquartered today in Basel, Switzerland, Novartis is a global leader in innovative medi· cines, eye care, and cost-saving generic pharmaceuticals. The company's global research operations include publicly funded collaborative research projects involving other corporate and academic partners. Novartis owned companies employ ap- proximately 120,000 lull-time associates and provide pharma- ceutical products in more than 180 countries.

With this new Breezehaler initiative, when patients use the product it will send tracking information on their smartphones or tablets. Patient statistics transmit wirelessly to a Novartis COPD mobile application, which then transmits the data to the cloud. David Epstein, a Division Head and CEO of Novartis Pharmaceuticals, stated, "By enabling near real-time data

capture from the patient and the connected Breezhaler device, patients can monitor their adherence to the medication they take which is vital to their health outcomes.• Novartis wants to be the first pharmaceutical company to provide a connected delivery device to give patients an easy-to-use and simple ex- perience. In addition, physicians and other healthcare providers may have access to the data and use it to directly monitor the patient's condition and medicine usage.

Despite the potential benefits, the collection of large amounts of patient data comes with significant risk. The infor- mation gathered by the Breezhaler will reside on the patient's device, the healthcare provider's systems, and the cloud. This data creates an attractive opportunity for criminals to steal information like names, birth dates, insurance policy numbers, billing data, and medical diagnostic codes. Stolen medical data is handy to create lake IDs, buy medical equipment, or acquire drugs. Erik Vollebregt, a medical device cybersecurity and pri- vacy attorney, remarked, ·Toe more information, the easie! identity theft is and the more valuable the profiles that the hacker can sell to third parties.• In addition, he believes that the possibility increases for criminals who hack the informa- tion systems to use the data to threaten the lives of patients and blackmail the manufacturer.

Novartis can use the cloud-based medical information to acquire a bener understanding of the impact of medica- tions on the treatment of COPD. However, it has to develop methods to ensure that the data sharing is confidential yet will still be of practical use to their researchers. How should

CHAPTE R 5 I MARKETING ANALYTICS WELCOME TO THE ERA OF BIG DATA' 157

Novartis use lhe information 10 create medical benefits to both patients and healthcare professionals and a1 the same time protect the sensitive data?

You Make the Call 5-30. Whal is the decision facing Novartis? 5-31. Whal factors are impO(lant in understanding !his

decision?

MyMarketinglab ™

5-32. What are the alternatives? 5-33. What decision(s) do you ,ecommend? 5-34. What are some ways to implement your recommenda-

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Go to mymktlab.com for Auto-graded writing questions as well as the following Assisted--graded writing questions:

5-35. Creative Homework/Shon Project Assume that a firm hires you as marketing manager for a chain of retail bookstores. You believe that the firm should develop a CRM strategy. Outline the steps you would take in developing that strategy.

5-36. Creat;ve Homework/Short Project. Your boss has been hearing about the importance of Big Data and data mining to marketers. Write a memo

to your boss that describes the various applications that data mining has for marketers in order to convince him that the company should explore this topic.

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Chapter 6

Understand Consumer and Business Markets

Define consumer bellavlor. Influence consumer situations and the business and explain the purchase behavior. pp. 174-179 buying decision process decision-making process. SITUATIONAL AND SOCIAL INRUENCES Includ ing the use of pp. 160- 166 ON CONSUMERS' DECISIONS p. 174 e-commerce and social

THE CONSUMER DECISION·MAKJNG media. pp. 186-194

PROCESS p. 160 6.4 Understand the characteristics BUSINESS BUYING SITUATIONS AND of business-to-business markets THE BUSINESS BUYING DECISION

Explain how Internal factors and business-lo-business mar- PROCESS p. 186 Influence consumers· kel demand and how market- decision-making processes. ers ciasslty business-lo-business Check out the Chapter 6 Study M"fJ pp. 166- 174 customers. pp. 179- 185 oo page 195.

INTERNAL INFLUENCES ON BUSINESS MARKETS: BUYING AND CONSUMERS' DECISIONS p. 166 SELLING WHEN THE CUSTOMER IS

ANOTHER ORGANIZATION p. 179 Show how sltuatloool facloo and consurneB' relo- 6.5 Identify and describe the Jlonshlps "'1th othe< people different business buying

Meet Dondeena Bradley Y A Decision M aker at Weight Watchers

Oondeena BracJJey is an innovation strategist, health and we-II.being expM, a11d a visionary in the atea of health innovation. She currently leads global innovation at Weight Watchers lntematianal. Prior to Weight Watchers she was

at PepsiCo, sei'Ving as Vice President, Nutrition Ventutes, and Vice Ptesident of Nutrition R&O. Her previous food and nutrition experience indudes Johnson & Johnson. Campbe,il's Soup and M&M/Mars. Het education includes a

Doctor of Phrlosophy, Food Science, ffom Ohio State UnivMity. a Master of Science from Purdue Univel'Sity, and a Bachelo, of Soence from Anderson University.

What I do when I'm not wo11dng: Business book I'm reading now: My pel peeve: Reading, sketching, and live music Super Better by Jane McGooigal People talking (Net each other

Rrst job out of school: My management style: Research Scientist, M&M Mars Collaborative, co-creative, and emergent

In the early 1960s, Weight WalChers founder Jean Nidetch began inviting friends into her Queens. New

York, living room once a week to talk about their lives and how stay on their diets. Today, that group of friends has grown to millions of women and men around the world who have joined Weight Watchers to lose weight and lead healthier lives.

More than SO yea,s after Wcighl Watche,s v,~s founded, the need for this kind of suppon has neve1 been greater. Two out of three American aduhs are o,·erweight, and one-third are obese. We spend more than S60 billion per year on weight-loss solution~ ranging from diet drinks and gym member- ships to programs like Weight Watdlers and competitors like Jenny Craig and Nuuisystern.1 Healthcare providers and employers are grappling with the best way to address this costly epidemic. And losing weight continues to be a top priority for many consumers.

Yet there has been a shih in how people think about weight loss. Today's consumers don't want dieting, deprivation and restriction; they want a more holistic and pefSonalized solution that integrates heaJthiet eating, fitness. and emotional well-being. They are also looking for success to be measured by more than just the number on the scale.

In an a:ie of infrnite options and choice\ tt is getting harder to get people to "join" or commit to a ,;,gle program. Many people opt for a "do tt yourself' ap- proach using smartpoone~ a;,~ and trackers-and customized diets and exercise regimens that 6t their prefe,ences and need~ Many consumers say they don't want a one-sire-fllS-al approach like Weight W.tchffi. and that they aren't all that inter· ested il carvilg out tine for weekly meetings that don't seem wrrent

In January 2016, in response to this chaogjog landscape, Weight Watchers launmed a new "Beyond the Scale" program that takes a more peisonalized approach based on each member's unique lifestyte,, goals. and challenges. After an initial assessment. each member receives a custom program that includes daily and weekly Smartl'oints targets (to encourage them to eat betted, a personalized activity goal (to nudge them to move more), and education and inspiration tailored to their unique situation.

Members can choose to participate in the program online, in person, or both. A typical member's experience consists of attending weekly meeting~ each lasting about 4S minutes. at a Weight Watchers kicatKln 'ht!ere an inspir· ing leader who has been successful using the program supports the member group in achieving their stated weight-loss goals.

Whether a member engages with online or in person, the chaOenge ~ to find relevant ways to help them stay motivated, inspired, and positive week af- ter week-because the weight-loss journey is typically a long haul and dinical ewfence show, that happie< people tend to make healthier dloke.

As leader of the global innovation team, my job was to focus on trans- forming the Wcight Watchers face-to-face business. My chaOenge was to mod- ernize the experience for today's busy, *aJ\f\'a)'S on .. consume! and to appeal to more people than the segment of age 50+ women that make up Weight Watcher's core customer base.

My team also was asked to address the seasonaUcydical nature of a business that starts strong at the beginning of the year and typically goes d01VOhill from there. The fact is, after a big marketing and membership "burst·

MyMarketinglab"" 0 Improve Your Grade!

in January when new yea1/ne\v me resolutions are at a peak, engagement and attendance at Weight Watchers begins to decline significantly tlvoughout the year-as people lose motivation. their commitment wanes. and it gets harder to stay on track.

There's no doobt that people still want the benefns that Weight Watchers deliver~ but I had to think hard about new ways for the company to show up and deliver our services given lhe reaJitie-s of consumer behavicw today.

Dondeena considered her Options 1·2-3

l Make the weekly meetings more productive and en-tertaining. Mix them up with lectures by lifestyle experts and offer dasses in yoga, Pilates. and other forms of exercise to provide a "'one•stop shopping" OpHon experience for attendees. The-se offerings would be attrac- tive to busy people who want to maximize their "bang for the buck" when they allocate time to weight loss. They also sync nkety with the broader consumer trend of a heightened interest in wellness that continues to spread through the mainstream U.S. population. On the other hand, these activities would dilute the core Weight Watchers experience, which is unique because it emphasizes group support and provides a rorum for people to sha1e their anxieties and frustrations when they try to lose weight In addition, Weight Watchers has no expertise in these areas. so becoming a broader lifestyle-oriented company is a departure from the company's strategic mission. Plus, it woukl require a massive amount of training for our field of 10,000+ meeting leaders and service providers.

Design an immersive well•being event that would debunk and shift w rrent assumptions about Weight Watchers (dated, diet-focused, boring) and give par- ticipants a contemporary, compelling, life-changing

Option experience. Make it ooique and une;iipeaed enough to energize current members, re-engage those who ha'le left, and entice individuals who have Ol'\lef considered Weight Watdlers before. Capitalize on trends ol people inaeas· ingly paying for • experiences· thattange from 4S-minute group cycling dasses at Soul Cycle to a four-day Wanderlust retreat at a Hawaii resort featuring yoga and meditation instructors, chefs, and pedorme,s. The event would generate a lot ol word of mouth (a critical driver to the Weight Watchers business), and my team could use feedback on the first one to mod'rfy stAisequent events and determine whether this plan is feasible. On the other hand, a large dramatic """11 would be a far sttetm from the traditional Weight Watchers model It might afienate core members who expect Weight Watchers to be focused on food, not holistic prac· tkes and approaches. It would aJso require a lot of resources to plan and e.x.ea.Jte a novel experience like this from scratch.

0•1113,!1!{11 Which Option would you choose, and why?

D Option 1 D Option 2 D Option 3

See what Option Dondeena chose in MyMarketingLab1111

Over IO million students improved their results using the Pearson Mylabs. Visit mymktlab.com for simulations, tutorials. and end·of~chapter problems.

159

160 PART TWO I DETERMINE THE VALUE PROPOSITIONS DIFFERENT CUSTOMERS WANT

Chopter 6

consumer behavior The process invo~ed when indi,.iduals or groups sel«t, purchas~ use, and dispose of goods, services, ideas, or experiences to satisfy their needs and desires.

a Organize a transformative event, but partner with an existing organization like Wanderlust to leverage their experience and infrastructure. Instead of trying to reinvent me wheel Weight Watchers could moee quickly to market with a proven business model and a competent ci>-sponsor that knows how to stage a complicated event for hundredsJthousancls Option of people. On me other hand, a partner wouldn't be as fami6ar with the needs of the weight loss community so the experience might not be as · authentic" fa ol.l' customers. In addition, even if the event is successful Weight Watchers would not · own• h so me value to our ongoing program might be hard to assess.

Now, put yoursetf in Oondeena's shoes.

6.1 OBJECTIVE Define consumer behaviOf, and explain the purchase decision-making process.

(pp 160-166)

The Consumer Decision- Making Process Compelling new products, clever packaging, and creative advertising surround us, clamoring for our a ttention-and our money. And that's not aU-the lntemct offers us 24/7 shopping on our "small scroons" for these products from any location, information on a gazillion differ .. cnt products from just about as many scllcrs, p lus product and seller reviews by other consumers.

But consumers don't all resPond in the same way. Each of us is unique, with our own reasons to choose. one product over an-

other. Remember: The focus of the marketing concept is to satisfy consumers' wants and needs. To accomplish that crucial goal, first we need to apprcx:fatc what those wants and nc...~s arc. \¥hat causes one consumer to step into an lntcrnational House of Pancakes for an order of IHOP Rooty Tooty Fresh 'N Fruity'° Pancakes, whereas another opts for a q uick Starbucks latte and Danish, and a third person will only cat a healthy serving of "natural" Kashj cereal and frui t? And what, o ther than income, will cause one consumer to buy that box of Ka.shi cereal only when it's ''on deali' while her neighbor never even looks at the price?

Consumer behavior is the process individuals or groups go through to select, pur• chase, use, and dispose of goods, services,. ideas, or cxpc.rienccs to satisfy their needs and dcsil'l."S. Marketers recognize that consumer decision making is an ongoing process; it"s much mote than what happens at the moment a consumer forks ovt!r the cash and in tum n..~ives a good or setvice.

Let's go back to the shoppers who want to buy a box of dry cereal Although this may seem like a simple purchase~ in reality there are quite a fow steps in the process that- cereal marketers need to understand. The first decision in the process is where to buy your cereal. If you cat a lot of it, you may choose to make a special trip to a warehouse,. type retailer that sclJs supcr•dupcr-siud boxes rather than just p icking up a box while you're at the local supermarket. JI you want to choose from healthier o rganic altcrna .. tives., you may browse for cereal at Whole Foods or a locaJ food co-op. Of course,. if you get a craving for cereal in the mjddlc of the night, you may dash to the local convenience sto re. Then, what type of cereal do you buy? Do you eat only low-fat, high-fiber bran cereal<;, or do you go for the sugar•coated varieties with marshmallows? 0£ course, you may also like to have a variety of cereals available so you can mix and match.

Marketers also need to know how and when you consume their products. Do you cat cereal only for breakfast, or do you snack on it while you sit in front of the TV at night? Do you cat certain kinds of cereal only a t certain times (like sugary kids' cereals that serve as comfort food when you pull an aU-nighter)? What about storing the product (if it lasts that long)? Do you have a kitchen pantry where you can store the supersizcd box, or is space an issue?

And there's more. Marketers also need to w,de:rstand the many facto-rs that influ• cnce each of these steps in the consumer behavior process-internal factors unique: to

CHAPTER 6 j UNDERSTAND CONSUMER AND BUSINESS MARKETS 161

each of us,. situational factors a t t-hc time of purchase., and the social influc.nces of pl?Oplc a.round us. ln this chapter, we'll talk about how all these factors influence how and why consumers do what they do. But first we'll look a t the typt.'S of decisions consumers make and the: steps in the decision- making process.

Figure 6.1 ~ Process I The Consumer Decision-Making Process The consume,- dedsion•mak.ing process invotves a ~ies of stepS.

I Problem n,cognition I -I Brandon is fed up w ith driving h is

old clunker. ' Not All Decisions Are the Same

Old school l'l."'$Carc.hc.rs asswnOO that consumers ca.rcfuUy col-

Joct information about competing products, determine which products possess the cha.ractc.ristics or product attributes im- portant to their needs, weigh ~,e pluses and minuses of each

alti!mativc, and arrive at a satisfactory decision. But how ac. curate is this picture of the decision-making process? Is this the way you buy cereal?

I Information search I Brandon talks to friends,

visits car showrooms, and reads Consumer

Reports to get an idea of the new cars in which

' he might be interested.

Although it docs seem that people take these steps when they make an important purchase such as a l'k.."'W\1/ car, is it realistic to assume that they do this for ""'Y'1rit1g they buy, like that box of cc,. n.>al? Today, we roalizc that decision makers actually employ a set of approaches that range from painstaking analysis to pure whim, depending on the importance of what th.,y arc buying and how mucheHort they choose to put into the docision.2 Researchers find it convenient to think in terms of an "effort" continuum that is an ..

chon.'<I on one end by /rabi11111/ decision making, such as deciding to purchase a box of cereal, and at the other end by e.tle11ded problem solvi,ig., such as dociding to purchase a l\t:.""W car.

I Evaluation o f alternatives I

When consume.rs engage in extended problem solv•

ing, they do indeed carefully go through the steps ~ Figure 6.1 outlines: problem recognition, information search, evaJ .. uation of altcrnaHves, product choice, and postpu.rchase

evaluation.

I Product choke

Brandon narrows his choices to three car

models a nd thinks about the good and bad

features of each option.

I Brandon chooses one car because it has a featu re

that really appeals to him and he likes the image

it projects.

When we make habitual decisions., however, we make little or no conscious clfort. Rather_, the search for infonnation

I Postpurdlase evaluation I I and the comparison of alternatives may occur almost instan• tancously, as we recall what we have done in the past and the satisfaction we rccci.vcd. You may, for example-, simply throw

the same brand of rercal in your shopping cart week after week without thinking about it too much. I;.<] Figure 6.2 provides a summary of the differences bctwcen extended problem solving and habitual decision making.

Many decisions fall somewhc.rc in the middle and arc characterized by limited prob .. lem solving, which means that we do some work to make a decision but not a great de:al. This is probably hm,• you decide on a new pair of running shoes or a cool new case

for your smartpho.ne.. Just how much effort do we put into our buying decisions? The answer depends on our level o( involvement- how important we perceive the conse,, quc.nces of the purchase to be.

As a rule, we arc more itwolved in the dccisi01, .. making pl'OC('SS for products that we think arc risky in some way. Perceived risk may be pJ\.>sent if the product is expensive or complex and hard tQ w,dc-rstand, such as a new comput'cr ot a sports car. Pc.rccived risk

also can play a role when we Ulink that making a bad choice will result in cmb3.n'assme.nt or social rejection. For example, a young woman might decide agaU,st purchasing a nice• looking and functional Nine West purse from Kohl's for fear that she might be teased or

ridiculed by her sorority sisters who all sport trendy Coach handbags.

Brandon drives his new car and decides he~s

happy with h is choice.

involvement lhe relative mlportance of perceived consequences of the purchase to a consumer.

perceived risk The belief that choice of a product has potentially negativi! cons,q,ence~ whether financial, physical or social.

162 PART TWO I DETERMINE THE VALUE PROPOSITIONS DIFFERENT CUSTOMERS WANT

Figure 6.2 ~ Process I Extended Ptoblem Solving versus Habitual Decision Making Decisions characterized as extended p,oblem sofving versus habituaj decision making differ in a num.ber of w;rys.

Extendt,d Problem Solving Habitual Decision Making

Product New car Box of cereal

Le..,/ of invo/w,ment High low (iml'V\rtant decision) (unimportant decision)

Perceived risk High low (exn,,,nsive, comolex oroduct) (simple, low-cost product)

Information processing Careful processing of information Respond to environmental cues (search advertising, magazines, car (store signage or displays) dealers, websites)

LNming model Cognitive learning Behavioral learning (use insight and creativity to use (ad shows product in beautiful information found in environment) setting, creating positive attitude)

Needed marlceting actions Provide information via advertising, Provide environmental cues at

pro~em recognition The proce5s that occurs whenever the consumer sees a significant diffeceoce between his or her current state of affairs and some desired or ideal state; thts recognition initi.ates the decision- making proce5s.

salespeople, brochures, websites. point-of-purchase, such as Educate consumers to product product di.splay benefits, risks of wrong decisions, etc.

When perceived risk is tow--such as when we buy a box of ce.rea.1- wc experience

a low amount of involveme1n in the docis ion•making process. 1n these cases, we're not overly concerned about which option we choose because it is not especially impottant or

risky. The worst-c.a.se: scenario is that you don't like the taste and pawn off the box on your unsuspectjng roommate! ln lorv.iuvolve.meut s ituations, the consumer's decis ion is often a response to environmental cues, such as when you decide to try a new type of cereal be,,

cause thc grocery store prominently displays it at the end of the aisle, known as an md cap.

Under these circumstances, manage.rs must concentrate on how a store displays products

at the time of pul'Chasc to influe:nce the decision maker.

For l1igh•itroolven1ml putchascs, such as when we buy a holL.:;e or a car, we arc more likely to carefully process all the available information and to have thought about thc decision wcll

before we buy the item. The consequenc,,s of the purchase are important and risky, especially because a bad decision may result in significant financial losses, aggravation, or em.ba.rrass-- n)enL Most of us would not just saunter into an auto dca.Jer's office at lunchtime and casually

plunk down a deposit on a new Tesla Roadster. For high-involvement produclS, managers

must s tart lo reduce pcrreived risk by educating the consumer about why their product is tti.? best d,oice wcll in advance o( the time th.at ~ person is ready to n\ake a decision.

To understand each of the steps in the decis ion•making ptocess, we'll follow the fof'oo tunes of a consumer named Brandon, who, as Figu.re 6.1 shows, is in the market for a nc-w

ride-a highly involving purchase decision, to say the least.

step 1 : Problem Recognition Problem recognition occurs when-ever a consumer sees a significant difference between his

or her current state of affaits and some desired or ideal state. A woman whose IO-year-old

Hyundai lives a t the mechanic's shop has a problem, as does lhc man who thinks he'd look

so much "coolct'·' if he traded his Toyota for a new sports car. You may fall into the latter category if your old dunker runs okay, but you want to sport some wheels that will get you admiring siares instead of laughs.

Do marketing decisions have a role in consumers' problem recognition? Although

most problem recognition occurs spontaneously or whCJl a true llecd arises, marketers of• ten develop creative advertising messages that stimu)atc consumers to recognize that their

CHAPTER 6 j UNDERSTAND CONSUMER AND BUSINESS MARKETS 163

Stage in the Decision Proa!ss Marketing Strategy Exampla

Problem recognition Encourage consumers to see • Create TV commercials showing

figure 6.3 ~ Process I Responses to Decision Process Stages

UndMt:anding the consumer decision proces.s means marketets c.an devek>p strategies to help move the consumer ftom ,eoogni2ing a need to being a satisfied custome<.

that existing state does not the excitement of owning a equal desired state new car

Information search Provide information when • Target advertising on TV and where consumers are programs with high target· likely to search market viewership

• Provide sales training that ensures knowledgeable salespeople

• Make new--car brochures available in dealer showrooms

• Design exciting, easy4 to- navigate, and informative websites

• Provide information on biogs and social networks to encourage word-of•mouth strategies

• Use search marketing to ensure that your website has preferential search engine positioning

• Participate in consumer review/advisory websites such as tripadvisor.com

Evaluat ion of Understand the criteria • Conduct research to identify alternatives consu mers use in comparing most important evaluative

brands and communicate criteria own brand superiority • Create advertising that

includes reliable data on superiority of a brand (e.g., miles per gallon, safety, comfort)

Product choice Und erstand choice heuristics • Advertise "'Made in America"' used by consumers and (count ry of origin) provide communication that • Stress long h istory of the encou rages brand decision brand (brand loyalty)

Postpurchase Encourage accurate • Provide honest advertising evaluation consumer expectations and sales presentations

current state (that old car) just dcx."'Sn't equal their desired state (a shiny, new convertible). I;? Figure 63 provides examples of marketers' n.'Sponses to consumers' problem n,cogni• tion and the other s teps in the consumer dOOSion•making process.

step 2: Information Search Once Brandon recognizes his problem-he wants a newer car- he needs adequate in· formation to resolve il Information search is the step of th!! dccision•·ma.king proct."SS in which the consumer checks his or hc.r memory and surveys the: environment to identify

information search The process wheceby a consumer searches for ctA)fClpfiate infO(fflation to make a reasonable decision.

164 PART TWO I DETERMINE THE VALUE PROPOSITIONS DIFFERENT CUSTOMERS WANT

evoked set All of the alternative brands a consumer is aware of when making a decision. consideration set The ahemative brands a consumer seriously considers in making a decisioo.

comparison shopping agents o r shopbots Web applications that help online slloppers find what they are loomg for at the lowest !'ice and pro't'Kle custaner reviews and ratings of products and sellers.

determinant attributes The features most important to differentiate and co~re amoog the product choices.

evaluative criteria The dimensions consumers use to compare co•ting pcoduct alternatives.

what options might solve his or hc.r problem. Advc.rtisc.me:nts in on TV information we googlc on the Internet, or a video on YouTubc often provide valuable guidance during this step. Brandon might tely on recomtnt!ndations from his friends., Facebook drivers'

clubs, informatios\ he Hnds a t ww,1\1.caranddrivcr.com, bnx:hurcs from car dealerships, or

the manufach.Lrcr.s' websites. We'll talk more about opportunities for consumers to gather

information in the digital world in Chapter 14.

Th~ search for information step indudes finding out what alternatives are available and which O'kc..---Ct our personal nec,ds. We call the alternatives a consumer knows about the evoked set and the ones he or she seriously considers the consideration set. lf a brand isn't in the consu.me:r's evoked set, th<?re's pretty much a zero chance of purchase. That's why marketers know it's important for consumers to be exposed to messages about their brand freq_ucntly, thus ensuring a place in the consume.rs' evoked set.

Increasingly, consumers use the lntcmct to search for information about pnxiucts. Search engines, s ites such as Google (www.googlc.com) and Bing (www.bing.com), help

us locate lL<ieful information as they search millions of web pages for key words and return

a list of sites that contain those key words. We'll talk more about marketing and search

engines in Chapter 13.

Comparison-shopping agents (shopbots) such as Bizrati?.com or Priccgrabber.com, arc-

web applications that can help online shopp<>rs find what they are looking for at the lowest

price. In addition to listing where a product is available and the price, these sites often pro-

vide customer reviews and ratings of the product and the: sellers. They enable conswners to view both positive and negative feedback about the product and the ontinc retailer from

other consumers. Increasingly, consumers also search out other consumers' opinions and

experiences through networking websites such as YouTube and Faccbook. We'll talk more-

about these sites and others similar to them later in the chapter.

Step 3: Evaluation of Alternatives Once Brandon identifies his options, it's time to decide on a few true contenders. The.re

are two components to this stage of the dccision•making process. First, a consumer armed

with information identifies a smalJ number of products in which he or she is interested.

Then he or she focuses on determinant a ttributes, the foatur~ most important to diffc.rcn• tiatc and compare among the product choices. Brandon has always wanted a red Ferrari.

But after hc allows himself to daydream for a fow minutes, he retums to reality and rc.luc• tantly admits that an Italian sports car is probably not in the cards for him right now. He decides that the cars he likes-and can actually afford-are the Nissan Versa, the l<ia Rio,

the Chevrolct Spark, and the Honda Fit. He na.rt'OWS down his options as he considers only

affordable cars that come to mind or his Facebook friends suggest.

Now it's decision time. Brandon has to look more systematically a t each of the three possi·

bilities and idei,tify the important product characterLstics, what marketers refer toas evaluative criteria_, he: will use to decide among them.. The characteristics may be power, comfort, price, the style of the car, and yes, even safety. Keep in mind that marketo,s often play a role in educating conswn(!(S about which product characteristics they should use as evaluative criteria-usually they wiU "conveniently" emphasize the dimensions on which their product excels. To make sure customers like Brandoo come to the ~'right" oonclusfons in their evaluation of the altema·

tivcs, markctc.rs must understand which criteria oonswncrs use and which tht:..j' believe are more and k!ss important. With this information, sales and advertising professionals can point out a brand's superiority on the most important criteria as lhty have defined them.

Step 4: Product Choice When Brandon examines his aJtemativcs and taki.~ a few test drives, it's time to "put the pedal to the metal" D..."Ciding on one product and acting on this choice is the n.l!Xt s tep in the decision.•making process. After agonizing over his choice: for a few weeks, Brandon

CHAPTER 6 J UNDERSTAND CONSUMER AND BUSINESS MARKETS 165

decides that even though the Versa and the Fit have attractive qualities, the Honda Fil of• Ccrs the affordability he needs, and its carefree image is the way he wants others to think about him. All this thin.king about cars is "'driving" him crazy, and he's rclicved to make a decision to buy the "Fit and get on w ith his life.

So just how do consume.rs like Brandon choose among the alternatives they consider? These decisions often are complicated because it's hard to juggle all the product d1arac0

tctistics in your head. One car may offer better gas mileage, another is S2,000 cheaper, whereas a.nothe:r boasts a better sa.f1.?ty n.."Cord. How do we make sen.~ of all these quali tics and arrive a t a decision?

For extended problem solving decisions, we oftei, considct aU of the characteristics and the relative importance to us of each one. This type of decision uses compensatory de,.. c.ision rules that allow information about attributes of competing products to be averaged

in some way. The poor standing on one attribute can potentially be offset by good standing on another.

Other times we rely on simple "rules of thumb," or heuristics, instead of painstak• ingly lean\ing all the ins and outs ol every product ahcmative. These heuristics provide consume.rs with shortcuts that simplify the dOO.Sion,--making process. One such heuristic is "price= quality"; many people willingly buy the more ll'.Xpcnsivc brand because they

assume that if it costs more, it must be beth?:r (eve:n though this isn't always true). Perhaps the most common heuristic is brand loyalty; this occurs when we buy the

same brand over and over, and, as you might guess, it's the Holy Crail for 1narketers. People form preferences for a favorite brand and then may nt:'ver change thcir minds in the course or a lifetime, making it extremely difficult for rivals to persuade them to switch.

Still another heuristic is based on couut-ryef origiu. Vle asswne that a product has cer• taln cha..ractctistics if it comes from a certain country. 1n the car catcgor}~ many people as,, sociate C.Crman cars with fine eng:inee-ring: and Swedish cars with safety. Brandon assumed that the Japanese Ho1,da Fit would ~ more dc.pendablc than the Kia or the Chevrolet, so he factored that into his decision.

Step 5: Postpurchase Evaluation In the last stc.p of the decision.making: process, the consumer evaluates just how good a choice he or she made. Everyone has experienced "''8"'1 after making a purchase ("What was 1 tlti11k- ing?"), and (it is hoped) we have all been pleased with something we've bought. Tho evalua• tion of the product results in a level o( consumer satisfaction/dissatisfaction. This refers to the overall feelings, or attitude, a person has about a product after he or she purchases it.

Just how do wc decide if we're satisfied with what wc bought? When we buy a prod· uct, we have some expec-lntions of product quality. How well a product or service meets or exceeds these expt.""Ctations determines customer satisfaction. 1n other words, we tend to

assess product quality by comparing what we have bought to a preexisting performance standard. Think about the customer who finds his new car gets 25 mpg fuel usage. If his cxp«:tation is the same 25 mpg, he will be satisfied; if his exp,.'Ctation is 20 mpg, he will be extri?Dlely satisfied; but if, based on the information he received btoforc he purchases the auto, he expects the car to gct 30 mpg, he will be dissatisfied_

We form our product expectations via a mixture o( information From marketing com ..

munications, informal information sources such as friend,; and family. and our own prior experience with the product category. That's why it's important that marketc.rs create ac• curate expectations of their product in advertising and other communications.

Even when a product _performs to expectations, consumers may experience regret, or cognitive dissonance, after they make a purchase. When we reject product altcma• tives with attractive features, we may SL'COnd .. gucss our decision. Brandon, for example,

might begin to think, "Maybe I should have chosen the Kia Rio-Kia makes great ca.rs and the price is right." To gcnerale satisfied customers and remove dissonance,-

compensatory decision rules The methods for making decisions mat allow information about anributes of cofll)eting JYoducts to be averaged in some way.

heuristics A mental rule of thumb that leads to a spe<dy decision by simplifying the process.

brand loyalty A pattern of repeat product purchases. accompanied by an underlying positive attitude toward the brand, based on the belief that the trancl makes produas superior to those of its co~tition.

consumer satisfaction/dissatisfaction The overall feelings or attitude a peoon has about a proooct aner purdlasing it.

cognitive dissonance The anxiety or regret a consumer may feel after choosing from among several similar amactive choices.

166 PART TWO I DETERMINE THE VALUE PROPOSITIONS DIFFERENT CUSTOMERS WANT

Figure 6.4 '& Process ( Influences on Consumer Decision Making

A number of different factoo in consumers· lives influence the consumer dec.ision--maki.ng ptocess. MarketefS need to undetStand lhese influences and which on.es are impottant in the purchase process.

perception The process by v.flich people select, Ofganize, and interpret jnformation from the outside worki.

Exter nal Influences

Internal Influences Situa t ional Influences

• Physical environment • Perceptjon • Time • Motiva t ion • Leaming Decision Social Influences

• Attitudes Process • Culture • Personality • Subculture • Age groups • Social class • lifestyle • Group memberships

• Opinion leaders • Gender roles

marketers often seek to reinforce purchases through follow•up communications with the customer aJtc.r the sale.

ln a study, business students wrote complaint letters to companies. The companies responded with a free sample, a letter o( apology, or no response at all. When the company sent a free sample, attitudes toward the company improved significantly; when the com•

pany sent a Jetter of apology, there was no change in attitude; and when the company did not respond, the attitude was more negative tha1, be:fore.3

In adctition to understancting the mechanics o( the consumer decision-making process, marketers need to understand what influences in consumers' Hves af(cct this process. As

we sec in ~ Figure 6.4, there arc lhrec: main influences in the decision•maki.ng process: inttm1a1, situational, and social inAucnces. All o( these fac tors work together to affect the

ul ti.mate choice each person makes.

6.2 OBJECTIVE Explain how internal factors inHuence consumers' decision4

making processes.

(pp. 166-174)

Perception

Internal Influences on Consumers' Decisions What is your dream car? It may be a sporty Ferrari. However, your roommate dreams of a lricked'"°ut Mustang, and your dad is set on

owning a big Mercedes. As the saying goes, "That's why they make chocolate and vanilla.'' We can attribute much of thL'SC differences to

intt?rnal influences on consumer behavior- those things that cause

each of us to intcrpn.~ information about the outside \.'o'Orld, induding which car is the best, diffor\!f\tJy from one another.

Perception is the process by which people select, organize, and inte:rp~t information from the outside world. \o\'t? receive information in the form of sensations, the immediate re•

sponse of our sensory tt...~ptors-eycs, ea.rs, nose, mouth, and skin- to basic stimuli such as light, color, odors, touch, and sound. We try to make sense of the sensations we receive by interpreting them in light of our past experiences.

V\fe are bombarded with information about products-thousands of ads both on and off•linc, in-store displays, spi..."Cial offers, our fric.nds' opinions we read on their Faccbook page, and on and on. The perception process has important implications for marketers: As we absorb and make sense of the vast quantities of information that compete for our

CHAPTER 6 J UNDERSTAND CONSUMER AND BUSINESS MARKETS 167

attcntio,,, the odds are that any single message will get lost in the clutter. And, if we do notice the message, there's no guarantee that the mc-ani:ng we give it wW be

the same one the marketer intended. Marketers n~ to understand the thn.""C s teps Lhat occur d uring this pro• cess.: txposur~, atlenliou, and inlerpretatiou.

Exposure

The stimulus must be within range o( people's SC!f\sory n.""«'ptors to be notiet."<l.; in other words, pt.""Oplc must be

physically able to see, hear, taste, smcll, or focl the stimu• lus. For example, the lettering on a highway billboard must be big enough for a passing motorist to read t."aS,, ily, or the message wiJJ be lost. Exposure is the extent to which a person's sensory receptors are capable of rcgis• tering a stimulus.

Matkcters work hard to achieve exposure for their products, but sometimes it's just a matter of making sure that cool people use your product-and that others

New a,gmenred reality l4RJ applications add an e><:i!ing dinension lo pen:eplion for """"""'· AR ccrnbines a itr,,sical layer d illorma1ion \\ilh a digital layer of informalion to aeate a dfnamic image. This concept \WI be disrussed further il Chapter 14.

observe them doing so. One way marketers get their products into the hands of A•l.isters is to insert them into both official and unofficiaJ gift bags that celebrities roceivc whro they attend the Academy Awards-and then hope those celebrities like the swag so much they show it off for the cameras. O.nc ye.at, for example, actor Kevin James rt..""Ceived as a gift a George Foreman grill that was such a hit that he wrote it into episodes of his hit show ·n,t Kiug of Queens-where millions of viewers around the world saw it.4

Many people believe th.at even messages they can't see will persuade them to buy ad• vertised products. Oaims about subliminal advertising of messages hidden in ice cubes or baked into the tops of crackers have been surfacing since the 1950s. A survey of American consumers found that almost two-thirds bcJieve in the existen~ of subliminal advcttising, and more than one•half are convinced that this technique can get them to buy things they do.,'t really wa.nl 5

There is not much evidence to support the argument that th.is technique actually has any effoct at all on our perceptions of products and even less that marketc.rs a.re or ever have used subliminal advertising methods. But still, concerns persist. ABC once rejected a commercial for KFC that invites viewers to slowly replay the ad to find a secret message, c:iting the network's long•standi.ng policy against subliminal advcr• Using. The ad (which o ther networks aired) is a seemingly ordinary pitch for KFC's S.99 Buffalo Snacker chicken sandwich. But if you replay it slowly on a digital video recorder, it h~lls you that vie,,rcrs can visit KFC's website to receive a coupon for a fret'! sandwich. Ironically, this technique: is really the opposite of subliminal advertising be• cause instead of secretly placing words or imagc>s in the ad, KFC blatantly publicized its campaign by informing viewers that it contains a message and how to find it.6 The short story: Hidden messages arc intriguing and fun to think about (if a little scary), but they don't really work. Sorry for the le tdown-and don't bother trying to read this paragraph backward.

Attention

As you drive down the highway, you pass hundreds, maybe thousands, of other cars. But to how many do you pay attention? Probably only one or two-the bright pink and purple VW Bug and the Honda with the broken taillight that cut you off at the exit ramp. Attention is the extent to which we devote mental•proct."SSing activity to a particular stimulus.

exposure The extent to vdlich a stimulus is capable of being registered by a person's sensory receptors.

subliminal advertising SUppo,edly hidden messages in marke,er,' commooications.

attention The extent to vmich a persoo devotes mental processing to a panicular stimulus.

168 PART TWO I DETERMINE THE VALUE PROPOSITIONS DIFFERENT CUSTOMERS WANT

Factors That Influence Attention

Because attention is critical to advertising e(foctivencss,

ma.rkcters continue to look for ways to ensure that con• sumcrs will a ttend to their messages. Some factors that influence consume.rs' likelihood of devoting processing

activity to a s timulus include the following:

Personal m'eds a11d goals: Consumers are more likcly to pay a ttention to messages that speak to their current net..--d.s. A

car that almost causes you to be in an accident wiU speak to your cum.mt need to get where you are going: safely. That's the same reason you' re far more likely to notire an ad for a fa,; t. food restaurant when you' re hungry.

SiZL: A larger magazine or newspaper ad or a longer TV commercial is more likely to command attention.

,...,.1Y and contrast i1 a message are useful lo capb.re a,nsume,s' attenliln. NO?N'lty: Stimuli that present som<>thing un<>xp«ted tend

multitasking Moving back and fMh between various activities such as e-mails TY. instant ~sages, and soon.

rich media A digilal advertising term for an ad that includes a<Nanced features other elements lite video aid audio that encourage vie-.vers to interact and engage with the cootent

interpretation The process of assigning meanWlg to a stimulus based oo prior associations a person has 'Mth it and ""°""'ions he °' she makes about it.

motivation AA in!emal state that drives us to satisfy needs by activating goal·otiented beh.wioc

to grab our attention. That includes the red•and•whitc polka-dot VW bug driving in front of us, ads that are in black and white in an all.color world, or ads in unconventional plaet.'.\S such as painted on a sidewalk, on the backs of shopping carts or on bathroom walls. Novelty ran also make product packaging stand oul When Pepsi came out with Pepsi One and Coke introduced Coca Cola Zero in black cans, these new versions stood out on s tore shelves.

Another problem marketers face. when it comes to attention is muttitasking; flitting back and forth among our c,.mails., TV, instant messages, and so on. Cctting the attention of young prople in particular is a challengc-os your professor probably knows! More than half of teens report that they engage in multitasking., where they process i.nfonnation From more than one medium at a time as they alternate among their rell phones, TVs,. and laptops.7

Online advertisers keep innovating to get visitors to watch lhcir messages. Some have ht.med to rich media, a digital advertising term for an ad that includes advanced features like vidoo and audio that encourage viewers to interact and engage w ith the content. The

web page for the Chevrolet 2016 Spark allows viewers to St.."lC: the car with different colors, trims, whee.ls and intt!t'iors.8 OnHne rich media for the Metropolitan Museum of Art allows web visitors to view a moving panorama of an exhibit or to l!Xamlne details of a painting

by clicking on tho image.

Interpretation

Interpretation is the process o( assigning meaning to a s timulus based on prior associations we have with it and assumptions we n,akc about it. T\•,.ro people can sec or hear the same event, but their interpretation of it can be as d ifferent as night and day, depending on what

they had expected the stimulus to be. 1n one study, kids ages 3 to 5 who ate McDonald's French fries S<>rved in a McDonald's bag overwhclmingly thought U,ey tasted bctter than those who ate the sa.me fries out of a plain white bag. Even c.arrots tasted better when they

came out of a McDonald's bag- more than half the kids preferred them to the same c.a1Tots s.,n,ed in a plain package! Ronald would be proud.9

Motivation Motivation is an internal state that drives us to satisfy needs. ~ we activate a need, a s tate

of tension exists that drives the consumer toward some gooJ that will n:."<'.lucc this tension by eliminating the need. Have you ever b<,en on an Interstate highway and sren a billboard with a giant picture of a hamburger available at tho next exit, rcali2ed how good a big fat juicy ham·

burger would taste at that moment, and you decided to go for it? That's motivation at work.

CHAPTER 6 j UNDERSTAND CONSUMER AND BUSINESS MARKETS 169

HIGHER-LEVEL NEEDS

Relevant Products Example

Sllf.

Hobbies, travel. education

ACTUALIZATION Self.futflllment,

Enric:hlng Experiences U.S. Army- "Be all you can be."

Cars, furniture, credit cards, st ores, country d ubs, liquors

EGO NEEDS Prestige.. Status, Accompll$hment

Royal Salute S(otch-"What the rich give the wealthy."

dothing. grooming products, dubs, drinks

BELON GNESS Love, F .. ndship,

Acceptan by Others Pepsi-"You're in the

Pepsi generation."

Insurance, alarm systems. retirement. investments

SAf£1Y Security, Shelter, Protection

Allstate lnsurance-"You're in good hands with Allstate."

Medicines, staple items, generics

PHYSI ICAl Water, S p, Food

Quaker Oat Bran- "lt's the right thing to do.''

LOWER-LEVEL NEEDS

Figure 6.5 ~ Sn•pshat I Maslow's Hierarchy of Needs and Related Products Abraham MasloN proposed a hierarchy of needs that categorizes motives. SiNtfY marketers know they need to understand the le\lE!ii of needs that motivates a consumer 10 buy a partirular product o, bl'and. Sou.rce: Adapted from Maslow, .Abraham H.; Frager, Robert O.; fadiman, James, Motivation and Ptersona/ity, 3ro Ed., 01987. Reprinted and Electronically reproduced by penniWOO of Pearson E<luca:ion, Inc.. Uppet Saddle Ri>M, New Jersey.

PsychologL,;t Abraham Maslow developed an influential approach to motivation.10

He formulated a hierarchy of needs that categorizes motives according to five levels of importance, the more basic needs being on the bottom of the hierarchy and the nigher needs at the top. The hierarchy suggests that before a person can meet needs at a given level,. he or she must first meet the lower level 's needs-somehow those hot new 7 For All Mankind jeans don't seem as enticing when you don't have enough money to buy food.

As you can s,,c from @ii Figure 6.5, people start at the lowest levcl with basic physi• ological needs for food and slcq:,. Then they progress to higher levels to satisfy more complex nc«ls, such as the nc«I to be accepted by others or to focl a SfflSC of accomplishment Ultimately, they can reach the high..'St•lcvcl net.>ds, where they will be motivated to attain such goals as self.fulfillment. As the 6gurc shows, if marketers understand the leveJ of n~"<is relevant to consum~rs in their target market, they can tai• lor their products and messages to them.

hierarchy of needs An approach that categorizes motives according to f,ve levels of importance, the more basic ne<ds being on the bonom of the hierarchy and the higher needs at the top.

gamification A strategy in which marketers apply game de,jgn techniqu,s, often by awardirg of points, badges. or levels. to noo-garne experiences to engage consumers.

Marketers use their understanding of co.nsumc.r needs for prestige, status,. and accompli,;hn,ent when they use gamification. Gamification is a strategy in which marketers apply game design techniques to non-gaming contexts like shopping. They often do this by awarding points or badges to motivate consumers. Nike+, for ex• ample, allows consumers to cam points a.nd set goals to push themselves to exercise more. Foursquare and Zynga apps use gamification to encourage app usage. Stride gwn introduced NCumulon/' the world's first chewing· Cmsumas purchase many produc!s such as bathlll>s for both tunctiooal based mobile game. Players _position the camera on thcir and aesthetic reasons.

170 PART TWO I DETERMINE THE VALUE PROPOSITIONS DIFFERENT CUSTOMERS WANT

mobile devices to use their mouths to control the intergalactic game. A simple chewing motio.n CiltL<;CS the main character, Ace.i to jump and advance through levels of the game, which takes place in a cavernous outer space ,nine (on the planet "Cumulon"J. Many bc- lie\1e that gamification wiU become an even more s ignificant trend in th~ fu ture. \o\'ould you study more if you could collect badges for your efforts?

learning Learning A relatively permanent change in behavior

caused by acquired information or e,q>e1ience.

behavioral learning theories Theories of leaming that focus on how consumer behavior is changed by external events or stimuti

learning is a change in behavior catL<;ed by information or experience. Psychologists who study learning have advanced several theories to explain the learning p rocess, and these perspectives arc import.ant because a major goal for market~s is to "'teach" consumers to prefer their products. We refer to the two major perspectives on how people learn as b<,.. havioraJ and cognitive learning.

classical conditioning Behavioral Learning The learning that OCClJtS 'Mlen a stimulus eliciting

a response is paired with another stinulus that ilitialy does not elicit a response on its oon but 'MIi cause a similar response over time because of its association with tht first stimutus.

operant conditioning leamilg that occurs as the resuh of rewards or punishments..

data brokers Colll)anies tha1 collea information on consumers. use it to create detailed profiles of ildividuals. and sell or share the information with othe<s.

Behavioral learning theories assume that learning occurs as the result o( experience and the connections we form bt."tween events. ln one Lype of behavioral le:am.ing.. dassical conditioning~ a person perceives two stimuli at about the same time. After a while, the person transfers his or her n."SJ)OOSC from one stimulus to the o ther. For example, an ad shows a product and a breathtakingly beautiful scene so that (tho marketer hopes) you will L·ran.,;fcr the positivt:' foclings you get when you look at the scene to the advertised prod· uct. Hint: Did you ever notice that car ads often show a new auto on a beautiful beach at sunset or speeding down a mountain road with brightly colored lcavt?s blowing across the pavement?

Another common form o( behavioral lea.ming is operant conditioning, which occurs when people- !cam that their actions result in rewards or punishments. This fet."tiback

Ripped from the Headlines Ethical/Sustainable Decisions in the Real World Information about you, a typical consumer, is big business because it has huge fmandal value. Most of us know that companies place cookies on our computers to track our online activities. That's how Amazon offers you great books you'll like and why that ad for a Bosch refrigerator con- V"1iently pops up when you're reading the New York Times online-and you happen to be in the market for a refrigerator. B.ut exactly what data companies collect about consumers and what happens to it after they have it is a complex and very troubling question to many.

Data brokers are companies that coUea information on cons.umers and use it to create detaired profiles of incfrviduals. These companies then sell or share the personal infcxmation v.ith others. It's not oolyyour searches on Google that data broi:ers track. Data brokers are also monitoring what you post on Facebook, looking ove< your shoulde< as yoo handle financial transactions online,. even storing the information on the medications you take. Using a treasure box of analytical tools, the brob,rs are able to aeare a picture of you. with your name, your address, your likes and dislikes. your doses! friend~ your bad habits, even your daily movements, both onfine and offline. And then they sell that • pictlJre • of you to a<M!ftisers. finan· cial institutions, i=rance ~anies, the hospitality indusuy, cable and telecommunications companies,. political campaigns, retail stores, and even goo.•emment entities and law enforcement agencies.

Many believe that consumers are in a kind of wild, wild West where the precious commodity that is being mined and sold is the innocent and unprotected consumer rather than gold. True, you benefit because you're much mo1e likely to get useful information about the products and services you really want and not be bothered by ads for sttJ!f you wouldn't buy in a million years. However, many critics are concerned because at the present time, there are no laws that require data bro· kers to maintain the privacy of consumer data unless they use that data for credJt, employment, insurance, housing, or other simila1 purposes. There are no Jaws that give consumers the right to know the information the brokers have about them so that they can correct inaccuracies. and no laws that give consumers the right to *opt out· and prevent data broker~ from selling their per· sonal information. And, although platforms like Facebook do offer some forms of privacy protection, many users aren't aware of these optlons and in some cases they don't read 'the fine print" dosely enough 10 under· stand what happens to their data. Do you think that this business is unethical?

ETltlCS Citro<:,._

Should lhere be more govemmenl regulalloltsondala brolcers1Dproleet consumers' prlvacy?

D YES D NO

ldalaonainsumen has 1lnandal value, sl1ould consumetS beftnandalil' compensated for lhelr lnlonnallon?

0 YES O NO

CHAPTER 6 J UNDERSTAND CONSUMER AND BUSINESS MARKETS 171

influences how they will n._~pond in si.inilat situations in the future. Just as a rat in a maze learns the route to a piece of cheese., consume-rs who receive a ,. reward,"

like the toy that you used to get in your Happy Meal a t McDonald's, will be more likely to buy that brand again. We don't like to think that marketers can train us like lab

mice, but like it or not that kind of feedback docs reward us for the behavior and make it more likely that wc1ll re. peat it in the future.

Cognitive Learning

In contrast to behavioral theories of learning that e:mpha ..

size simple stimulus•rcsponsc connect.ions, cognit ive learning theory views pt...'Ople as problem solvers who learn as they proactivcly absorb new information. Supporters of this viewpoint s tress the role of creativ•

Coosuners learn lo ll<e a <islike products in part based oo how others il their environmeol react. M:mlile is an ·acquired 1as1e:· it's a yeast exlract that is ..tremet,, salty am a local delkacy il the U.K. Australians lavor a similar pO<lD called vegemile. Americans aren1 ~ild about either.

ity and in.,;ight during the learning process. Cognitive learning occurs when consumers make a connection between ideas o r by observing things in lhcir environment.

Observational learning occuts when people watch th12 actions of others and note what

happens to them as a result. They s tore these observatio1\S in memory and at some later point use the information to guide their own behavior. Marketers often use this process to create- advertising and other messages that allow consumers to observe the benefits of us•

ing their products. Health clubs and manufacturers of exercise equipment feature ripped men and women pounding away on treadmills, whereas mouthwash makers imply that fresh breath is th12 key to romance.

Now we've discussed how the th.rec intema.1 pr'OC12'SSCS of per-ccption, motivation, and learning influence consumer behavior. But the results of these processes-the intcrpreta• tioi, the consumer gives to a marketing message or action-differ depending on unique

consumer characteristics. Let's talk next about some of these characteristics: existing con• sumer attitudes, the _personality of the consumer, and cons-um.ex age groups.

Attitudes An attitude is a lasting evaluation of a person, object, or issue. 11 Consumers have attitudes toward brands, such as whether McDonald's or Wendy's has the best hamburgers. They also evaluate more general consumption•tclatOO behaviors, such as whether hig-h•fat foods,

induding hamburgers, are a no-no in a healthy diet. Marketers often measure consumer a ttitudes because they belic-vc attitudes predict behavior-people like Brandon who think Honda Fit is a Hcool" car arc more likely to buy one than consumers who CN!rish the plush comfort of a big Buick. To make attjtude measurement meaningful, o\aJ'kctcrs understand that a person's attitude has t.h.rce components: affect, cognition, and behavior.

Affect is the feeling component o( a tHtudcs. This term refers to the overall emotional response a person has to a product. Affect is usually dominant for expressive products, such as perfume, wherc we choose a fragrance if it makes us focJ happy. ln other cases, ad• vertisers try to arolL'it? more negative emotions to get our attef\tioll and create a bond with

their product,;. This new trend even has a name, sadvertising. Ads that provoke a good cry are aU around us; think about aU the adorable puppies and ponies you sec in modern Super Bowl spots.12 Thes<> emotional reactions actually cause physiological changes, such

as an i.Jlcrcase in pulse and sweating when a welJ.-done commercial n.."all)' gcts to us. Some advertising researchers measure heart rate and skin conductivity and track the eye gaze of consumers whiJe they view ads over the internet_, mobile devices_, and their TVs.13

Cognition, the knowing component, .refors to the beliefs or knowledge a person has about a product and its important characteristics. Cognjtion is important for complex

cognitive learning theory Theory of learning that stresses the impatance of internal mental processes and that Yiews people as probtem sONers who activet,, use ilformation from the world around them to master their environment.

observational learning Leaming that occurs when people watch the actions of others and note what happens to them as a resulL

attitude A learned predisposition to respond favorably°' oofavo<ably to stimuli on the basis of relatively enduing ..aluations of people. ol>jeClS, and issues.

affect The feeling component of attitudes: refers to the overall emotional response a person has to a product.

sadvertising Advertising designed to aroose more negative emotions to get our anentioo and create a bond wnh their produas.

cognit ion The knowing component of attitudes; refers to the beliefs or knowledge a person has about a product and its important characte,istia.

172 PART TWO I DETERMINE THE VALUE PROPOSITIONS DIFFERENT CUSTOMERS WANT

behavior The doing component of anitudes; inv®,tes a consume(s intention lo do something, such as the intention to purchase Of use a certain pcoduct

personality The set of unique psydlologica! charae1eristics that consistent.,- influences the way a persoo responds to situatioos jn the enviconment

setf.c:oncept An inoJVidual's self-image that is composed of a mixture of beliefs, observations. and feeli~s ab:>ut personal attributes.

products such as computers, for which we may develop beliefs on the basis of technical infonnation.

Behavior, the doiug component, involves a consumer's intention to do some-thing, as the intention to purchase or use a certain product. For products such as cereal, consumers act (purchase and try lhe product) on the basis of limited information and then form an evaluation of the product simply on the- basis of hmti.r the product tastes or performs.

Personality and the Self: Are You What You Buy?

Personality is the set of unique psychological characteristics that consistently influences the way a person responds to situations in the cnvironmenl One advcntun..""-sec.king consumer may aJways be on the lookout for new experiences and cutting-edge products., whereas

another is happiest in familiar surroundings whctc he or she can use the same brands over and over. Today, popular online matchmaking services like Match.com, Matchmaker.com, and eHarmony.com offer to create your "personality pro6Je" and then hook you up with

other members whose profiles arc a good match. A person's self·concept is his or her attitude toward him.sell or h~f. The sc-lf.con•

ccpt is composed of a mixture of beUeJs about one's abilities and observations of one's own

behavior and feelings (both positive and negative) about one's personal attributes, such as body type or facial featun'S. The cxtc:nt to which a person's sclf-concept is positive or negative can influence the products he or she buys and even the extent to which he or she

fantasizes about changing his or her Ufe. Sclf..,,.tccm rcfcrs to how positive a person's self-concept is. Our society is obsessed

with the self. Consumers track their health and diet on apps like Fitbit, they post updates

on their relationships on Facebook, and they spend bilUons on apparel and beauty prod· ucts to "edit" the person that others see. The "scllic" epidemic is another symptom of this infatuation., as people go to great lengths to record their presence a t parties., museums,

and many other locations. A recent survey of young consumers reported th.at they spend an average of 54 hours per year taking selfics. About hall of the respondents were OK with the idea of snapping selfies during childbirth, and one in fi,,e think it's OK to take them during a fune.ral!u

As Dondeena at Weight Watchers knows, the appeal of many products re- lates directly to their promise to improve self-image. A lot of these appeals focus

on a person's body parts and how he or she (eels about their physical condition. Of course in our society "thin is in," a.nd women 3.N' constantly bombarded with images of anorexic-looking models. That focus may be starting to change as the

movement toward more realistic body ideals gains steam. Recently a plus-size bloggcr with a huge following threatened to mobilize a boycott against Target because the chain didn't carry larger versions of the designer fashions she craved.

Target's social media team picked up on this threat and the retailer nipped the problem in the bud: It now scUs a line of plus-siz<.'<l fashions called AVA & VIV and guess who is one of tl,e models for ~,c clo~,cs? Sometimes the squeaky wheel does

get the grcasc.15

Age

Goods and services often appeal lo a specific age-group.

A person's age is another internal influence on purchasing behavior. Many of

us foci we have more in common with those o( our own age be<:ause we share a common set of experiences and memories about cuJtural events, whether these involve Woodstock, Woodstock 11, or even Woodstock m. Coods a.nd services often appeal to a specific: age group. Although there are cxcepHons, it is safe to as• sume that most buyers o( Rihanna's CDs are younger than those who buy Barbra Streisand discs.

CHAPTER 6 J UNDERSTAND CONSUMER AND BUSINESS MARKETS 173

Age is important, but regardless of how old we are, what we buy often depends more on our cutrent position in the family life cycle-the stages through which family members pass as they grow o lder. Singles (of any age) are more likely to spend money on expc.11SiVL' cars, en• tcrtainment, and r,._--,crcatio:n. Couples with small children

purchase baby fumih.J.re, insumncc, and a largc.r house, whereas older couples whose children have ~left the nest'' are more likely to buy a retin.."tnent home in Florida.

Lifestyle Demogr,iphic characteristics, such as age, income, and family life cycle, tell marketers w/,a/ products people buy, but they don't reveal wl1y. Two consumers can share the same demographic characteristics yet be totally different

people-all 20-year-old male college studeots are hardly identical to one another. That's why marketers often fur,,.

Each stage in lhe lamly lire c)de pres,nls new challenges.

family life cycle ther profile consumers in terms of thcir lifestyles. A lifestyle is a pattern of living that de• tetmlncs how people choose to spend their time, mone"}~ and energy and that reflects their values, tastes/ and p~fercnccs.

A means of characterizing constlllers within a family structure on the basis of different stages through which people pass as they grow old«.

Metrics Moment There are many potential metrics avaftable to assess aspects of consumer behavior. Here are some popular ones and an example of each.

• Overall awareness: The percentage of aJI consumers who rec· ognize or know the name of a brand. This can be "aided" or "un· aided: A marketer can measure unaided awareness for Sensodyne toothpaste sif11jlly by asking consumen to name all the brands of toothpaste that come to mind. Aided recognition is measured by asking consume-rs questions such as "Have you heard of Tom's of Maine toothpaste?"' Then follow-up questions can be asked to as· certain additional pertinent information.

• Top-of-mind awareness (TOMA): The first brand that comes to a consuner's mind when he or she thinks of a product category. Marketers measure TOMA with questions sud, as "What school comes to mind when you tMnk of fvy league universities?"'

• Consumer knowledge: Measured by asking const.mers if they have some specific knowledge about a brand. To measure brand knmvledge, marketers may ask cons1.111ers if they believe the brand possesses certain attributes or characteristics, such as • Ooes the Kia Soul come with Btuetooth wireless technology as a base feature?,.

• Attitude towa,d a brand: Often measured with 9JfV"Y questions about beliefs that the brand po,sesses certain characteristics, the relative ~ ance of those characteristics to the product categOI)', and the .....,au measure of how much the consumer likes the brand. A resulting question might be 'What is your OYerall feeling toward Chick· Iii-Al" (measured on a scale from very unlavorable to highly favorable).

• Purchase intentions: A consumer's stated willingness to buy or expressed likeUhood of certain behavior. A conwmer StJVeY may ask, "If you are in the market for a new pair of running shoes, what

lifestyle The pattern of living that deiermines how people dloose to ,pend their time. mooey, .m energy .m !hat reflt!CIS their...,.,_ ti~es. and pmerences.

is the likelihood that you would purchase a pair of Brooks running shoes l" (measured on a scale from highly unlikely to highly likely). Caution: Stated intent to purchase does not perfectly translate into actual purchase behavior!

• Purchase habits: Another measu1e of a consume:f's self-reported behavior. Marketers ask questions such as "On average.. how many times a month does your famity eat out?·; ·Which restaurant did you go to the last time you ate out?"; and "How much do you nor· malty spend on a dinner out with your family?"

• Customer loyalty: A measure of a consumer's commitment to a Sjlccific brand. Once the marketer has determined whid, brand the consumer typically use~ they follow up with questions such as • If on your next trip to the store you plan to purchase hand soap and your favorite brand of hand soap is not available, would you buy another brand or wait until you find your favorite brand to make the purchase? ·

• Customer satisfaction: A consumer stlVeY may ask questions such as "How satisfied are yoo with the level of cabin seNice by JetBlue Airlines?" (measured on a scale from very <fissatisfied to very satisfied).

Apply the Metrics

Consider the consumer behavior metrics mentioned. Pick out several met4

rics that you think would be most useful to gain a better understanding of each item that foOOW"S. How might you use each metric you choose to do the fol101W19? 1. Better understand a fum's existing customers 2. Identify potential new customers for a firm 3. Gauge the market potential lo, a new product

• • ~

174 PART TWO I DETERMINE THE VALUE PROPOSITIONS DIFFERENT CUSTOMERS WANT

psychographics The use of psychojogical sociojogical and anthropological factors to construa market segments.

activities, int erests, and opinio ns (AJOs) Measures of consumer activities. interests. and opinions used to p1ace COnstlTlers into cimensions.

sensory marketing Marketing techniques that 6nk diSlinct sensory experiences such as a unique fragrance with a JYoduct or service.

Savvy market·crs often try to identify how consumers' lifestyle preferences create opportunities for products and services th.at relate to their values. Consider for example the growing cannabis revolution. AJmost overnight, legal pot has become big business, with revenues in thc United States of close to $3 billion per year already. As more states decide to legalize marijuana, businesses large and small arc rushing in to satisfy cus- tomors' needs for the weed but also rclated items (Orcos, anyone?). The magazine High

Times, founded by a former dtu.g smuggler \,,ay back in 1974, is a "trade paper'" for this lifestyle. Today it's at the forefront o( the revolution. It hosts the High 1imes Cannabis Cups, weekend festivals that fo.atu.re more than 500 vendors, seminars, and celebrity ap•

pearanccs such as Ice Cube and David Arqucue. Now it's moving into other ventures, including nightdubs that offor cannabis menus and merchandise such as socks cmbJa .. zoned with pot Jcavcs.16

To dctetmine the lifestyles of consumers, marketers tum to psychographics, which groups consumers a«ording to psychological and behavioral similarities. One way to do this is to describe people in tcnns of their activities, interests. and opinio ns (AIOs). These

dimcnsfons are based on preferences for vacation destinations, club memberships, hobbies, political and social attitudes, tastes in food and fashion, and so on. Using data from large samples, marketers create profiles of customers who resemble one another in terms of their

activities and patterns of product usc.17

6.3 OBJECTIVE Show how Situational factors and consum· ers • relationships with other people influence consumer

behavi01.

(pp. 174-179)

Situational and Social Influences on Consumers' Decisions We've: seen that internal factors., such as how people perceive market•

ing messages, thcir motivation to acquire products, and thcir unique personalities, age groups, family life cycle, and lifestyle, influence the decisions we make. ln addition, situational and social influences-

factors external to the consumer-have a big impact on the choices con.~umers make and how we make them.

Situational Influences When, whc~, and how consumers shop-what we call sit11atio,uil iufluences-shapc our purchase choices. Some important situational cues are our physical surroundings and time pressures.

Marketers know that dimensions of the physical environment, including factors such as

decor, smell~, lighting, music, and even temperature, can signific.antly influence consump-, tion. When casino operators replaced old school "one-armed bandilS" with electronic slot machines that no longer made the familiar whirring noises when players pulled the handle,

earnings foll by 24 pen:cnt.18 And the Hard Rock Hotel in Orlando, Florida, boosted ice cream sales by 50 pcrrent simply by spraying a waffle cone scent into the air outside its shop.19

Sensory martc.eting is becoming big business. SpeciaUzed companjcs seU scents to hotels, car manufacturers, and even banks {like customers don't know what money smells like). Some offer individual scents, like vanilla, whereas others sell combinations of popu· lar scents. But for some rctaHers, like Victoria's Secn.>t and Bloomingdale's, it's not enough

to have just any scent; these retaiJers have actually purchased custom scent,; that not only appeal to their customers but also enhance their brand. And, coming soon: Books, mov• ies, and even clothing that wiU de-liver specific scents via pellets that you insert into your

CHAPTER 6 J UNDERSTAND CONSUMER AND BUSINESS MARKETS 175

iPhonc.!XI Marketers term this strategy sensory branding.21 Let's sec how some othc-r situ•

ational factors influence the consum~ decision•making process.

The Physical Environment

It's no secret that physical surroundings strongly influence prople's moods and behaviors. Despite aU their efforts to prescU consumers through advertising, marketers know that the store. environment influences many purchases. For example, one s tudy of purchasing

habits showed that consumers decide on about lhna."C out of every four of thcir supermarket product purchases in the aisles (so always cat before you go to the supermarket). The study also showed that in.store: marketing and branding had a strong influci,cc on shoppcts'

purchasing decisions. 22

Two dimensions, arousal and pleasure, detcnnine whether a shopper will react posi• tivcly or negatively to a s tore environment. In other words,. the person's surroundings

can be either duU or exciting (arousing) and either pleasant or unpleasant. Just because the environment is arousing doesn't necessarily mean it will be pleasant- we've all been in crowded, loud, hot stores that are anything but. The importance of these surroundings

explains why many retaHets focus on packing as much entertainment as possible into their s tores. For example, Bass Pro Shops, a growing chain of outdoor sports equipment s ton..--s bu.ilt in the style of an enormous hunting lodge, fo.aturcs giant aquariums, waterfalls, trout

ponds, archery and rifle ranges, putting green.<, fish and wildlife mounts at every tum, and free classes (for adults and kids) in c,•erything from ice fishing to conservation to meat pro- cessing. And if all that sensory overload leaves you famished, many of the Bass Pro Shops s tores even offer on.-sitc restaurants at theit more than 60 current locations.

Time

Tune is one of consumers' most limited resources. We taJk about ''making time" or "spend·

ing time," and we remind one another that ''time is money.'' Marketers know that the time of day, the season of the year, a.nd how much time a person has to make a purchase affects decision making.

Indeed, many consumers believe that they ate more pr12Ssed for time than ever before. This sense of time poverty makes consumers responsive to marketing innovations that allow them to save time, including services such as drivc,.through lanes a t pharmacies, to-

your-door grocery delivery, and mobile pet grooming. ln fact, a funeral home in Farmville, Virgin.fa, even offers drive.through viewing for mourners who don't want to get out of their ca.rs to see the dco..Yclsed.23

Then of course there is the "always open" convcnic.ncc of "stores" on the web, ready to serve you whenever, wherever, and however you want. ln fact, onlinc shopping is growing at about seven limes the rate of overall retail spending in the United States But even though

70 percent of people said that they preferred to shop their favori te retailer onlino, that doesn' t 1nt?an your favori te bric.ks.and-mortar store is going away anytime soon.2'1 lnstcad, the.,;e s tores are adapting their services to meet your needs. For example, many retailers now

Jct you ship your online purchase to the s tore nearest you free of charge, and you can return items you purchased onlinc at this location as weJI. And while you're in the store picking up that new summer tank top you ordered online, chances a.re you'U pick up a fow extra iten)S you didn't know you needed, like those matching earring.< and to-die-for flip-Oops.

Social Influences on Consumers' Decisions Although we a.re all individuals, we arc also members of many groups that influence: our buying decisions. Families, friends, and dassmatcs often sway us, as do larger groups with which we identify, such as ethnic groups and political parties. Now let's consider how

social influ~ces, such as culture, social class, influcn6al friends and acquaintances, and trends within the larger society, affoct the consumer dccision•making process.

sensory branding The use of distinct sensory experiences not onfy to appeal to customers but also to enhance their !rand.

time poverty Consumers' be-lief that they are more pressed fOC' time than ever before.

176 PART TWO I DETERMINE THE VALUE PROPOSITIONS DIFFERENT CUSTOMERS WANT

culture 1he values. beliefs, customs. and tastes a group of people valu,s.

subculture A g oup within a society whose members share a distinctive set of beliefs. charaaeristi~ or convnon experiences.

microcuttures Groups of consumers who identify with a specific aaivity or an form.

consumerism A social moyement that anempis to protect consumers from harmful business practices..

Culture

We c.an think of culture as a socicty's personality. Lt is the values, beliefs, customs, and tastes

a group of people p roduce or practice. Althoug h we often assume that what people in one culture (especially our own) think is desirable o r appropriate will be appreciated in other cultures as well, that's far from the truth. For example., simply translating American mar•

kctii,g messages into Spanish doesn't mean those message:s v.ri.U be accepted-especially among those Hispanic consumers living in lhe United States who have a strong desire to maintain their Hispanic identity. Instead, marketers must ,.,recognize that Hispanics buy

brands th.at em_powcr their cultural relcvancy.'"25 That means developing relationships with customers and considering their family and religious values.

Values (Again)

As we also saw in Chapter 2, cultural values arc det.>ply held beliefs about right and wrong ways to livc.26 Marketers who understand a culhlre's values can tailor thcit product offer• ings acconiingly. But over time, culturol values do change. Consider, for example, that the

valut$ for coJlectivist countries differ greatly from thOS(' of individualistic cultures, whc-re immediate gratification of one's own needs come before all othct loyalties. In collectivist cultures., loyalty to a fam.iJy or a tribe overrides personal goals. Today, we sec the economic growth of some collectivist countries such as lndia, Japan, and China, making many con· s-umcrs more affluent-and individualistic. For marketers, this means growth opportuni• ties for p roducts such as trove.I, luxury goods, sports activities like tennis and golf, and

entertainment.

Subcultures

A subculture is a group that coexists with other g·roups in a larger cuJturc but whose me:m• bers share a distinctive set o( be.liefs or characteris tics, such as members of a religious or• ganization or an ethnic group. Microc.ultures are groups of COI\Sumcrs who idc-ntify with a

Spt."Cific activity or art form. These form around 1V shows like TIie Voice or Gn-y's Anatomy, online games like Candy Crush Saga, or leisure activities such as extreme sports. Social n'H'.'• dia have been a real boon to subcultu..r\"s and microcultures; they provide an opportunity

(or like-minded consumers to share their thoughts, photographs, videos, and so on. More on these important new sharing platforms later in the book.

For marketers, some of the most: important subcultures arc racial and ethnic groups

because many consumers identify strongly with their heritage, and products that appeal to this aspect of their identities appeal to them. To grow its business, Clorox got down and dirty with its Hispanic consumers. After studying how Hispanics traditionally clean theit

homes, Clorox introduced its Clorox f raganzia line of cleaning product-. to meet all of thci.r cleaning needs-a thorough p rocess of cleaning, disinfccti.J,g, and ammatizi:ng. Even their toi)et·•howl cleaners, in the shape o( lit-tic baskets, or cannstillas, look like those used in Latin America.27

Conscientious Consumerism: An Emerging Lifestyle Trend

Powerful new social move.me:nts within a society also contribute to how consumers make decisions about what we \,,ant and what we don't. One such inOuen<:e is consumerism, the

social 1novcmcnt directed toward protecting: consumers from harmful business practices. Much of the current focus of consumerism is about bu.;;incss activities that harm the en•

viroruncnt and the potential damage to our planet. Worries about climate changt?, en.ti.re Spt."Cics go.ing extinct, widespread exposure to carcinogens and harmfuJ bacteria and many other issues arc front and renter.

As mort? and more emphasis has been placed on this by consumers and the media, many of us are much more mindful ol environmental issues whc.n we shop a.nd when we make decisions about the foods we eat, the clothes we wear, the buildings in which we live

CHAPTER 6 J UNDERSTAND CONSUMER AND BUSINESS MARKETS 177

and work, and the cars we drive. Eve1, marketers are following the consumerism call to action. Unilever launcht't.i a campaign on Facebook and You"fube tied to its Axe brand to

encourage reducro usage or hot water. The "Showerpooling" campaign asks fans to take

a pledge to share a shower with a likc•mindcd acquaintance or attractive stranger.28 Some analysts call this new value conscientious consumerism.29 We see evidence of its impact everywhere, in th12 form of vegan restaurants, c]octric cars, and solar heating panels on

homes.

Social Class

Social class is the overall rank of people in a society. People who are within the same class

tend to exhibit similarities in occupatio1\ education, and income level, and they often have

similar ta,;tes in clothing. decorating styles, and leisure activities. Class members also share

many political and religious be.liefs as wcll as prcfo:rcnces for AIOs.

Many marketers design thcir products and stores to appeal to pt..~ple in a specific social class. Working.class consumers tend to evaluate products in more utilitarian tcrmsl such as sturdiness or comfort, instead of trendiness or aesthetics. They a.re less likely to

experiment with new products or styles, such as modem furniture or colored appliances, bc'Cause they tend to prefer predictability to novelty.30 Marketers need to understand these differences and develop product and communication strategies that appeal to diffc.rcnt

social classes. Luxury goods often sc.n1e as status symbols, visible markers that provide a way

for people to flaunt their membership in higher social classes (or a t least to make others beliwe they arc mcmbc.rs). 'The bumper sticker nHe who dies with the most toys wins"

illustrates the desire to accumulate these badges of acMevcment. However, it's important- to note that over time, the importance of different status symbols riSL:.s and falls. For ex•

ample, when James Dean starn.~ in the 1956 movie Ginni, the Cadillac convertible was the ultimate status symbol car in the United States. Today, wealthy consumers who want to Jet the world know of their succe$ arc far more likcly to choose a Mercedes, a Tesla, or even a

humbler Prius. ln addition, traditional status symboL-5 today are available to a much wider range of

COI\Sumers around the world with rising incomes. This change fuels demand for mass,,

consumed products that still offer some degree of pauacht or style. Think about the success of companies like Nokia, H&M, Zara, INC, Dell Computers, Cap, N ike, EasyJct, or L'Oreal. They cater to a COf'lsumer segme1n that analysts label mass dass. This term refers to the

hundreds of millions or global consumers who now enjoy a !<?Vcl of purchasing power that's sufficient to let them afford high-quality products offered by well-known multina• tional companies.

Group Membership

Anyone who's ever "gone aJong with the cro\,rd" knows that people act differently in groups than they do 01'1 their own. \.\'hen there arc more people in a group, it becomes less

likely that any one member will be singled out for attention, and normal restraints on be,, havior may evaporate (think about the last wild party you attended). ln many cases, group members show a gr~ter willingness to consider riskier alternatives than the)' would if each member made the decision alone.31

A reference group is a set of people that a consumer wants to please or imitate. Consumers "refor to" these groups when they decide what to wear, where they hang out,

and what brands they buy. This influence can take th!! fonn of family and friends, a soror-- ity or fraternity, a rcsp,,cted statesman like Martin Luther King Jr., celebrities like Angelina Jolie, or even (dare we say it) your p rofessors. Marketers often try to cultivate a loyal com• mWlity of fans who will spn.v.1d the word about their clothing, ca.rs, music, sports teams, or movies. Nobody docs th.is better than Lucasfilm for il'i Star Wars: franchise. The studio even employs a full-time head or fan relations.32

conscientious consumerism A continuation of the consumerism moyement in which conS001ers are much more mindful of environmental issues in their daily purchases and marketers suppoo consumerism issues in their advertising.

social dass The overaU ranl< "'social standing of groups ol people within a society according to the value assigned to faam such as family baaground. educatioo, occupation. and income.

status symbols Visible maiters that provide a way f"' people to ft.aunt theit membership in higher social dasses {oc at least to make others believe thf'j ace members).

mass dass The hundreds of malions of global consuners who now enjoy a 1ml of p<rchasing powe< that's sufficient to let them affc,d high-quality products-except for big·tiaet items fike college educations, housing, or luxury cars.

reference group AA actual 01 i'""')inary individual or group that has a signiftcant effect on an individual's evatuations. aspirations, or behavior.

178 PART TWO I DETERMINE THE VALUE PROPOSITIONS DIFFERENT CUSTOMERS WANT

opinion leader A peoon who ~ ~equeotly ab4• to infueoc• others' anirudes oc behaviors by vin:ue of his or he, active inte.rest and expertise in one er moce product categories.

gender roles Society's expectations regarding the appropriate attitudes. behavi~ and awearaoce for men and women.

Lu:astilm hosts a ta,ge gathering """Y o1heryear called Siar lllils Celebra/im, which attracts alimst 50.000 Jedis, v\llot<iees, and Stormtroopers.

Opinion Leaders

l( like Brandon, you are: in the market for a new car, is there a certain person to whom you'd tum for advice? An opinion leader is a person who influences others' attitudes or behaviors because they believe that he or she posSt.">SSC:S cxpe:rtise about the product.33

Opinion leaders usually exhibit high levels of interest in the product catcgory. They con .. tinuously upJal'e their knowledge as they read biogs, talk to salespeople, or subscribe to pod.casts about the topic. Because of this involvement, opinion l~adcrs are valuable information sources.

Unlike commercial endorsers, who a.re paid to represent the interests of ju...:.t one company, opinjon leaders have no a.x to grind and can impart both positive and negative information about the product (unless they're being compensated to blog on behalf of a brand, which is not unheard of these days!). ln addition, thCSC! knowledgeable consumers often arc among the first to buy new products, so they absorb much o/ the risk and reduce uncertainty for others who are not as courageous.

Gender Roles

Some of the strongest pressures to conform come From our gender roles, society's ex• pcctations regarding the appropriate attitudes, behaviors, and appearance for men and womcn.34 Of course, n,arkcters play a part in teaching us how society expects us to act as me:n and womc-n. Marketing communicatio1\S and products often portray women and men differently. These influences teach us what the ,..proper" gender roles of women or men should be and which products are appropriate for each gendcc

Gender roles vary across cuJtures, and they can change rapidJy over lime: (as the n. .... cent debate over transgcndcr people using bath.rooms shows). ln other cultures, hm,.revcr, old expectations can be hard to change: A husband in Italy (which has fairly traditional gendet role expectations compared to some o ther countries) had the police form.lily charge his 40 .. yc:ar-old wife. with "'mistreatment of the family." He accused her of 2 years of neglect, including an unwiWngness to cook and clean. She faces up to 6 years in prison if she is convicted for these oFfo.nscs.35

Many products arc sex-typed, which means they are intended spoo!ically to ap• peal to one gender or the other. for years, consumers and feminists for example have

C HAPT ER 6 J UNDERSTAND CONSUMER AND BUSINESS MARKETS 179

claimed that the Barbie doll reinforces untt?alistic ideas about what women's bodies should look Like. ln 2015, Mattel reintroduced il<; traditional blonde

Batbic in a variety of skin tones, hairstyles, and outfits to attract a more diverse: market. Even newer versions in three new body shapes: Tall, curvy and petite, follo\,,cd in 2016.36

Sex roles constantly evolve; in a complex society like ours. we often encounter contradictory messages about "'appropriate,. behavior. We can clearly sec

this in the messages girls have been getting from the n)edfa for the last several years: It's cool to be overly

provocative. Role models like Paris Hilton, Lindsay Lohan, Britney Spears, and Miley Cyrus convey stan• dards about how far preteens and teens should go

to broadcast thcir sexuality. Of course not everyone, especially parents, agree with this trend.

Men's se:x roles arc changing too. For one, men are concerned as never bclorc with their appea, ..

Every aAtte communicates expectations abrul the proper roles for men and women, as ttis ad - Chile for a fne of power tools ills!ra1es.

ancc. ln foct, appearance ranks as their sccond .. biggcst worry (topped only by money worries and weighing on them more than worries about theit family and the:ir hc.alth).37

To prove this point, guys spend $ 17.5 biUion on toiletries globally each year-and that doesn't include the cost of razorsl razor blades, or shaving cream. 38 How does this ob .. session with hait gc.ls and moisturizers coexist with the traditionaJ "macho" guy who

can hardly be bothered to comb his hair? Clearly, our cultural definition of masculinity is evolving as men try to rcdcJine: sex roles while they stay in a "safety zone# oF accept .. able behaviors bounded by danger zon-es o f sloppiness at one ext-1e.me and effeminate behavior at tht" othet. And, some cultural observers report the emergence o( ''retrosc.xu• als''- mc.,, who want to emphasize their oJd .. school masculinity as they get plastk sur ..

gery to create a more rugged look that includes hairier chests and beards., squarer chins,

and more angular jawlines.39

6.4 OBJECTIVE

Undentand the characteristics of busmesHo-

Business Markets: Buying and Selling When the Customer Is Another Organization You might think most marketers spend their days dreaming up the

best way to promote cutting-edge products for consumers like new business markets and apps for your iPhonc, a new power drink to keep you fit, or some business-to-business market demand

and how mar\:eters dassdy business-to·

funky shoc.s to add to your collection. 'But this is not the whole. p ie,,

tu.re. Many marketers know that the "reaJ action·· also lies in prod .. ucts that companies seU to businesSt.--s and organizations rather than to end .. uset consum~s like you-software applications h) make a

business customers. business more efficient, safety goggles for industriaJ plants, the carts

(pp. 179-185) shoppers push in supcnnatkets_, o r the sensors that keep track of your luggage at the airporL ln fact, some of the most interesting: and

lucrative jobs for young marketers are: in businesses you've never heard of because these compan..ies don't deal directly with consumers.

180 PART TWO I DETERMINE THE VALUE PROPOSITIONS DIFFERENT CUSTOMERS WANT

business-to-business (828) markets The group of customers that include manufacturers. wholesalers. retai~ and other aganizatioos.

organizational markets Anoiher name for business-to-business martets.

producers The indNidJals or organflations that purchase products for use in the prod:uaion of other goods and services.

Like an end consumc-r, a business buyer makes decisions-but with an important rufforence: The purchase may Ix, worth millions of dollars, and both the buyer and the seller have a lot at stake (maybe even their jobs). A consumer may decide to buy two or

three T.shirts at one titnt!, c,ach emblazoned with a different design. For/1me 500 companies such as ExxonMobil, PepsiCo Inc., and FedEx buy thousands of employee uniforms em• broidered with their corporate logos in a single order.

Consider these tl'ansactions: P&C contracts with sevcraJ advertising agencies to pro- mote its brands at home and around the globe. The MetropoUtan Opera buys costumes, sets, and programs. Mac's Diner buys a case of canned peas from BJ's Wholesale Club.

The U.S. government plac-cs an order for 3,000 new HP laser printers. The country of Qatar purchases 6vc new Boci.ng 787 Dreamlincrs to add to its fleet-at a price th.at can exceed S200 million cach:10

All the these exchanges have one thing in common: they're part of business .. Jc,.busiuess f82B) m11rk,,ti11g. As we saw in Chapter 1, this is the marketing of goods and services that businesses and other organizations buy for purposes other than personal consumption.

Some firms resell these goods and services, so they are part of a cluumel of distributiott, a concept we'll revisit in Chapters 11 and U. Other firms use the goods and S4.!t'Vices they buy to produce still other goods and services that meet the needs of their custome:rs or to support their own operations. These business,.to-business (828) markets, also called

organizational markets, include manufacturers and other product producers, wholesalers, retailers, and a variety of other organizations, such as hospital,;,. universities, and govern•

mental age:ncics. To put the size and complexity of business markets into perspective, Jet's ronsjde.r a

single product-a pair of jeans. A consumer may browse through several racks of jeans

and ultimately purchase a single pair, but the buyct who works for the store at which the consumer shops had to purchase many pairs of jeans in different sizes, styles, and brands from different manufacturers. Each of these manufacturers purchases fabrics,. zippers,

buttons, and thread from other manufacturers, which in turn purchase the raw matcri• als to make these components. rn addition,. all the firms in this chain need to purchase equipment, electricity, labor, computer systems, legal and accounting services, insurance,

office supplies, packing materials, and countless other goods and sc.rvic-es. So, even a single purch.,1.sc of a pair of 7 For All Mankind ieans is the culmination of a series of buy• ing and selling activities among many organizations; ma.ny people have been keeping

btLc;y while you're out shopping! 1n this section we'll first talk about the difforcnt types of business customers that buy goods and services, different types of 1328 purchases and the s teps in the B2B decision process. Finall)\ we'll look a t 8213 e-commerce and digital

marketing.

Types of Business-to-Business Customers As we noted before, many firms buy products in business markets so they can produce

other goods. Other B2B customers resell, rent, or lease goods and servict.'.'S. Still other cus .. tomcrs, including governments and not•.for•profit institutions such as the Red Cross or a local church, serve the public in some way. ln this section, we'll look at the thrl!e major

classes of B2B customers we show in @ Figure 6.6 (producers,. resellers, and organiza· tioi,s). Then wc'U look at how marketers classify specific industries.

Producers

Producers purchase products for the production of other goods and services that they, in tum, seU to make a profit. For this reason, they arc customers for a vast numbc.r of products from raw materials to gonds that still other producers manufacture. For example, Dell buys

micropnx:essor chips from lntel and AMD that go int·o its line of computers, and Marriott hotels buys linens, furniture, and food to produce the accommodations and meals their

CHAPTER 6 j UNDERSTAND CONSUMER AND BUSINESS MARKETS 181

F;gun, 6.6 .@I Snapshot I The Business Marketplace The business matketplace consists of thtee major categories of Cl.6tome-ts: producers, reseUers, and organizations. 828 mal"ketets must unde-tstand the diffetent needs of these customers it they want to build successful relationships with them.

I Total Business Market I I

I I I

L_!::,ctucers 1 I Resellers I I Organizations , I I I

Fishing, industri

agricultural, and lumber Wholesalers and di.stributors Government, including federal, es state, county$ and local units

I I I Not-for-profit institutjons,

Manufa goods a

cturers of consumer Retailers

including o rganizations with nd component parts education, charity, community,

I: and other public service goals

Service, including financ:ial, transportation. restaurants, hotels, health care, recreation and entertainment, and others

guests expect. In addition to manufacturers of goods, the fishing, agricultural and lumber industries are considered producers.

Resellers

Resellers buy finished goods for the purpose of rese!Ung, renting, or leasing to conswncrs and other businesses. Although l'l.'sdlers do not actually produce goods, they do provide

their customers with the time, place/ and possession utiUty we talked about in Chapte:r 1 because they make the goods avail-able to consumers \•+'hen and where: they want them. For example, Walmart buys toothpaste, peanuts, kids' shoes, and about a gazillion other prod·

ucts to scll in its more than 10,-<XX> stores worldwide.41

Increasingly, large retail business,,;; such as Walmart, Walgreen's, and Kroger Supermarkets have taki?:n over the functions that were previously the job of wholesalers

and distributors. This means that the.re are fewer of these resellers today. More on that in Chapter 12.

Government and Not-for-Profit Organizations

Covcmments and not~for-profi t institution.,; are two other types of organizations in the business marketplace. Govemme.nt markets make up the largest single business and or• ganizational market in the United Statc:s. The U.S. government market includes more than

3,<XX> county governments, 35,000 municipalities and townships, 37,<XX> spt..::.cial district governments, 50 states and the District of Columbia, plus the fodetal govcmmcnt. State and local government markets alone account for 15 percent of the U.S. gross national product . .u

And of course, the.re arc thousands more government customers around the globe, and many of those governments are just about the only customers for certain products,

such as jct bombers and nuclear power plants. But many government cxpc.1'1dilurcs arc for more familiar items. Pens, pencils, and pape.t for offices; cots, bedding, and

resellers The incf!Viduals or organizations that buy fin;shed goods for the putp0se of r...Uing, renting, or leasing to others to make a profrt and to maintain their business operations.

government markets The fede<al state. county, and local !)O\'emmenis that buy goods and services to carry out pubfJc d>jectives and to support their q:,erations.

182 PART TWO I DETERMINE THE VALUE PROPOSITIONS DIFFERENT CUSTOMERS WANT

rabte6.1 I The North America n Industry Classific ation System: A Sample Frozen Fruit Example C-ellular Telecommunications Example

• Sector (two d igits) 31- 33 Manufacturing 51 Information • Subsector (three digits) 311 Food manufacturing 513 Broadcasting and

telecommunications

• Industry group (four digits) 3114 fruit and vegetable preserving 5133 Telecommunications and specialty food manufacturing

• Industry (five digits) 31141 frozen food manufacturing 51332 Wireless telecommunications carrier.. (except satellite)

• U.S. industry (six digits) 311311 Frozen fruit, juice, and vegetable 513322 Cellular and other wireless

North American Industry Oassificat io n System (NAICS) The numerical coding system that the United States, Canada. and Mexico use to classify firms into detailed categocies according to their business ac.tMties..

manufacturing telecommunications

toiletries for jails and prisons; and deaning supplies for routine facilities maintettancc are just a few examples o( items that cotlSUJncrs buy one at a time but that governments purchase in bulk.

As we said in Chapter 1, not•for--profit organizations arc organizations with OOuca-

t.i0t,at community, and other public sctVice goals, such as hospitals, churches, universities, museums, and charitable and c.au.se--rclatcd organizations like the Salvation Army and the Red Cross. These institutions tend to opcrat'c on low budgets. Bc.."'Causc t1onprofessional part'•lime buyers who have: other duties often make purchases, these customers may rely on marketers to provide more advice and assistance before a.nd aftl!r the sale.

The North American Industry Classification System

ln addition to looking at B2B markets within these three general c.atcgorics, marketers rely on the North American Industry Classification System (NAJCS) to identify lhcir customers.

This is a numerical coding of industties the United States, Canada, and M~ico devcl•

oped. Table 6.1 illustrates how the NAJCS coding system works. NAICS rcplaec'CI the U.S. Standard Industrial Classification system in 1997 so that the North American Pree Trade Agn.'lCment (NAFTA) countries could compare economic and financial s tatistics.43 The NAICS reports the number of firm.,;, the totaJ dollar amount of sales, the number of cm• ployees, and the growth rate for industries, all broken down by geographic region. Many firms use the NAICS to assess potential markets a.nd to deter1ninl" how well the:y arc doing

compared to others in their industry group. Finns may also use the NAICS to find new customers. A marketer might first deter•

mine the NAJCS industry classification.,; of his or her current customers and then evaluate

the sales potential of other firms occupying these categories.

Factors That Make a Difference in Business Markets In theory; the sa.ml.:" basic marketing principles should hold true in both oonsumC:t and business markets--firms identify customer needs and develop a marketing mix to sat .. isfy those needs. For example, take the company that made the desks and chairs in your classroom. Just like a Hnn that markets consumer goods; the classroom furniture com• pany firs t must create an important competitive advantage for its target market of uni• versitics. Next, the firm develops a marketing mix strategy that begins with a product-

classroom furniture that will withs tand years of USC: by thousands of studcnts--while it provides a levcJ of comfort that a good lea.ming cnvironme:nt requires (and you thought those hardback chairs were intended just to keep you awake during class). The firm

must offer the furniture at prices that universities will pay and that will allow the firm to make a reasonable profit. Then the firm must develop a sales force or other marketing

CHAPTER 6 j UNDERSTAND CONSUMER AND BUSINESS MARKETS 183

Multiple Buyers

} [ Size of Purchases ~ Key Differences in ~ Business versus Number of Customers Consumer Markets

''

Geographic Concentration

communication strategy to make sure your unive.r"Sity (and hundreds of othc.rs) consid·

ets-and hopefutly chooses-its products when it furnishes classrooms. Although marketing to business cust·ome:rs does hav£' a Lot in common with consumer

marketing, there are differences that make this basic process more complcx.44 ~ Figure 6.7 summarizes the key areas of dilforencc, and Table 6.2 provides a more extensive set of comparisons between the t\V"O types o f markets.

Multiple Buyers

In business markets, products often have to do more than satisfy an individual's needs. They must meet the requirements of everyone involved in the company's purchase doci .. s ion. If you decide to buy a new chair for your room or apartment, you're the only one who has to be satisfied. For your classroom, the furniture must satisfy not only students but also faculty, administrators, campus planners, and the !""'Pie at your school who actually do the purchasing. lf your school is a st.ate or other governmental institution, the furniture may also have to meet certain govemment•mandated engineering s tandards. If you have a formal gn..~ initiative, the purchase must satisfy ciwironment•fricndly criteria.

Number of Customers

Organizatio.nal customers arc fow and far between compared to cnd•user consume.rs. In the United States, there arc about 100 million conswner households but less than half a mil• lion businesses and other organizations.

Size of Purchases

B2B p roducts dwar( consumer purchases both in th12 quantity of items ordered and in how

much a single item may cost. A company that rents uniforms to other businesses, for exam· pie, buys hundreds of large drums of laundry detergent each year to launder its uruforms. ln contrast, even a ha.rd.core soccer mom who deals with piJes of dirty socks and shorts goes through a box of detergent only every few wee.ks.

Organi2ations pun:hasc many products, such as a highly sophisticated piece o( manu- facturing equipment or computer•bascd marketing information systems u,at can. cost a million dollars or more. Recognizing such diffe.rc.nccs in the size of purchases allows tn..'\t• ketcrs to develop effective marketing strategies.

Geographic Concentration

Another difforence between business markets and consumer markets is geograpltic con· ct•11/ratiou, meaning that many business customers may be located in a single region of

F;gun, 6.7 I@] Snapshot I Key Differences in Business versus Consumer Markets

There are a number of diffe<ences between business and c.oosumer markets. To be successful, mark.ele!s must understand these differe-nces and develop strategies specif1<. to orgafl:iz.ational custome,s.

184 PA RT TWO I DETERMINE THE VALUE PROPOSITIONS DIFFERENT CUSTOMERS WANT

rabte6.2 I Differences between Organizational and Consumer Markets Organizational Markets

• Purchases made for some purpose other than personal consumption

• Purchases made by someone other than the user of the product

• Several people frequently make the decisions

• Purchases made according to precise technical specifications based on product expertise

• Purchases made after careful weighing of aJternatives

• Purchases based on rational criteria*

• Purchasers often engage in lengthy decision processes • Interdependencies between buyers and sellers; long-term

relationships

• Purchases may involve competitive bidding, price negotiations, and complex financial arrangements

• Products frequently purchased directly from producer

• Purchases frequently involve high risk and high cost • limited number of large buyers

• Buyers often geographically concentrated in certain areas • Products often complex; dassified based on how

organizational customers use them • Demand derived from demand for other goods and

services, generally inelastic in the short run, subject to fluctuations, and may be joined to their demand for other goods and services

• Promotion emphasizes personal selling

Consumer Markets

• Purchases for individual or household consumption

• The ultimate user often makes the purchase

• Individuals or small groups like couples and families usually decide

• Purchases often based on brand reputation or personal recommendations with little or no product expertise

• Purchases frequently made on impulse

• Purchases based on emotional responses to products or promotions

• Individual purchasers often make quick decisions • Buyers engage in limitecHerm or one-time-only relationships

with many different sellers • Most purchases made at "list price" with cash or credH cards

• Products usually purchased from someone other than producer of the product

• Most purchases are relatively low risk and k>w cost • Many individuals or household customers

• Buyers generally dispersed throughout total population • Products: consumer goods and services for individual use

• Demand based on consumer needs and preferences, is generally price elastic, steady C1\ler time and independent of demand for other products

• Promotion emphasizes advertising

the country. Whether they live in the heart of New York City or in a smaU fishing ,ri1• lag:c in Oregon, consumers buy and use toothpaste and TVs. for years, Silicon Valley, a 5()..m.ilc-.long corridor close to the California coast, has been home to thousands of c}c,c .. tronics and software companies ~use of its high concentration of skiLJNI. engineers and scientists. For B2B marketers who wish to sc.ll to these markets, this means that they can concentrate their sales efforts and perhaps even locate distribution cc.ntcrs in a single geographic area.

derived demand Demand for business oc organizational products caused by demand for consume< goods or services..

B2B Demand Demand in business markets differs from consumer demand. Most demand for B2B prod· ucts is derived, inelastic, fluctuating, and joint. Understanding how these factors inJlucnC'C B2.B demand is importlnl for marketers when they fort..--cast sales and plan clfecti\'c mar• keting strategics. Let's look at each of these concepts in a bit more detail

Derived Demand

Consumer demand is based on a direct connection between a need and the satisfaction of that ni?Cd. But business customers don't purcha<,e goods and services to satisfy their own needs. Businesses instead operate on derived demand because a business's demand for

CHAPTER 6 j UNDERSTAND CONSUMER AND BUSINESS MARKETS 185

goods and SCf'\rices comes either directly or indin.""CtJy from consumers' demand for what it produces.

Figure 6.8 (J] Process I Derived Demand To better understand derived demand, take a look at ltfl Figure 6.8 (beginning

at the bottom). Demand for fore,,"try products comes from the demand for pulp, which in turn is derived Erom the demand for paper that publishers buy to make the textbooks you use in your classes. The demand for textbooks comes Erotn the demand for education (yes, education is the ·product" you' re buying- with the occasion.a! party or football game thrown in as a bonus). As a result of derived demand, the sw.:ccss of one company may depend on another company in a differ•

cnt industry. The derived nature of business demand means that marketers must constantly be alert to changes in consumer trends that uJtimatcly will have an effect on B28 sales. So, if fewer students a ttend college and those who do incrcas,. ingly ch006C to purchase digital textbooks, the forestry industry has to find other sources of demand for its products.

828 dMl.a:nd is de,ived demand. That is, the demand is des'ived directly or indirectly t,om consume< demand for another good ot service. Some of the demand for foresuy ptoducts is derived indi1ectJy from the demand for education.. At least until the day when all texts are available only online, publishers will need 10 buy papet.

Inelastic Demand

Inelastic demand means that it usua11y doesn't matter if the price of a B2B product goes up or down-busil'1ess customers still buy the same quantity. Demand in 828

markets is mostly inclastic bec.luse what an individual firm sells often is just one of the many parts or materials that go into producing the consumer product. It is not unusual for a large increase in a business product's price to have little effect on

the final conswner product's price.

Demand for Education

t Derived Demand for Textbooks

t Derived Demand for Paper

t Derived Demand for Pulp

t For example, you can buy a Limited Edition Porsche Boxstcr S "loaded" with

options for about $64,000.'15 To produce the car, Porsche purchases thousands of different parts. If the price of tires., batteries,. or stcn.'OS g"Oes up or down, Porsche

Derived Demand for Forestry Products

wilJ s till buy enough to meet consumer demand for its cars. As you might imag• inc, increasing the price by $30 or $40 or even $100 won't change consumer demand for

Soxstc.rs-so demand for parts remains the same. (If you have to ask hm".r much it costs, you can't afford it!)

Fluctuating Demand

Business demand also is subject to greater fluctuations th.an is consumer demand. The.re are two n.>aSOns for this. First, even modest dlanges in consumer demand can create large increases or decreases in business demand. Take, for example, air travel. A rise in jet fuel

prices, causing higher ticket prices and a shift by some co.nsurners from flying to driving vacations, can cau.i;c airlines to postpone or c.ancel orders for new equipment. This change in tum creates a dramatic dect\.-..asc in demand for planes from manu.fucturcrs such as

Boeing and Airbus. A product's life expectancy is another reason for fluch.Jating demand. Business cus•

tom~rs tend to purchase certafo products infrequently. Th~y may necd to replace some types of large machinery only every JO or 20 years. Thus, demand for such products fluctuates-it may be high one year when a lot of customers' machinery wears out but low the following year b< .. causc everyone's old machinery works line.

Joint Demand

Joint demand occurs when two or more goods arc necessary to create a product. For ex•

ample, Porsche needs tires, batteries, and spark plugs to make that Limited Edition Box.stet S that piqued your interest earlier. JI the supply of one of these parts decreases, Porsche will be unable to manufacture as many automobiles, so it wiU not buy as 1nany of the other items either.

inelastic demand Demand in wttich changes in price have little or no e.ffea on the amooot demanded.

joint demand Demand for two or more goods that are used together to create a prodJCt.

186 PART TWO I DETERMINE THE VALUE PROPOSITIONS DIFFERENT CUSTOMERS WANT

buydass One of three classifications of business btlying situations that characterizes the degree of time and effort required to make a decision.

straight rebuy A buying situation in which business buyers make routine ptl'chases that require minimal decision making.

modified rebuy A bl.JIJ1ng situation dassif1Cation used by business buyers to categorize a previously made purd'lase that involves some change and that requires limited decision making.

6.5 OBJECTIVE

Identify and desaibe

Business Buying Situations and the Business Buying Decision Process

the different business So far welvc talked about how B2B markel'1i arc different from con• buying situations. and the business buying decision process including the use

of e-commerce and sodaJ media.

(PP 186-194)

sumer markets and about the di!forent types of customers that make up business markets. ln this section, wc'IJ discuss some of the impor•

tant characteristics of business buying situations. This is important lx"Cause iust like companies that sell to end•uscr consumers, a suc- CCS..">ful B2B marketer n~ to understand how his or her customers

make decisions. Annt?d with th.is knowledge, the company is able to participate in the buyer's decision process &om the start.

The Buyclass Framework

Like end•us.e.r consumers, business buyc-rs spend morl? time and clfort on some purchases than on others. This usually depends on the complexity of the product and how often they

need to make the decision. A buydass framework., as@Figure 6.9 illustrates, identifies the degree of effort l'L'qu.ired of the firm's personnel h) collect infonnation and make a pur• chase decision. These classc,,, which apply to three different buying situations, arc straight rebuys, 1nodificd rcbuys, a.nd new•task buys.

Straight Rebuy

A straight rebuy refers to the routine purchase of items that a B2B customer regularly needs. The buyer has purchased the same items many times before and routinely reor-,

ders them when supplies arc low, often from th12 same. suppliers. Reordering the items takes little time. Buyers typically maintain a list of approved vendors that have demon• strated their abi1ity to meet the firm's criteria for pr'icing, quality, service, and delivery.

CE Hcalthcarc's customers routincly purchase its line of bas.ic surgical scrubs (the cloth .. ing and caps doctors and nurses w12a.r in the operating room) without much e\la]uation on each occasion.

&.~use straight rcbuys often contribute the "'bread•and•butter" re\'Cnue a firm needs to maintain a s teady stream of incomci many business markctc.rs go to great lengths to

~ cultivate and maintain relationships with customers who submit F;gure 6.9 ,~ Snapshot I Elements of t he Buyclass rd ul b . Sal

1 1 1 ll h

k rco crs on a reg ar asIS. espcop c may rcgu ar y ca on t cse

~ amewor . customers to personally handle orders and to sec 1£ there arc ad•

The dasses of the buydass fraineWOtk tefate to th1ee tflfferoot o,ganizat.OOaJ buying situations: straight rebuy, modified rebuy, and new-task buy.

ditional products the customer nccds,,..,end to take the purchasing

agent to lunch. The goaJ is to be sure that the customer doesn't even think twice about just buying the Sil.me product C\' l!r}' time he or she runs low. Rebuys kL"CJ) a suppLier's sales volume up and help cover

selling costs.

Straight Rebuy

Modified Rebuy

Business Buying

Situations

New- Task Buy

Modified Rebuy

Llfo is sweet for companies whose customers automatically do s traight rebuys. Unfortunatclyi these situations don't last forever. A modified rebuy occurs when a firm decides to shop around for suppliers with better prices, quaUty, or deUvery times. This situa•

tion also can occur when the organization confronts new needs for products it olready buys. A buyer who purchased many BlackBcrry sinartphones, for example, may have to reevaluate several other op•

tions if the firm upgrades its cellula.r tclecommunicatjons system.

CHAPTER 6 J UNDERSTAND CONSUMER AND BUSINESS MARKETS 187

Modified rcbuys require more time and effort than straight rebuys. The buyer gen• cralJy knows the purchase r~uircments and has a few potential suppliers in mind. Marketers know that modified rebuys can mean that some vendors get added to a buyer's

approved supplier list, whereas others may be dropped. So even if in the past a company purchased its smartphoncs from Jllackberry, this doesn't necessarily mean it will do so in the futUJ'\'! as th.is company's operating system steadily loses ground to newer rivals. Now,

other platforms, like Apple and Google's Android, may gain approved supplier status going fon,;-ard, and the race is on. Ash.Jtc marketers routincly ca.ll on buyers to detect and de.fine problems that can lead to wi.Jming or losing in such situations.

New-Task Buy

A fU'SMin~ purchase is a newatask buy. Unce:rtainty and risk characterize buying decisions

in this classification, and they require the most c/fort because the buyer has no previous cxpc-rience on which to base a decision.

Your university, for example, may decide (if it hasn't done so already) to develop "activc,.leaming'' classrooms. Furnishing the classrooms for a different form oJ lea.ming that will meet the needs of classcs in diffc-rent disciplines is a complex ncw•task buy for a

school. (n new•task buying situations, not only do buyers lack experience with th!! product, but ~,cy also arc often unfamiliar with firms that supply the producl Supplier choice is critical, and buyets gather much information about quaHl)~ pricing. delivery, and setvicc-

from several potential suppliers. Marketers know that to get th~ order in a ncw•buy situation, they must develop a

close working relationship with the business buyer. There arc many situations in which

marketers focus on sclling their product by wooing people who l'L'Commcnd their prod· ucts-over and above the end consume.rs who actuaUy buy them. To use an example dose to home, think about all of the goods and services that make up the higher-education

industry. For instance, even though you are the one who shelled out the money for this extremely awesome tc.xt, your professor wa~ the one who made the exceptionally wise dt!Cision to assig;n it. He or she made this choice (did we mention it was a really wise

choice?) only aft~ carefully considering numerous texts and talking to several publishers' sales rc-prcsentativcs.

Professional Buyers and Buying Centers

Just as it is importa.t,t for marketers of consumer goods and scnrices to understand thcit customers, it's essential that 828 marketers understand who handles the buying for their

business customers. Trained prof~sional buyers typically carry out buying in B2B markets. These fk..:.Oplc have titles such as purchasing ngeuls, procurement office.rs, or directors of mat4!rl~ als management.

Although son~ consume.rs like to shop 'ti.I they drop almost every day, most of us spend far less time rooming the aisles. Howcvl:'!r., professional purchasers do it all day, every day- it's thcir job and their business to buy. These individuals focus on oconom.ic factors

beyond the initial price of the product, including transportation and delivery charges, ac- cessory products or supplies, ma.intc.nancc, and other ongoing costs. They are responsible for selecting quality products and ensuring thcir timely delivery. They shop as if their jobs

dcpelld on it-b..'Cause they do. Many times in business buying situations, several people-ranging from a production

workc.r to the CFO-work together to reach a decision. The buying center is the group of

prople in the organization who participate in the decision-making proct.'SS. Although this term may conjure up an imagl! of "command central" buzzing with purchasing activity* a buying center is not a place a t all. lnstc-ad, it is a cross-functional team of decision makers.

Generally, the members of a buying center have some expertise or interest in the particular decision, a.nd as a group they are able to make the best decision.

new~task buy A new business-to-business purchase that is complex Of risky and that requires extensive decision making.

buying center The group of people in an organization vmo participate in a purchasing decision.

188 PART TWO I DETERMINE THE VALUE PROPOSITIONS DIFFERENT CUSTOMERS WANT

Tobte6.3 Roles in the Buying Center

Role

• Initiator

• User

• Gatekeeper

• Influencer

• Decider

• Buyer

Potential Player Responsibility

• Production employees, sales manager. almost anyone • Recognizes that a purchase needs to be made

• Production employees. secretaries. almost anyone • lndividual(s) who will ultimately use the product

• Buyer/purchasing agent • Controls flow of information to others in the organization

• Engineers. quality control experts. technical specialists. outside consultants

• Affects decision by giving advice and sharing expertise

• Purchasing agent, managers, CEO • Makes the final purchase decision

• Purchasing agent • Executes the purchase decision

Depending on the complexity of the purchase and the siu, of the buying center, a par• tidpant may assume one, several, or all of the six roles that Table 6.3 shows. Let's re,ricw them now.

• The i11ilialor lx>gins the buying process by first recognizing that the firm needs to make a purchase. A production employee, for example, may notice that a piece of

equipment is not working properly and notify a supervisor that ii is slowing up the production line. Depending on the initiator's position in the organization and the type of purchase, the initiator may or may not influenre the actual purchase decision. For

marketers, it's important to make sure that individuals who m.ight initiate a purchase arc aware of improved products they o/fer.

• The uSt-r is the member of the buying center who actually needs the product. The user's role in the buying center varies. For example, an administrative assistant may

give her input on the features a new copier should have because she will be chained to it for several hours a day. Marketers need to inform use.rs of their products' benefits,

especially if the benefits outweigh those that competitors o/fer.

• The gateketper is the person who C(,mtrols the flow of information to other members. Typically, tho gatekeeper is the purchasing agent, who gathers information and mate- rials from salespeople, schedules sales prc'Sentations, and controls suppliers' aro,ss to other participants in U,e buying process. For salespeople, developing and maintaining

strong personal relationships with gatekeepers is critical to being able to offer their products to the buying center.

• An iujlueucer affects the buying decision when he or she dispenses advice or shares expertise. Highly trained employees, like engineers, quality control specialists, and

other technical experts in the firm, gene.rally have a great deal of influence in pur• chasing equipment, materials, and component parts the company uses in produc .. tion. The influencers may or may not wind up using the product. Marketers n&...,..j to

identify key influencers in the buying center and persuade them of thcir product's superiority.

• The decidt..,- is the member of the buying ccnte:r who makes the final decision. This per .. son usually has the gteatest power within the buying center; he or she often has power

within th!! organization to authorize spending tht" company's money. For a routine purchase, the decider may re the purchasing agent. Uthe purchase is complex, a man• ager or even the CEO may be the decider. The decider is critical to a marketer's success

and deserves a lot of attention in the selling process.

• 'Inc buyer is the person who has responsibility to execute the purchase. The buyer obtains competing bids, negotiah!S contracts, and arranges delivery dates and

CHAPTER 6 j UNDERSTAND CONSUMER AND BUSINESS MARKETS 189

payment plans. Once a firm makes the purchase decision,. marketers tum their attc.ntion to negotiating the dctajJs of the purchase with the buyer. Successful marketers are well aware that provid ing exemplary service in tNs

stage of the purchase can be a critical factor in achieving future sales from th.is client.

The Business Buying Decision Process We've seen that there are a number of players in the business buying process, begin• ning with an initiator and CJlding with a buyer. To make matters even more chat•

lcnging to marketers, members of the buying team go through several stages in the dccision•making proress before the marketer gets an order. The business buyiug deci• sion process, as ILfJ figure 6.10 shows, is a series of steps similar to those in the con• sumer decision proc~ we discussed previously in this chapter. To help understand these steps, let's say you've just started working at the Way Radical Skateboard Company and your boss just assigned you to the buying center for the purchase of

new sofhvare for web page design-a ncw .. task buy for your firm.

Step 1: Recognize the Problem

As in consumer buying, the first step in the business buying decision process OC• cu.rs when someone secs that a purchase can solve a problem. For straight rebuy purchases, this may occur because the- firm has run out of paper, pe1\S, or garbage bags. In these Cas«.."S, the buyer places the order, and the decision•making process ends. Recognition of the need for modified rebuy purchases often comes when the organization wants to replace outdated existing equipment, from changes in technology, or from an ad, brochure, or some othe-r marketing communication that offers the cust·omc.r a better product or one at a lower price. Two events may occur in th12 problcm•rccognition step. First, a firm makes a request or requisition, usually

in writing. Then, depending on the complexity of the purchase, the firm mai• form a buying center. The nacd for ncw•task purchases often occurs because the firm wants to enhan<:t! its operations in some way or when a SJnart sall!Spe.rson tells the business

customer about a new product lhat will increase lhc efficiency of the firm's opera• tions or improve the firm's end products.

Step 2: Search for Information

figure 6.10 bf] Process f Steps in the Business Buying Decision Process

The steps in the b~ines.s buying decision p,oces.s ate the same as those in the consumer decision process. 8ut f0< business purchases, each step may be far more comph?x .and cequite more attention from marketen. - -Step 1: Recognize the problem

• Make purchase requisition or request • Form buying center, if needed

t Step 2' Seard! for Information

• Develop product specifications • Identify potential suppliers • Obtain proposals and quotations

,.. Step 3: Evaluate the Alternatives

• Evaluate proposals • Obtain and evaluate samples

t Step 4: Select the Product and SUppller • Issue purchase order

t Step 5: Evaluate Postpurthase

• Survey users • Document performance -

In U,e second step of the decision process (for purchases other u,an straight rebuys), the

buying center scatches for information about products and suppliers. Members of lhc buying center may individually or coUcctively refor to reports in ttadc magazines and journals,. seek advice from outside consultants,. arid pay close attef\tion to matkcting com ..

munlcations from different manufacture.rs and suppliets. As in consumer marketing. it's the job of markctcts to make sure that inlonnation is available when and where business customers want it-by placing ads in trade magazines, by mailing brochures and other

printed material to prosp«ts, by having a well-trained sales forre regularly calling on customers to build long-term relationships and by skillful use of the Internet. We'll talk more about how 828 ffrms can use the In ternet and sociaJ media to increase their sales

later in this chapter. There are thousands of specialized publications out there that cate:r to just about any

industry you can think of. Usually sponson."<l by leading induscry trade associations, each

is bursting with infonnation frotn competing companies that catc-r to a specific niche. Who needs that fluffy romanoe novel at the beach? Try leafing through the latest issue of Chemical Pro<:b--sing or Mtat a11d l'oultry Magazine instead.

Of course, sometimes B2B marketers try to get the infonnation about their prod- uct into the: hands of buyers via less specialized media. For example, in J\..>cent years

190 PART TWO I DETERMINE THE VALUE PROPOSITIONS DIFFERENT CUSTOMERS WANT

product specifications A written description of the quality, siz~ weight. and other detais required of a product !XJrchase.

customer reference program A fonnalized process by which customers formaJly share success stofies and actively reconvnend p-oducts to other potential dients. usually facilitated through an online community.

AFLAC- tho American Family Life Assurance Company of Columbus (tho firm behind the famous duck}-has heavily advertised on TV even though most of its customers arc in the B2B space. tn fact. many end•uscr coi\Sumers don't have the foggiest notion what AFLAC sells-but they sure love to "quack up'' over the duck's antics. The truth is, AfLAC's pri• mary business is working with businesses (more than 400)XX) of them, in £act) to enhance their employee benefits packages with various types of insurance and other benefits in

otder to improve recruiting and retention of the finns' people. But their strategy of adver .. tising din.'Ctly on mass media was brilliant; now when an organizational buy€/ or human resources manager searches for these services, AFLAC's name will su.rcJy be at the top o( the list. Now there's a duck that's not out of water!46

Busini.'!SS buyers often develop p roduct specifications, that is,. a writt'en descrip .. tion of the quality,. size, weight, color, features, quantity, trainjng, warranty, scrvicc-

tc.rms, and delivery requirements for the purchase. When the product needs are com .. plcx or technical, engineers and other experts arc the key players who identify specific product characteristics they require and determine whether the organizations can get

by with standardized, off•thc•shclf items or if they need to acquire customized, made• to•ordcr goods and services. Once Lhc product specifications are in hand, the next step is l'o identify pote.ntiaJ suppliers and obtain written or verbal proposals, or bids, from

one or more of them. For standardized or branded products in which there are few if any differences in the products of different suppliers, this may be as simple as an in.formal request for pricing information, including d iscounts, shipping charges, and

confirmation of delivery dates. At other times, the potential suppliers receive a formal written request for proposal or request for quotation that requires detailed information from vendors.

Step 3: Evaluate the Alternatives

In this stage of the business buying decision proccs.,, the buying center assesses the proposals it receives. Total spending for goods and services can have a major impact on

fl,e finn's profitability, so, aU other things being equal, price can be a primary consider• ation. Pricing evaluations must take into account discount policies for certain quantities, retumcd•goods policies, the cost o( repair and maintenance services, terms of paymet,t,

and the cost of financing larg~ purchases. for capital equipment, cost criteria also include the life expectancy of the purchase, the cxp<.>ctcd resale value, and disposal costs for the old equipment ln some cases, the buying center may negotiate with the prcfcrfi."l(j supplier to

match the lowest bidder. Although a firm often selects a bidder because it offers the lowest price, there are

times when it bases the buying decision on other factors. For example, in its lucrative B2B

market, American Express \"'ins bids for its travel agimcy business because it offers extra services o ther agencies don't or can't, such as a corporate credit card, monthly reports that detail the company's total travel expenses, and perks tied to the rompants customer loy ..

alty program. The mon> complex and costly the purchase, the more time buyers spend searrning

for the best supplier-and the more marketers must do to win the order. Ln some cases, a company may even ask 01,e or more of its current customers to participate in a customer reference program. In these s ituations, customers form.ally share. success s tories and ac• tivcly n..---commend products to other potential dhmts, often as part of an onHne commw\ity

composed of people with similar needs. Marketers often make formaJ presentations a.nd product demonstrations to the buying

center group. 1n the~ of installations and large equipment, they may arrange for buyers

to speak with or even visit other customers to examine how the product perfonns. For less complex products, the buying firm may ask potential suppliers for samples of the products so that its pt.>ople can evaluate ~,cm pcrsonaUy. The buying center may ask salespeople

CHAPTER 6 J UNDERSTAND CONSUMER AND BUSINESS MARKETS 191

from various companies to demonstrate their software for your Way Radical group so that you can all compare the capabilities of different products.

Step 4: Select the Product and Supplier

Once buyers have assessed all proposals, it's time for ~,e rubber to hit the road. The next step in the buying process is the purchase decision when the group selects the best product and supplier to meet the organizatio1,'s net."l({s. Reliability and durability rank especially

high for equipment and systems that keep lhc firm's operations running smoothly without intt!rTllplion. For some purch.ases, warranties, repair sc-.rvicc, and regular maintenance after the sa1e are important.

One of the most important dcci.sio1\S a buyer makes is how many suppliers can best serve the firm's needs. Sometimes having one supplier is more beneficial to the organiza· tiOl'I than having muJtiple suppliers. Single sourcing., in which a buyer and seller work

quite clo.scly, is particulatly important when a firm needs frequent deliveries or specialized products. Single sourcing also helps assure consistency of quality of materials input into the production process. But reliance on a s ingle source means that the firm is a t the mercy

of the chosen supplic..r to deliver the needed goods or services without intetruption. Uthe single .soun:e doesn't come through, the firm's relationship with its own end users will likely be affected.

However, using one or a few suppliers rather than many has its advantages. A firm that buys from a s ingle supplier becomes a latge customtY with a lot of dout when it comes to negotiating prices and contract terms. Having one or a few suppliers also lowers the

firm's administrative costs because it has fowcr invoices to pay, fowcr contracts to negoti .. a te, and fewer salespeople to see than if it u.,;es many sources.

tn contra.st, muttiple sourcing means buying a product from several different suppli-

ers. Under this system, suppliers arc more likely to r~ain price compctiti\'C. And if one supplier has problems wi~, delivery, the firm has others lo fall back on. The automotive industry practices this philosophy: A vehicle manufacturer often won't buy a new product

from a supplier unless the vendor's dvals also arc capable of making the same item. This policy tends to stifle innovation, but it does ensun, a steady supply of parts to feed to the assembly line.

Sometimes supplier selection is ~ on reciprocity, which means that a buyer and seller agree to be each other's customers by saying, esscntiall)\ "I'll buy from you, and you buy fro.m me.'' For exa.mpll?, a ft.rm that supplies parts to a company that manufactures

trucks would agree to buy trucks from only that !inn. The U.S. government frowns on n..'CiprocaJ agreements and often determines that

such agreements bctwee:n large firms are iUcgal because they limit £rec competition; new

suppliers simply don't have a chance against the preferred suppliers. Reciprocity betwc.cn smaller firms, that is, finns that are not so large as to control a significant proportion of the business in their industry, is legal in the United States if both parties voluntarily agree to it. tn o thct countries, reciprocity is a practice that is common and even expected in B2B marketing.

Outsourcing occurs when firms obtain outside vendors to provide good~ or seNiCCS

that might otherwise be supplied in•housc. For example, Sodexo is the world's largest outsourcer for food and focilitics ma.n.agcmc.,, t services with more than 6,000 U.S. client

sites. Colleges and universities arc. a major category of clientcle for Sodexo (arc they your

school's vendor?) because these educational institutions want to focus on educating stu• dents rather than preparing and serving food. (Fortunately, your professors don' t have to cook as wcll as teach.!)

Outsourcing is an increasingly popular strategy, but in some cases it can be contro-, ve.rsial. Many critics object when U.S. companies cont-ract with companies or individuals in remote places like China or fodia to perform work Lhcy used to do a t home, a process

single sourcing The business praaice of buying a particular prodoct from ooly one suwliet.

multiple sourcing The business praaice of buying a particular product from several different suppliers.

reciprocity A trading panner,hip in which two films a91ee to buy from one another.

outsourcing The business buying process of obiaining outside vendors lo provide goods or services that otherwise might be supplied in house.

192 PART TWO I DETERMINE THE VALUE PROPOSITIONS DIFFERENT CUSTOMERS WANT

o ffshoring A i:rocess by which companies contract with co~nies or indi..;duats in remote places like China or India to pe<form work they used to do at home.

reverse marketing A business practice in wMch a buyer firm attempts to identify suppliers who will p,'oduce products acco«!ing to the buyer firm's specifications.

business-to~business (828) e-commerce Onl'ine exchanges between companies and ildividual consumers.

known as offshoring. These tasks range from complicated jobs like writing computer code to fairly simple ones like manning reservations desks, staffing calJ centers for te:lc,., phone sales, and even taking drivc,.through orders a t US. fast•food restaurants. (Yes. i:n

somt:' cases, it's actuaUy more: efficient for an operator in India to relay an order from a custom~ for a #3 Burger Combo to the restaurant's cook,; than for an on•sitc person to take the order.)

Yet another type of buye......,Jler partnership is reverse mari<eting. Instead of sellers trying to identify pote.ntial customers and then •pitching• their products, buyers try to find suppliers that can produce specifically needed products and then a ttempt to "sell" the

idea to the suppliers. Often large poultry producers practice reverse marketing. Purdue supplies baby chicken,, chicken food, financing for chicken houses, medications, and ev• erythlng else necessary for farmers to lay "golden eggs" for the company. This assures the

fatmcr that he or she will have a buyer while at the same time Purdut" knows it can rel)' on a steady supply of chickens.

Step 5: Evaluate Postpurchase

Just as consumers evaluate. purchases, an organizational buyer assesses whether the per .. (ormance o( the product and ~,e supplier Lives up to expectations. The buyer surveys the users to determine their satisfactioi, with the product as well as with the installation, dcliv•

cry, and service that the supplier provides. for producers o( goods, this may relate to the level of satisfaction of the final consumer of the buying firm's product. Has demand for the producer's product increased, decrea.S&,t or stayed the same? By documenting and review• ing supplier performance, a firm decides whether to keep or drop the supplier.

An important clement in postpurcha<;C evaluation is measurement When you think about 1neasuru,g elements of a customer's experience with a company and its products and brands, we'll bet you automaticaUy think about e:nd•uscr consumers-like travelers' views of their Marriott hotcl stay or the taste of that new Starbucks coffee flavor. Similarly, in the 828 world, managers pay a lot of attention to the fet.""'Ctback they g1.?t from their cus• tomcrs about the purchases they've made.

B2B E-Commerce and Social Media We know that the lntemet transformed marketing- from the creation of new products to providing 1nore effective and efficient n,arketing commu,,ications to the actual distribution

of some products. This is certainly true in business markets as well. Business-to·business (828) e-commerce refers to lntemet exchanges of information_, goods, services, and pay .. ments betwC('l"I ""ro or more businesses or otganiz.ations. It's not as glitzy as consumer e.com.merce, but it s~ has cha.nged the way busincs..~ operate. Using the lntc-mct for e<0m.merce allows business marketers to link directly to suppliers, factories, distributors, and thcir customers, radically reducing the time neCt.>ssary for order and delivery of goods,

tracking sales, and getting feedback from customers. ln the. simplest form oJ B2B e,.,comm.t:tte, the lnte.mct provides an onlinc catalog o(

goods and services that businesses net.'<'I. Companies find that thcir Ln tcrnet site is im_por· tant to dcli\tcr online technical support, product information, order status information, and ClL<;tomcr service to corporate customers. Many companies_, for example, save millions o( dollars a year when they re.place hatd.-copy manuals with electronic downloads. And, of course, B28 c,.rom.rnc~ creates somt:' exciting opportunities for a varicty o( B28 service industries.

lntranets and Extranets

Although the lntemet is the primary means of 828 e<ommercc, ma:ny companies maintain an i11trant1, which provides a more secure means of conducting business. As we said in

CHAPTER 6 J UNDERSTAND CONSUMER AND BUSINESS MARKETS 193

Chapter 4, this term rcfots to an internal corporate computer net\..,otk that uses Internet technology to link a company's departments, c.mployccs, a.nd databases. fntranets give access only to authorized employees. They allow companies to process internal transac•

tions with greater control and consistency because of stricter security measures than those they can use on the entire web. Businesses also use intranc-ts to vidcoconforenccl distrib,. utc internal documents, communicate with goographicaUy dispersed branches, and train

cmployC"5. ln contrast to an intra.net, an e.xtranet allows certain suppliers, customers., a.nd others

outside the organization to access a company's int..m,a1 syste!n. A business customer that a

coinpany authorizes to use its cxttanet can place ordt'JS onlinc. Extranets can be espcci.aUy usc.ful for companies that need to have secure communications between the company and its dealers, distributors., or franchisees. As you can imagine, intra.nets and cxtranets are cost

efficient and save money fot organizations. ln additfon to saving companies money, c:xtrancts allow bw;iness partnl!r'S to col•

laborate on projocts (such as product design) and build relationships. GE's extrane~

the Trading Pro= Network, began as a set of online purchasu,g procedures and has morphed int·o an extensive onli.nc cxtranet community that connects GE with large buyers, such as Con Edison.

The Dark Side of 828 E-commerce

Doing business the wcb-rnabled way sounds great-perhaps too greaL There are also security risks because so much information gets passed around in cyberspace. You've no

doubt heard stories about hackers obtaining vast lists of consumers' cred..it card numbers from a number of retailers including Target and Neiman•Marcus. But companies have even greater worries. When hackers break into company sites, they can destroy company

n.""COrds and steaJ trade secrets. Both B2C and B2B c,,comme.rre companh'?S worry about authenticntiou and ensuring that tr,1J,sactions arc Sl.'CU!e. This means making sure that on.Jy authorized individual,; a..n! allowed to access a s ite and p lace an order. Maintaining security

also requires firms to keep the information transferred as part of a trans.acti~ such as a credit card number, from criminals' hard drives.

\Nell•mcaning employees also can create security problems. They can give out w,au• thorized access to company computer systems by being careless about k<,cping their pass- words into the system a secret. For example, hackers can guess at OOvious passwords- nicknan,cs, birth dates, hobbies, or a spouse's name.

Some employees (and even noncmployees) arc not so well•1neaning; they delibetately create security breaches by leaking confidential documents or hacking into an organiza· tioi,'s oomput'ct system for sensitive information. Edward Snowden became famous (or,

rather, infamous) for his role in leaking thousands of classified documents to the media while working as a consultant for the National S«urity Agency. And Ta,get's computer system was breached when hackers installed malware (software designed spc--cifically to

damage or disrupt computer systems) that captured mor~ than 40 millio,, cn.~it catd num .. bersand other customer data despite safeguards the re-tailer had in placc.47

To increase security of lheir Internet s ites and transactions, most companies now have

safeguards in placc--fircwalls and encryption devices, to name the two most common methods, though, as we saw with Target, even these safeguards aren't always 100 pcrct!nt hacker-proof.

A firewall is a combination of hatdwa~ and software that ensures that onJy autho,.

ri.zcd individuals gain entry into a computer system. The firewall monitors and controls all traf.fic behvcen the Internet and the intranet to restrict acet.--ss. Companies may even place

additional firewalls within their intranct when they wish only de.signatOO employees to have access to certain parts of the system. Although firewalls can be fairly clfcctive (even though none is totally foolproof), they require costly, constant monitoring.

intranet AA internal cOl'pOrate convnooication network that uses lmemet tecfvlology to lilk company departments, employees. and databases.

extranet A pivate, coq>orate computer network that inks company depanments, employees. and databases to suppliers_ customers. and others outside the organization.

malware Software designed specifKally to damage or disrupt coll1)uter systems.

firewall A combination of hardware and software th.at enst.res that only authorized individuals g&n entry into a compoter system.

194 PART TWO I DETERMINE THE VALUE PROPOSITIONS DIFFERENT CUSTOMERS WANT

encryption The process of scrambling a message so that only another individual (oc c001J>Jter) with the righl • ...,. can unscramble it

Encryption means scrambling a message so that only another individual (or computt!r) with the right "key• can unscramble it. Otherwise, it looks like gobbledygook. The mes• sage is inaccessible without the appropriate encryption software-kil\d of like a docoder

ring your favorite superhero might weat. Without encryption, il would be easy for unethi• cal people to get a credit card number by creating a "sniffer'' program that inte:rccpts and reads messages. A sniffer finds messages with four blocks of four numbers, copies the dai,,,

and voila!-somcone: else has your croo.it card number. Despite firewall,;, encryption., and other security measures, web security for B2B mar•

ketcrs remains a serious problem. The: threat to intranet and extranet usage goes beyond

coinpelitivc espionage. The increasing sophistication of hackers and lnternct criminals who create. viruses and worms and other approaches to disrupting indjvidual computers and entire company syste-ms mean that all organizations-and COf'lsumcrs-a.rc vulnerable

to attacks and must remain vigilant.

828 and Social Media

Although most of us associat~ business use of sociaJ media such as faccbook, Linkcdln,

and Twittct with consumer marketing, B2B organizations are increasing their use of and their budgel'i for social media:48

• A recent study found three social media sites that B2B marketers a.re most li.kcly to use: Llnkcdln (91 percent), l\vittcr (85 percent), and Faccbook (SI percent). Effectiveness ratings /or the three sites were lower: Linked.In (62 percent), l\vitter (50 percent), and Faccbook (30 percent).

• Forty .. five percent of B2S marketers have gained a customer through Li:nkedln.

• Job postings on Llnkedln for social media ma.rkctcrs have increased by 1,300 percent

since 2010.

• Seventy.s-tx percent of B2B rna.tkcters say they maintain company biogs, and 52 per .. rent say it is an important to their company for communicating content.

• How do B2B marketers use social media? £jghty•threc percent say they use sites to increase brand exposure,. 69 percent to increase web traffic, and 65 percent to gain

marketing insights.

• Why arc B2B and marketers turning to social media? Many say they arc tired of the normaJ impersonal communication of advertising and that social media allow them to re.late to one another:.

• In 2013, global lntemet ad spending including that by 828 firms grew to second place

(20.6 percent) behind TV (40.2 percent), while newspaper advertising dmppc>d to only 17.0 percent of total ad spending.

As with consumer marketing., a number of strategies can be successful in using SO·

cial media marketing for BtB firms:49 First, social media sites arc good sources of infor-, mation to identify target audiences. It's helpful to know which potential customers your competitors interact with on social media. And, one of the most important uses of social

media for both consumer markett?:rs and business markete.rs is to monitor what yout cus,, tomers and others say about your product, your linn, and your competitors. A number of tools, such as Google Analytics, Radian6, and Social Mention, have been developed

for this purpose. Social med.la provide platforms for markete:rs or consumers to join in conversations, get answers to their questions, and shaN' cxpcricnet..~. Marketers who un- derstand social media contribute- to conversations on Twitter, Faccbook, and biogs. They

give good answers to questions and establish their credibility and a leadership position in the industry.

CHAPTER 6 J UNDERSTAND CONSUMER AND BUSINESS MARKETS 195

MyMarketinglab"" Go to mymktlab.com to complete the problems marked with this icon 0 as we.II as additional Marketing Metrics questions only available in MyMarketinglab.

6.1 Objective Summary (pp, 160-166) Define consumer behavior, and explain the pur- chase decision-making process. Consumer behavior is the process individuals or groups go through to select, purchase, use, and dispose of goods, _ser- vices, ideas, or experiences to satisfy their needs and desires. Consumer decisions differ greatly, ranging from habitual, repeat Oow-involvement) purchases to complex, extended problem- solving activities for important, risky (high-involvement) pur- chases. When consumers make important purchases, they go through a series of five steps. first, they recognize there is a problem to be solved. Then they search for information to make the best decision. Next, they evaluate a set of altema11ves and judge them on the basis of various evaluative criteria: At this point, they are ready lo make their purchasing deas1on. Following the purchase, consumers decide whether the product matched their expectations and may develop anxiety or regret or cognitive dissonance.

Key Terms consumer behavior. p. 160

involvement. p. 161

perceived risk. p. 161 problem recognition, p. 162

information search. p. 163

evoked set, p. 164

consideration set. p. 164 comparison shopping agents or shopbots. p. 164

detenninant attributes. p. 164

evaluative criteria. p. 164

compensatory decision rules, p. 165

heuristics, p. 165

brand loyalty, p. 165

CHAPTER 6

Study Map

consumer satisfaction/ dissatisfaction, p. 165

cognitive dissonance, p. 165

6.2 Objective Summary (PP 161>-174) Explain how internal factors influence consumers' decision-making processes. Several internal factors influence consumer decisions. Perception is how consumers select, organize, and interpret stimuli. Motivation is an internal stale that drives consumers to satisfy needs. Learning is a change in. behavior t_hat results from information or experience. Behavioral learning results from eJ<ternal events, whereas cognitive learning refers 10 internal mental activity. An anitude is a lasting evaluation of a person, object, or issue and includes three components: af- fect, cognition, and behavior. Personali ty influences how con- sumers respond lo situations in the environment. Marketers seek 10 understand a consumer's self-concept lo develop product anributes that match some aspect of the consumers self-concept.

The age of consumers, family life cycle, and their life- style also are strongly related to consumption preferences. Marketers may use psychographics to group people according to activities, interests, and opinions that may explain reasons for purchasing products.

Key Terms perception. p. 166

exposure. p. 167

subliminal advertising, p. 167

attention, p. 167

multitasking, p. 168

rich media, p. 168

interpretation, p. 168

motivation. p . 168

196 PART TWO I DETERMINE THE VALUE PROPOSITIONS DIFFERENT CUSTOMERS WANT

hierarchy of needs, p. 169

gamification, p. 169

learning, p. 170

behavioral learning theories, p. 170

classical conditioning, p. 170

operant conditioning, p. 170

data brokers, p. 170

cognitive learning theory. p. 171

observational learning. p. 171

attitude, p. 171

affect. p. 171

sadvertising, p. 171

cognition, p. 171

behavior, p . 172

personality, p. 172

self,concept. p. 172

family life cycle, p. 173

lifestyle, p. 173

psychographics, p. 174

activities, interests, and opinions (AIOs), p. 174

6.3 Objective Summary (pp. 174-179) Show how situational factors and consumers' relationships with other people influence con- sumer behavior. Situational influences include our phy.;ical surroundings and time pressures. Dimensions of the physical environment aeate arousal and pleasure and can determine how consumers react to the environment. The time of day, the season of the year, and how much time one has to make a purchase also affect decision making.

Consumers' overall preferences for products are deter- mined by their membership in cultures and subcultures and by cultural values such as collectivism and individualism. Consumerism is a social movement directed toward protect- ing consumers from harmful business practices. Social class, group memberships, and opinion leaders are other types of social influences that affect consumer choices. A reference group is a set of people a consumer wants to please or imi- tate, and this affects the consumer's purchasing decisions. Purchases also result from conformity to real or imagined group pressures. Another way social influence is felt is in the expectations of society regarding the proper roles for men and women. Such expectations have led to many gender- typed products.

Key Terms sensory marketing, p. 174

sensory branding. p. 175

time poverty, p . 175

cul ture, p. 176

subculture, p. 176

microcultures, p. 176

consumerism, p. 176

conscientious consumerism, p. 177

social class, p. 177

status symbols, p. 177

mass class, p. 177

reference group, p. 177

opinion leader, p . 178

gender roles, p . 178

6.4 Objective Summary (pp. 179-185) Understand the characteristics of business- to-business markets and business-to-business market demand and how marketers classify business-to-business customers. 828 markets include business or organizational customers that buy goods and services for purposes other than personal consumption. Business customers include producers, resell- ers, governments, and not-for-profit organizations. Producers purchase materials, parts, and various goods and services needed to produce other goods and services to be sold at a profit. Resellers purchase finished goods to resell at a profit as well as other goods and services to maintain their operations. Governments and other not-for-profit organizations purchase the goods and services necessary to futtill their objectives. The NAJCS, a numerical coding sy.;tem developed by NAFTA coun· tries, is a widely used classification system for business and organizational markets.

There are a number of major and minor differences be- tween organizational and consumer markets. To be successful, marketers must understand these differences and develop strategies that can be effective with organizational customers. For example, business customers are usually few in number, they may be geographically concentrated, and they often purchase higher-priced products in larger quantities. Business demand derives from the demand for another good or selVice, is generally not affected by price increases or decreases, is sub· ject to great fluctuations, and may be tied to the demand and availability of some other good.

Key Terms business-to~business (828) markets. p. 180

organizational markets. p. 180

producers, p. 180

resellers, p. 181

government markets, p. 181

North American Industry Classification System (NAICS), p. 182

derived demand, p. 184

inelastic demand, p. 185

joint demand, p. 185

C HAPT ER 6 J UNDERSTAND CONSUMER AND BUSINESS MARKETS 197

6.5 Objective Summary (PP 186-194) Identify and describe the different business buy- ing situations and the business buying decision process including the use of e-commerce and so- cial media. The buydass framework identifies the degree and effon re- quited to make a business buying decision. Purchase situations can be straight rebuy, modified rebuy, and new-task buying. A buying center is a group of people who work together to make a buying decision. The toles in the buying center are (1) the initiator, who recognizes the need for a purchase; (2) the user, who will ultimately use the product; (3) the gatekeeper, who controls the flow of information to others; (4) the influ- encer, who shares advice and expertise; (5) the decider, who makes the final decision; and (6) the buyer, who executes the purchase. The steps in the business buying process are similar to those in the consumer decision process but are of- ten somewhat more complex. For example, in the search for information, B2B firms often develop wrinen product specifi- cations, identify potential suppliets, and obtain proposals and quotations.

B2B e-commerce refers to Internet exchanges of infor- mation, goods and services, and payments between two or more businesses or organizations. B2B firms often maintain intranets that give access only to employees or extranets that allow access to certain suppliers and other outsiders. Firms often install firewalls and use encryption to prevent problems from hackers and other threats to the security of the firm's intranets and extranets. B2B firms are increasingly using social

media to gather information on target audiences, increase brand exposure and web traffic, monitor what customers and others are saying, and provide a platform fot conversations with customers.

Key Terms buyclass, p. 186

straight rebuy, p. 186

modified rebuy, p. 186

new-task buy, p. 187 buying center. p. 187

product specifications. p. 190

customer reference program. p. 190

single sourcing. p. 191

multiple sourcing, p. 191

reciprocity, p. 191

outsourcing. P·· 191 offshoring, p. 192

reverse marketing, p. 192

busines:s,.to-business (828) e.commerce, p. 192

intranet. p. 193

extra net, p. 193

matware. p. 193 firewall, p. 193

encryption.. p. 194

MyMarketinglab ™ Chapter Questions and Activities Go to mymktlab.com to watch this chapter's

Rising Star video(s) for career advice and to respond to questions.

Concepts: Test Your Knowledge

6-1. What is consumer behavior? Why is it important for marketers to understand consume, behavior?

6-2. Explain habitual decision making, limited problem solv- ing, and extended problem solving. What is the role of perceived risk in the decision process?

6-3. Explain the steps in the consume, decision-making pro- cess.

6-4. What is perception? Explain the three pans of the per- ception process: exposure, attention, and inte,preta- tion.

6-5. Describe Maslow's hierarchy of needs as it relates to motivation.

6~. How does gamification influence consumers· motiva- tion to interact with brands?

6-7. What is behavioral learning? What is cognitive learn- ing?

6-8. What are the three components of attitudes? 6-9. What is personality?

6-10. 6-11. 6-12.

6-13. 6-14. 6-15.

6-16. 6-17.

6-18. 6-19.

6-20. 6-21.

6-22.

What is family life cycle? Explain what lifestyle means. How do si tuational influences, such as the physical en- vironment and time, shape consume, purchase deci- sions? What are cultures, subcultures, and microcultures? What is the significance of social class to marketers? What are reference groups, and how do they influence consumers? What are opinion leaders? What are gender roles? Define this term and give an example. How do B2B markets differ from consumer markets? Explain what we mean by derived demand, inelastic demand. fluctuating demand, and joint demand. How do we generally classify B2B markets? Describe the buyclass framework. What are new-task buys, modified rebuys, and straight rebuys? What is a buying center? What are the roles of the members of in a buying center?

198 PART TWO I DETERMINE THE VALUE PROPOSITIONS DIFFERENT CUSTOMERS WANT

6-23. Explain the steps in the business buying decision pro- cess.

6-24. What is single sourcing? Multiple sourcing? Outsourc- ing?

6-25. Explain the role of intranets and extranets in 828 e- commerce. Describe the security issues firms face in 828 e-commerce and some safeguards firms use to reduce their security risks.

Activities: Apply What You've Learned

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Creative Homework/Shorr Project This chapter indicat- ed that consumers go through a series of steps (from problem recognition to postpurchase evaluation) as they make purchases. Write a detailed report describ- ing what you as a consumer would do in each of these steps when deciding to purchase one of the following products: a. A suit for an upcoming job interview b. A piece of jewelry to be given to a special friend for

his or her birthday c. A fast-food lunch d. A Christmas tree Then make suggestions for what marketers might do to make sure that consumers like you who are going through each step in the consumer decision process move toward lhe purchase of !heir brand. (Hint: Think about product, place, price, and promotion strategies.) In Class, 1 ~ 25 Minutes for Teams During the last week of class. your professor explains how she wants to employ a gamification strategy next semester to fur- ther motivate and engage students, and she is asking for your help. Develop a simple gamification strategy that she can use in the classroom. Describe what the goals should be, how progress will be measured, and what the reward system will be. Creative Homework/Shorr Project You probably had more than one school in mind before you ultimately decided on the college or university you are now at· tending. To better understand how consumers make decisions, prepare an outline that shows how inter- nal influences like perception, motivation, and so on had an impact on the decision you made about which school to attend. Include specific examples for each type of internal influence in your outline. Creative Homework/Short Project Think about some of the goods and services you purchase each month (piz- za on Saturday night or your smartphone bill) as well as a few impulse purchases you might make (new music from iTunes). Categorize each of these items accord· ing to Maslow's hierarchy of needs. Explain why your budget does or doesn't match this hierarchy of needs (i.e., most of your budget goes toward physiological needs, followed by safety needs, etc.). Whal does this say about your motivations? In Class, 1 ~25 Minutes for Teams Assume you are a sales representative for a firm that sells a variety

of products used in landscaping. Your customers are municipalities that range in size from very large to very small. Your company offers its customers a wide range of products-everything from simple rakes and shovels to large heavy duty tractors and computer· ized irrigation equipment. Thus, purchases made by your customers include straight rebuys, modified re· buys, and new-task purchases. You have a meeting scheduled this week with your regional sales man- ager. He wants to talk about how you can get the business for all types of purchases. Develop an outline of your planned discussion on this. Then with a class- mate, present your ideas to your boss in a role-playing situation.

6-31. For Further Research (Individual) In this chapter, we learned that firms may use rich media in their messag- es online to create interaction and engagement with consumers. ·surf• the web and find at least three ex· amples of rich media. Develop a report that describes the three rich media examples you found, what you believe the advertiser was seeking to gain in terms of interaction and engagement, and your opinion about the rich media suggestions for use in this ad and how it might be improved.

6·32. For Further Research (Groups) We learned in this chap- ter that when considering a product need, consumers have an evoked set of brands and a consideration set of brands. With some of your classmates, conduct a simple research study and explain your results using the following steps. a. Select a product that students in college would

might purchase. b. Develop a questionnaire that you will ask stu-

dent participants to complete. The questionnaire should ask students to list all of the brands of the product you have selected that they are aware of. Give them at least five minutes to complete this question.

c. Then ask them to tell you which ones would they seriously consider buying if they were going to make a purchase today.

d. Develop a report using the results of the survey. What conclusions can you draw from the research?

Concepts: Apply Marketing Metrics

828 customers (clients) are busy professionals and thus are no- toriously reluctant to take time to provide data to marketers. To measure important issues described in the chapter, such as overall client satisfaction, service quality by the vendor firm, level of customer engagement, repurchase intentions, and speed and effectiveness of problem resolution, marketers must employ the most user-friendly and efficient data collection methods available when dealing with these professional busi· ness clients. Otherwise, it is highly unlikely that they will take time to pmvide any useful data for marlcet planning and deci· sion making.

CHAPTER 6 J UNDERSTAND CONSUMER AND BUSINESS MARKETS 199

0 6-33. Take a few minutes to go back and briefly review what you learned in Chapter 4 about the different approach· es to collecting data. Propose an approach to collecting the types of information from a busy 828 customer in a way that is most likely to result in his or her coopera· tion. Be as specific as you can in describing your chosen approach and explain why you selected it.

Choices: What Do You Think?

0 6-34.

6·35.

0 6-36.

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Crirical Thinking Changing demographics and cultural values are important to marketers. list at least three current trends that may affect the successful marketing of the following products: a. Housing b. Food c. Education d. Clothing e. Travel and tourism f. Automobiles Critical Thinking Consumers often buy products be- cause they feel pressure from reference groups to con· form. Does conformity exert a positive or a negative influence on consume,s? With what types of products is confo,mity more likely to occur? Ethics Marketers have been shelling out the bucks on sensory marketing techniques for years to appeal to your subconscious mind. And studies show that it works. But is sensory marketing fair? Some say it's a way to enhance the purchasing process, while others say markete,s are unethically manipulating consumers. What are some of the pros and cons associated with sensory marketing? What is your position? Critical Thinking E-commerce is dramatically chang· ing the way 828 transactions take place. What are the advantages of 828 e-commerce to companies? To society? Are there any disadvantages of 828 e-commerce? Critical Thinking Mobile commerce (m-commerce) is a rapidly growing category of e-commerce that takes place via a smart phone or tablet instead of a desktop or laptop computer. How has m-commerce changed the way consumers shop? What do marketers need to do now and in the future to better support their m· commerce customers? What do you think the future of m-commerce will be? Critical Thinking The practice of buying business produas based on sealed competitive bids is popular among all types of business buye,s. What a,e the ad· vantages and disadvantages of this practice to buyers? What are the advantages and disadvantages to sellers? Should companies always give the business to the low- est bidder? Why or why not?

6-40. Ethics When firms implement a single sourcing policy in their buying, other possible suppliers do not have an opportunity to compete for the business. Is this ethi· cal? What are the advantages to the company? What are the disadvantages?

6-41. Critical Thinking In the buying center, the gatekeeper controls information flow to others in the center. Thus, the gatekeepe, determines which possible sellers are heard and which are not. Does the gatekeeper have too much power? What policies might be implement- ed to make sure that all possible sellers are ueated fairly?

6-42. Critical Thinking Outsourcing and offshoring are prac- tices often surrounded by controversy. What are the benefits of outsourcing to, businesses? For consum- ers? What are the disadvantages of outsourcing for businesses? For consume,s? Should outsourcing be ,egulated to ptoteet U.S. interests both at home and abroad? Why or why not?

Miniproject: Learn by Doing

The purpose of this miniproject is to increase your understand· ing of the process that consumers go through when making a purchase decision. First, select one of the following products (or some other product of your choice) that now, or in the future, you might be in the market for.

• New or used car • Spring break vacation • Apartment • Computer or smart phone

6-43. Problem Recognition Describe the problem that might lead you to purchase this product.

6-44. Information Search Use the Internet to gather some initial information about the product you chose. Visit at least two stores or locations where the product may be purchased to gather further information.

6-45. Evaluation of Alternatives Identify at least five alterna- tive product options that you are interested in. Narrow down your selection to two or three choices. Which are the most feasible? What are the pros and cons of each?

6-46. Product Choice Make a final decision about which ptoduct you will purchase. Desaibe the heuristics that aided in your decision making.

6-47. Posrpurchase Evaluation If this is a product you have actually purchased, explain the reasoning behind your current satisfaction or dissatisfaction with the product. If not, develop several reasons you might be satisfied o, dissatisfied with the product.

6-48. Prepare a repon that explains in detail the decision· making p,ocess for the p,oduct in your purchase scenario.

200 PART TWO I DETERMINE THE VALUE PROPOSITIONS DIFFERENT CUSTOMERS WANT

Marketing in Action Case Real Choices at Airbus

There is always room for more. At least that's what Airbus thinks. It has improved on its A320 product family (the world's best-selling aircraft) and introduced the A320neo (new engine option). The A320neo is available with lWO different engine configurations and will be a more fuel-efficient, single-aisle aircraft, to, purchasing by the world's airlines. According to Airbus's estimates, the A320neo family of aircraft will lower per- seat fuel burn by 20 percent while providing additional range, reduced engine noise, and lower pollution emissions.

To create this level of efficiency, the new engine options are accompanied by Sha,idets wingtips, which not only provide for better fuel efficiency but also add more passenger comfort. Sharldets cut down aerodynamic drag and offer airlines up to four perrent fuel burn reduction on longer-range flights. The Sharldets derive their name from their resemblance to a shark's fin, are made from light-weight composites and are 2.4 meters tall. With other ae<odynamic refinements and sign~icant weight savings. the A320neo has an increased range of approximately 500 nautical miles. The interior enhancements incorporate a re- designed cabin that offers large, carry-on luggage space and an upgraded air purffication system. The cabin upgrades will allow for 20 additional revenue-generating passengers.

Aimus also offers its customers other NEO type of aircraft induding the A319neo and A321 neo ve<sions. These new planes share 95 pe<cent of the spare parts used by their currently avail- able versions. More compatibility will allow current A320 cus- tomers to make use of parts and equipment that they already own, thereby lowering implementation costs. In addition, the new aircraft indude a variety of other imp(()vements over current aircraft.

Airbus's greatest competition for the A320neo is from Boeing's most recent entry into the short-haul airliner market, the 737 MAX. Boeing's Senior Vice President of Program Man- agement, Scott Fancher, calls this medium-size airplane "the heart of the markeL" The 737 MAX boasts increased fuel ef- ficiency as the result of a redesigned wing, improved interface of the wing and engine. and the use of winglets. Boeing. how- ever, is behind Airbus. The 787 MAX program is operating ap- proximately 18 months behind Aimus. Boeing did not have its first flight of the 737 MAX until after the initial delivery of the AirbusA320neo. As of December 2015, Boeing had 3,072 firm orders for the new aircraft and the fim 737 MAX is scheduled for delivery in 2017.

Since early 2015, there have been more than 4,500 worldwide orders to, aircraft in the A320neo product line. In January 2016, German carrier Lufthansa became the first airline to receive and put into use the A320neo's improved airplanes. Airbus was thus first to the market with signifi- cant pre-orders and ready to take a commanding lead in the single-aisle market.

It is not uncommon in the aircraft business to, manufac- turers to experience small production issues during the intro- duction phase. The A320neo's problems are more significant than usual and are causing a delay in delivery schedules.

Although Lufthansa was the first to receive delivery of the A320neo, it was not the initial intention of Airbus. Qatar Air- ways had been scheduled to receive the first delivery in late 2015. However. after testing the aircraft, the airline complained of engine problems and refused to take possession. Aimus be- gan dealing with these issues, but they still persist. They had to compensate Lufthansa because the airline was restricted to using the A320neo only at the airports where it had additional technical staff. Someone once said, "Good things take time.•

The introduction of the A320neo has been plagued with problems. However, the delays in delivery are expected to end. With more than 4,000 awaiting 0tders from a multitude of customers, Airbus has the potential to turn something bad into something good. There are a lot of customer relationships that need soothing. How does the company get customers not to cancel orders and choose Boeing's aircraft? Airbus's challenges are far from over.

You Make the Call 6-49. What is the decision facing Airbus? 6-50. What factors are important in understanding this deci-

sion situation? 6-51 . What are the alternatives? 6-52. What decision(s) do you recommend? 6-53. What are some ways to implement your recommen-

dation?

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CHAPTER 6 J UNDERSTAND CONSUMER AND BUSINESS MARKETS 201

MyMarketinglab"'

Go to mymkdab.com for Auto-graded writing questions as well as the following Assisted-graded writing questions:

6-54. Creative Homework/Short Project. Sometimes advertising or other marketing activities cause problem recognition by showing consumers how much bet- ter off they would be with a new product or by pointing out problems with products they already own. Discuss problem recognition for the following product categories. Make a list of some ways marketers might try to stimu- late problem recognition for each product. Present your ideas to your class. a. Toothpaste b. A home security system c. A new automobile d. An online dating service e. A health club membership

6-55. Creative Homework/Short Project. As a director of purchasing for a firm that manufacru.res motorcycles. you have been notified that the price of an important part used in the manufacture of the bikes has nearly doubled from $100 to nearly $200. You see your company having three choices: buying the part and passing the cost on to the customer by increasing your price; buying the pa.rt and absorbing the increase in cost, keeping the price of your bikes the same; or buying a lower-priced part that will be of lower quality. Prepare a list of pros and cons for each aJternative. Then ex.plain your recommenda· cion and justification for it.

(]) C += ::, 0 G) > ·--0 G) ·-.0 0

Chapter 7

Segmentation, Target Marketing, and Positioning

7 .1 Identity the steps In the target marketing process.

approaches avolloble to do It. pp, 205- 217

7 .4 Recognize how marketers develop and Implement a positioning strategy. p. 204

TARGET MARKETING: SELECT AND ENTER A MARKET p. 204

STEP 1: SEGMENTATION p. 205 pp, 221 -225

STEP 3: POSITIONING p. 221

7.2 Understand the need for market segmentation and the

7 .3 Explain how marketers evalu- ate segments and choose a targeting strategy. pp. 217- 220

STEP 2: TARGETING p. 217

Check out the Chapter 7 Study Map on page 226.

202

Meet Jen Sey ,,.. A Decision Maker at Levi Strauss

Jen Sey is Chief Marketing Officer for the Levi's• Brand 'Mthin Levi Strauss & Co. She has been with LS&Co. ror more than 16 yeclts, holding a va.tiety of leadetship positions within the Marketing. Strategy, and £<omme<Ce

teams. In 20 13. Sey became the Global Chief MarketlOg Officet fa, the Levi's• Brand. Twenty years ago, she began he1 career at an advertising agency, foote Cone and Belding, whece she

worked on a variety of brands including Levi-se. She tNent on to become the advertising manager at Banana Republic. before landing at Levi Strauss & Co in 1999.

At LS&Co she has heid a broad range of assignments across both Levi'~ and Dodets brands indud· ing Qi.rector of Marketing for U.S. Levi~. Seniot Qi.rector of Global Strategy for Levi's•. Vice President of Global Mal'lc:eting for Levi Suauss & Co., and Senior V!Ce President fo, Dockers Global Marketing. In 2012, she stepped Into the role of Senior Vice President of Global £.commerce, driving the business and replat· forming efforts for both levi.com and doc:ke<s.com aaoss the teg.Ons.

In 20 13, Jen returned to lhe Levi's• Brand as CMO and quick1y lau.nched the Live in Levi's• campaign, notable for teconnecting the bra.nd with its optimistic spitit that fa.ns around the workS have loved about Levi-se fOI' decades. The campaign is a celebration of Levi'_se products and brand, showcasing how people all Oler the INOtld five i.n levi-se. The Live in Levi's "8eautif ul Morning" televi- sion spot was honored as a 2015 Taste Award's Special Achievement Spotlight wi.n.ner, recogflizing Jen's immediate impacl

Sey has re<eived nume<ous awards, indudfrlQ: the distinction of AdAge's Top 40 Matketer'S under 40 in 2006: being named one of the Top Women in Retail by Total Ret.ail in 20 14 and one of Brand Innovators· Top SO Women in Marketing in 2015. Most recentty, she w~ named one of Hot Topic's Top 100 Retail Marketers in 2016.

As d child, Sey led an intense life of dedication, challenge, and competition. She won the U.S. National Gymnastics Cha~nship title in 1986, les.s than one year af te.r having suffered a devastating injury at the 1985 World Championships. As a result. the U.S. Olympic Commjttee named het Gymnastics' Athlete of the Yeat. She rntired afte< eight year'S on the national team and went on to study at Stanford University wtie,e she double majoted in Communi<ations and Political Science. In 2008. Sey released he, first book. Chalked Up, a memoir detailing her triumphs and ruuggles 'Mthin the world of competitive gymnastics. She has been featured on a variety of tatk shows induding Good Morning America and the CBS Morning Shovv discussing the pros and cons of elite competitive childhood athletics.

Sey now lives in San ffancisco, Cafifornia, with partner Daniel and her three sons Virgil, Wyatt and Osc.ar. She lends her voice to online outlets Salon.com, Mommyttackd.com and BastlandSpice.com, and she contt.nues her work stafted with Chalked Up as an athk>te ad...oc.ate. t.n 201 6, Sweaty Betty (leading British active....,ar brafld) appointed Sey 10 the Company's Board of Director,.

0 -C Whal I do when I'm not working: Spend time with my family (3 kids, 1 part- ner. 1 dog), read, cook, write, exercise

A Job-related mistake I wish I hadn' t mode:

My management style:

Be open alld honest, praaice humility a lways, roll up your sleeves and do the work, be direa in your communication style, and always remember-you don't

know everything!

en ft

C G> -,

Arst Job out of school: Production assistant on a movie and gymnastics coach

Got too attached to a single path forward in my career. Wish I'd been open to unex- pected next steps sooner rather than later.

My motto to Ive by:

Career high: Levi's (MO-launch of Live in Levi's and Levi's Stadium

Get 'er dooe

The Levi's txand was losing relevance and market share. Although teclmically we were the leader in denim in

terms of market share, it didn't necessarily feel like we were leading; ow mar+ ket share was being eaten up by premium brands and then most recently fast fashion. We needed to reposition for success-in terms of both financial and equity perfomiance and the overaD future health of the brand. We needed to create a clear brand value proposition that ,vas relevant and diffetentiated, broadly appealing and globally viable. My job was to lead this process and cre- ate a long-standing marketing campaign off of this positioning. while inspiring the organization more broadly with this brand direction.

Jen considered her Options 1 ·2·3

l first and fOl'emost we looked at the obvious: Levi's is THE original bfue jean. Our founder Levi Strauss and tailor Jacob Davis obtained a U.S. patent on the process of putting rivets in men's work pants in 1873, and the company has a rich hi,t"')'

Option that spans almost 150 years. This positioning asserts the brand's innovator status; it's the oldest but also the first No other company can make this claim. No one else created the blue jean-or the product category. Ahhough this is a powerful statement it's not that relevant to modem consum· efs. It doesn't give them a reason to choose the brand lOOAY. We know that m1Dennials value authenticity, but we need to either promote this attribute more forceful>, or give them additional reasons to choose our brand.

We also looked at a different definition of Originality. Our idea is that • originalrty• means not only .. first." This concept also refers to the quafity of being new, fresh, creative. and independent. We looked at a eating an association between the brand and the wear·

Option er with a position built around the idea that Levi's is as origi· nal as you are. This statement is relevant and aspirational Everyone wants to ""themselves as original unique, and individuafistic. And it is certainly believ- able for Levi's 10 be associated with mis position. The brand has long told a story about individuality, most notably lhroogh its strong association with the cuhural

MyMarketinglab"" 0 Improve Your Grade!

My pet peeve: Leaders that think leadership is just telling people what to do. And mean people. No patience for meannes~ Unnecessary.

icon James Dean. The actor's appearance in the 1950s movie Rebel Without a Cause v,yaring a white shirt, leathe, jacxe~ and a pair of Levi's 501s is one of the most legendary images in pop cuhure. On the other hand, mis link with original- ity no longer makes the ,1aternen1 it used to. Many jeans and apparel brands make this claim fjustified or not). We cooldn't be sure that this position would differentiate us in the market and give people a !eason to choose Levi's vers.us another brand. Hmm•er, there is no question that oor bland has a legitimate daim to this space if we choose to remind consumers of our long heritage.

a As we embarked on research with consumers around the world, we heard a lot of people telling us about aD the amazing me expe· riences they have had in their Levi's. They se&ated stories about road trip~ first loves. conreru, and all-night dance parties. They Optton talked about the bond they have with their Levi's because of these experiences. And they said that they did not have this kind of relationship with their other jeans or clothing items.. The relationship with their Levi's jeans was special This inspired this idea of: You wear other jeans but you live your life in Levi's. This claim is highly differentiated and more importantly it makes an emotional connection with our customers. The dOlhn side 6 that today blue jeans are more of a fashioo-oriented produa than they used to be. We need to be able to drive a style message in addition to an emotional mes· sage. And this connection isn't as strong in all of our globaJ markets. For ex· a~le. in China, v.ilere people haven't been wearing Levi's for very long, people haven't had time to forge these connections yet.

Now, put yoorself in Jen's shoes. Which option would you choose, and why?

O·illd,!ll41J Whidl Option would you choose, and why? D Option 1 D Option 2 D Option 3

See what Option Jen chose in MyMartc.etinglabT"'

Over 10 million students improved their results using the Pearson Mylabs. Visit mymktlab.com for simulations, tutoriaJs. and end-of-chapter problems.

203

204 PART TWO I DETERMINE THE VALUE PROPOSITIONS DIFFERENT CUSTOMERS WANT

Chopter 7

market fragmentation The creatioo of many consumer gr04.4)S due to a diversity of distina needs and wants in modern society.

target marketing strategy CMding the total market into different segments on the basis of customer charact.eris~ selecting one o, mo,e segment~ and dewk>ping ~oducts to meet the needs of those specifK segments..

7.1 Target Marketing: Select and Enter a Market OBJECTIVE

Identify the steps in Way back in Chapter 1, we dcfin-ed a market as all the customers and poh?ntial customers who share a common need that can be satisfied

the target marketing by a specific product, who have the resources to exchange for it, who process. are willing to make the exchange, and who have th12 a uthority to make

the exchange. And a t this point in your study of marketing, you know that key goals of the marketer arc to cn.v.ite value, build customer rela·

tionships, and satisfy needs. But in our modern, co1nplcx society, it's naive to assume that everyone's needs are the same:.--evcn for a pair of blue jeans.

Today, it's a complex task to understand people's differing nc..'<is because techno- logical and cultural advances create a condition o( market fragmentation. This means that people's diverse interests and background,; naturally divide them into numerous groups with distinct needs and wants. &""Cause of this diversity, the same: good or service will not appeal to everyone.

Consider, for example, the effects of fragmentation in higher education. Before you faced the big decision of which classes to regist~ for, including this one, you had the

even bigger task of deciding on which one of the numerous types of colleges o r univer• sities you would attend. Not only did you have the more traditional schools to choose from--community or technical colleges and public or private fow .. year schools-but you also had newer schools., such as the for•ptofit University o( Phoenix or Kaplan Univctsity, and several onHne,..only schools, such as Western Governors University. Each of these institutio,,s o( higher learning serves a diHctent market need, and what may

meet your needs currently might not mect your nreds in the future. Fortunate ly, there are plenty of options to ch oose from, depending on your abilities, background, and o( course the o ld checkbook!

Marketers must balance the efficiency of mass marketii,g where they sc.rvc the same items to everyone, with the effectiveness that comes when they offer each individual exactly what he or she wants. Mass markcting certainly costs much Jess-when we o(•

fer one product to everyone, we eliminate the need for separate advertisjng campaigns and distinctive packages for each it'cm. However, consume.rs see things differcntJy. From fl,eir perspective fl,e bc>st strategy would be to offer the perfect product just for them. Unfortunately, that's often not realistic.

For 40 years, Burger King's moth) was ''Have It Your Way," but i n 2014 the fast food company scrapped that iconic the.me for an updated version o( the s logan: "'Be Your Way." Burger King says that the new motto is in tended to remind j>L'<>ple thal "they can and should Live how they want anytime. It's ok to not be per fect .. . Self. expression is most important and it's out d.iffere:nces that make us individuals instead of robots."1 This change is convenient for Burger King, because the huge chain could deli vc.r on the old promise only to a poin t: "Having" it your way is fine as Jong as you stay w ithin the confines of familiar condiments, such as mustard or ketchup. Don't dream o( topping your burger with blue cheese, mango sauce, or some other "exotk" ingrcdienL

So, instt?ad of trying to sell the same thing to everyone, marketers select a target mar~

keting strategy in which they djvide the total market into different segments based on cus• tomer c.::haracteristics, select one or more segments, and develop p roducts to meet the needs of those specific segments. ~Figure 7.1 illustrates the thn.-c-stcp p,oc.,ss of segmentation, targeting, and position.ing,and it's what we're going to check out in this chapter. Let's start with the first step-segmentation.

CHAPTER 7 I SEGMENTATION, TARGET MARK ETING, ANO POSITIONING 205

7.2 OBJECTIVE

Understand the need fOf market

1. 5-gmentation Identify and describe market segments

2. Ta,getlng Evaluate segments and decide which to go after

3. Positioning Oevelop a marketing mix that will aeate a competitive advantage in the minds of the selected target mafket

Step 1: Segmentation Segmentation is n,c process o( dividing a larger market into smaUe.t

pieces based on one or more meaningful, shared characteristics. This process is a way of life for almost all marketers in both consumer and business•to-,busil\t?SS markets. The truth is that you can't please all

segmentation and the the people all the time, so you need to take your b<,st shot. Marriott,

approaches availab&e todo~.

(pp. 205-217)

for example, segments its market b y offering 16 separate brands that range Erom the value-oriented Courtyard to th12 deluxe Ritz.Carlton.

Newer brands include the Moxy chai.n in partnership with lKEA and the uber-hip Edition hotclc; it is opening in partnership with Ian

Schrager who created the boutique hotel concept in the 1980s and is most famous for

his Studio 54 disco.2 Just how do marketers scg1nent a population? How do lhcy divide the whole pie into smaller sLices they can "digest''? The marketer must d~idc on one or more usclul segmentation variables-that is, dimensions that divide the total market

into fairly homogeneous groups, each with dilfettnt needs and preferences. In this sec• tion., we'll take a look a t lhjs proccs....;, begillning with the types of SL>gmentation variables that marketers use to divide up cnd•uscr consumers. Then we'll move on to busines,s.to,.

business segmentation.

Segment Consumer Markets At one time, it was sufficient to divide the sports shoe market into a thletes and non..ath• letes. But take a walk through any sporting goods store today and you'll quickly see that the athlete market has fragmented in many directions. Shoes designed for jogging, bas,,

ketball, tennis, cycling, cross training, and even skateboarding beckon us from the aisles. We need several segmentation variables if we want to slice up the market for all the shoe variations available today. First, not evc.ryonc is willing or able to drop several hundred

bucks on the latest sneakers, so markete:rs consider income: (Note: A pair o( Air Jotdan Friends and FamHy edition kicks will run you a cool $6,000).3 Second, men may be more interested in baskctbaU shoes for shooting hoops with the guys, whereas women snap up

the latest Pilatcs styles, so marketers also consider gender. Bocause not all age groups arc equally interested in buying specialized athletic shoes, we slice the larger consumer "'pie" into smaller pieces in a number of ways., including demographic, psychographic, and

Figure 7.1 Gfj Process I Steps in the Target Marketing Process

Target marketing stra.t~ consists of lht~ sepatate steps. Marketers first <fivide the market into segments based on customer chataCleristia. then select one or more segments, and ranalty develop products to meet lhe needs of those specific segments.

segmentation The process of dividing a larger market into smaller pieces based on one or more meaningfully shared characteristic<

segmentation variables Dimensions that divide the total market into fa irly homogeneous grou~ each wilh different ne<ds and prefe<ence<

206 PART TWO I DETERMINE THE VALUE PROPOSITIONS DIFFERENT CUSTOMERS WANT

Figu.re 7.2 cBJ~ Snapshot I Segment ing Co nsumer M arkets behavioral difforcnc.,s. In the c.i;;e of demographic scgmcmtation, there arc several key subcategories o( demographics: age (including generational differ•

cnces), gender, family life cycle, income and social class, ethnicity, and place of reside.nee, sometimes referred to separately as geographic segmentation.

~ figure 7.2 summarizes the dominant approaches to segmenting consumer markets.

ConsumE!ot' markets can be segmented by demographk, psychographk, or behavioral crite<ia.

Segmenting Consumer Markets

' ' .,. ag•lkl ,S,dlaga-.,.-.S Behavior ln the sections that follow, we'll consider each of these segmentation approaches in turn, but first a note of caution. When it comes to marketing to some groups-in particular, lowcr .. incomc individuals, the

poorly educated, nonnative-language speakers, and children- it is incumbent on 1narkctcrs to e.-xe:rcise the utmost care not to take undue advantage of their

ci.tc-umstances. Cn Chapter 2, we introduced a global segment called the bottom of th, pyramid (BOP), which is the collective name for the group of more than 4

I • Age ·-• Farnly lfe cycle • Income and social class • Ethnicity • Place of residence

(geografll,y)

'

demographics Statistics that measure observable aspects of a population. induding size. age, gender, ethnic ~oup, income, education, occupation, and family structure.

generational martc.eting Marketing to members of a generation, who tend to share the same outloot, values. and priorities.

billion consumers thtoughout the world who live on less than $2 a day. Ethical marketers must be sc.nsi•

tivc to the different conditio1\S in which people find thcmsc.lves., and proactivcly work to

uphold a high level of honesty and lrust with all segments of the public. Doing so is noth• ing short of marketing's social responsibility.

0012 other caveat is ncec..ied before we jump into our discussion of different market segments. Identifying segments is not, repeat 1101, intended by marketers as a form of stc- n.."Otyping. The idea of segmenting markets is to identify g·roups of consumers with similar needs so that marketing to them can be done more efficiently and effcctivc.ly versus a

mass.market approach. That docsn"'t ru2eessarily mean lhat we want to pigeonhole a group of people because they happen to share an important characteristic such as gender or place of residence.

Segment by Demographics: Age

As we stated in Chapter 2, demographics are statistics that measure observable aspt."Cts of a population, inc1uding size, age, gender., ethnic group, income, education, occupa .. tion, and family structure. These descriptors are vitaJ to identify the best potential

customers for a good or sc.rvict?. Be.cause they represent objective characteristics, they usually are easy to identify, and then it's just a matter of tailoring messages and prod· ucts to relevant age groups. Consumers of different age groups have different na'lis

and wants. Members of a generation tend to share the same outlook,. values, and priori• tics. When these characteristics arc combined for purposes of market segmentation and targeting, such an approach is caUed generational market ing.

For example, cl1ildreu are an attractive age segment for many marketers. Although kids obviously have a Jot to say about purchases of toys and games, they influence other family purchases as well Qust watch the.m at work in the grocery store!). According to a

n."'Cent YouGov Omnibus survey, 42 percent of parents said that they gave in to a chi.Id's request to buy a product when the child put substantial effort into arguing for the pur• chase. Savvy children atL" fa1nous for negoHation tactics such as promising to do more

chores or to work harder in school to get better grades.4 It's not hard to sec how these _persuasive HttJe guys could quickly wear down a parent's resistance-buying the item is easier than fighting the light. For Nctflix, developing conte.nt to win over children to

the platform has become a key strategy. The company developed 20 out of 70 "Netflix Original• programs specifically for children. NetDix recognizes the importance of this segment in cementing its position as the main source o( 1.mtertainme:nt for families and

CHAPTER 7 I SEGMENTATION, TARGET MARKETING, AND POSITIONING 207

as a key source of growth in delivering long•term customer vaJuc.5 Generation Z is a relatively new term coined to de.note individuals who were born after 1994. Th.is is the first gcneratio1'1 of the 21st century and it's the most diverse we've ever experienced: 55 percent arc Caucasian, 24 percent arc Hispai,ic, 14 percent arc African American, and 4 percent aN' Asian. They are accustomed to blurred gender roles, where household re-- s_ponsibilities don't split along traditionaJ lines. And, of course they arc digital natives who S}"'nd a big chunk of their time online, so they expect brands to engage them in two- way digital conve:rsations.

Marketers arc just starting to figure out what this new group o( youngsters will be like as consume.rs. Having tvown up during the "Great Recession," they are not as likely to believe in an idealized, carefree world. They tend to be independent and gravitate to stores like Free People rather than Abercrombie & Fitch.6 They team about new styles from arolllld the globe via social media, so they art? equally at home watching Tlte Hunger Games or listening: to Korean K·pop. Their idols arc. ,,self.made" tnternct stars like the Swedish video producer Pev,tOicPie, who has the world's most

subscribed YouTube channel, and the teenage video sensation Evan who has 25 million followc.rs.7

The 13- to Us-year-old age group is reported to spend more than $200 billion (both

fluough p urchases made by them and purchases made for them) on different products.• Much of this money goes toward "fee.I-good" products: music, video games, cosmetics, and fast food- with the occasional tattoo or hookah pen thrown in as well. Because they arc so inten.."J.Sted in many different products and have the resources to obtain them, many marketers avidly court the teen market.9 Snapchat has designed a platform that contains cool foatures (such as the ability to manjpulate sclfies to incorporate some of the features of a unioom into your face) that appeal heavily to a younger crowd, including teenagers. The platform is designed to make it hard for one user (say for instance a pa.rent) to eavesdrop on the activity of another user (say for instance the child of that parent) without know .. ing their usemame. One of the platfonn's investors, social media guru Gary Vaynerchuk, states that, after lnstagram, for "<V"'}'One from 14 to 24 in America, (Snapchat) is either the No. 1 or No. 2 app in thcir livcs."10

Generation Y, often also called rnilJenniaJs or "'Echo Boomersh, consists of people born bcr.,rccn the yeaTS 1979 and 1994. This agl! segment is the first gene.ration to grow up onlinc. Generation Y is an attractive market for a host o( conswncr products because o( its

size (approximately 27 percent o( the population) and fn.'<-'-Spending nature---as a group, it spends about $1.3 l"rillion annually.11

But Ge.neration Y consumers can be hard to reach through traditional media be• cause they resist reading and increasingly tum off the TV to opt instead for streaming video and digital video recordings. As a result, many marketers have had to develop other ways to reach this generation "where they live," which is ii\ large measure through their sm.artphones and tablets, using social media and related technology. We'll talk more about the shift to ncw•agc matkcting communications tcchniqucs later in this book.

We a.I.ready know that Gen Ycrs are tech savvy, but what else defines them as a genera· t:ion compared to past generations? A Pew Research study shows that compan..'CI to past genera Hons (when they were in the sam~ age range) CenYers are more racially diverse and more highly educated. ln addition, a greater proportion o( them have never bt.."Cn married when oompan.'<1 to other generations (68 percent compared to 56 percent for Generation X, which is the next closest gcneration).12

The group of consumers bom between 1965 and 1978 oonsi,:;t,; o( 46 million Americans known as Generation X, who unfortunately and undeservedly came to be called slackers, or busters (for the "baby bust'' that followed the "baby boom"). Many of these people have

a cynical attitude toward marketing-a chapter in a famous book called G..>neration X is titled '' I Am Not a Target Market!"13

Generation Z The group of consumers born after 1994.

digital natives tndMooals who spend a big cllunk of their tine ooline, so they expect brands to enga,Je them in two.-way digital corwersations.

Generation Y (millennials) The group of consumers born between 1979 and 1994.

Generation X The group of conStJ111ers born between 1965 and 1978.

208 PART TWO I DETERMINE THE VALUE PROPOSITIONS DIFFERENT CUSTOMERS WANT

b.lby boomers The segnent of people born between 1946 and 1964.

Despite this tough reputation, members of C.Cnc:ration X, the oldest of whom are now in their early fifties, have mellowed with age. In retrospect, they also have developed an identity for being an entrepreneurial group. One study revealed that Gen Xcrs led much of the modem

technology revolution, and now firms seek them out for their entrepreneurial talents. Many people in this segment were detcrmin<XI to have stable families after being brought up as latch· key children themselves as both ~>cir parents put in long days at work. Gen Xcrs tend to view fl,e home as an expression of individuality rather than material suc,:css. More than hall are involved in home improvement and n.,_.,air proj«ts.14 So much for Gen Xers as slackers!

Baby boomers, consumers born between 1946 and 1964 and who a.re now in thcir Hf.

ties and sixties, are an important SL'gment to many marketers-if for no other J'L--ason than that there ate so many of them who have a lot of money. The baby boom occurred when soldiers came flooding home after World War (I and there was a rush to get married and

start families. Back in the 1950s and 1960s, couples started having children younger and had more of them than the previous generation. The resulting glut of kids really changed the infrastructutc of the country: more single-family houses, 1nore schools, migration to the

suburbs, and freeways to commute from home to work. More recently some J\.~arch has suggested that it may be beneficial for market~ to

treat this gt:.·•ncraHonal segment as two different groups for purposes of considering their

discretionary and non-<ii..:;crctionary spending capabilities. A survey by Gallup indkatcs that there arc significant differences between baby boomer spending for thOSt? born in the Cirst half of the generation's age range ("lcading-roge Boomers") compared to those born

in the second half of the gcMration's age range ("trailing.<Xfge Boomers•). ln general, the trailing-edge boomcrs find themselves spending significantly more on non-discre- tionary items (e.g., house maintenance, groceries, etc.) than their lcading~gc boomer

counterparts. One explanation for this diff('J'ence in spending capabilities between these two groups may relate to differences in financial obligations. The older group of Baby Boomers (aged 59 to 68) may have reached a point where they are no longer paying off

mortgages or higher education debts. for marketers that sell non--di,;crctionary products, this knowledge provides important guidance to develop marketing strategics.15

Currently, the U.S. Census Bureau estimates that there are sUghtJy more than 46 mil• Lion Ameticans aged 65 or oldct, an increase from prior years. Florida and Maine ranked first and second in the highest percentage of individuals aged 65 and older with about 19 percent and 18 percent, respcctivcJy.16 To better accommodate the senior market, compa•

nies are changing their ston.'S and their products. CVS, for example, introduced carpeting in its stores to reduce slipping, and Walgrecns added magnifying glasses in aisles that featured products with fine prinl Kimberly.Clark not only redesigned its Depends line to

look more like regular Wlder\\rcar but also will now shelve the product among other gen• eral hygiene products and not in an "old person's" sccHon of the storc.-17

Many mature consumers enjoy le:isure time and continued good health. indeed, a key question today is, "Just what ls a senior citizen, when people live longer and 80 is the new 60?" As we will see later in the chapter, perhaps it isn't age but rather lifestyle foctms, in• duding mobility, that best define this group. More and more ma.rketers offer products that

appeal to active-lifestyle seniors. And they often combine the product appeal with a nostal· gi.a theme that includes music popular during the seniors' era o( youth. Poop le tend to pre• for music that was rclcaSt:.--d when they were teen.agers or young adults, with interest peak· ing between ages 24 and 25. For years, Sandals Resorts, whose advertising imagery tends to favor Boomers, has used the song "(J 1ve Had) The Time of My Lile" in commercials for its romantic vacation de::.""tinations in the Caribbc.a.n. The song, re<:ordcd by BiU Medley and

Jennifer Wames, was made famous in the classic 1987 movie Dirty Dauciug. As nostalgia, it does double duty because the movie itself was set in 1963, so it conjures up memories of both the 1980s and the 1960s for this key boomer demographic S<.'gmcnt for Sandals.18 And

more reccntJy history repeated itself, as ABC presented a threc,.hour remake of the show starring Abigail Breslin of Scmtm Que~ns famc.19

CHAPTER 7 I SEGMENTATION, TARGET MARKETING, AND POSITIONING 209

Segment by Demographics: Gender Many products, from fragrances to fashion apparel and accessories, specifically appcal to

men or women. Segmenting by gender starts at an early ag~ ven diapers come in pink for girls and blue for boys.

ln some cases. manufacturers develop paralJcl produt..'tS to appt.v.i1 to each sex. For exam .. pie, male groomu,g products have traditionally been Gillette's priority since the company's

founder King Gillette (yes, his first name was actually King) u,troduced the safety razor in

1903. Bui today, the Venus line by Gillette is a top-selling razor for women of all ages.

A small microbrewer in California called She Beverage Co. applied to register with the US.

Patent aod Trademark Office the phrase "Queen of ll<?cr," which it has been using on its web- site as well as in its social media communications. '111c King of S...'-?rs'' Budweiser contestL'C.i the application and general use of the phrase on the grounds that it might cause confusion for

con,,--umers, resulting in drawing the incorrect conclusion that the beer is affiliated with the Anheuser-Busch company (and all of the brand b<?ndlts ~,at come along with that association).

She Beverage Co. reccndy has begun to sell its beers in restauranls aod stores with a focus on the female consumer and the claim that its beers are made to better fit to female taste and sty1'1 preferences th.at are undcrscrved within the male-dominated beer market. She Beverage con· tinucs to pursue its trademark, vowu,g to keep up the fight so the company can communicate

to female bc'CI' drinkers that this is beer formulated spccilically with their prefcrcnccs in mind.20

Metrosexual as a marketing buzzword gained s team be-ginning in the late 2000s. The tetm describes a straight, urban man who is keenly interested in fashion, home design, gourmet cooking, and personal care. Mctrosexuals are usually wcll.cducated urban dwell•

crs who a.re in touch with their feminine: s ide. Although many men are reluctant to overtly

identify with the mctrosexual, there's no dCJ,ying that a renewed intero-st in personal care products, foshion accessories, and other "forme:rly feminine'' product categories creates many ma.rkt."ting opportunities. Mainstream newspapers such as the New York Times offer regulat segments dedicated to male fashion and gtooming.

Recently, there's been brood acceptance a.nd assimilation oF the values and behaviors ascribt.~ to mctroscxuals within the mainstream market. Retailers have been making an extra elfott to provide: a more pleasurable experience to men who are spending more time on extensive in.store browsing and purchasing across product lines, in stark contrast to the quick ill•and-out s tyle of shopping primarily associated with men before. For instance, the

hjgh""t."'fld retaHcr Oub Monaco now offers bars, ca!es, bookstores, and even barbershops in some of its retail locations.21

You've no doubt heard of the "Great Reet.'.>SSion" that began in late 2007, which was a shock to marketers who had to quickly scramble to understand its impact on purchasing habits. An interesting trend related to gender segmenta•

ti.on fueled by the recession and its aft~math is that men now are increasingly likely to marry wives with more education and income than they have:, and the reverse is true: for women. ln recent decades, with the rise of wcll•paid working wives, the economic gains of mar• riage have been a greater benefit for mi,n. The educa•

ti.on and income gap has grown even more in the latest n.""Cession, when men held about three in four of the jobs that were Jost. In 1960, 13.5 percent oF wives had hus• bands who were better educated, and 6.9 percent were married to men with less education. By 20l2, the com• parable figures were 19.9 pcn:ent and 20.7 percent- for the first time in hi,;tory, more \,romen "married down,"

educationally speaking, than men. 22 In 1960,6.2 percent o( hw;bands had wives who made more money; in 2007,

metrosexual A straight. urban male who is l:....ty inte<ested in fashion, home design, gourmet cooking, and personal care.

24 percent did. 23 SI£ Beef specificaly 1argets female brew drinkas.

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210 PART TWO I DETERMINE THE VALUE PROPOSITIONS DIFFERENT CUSTOMERS WANT

buying power A concept in segmentation that can help marketers to detetmine how to bener match differMt products and ve<Sions ol produru to different consume,r groups based on an ooderstanding of vdlat disaetionacy and nondiscretionary allocations of funds they are allletomm.

Segment by Demographics: Family Life Cyde

Because famiJy needs and expenditures change over time, one way to segment consumers

is to consider the stage of the family lifo cycle they occupy. (You loamed about the family life cycle in Chapter 6.) Not surprisingly, consumers in different life cycle segmen ts are unlikely to need the same products, or at least they may not net.'Cl these things in the same

quantities. Single.person households have grown over lhc years, influ~ccd by such fac .. tors as changing views toward marriage and other shifting lifestyle choices. This trtmd is expected to continue to grow over time and is projected. to have an impact on matkct.i.ng

in many industries including housing and health ca.te.2" A report from the research firm the NPD Group noted that recent growth in snack food consumption could be attributed largely to tho growth in s ingl<>-person households.25.26

But 1\ot all a ttempts at marketing to the family life cycle succeed. Gerber once tried to market single.serving food jars to single seniors-a quick meal for one person who lives alone. The manufacturer calJcd these containers ''Singles." Howevct, Gerber's stroi,g

identification with baby food worked against it: The product Oopped because their target market was embarrassed to be SC<!n buying baby food. 27

As families age and move into new life stages, different product categories ascend

and descend in importance. Young bachelors and newlyweds arc the most likely to excr-- cisc, go to bars and movies, and consume alcohol (in other words, patty whilt! you can). Older couples and bachelors arc more likely to use maintenance services. Seniors are a

prime market for tt:.--sort condominiums and golf products. Marketers need to identify the family life cycle segmc.nt of ~,cir target consumers by examining purcha.se data by family life cycle group.

Cultural changes continually cn."clte new opportunities as people's roles change. For example, boomer women in their sixties are a hot new market for what the auto industry c.a.Jls #reward cats'': sexy and extra\1agant vehicles. Says president of Women-Drivers.com Anne Fleming., "As they gtaduatc from baseball and ballerina mom, they are seizing their new .. found freedom and buying sexy, induJgcnt ' me--mobilcs.'"28

Segment by Demographics: Income and Social Class

The distribution of wealth is of great interest to marketers bi..."Cause it determines which groups have th~ greatest buying power. Buying power can help marketers to determine

how to better match different products and versions of products to different consumer grou ps based on an understanding 0£ what discretionary and nondiscretionary alloca• tions of funds they arc able to make. After a more than so .. year run during w hich the truly wealthy just kept getting richer, tht! Great Recession took some of th!! w ind out of their sails because of heavy investment losses. While at this writing the losses have been moderated by a rebound in the stock market, that his tory of risk and volatility in investments has likely impacted the consumer bcltavior of the rich just as it has other income segments. Of course, households making $100,000 or more certainly do not in most cases come close to being part of that "truly wealthy" crowd, but marketers might ..

ily depend on their discretionary spending. Although they represent only 20 percent of U.S. households, they control more than half of all income and are far loss likely than everyone else to be restrained by tight credit markets. On average, historically tho af•

fluen t are 2.6 times more likely to make p urchases i.n general, and when they do, they spend 3.7 times morc.29

ln the past,. it was popular for marketers to consider social class segments,. such as upper class, middle class, and lower dass. Howeve:r, many con.,;umcrs buy not accord .. ing to w here they actually £all in that framework but rather according to the image they wish to pottray. ln recent years,. luxury ca r manufacture.rs such as Mercedes, BMW, and

Audi have devcloped versions of cars that are priced a t less than half the price they charge for one of their traditional models. Seeking to attract consumers who view the brands as aspirational putchases, the approach has been so successful at increasing

CHAPTER 7 I SEGMENTATION, TARGET MARKETING, AND POSITIONING 211

sales and market share that tllNlttl•gnrde electric car manufacturer Tesla unveiled a "low-c.nd"' Model ru for less than half the price of it,; roadster to compete for these: con• sume:rs, and the company can't kccp up with the demand after getting blanketed w ith preordcrs.30

Segment by Demographics: Ethnicity A consumer's national origin is often a strong indicator of his or her preferences for specific

magazines or 1V shows, foods, apparel, and leisure activities. Marketers need to be aware of these differences and sensitivities-especially when they invoke outmoded s tereotypes to appeal to consumers of diverse rac,s and ethnic groups.

African Amcricans, Asian American.,;, and Hispa11ic An\C.ricans are the largest ethnic groups in the U.S. The Census Bureau projects that by the year 2050, non-Hispanic whites will make up just Jess than 50 percent of the population (compared to 74 percent in 1995) as these other groups grow. Let's take a closer look at each of these important ethn.ic ""8ments.

African Americans make up more than 13 percent of the U.S. population.31 Many marketc.ts rt.."'Cognize the huge impact of this racial subculture and work hard to identify products and services that will appeal to these consumers. The: t·oy market is no cxcq,• ti on-children tend to gravitate toward toys and characters that look like them. The Disney TV show Doc McS11tffi11s that stars an A£rican American. character who fixes toys in her backyard clinic illustrates this appeal. The blockbuster show sold about S500 million in ,ncrchandise last year. Its success rellects demographic changes in the United States that create opportunities for a diversity of ethnic characters.32

Although their numbers are still relatively small, Asian Americans arc the fastes t• growing minority group in the U.S. Between 2002 and 2014, the Asian American pt>pu· lation gr('w by 46 _pe:rcent to reach 19.4 million individuals with an expected growth o( 150 percent betwcc.n 2015 and 2050. For marketers this segment is cspecial1y attractive given its' substantial buying power that is estimated to be close to $800 billion. An amazing fact is that this figure is almost quadruple the buying power estimated for all millennials ($200 billion)!33 Bu zzFeed makes a.n effort to court Asian .. Amcricans by publishing content on topics and experiences highly rclata.ble to this group, such as posts tailored to specific Asian subsegments like "22 Signs You Crew up with lmmigrant Chinese Pa.rents'' and "21 Annoying: Comments Filipinos Arc Tired of Hearing." This approach to delivering fresh and specifically relatablo content to dif• fcrent segments enables Buzzfecd to coMect v.rith distinct cultural groups o( Asian Americans as well as othc.r types of consumer seg-mcnts.34 It also makes Buzzfced at• tractive to marketers who want to develop content marketing that wiU resonate with specific customer groups. This term refers to the strategy of establishing thought lead• c.rship in the form of bylines, biogs, commenting opportunities, videos, sharable social images, and inlographics. A key departure is that these messages look like the kind of content that Nordinary'' people post rather than the Lraditional advertising messages consumers are used to seeing.

The Hispanic American population is a real emerging superstar segment for this decade, a segment that mainstream marketers today actively cultivati!. Hispanics have overtaken African Amcrica.ns as the nation's largest minority group.35 ln the U.S., Hispanic buying power is estimated to cxet.--cd $1.5 trillion-1 greater than 50 percent increase from where the segment's buying power was in 2010.36 In addition to its rapid growth, five other factors make the Hispanic segment attractive to marketers:

• Hispanics tend to be brand loyal, especially to products made in their country of origin.

• They tend to be highly conccntral'cd by national origin, which makes it easy to fine• tune the marketing mix to appeal to those who come from the same country.

content marketing The strategy of establi<hing thoJ.\jht leadership in the form of bylines, blog~ commMting oppommities. videos. sharable social images. and infographics.

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212 PART TWO I DETERMINE THE VALUE PROPOSITIONS DIFFERENT CUSTOMERS WANT

cultural diversity A management practice that actively seeks to ildude peopW of different sexes, races. ethnic groups. and religions in an organization's employees. custome<~ wpp6er~ and distribution channel partners.

• This segment is young (the median age of Hispanic Americans is 23.6, compared with the U.S. average of 32), which is a ttractive to marketc-rs because it is a great pottm.tial

market for youth•oricntcd products, such as cosmetics and music.

• The average Hispanic household contains 3.5 people, compared to only 2.7 people for the rest of the U.S. For this reason, Hispanic households spend 15 to 20 percent more of their disposable income than the national average on g-rocffles a.nd other household

products.

• ln general, Hispanic consumers are receptive to rc1ationship4,uiJding approaches to marketing and selling. for this reason, there are many opportunities to build loy .. atty to brands and companies by emphasizing relationship aspects of the customer cncounter.37

As with any ethnic group, appeals to Hispanic consumers need to take into account cultural diffc.rences. For example, Hispanics didn't appreciate the successful mainstream

"Cot MUk?" campaign because biting, sarcastic humot is not part of their culture. ln addi .. tion, the notion of milk deprivation i,; not funny to a Hispa11ic mother-if she runs out of milk, this means she has failed ~r family. To make matters wotSe., "Got Milk?'' translates as "Are You Lactating:?" in Spanish. Thus, new Spanish•lang:uage vltrSions were changed to "And you, have you given them enough milk today?" \'\ti th tender scenes centered on cookingj1an (a popular pudding) in the famlly kitchen. And Taco BcJJ's "Yo quicro Taco

llcll" uttering Chihuahua dog was put out to pasture years ago. It is not an overstatement to say that Latino youth are changing mainstream culture.

Many of these consumers are "young biculturals" who bounce back and forth between

hip-hop and rock en Espanol, blend Mexican rice with spaghetti sauce, and spread pea· nut butter and jelly 0 1, tortillas. In fact, we find many bicultutal Hispanics in both younger and older age groups-one study reported that fully

44 percent of the Hispanic•American population identifies as bicultural. Within that group there a.re those \'\•ho place a tvea.ter emphasis on pre• serving their heritage and those who are more. open to experimenting with it in the context of n12w cultural influences.38 One caution about the Hispanic. market is that the: term Hispanlc itself actually is a misnomer. For example, Cuban Americans, Mexican Americans, and Puerto Ricans may

share a common language, but thcir history, politics, and culture have many differences. Marketing to them as though they arc a homogeneous segment can be a big mistake. However_, the term is stiJI widely used as a

demographic descriptive. By 2020, the U.S. Census Bureau estimates, the number of Hispanic teens will grow by 62 percent, compared with 10 per .. cent growth in teens overall. They seek spirituality_, stro1,ger family ties, and more. color in their lives-three haJlmarks of Latino culture. Music

crossovers from the Latin charts to mainstream lead the L·rend, including pop idols Shakira, Enrique Iglesias, Marc Anthony, Jennifer Lopez, and

Rcggaeton sensation Daddy Yankee.

The aossoYer sensation Marc Anthony is helping to ma~ Latm musi:

An important outcome of the increase in multiethn.icity is the op• port-unity for increased cuJturaJ diversity in the workplace a.nd elsewhere.

Cultural diversity, a management practice that actively St..~ks to include people of difforcnt sexes, races, ethnic groups, and religions in an orga• nization's employees, customers, suppliers, and distribution channel

partn-crs_, is today business as usual rather than an exception. Marketing organi:zations benefit from employing people of all kinds because they bring different backgrounds, experiences, and points of view that help the

firm develop strategics for its brands that will appeal to diverse customer mainstream. groups.

CHAPTER 7 I SEGMENTATION, TARGET MARKETING, AND POSITIONING 213

Segment by Demographics: Place of Residence Recognizing that people's preferences often vary dcp,,nding on whore they live, many

ma.rkcters ta.ilot their offerings to specific geographic an."as, an approach caUcd geographic segmentation. Google Earth and other similar applications of a geographic information system (GIS) have ramped up geographic approaches to s..-gmcntation. A GIS system can dcgantly combine a geographic map with digitally stored data about the consumers in a geographic at\."Y,l. Thus, market information by geographic location is much more convc,. nient for use in market planning and decision making than evct before.

When marketers want to segment reg'ional markets even more precisely, they some,. times combine geography with demographics using the technique of geodemography. A basic assumption of gcodemography is that "birds of a fea ther flock together"- pt.'<>ple

who live near one another share similar characteristics. Sophisticated statistical techniques identify geographic areas that share the same preferences for household items, magazines, and other products. This lets marketers construct scgme:nts of households with a common

pattern of preferences. This way, they can hone in on those customers most likely to be in• tercsted in its sp,.--cific offerings, in some cases so prccisdy that families living on one block will belong to a s.:,gment, whereas those on the next block will noL

One widely used geodemographic system is PRIZM, which is a large database de- veloped by Nielsen Claritas. This system classifies the U.S. population into 66 segments based oi, various socioeconomic data, such as income, age_, racel occupation, education, and

household composition as wcll as lifestyle attributc,s that are critical to marketing stratc,.. gics, shopping patte:ms such as where they vacation, what they drive and their favorite brands, and media preferences. The 66 segments range from the highly affluent "Upper

Crust" and "Blue Blood Estates" to the lower-income ''llig Oty Blues or ''u,w-Risc Living" neighborhoods.

Herc arc a few thumbnail sketches of different segments of relatively younger con·

sumcrs a marketer might want to reach depending on the specific product or service he or she sells:

• Youug Digemli arc tech-savvy and live in fashionable neighborhoods on the urban fringe. Affluent, highly educated, and ethnically mixed, Young Digerati comn,unitles are typically filled with ITendy apartments and condos, fitness clubs and clothing bou· tiques, casual restaurants, and all types of ba.rs--from juice to cof/cc to microbrew. The

Young Digerati are much more likely than the average American consumer to shop a t Bloomingdalc's_, travcl to Asia, read Du1ell1 watch the fndependcnt Film Channel, and buy an Audi A3.

• Kids & Cul.Jt-Sacs are uppt?r .. middlt,dass, suburban, married couples with chiJdren-

that's the skinny on Kids & Cul-de-Sacs, an enviable lifestyle of large families in recently built subdivisions. This segment has a high rate of Hispanics and Asian Americans. Lt is also a refuge for coll~gc.eclucatcd, white<ollar professionals with

administrative ;obs and upper--,middlc.class incomes. Thcir nexus of education, af• iluence, and children ITanslates into large outlays for child<entcrcd products and services. They are much more likely than the average American consumer to order

from target.com, play fantasy sports, read Pareuts magazine, watch X Games, and buy a Honda Odyssey.

• S1totg1111s & Pickups came by its moniker honestly: it scores near the top of all lifestyles for owning hunting rifles and pickup trucks. These A.mc.ricans tend to be young.. working.class couple:s with large: families, living in small homes and manufactun.""<i

housing. Nearly a third of residents live in mobile homes, more than anY'vhc.te: clsc- in the nation.. They are much more likely than the average American consumer to order from Mary Kay, own a horse, read four Wlteeltr, watch Maury, and drive a Ram diesel

pickup.

geographic segmentation An approach in 'Ntich marktters tailor their offerings to specific geog,~ic areas because people's preferences ohen vary depending on where they li,e.

geographic information system (GIS) A system that combin,s a geographk map with digitafly stored data about the consumers in a pania.Aar geographic area.

geodemography A segmentation techllique that combines geography vath demogr~ic:s.

214 PART TWO I DETERMINE THE VALUE PROPOSITIONS DIFFERENT CUSTOMERS WANT

Metrics Moment It should be dear from your reading that geodemographic and related Oj)proaches to segmentation can be powerlul and allow for a high level of precision in identifying potentially fruitful segments to target. When it comes to metrics. good data about the characteristics of the various con· sumer segments that you IDii!'f wish to ultimately target is critical because targel marketing is uttimatety a strategic investment of resources in the segments that appear to have the best return on investment

2. (tick on Zip Code lookup, and then type in your own ZIP code aloog with the provided security code, then dick SUBMIT.

3. Several segments should then come up that comprise your ZIP code. (tick on each for more detail

4. You will also see some quick facts in a box that further describe some basic demographics of your ZIP code (population, median age. me· dian income. and consumer spend total and per household).

To make the power of the geodemographic technique and resuhing information for decision making come alive, fet's try a demonsuation of the PRIZM database that geis dose to home.

5. What is your reaction to the segment profiles and Ol.her information about your ZIP code? Are you SUipfised with the result~ or was it vmat you expected?

Apply the Metrics

1. Go to the Nielsen My Best Segmems website (search f0< the phrase •Nielsen My Best Segments· website on any search engine).

6 . Gi\•en the profile provided. what sort of products and services do you think ate most likely to be particularly attractive to the segments represented?

geotargeting Detennining the geographic location of a website visitor and d~ivering different comem to that visitor based on tis or her location.

micromarketing The abifity to identify and target ,ery small geographic segments that sometimes amooot to ildividuals.

psychographics The use of psychological sociologica( and anthropological factors to construa market segments.

One interesting specific approach to location-based targeting is geotargeting, which in lntcmc-t marketing refers to determining the geographic location of a website visitor

and de.livering different content to that visitor based on his or her location, such as country, n..~on/statc, city, metro code/ZIP code, organization, IP address, Internet service provider (ISP), or other cri tc.ria.39 Campari America, for instance, targeted consumers who we-re between the ages of 21 and 34 while they were in ncighbomoods with a high proportion or bars and restaurants during times when consume.rs are known to have a few drinks, using a promotion for S5 of! or a fu ture ride using the ride-sharing app Lyft. The deal was ofiered

through specific mobile apps that this targeted segment is known to use while out un\>itind• ing a t restaurants and bars. 11,e overall intention of the campaign was to both promote responsible behavior while out drinking and to increase awareness and favorable attitudes

toward Campari and some or its staple brands of alcohol. More than 20 percent of those who rcccivcd the offer d,ose to accept it_, a high rate of acceptanre by d igital advertising standards. 40A 1

Ultimately, highly precise gcodemographic segmentation enables marketers to practice micromarketing, which is lhc ability to idc.nti.fy and

target small geographic segments that sometimes amount to just one or a few individuals-a capabiJ .. ity you read about in Chapter 5 that we referred to as one,.to-onc marketing.

Segment by Psychographics

Demographic information is useful, but it does not a lways provide enough information to divide consumers into meaningful segments. Although

we can use demographic variables to discover, for example, that the female college student s,,gment uses perfume, we won't be able to tell whe ther cer ..

ta.in coUege women prefer perfumes that express an image of_, say. sexiness rather than athleticism.

A Halley rider's polile incb!es both thrill-seeking and aflnly for a cruntercullu~ iltage (at least on weekfflls).

As we said in Chapter 6, psychographics seg .. ment consumers in te.rms of psychological and

CHAPTER 7 I SEGMENTATION, TARGET MARKETING, AND POSITIONING 215

behavioral similarities,. such as shared actlvities,. interests, and opinions, or AJOs . .u Marketers often dcvclop profiles of the typical customers for whom they desire to paint a more vivid picture. AJthough some marketers and their creative agencies devcJop their

O\'o'Jl psychographic techniques to classify customers, others subscribe to services that dia vidc the entire U.S. population into segments and then provide this information to clients for use in proprietary marketing project applications such as strategy planning. The best

known of these systems is VALS'", which is a product of Strategic Business Insights (SB!). VALS'" ruvides U.S. adults into eight groups according to what drives them psychologi• calJy as well as by their economic resources.

Ono segment that combines a psychographic/lifcstyle component with a heavy dose of generational marketing is the gamer segment, sometimes referred to as the gamer gcncratio:n- "gamc.r" as in "video games/ of course. This group grew up playing video

games as second nature for primary recreation, and as they have cnteted college and the workforce, they continue to carry many gaming sensibilities with them. Video gam• ing is clearly a lifestyle, and much as the company Google turned into the gent:ric verb

" to google" in lhc 2000s, in this decade the buzz term du jour is gnnrificatiou, which, as we saw in Chapter 6, is a strategy in which marketers appJy game design techniques, often by awarding points or badges to nongame experiences, to drive consumer bchav• ior (e.g., the gamificat.ion of practice exams where you might earn badges for getting right a.nsweTs and 1noving to the next level o( difficulty in your homework). And, by the way, just in case you didn't know, a badge is some type of milestone or reward a

player earns when he or she progresses through a gamificd application. If you'vt:' ever chmed into Foursquare and earned a badge for a (dubious) achievement like "Gym Rat,'' "Overshare," or even ,,.Crunkcd," you know how th.is works. Marketers would

be wise to think about what sorts of badges might appea1 to the gamer segment a.s they become more and more engaged as consumers who arc highly likely to do much of their shopping online.

Segment by Behavior

People may use th12 same product for different reasons, on different occasions, and in differ•

ent amounts. So, in addition to demographics and psychographics, it is useful to study what consume.rs actually do with a product. Behavioral segmentation slices consumer segments on the basis of how they act toward, feel about.,or use a product. One way to St.....,gtnent on the basisofbcha\1ior is to d ivide the matket into users and nonusers of a product. Then marketers may att~pt to reward cum."'nt US4!l'S or try to win over new ones. ln addition to distinguish· ing between users and non,,users, marketers can describe current customers as heavy, moder•

ate, and Light users. They often do this according to a rule of thumb we caU the sono Rule: 20 pe=ntof purchasers account for81l percent of the product's sales (the ratio isan approxi• mation, not gospel). This ru.Je means that it often makes more sense to focus on the smaller nwnbero( people who arc really iJ\toa product rather than on the larger number who arc just casual US4!1'.S.

Starbucks l'l.-cently chose to redefine its loyalty program to better reward consumers

who spend more with the company, in contrast to the old structure that rewarded consum• crs for the number of transactioi,s they made. Consider, for instance, that before the change a customer who bought a tall coffee n."Ceived the same number of sta.rs as a customer who

purchased a VCJ\ti white chocolate mocha and a breakfast sandwich-clearly a big differ .. once in revenue generation for the firm. Although the change to Starbucks' loyalty program n..~ived a fair amount o.f initial negative feedback (presumably from those customers who

will not benefit as g·reatly under the new terms of the program), industry analysts view the move as smart in the Jong term because it will ultimately enable Starbucks to offer greater rewards to its most valuable customers (those who spend more through larger purchaSL:.s while also purchasing more frequcntly).43

VALS,....

A psychographic segmenration system that divides U.S. adults ilto eight groups according to what dr~es them psychologically as well as by their economic resources.

gamer segment A consumer segment that combines a psychographio1ifestyie component v.ith a heavy dose of generational mart.ting.

badge A milestone or reward earned for p,ogres.sing throug, a video game.

behavio ral segmentation A technique that divides consumers into segments oo the basis of how they aa toward, feel about, or use a good or service.

80/20 Rule A marl:eting nk of lhumb that 20 percent ol purchasers accoum foe 80 percent of a produa 's sales.

216 PART TWO I DETERMINE THE VALUE PROPOSITIONS DIFFERENT CUSTOMERS WANT

A related concept to the 80/20 Ruic in rehav• ioral SL""gmootation L,; usage rate, which reflects

the quantity purchast.'Cl or frequency o( use among

consumers o( a particular product or service. The entire travel and hospitality industry cultivates high users through thcir loyalty programs, such

as American Airlines AAdvantagc or Marriott Rewards. The high-use segment is often incn.>dibly profitable over the long run

The Bi!more Estate in ~ lie, North C.a:rolina. increased attendance durilg its annual Christmas celeaa!ion as part of a strategy 1D segment by usage occasion. The estate's rnan<etas del'<lqled lour separate slralegies 1D t!wgel different 1)'pes of visitors, including heavy users who ha',e made

Although the 80/20 Ruic s till holds true in the majority of situations, lhe: lntcmct's ability to orrcr an unlimited choice of goods to billions of

people has changed how marketers think about scgmentatiol\. An approach called the long tail turns traditional thinking about the virtues of scll·

ing in high volume on its head. Thi! basic idea is that we l\ccd no longer rcly solely on big hits (like blockbuster movies or best-selling books) to Hnd

profits. Companies can also make money when they sell small amounts of items that only a few a 0,,-istmas Jilgrimage an annual family lra<ition.

usage rate A me-asurement that reflects the quantity JXlrchas,d or frequency of use among consumers of a particular produa or service.

long tail A new approach to segmeatation based on the idea that companies can make money by selling smaU amounts of items that only a few people want, provided they sell enough different items.

usage occasions AA indicator used in behavioral market segmentation based on when consumers use a p,'oduct most.

people want-ii they sell enough different items.

For many companies the selling of digital products that can be transferred to purchas• ers through an lnte:rnet connection helps to support a Jong tail approach because it n..--duccs the cost of storage of products and aUows for the fulfillment of consumer demand on an

as-needed basis. Amazon, the Apple iTunes Store, and the Google Play Store arc prime ex• amplcs of sites that arc set up to be able to benefit from the large a.nd small sales of a widi?r array or goods, which should also benefit both the big and small sellers that offer products

through their platforms. Another way to segment a market on the basis of behavior is to look at usage occa~

sions,. or whe1, consumers use the product most. We associate many products with Sf>C• cific occasions, whethct time of day, holidays, business functions, or casual gct-togethers. Businesses often divide up thcir markets according to when and how their offerings are in demand. Ruth's Chris Steakhouse is by far the market leader in the high-end s teak restau•

rant category featuring USDA Prime Beel as its' s ignature dish. Ruth's is wcll aware that it is a spocial..o,ccasion localio1'1-Sraduations, birthdays, promotions, you name it-and folks want to celebrate a t Ruth's. And they arc aU too happy to accommodate, oft'en surprising

guests with special table decoratio.,s for the occasion and a nice dessert ttcat, compliments of the chef.

And in the online space., Google enables it:s advertising clients to target rertain ads

to certain segments of search engine users bast."() on data such as Cooglc domain, query entered, 11' address, and language: preference. This way, companies can have Google auto,. matically sort and send the intended ad to ccrta.in market segments. Thus, it is possible for

advcttiscrs on Google to tailor their automatically targeted ads bast.")(j on seasonality- you will see more TurboTax ads on Google pages during tax season, even if people aren't quc• rying tax software.""

Segment B2B Markets We've reviewed th12 segmentation variables marketers use to divide up the consumer pie, but how about all those B2B marketers out there? Adding to what we leamcd about business markets in Chapter 6, it's important to know that segmentation al.so helps them better understand their customc.rs. Although the specific variables may differ,

CHAPTER 7 I SEGMENTATION, TARGET MARKETING, ANO POSITIONING 217

the underlying logic of classifying tho larger market into manageable pieces that share relevant characteristics is the same whether the product you sell is pesto or pesticides.

Organizational demographics are organization•specific dimensions that marketers

use to describe, classify, and organize different organizatio1'lS for the purpose of segment• ing business-to-business markets. Organiutional demographics also help a 826 marketer understand the needs and characteristics of its potential customers. These classification di· mensions include the size of the firms (either in total sales or in number of employees), the number of facilities, whether they an~ a domestic or a multinational company, their pur .. chasing policies, and the type of business they arc in. B2B markets may also be S<.>gmented

on the basis of the production tcch.nology they use and whether the customer is a user or a nonuser of the product.

Many industries use the North American Industry Classification System (NAJCS)

we discussed in Chapter 6 to obtain information about the size and number o( companies operating in a particular industry. B28 marketers oftc.n consult general in• formational business and industry databases on the web, such as Hoover's or Yahoo!

Finance for insight and up•tMatc information on private and public companies worldwide.

7.3 Step 2: Targeting We've seen that the first step in a target marketing strategy is scg• OBJECllVE mcntation, in which the firm divides the market into smaller groups Explain how market- that share certain characteri,:;tics. The next step is targeting, in which

ers evaluate seg· ments and choose a targeting strategy.

(pp. 217-220)

marketers evaluate the attractiveness of each potential segment and

decide in which of these groups they wW invest resources to try to tum them into customers. The customer group or groups they select are the firm's target martc.et, which, as you learned in Chapter 1, is the

segment(s) on which an organization focuses its marketing plan and toward which it din.c--cl,:; its marketing efforts.

ln this section, wc'U review the three phases of targeti~ evaluate market segments,

develop segment profiles, and choose a targeting strategy. (& figure 7.3 illustrates these thrccphas,,s.

Phases of Targeting

Phase 1: Evaluate Market Segments

organizational demographics Organization-specifK dimensions that can be used 10 describe, c'4sslfy, and "'9ani2e diffe<em organizations for the purpose of segmenting business·to-business markets.

targeting A strategy in which marketers evaluate the anractivenes.s of each potential segment and decide in which al these gr"'4)S they witl invest resources to try 10 tum them into customers.

target market The market segments oo which an organization focuses its malteting plan and toward v,ndi it directs its marketing efforts.

Just because a marketer identifies a segment does not neccssariJy mean that it's a

useful target. A viable target S<.>gmcnt should satisfy the following requirements:

• Art members of tltt segment similar to tacit other in their produd needs and watt ls and, at llte same lime, diffi'"nl from cousumers in olhl'f segments? Without real difforences in consumer needs, firms might as well use a mass•marketing strategy. It's a waste of time to dc\lclop two separate lines of skin care products for working women and nonworking women if both segments have the same complaints about dry skin.

Figure 7 .3 Gfj Process I Phases of Targeting Targeting invotves thtee distinct phases of activities.

• Can marketers uu'llSurt lite St.~tttt"'ttl? Marketers must know something about the size and purchasing power of a potential segmenl before lhcy docidc if it's worth their efforts.

• ls Ille segmmt large enougl1 to be profitable mr@ and iu the future? For ex• ample, a graphic design~, who hopes to design web pages for Barl>ic-doll

Evaluabo Market Sagmants

Choose a Targeting Strategy

l •

218 PART TWO I DETERMINE THE VALUE PROPOSITIONS DIFFERENT CUSTOMERS WANT

segment profile A descrip<ion ol the "!jpical" customer in a segmeru.

undifferentiated targeting strategy Appealing 10 a broad spectrum of people.

collectors must decide whether there ate enough hard<arc aficionados to make this business worthwhile and whethc-r the trend wilJ continue.

• Cau marketing conmt1111icatio11s reach lhe segment? Tt is easy to select TV programs or magazines that will efficiently reach older consumers, consume.rs with certain levels

of education, or residents of major cities because the media lhey prefer are easy to identify. However, it is unlikely that marketing communications can reach only left• handed blondes with multiple piercings who listen to Taylor Swift ovcrdubb..>d in

Mandarin Chinese.

• Cau the marUter adequately se~ Jhe tieeds of the segmeut? Does the firm have the expertise and resources to satisfy the segment better than the competition? Some years ago, consumcr .. products manufacturer Wamcr•l.am.bert (now a part o( Pfizer)

made the mistake of trying to enter the pastry business by purchasing Entenmann's Bakery. Entcnmann's sells high-end boxed cakes, cookies, pastries, and pies in super• markets. Unfortunately, Wamer-,lambert's expertise a t selling Listerine mouthwash

and lrident gum did not transfer to baked goods, and it soon lost a lot of "dough" on the deal.

Phase 2: Develop Segment Profiles

Once a marketc, identifies a set of usable segments, it is helpful to generate a profile of each to really understand segmc.nt members' needs and to look for business op• portunitics. This segment profile is a description o( the "typicaJ" customer in that

segment. A segment profile might, for example, include customer demographics, location, lifestyle information, and a description of how frequently the customer buys the product. When the marketers of General Mills' product Hamburger Helper de•

cidcd to larget cash-strapped millonnials, they had to adjusl the image they presented on social media. On one April Fools' Day, the packaged food company announced through social media the release of a mixtape titled "Watch the Stove" containing five

light•heartcd Hamburger Helper- themed rap songs created by a group of college stu .. dents a t McNally Smith's College of Music. The mixtapc was well received_, and was played more than 270,000 times on SoundCJoud by 5 P.M. on the day of release. One

of the compa1,y's marketing communications planners describes the target segment of consumers as "a young, urban, millc.nnial guy making Hambu rger Helper in his dormroom."45

Phase 3: Choose a Targeting Strategy

A basic targeting decision renters on how finely tuned the target should be: Should the company go after one large scgmmt or focus on mecting the needs of one: or more smaller segments? ~t's look at four targeting strategies, which

~ Figure 7.4 summarizes. A company like Walma.rt that selects an

undifferentiated targeting strategy appeals

lo a broad spectrum of people. If successful, this type of operation can be c.fficient because production, research, and promotion costs benefit from economies of scale-it's cheaper to develop one product or one: advertising campaign than to choose several targets and

create separat·e products or messages for each .

Volkswagen reminds us that the same product won't-.oc!< IOf ""')'000.

CHAPTER 7 I SEGMENTATION, TARGET MARK ETING, ANO POSITIONING 219

Undifferentiated Marketing

Differentiated Marketing

Concentrated Marketing

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0

Customized Marketing

But the company must be willing to bet that people have similat needs so that the same product and message wilJ appeal to many customers.

Aoompany that chooses a d;fferentiated targeting strategy develops one or more prod· ucts for each of several customer groups with difftmmt product needs. A diffottntiated strategy is called for when consumers choose among wcJJ•knO\\'l\ brands that have distinc• tivc images, and the company can identify ant? or more segments that have distinct needs for different types of products.

Despite its highly publicized product safety issues in 2014, CM historically has been a leader in differentiated strategy with distinct product lines that satisfy the needs of multiple customer groups. lts Cadillac and Buick product Hnes cater to consumers who want luxury. The Chevrolet Volt hybrid provides value to drivers who want to save gas money and the eM'ironmenl. And finally, the CMC product line appeals to

F;gun, 7 A 't6l SnapshDI I Choose a Targeting Strategy

Mafketets must decide on a tatgeting s1rategy. Should the company go alte< one total market. ooe o, seve,al market segments, ot even tatget customel'S indMdually?

differentiated targeting strategy Developing oo• a m0<• products far •am of several distinct custome, groups and mak;ng sure these offerings are kept separate in the martetp!ac~

220 PART TWO I DETERMINE THE VALUE PROPOSITIONS DIFFERENT CUSTOMERS WANT

drivers who need an everyday truck, crossover, or SUV that is both depe.ndable and stylish.

Difforc.ntiatcd marketing can also involve col\necting one prod· uct with multiple segments by communicating differently to ap• peal to those segments. Again using the venerable "Got Milk?" campaign as an example_, one of the campaign's most classic ads foaturcd Aerosmith's Steven Tyler to appeal to both aging boomers who goL into the band in the 1970s and Ce:n Ye.rs who discovered the band in the 1990s as a result of Run-DMC's remake of "Walk This Way" as wcll as Tyler's resurgence during his tun as a judge on American Idol.

Blacl<socks practices a highly ccn:entrated targeting strategy.

When a firm offors one or more products to a single segment, it uses a concentrated targeting strategy. Smaller firms that do not have the resources or the desire to be aU things to all pt?ople often do this. The company GreatCall Wirclcss develop~d a ce:Uphonc: known as the Jitterbug back in the mid•2000s. This product ran counter to the trend toward increasingly Lechnolog;ically soph.isticatai. cell phones (and smartphoncs) by offering a Oip cellphone with fewer and larger buttons, as well as a focused range of capabilities. The original Jitterbug was primarily targeted toward seniors with a de. sire for a simpler communication device. But over the years it has

concentrated targeting strategy f-ocusing a firm's effons on offering one ot more p-oducts to a single segment.

customized marketing strategy AA approach that cailors specific produC1S and the messages about them to individual customers.

mass customization AA approach that modifoes a basic good a service to meet the needs of an individual

evolved to offer options including a mod.cl that "resembles" a smart• phone in appt.-arancc (important for today's seniors to "look hip") but with a stream .. lined range of choices on its touch screen interface and features such as an urgent care button that are of particular value to this older segment.46

Ideally, marketers should be able to define segments so precisely that they can of• for products that exactly mcct the unique n..,,ls or each individual or firm. This levd or conet.'.>fltration does occur (wt:' hope) in th!! case of personal or professional services Wt:' get from doctors, lawyers, and hairstylists. A customized marketing strategy also is common in industrial contexts where a manufacturer often works with one or a few largi.:> clic1'1s and develops products that only these clients will use.

Of course, in most cases this level of scgmc.ntatio.n is neither practical nor possible when mass.produced products such a.s computers or cars enter the picture. However,

advances in computer technology, coupled with the ne.w emphasis on building solid relationships with customers, have focused managers' attention on de• vising new ways to taHor specific products and the me:ssages about them to individual custom('rs. 1n fact, some entrepreneurs arc working on the possibility of using new 3-0 printing technology to let you print your own car.47 This is an ext.remc example of the growing trend of mass customization, where a manufacturer

New 3·0 printing technology alov,s ocnsumers to literally print their own car.

modifies a basic good or service to meet an individuaJ's specific nccds . .m Levi Strauss was a pionce:r in this area. Company researchers found that 80 percent of women around the world fall into three distinct body shapes, so it's physicaJly impossible to offc.r a onc...si.zc,.fits-all product. The Levi ·s CURVE JO program employs an interactive custom fi t experience to tell a customer whether she should buy a Slight Curve, Demi Curve, or Bold Curve version o( the j~ans.49

CHAPTER 7 I SEGMENTATION, TARGET MARKETING, AND POSITIONING 221

7.4 Step 3: Positioning positioning

OBJECTIVE

Recognize how mar· kete<s develop and

The final siage of dcvcloping a target marketing strntegy is to provide consumers who belong to a targeted market segment with a good. or service that meets their unique needs and expectations. Positioning means developing a marketing strategy to influence how a particular

implement a position· market segment _perceives a good or service in compariso,, to the com• ing strategy. petition. A key word in this definition is perceivtS- that is, positioning

is in the eye of the beholder.

Del/eloping a matketing suategy to influence how a particular market segment perceives a good or service in comparison to the co~tition.

(pp. 221 - 225) A firm may truly b<,lievc that its customers think about its offer•

ing in a ce.rtain way, but unless 1narket research bears this out, what the marketer "thinks" d0t.--sn't matter as it is trumped by what the consumer perceives. To position a brand, marketers must clearly undcr.,"tand the criteria target consumers use to evaluate competing products and then convince them that thcir product, service, or orga• niz.1:tion will mt.---et those necds. ln addition., the organization has to come up with a p lan to

communicate this _position to its target market Positioning happens in many ways. Sometimes it's just a matter of making sure

that cool people use your product-and that otht:rs observe them doing this. After find• ing out that a close friend was flying to Los Angeles to audition for the film Any Civeu

Sunday, the president of the h.igh•performance sportswear company Under Armour sent along with him a. bunch of free samples of its athletic wear to give to Lhc film's casting director as a gilt. The director liked the quality of the clothes so much that he gave them

to the wardrobe co.mpany the filmmakers hired, and they also really liked the clothes. The next thing you know, the movie (st>rring Al Pacino and Jamie Foxx) featured both the actors wearing Under Armour dothes on screen-and then~ was even a scene in

the film when Jamie Foxx undressed in the locker room with a clear shot of the Under

Ripped from the Headlines Ethical/Sustainable Decisions in the Real World Candy companies have received scrutiny in the past for advertising diiectly to children, given the widely held belief that children aie more impressionable and more susceptible to advertising than oldei groups. Recent massive publicity about childhood obesity, diabete~ and dental impacts because of too much sugar haven't helped mattefs any for candy marketers.

Determining whether an adve<tisement is directed to a partirular segment is a som.,.,;,a, subjective exacis~ which creates v.ord games between adver- tisers and regulators as to whether a partK.'Ular advertisement is ·directed" to ~ this case) childreri. The vagueness of this situaoon also poteritial~ provides room for unscrupulous rnarkete<S to make a pledge to do one thing when in rea.Hty they plan oo doi,g another without technically faiing to horor their pledge (whether this is true in the candy company example is foe them to say).

In 2007 the Chidren's Food and Beverage Advertising Initiative {CFBAI) was launched to help move the food and beverage industries toward creating advertising messages for children {defined as individu- als unde< the a<Je of 12) that promote healthier products and generally healthier nutritional habits.. so Despite the launch of this initiative and some candy companies pledgjng to reduce 01 altogether eliminate their marketing effons directed toward children, a research study found that between 2008 and 2011 children's exposure to ads foe candy actually went up 74 percent along wnh evidence that candy ads children were expoM'd to peripherally {that i~ not SjlecifKally directed to a chief) also increased.51

lo 2016, soon after Easter passed, a large number of major candy companies announced that they would no longer advertise directly to children. These companies include the Fe<rara Candy Company, Ghirardelli Chocolate Company, Jelly BeUy Candy Company, Just Born Quality Confections. Promotion in Motion Inc., and the R.M. Palmer Company. This announcement was quickty praised by candy industry oversight groups.s2 But the extent to which this announced decision acrualty reduces the amount of candy-related market· ing directed at children (as well as peripheral exposure of candy advertising} remains to be seen.

EllOCS Cl!ECK: "-

Should Clltdy com- panies be alowed l) advertise dlteclly Ill children?

0 YES O NO

222 PART TWO I DETERMINE THE VALUE PROPOSITIONS DIFFERENT CUSTOMERS WANT

Figure 7.5 ~ Process ( Steps in Positioning

Four key steps comprise the decisk>n•mak.ing ptocess in positioning.

Armour logo on Ms jock strap. Afte:r the movie's release, hits on Under Armour's website spiked, and, a~ they say, the rest is history.53 More recently Under Armour was able to sign NBA phenom Stt:.,'hen Curry to an endorsement deal that has benefitted the brand enormously as a result of Curry's popularity and meteoric success on the court The company's CEO in a recent earnings call spoke about-(among other things) hmtit the footwear division saw a 95 percent increase-

in sales from the same period in the prior year. The reason he gave for the signi!i• cant increase in sales within (oot\\l'ear: Stephen Curry's popularity. One analyst on WaU Street believes Curry a.dds S14 billion to the value of Under Arm.out's

outstanding shares of s tock. 54

Step 1: Analyze Competitors' Positions

Step 2: Define Your Competitive Advantage

' Step 3: Rnallu the Marketing Mix

Step 4: Evaluate Responses and Modify as Needed

positioning statement An expression of a produa's positioning tha1 is internally developed and maintained in order to support the development of marketing cormu..l'lication that artirulates the spedic value offered b\' a pcoduct.

steps in Positioning ~ Figure 7.5 shows the steps marketers go through to decide just how to po· sition thcir product or service: analyze competitors' positions, offer a good o.r service with a compct:itivc advantage finalize t:hc marketing mix, and evaluate responses and modify as needed. Let's take a closer look at each of these posi· tioning steps.

Step 1: Analyze Competitors' Positions

The firs t stage is to a.naJyzc competitors' positions in the marketplace. To develop an effective _positioning strategy, markctcts must understand the current· lay of the

land. What comf)('titors are out thc:re, and how does the target market: pe.rccive them?

Aside from d.irect competitors in the product catcgo11~ arc there other goods or sctViccs that provide similar benefits?

Sometimes the indirect competition can be more important than the direct, especially

if it represents an emerging con.,;ume.r trend. For years, McDonald's developed posi .. Honing strategies based only on its direct competition, which it defined as o ther large fast-food hamburger chains (translation: Burger King and Wendy's). McDonald's /ailed

to realize that in fact many indirect competitors fulfilled consumers' needs for a quick, tasty, convenient meal- from supermarket delis to frozen microwavable single.-serving meals to call-ahead takeout /ro,n !ull-s.,rvice restaurants like Appleb<!C's, T.G.L Friday's, Outback, and Chili's-aU of whom have convcnie-nt curbsjde service instead of backed·

up drive-through lines. Ultimately, McDonald's began to understand that it must react to this indirect competition by serving up a wider variety of adult•friendly food and shoting up lagging service. These days the company also offers its McCafe concept, with coffee products aimed squarely at taking business away from morning mainstays Starbucks and Dunkin' Donuts, along with a tasty breakfast menu all day long to compete in a brand-

new spacc.

Step 2: Define Your Competitive Advantage

The second s tage is to offer a good or service with a competitive advantage to provide a

reason why consume.rs will perceive lhc product as better than the competition. Toward this end, a positioning statement can he.Ip the company frame intcmaUy how a product is _positioned so that any as.o;ociated marketing communication remains focused on articulat•

ing to consumers the S!""'ilic 00/11, offered by a product. Positioning s tatement< typically include the segment(s) to which the product is targeted, the most important claim (dif• forentia tor) to be attributed to the product for the targeted scgment(s), and the most im•

portant piece o( evidence that supports the claim made about the product ff the company offers only a "mc,.too product," it can induce people to buy for a lower price. Other forms of competitive advantage include offering a superior image (Giorgio Armani), a unique

product feature (Levi's 501 button·fly jeans), better service (Cadillac's road,;ide assistance

CHAPTER 7 I SEGMENTATION, TARGET MARKETING, AND POSITIONING 223

program), or even bettor-qualified people (the legendary salespeople at Nordstrom's de- partment stores).

Step 3: Finalize the Marketing Mix

Once they settJc on a positioning strategy; the third stage for marketers is to finalize the marketing mix as they put all the pieces into place. The clements of the marketing mix must match the selectOO segment. This means that the good or service must deliver ben· cfits that the segment values, such as coiwenicncc or status. Put another way,. it must add value and satisfy consumer needs (sound familiar?). -Furthermore, marketers must price

this offering a t a le\•cl U,ese consumers will pay, make the offering available at places they

are likely to go, and correctly communicate the offering's benefits in locations where these targets arc likcly to take notice. 1n other words., the positioning s trategy translates int-o the organization's marketing mix that we discussed in Chapter 1.

Beginning with O,apter 8, au the remaining chapters in the book provide you with the details of developing strategics for cad, clen>cnt of the marketing mix: produc~ price, physical distribution, and pro.motion. The sum of these individual marketing mix s trate•

gics results in the overaU position.ing strategy for your offering.

Step 4: Evaluate Responses and Modify as Needed

In the fourth and finaJ stage, marketers evaluate the tacgct market's re- sponses so they can modify strategics if necessary. Ov<>r time, the firm may Find that it needs to change wNch segment,; it targets or even alter a

product's position to respond to marketplace changes. Consider Utis das• sic example: Both TCI Fridays and Jack Daniel's an, vc.nerablc brands in St..'}larate market spaces. But like peanut butter and chocolate in the case of

a Reese's peanut butter cup, Fridays and Jack Daniel's partnered to create a set of new menu items like the Jack Da.n.iel's{b Burger which repositioned

TGIF fro,n •your father's restaurant" to a hipper place for the younger ur• ban crowd.

repositioning Redoing a pradua's position to respond to marketplace changes.

retro brands A once-popular brand that has been revived to experience a popularity comeback, often by riding a w;r,e of nostalgia.

A change in positioning strategy is reposit io ning_, and it's fairly common to sec a company try to modify its brand image to kec-p up with changing Hmes. Take as an example Charles Schwab, which used to be pegged primarily as a sc.lf-se.rvice stock brokerage. Competition in the budget broker business, especially from online brokers, prompted Sch,,.•ab's repositioning to a full•linc, full•servicc hJ,ancial services firm

that still pays attention to frugal prices for its services. Think of it this way: Tiie.rc's not much value Schwab can add as one of a dozen or more

onJine providers o( stock trad~. ln that environment, customers simply will view the firm as a commodity (i.e., just a way to buy stocks) with no real clifforcntiation. Schwab still has its no-frills products, but the real

growth in sales and profits comes from its expanded product lines and provis.ion of more information-both onlinc and through personal sell• ing- that warrant higher foes and build deeper customer relationships.

Repositioning also occutS when a marketer revises a brand thought to be inextricably past its prime. Sometimes these products rise Like a phoenix from the ashes to ride a wave of nostalgia and return to the marketplace

as retro brands-venerable: brands like Oxydol laundry detergent, Breck Shampoo, Ovaltinc cereal, Frontier airlines, and Tab cola a.LI are examples of brands that were nearly forgotten but got a new lease on Hfe.55

Three guys buLlt a powerful community through Faccbook called the SURGE Movement to bring back the carbonated beverage that had some

The Solle Beverage Company srarted in Miami's South Beach (heoce the name ·So-Be') in 1996 when the fotn:iers saw a lizard on the art deco l~de ol lhe Abbey Hotel, aro the resl is listory. SoBe has maslertully executed 1he process ol ""1T1enlation, large! marketing. and positi:Jniog )(lU've read alxJut in this chapter and today boasts an amazing brand and product line that appeals to a definitive set of demographic/ps\dlographic largets.

224 PART TWO I DETERMINE THE VALUE PROPOSITIONS DIFFERENT CUSTOMERS WANT

brand personality A dist~tive ima~ that captures a good's or service's character and benefits.

brand anthropomorphism The as.sig001ent of hwnan charaaeristics and qualities to a traod.

perceptual map A tedm""e to visually describe where brands are '"located" in coosumers' minds reiative to co~ting b<and<

popularity in the 1990s but had been out of production for over a decade. The group amassed a large foUowing of active supporters (more than 300,CJOO people support the Facebook Cause page) and worked fervently to let the Coca.Cola Company, the creators

of SURGE, know about their love for the product. The SURGE Movement's efforts ulti• mately were successful and now the three founders of the movement are working hard to make sure the c.ffott doesn' t lose any steam and that SURGE tcmains a viable product into the fututc.56

Bring a Product to Life: Brand Personality ln a way, brands arc like people: We often describe thc.m in terms of personality traits. We

may use adjecth1es such as clu.'tlp, tlegaul, sexy, or cool when we talk about a s tore, a per-- fume, or a car. That's why a positioning strategy often tries to create a brand personality for a good or service-a distinctive image that captures its character and bc.ncfits. An ad· vertisement for Elle, an amazingly chic fashion magazine for women, proclaimed, 1'She is not a reply card. She is not a category. She is not shrink•wrappcd. Elle is not a magazine. She is a woman . .,

One o( the more c-ffoctive ways to give a brand a personality in the minds of con.sum• ers is to engage in deliberate marketing actions that make the brand seem more human. The phenomenon of attributing to a brand human characteristics is known as brand a n• thropomorphism and it can be seen in action when, for instance1 a brand's Twitter account

makes a quirky comment in reply to someone's tweet (that is, "humanizing the brand through a response") or through the inte:raclions of a brand's mascot in a commercial. The

Pillsbury Doughboy, who has been active in advertising for more than 50 years, is a prime example of the latter with his friendly demeanor and the trademark giggle he lets out when poked in the belly that hclp shape consumer perceptions of the brand. 57 We'll talk a

lot more about brands in Chapter 9. Products as people? It seems funny to say, yet marketing researmers find that most

consumers have no trouble describing what a product would be like "if it came to life." People often give cleat, detailed descriptions, including what color hair the product would have, the type of house it would live in, and even whether it would be thin, OV\!r\'leight, or somewhere in bctwcen.58 U you don't believe us, try doing this yourself.

Part of creating a bra.nd personality is to develop an identity for the product that the target matket will prefer over compeHng brands. How do marketers dctc-rmine whc.re their product actually s tands in the minds of consumers? One solution is to ask consumers what

characteristics a.re important and how competing alternatives would rate o,, these att-ti· butcs1 too. Marketers use this information to construct a perceptual map-a vivid way to construct a picture of where products or brands are "located.'' in consumers' minds.

For example, suppose you want to develop an idea for a new publication that will ap• pca.J to American women in their twenties. You mjght constn1ct a perceptual map of how these target customers perceive the magazines out there now to help you devclop an idea

for a new publication they would like. After you interview a sample o( fomafo readers, you might identify two key questions women ask when they select a magazine: (I) Is it "traditional,'' that is, oric1"lted toward family, home, or personal issuL'.>S, or is it ,.,fashion·

forward," oriented toward personal appcatancc and fashio.n? (2) Is it Cot "upscale" women who are older and established in their can..">c-rs or for relativeJy "downscale" \.,romeo who are younger and just starting out in their careers?

The perceptual map in ~ Figure 7.6 illustrates how these ratings might look for a set of major women's magazines. The map _provides some gujdance as t·o whcN' you might position your new magazine. You might decide to compete dircctly with either

the cluster of "service magazines" in the lower left or the traditional fashion magazines

CHAPTER 7 I SEGMENTATION, TARGET MARKETING, ANO POSITIONING 225

figu,e 7.6 @ Snapshot I Perceptual Map Petceptual mapping allows rnarketetS to identify consumets' perceptions of their brand in relation to the competition.

Upscale ----------......

Service

• Architectural Digest

----- -,... ... ... / .........

, ' I I 'Ladies' Home Journal 1

I , ' , I I I I I I

I I

/ Family Cirde : / I

I I I I ' Redbook , I I I / I I

\ Woman's } ' , ' ....... World / ......... ___ __ .,,

,, ....... -- ... ,\ , I

/ Vogue : r Self I I I I I

! Cosmopolitan/ I I

' Glamour ,' I / I ,

l ,,,' ', ... ____ __ ___ , ..... "

Fashion

• Harper's Bazaar

• Seventeen

Downscale

in the upper right Jn lhis case, you would have to determine what be:nc.fits your new magazine might of(~r th.at these existing magazines do not. Media firm Conde Nast, for

example, positions Allure to compete against other fashion magazines by going into more depth than they do on beauty issues, such as the rnontal, physical, and emotional dan• gcrs of cosmetic surgery.

You might try to locate an unscrv~ or undcrserved area in this perceptual map. There may be room for a magazine that targets "'cutting;-«lgL"" fashion for college.age women. A neglected segment is the "Holy Crail" for markctcrs: With luck, they can move quickly

to capture: a segment and define the standards of comparison for the category. This tactic paid oft for Chrysler, which first identified the minivan market for soccer inoms; JetBlue, which found a spot for low fares and high tech without the poor-boy sctVicc attitude and

cattle-call boarding procedure of other budget airlines; and Liz Claiborne, which pioneered the concept of co1nfortable, ·•use.r .. friendly" clothing for working wo1nen. ln the magazine category, perhaps Marie Claire comes closest to this position.

MyMarketinglab ™ Go to mymktlab.com to complete the problems marked with this icon 0 as well as additional Marketing Metrics questions only available in MyMarketinglab.

226 PART TWO I DETERMINE THE VALUE PROPOSITIONS DIFFERENT CUSTOMERS WANT

7.1 Objective Summary t#fN!i Identify the steps in the target marketing process. Mal1<eters must balance the efficiency of mass marketing, serving the same items to everyone, with the effectiveness of offering each individual exactly what he or she wants. To ac- complish this, instead of uying 10 sell something 10 everyone, marketers follow these steps: (I) select a target marketing strategy, in which they divide the total market into different segments based on customer characteristics; (2) select one or more segments; and (3) develop products 10 meet the needs of those specific segments.

Key Terms martc.et fragmentation. p. 204 target marketing strategy, p. 204

7.2 Objective Summary (pp. 205-217) Understand the need for market segmentation and the approaches available to do it. Market segmentation is often necessary in today's mar- ketplace because of market fragmentation- that is, the splintering of a mass society into diverse groups due to technological and cultural differences. Most marketers can't realistically do a good job of meeting \he needs of everyone, so it is more efficient to divide \he larger pie into slices in which members of a segment share some important charac- teristics and tend to exhibit the same needs and preferences. Marketers frequently find it useful 10 segment consumer markets on the basis of demographic characteristics, in· eluding age, gender, family life cycle, social class, race or ethnic identity, and place of residence. A second dimension, psychographics, uses measures of psychological and social characteristics to identify people with shared preferences or traits. Consumer markets may also be segmented on the basis of how consumers behave toward the product, for example, their brand loyalty, usage rates (heavy, moder- ate, or light), and usage occasions. B2B markets are often segmented on the basis of industrial demographics, type of business based on the Nonh American Industry Classification codes, and geographic location.

ChopkK 7

Study Map

Key Terms segmentation. p. 205

segmentation variables, p. 205

demographics, p. 206

generational marketing, p. 206

Generation Z. p. 207 dig ital natives. p. 207

Generation Y (millennials), p. 207

Generation X. p. 207

baby boomers, p. 208

metrosexual. p. 209

buying power, p. 210

content marketing, p. 211

cultural diversity, p. 212

geographic segmentation. p. 213

geographic information system (GIS), p. 213

geodemography, p. 213

geotargeting, p. 214

micromarketing, p. 214

psychographics, p. 214

VALS~, p. 215

gamer segment. p. 21 S

badge,p.215

behavioral segmentation., p. 215

80/20 Rule, p. 215

usage rate. p. 216

long tail, p. 216

usage occasions. p. 216

organizational demographics, p. 217

7.3 Objective Summary (pp. 217-220) Explain how marketers evaluate segments and choose a targeting strategy. To choose one or more segments 10 target, marketers exam- ine each segment and evaluate i ts potential for success as

CH APTER 7 I SEGMENTATION, TARGET MARKETING, AND POSIT IONING 227

a 1arge1 market. Meaningful segmenlS have wants thal are different from those in other segments. can be identified, can be reached with a unique marketing mix, will respond 10 unique marketing communications, are large enough to be profitable, have future growth potential, and pos- sess needs that the organization can satisfy better than the competition.

After marketers identify the different segments, they estimate the market potential of each. The relative attractive- ness of segmenlS also influences the firm's selection of an overall marketing strategy. The firm may choose an undif- ferentiated, differentiated, concentrated, or custom strategy based on the company's characteristics and the nature of the market.

Key Terms

targeting, p. 217

target market, p. 217

segment profile, p. 218

undifferentiated targeting strategy, p. 218

differentiated targeting strategy, p . 219

concentrated targeting strategy, p. 220

customized marketing strategy. p. 220 mass customization, p. 220

7.4 Objective Summary (pp. 221-225) Recognize how marketers develop and imple- ment a positioning strategy. Afler marketers select the target market(s) and the overall strategy, they must determine how they wish customers to perceive the brand relative to the competition- that is, should the brand be positioned like, against, or away from 1he compe- tition? Through positioning, a brand personality is developed. Marketers can compare brand positions by using such research techniques as perceptual mapping. In developing and imple- menting !he positioning strategy, firms analyze the competitors' positions, determine the competitive advantage offered by their product, tailor the marketing mix in accordance with the positioning strategy, and evaluate responses to the marketing mix selected. Marketers must continually monitor changes in the market Iha! might indicate a need to reposition the product.

Key Terms positioning, p. 221

positioning statement. p. 222

repositioning, p. 223 retro brands, p. 223

brand personality, p. 224

brand anthropomorphism. p. 224 perceptual map, p. 224

MyMarketinglab ™

Chapter Questions and Activities Go to mymlctlab.com to watch this chapter's Rising Star video(s) for career advice and to respond to questions.

Concepts: Test Your Knowledge

7-1 .

7-2. 7-3.

7-4.

7-5.

7-6. 7-7.

7-8.

What is market fragmentation, and what are its conse- quences for marketers? What is a target marketing strategy? What is market segmentation, and why is it an impor- tant strategy in today's marketplace? Lisi and explain the major demographic characteristics frequently used in segmenting consumer markets. Explain the process of consumer psychographic seg- mentation. What is behavioral segmentation? What are some of the ways marketers segment B2B markets? list the criteria marketers use to determine whether a segment may be a good candidate for targeting.

7-9. Explain the differences between undifferentiated, dif- ferentiated, concentrated, and customized marketing strategies. What is mass customization?

7-10. What is product positioning? 7-11 . What do marketers mean by creating a brand person-

ality? What examples can you come up with of uses of brand anthropomorphism?

7-12. How do marketers use perceptual maps to help them develop effective positioning strategies?

Activities: Apply What You've Learned

0 7-13. Creative Homework/Short Project You are an entrepre- neur who is designing a new line of boutique hotels located along Florida's coastlines. Each of the 75 guest rooms in each hotel will offer upscale decor. Wi-Fi,

228 PART TWO I DETERMINE THE VALUE PROPOSITIONS DIFFERENT CUSTOMERS WANT

0 7-14.

7-15.

7-16.

7-17.

7-18.

a mini bar stocked with high-end snacks, premium beers, and top label liquors for a nightly rate of $299. The hotels will have a spa, an on-site restaurant and a separate full-seivice bar that features local musicians. Describe in detail the demographics- age, gender, family life cycle, income and social class, ethnicity, and place of residence-of your target customer. Creative Homework/Shon Project As the marketing director for a company that is planning to enter the 828 market for photocopy machines, you are anempt- ing to develop an overall marketing strategy. You have considered the possibility of using mass-marketing, concentrated marketing, differentiated marketing, and custom marketing strategies. a. Prepare a summary explaining what each type of

strategy would mean for your marketing plan in terms of product, price, promotion, and distribu- tion channel.

b. Evaluate the desirability of each type of strategy. c. Describe your final recommendations for the best

type of sttategy. In Gass, 10-25 Minutes for Teams To bener market the university to potential students, you and your class- mates have been asked to create a segment profile of the typical college student at your school. Write up a descriptive segment profile, or •persona," of the targeted consumer. Share your description with the class. In Class, 10-25 Minutes for Teams As an account ex- ecutive for a marketing consulting firm, your newest client is a university-your university. You have been asked to develop a positioning strategy for the univer- sity. With your team, develop an outline of your ideas, including the following: a. Who are your competitors? b. What are the competitors' pos~ions? c. What target markets are most attractive to the uni-

versity? d. How will you position the university for those seg-

ments relative to the competition? For Funher Research (Individual): A geographic infor- mation system (GIS) combines a geographic map with digitally stored data about the consumers in a particu- lar geographic area. Using the web, find an example or case study of a business or nonprofit that is using a GIS such as Google Earth to generate market in- formation by location. Write a short summary of this example or case study and present this summary to your class. For Funher Research (Individual) Select any consumer packaged goods company's product that has been around for at least two decades and find at least five print advertisements from throughout that time frame. From the marketing communication content, how has the product's target customers and position- ing changed over time and why do you believe these changes have occurred? If the product's target cus- tomers or positioning have not changed, what might

explain the product's ability to remain the same in its targeting and positioning?

7-19. Creative Homework/Shon Project Imagine you are the marketing director for a new soft drink brand called Verve and that you have been charged with determin- ing what kind of brand personality the product should have in order for it 10 have broad appeal with members of Generation Z. Describe the desired brand person- ality and identify specific elements of the marketing mix (product, place, price, promotion) that should be implemented to assist in establishing the desired brand personality.

Concepts: Apply Marketing Metrics

When it comes to metrics, good data about the characteristics of the various consumer segments that you may wish to ulti- mately target is a itical because target marketing is ultimately a strategic investment of resources in the segments that appear to have the best return on investment. In this chapter, we men- tioned that VALS™ is a well-known approach to psychographic segmentation.

O 7-20. To make the power of the psychographic technique and resulting information for decision making come alive, let's find out your own VAlS"' category. a. Go to the VAlS"' webs~e (either Google it or go

directly to www.strategicbusinessinsights.com). b. Click on ·rake the VALS™ Survey.· Complete all

the questions and dick SUBMIT to view your results. c. What is your VAlS™ type? Review the information

on the website that describes it (found under the tabs About VALS™NAlS"' Types) along with the other VAlS"' types.

d. What is your reaction to learning your own VALS™ type? Are you surprised with the result or was it consistent with what you would have expected? Why or why not?

e. What insights does the knowledge of your VALS™ type p<o'Jide relative to your own consumer behavior?

Choices: What Do You Think?

7-21.

0 7-22.

Ethics Some critics of marketing have suggested that market segmentation and target marketing lead to an unnecessary proliferation of product choices that wastes valuable resources. These critics sug- gest that if marketers didn't create so many differ- ent product choices. there would be more resources 10 feed the hungry and house the homeless and provide for the needs of people around the globe. Are the results of segmentation and target market- ing harmful or beneficial to society as a whole? Should firms be concerned about these criticisms? Why or why not? Critical Thinking One of the criteria for a usable mar- ket segment is its size. This chapter suggested that

CHAPTER 7 I SEGMENTATION, TARGET MARKETING, AND POSIT IONING 229

to be usable, a segment must be large enough to be profitable now and in the future and lhal some small segments gel ignored because they can never be profitable. So how large should a segment be? How do you think a firm should go aboul determining if a segment is profitable? Have technological advances made it possible for smaller segments to be profit- able? Do firms ever have a moral or ethical obliga- tion to develop products for small, unprofitable seg- ments? When?

7-23. Ethics Marketers are in business to make a profit, but they also have an ethical obligation not to take advan- tage of consumers, especially disadvantaged consum- ers like those al the bottom of the pyramid. Would you consider ii ethical to sell mosquito nets in Africa to prevent the spread of malaria? Would you consider it ethical lo sell Coca-Cola or Pepsi lo consumers in rural India? Why or why not? Is there a line between what is ethical to sell and what is not? How would you describe that line?

7-24. Critical Thinking Sometimes marketers will develop s1tategies 10 targel multiple social class segments with the same product by offering it at different prices. What are some examples of products or brands that use this strategy and how do they accomplish it? Are there any potential risks 10 taking this approach with specific products or brands and what might make some products or brands more susceptible to these kinds of risks?

7-25. Critical Thinking In this chapter, you learned about the use of geo1argeting and its capability 10 more pre- cisely provide consumers wilh benefits such as pro- motions that are especially relevant and impactful to a particular group. Could geotargening backfire for a company? What might be some examples where geotargening has negative reactions or consequenc- es and what might be the impact on the company's image?

7-26. Critical Thinking A few years ago, Anheuser-Busch Inc. aealed a new division dedicated 10 marketing 10 Hispanics and announced it would boost its ad spend- ing in Hispanic media by two-thirds to more than $60 million, while Miller Brewing Co. signed a $ 100 million, three-year ad package with Spanish-language broadcaster Univision. But Hispanic activists immedi- ately raised public health concerns about the beer ad blitz on the grounds that it targets a population that skews young and is disproportionately likely to abuse alcohol. Surveys of Hispanic youth show that they are much more likely to drink alcohol, get drunk, and en- gage in binge drinking than their white or black peers. A senior executive at Anheuser-Busch responded, ·we would disagree with anyone who suggests beer bill- boards increase abuse among Latino or other minority communities. It would be poor business for us in to- day's world to ignore what is the fastest-growing seg- ment of our population.•

a. Manufacturers of alcohol and tobacco products have been criticized for targeting unwholesome products to certain segments of the market- the aged, ethnic minorities, the disabled, and others. Do you view this as a problem? Should a firm use different criteria in targeting such groups? Should the government oversee and control such market- ing activities?

1-21. Ethics Gamification was discussed in Chapter 6. For specific segments of a market, a gamification approach might help elicit a desired behavior from consumers, and of course in many cases the desired behavior is an increase in consumption of the related product. When a product is generally associated with potential health problems if consumed in large quantities(e.g., alcohol, sugar) should a marketer be allowed to engage the consumer in gamification activities or similar •fun" ap- pmaches that encourage or induce excessive consump- tion of the product?

7-28. Critical Thinking Marketers commonly ask celebrities to endorse products, but tying a brand to a celebrity can come with risks if that celebrity falls out of favor with the public as the result of a something they do or say that is perceived negatively. How would you determine if the signing of a celebrity 10 an endorse- ment deal is worth the risk? Whal would you wan! to know to make lhal determination and reduce the risk potential?

Miniproject: Learn by Doing

This miniproject will help you to develop a better understand- ing of how firms make target marketing decisions. The project focuses on 1he market for men~ athletic shoes.

a. Gather ideas about different dimensions useful for seg- menting the men's athletic shoes market. You may use your own ideas, but you probably will also want 10 ex- amine advertising and other marketing communications developed by different athletic shoe brands.

b. Based on the dimensions for market segmentation 1hal you have identified, develop a questionnaire and conduct a survey of consumers. You will have to decide which questions should be asked and which consumers should be surveyed.

c. Analyze the data from your research and identify the dif- ferent potential segments.

d. Develop segment profiles thal describe each potential seg- ment.

e. Generate several ideas for how the marketing strat- egy might be different for each segment based on the profiles.

f. Define your competitive advantage. 7-29. Develop a presentation (or write a report) outlining

your ideas, your research, your findings, and your mar- keting strategy recommendations.

230 PART TWO I DETERMINE THE VALUE PROPOSITIONS DIFFERENT CUSTOMERS WANT

Marketing in Action Case Real Choices at Sprig

What's for dinner? Sprig would like to play a part in a health- conscious customer's answer to that question. Sprig is an on- demand delivery restaurant that offers balanced meals which are fully prepared and delivered in 15 to 20 minutes. The company focuses on using the freshest ingredients to create innovatively delicious food that supports a healthy lifestyle. Its target market includes those who have busy schedules and desire meals !hat include servings of fruits, vegetables, pro- teins, and other nutrients. Sprig's website claims, ·we use the best ingredients to aeate dishes that are high on flavor and low on butter, oils, and sugar." Customers have a choice of ordering meals via the Internet or by an app.

CEO Gagan Biyani realized as he w0<1<ed at ride-sharing company Lyft that when he ordered on-demand meal delivery he was relying way too much on unhealthy options like pizza. So in 2013 he created a company that gives the health-con- scious consumer bener choices without compromising speed or convenience. Jessica Entzel, executive R&O chef and Biyani's first employee, manages Sprig's menu development. She teams with Nate Keller, a former executive chef for Google, who develops relationships with local farmers and manages the company's sustainability efforts. Keller has a great deal of freedom and a large budget to experiment with recipes and then test them with a host of eager tasters. Sample menu se- lections include grilled jerk chicken with habanero slaw, beef keema wilh roasted red potatoes and cabbage, and truffled mac and cheese wilh cauliflower bechamel.

Sprig uses data continuously collected from customers to refine the menu and ensure consistent delivery of desirable, innovative meals !hat offer high value. Entzel studies customer feedback on each item to see if it meets and exceeds customer expectations. When the ratings are not as expected, she digs deeper into the responses to discover ways to fix the problem before including that item on the menu again. She also makes sure the presentation of the meal is first-rate, a difficult task to accomplish consistently in on-demand delivery. Hence, the meal development process takes into account how to trans- port the food without it arriving to the customer as an unat- tractive mess.

The on-demand delivery segment of the restaurant in- dustry is developing and anracting attention from many nevv players. Munchery delivers fresh-food entrees, sides, des- serts, drinks, and kids' meals in San Francisco, Nevv York, Los Angeles, and Seattle. It offers ready-to-cook meals that are delivered with directions on how 10 successfully complete the dish. Postmates operates a network of local couriers to deliver meals through a service called Pop that promises food delivery in 15 minutes or less. Pop is fast because it eliminates lhe pickup leg. Rather than spending time traveling to a specific merchant location or waiting for the food to be prepared, Pos1mates drivers who participate in Pop carry an inventory of freshly made items ready to drop off immediately. Even Uber is in the market with UberEats, its own on-demand meal delivery service that uses existing Uber technology and customer rela- tionships for competitive advantage.

So what's next for Sprig? Are they on the right track targeting only the smaller health-conscious segment of on-de- mand delivery? Biyani expects the on-demand delivery market 10 experience shake-out among competitors similar 10 what was experienced by the search engine, social media, and other tech markets-that is, a shake-out of initial providers with only a few remaining competitors today. How does Sprig become one of !hose few that survives?

You Make the Call 7-30. What is lhe decision facing Sprig? 7-31. What factors are important in understanding this deci-

sion situation? 7-32. What are the alternatives? 7-33. Whal decision(s) do you recommend? 7-34. Whal are some ways to implement your recommenda-

tion?

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CH APTER 7 I SEGMENTATION, TARGET MARKETING, AND POSIT IONING 231

MyMarketinglab"' Go to mymktlab.com for Auto-graded writing questions as well as the following Assisted-graded writing questions:

7-35. Creative Homework/Short Project Assume that a small regional microbrew- ery has hired you to help them with their target marketing. They are pretty unsophisticated about marketing-you wilJ need to explain some things to them and provide ideas for their future. In the past, the microbrewery has simply produced and sold a single beer brand to the entire market- a mass-marketing strategy. As you begin your work, you come to beUeve that the firm could be more successful if it developed a target marketing strategy. Write a memo to the owner outlining the following: a. The basic reasons for doing target marketing in the first place b. The specific advantages of a target marketing strategy for the micro-

brewery c. An injtial '"short list" of possible target segment profiles

7-36. Creative Homework/Shon Project. You have been a contributing author to sev-- eraJ marketing newsletters. and you have been asked to submit a one-page article on market segmentation. First. describe the need for market segmen- tation and then. in rum, d iscuss the various approaches marketers can ta.ke. including the advantages of each approach.

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232

PART THREE: Develop the Value Proposition Chapter 8 for the Customer

Product I: Innovation and New Product Development

Explaln how value ls derived 8.3 Undersland the Importance 8.5 Explaln tne process or product tnrough different product and types of product adoption and lhe dlffuslon layers. pp. 234- 237 innovations. pp. 241 - 243 of Innovations. pp. 249- 255

BUILD A BITTER MOUSETRAP-AND "NEW AND IMPROVE DI" THE PROCESS ADOPTION AND DIFFUSION Of NEW ADD VALUE p. 234 OF INNOVATION p. 241 PRODUCTS p. 249

Desctlbe how marketers 8.4 Shaw how forms develop new Check out the Chapter B Studr Map classify products. pp. 237- 241 products. pp. 244-249 on page 2S6.

HOW MARKETERS CLASSIFY NEW PRODUCT DEVELOPMENT p. 244 PRODUCTS p. 237

Neal Goldman T A Decision M aker at Under Armour

Neal Goldman is director of men's trajning and team sporu apparel at Under Armour. 8.ased in Baltimore. Maryiand, Neal has been on the Under Armour men's apparel busine;ss f0< four years. He has held various product category business

responsibilities, including those f0< Baselayer. NFl Combine, and Football. 8ef0<e Undet Atmour, he WO(ked at Warri0< Spotts, where he was lhe product and brand manager for the Brine Laaosse brand. At Warrior, Ne.ti oversaw everything from product direction to execution to mafketing asset activation, doubling Bfine'S business in three years. Neal gtaduated with a degfee in English litetature tll 2004 from Georgetown. Unive<sity. whe-te he also was a four-year starter and co.captain of the men's lacrosse team. He gtaduated in the top 10 all time in scoring and was named the 2004 Ge0<9etown Male Athlete of the Year.

Whal I do when I'm not warl<lng? Playing with my wild two-year-old soo and still pretending I'm as good of a lacrosse player as I was IO years ago.

Rrst Job out of school? Wrigley Gum sales rep.

Career high? I feel like it's an evolving ranking, but currenrly it's the admowledgment of being made director.

My motto to Dve by? I have two: (1) If it was easy, anybody could do it. (2) Be the !Mfmosta~ not the thermometer.

What drives me? ~rsonally, making my family proud. Professionally, cun05il)I of the unknown.

My management style? lead by actions, not words. I want my team to see what empower~nt to make decisions looks like.

My pet peeve? Meetings where lots of words are said but no decisions are made.

In I 996, l(evin Plank, a football player at the Univer· sity of Ma,yland, had the thought that there must be a better solution to the I 00 percent cotton T-shirt he and

his feOow teammates were wearing under their pads. Their shirts were qukkfy soaked with sweat within minutes of practice. and once they v.'efe saturated, it seemed like it took an eternity f0< them to dry. Not only did the wet, t.r1com· fortable feeling of a heavy shirt bother hin, but they also fit poorly; the shirts were constantly poking out of the jersey and becoming a distraction. He knew there had to be a better solution, so he scoured the garment district, found a synthetic blend that met his tiking, and took that material along with a small underwear shin to a ra.ilot With that, the first run of Under Armour compression shirts was created.

What started as Kevin's idea in 1996 has exploded into a S2 billion-plus empire 18 years later that n<m encompasses world-class footwear. outerweat and women's and youth products. But no matter how much Under Armour grows and expands into new markets and categories around the world, the heritage product category. compression HeatGear, remains a vital part of the COfJ\1any. This Baselayer apparel line links directty to Under Armour's core mes- sage: •protect This House:"'

In the spring of 201 I, Under Armow started to see a gradual dedine in HeatGear Baselayer sales during a time when historically business would begin ramping up. The brand's biggest Sj)O<ting goods v.ilolesale partners we,e telling us that for the fust time since the company created this category, they were seeing severe competition from other brands. One major threat was Nike, which had just launched a new product campaign called Pro Combat. If Under Armour had created the story of compression appaiel Nike's Pro Combat was aiming to wrfte the next chapte<. The company dearly planned to target the next W<Ne of athlete~ who might not h<Ne ever been exposed to the Under Armour brand, for their new performance gear line.

The challenge we faced was twofold: product and marketing. At least horn the consumer's perspective, the HeatGear Baselayec product line had not evolved in moce than a decade. The core franchise business had been treated like • milk and eggs" in the sense that as long as these basic items we1e in stock, customers wouJdn't forget to pick up key essentials. That mind-set contributed to a lack of new produa initiatffl within this range because we had been focusing on creating new category opportunitie~ such as women's apparel and athletic shoe~ Marketing also played a critical role in this cha~ lenge, as Nike launched a full-on assault in all touch points with a heavy focus on retail in-store creative and social media. Our bigger rival was forging a new emotional connection with customers and leveraging its roster of professionaJ athletes and creative resol.lfces to explode into the Baselayer category--and threaten our house.

To make matters worse, the product development calendar is an 18-month process from line archftecture briefing to market delivery. When business began to dip, the reality of the sftuation was that any p,oduct fine overhaul might be too little too late. The HeatGear compression line sells minions of units each year. At1'j product adjusUTient can send ripple effects through the supply chain, which in rurn can affect delimy times, sales, and profit. On the other hand, the longer Under Armour waited to enact a new plan, the more we '1.'0Ukl see a dip in sales. A delay in responding to the threat

MyMarketinglab"" 0 Jmprove Your Grade!

had the potential to threaten long-term revenue and de-crease Under Armour's overall market share in the athletic apparel category.

As the leader of the business unit. my role was to assess our options and deliver a strategy that took into account all cros.s-functional groups with the end goal of ,ecouping shon-term ,evenue as well as setting the brand up for long-term success.

Neal considered his Options 1·2·3

l Approach the decision as a product problem. Build new product offerings to get into retail ASAP. Try to =e the sales trend with new, exciting styles. This emphasis on inmediate new p,oduct development to produce a new collection of Baselayer ap· Option parel could capture open-to-buy dollars from retailers (ie., the bud· get they have to purchase retail merchandise), who clearly were going to begin allocating more of th~ funds to tlike. It could also help Under Armour to lool< more enticing and c~tftive compared to other products in the markel, which would draw shoppers bad to our core brand. But because Under Armou(s prod· uct development team would have to make this happen on an accelerated time fine with no opportunity for delay,, production expenses would go up. We would need to position materials. trims. and manufacturing with our current supplier so that once designs and fits were completed. production could stan immediately. Combine speed to market with the substantial aesthetic and material direction this product line would demand, and the costs of producing these s,yles could dimb anyv,l,ere from 25 to 50 percenl Under Armour wouldn'1 be able to pass these costs on to consumers in such a competitive market, so short-term gains at retail could come at the expense of bonom~line reYenue.. In addition, we had to assume that we wouldn't acquire more Hoor space in stores. so some of our cur· rent product offerings would h..., to come off the displays 10 make room for the new. The c0<npany might need to take back the current product and absorb those costs against sales as well as add more inventory to the books.

Approach the decision as a marketing problem. Stay the course with the current product line and invest time, money, and resources immediately into ramping up the messaging that Un· der Armour sent to its target market of active athletes.. This wouJd

Option allow us to continue investing in other new business categories and aflow one of the brand's strengths-storytellin!l-tO be on display. An overhaul of this pcesentatian of our Baselayer products in stores would create new energy for the brand and encourage shoppers to take a doser look. Styles that had been treated like milk and eggs would now take center stage. and launching a social and digital campaign !0< Baselayer could reach millions of consumers instantly. However, although a marketing blitz could put Baselayer into the product spot· tight, this might p<ovide only a temporary shot in the arm to safes. The short-term

O·ii13,!lli?1J Whidl Option would you choose, and why? D Option 1 D Option 2 D Option 3

See what option Neal chose 1n MyMarketinglab1.,.

Over IO million swdents improved their results using the Pearson Mylabs. Visit mymktlab.com for simulations, rutori.als. and end-of-chapter problems.

233

234 PART THREE J DEVELOP THE VALUE PROPOSITION FOR THE CUSTOMER

Chapter 8

gain from a marketing blitz couk:I even provide us with a false sense of security about our Basel ayer business. The same issues with prcduct inertia and attractive options from co~etitoo could pop up again six to njne months later.. and if so, we woukl find ourselves in an even deeper hole in terms of our ability to bring new products to market In additioo, other initiatives the marketing teams are working on would need to be put on hold. Finally, cost could be a real issue: Nike's marketing budget dwarts Under Armour's, so going toe-to-toe with the larger company in a marketing showdown would be tough for us.

a Start over with a new business plan. Rebuild !he Baselaye, pfOduc:t from the ground up. Analyze every detaa in teans of new fabric selections, design aesthetics. features and benefits, pricing. and consumer positioning. Instead of rushing throogh the process like option I prQPO<e~ play the long game: Develop a go-to-market product strate<JY to ensure that all business needs are addressed Option without compromising the supply chain and bottom-tine revenue. Marketing 'WOUk:I have more time, money, and resources to build out the consume<-facing message of what this relaunch means 10 athletes aO over the wocld. Because this more drawn-out approach "WOUid not interrupt their project flow from the previous season, Under Armot.r's marketing team would have the bandwidth to fully focus oo the new deliverables. H°""""", it's nice to have the luxury to step back and reset the game. We didn't necessarily have that this approach would cause us to lose out in sales and market share in the shon term. We don't know how low the Hooe is yet Will Under Ar· mour still haYe the confidence of its retail partneis when we come back to the table with oe\V ideas aher a tough year of stagnant or dedining sales? Another major concern was that to overhaul the product line, we would have to move the category into a arfferent a•ec:tion from when the company was founded. Think about that for a second: Aside from questioning why we need a new course of action after 17 years of doing something the same Wif/, imagine telfing the CEO and COO that to be successful we would need to go forward with a different p,oduc:t plan than v,nat these "'" had built from the ground up! And from the marketing end, conventional branding wasn't going to make enough waves ro let consumers know about the new line. so there is much more cost and risk as· sociated wilh taking a bigger swing. If the p,oduc:t and marketing reset isn't soccessM how deep is the hole Under Armour would ha,e to dig itself out of?

Now, put yuurseff in Neal's shoes. Which option would you choose, and v,i,y?

8.1 OBJECTIVE

Explain how value

is derived through different p,oduct laye,s.

(PP 234-237)

Build a Better Mousetrap- and Add Value ''lluild a better mousetrap and the world will beat a path to your door." Although we've all heard that adage, the truth is that just because a product is better th~ is no guarantre it will succeed. Fot decades, the Woodstream Corp. built Victor brand wooden mousetraps. Then the company decided lo build a better one. Woodstream's product• development people researched the eating, crawling, and nesting hab-

its of mice (hey, it's a living). They built prototyfl('S of different mousetraps to come up with the best possible design and tested th<?m in homes. Then the company unveiled th<? slecl<-looking " Little Champ," a black plastic miniature inverted bathhlb with a hole. When the mouse went in and ate the bait, a spring snapped upward-and the mouse v,ras his tory.

Sounds like a great new product (unless you're a mouse), but the Little Champ failed. Woodstrcam studied mouse habits, not consumer prcforenccs. The company later discov• crcd that husbands set the trap at night, but in the morning it was the wives who disposed of the "present'' they found waiting for them. Unfortunately, many of them thought the Lit~e Champ looked too expensive to throw away, so they felt they should empty the trap for reuse. This was a task most women weren't willing to do; they wanted a trap they could happily toss into the garbage. t

Woodstrcam's failure in the "rat race'' underscores the importance of creating prod· ucts that provide the benefits people want rather than just new gizmos that sound like a good idea. lt also tells us that any number of products, from low-tech chccsc to high-tech traps, potentially deliver these bc>nefits. Despite Victor's claim to be the "World's Leader in Rodent Control Solutions," in this case cheese and a shoe box could snuff out a mouse as well as a high-tech trap.

CH APTER 8 j PRODUCT I : INNOVATION AND NEW PRODUCT DEVELOPMENT 235

We need to take a close look at how products successfully trap consumers' dollars

when they provide value. ln Chapter 1., we saw that the value proposition is the consume.r's pcrceptfon of the benefits he or she will receive if he or she buys a good or service. So the

marketer's task is twofold: first, to create a bct1.er value than what's out there already and, second, to convince customers that this is true.

As we defined it in Chapter 1, a product is a tangible good, service, idea, or some com· bi.nation of these that satisfies consumer or business customer nct:.."'<is through the exchange process; it is a bundJc oJ attributes, including foatures, functions, benefits, and uses as weU

as its brand and packaging.

Products can be physical goods, services, ideas, people, or places. A good is a tangible product, something that we can see, touch, smell, hear, taste, or possess. It may take the form of a pack of yummy cookies, a shiny new iPad, a house, a part used in production of that

Tesla electric sports car you'd like to buj\ or a chic but pricey Coach handbag. In contrast, intaugible products-st!l'Viccs, ideas, people., and places-are products that we can't always sec, touch,. taste, sme.ll, or pos..r;ess. We'll talk more about intangible ptoducts in Chapter 12.

Welcome to Part 3 of this book, "Devclop the ValuC: Proposition for the Customer." The key word here is develop, and a large part of the marketer's role in developing the value proposition is to create and market products innovatively. ln this chapter., we'll first exam·

inc what a product is and sec how ma.rkcters classify consumer and busincss-to-,busincss (B2B) products. Then wc'U go on to look at new products, how marketers develop new products, and how markets acc..>pt them (or not).

More broadly speaking. Parts 3 and 4 of the book take you systematically through aU

of the clements of the marketing mix's four Ps: product and price in Part 3 and distribution

("place") and promotion in Part 4. As you learned in Chapter 7, developing and executing

a gn.,at marketing mix is the heart and soul of positioning strategy. And the place to start is

with your product-as an old saying in marketing goes, "(( the product ain't righ~ the rest doi,' t matter. ..

Layers of the Product Concept No doubt you've heard someone say, "It's the thought,. not the gift, that counts." Some-times

that's just an excuse for a lame prlSCnt, but more broadJy it means that the gift is a sign or

symbol that the gift giver has remembered you. When we evaluate a gift., we may con.sider

the following: Was it presented with a flourish? Was it wrapped in special paper? Was it

obviously a "regift"-.omcthing the gift giver had received as a gift for himself or herself

but wanted to pass on to you (like last year's fruitcake)? These dimcnsiOJ,s are a pa.rt of the total gift you receive in addition to the actual goodic in the box.

Like a gi(t, a product is everything that a customer receives in an exchange. As

~ Figure 8.1 shows, we distinguish among three distinct layers of the product- ~,. core product, the actual product, and the augmented product. When they develop product

s trategies., marketers need to consider how to satisfy customers' wants and needs at each

of these three layers-that is, how they can create value. Let's conside.r each layer in tum.

The Core Product

The core product consists of all the bet,cfits the product wilJ provide for consumers or

business customers. As we noted in Chapter l, a benefit is an outcome that the customer receives from owning or using a product. Wisc old marketers (and some young ones, too) will tell you, ~-A marketer may make and sell a half•inch drill bit, but a customer buys a half-incl, hole." This tried-and-true saying reminds us that people buy the core product,

in this ca.~,. the abiUty to make a hole. U a new product, such as a laser, comes a long that provides th.at outcome in a better way or more cheaply., the driU .. bit maker has a problem. The moral o( thl,; s tory? Mnrkt'tiug is abo-ut supplying bent-jits, not allributes. And bcnclits a.re the foundation o( any va)ue proposition.

attributes Include features, flllctions. benefits, and uses of a product. Marketers view produas as a bund1e of attributes that includes the packaging, brand name, benefits, and supponing features in addition to a physkal good.

good A tangible product that we can see. touch. smel heat or taste.

core product All the benefos the p,odoo wii p,oYide for consumers or busiless customers.

236 PART THREE ] DEVELOP THE VALUE PROPOSITION FOR THE CUSTOMER

actuat product

Ffgure 8.1 ~ SMpshot J Layers of the Product A pfOduct is eve,ything a customer ceceives-the basic benefits. the physical p«xtuct and its packaging, and the "exuas" that come .....;th the producL

The Product Automobile

Basic Benefits Transportation Carrying cargo Excitement

Features Package Brand Quality Appearance

Warranty

Image enhancement

Engine size Color Interior design Body size Body style Options available Model name (Camry, Corolla, etc.) Workmanship

Repair/maintenance service after the sale Installation

4-year. 50,000-mile, bumper-to-bumper warranty Dealer parts and repair department Dealer preparation prior to delivery

Customer support services Delivery

Owner instruction manual 2.9% interest auto loan

Credit Product-use instruction

Toll-free customer complaint number Customer problem policies Free lubrication and oil changes

Many products actually provide multiple benefits. For example, the primary bt,ne/it of a car is transportation-all cars (in good repair) offer the ability to travel from point A to point B. But products also provide customized benefits-benefits customers receive be. cause manufacturers add "'bells and whistles" to win them over. Some drive.ts simply want

economical transportation, others appreciate an cnvin:mment.a.Uy friendly hybrid car, and still others want a top.of•the-Line, all•l'crrain vehicle o r perhaps a hot sports car that will be the envy of their friends. And some just like the expandable cup holder's ability to accom- modate everything from your Red Bull to a Big Gulp!

The Actual Product

The physical good or the dsiveted service that suppOes !he d<slred benefit.

The s«ond layer-the actual product-is the physical good or the delivered service that supplies the desired b...·•ncfil For example, when you buy a washing macMne, the core product is the ability to gct clothes clean, but the actual product is a large, square metal apparatus. When you gc-t a mOOicill exam, the core service is maintaining your health, but

the actual one is a lot ol annoying poking and prodding. The actual product also includes the unique foatur..-s of the p roduct, such as ilS appearance or styling, the package, and the brand name. Samsung makes a wide range of flat'"5Cl'L>en TVs in dozens of sizes fTom low• end low•price to other models that 1night cause you to mortgage your house. But in the end, all offer the same core benefit of enabling you to catch Sht!Jdon Cooper's antics on th!! latest episode of Tl,e Big Ba11g T/1<'0ry.

CH APTER 8 j PRODUCT I : INNOVATION AND NEW PRODUCT DEVELOPMENT 237

The Augmented Product

F'u\3Uy, mar-kctets offer customers an augmented product-the: actual product plus other

supporting features, such as a warranty, credit, delivery,. installation, and repair sctVice after the sale. Marketers know that adding these supporting features to a product Ls an t>f. fectivc way for a company to s tand out from the crowd.

For example, Apple truly revolutionized the music industry when it created its iTuncs Store, which enabled consumcts to download titles di· roctJy to their digjtal music and video libraries. It also 001wenientJy saves

you the trouble of correctly inserting, labeling, and sorting the new music. This innovation no doubt dealt a blow to firms that manufactured stands designed to hold hundreds of CDs. Apple 's augmented product (CQ1wc-

niencc, extensive scloction, and case of use) pays of( handsomely for the company in sales and profits, and customers adore. the fact that you can do it all on your device of choice. As streaming services for music such as

Spotify and lidal have gained in popularity, Apple adapted to the change in consumer pn,forences by creating Apple Music. Apple Music offers us- ers the ability to acress an extensive collection of songs for a monthly fee

as opposed to purchasing songs or albums individually.2 One high profile benefit to a ttract users is the re.Jcasc of exclusive conteuJ from artists such as first•to•markct singles by popular rapper Drake.3

8.2 OBJECTIVE

Describe how

How Marketers Classify Products

augmented product The actual product plus olhe< supponing featlJ'Ies su<h ~ a warranty, aedjt, delivery, instaUation, and repair service after the sale.

mall:eters cla'5ity products.

So for, we've learned that a product may be a tangible good or an intangible service or idea and that there a.re different layers to the product through which a con•

sumer can derive value. Now wc'U build on these ideas as we look a t how products differ from one another.

This diet dessert offe,s the value proposi:ion ol good laste wilhout the extra calories.

(pp. 237-241) Marketers classify products into categories because they represent cl.if•

fc.re.nccs in how consumers and business customers feel about products and how they pur• chase different products. Such an understanding helps marketers develop new products and a marketing mix that satisfies customer net."<ls.

Let's first consider differences in consumer products based on how long the pnxiuct

will last and on how the consumer shops for the product. Then we will discuss the general types of 828 products.

How Long Do Products Last? Marketers classify consumer goods as durable or nondurable depending on how long the

product lasts. You expect a rcf:rigerator to last many ycal'S, but a galJon of milk will last only a week or so until it tu.ms into a science project. Durable goods are consumer products that provide benefits over a period of months, years, or even decades, such as cars, fumi•

tu.re, and appliances. ln contrast, we consume nondurable goods, such as Peoplt magazine and fresh sushi, in the short term.

We are more likely to purchase durable goods under conditions of lligh involvemenl

(as we saw in Chapter 6), whc-mas nondurable goods are more likely to be Imo-involvement decisions. Wh en CQ1\Sumcrs buy a new car or a house., most will spend a lot of time and energy on the decision process. When they offer Mgh•involvement p roducts, marketers

durable goods Consumer produas that provide benefits over a long period of time, such as cars. furniture., and afl>liances.

nondurable goods Consumer prcducts that provide benefits for a shat time because they are consumed (such as food) or a1e no IOOJer useful (such as newspaper,).

s ! i i

238 PART THREE ] DEVELOP THE VALUE PROPOSITION FOR THE CUSTOMER

convenience product A consumer good or service that is usually low priced, widely available, and ptrchased frequently v.;1h a minimum of comparison and effan.

need to understand consumers' desires for different product benefits and the importance of warranties, service, and customer support. So they must be sure that consumers can find the infornl.ltion they need. One way is to provide a "Frequently Asked Questions" (FAQ)

St."'Ction on a company website:. Another is to host a Facebook page, l\vitter fct."<t message board, or blog to build a community around the product. When a company itself sponsors such forums, the firm can kc;,p track of what people say about its products and provide a

place for users to share information with each other as well as ask questions of the com .. pany related to specific products. For high-tech products, this is especially valuable to support the consumcr"s cxpcrien~ and ensure they a.re able to gain maximum value from

what they buy. Our friends at Apple maintain a popular online fonun for iPad users to ask I\C\V question.,;., look up answc-rs to prior questions. and answer activ£' questions from others. Th~ forum is divided into two commw\ities bMLxl on how the iPad is used: one for

gener'al use and one £or business and education use, providing maximum utility for each user group.•

ln contrast to the higher involvement mode for durable goods,. consumers usually dol't't "sweat the details# so much when they choose among nondurable goods. There is

little if any search for infonnation or deliberation. Sometimes this means that conswners buy whatever brand is available and is reasonably priced. ln other instartccs, they base their decisions largely on past experience. Because a certain brand has _performed satisfac• torily before., cwnomcrs often sec no reason to consider other brands, and they choose the same one out of habit

How Do Consumers Buy Products?

Marketers also classify products based on where and how consunll?rs buy the: product. ~ Figure 8.2 portrays product classifications in tl,e consumer and business marketplaces. We'll COf'ISidcr the consumer market first in which we think of both goods and scrvict:S as convenience products, shopping products, specialty products, or unsought products. Recall

Figure 8.2 ~ Snapshot I Classification of Products th.at in Chapter 6 we talked about how consumer decisions differ in terms of effort they put into habitual decision

making versus limHcd problem sol,ring versus ~tended problem solving-a useful idea on whid1 to base our un•

Products are classified differently depoodjog oo 'Mlethet' they a,e in the consumer <Y business market.

1:, Consumer Business

·.

- Convenience Products ..... Equipment

- Shopping Products ..... Maintenance, Repair, and Operating (MRO)

- Specialty Products ..... Raw~

- Unsought Products Processed Material.s - and Special Services - Component Parts

dcrstanding of why i~s important to classify products.

A convenience product typicaUy is a nondurable good or service that consumers purchase frequently with a minimum of comparison and effort. As the name im ..

plies, consumers expc,ct these products to be handy, and they will buy whatever brands are easy to obtain. ln g:cnc.ral, convenience products arc low priced and widely available. You can buy a gallon of milk or a loaf of bread at most any gToce:ry s tore, drugstore, or convenience store. Consumers generally already know all they need

or want to know about a convenience product, devote little effort to purchases, and willingly accept altemativc brands if their preferred brand is not available in a convc• nie.nt location.

What's the most important thing: for markete-.rs of coo• vcruencc prod.ucts? You guCSSL.,..j it-make sure the prod· uct is easily obtain.able: in all the places where consumers arc likely to look for it. It's a good guess that shoppers don't put a Jot of thought into buying convcn..ienc~ prod .. ucts, so a company that sells products like white bread might focus its strategy on promoting awareness: of a

CH APTER 8 j PRODUCT I : INNOVATION AND NEW PRODUCT DEVELOPMENT 239

brand name (evct try Bunn}' Bread? It's white bread at its finest!) as opposed to providing

a detailed "spec sheet" we might expect to find for a smartphone or other durable product.

There arc several types of convcnjcnce products:

• Staple products, such as milk, bread, and gasoline, 3J'C basic or necessary items that a.re

available almost everywhere. Most consumers don't percc:Jvc big differences among

brands. A particular category of staple products is called consumer packaged goods.

A consumer packaged good (CPG) or fast-moving consumer good (FMCG) is a low•

cost good that we consume quickly and replace frequently.

Like staple products in general, CPGs (or FMCGs) are also frequently purchased

but arc less basic, with more varlatio,,s than gen~al s taples. Importantly, they arc also

more brand<t!tltric,. and consumers tend to pcrccive more diliercnccs in product qual•

ity, features, and benefits, so th12 brands are heavily advertised. And in terms of dis,•

tribution, giant retailers use O'Gs and FMCGs to bring shoppers into the s tore, thus building foot traffic and incnc'1l.<ing the chances that other types of products will also

end up in shopping baskets (see discussion on impulse and shopping products that fol- lows). A few years back, the venerable treat 1\"1.nkies disappean.---d from distribution for a while bc..~usc of a closing and sale of the manufacturer. Then, to celebrate the victori• ous re-debut of the Ouffydclights, Walmart heavily promoted the arrival ofTwinkiesat

its s tores the weekend before the shipments arrived, resulting in a rush to their stores

on arrival (and no doubt a sugar rush among consume.rs immediately thereafter). And

if your Twinkie crave was on. who can go into Walmart and purchase just one item? 'lncir sales for that week w~ up across the board.

• While a s taple is something we usually decide to buy in advance (or at least before the fuel needle sits on ·~E'' for too Jong), we buy impulse products on the spur of the moment. When you throw a copy or l'eople magazine into your shopping cart b..--causc it has a cool photo of Christina Aguilera and her baby with a screaming headliJ,e "NEW BABY, NEW LIFE" on the cover, you're acting on impulse. When they want to promote impulse products, marketers have two challenges: (I) to create a product or package design that

• reaches out and grabs tJ,e customer" and (2) to make sure their product is highly visible,

(or example, by s«uring prime end-aisle or checkout-lane space. That's why you'll often find brightly colored packages or yellow creme Oreos on end caps in the spring or cheery packages of gum and candy in the checkout lines. Package design and placement is be-

coming ever more important as customers come th.tough the lines with '"mobile blinders" on-that is, customers ,•,.rith mobiJc phones in hand are more likely to send texts or check

Facd,ook while they st.:lnd in line, so they don't even notice the impulse products beck•

oning for thcir attention.' Ws getting harder and harder for a package of Juicy Fruit gum to oompetc with a juicy Facebook post. And advances in technology (such as physical devices that can transmit information based on locatioo caUOO beacons-more on this in

Chapter U) have made it possible for marketers to provide highly targeted promotions to

consumers' smartphoncs as ~,ey navigate ti,rough the s tore, driving impulse purchases

that in the past would have been mi,c;.sed for retaiJc.rs.6

• As the name suggests, we purchase emergency products when we're in di.re need; examples include bandages, umbrellas, and something to unclog the nasty bathroom

sink. Bc.."Causc we need the product badly and immediately, prire and sometimes prod•

uct quality may be irrelevant to our docision to purchase.

ln contrast to convenience products, shopping products a.re goods or services for which consumers wilJ Spt."nd time and effort to gather information on price, product at .. tributes, and product quality. For these products, consumers art:" likely to compare altema•

tivcs be.fore they buy.

Tablet computers arc a good example of a shopping product. They offer an ever•

expanding array of features and functions, and new versions oonstantJy enter the markcl

staple products Basico, necessa,y items that are a\'ailable almosi r,erywt,e<e.

consumer packaged good (CPG) o, fast-moving consumer good (FMCG) A low-cosi good that is consumed quialy and replaced frequently.

impulse products A p-oduct people olten buy on the spur of the moment.

emergency products Products we purchase VfflM we're in dire need.

shopping p roducts Goods or s«vices fOf vdl:ich consumers spend considerable time and effon gathering ilformation and c0tnparing altemati\oes before making a purchase.

240 PART THREE J DEVELOP THE VALUE PROPOSITION FOR THE CUSTOMER

spe<ialty products Goods or services tha1 have unique characteristics and are inparant to the buyer and lorwhidl he « she will devote significant effort to acquf e.

unsought products Goods or s«vices fOf vdl:ich a consumer has ittlt> awareness°' Wlterest until the product or a need for the produa is brought to his Of her aneotioo.

equipment Expensi\<e goods that an °'ganization uses in its daily ope<ations that last for a long time.

maintenance, repair, and operating (MRO) products Goods that a business customer consumes in a relatiwfy shott time.

raw materials P\'oducts of the fishing, lumber, ag!icuhural and mining industries that organizational customers purchase to use in their finished products.

The shopper has many trade-offs and decisions to make about a variety of features that can

be, bundled, including speed, screen size, functionality, weight, and battery life. And tablet

manufacturers understand your decision dilemma: They take great pains to communicate

comparisons to you in thcir advertising-and, as you might expect, they usually find a way to make their version seem superior.

Specialty products have unique charncteristics that are important to buyers a t almost any price. When gas prices arc down, hybrid vchidcs are less cost--c:ffective versus sta.n• dard cars yet many CQ1\Sumcrs still opt to shell out the premium prices to purchase them lx.'Causc of the importance they place on being environmentally friendly. Specialty prod·

ucts often have luxury connotations for which consume.rs are willing to pay a higher price to achieve a desired image-Rolcx versus Timex for example. Both keep time quite accuratcl}~ but the Rolex mystique commands considerable attention. Rolex justifies its

high price when the company points out that because of its high standards for quality and

design it takes about a year to make one of its watches.7

Consumers usually know a good deal about specialty products, and they tend to be, loyal

to specific brands. Cmerally, a specialty product is an extended problem-solving purchase

that requires a lot of effort to choose, meaning that firms that sell ~,csc kinds of products need to create marketing strategies that make their pnxlucts stand apart from the resl

Unsought products are goods or services (other than oonvcni<?ncc products) for which a conswncr has little a\.\ta.reness or inte:l\."Sl until a need arises. \.\'hen a college graduate lands his or h<,r first "real" job, typically retirement plans and disability insurance are unsought products. It ""luires a good deal of advertising or p,:,rsonal selling to interest young people in these kinds of products-just ask any life insurance sa!espetson. One solution may be, to make pricing more attractive; for example, reluctant consumetS may be more willing to buy an w,souglll product

for "only pennies a day" than ii they have to think about their yearly or lifetime cash ouday.

How Do Businesse s Buy Products?

Although consume-rs purchase products for thcir own use., as we saw in Chapter 6 organi·

zational customers purchase items to enable U,em to produce still other goods or sctviccs. Marketers classify 828 products based on how organizational customers use them. As with consumer products, when marketers know how their business customers lL-,C a product,

they are better able to design products and craft an appropriate marketing mix. Let's

briefly review the five different types of 828 products that Figure 8.2 depicts.

• Equipment refers to the products an organization uses in its daily operations. Heavy equipment, sometimes called installatio,rs o r capital equipment, includes items such as the sophisticated robotics Ford uses to assemble automobiles. Installations arc big-ticket

items and last for a number of years. Computers, photocopy machines, and water fountains arc examples of ligM ot accessory equipment; they arc portable, cost less, and have a shorter life span than capital equipment.

• Maintenance, repair. and operating (MRO) products a.re goods that a business customer

consumes in a relatively short time. Mainlerumce produds include light bulbs, mops, dean• ing supplies, and the like. Repair products are items such as nuts, bolts, washers, and

smaU tools. OJJ<>mling supp/ks include computer paper and oil to keep machinery running smoothly. Although some Finns use a sales force to promote MRO products, others rely on catalog sales, the Internet, and telemarketing to keep prices as low as possible.

• Raw materials are products of the fishing, lumber, agricultural, and mining industries

that organizational customers purchase to use in their finished products. For example, a food company transforms SO)'beans into tofu, and a s teel manufacturer changes iron ore into large sheets of steel that other firms use to build automobiles, washing ma-

chines, and lawn mowers.

CH APTER 8 j PRODUCT I : INNOVATION AND NEW PRODUCT DEVELOPMENT 241

• Firms produce processed materials when they transform raw matcriaJs from their original state. A builder uses treated lumber to add a dcc.k onto a house. A com• pany that creates aluminum cans for Red BulJ buys aluminum ingots to make them.

• In addition to tangible processed materials, some business customers purchase specialized services from outside suppliers. These may be equipment based# such as repairing a copy machine or fixing an assembly line malfunction, or non- cquipme:nt•bas'-"d, such as market research and legal services. These services arc essential to the operation of an organization but arc not part of the production of a product.

• Component parts are manufactured goods or subassemblies of finished items that or• ganizations need to complete their own products. For example, a computer manufac .. turer needs silicon chips to make a computer, and an automobile manufacturer needs batteries, tires, and fueJ injectors.

8.3 OBJECTIVE

Unde<stand the importance and types of product innovations..

"New and Improved!" The Process of Innovation "New and improved!"' What exactly do we mean when we use the

term m'W product? The Fedt>l'al Trade Commission says that (I) a prod· uct must be entirely new or changed signjficantly to be called new and

that (Z) a product may be caUed now for only six months. That definition is fine From a legal _perspective. From a market•

(pp. 241-243) ing st3ndpoint, though, a new product or an innovat ion is auytlring that customers perceive as n~w and different. Innovation has its roots in an even more elemental concept that is a hot topic in boardrooms of most organizations today: ere• ativity. Creativity describes a process that results in something new. Creative outcomes can take on many forms, but most often we experience them as something we can see, hear, smell, touch, or taste.3 The outcome can be most anything- an idea, a joke, an artistic or li terary work, a painting or mLL,;ical composition, a novel solution to a

problem, an inve.ntion, and of COllrse, a new product. Scientific research into crl'.!ativity provides strong cvidc.nce of the importance of creative processes in the production of novel, useful products.9

An innovation may be relatively minor, such as the thousands of new vctsions of cur• rent products, such as Chocolate Chcetios, we see: on the market each year. Or it can be something game changing like wearable technology to monitor personal health and fitness

worn on the wrist (e.g., the Fitbit Flex and tho Jawbone Up) or hoadsclS used to explore virtual reality (e.g., the Oculus Rift). It may come in the form of a now way to transmit in• Fotmation, such as when Skype VoIP telephony became available as a (n..~ service over th~ lntcmct, or as a ne-w way to power a vehicle, such as the hydrogen fuel cells in the Honda FCX Clarity. In some cases, an innovation may be a completely new product fl,a t pro- vides benefits never available before, like the original HP scientific caku]ator that nearly overnight made the slide rule obsolete (if the term slide r11le is foreign to you, we suggest Coogling it-a sJidc rule i,; how engineers used to make complex calcufations bclore H]'>•s

innovation). ln this section and the next, we focus heavily on the concept and process o(

product innovatjon, whkh, if done wcU, contributes mightily to organizational success.

processed materials Products created when fr-ms transform raw materials from their original st.ate.

specialized services Services that are essential to the operation of an organization but are not pan of the ptoduction of a product.

component parts Manufactured goods or subassemblies of finished items that otganizations need lo co~lete their Olffl produas.

innovation A product that consumers perceive co be new and different from existing products.

creativity A phenomenon whereby something new and valuable is ae.ated.

242 PART THREE ] DEVELOP THE VALUE PROPOSITION FOR THE CUSTOMER

Figure 8.3 ~ Snap.shot I Types of Innovations Types of Innovations Three types of innovations ate continuous. dynamically continuous. and Olscontinuous. based on their degree of newness..

Innovations differ in their degrw of newness, and this helps dcte-rminc how quickly the target matkct will adopt them. 8t.."Causc innovations that are more novcl rt.'q_uire us to exert greater effort to figure out how to US<> them, they are slower to spread throughout a population than

new products that arc similar to what is already available.

Dynamically Continuous

Discontinuous

Types of Innovations

continuous innovation A mocific.ation of an existing pcodua that sets cne b'and apan from its competitOfS..

knockoff A new product that copies. with sligh1 modification. the design of an original product.

Continuous

As~ Figure S.3 shows1 marketers classify innovations into thn..""<! categories based on thcir degree: 0£ newness: continuous innovations, dynamically continuous innovatiOI\S, and discontinuous innovations. However, it is bctttU to lhink of these three types as ranges along a continuum that gOL'S from a very small change in an e.xisting product

to a totally new product. We can then describe the three types of inno- vations in terms of the amount of dlang:e they bring to p.."'Oplc's lives. For e.-x.amp1e, the ft.rst automobiles caused tremendous changes in the Jives of poop lo who were us.xi to getting places by "horse power.• Then airplanes came along and ope:ned the entire world to us. And now, with innovations like the Triplingo app., you can communicate

easily while traveling abroad. TripLingo comes with a real-time trans• lator-just speak into your phone, and it speaks back to you, at what .. ever speed you choose. It even has a Slangslider so that you can set the level of formali ty.10

On the idea side, Airbnb changed how travelers book a place to stay at their desti.na.• tions (by allowing virtually anyone to rent out space in their own homes), and Ubcr's app provides a new way to get to this dcsHnation (by allowing virtually anyone to become a taxi driver and pick up fares when people summon a ride on their phones). With a whole new world of travel opened up through th= apps and all of the data those travel plans generate, an app such as Trip It is a nice innovation h) have handy. The app aHows a usc-r to fonvard any confirmation c,.·inails received associated with a trip so that the important de• rails can be automaticalJy organized into an easy to use djg;ital itinerary. Very convcnient!11

Continuous Innovations

A continuous innovation is a modification to an existing product, such as when Samsung

and others reinvigorated the TV market by offering thinner sets that featured high• definition viewing. This type of mod.ification can set one brand apart from its competitors. For example, people associate Volvo cars with safety-in fact, their taglines include "Safety first, always" and #You're not just driving a car, you're driving a promise." Those are

KESHI:

strong words, and Volvo backs them up with a steady stream of safcty•rclated innovations.

The consumer doesn't have to learn any•

thing new to US1? a continuous innovation. From a marketing perspective, this means that it's usually rclativcly easy to convince consumers

to adopt this kind of new product. For example, the current ge:ncration of high-<iefinition plasm.a flat .. scrren monitors didn't require computer US•

e.rs to change thcir behaviors. We all know what a computer monitor is and how it works. The system's continuous innovation simply gives us-- crs the added benelilS of taking up less space and being easier on lhc eyes than old.style monitors.

Relatively new products like ltis Alrkan mascara l>'ard need to \\Olk hard to aeate a distinctiYe inage ;rod A knockoff is a new product that copies,

with slight modification, the design of an original product. Fums deliberately create knockoffs of st?n:I out in a cranded marketplace.

CH APTER 8 j PRODUCT I : INNOVATION AND NEW PRODUCT DEVELOPMENT 243

clothing and jewelry, often with the intf!n t to sell to n larger or different markct. For example, oompanies may copy the ha11te co11/11rt clothing styles of top designers and sell tMm at lower pri<>.'S to the mass markel It's likely that a cheaper version of the gown Jennifer Lawrcnc.>

wears to th!.? Academy Awards ceremony will be available at numerous websites within a few days afi er the event It is difficult to legally protect a design (as opposed to a technologi· c.a.1 invention) bcc.lusc an imitator can argut" that ever, a slight change-different buttons or a

slightly wider collar on a dress or shirt-means tJ,e knockoff is not an exact oopy.

Dynamically Continuous Innovations

A dynamically continuous innovation is a pronounced mod.ification to an existing product that requires a modest amount of learning or change in behavior to use it. The history

of audfo equipment is a series of dynamically continuous innovations. For many years, consumers enjoyed listening to their favorite Frank Sinatra songs on record playi.m; (actu• ally, when first introduced, they were called Gramophones). In the 1960s, teeny boppers screamed and swooned as they listened to the Beatles on a continuou:;.play cight•track tape (requiring the p urchase of an eight-track tape player, of course). Then came cassette tap,,s to listen to the Eagles (oops, now a cassette player is needed). In the 1980s, conswners could hear Mctallica songs digitally ma.,;tered on compact discs (that, of course, n.-quired the purchase of a new CD player).

But of course, in U,e 1990s, recording technology moved one big s te-p fon...-ard with

MP3 technology; it allowed Madonna funs to download music En>m the lntcmel or to exchange electronic copies of the music with others, and when mobile MP3 play€..rs hit the scene in 1998, fans could download the tunes diroctJ), into a portable p layer. Then, i:n

November 2001, Apple Compute r introduced its first iPod (can you believe it's been that long!). With the original il'od, music fans could tike 1,000 songs with them wherever they went. By 2010, iPods could hold 40,000 songs, 25,000 photos, and 200 hours of vidco_ll

Music fans go lo the Apple iTunes Store or elsewhere to download songs and to get sugges- t:ioi,s for new music they might enjoy. Of course, today you can do all this on your smart• phone. With imptoving data p lans and coverage as wc.U as w. .. ft bcing available almost cvru-ywhere outside the home, it's easier than ever to s tream music on your smattphonc or tablet as opposed to downloading it on a device. Although Apple s till sells iPods, sales p lummeted fro.ma peak of nearly 55 million in 2008 to less than 15 million in 2014 because

many of us have moved on to using our il'.>honcs instead. But in marketing, the s tory never ends: Now even mighty Apple sees sales dropping dramatically as the market for il'hones gets saturated and consumers wait to buy "the next big th.ing."0 Maybe a vittual reality Gramopho,,e?

Discontinuous Innovations

To qualify as a discontinuous innovation., the product must create major cJ1a11gL'S in the way we live. Consumers have to learn a great deal to be able to effectively use a discontinuous innovation because no similar product has ever been on the market. Major inventions,. such as the airplane, the car, and the TVl are the sort of innovations that radically changed mod .. cm lifcStylcs. Another discontinuous innovation, the personal computcr-dcvc.lopcd i:n

fairly close parallel to the rise of the lntcrnet-chan&cd the way we shop and allowed more people to work from home or anywhere: clse. Since the: advent of PCs, the move toward processing the same information on tablets and on handheld devices bt."'Came a follow•up

journey in dynamically continuous innovation. One particular type of discontinuous u, .. novation is convergence,. which mean.,; the coming together of tvlo or more technologies to create- new systems that provide greater benefit than the originaJ technologies alone.

What's the next discontinuous innovation? ls the.re a product out there aln.v.idy that wW gain that distinction? Usually, marketers know for sure only through 20/20 hindsight; in other words, it's tough to plan for the next really big one (what the computer industry calls the ·killer app•).

dynamically continuous innovation A change in an existing ~odua that requ.ies a moderate amount of learning a, behavior mange.

discontinuous innovation A totally new produa !hat creai,s major changes in the way we five.

convergence The coming 1ogether of two°' mOl'e technologies to create a new system with ,-eater benefits than its separate part:s.

244 PART THREE J DEVELOP THE VALUE PROPOSITION FOR THE CUSTOMER

research and development (R&D) A well-defined and sy,tematic approach to how innovation is done within the firm.

new product development (NPD) The phases by which firms develop new products. including idea generation. product concept deveiopment and screening. marketing strategy development, business analysis. technical development, test madeting, and commercialization.

idea generation (ideation) A piase of product dl!Yelopment in which markete,s use a variety of sources to come 14> with great new produa ideas that provide customer benefits and that are ccmpatible with the co""any mission.

value co-creation The process by v.flich benefits-based value ~ aeated throogh coOaborative participation by rustomers and other stakeholders in the new JXoduct development ixocess

Metrics Moment

8.4 OBJECTIVE Show how fvms

develop new

products.

(pp. 244- 249)

New Product Development Building on o ur knowledge of the concept of creativity and the different t}'pcs of innovations, we'll now turn our a ttl.:':ntion to how

firms ac-tuaJly develop new products. TMs process is based on cxpenditu.tes in research and development (R&O), which in most

organizations is a v,.rcll-deJined and systematic approach to how it innovates. Investors and financial markets closely scrutinize R&D investments bL'Causc these expenditures tend to p redict how robust

the firm's o ncoming new product stream will be. In fact, R&D investment in and of itself

is often a central metric for organizational commitment to innovation. Higher levels of R&D activity a.re inherently more competitlve:I}' important in some industl'ics ve:rsus others (high tech and pharmaceuticals arc examples on the: high side), but as we saw

in the case of Under Armour at the beginning of the chapter, in any firm new product development is fueled by investment in R&D.

There are seven phases in the process of new product development (NPD), as[&Figure8.4 shows: idea generation, product concept development and screening, marketing strategy de- velopment, business analysis, technical devclopmcn~ market test, and commercialization. Let's take a quick look at what goes on during each of ti= phases.

Phase 1: Idea Generation (Ideation) ln the initial idea generation (or ideation) phase of product development, marketers use a variety of sources to come up with great new product ideas that provide customer benefits and that are compatible with the company mission. Sometimes ideas con,c from custom- etS. fdeas also come from sa1espcop1e:, service providers, and others who have direct

ClL<;tomcr contact. Value co•creation refers to the process by which an organization creates worth through coUaborativc participation by customers and other stakeholders in the: new product development process.

How do marketers meas.ure innovation? Short answer: It's pretty complex. This is because it involves not only marketing but als.o the firm's overall culture, k?adership. and processes in place that foster innovation. Here's a short list of measures that when taken as a whole can provide a firm's "Innovation Score Card:

Outcomes of Innovation

• How many innovations have been launched in the past three years? • What is the percentage of sevenue attributable to launches of

innovations during the past three years? 14

Firm Strategy

• How ;mare are organ.izaDOn members of a firm's goak for innovation? • How committed is the firm and its Jeadership to those goaJs? • How actively does the firm support innovation among its organiza·

tion members? Ale there rev,ards and other incentives in place to innovate? Is innovation part of the performance evaluation process?

• To what degree do organization members perceive that resources are avaRable for innovation (money and otherwise)?

Firm Culture

• Does the organization have an appetite for learning and uying new things?

• Do otganization members have the freedom and security to try thing~ fail and then go forward to uy different things?

Apply the Metrics

1. Select a firm that you are particularly interested in and mat you believe ts pretty imovative.

2. Do a little research on its website and elsewhere to get a sense for the evidence about how it performs on the Score Card's criteria for innovativeness.

3. Summarize your findings; how does the firm score on the lnnova· tion Score Card. Consider each item that requires a rating (e.g., the "Firm Strategy"" section of the scocecard} on a scale of 1 to S where S is the highest or most favorable rating and 1 is the lowest or least favorable rating?

4. In general do you fmd that the firm is more or less innD'lative than you expected?

CH APTER 8 j PRODUCT I : INNOVATION AND NEW PRODUCT DEVELOPMENT 245

Lego devclopcd an o.nline platform called Lego Ideas where users can suggest new Lego sets and s,,ek to have them turned into physical products by the company. Lego Ideas enables users to provide a description, a visual represcntatia,, (build a representation of the product physically or digitally using !..egos), and to specify the characterLstics of their pro- posed Lego set. Then, any new ideas that attract more than 10,000 supporters in a two-year period on the platform move into a review phase, a t ,,1hich point Lego determines whether

or not it's feasible to tum the idea into a mass .. produced Lego set. As part of the vetting process, folks who throw their support behind a particular proposed product answer a series of questions to determine market potential (questions related to perceived price, segments of the market the set would appeal to, complexity of building the set, c tc.).This approach to value co-aeation has yielded some massive successes for Lego including the first Mineo-aft set that paved the way for future sets to be made that leverage the Minccraft

intcllcctual propcrty.15 It's important to note that such a value co--creation approach is in stark contrast to ''traditional" approaches in which firms develop products behind a curtain and send them to market_, hoping that customers connect with the intended value

proposition of the nc" .. , offering. Often firms use marketing resea.n'..'h activitir:s~ such as the focus groups we discussed in

Chapter 4, in their search for new product ideas. For example, a company like ESPN that

wants to develop nC\\1 channels or change the focus of its existing chan.ncls might hold focus group discussions across different groups of spo.rts--minded vicwc.rs to get ideas fo.r new types of programs.

Phase 2: Product Concept Development and Screening The second phase in developing new products is product concept development and screening. Although ideas for products initially oomc from a variety of sources and, it is

hoped, through co...:reation with customers and others, ultimatcly the responsibility us.u• ally falls to marketers to manage the proo..--ss and expand these ideas into more complete product concepts. Product 001,ccpts describe what features the product should have and the bcne-fits those featun..'.'S will provide for consumers. Of course, just bt..~use an idea is unique doesn't mean it will sell. How about the Japanese company that invented an app to allow your smartphone to control your toilet? It lets you flush and lift the seat without touching the commode. But wait, there's more:: You can play music through the toilet's speakers, and store your .. usage history" in a "toilet diary" to track your progres.s. Now this idea is flush v.,ith possiliilitics!16

ln new product development, faiJurcs often come as frequently (or more so) than suc- cesses, and it is critical to screen ideas for both their technical and commercial valul?. When screening, matketcrs examir,e the cha.ores that a new product concept might be successful

while they weed out concepts that have little chance to make it in the market. They esti• mate technical success when they decide whether the new product is technolog·kally (ca ..

s iblc-is it possible to actually build this product? TI,cn they estimate commercial success

when they decide whether anyone i$ likely to buy the product. Lego uses its Lego Ideas process to estimate the potential commercial success: of a new product in terms of the number of supporters the: idea attracts. Its potential technical success comes into play only

if the product gains enough support to make it to Lego's internal review. 1J the: product concept reaches this benchmark, the company will then conduct an analysis of whether it can actually produce it.

Phase 3: Marketing Strategy Development The third phase in new product dcvelopmc.nt is to develop a marketing strategy to introduce the product to the marketplace, a process we bega1, to talk about back i:n

Chapter 3. This means that marketers must identify the target ma.rkct, estimate its s ize, and determine how they can effectively posit.ion the product to address the target

Figure SA [/4] PrOCl!ss I Phases in New Product Development

New produc1 development generaDy occurs in seven phases.

Phase 1: Idea Generation

t Phase 2: Product Concept

Development and Screening

t Phase 3: Marketing Strategy

Development

t Phase 4 : Business Analysis

t Phase 5: Technical

Development

l Phase 6: Test Marketing

t PhMe 7: Comme rcialization

product concept deve lopment and screening

'

The second step of produa de'lelopmen1 in which marteters test pcodua ideas for technical and commercial success.

technical success Indicates that a product concept is feasible pureiy from the standpoint of whether °' not it is possible to physicaly develop it. regardless of \\llether n is perceil/ed to be cornme<cialy viable.

commercia l success lndica1es tha1 a product concept is feasible from the standpoil>t of whether the fwm developing the produa believes there is or will be sufficient consume, demand to warrant its deveklpmem and entry into the market.

246 PART THREE J DEVELOP THE VALUE PROPOSITION FOR THE CUSTOMER

The direclll< ol culinary imvalion at Mc!mald's recent~ came LI> with a '*"'*' idea: He look the breaded clicl<en the chain uses il i1s Chicken Selects slnps, lqlped It \Wlh slud- ded cheddar jack cheese and lettuce, added a few squi~s ol ranch sauce, an! wrapped It in a flour tortilla. Mc!mald's dubbed ft !he •snack Wrap' and put ft m the menu at a s!a1er pn;e ol Sl .29. A hi! was born-the Snack Wrap is one ol the mos! successful new prab:l lai.m,es in cm,pany history with sales e>eeeding prcjedions by 20 percent.

market's needs. And, of course, marketing sh'ategy devel- opment includes planning for pricing.. disl'ribution, and promotion expenditures both for the introduction of the new product and for the long run.

Phase 4: Business Analysis

Once a p roduct concept passes the screening s tage, the next phase is a business analysis. Even though marketers have evidence that there is a inarkct for the product, they still must find out if the product can make a profitable contribu• tion to the organization's product mix. How much potential demand is there for the- prod uct? Docs the firm have the resources it will need to succcss£ully develop and introduce the product?

The business analysis for a nc-w product l,c.gins with

assessing how the new product will fit int·o the firm's total product mix. Will the new product increase sates., or will it simply take away sales of existing products (a concept called

caunlbalization that wc'U discuss futthcr in Chapter 9)? Ate the-re possible synergies between the new product and the

business analysis The step in the pro<lJct developmMt process in which marteters assess a product's commercial viabi:ity.

company's existing offerings that may improve- vi,;ibility and the image- of both? And w hat

arc the marketing costs likely to be?

Phase 5: Technical Development technical deve.lopment The step in the prcdm devefopment process in which COl11)any engineers refine and perfoo a new product.

1£ a new p roduct concept sutVives the scrutiny of a business analysis, it then undergoes technical development, in which a firm's engineers work with matketc.rs to refine the de• sign and production proet.'SS. A great example of the technical development phase involves

Ripped fr:Jn, tr'• - Headlines Ethical/Sustainable Decisions in the Real World Over the years, automobile companies have come undef increasing pressure to produce cars that are more fuel efficient and better for the environment. Fuel efficiency is commonly measured in miles pe1' gallon of gasoline. Measl.l'es of environmental benefit can include greenhouse gas and other aW ixiUuting emissions..17 Driven in part by consumer senti· ment~spedalty among millennjals-and governmental regulations. car c~anies have worl<ecl hard to innovate to offer vehides that provide more value for their money and a lesser impact on the environment

Volkswagen (VW) found itself in a lot of trouble with government agencies and the public when it came to light that 11 million VW cars were manufactured with so-called •cheating software" that enabled each of those vehicles to es.sentjally sense when an emissions test was being conducted and then direct the engine to operate in a manner that wouJd significantly reduce 00th power and performance and in tum lower the level or pollutants the tests measured. When the vehicle's software sensed that a test was no longer being performed it reverted the vehicle back into normal operations. which meant a significant increase in the amount of environmentaJ pollutants being emitted

ind udlflg niuogen oxide at 40 times greater than what is permitted in the U.S. 18 The discovery of this cheating software in many of VW's vehicles led to profound consumer backlash and shunning of the brand that will likely continue ro impact VW for some time.

Diesel cars offer strong fuel economy on a par with hybrids. Unfonunately, the VW scandal has shaken consumer confidence. VW played a significant role in bringing diesel cars into the mainstream in the U.S., and it is quite possible that WI s admission that it cheated on tests will make buyers mptical about the environmental per- formance of diesel cars in general 19 When al is said and done. fines from governmental agen- cies against WI win be in the billions of dollars and the costs of physically correcting the issues on a ca.Ho-car basis will be at a comparable level. The ~ct of this ..,,..,,t on brand equity and consumer confidence c,,.,er the bng term also v.ifl be measurable and signilicant and the future of the VW brand is unc«tain e,pecially with enlJironmentaO, conscious milennials.

ETHICS CHECK:"-

Should manag- eB wbo ate bolh knowlngty and actt,ely Involved In 1he development of automobiles that 811! designed to cheat govemment nm- dated enwonmental tes1S be held arnl- nally acaiurtable?

0 YES O NO

CH APTER 8 j PRODUCT I : INNOVATION AND NEW PRODUCT DEVELOPMENT 247

fl,e company goTcnna, which nc-cently laund,ed a product to enable people to be able to communicate with each other using their smartphooes while in an area without cell phone coverage. The product (also named goTenna) uses radfo signals to create a network bch\'CCJ"I multiple g·oTenna devices that, along with the company's smartphonc app, provides a means of com ..

munication between multiple users of the product within a given area. One valuable application of goTenna is during wiJde:mess ~xcursions, whe:rc potentially intense weather conditions make it even more dffficult to receive

cell phone signals. The goTe=a's design is lightweight, it's easy to attach to the outside of a backpack or one of the belt loops on a pair of pants, and it's watcM·csistant. Although many of these characteristics were most likely

identified to some degree during an earlier stage of the product develop-, ment process, the company's marketers needed to work with the engineer .. ing team during the technical development phase to more fully flesh them

out into a tangible form that fits with both consumer needs and the internal

EGETABLE HATERS REJOICE! '" -"'·--···-·.,. ... ~

. WHAT'S YOUR NUMBtR?"

capabilities of the:compan)'.20

The better a firm understands how customers wilJ react to a nc-w prod ..

uct; the better its chances of commercial success. For this reason, typically a company allocates resources to develop one or more physical versions or prototypes of th!? product. Prospective. customers may cvaJuatc these mock•

ups in focus groups or in field trials at home. Prototypes also are useful for petlplc within the firm. Those involved

in the t«hnic.al development process must determine which parts of a fin•

ish~ good the company will make and which ones it will buy from other suppliers. In the case or manufacturing goods, the company may have to buy new production equipment or mocti/y existing machinery. Someone has

New flavors need ID undergo fi!polis rectrtical development so conpanies can be sure they will satisfy COf'6llmers • expectations.

to develop work U\SlTuctions for employei..~ and train them to make the product. When it's a matter of a new se.tvicc process, technical development includes decisions such as which activities will occur within sight of customers versus in the ''backroom',. and whether the

company can automate parts of the service to make delivery more cFEicicnt~ Technical development sometimes n.'quircs the company to apply for a patent.

Because patents legally prevent competitors from producing or selling the invention, this

legal mechanism may reduce or climinah? competition in a market for many years so th.at a firm gains some time to recoup its investments in techt1ical development.

Phase 6: Market Test

The nex.t phase of new product devc-lopment is running: a market test (also known as a t est mari<et). This usually means the firm tries out the complete marketing plan- ~,e rustribu· lion, advertising, and sa.le:s promotion- in a small slice of the market that is similar to the larger market it ultimately hopes to enter with full force.

There are both pluses and minuses to market tests. On the negative side, market tests

arc extremely expensive. It can cost more than a million dollars to conduct a market test even in a single city. A market test also gives the competitio.n a fn.--e look at the nc-w prod• uct, its introductory price, and the intt.--ndcd promotional strategy-and an opportunity

to get to the market first with a competing product. On the positjvc side, when they of .. fer a new product in a limited an.v.i, marketers can evaluate and improve the marketing program. Sometimes, market tests Wlcovc.r a need to improve the product itse:lf. At other

times, market tests indicate product failure, provirung an advanced warning that aJJows the firm to save millions or dollars by "pulling the plug.•

fior yea.rs., the manufacturer o( venerable Listerine wanted to introduce a mint•flavorcd

version of its dass:ic gold formulation to compete more directly with P&C's pleasanH asting Scope (it originally introduced this altemati,•~ under the brand Llstennint). Unfortunately.

prototypes Test ve/Sions of a prOjlOSed proooct.

patent A legal me<hanism to prevent competitors from pcoducing or selling an inventiol\ aimed at reducing or eliminating competition in a market b a period of time.

martc.et test or test market Testing the complete mart.ting plan in a small geographic area that is similar to the larger market the film hopes to enter.

248 PART THREE J DEVELOP THE VALUE PROPOSITION FOR THE CUSTOMER

Pepsi is ITIOWlQ it'i0 the restaurant business as ii q>ens Kda House in a h1) area m kffl'er Manhattan. The restaurant-bar-event sp;Y;e wl bull bJzz for Pepsi, rul also serve as a testing ground for new products.

every time they tried to run a market test, P&C found out, and the rival poured substantial extra advertising and cou• pons for it$ Scope brand into the test market cities. This counterattack tL'<iuced the usefulness of the test market re. suits for Listerine when its market planners tried to decide whether hl introduce List.mnint nationwide. Bcca~ P&..,C's aggressive response to Llstc-rm.int's market tests actually in .. cn.>ased Scope's market .s.hare in the test cities, the~ was no way to determine how well Llstcrmint would actually do

under nonnal competitive conditions. The company went ahead and introduced Listctmint nationally anyway, but the new brand achieved only marginal success, and the company

ultimately pulled it £mm the market. Today, thanks to better product development, the Listerine brand itself is available in mint flavor as weU as sc-ve:ral other choices and is the t~

selling mouthwash. 21

simulated market te,st Application of special co~uter software to initate the introduction of a proooct into the marketplace allowing the company to see the ikely i~aa of price ruts and new pactaginr ex even to determine where in the store it should uy to place the produa.

commercialization The final <tep in the product develQ?'tlent p-ocess in wt»ch a new produa is launched ftlto the marl:et.

crowdfunding On6ne platforms that allow thousands of individuals to each contribute small amounts of money to food a new product from a startup co~any.

llc'Clusc of the potential problems and expense of market tests, marketers instead may use special computer software tQ conduct a simulated market

test that imitates the introduction of a product into the ma.rketplace. ~ simulations aJ. low the company to sec the likcly impact of price cul'> and new packaging-or even to de,., termine where in the store it should try to place the producl The prOC<?SS entails gathering

basic research data on consumers' perceptions of the product concept, the physical product, the adv\!l'tising., and other promotional activity. The test market simulation model uses that information to pl'l.>dict ~,e product's success much less expensively (and more di<ercctly)

than a traditional test market. As this technology improves, traditional test markets may bc--comc a thing of the past.

Phase 7: Commercialization The last phase in new product development is commercialization. Th.is means the launch· ing of a n~w product, and it requires full.scale production, distribution, advertising, sales

promotion- the works. For this reason, commercialization of a new product cannot hap• pen ovemight. A law,ch requires planning and careful preparation.

Commercialization is expensive, but the lntcmct makes it much easier for start•ups to

obtain the funding they need to get their new products into the market. Today, we v.ritncss the explosive growth of crowdfunding, where innovative websites such as Kickstarter.coml lndiegogo.com., and Crowdfundc.r.oom have raised more: than $5 billion for cntreprenc~u.rs

and small companies (not to mention the popular TV show Slrnrk Tank, which also provides funding: for contestant'> who coo~rUlcc one or more Sharks to join them). On these sites, individuals can choose to c.ithe:r donate money (often in exchange for a product sample) or invest in the co,npany.22 Under this model, cve:n small contributions add up when hun ..

drcds or thousands of people like an idea and pitch in. As launch tin,e nears, preparations gain a sense of urgency. First, the social media

campaigns arc UkcJy to crank up and hopefully insiders will then start to buzz about the new product on T\vitter and in the blogosphcrc. Then sales managers will have to explai:n special i:nccntive programs to salespeople, who in turn will educate alJ of their customers in the channc:I of distribution. Soon the media announce to prospective cus• tomcrs why thoy should buy and where they can find the new product. And aU of this has to~ orchestrated with th~ precision of a symphony, with every player on top of his

or het part:., else the introduction into the matkct can easily disappoint customers when they first try to buy.

The late Apple innovation gc.n.ius Steve Jobs was never one to squelch ptcoommer•

cialization hype about his new product introductions. It has b<,en cstim.itcd that Apple

CH APTER 8 j PRODUCT I : INNOVATION AND NEW PRODUCT DEVELOPMENT 249

achieved prelaunch publicity worth more than $500 million on the originaJ iPhone before

it spent a single penny on any actual paid advertising. And the introduction of the original

il'ad back in 2010 was no exception to the Apple hypc-acation machine. Jobs claimed that

the iPad would offer an experience supc:rior to that of nctbooks (a popular term a t the time

for notebook computers). He argued that the 751 million people who at that time owned

i.Phoncs and i.Pod Touches already knew how to US{! the iPad bt..'Causc it uses the same op• crating system and touch'"5cn..""C.r\ interface. Well, as they sa)~ the rest is history. Since 2010, the iPad and its bevy of competitors have had a major impact on how we work and en• tertain oursclves.2.1 The re.Ocction on the LPad introduction provides a perfect segue to the

next sectior, on adoption and diffusion of innovaHon.

8.5 OBJECTIVE

E:xplain the process

of produa adoption

and the diffusion of

innovations..

Adoption and Diffusion of New Products In lhc previous section, we talked about the steps marketers take to

develop new products from generating ideas to launch. Now we'll

look at what happens after that new product hits the markct- hmti.r an innovation spn."3.ds throughout a population.

A painting is not a work of art until someone views it. A song is (pp. 249-255) i\Ot mus ic until someone sings it.. ln the same way, Jlew products do

not satisfy customer wants and needs until the customer actually uses (consumes) them- hence the word cous11mer. Product adoption is the process by which a cons~r or business customer begins to buy and use a new good, service, or idea.

The term diffusion describes how fl,e use of a product spreads throughout a popula-

tion. One way to understand how th.is process works is to think about a new product as if it were a computer virus th.at spreads from a few computers to infect many machines. A brand might Just slog around-sometimes for yC!ars and years. At first, only a small num•

bcr of people buy it, but change happens in a hurry when the process reaches the moment

of critical mass. This moment of truth is called fl,e tipping point.24 Alter ~,ey spend months

or even years to develop a new product., the real challenge for firms is to get consumers

to buy a.nd use the product and to do so quickly and in sufficient quantities so they can

recover the costs of product development and launch. To accomplish this, marketers must

understand the product adoption process.

Next we'U discuss the stages in this process. 'A'e'U also sec how consume.ts and busi•

nesscs differ in their eagerness to adopt new products and how the cha.ractcristics of a

product affect its adoption (or "infection") rate.

Stages in Consumers' Adoption of a New Product Whether the iru,ovation is the next breakthrough in smartphonas or a better mousetrap, in•

dividuals and organizations pass through six stages in the adoption process. IJJ Figure 8.5 shows the adoption pyramid, which reflects how a person goes from being unaware of

an innovation through stages from the bottom up of awareness, intercs.t, eva!uaHo,,, trial,

adoption, and confirmation. At every stage in building: the pyramid, people drop out of the

process, so the proportion o( consumers who wind up actuaUy using the innovation on a

consist.ml basis is a mere fraction of those who are exposed to it.

Awareness

Atoalt!ttess that the innovation exists at all is the ftrst step in the adoption process. To

cducab? consumt?rs about a new product, marketers may conduct a massive advertising

product adoption The process by which a consumer Of business customer begins to buy and use a new good. service. or idea.

diffusion The process by v.tlich the use of a produa spreads throughout a population.

tipping point In the context of product diffusion, the point when a product's sales spike from a slcm dimb to an unprecedented ~v level

adoption pyramid Reflens how a person goes from being unaware of an innovation drough stages from the boncwn up of awareness, interest, evaluatKll'l. lrial adop(ion, and confrmation.

I i

250 PART THREE ] DEVELOP THE VALUE PROPOSITION FOR THE CUSTOMER

Figure 8.5 ~ Process I Adoption Pyramid

Consumets pass thtough six stages in the adoption of a new product- from being unaware of an innovation to becoming loyal adopt•"· The right marl:eting sttat~ies at each stage help ensu,e a successful adoption.

media blitz A massive advertising campaign that occurs over a re4atively short time frame..

Reinforce the customers choice through advertising, sales promotion. and other communications

Make the product available Provide product use informat ion

Oemonstratjons, samples, trial-size packages

Provide information to customers

Adoption

Trial

Evaluation about how the product can benefit them ~-------------". May use teaser advertising Interest

Massive advertising Awareness

campaign: a media blitz. For tho launch of its Samsung Galaxy S7 smartphone, Samsung chose to place a significant emphasis on developing content that could be shan.>d through

social media. Before the product launched Samsung devoted significant resources to the development of a campaign called the "Seven Days of Unboxing,'' which included a special website and a series o( short videos disseminated online. Each video reaturcd a

difforent character going into a sealed room for 30 seconds to unbox the product and then coming out and illustrating what they saw. The videos included (among others) a child, a llama that likes to paint, and a pastry chef. Tho campaign generated incredible buzz for the

product loading up to its official unboxing.""6 At this stage, though, some con..;umers will say, .,.So there's a new smartphone out

there. So what?" Many of these consumers-a good portion of whom are probably not current Samsung smartphonc O\'<tners-o( course will fall by the \'ltayside and thus drop out of the adoption process. But this strategy works for new products when at least some consumers sec a new product as something they want and need and just can't

Uve without.

Interest

Slyde Handboards faces a particularly daunlilg challenge: how lo create a marl<et for a prau:t most people have never helrd ol, and for a sport lhey know nothing allouL Hand· boards r..-, bodyboarders moYe faster and have more cmtrol in lhe water, but a very smaJ nullt>er of surfers kmw abrul than-so far.

For some of the people who b~ome aware of a new product, a second stage in the adoption process is in/t•r· est. In this stage, a prospective adopter begins to see how a new product might satisfy an existing or newly real ..

izcd need. Interest also means that consumers look for and arc. ope:n to information about the innovation. ln the months after the launch of the Samsung Galaxy S7, the

company continued to build interest in the product with a series of videos featuring the C rammy .. winning rapper Lil' Wayne. One of tho videos showcased the product's

wat"er .. rcsistant capabilities through a comical scene in which Lil' Way·ne is shown in a s tore dousing the device in expensive champagne and then using it to make a

mobile payment for another bottle of champagne. Tho commercials featuring the rapper were v iewed well over 10 million times on YouTubc and videos and gifs created from them we.re viewed more than 30 million times on

Face-book and Twittcr.27 Other ads featu red the Galaxy S7's wire.less charging capabilities and its role in enabling

CH APTER 8 j PRODUCT I : INNOVATION AND NEW PRODUCT DEVELOPMENT 251

the use 0£ the Samsung Ct?ar VR headset fot virtual reality experiences. Samsung's ef• forts to c.ncourage consumers to consider an iPho,,c alternative paid off big time. The Galaxy 57 had a tremendous product introduction despite Apple's percn niolly tough

competition. However, this approach doesn't work with a ll products, so marketers often design

teaser advertisements that give prospective customers just enough inlonnati01, about the

MW product to make them curious and to stimulate their interest. Despite marketers' best efforts, however, some more consumers drop out of the p rocess at this point.

Evaluation In the eoo.luatiou stage, we weigh the costs and benefits of the new product. On the one hand, for complex, risky, or 1.?.Xpc-nsivc products, people think about the innovation a great

deal before they will try it. For example, a firm will carclully evaluate spending hundreds of thousa.nds of dollars on manufacturing robotics prior to purchase. Marketers for such products help prospt.'.>Ctive customers SL~ hO\tit such products can benefit them.

In recent years, Callaway (the golf d ub manufacturer) has portnercd with Boeing to deploy some of the aerodynamic know•how and design clements that Boeing has devcloped for use in airplanes in to the dcveJopme:nt of a nc,,1 set of drivers. Although

some consumers aught be initially skeptic,! of the end product of this partnership, Ca1Jaw.1y has worked hard to educate consume.rs on w hy this odd coupling or two companjes has resulted in better performing golf d ubs. To hammer home the poin t,

Callaway convinet.>d several of its sponsored pm golf players to use the new clubs in the Masters tournament. £f this product is good enough for arguably the most prestigious tournament in golf, it stands to reason they would make a g reat addition to most casual

golfers' arscnals.28

A,:;, we've seen in the case of impulse products., sometimes little evaluation may oc .. cur before someone decides to buy a good or service. A pc-rson may do very little think•

ing before he or she makes an impu'lse purchase, like the virtual Tamagotchi (Japanese for •cute little egg•) pets. For these goods, marketers design the product to be eye-catching and appeiling to get consumers to notice the pmduct quickly. Tamagotchis certa.inly did

grab the a ttention of consumers,. who bought more than 79 million of them since the fll'St generation came out.29

Some potential adopters will eval-

uate an innovation posjtivcly enough to movl' on to the next stage:. Those who do not think the new product will provide adequate benefits drop out a t this point

Trial

Trial is the s tage in U,e adoption p ro-

cess when potential buyers will actu• ally experience or use the product for the first time. Often marketers s timu•

late triol when they provide oppor- tunities for consumers to samplc the product. Mountain Ckw·'s Kickstart

product is positioned primarily as a carbonated energy drink for consump· tioi, at the start and end or the day. lt is deorly targeted to a younger audience

impulse purchase A purchase made without a"( planning or seardl effon.

and has been successful since its initial Mountai:1 Dew's Kict(slart tn.d< offers samples to consumers to encourage trial of a new product.

252 PART THREE ] DEVELOP THE VALUE PROPOSITION FOR THE CUSTOMER

beta test Limited release of a product. especially an ilnovative tedvlology, to alJow usage and feedbadt from a small number of cuswme,s who are witting to test the p-oduct under normal eoteryday conditions of use.

bleeding edge technology An innovati\le technology that is not yet ready for reJease to the market as a whole. potentially because of issues related to reliability and stability, but is in a suitable state to be offered fOf beta testing to evaluate consumer perceptions of its perfonnance and identify any potential issues in its usage.

Figure 8.6 ~ Snapshot I Categories of Adopters

Because consumers differ in hcMi willing they are to buy and tty a new ptoduct. it often takes months or yeclfS for most of the population to adopt an innOYation.

launch in 2013. ln 2015, Mountain Dew added two new flavors to the lineup. To stimulate trial of these new products, the company sent out five specially cquippcd Mountain Dew JGckstart trucks on an eight•month tour to college campuses and sports stadiwns to offer

samples to consumers. This sort ol trial ol a product like Kickstart can result in high rates ol adoption by the target market, provided its members enjoy the product.30 Those who do not al\'! unlikely to adopt the new product and fall out at this poinL

Adoption

In the adop//0,1 stage, a prospect actually buys the product (hooray, a sale!). Docs this mean that all individuals or organizations that firs t d,oosc an innovation arc perma1,ent cus• tomcrs? No, and that's a mistake many firms make. Marketers net..--.d to provide follow•up contacts and communications with adopters to ensure they are satisfied and remain loyal to the nc-w product over time.

Confirmation

After he or she adopts an innovation., a customer weighs expected versus actual bencJits and costs. Favorable experiences make it more likely that the customer will

become a loyal adopter as initially positive opinions result in co,ifirmaliou. Of course, nothing lasts forever; even a loyal customer may decide that a nt'.'w product no longer meets his or her expectations and reject it. Hence, marketers w,derstand that resellin.g

the customer in the confirmaHon stage is often quite important. They provide advcr .. tiseme:nts, sales presentations, and o ther communications to reinforce a customer's choice.

Adopter Categories As we saw previousl}~ diffusion describt.->s how the use of a product spreads throughout a population. Of course, marketers prefer thcir entirt:' target markct to immediately adopt a new product, but this is not the case. Both consumers and business customers differ in their willingness to try soincthing new. lengthening the diffusion process by months or even years. Based on adopters' mies in the diffusion process, experts classify them into five cat .. cgorics, as shown m@figure 8.6: iMovators, early adopters, early majority, late majority, and laggards.31

Some people like to try new products. Others arc so reluctant that you'd thirlk they're afraid of anything new (know anyone Like that?). Many innovative technology products are re.leased as a beta test to allow usage and feedback (ro1n a small nwnber of

users who arc willing to test the product under normal, everyday conditions of use:. The types of innovative technologies commonly beta tested are often caUed a bleeding edge technology-one that is not yet ready for release to the market as a whole., potentially

because of issues related to reliabUity and stability, but is in a suitable state for beta test .. ing and user fredback.32 To understand how the adopter categories diffor, we'll focus

Early Majority

34%

Late Majority

34%

CH APTER 8 j PRODUCT I : INNOVATION AND NEW PRODUCT DEVELOPMENT 253

below on a threaded example of the adoption of one specific technology from the past that has had a big impact on all of us today- Wi-Fi (wireless fidelity). What would we do without it?

Innovators

Innovators make up roughly the first 2.5 percent of adopters. This segment is extremely ad• venturous and willing to take risb with new products. Innovators are typically wcll cdu•

cal'cd, younger, better off financially than others in the population, and worldly. innovators who were into new technology knew all about Wi-Fi well before other people had even heard of it. Because: innovators pride themselves on trying new products, they purchased

laptops with Wi-Fi cards wai• back in ancient history (1999) when Apple firs t introduced them in its Mac laptops.

Early Adopters

Early adopters, approximately 13.5 percent of adopters, buy product innovations early in the diffusion process but not as early as innovators. Unlike innovators, early adopt .. crs arc concerned about social acceptance, so they tend to gravitate toward products

they believe will make others think they are cutting'"(_"dge or fashionable. Typically, they arc heavy media use:rs and often arc heavy users of the product category. Others in the popuJation often look to early adopters for their opinions on various topics., making early adopters criticaJ to a new product's success. for this reason, marketers ofte:n hcav• ily target them in their advertising and o ther communkations efforts. Remember that the innovators prct-ty much already have the 1,cw product in hand before most early adopt• ers purchase.

Columnists who write about personal technology for most popular magazines and tech websites were testing Wi•fi in mid•2000. They experienced. some problems (like PCs crashing when they set up a wireless network at home), but still they touted the benefits of wireless connectivity. Road warriors adopted the technology as Wi-Fi access spread into airports, hote-ls, city parks, and o ther public spaces. ln.tcl. maker of the Ce:ntrino mobile platform, launched a major campaign with field-leading Conde Nast's Ti"av,/er magazine and offered a location guide to T-Mobilo hot spots nationwide.

Early Majority

The early majority, roughly 34 pcn:ent of adopters, avoid being e ither first or last to try an innovation. They are typically middJc,.cJass consumers and arc deliberate and cau• tious. Early majority consumers have- slightly above-average t.")(fucation and income levels.

When the early majority adopts a product, we no longer considc-t it new or different- that is, when it gets into the.fr hands, it is, in essence, "established.ff By 2002, Wi•Fi access was available in more than 500 Starbucks cafes, and monthly subscription prices were dropping

rapidly (from $30 to $9.95 per month).

late Majority

Late majority adopters, about 34 percent of the population, are oldc-r, arc even more con .. scrvative, and typicaUy have lowc_r..than .. avcrage lc-vcls of education and income. The late

majority adoptt!rS avoid trying a new product until it is no longer risky. By that time, the product has become an econom.ic necessity for them, or there is pressure fro1n peer groups to adopt. By 2004, Wi•Fi capability was being bundled into almost all laptops, and you could connect in mainstream venues like Mc.Donald's restaurants and sports stadiums. Cities across the country bt.."'gan considering blanket Wi .. Fi coverage throughout the entire

town through WiMax (Worldwide Interoperability for Microwave Access) technology, a wire-less communication s tandard.

innovators The first segme,11 (roughly 2.S perceot) of a population to adopt a new product.

early adopters Those who adopt an imovation early in the diffusion process but aher the imovators.

early majority Those whose adoption of a new product signals a generat acceptance of the innovation.

late majority The adopters YmO are willing to try new products when there is linle or no risk as.soc:iated with the purchase, when the purchase becomes an economic necessity, or when there is social pressure to purchase.

254 PART THREE J DEVELOP THE VALUE PROPOSITION FOR THE CUSTOMER

laggards The last consumers to adopt an innovation.

Laggards

Laggards, about 16 p,,ro,nt of adopters, arc the last in a population to adopt a new producl

Laggards arc typically lowcr in income level and education than other adoph?r categories and arc bound l>y tradition. By the time laggards adopt a product, it may already be su• pcrseded by other innovations. By 2006, it would have seemed strange if Wi•Fi or a similar capability was 1\ot part of the standard packag~ in even the Jowest•prin"<i laptop computl?r, and people began to become annoyed if Wi-Fi access wasn't available just about every• where they might go.33

Understanding these adopter categories a1Jows marketers to develop strate,gics that will sp,eed the diffusion or widespread use of their products. for example, early in the diffusion process marketers may put greater emphasis on gaining buzz through

targeted social media and advertising in spccial•interest magazines and websites to attract innovatots and early adoptc.rs~ Later, they may lower the ptoduct-'s ptice or come out with lower•priccd models with fower "bells and whistles" to attract the late

majotity. We will talk more about mote strategics for new and cx.isti.ng products in the next chapter.

Product Factors That Affect the Rate of Adoption Not all products are successful, to say the least. Let's SL--C if you've ever heard of these clas- s ic boo-,boos in new product introduction;

• Clairol Look of 811/tem,i/k s/rampoo: Consumers pondered what exactly was tho "Look of Buttermilk" and why they would want it.

• &>l.amax video player: Sony refused to allow anyone else: to make the players, and the rust of the industry went to VHS format.

• S11ifT .. Panties: Yes, women's undtm,\•ear that smelled litre bananas, popcorn, whiskey, or pizza. What were they thinking!"

• Heinz multicolored kelcltup: What's better than red ketchup? Blue, green, or purple, of course! Consumers., however, didn't equate the look with the flavor.

• Wowl Chips: Frito-Lay thought fo t-frcc chips would be a smash hit among the health conscious. Too bad the main ingred.Jent, Olcstra, caused stomach cramping and other abdominal issues.3.5

• Coors Rocky Mountniu Sparkling Water: Despite Coors' c:fforts to equate thcit OOCJ''s quality with the pureness of the Rocky Mountain water used to produce it, the Coors brand and its famous water source did not translate into successful sales of a sparkling

watct line. Pe:rhaps this v,.ras because consumers Wet!.? confused as to why a company known for brew was se:lling sparkling watl.!r with a label similar to the one on its more familiar beer cans and boulcs.36

'Int:' reason for most product faiJutcS is really pretty simple; consumers djd not per• ccive that the products satisfied a need better than competitive products already on the market. [f you ro11/d predict which new products will succeed and which will fail, you'd quicklj• be in high demand as a marketing guru by companies worldwide. Tha~s bccauoo companies make large investments in new products, but failures are all too frequent. Experts suggest that betvirecn onc•third and onc,.hall of all new products fail. As you might expect, a Jot of people try to develop research techniques that enable !hem to pr.'<iict whether a new product wilJ be hot ot not.

Researchers identify five characteristics of innovations that affect the. rate of adoptio,,: relative advantage, compatibility, complexity, trialability, and observability.37

CH APTER 8 j PRODUCT I : INNOVATION AND NEW PRODUCT DEVELOPMENT 255

Th~ degree to which a new product has each of these characteristics a/fccts the speed of dif(usio.n. It may t3ke years for a market to widely adopt a new product. Let's take a closer look at the humble microwave oven- a product that was highly innovative in its early days but now is generally a low-priet.>d staple of every kitchen (and every coUegc

apartment and dorm)-as an example to better understand why each o( these five factors

is important.

• Relative advantage describes the degree to which a consumer pcrccivcs that a new

product provides superior benefits. In the ca,;e of the microwave ovcn1 consumers

in the 1960s did not believe that the product provided important benefits that would

improve their lives. But by the late 1970s, that pcrcc>ption had changed because more

women had entctOO the workforce. In the 1960s, a woman had aU day to prepare the

evening meal, so she didn't need the microwave (yes, at Lhat time thel\'! we.re very

few males in the "househusband" rolo-that's really changed today!). ln the 1970s, however, when many women JeJt home for work at 8:00 A.M. and returned home at- 6:00 P.M., an appliance th.at would ,..magically" de.frost a frozen chicken and cook it i:n

30 minutes provided a genuine advantage.

• Compatibility is the extent to which a new produd is consistent with existing cultur .. a.1 va]ues, customs, and practices. Did consumers see the microwave oven as being

compatible with existing ways of doing things? Hardly. Cooking on paper plates? U you put a paper plate in a conventional oven, you'll likely get a visit from the fire de- partment. B)' anticipating CQmpatibility issues early in the nc-w .. product-dcvelopment

stage, marketing strategies can address such ptoblems in pJanning communications

and consumer education programs, or there may be opportunities to aJtcr product de,.

signs to overcome some consumer objections.

• Complexity is the degtcc to which consumers find a new product or its use difficult

to understand. Many microwave users today haven't a clue about how a microwave

ovc-.n cooks food. When appliai,ce manufacturers introduced the first microwaves,

they explained that this new technology causes molecules to move and rub together,

which creates friction that produces heat. Voilil! Cooked pot roast. But ~,at explanation

was too complex and confusing for the homemaker of the Beaver Ocaver days back in the !%Os.

• Trialability is the case o( sampling a new product and its benefits. Marketers took an

important step in the 1970s to speed up adoption of the microwave oven product trial Just about every store that sold microwaves invited shoppers to visit the store and sample a.n entire meal a microwave CQokcd. Finally, consumers began to understand

what the product even was and what it could do!

• Observability refers to how visiblt- a new product and il,; benefits are to o thers who

might adopt it. The ideal innovation is easy to see. For example, for a generation of kids, scooters like the Razor became the hippest way to get around as soon as one preteen saw his or her friends flying by. That same generation observed its friends trading Pok~on cards and wanted to join in (were you part of this craze when you

were younger?). ln the c.asc of the microwave, it wasn't quite so readily observab]e for

its potential adopters-only close friends and acquaintances who visited somoone's home would likely sec an early adopter using it. But the fruits of the microwave's

labors-tasty food dishcs-creat'ed lots of buzz at of6cc wate.rcoolers and social

events, and its use spread quickly. Too bad they didn't have social media back then-if they had, it's a sure bet that the rate of adoption of micro\,ravcs would have been a

whole lot faster.

relative advantage The degree to which a consumer perceives that a new produa provides superior benefits.

compatibility The extent to vmich a new produa is consistent with existing cultural values. custcwns, and JYactiCes.

complexity The degree to which consumers find a new product or its use diff1CUlt to understand.

trial ability The ease of sa~ling a new prodoa and its benefits.

observability How visible a new product and its benefits are to others who might adopt it.

256 PART THREE j DEVELOP THE VALUE PROPOSITION FOR THE CUS TOMER

MyMarketi nglab"' Go to mymktlab.com to complete the problems marked with this icon 0 as well as additional Marketing Metrics questions only available in MyMarketingl ab.

8.1 Objective Summary (PP 234-237) Explain how value is derived through different product layers. Products can be physical goods, services, ideas. people, or places. A good is a rangible product, something that we can see, touch, smell, hear, taste, or possess. In contrast, intan- gible products-services, ideas. people, and places-are prod- ucts that we can't always see, touch, taste, smell, or possess. Marketers think of the product as more than just a thing that comes in a package. They view it as a bundle of attributes that includes the packaging, brand name, benefits, and supporting features in addition to a physical good. The key issue is the marketer's role in aeating the value proposition to develop and market products appropriately.

The core product is the basic product category benefits and customized benefit(s) the product provides. The actual product is the physical good or delivered service, including the packaging and brand name. The augmented product indudes both the actual product and any supplementary services, such as warranty, credit, delivery, installation, and so on.

Key Terms attributes, p. 235

good, p. 235

core product. p . 235

actual product. p. 236

augmented product. p. 237

8.2 Objective Summary (pp. 237-241) Describe how marketers c.lassify products. Marketers generally classify goods and services as either consumer or 828 products. They further classify consumer products according to how long they last and by how they

CHAPTER 8

Study Map

are purchased. Durable goods provide benefits for months or years, whereas nondurable goods are used up quickly or are useful for only a short time. Consumers purchase con- venience products frequently wi th lillle effort. Customers carefully gather information and compare different brands on their attributes and prices before buying shopping prod- ucts. Specialty products have unique characteristics that are important to the buyer. Customers have lin le interest in unsought products until a need arises. Business products are for commercial uses by organizations. Marketers clas- sify business products according to how they are used, for example, equipment: maintenance, repair, and operating (MRO) products; raw materials; processed materials; spe- cialized services; and component parts.

Key Terms durable goods, p. 237

nondurable goods, p. 237

convenience product, p. 238

staple products, p. 239

consumer packaged good (CPG) or fast-moving consumer good (FMCG), p. 239

impulse products. p. 239

emergency products, p . 239

shopping products, p. 239

specialty products, p. 240

unsought products, p. 240

equipment. p. 240

maintenance, repair. and operating (MRO) products. p. 240

raw materials, p. 240

processed materials, p. 241

specialized seNices, p. 241

component parts, p. 241

C HAPTER 8 j PRODUC T I INNOVATION AND NEW PRODUCT DEVELOPMENT 257

8.3 Objective Summary (pp. 241-243) Understand the importance and types of product innovations. Innovations are anything consumers perceive to be new. Understanding new products is important to companies because of the fast pace of technological advancement, the high cost to companies of developing new products, and the contributions to society that new products can make. Marketers classify innovations by their degree of newness. A continuous innovation is a modification of an existing product, a dynamically continuous innovation pro- vides a greater change in a product, and a discontinuous innovation is a new product that creates major changes in people's lives.

Key Terms innovation. p. 241

aeativity. p. 241

continuous innovation.. p. 242

knockoff, p . 242

dynamicalty continuous innovation, p. 243 discontinuous innovation, p. 243

convergence. p. 243

8.4 Objective Summary (pp. 244-249) Show how firms develop new products. In new product development, marketers generate product ideas from which product concepts are first developed and then screened. Next, they develop a marketing strategy and conduct a business analysis to estimate the profitability of the new product. Technical development includes planning how the product will be manufactured and may mean ob- taining a patent. Next, an actual or a simulated test market may be conducted to assess the effectiveness of the new product in the market. Finally, in the commercialization phase the product is launched, and the entire marketing plan is implemented.

Key Terms research and development (R&O), p. 244

new product development (NPO), p. 244

idea generation (ideation), p. 244

value co-<reation.. p. 244

product concept development and screening, p. 245

technical success, p. 245

commercial success. p. 245 business analysis, p . 246

technical development. p. 246

prototypes, p . 247

patent. p. 247

mar1<et test (0< test market), p. 247

simulated market test, p . 248

commercialization, p. 248

aowdfunding, p. 248

8.5 Objective Summary (pp. 249-255) Explain the process of product adoption and the diffusion of innovations. Product adoption i.s the process by which an individual begins 10 buy and use a new product, whereas the diffu- sion of innovations is how a new product spreads through- out a population. The stages in the adoption process are awareness, interest, trial, adoption, and confirmation. To better understand the diffusion process, marketers clas- sify consumers- according to their readiness to adopt new products-as innovators, early adopters, early majority, late majority, and laggards.

Five product characteristics that have an important effect on how quickly (or if) a new product will be ad- opted by consumers are relative advantage, compatibility, product complexity, ttialability, and observability. Similar to individual consumers, organizations differ in their readi- ness to adopt new products based on characteristics of the organization, its management, and characteristics of the innovation.

Key Terms product adoption, p. 249

diffusion, p. 249

tipping point. p. 249

adoption pyramid, p. 249

media blitz, p. 250

impulse purchase. p. 251

beta test. p. 252

bleeding edge technology, p. 252

innovators, p. 253

early adopters, p. 253

early majority, p. 253

late majo rity, p. 253

laggards, p. 254

relative advantage, p. 255

ca<npatibility, p. 255

ca<nplexity, p . 255

t rialability, p. 255

observability, p. 255

258 PART THREE j DEVELOP THE VALUE PROPOSITION FOR THE CUS TOMER

Chapter Questions and Activities

Concepts: Test Your Knowledge

8-1 . What is a good? What are the differences between tangible and intangible products?

8-2. What is the difference between the core product. the actual product, and the augmented product?

8-3. What is the difference between a durable good and a nondurable good? What are the main differences among convenience, shopping, and specialty prod· ucts?

8-4. What is an unsought product? How do marketers make such products attractive to consumers?

8-5. What types of products are bought and sold in 828 markets?

8-6. What is a new product? Why is understanding new products so important to marketers? What are the types of innovations?

8-7. What is R&D, and what is its importance to marketers and the product development process?

8-8. list and explain the steps marketers undergo to de- velop new products.

8-9. What is a test market? What are some pros and cons of test markets?

8-10. Explain the stages a consumer goes through in the adoption of a new product.

8-11 . list and explain the categories of adopters. 8-12. What product factors affect the rate of adoption of in-

novations?

Activtties: Apply What You've Learned

0 8-13. Creative Homework/Shorr Projecr Assume that you are employed in the marketing department of a firm that is producing an electric scooter. In developing this product, you realize that it is important to provide a core product, an actual product, and an augmented product that meets the needs of customers. Develop an outline of how your firm might provide these three product layers in the electric scooter.

8-14. In Class, 10-25 Minures for Teams Firms go to great lengths to develop new product ideas. Sometimes nevv ideas come from brainstorming, in Which groups of in- dividuals get together and try to think of as many dif- ferent, novel, creative, and, it is hoped, profitable ideas for a new product as possible. With a group of other students, participate in brainstorming for new product ideas for one of the following (or some other product of your choice): a. An exercise machine with some desirable nevv fea-

!Ures b. A combination shampoo and body wash c. A new type of university Then, with your class, screen one or more of the ideas for possible further product development.

8-15.

0 8-16.

8-17.

8-18.

8-19.

8-20.

8-21 .

MyMarketinglab ™ Go to mymktlab.com to watch this chapter's Rising Star 'lideo(s) for career advice and to respond to questions.

In Class, 10-25 Minutes for Teams As an entrepreneur, you know that innovation will play a huge role in your nevv business. With your team, brainstorm briefly to define what your new business will be-let the sky be your limiL Then create a short outline that defines the various types of innovations-<ontinuous, dynamically continuous. and discontinuous- and give examples of each. Which innovation type would be the easiest when starting out? Which innovation type brings the greatest revvard? Which innovation type ultimately makes the most sense for your new business? Creative Homework/Short Projecr As a member of a nevv product team with your company, you are work- ing to develop an electric car jack that would make changing car tires easier. You are considering conduct- ing a test market for this nevv product. Outline the pros and cons for test marketing this product. What are your recommendations? For Further Research (Individual) Every year. marketers come out with many new or new and improved prod- ucts. Using the web, research a new or new and im- proved product and summarize either how marketers developed and tested that product before taking it to market or how they created awareness about that nevv product once they developed it. Creative Homework/Short Project Select a company and identify an existing product sold by that company that could potentially be further developed to meet nevv consumer needs. Using the selected product, de- velop an approach to engage consumers in the process of value co-creation with the objective of developing a nevv version of the selected product. For Further Research (Individual) Select a recently suc- cessful product that you believe is innovative and do some research on how the product was introduced. Using the adopter categories in the chapter, identify adopte,s of the product that you consider to be inno- vators and provide evidence of specific behaviors and cha,acteristics that support the placement of these consumers within that adopter category. For Further Research (Individual) Identify an innova- tive product that was just recently introduced into the market and using the five characteristics that affect the rate of adoption (relative advantage, compatibility, complexity, trialability, and observability) evaluate the product on each respective characteristic. Based on your evaluation state whether you believe the innovation will be quickly adopted, slowly adopted, or adopted at a rate somewhere in between. Use your best judgment in mak- ing this determination. For Further Research (Individual) Sometimes products are massively successful because consumers find a use for them separate from what the developing compa- ny initially envisioned. Find two products online that fit this description and identify their initial intended

CHAPTER 8 j PRODUCT I INNOVATION AND NEW PRODUCT DEVELOPMENT 259

use(s), then what other use(s) consumers found for them, and finally whether companies adjusted their mafl<eting efforts around the products after becom- ing aware of how consumers were actually using the products.

Concepts: Apply Marketing Metrics

In the chapter, we define creativity and discuss how it relates to innovation. Innovation can be measured in terms of number of successful new products as well as a variety of secondary mea- sures related to those products (e.g., new product launches per year, per employee, and success rate 11ersus failure rate-<ast on the basis of how the firm defines product success and fail- ure). Innovation is fueled by R&D expenditures, as the chapter notes.

But what about measuring aeativity itself? Some expefts have argued that an overfocus on metrics can kill aeativity.38 They might argue that the phrase •creativity metric" is an oxy- moron. There's always been a right-brain/left-brain argument that marketing, to be optimally successful, has to nurture both the creative and the analytical. Has the obsession with market- ing metrics over the past decade squelched essential creativity emanating from the right brain?

8-22. What is your viewpoint about measuring creativity? Do you believe it is more constructive or damaging to or- ganizational innovation? Support your opinions.

8-23. Point out a few well-known organizations that you be- lieve are quite creative. How do you know that they are creative-that is, what specific evidence can you cite that indicates that a high level of aeativity is practiced?

Choices: What Do You Think?

8-24.

8-25.

0 8-26.

0 8-27.

Critical Thinking Technology is moving at an ever- increasing speed, and this means that new products enter and leave the market faster than ever. What are some products you think technology might be able to develop in the future that you would like? Do you think these products could add to a company's profits? Critical Thinking In this chapter, we talked about the core product, the actual product, and the augmented product. Does this mean that marketetS are simply try- ing to make products that are really the same seem dif- ferent? When marketetS undetStand these three layetS of the product and develop products with this concept in mind, what are the benefits to consumers? What are the hazards of thi.s type of thinking? Critical Thinking Discontinuous innovations are totally new products-something seldom seen in the mar- ketplace. What are some examples of discontinuous innovations introduced in the past 50 yeatS? Why are there so few discontinuous innovations? What prod- ucts have companies recently inlfoduced that you believe will end up being regarded as discontinuous innovations? Ethics For several decades. consumer products- everything from vaccines to cosmetics- have been tested on animals. Do you think product testing on

animals should be legal or illegal? Does your position change depending on what kind of animal the product is tested on (e.g., a mouse vetSus a dog)? What are some instances of when it would be acceptable or un- acceptable to test products on animals (e.g., medical necessity versus enhancing one's looks)?

8-28. Ethics Should a company opt to manufacture a product with a cheaper component if it knows that its inclu- sion will moderately increase the physical safety risk of the product for consumers? What if it is known that the increase in cost of using the more expensive and safer component will lead to about a 50 percent lower adoption rate for the product by consumers, does i t become more justifiable to do so then?

8-29. Critical Thinking Consider the differences in marketing to consumer markets versus business markets. Which aspects of the processes of product adoption and diffusion apply to both markets? Which aspects are unique to one or the other? Provide evidence of your findings.

8-30. Ethics In this chapter, we explained that knockoffs are slightly modified copies of original product designs. Should knockoffs be illegal? Who is hurt by knockoffs? Is the marketing of knockoffs good or bad for consum- etS in the short run? In the long run?

8-31. Critical Thinking It is not necessarily true that all new products benefit consumers or society. What are some new products that have made our lives better? What are some new products that have actually been harm- ful to consumers or to society? Should there be a way to monitor or •police• new products that are inlfo- duced to the marketplace?

8-32. Critical Thinking Patent trolling is the practice of ac- quiring patents with the sole purpose of making mon- ey off of them either by suing those who infringe on the patent or by licensing the patent. What do you think of the practice of patent !falling? What effect does patent trolling have on product innovation?

8-33. Critical Thinking Are there potential risks to involv- ing consumers in the development of new products through processes associated with value co-creation as discussed in the chapter? What factors might make a value co-creation approach more or less suitable for the development of a new product?

8-34. Critical Thinking Products such as video games pro- duced for tfaditional gaming consoles used to be sold only as physical items, but of course now they can also be downloaded onto a gaming console (such as Xbox One or PlayStation 4). For a video game that is exclu- sively sold as a download, how do you think the new product development process might vary compared to the process involved in producing a video game sold exclusively as a physical product?

Miniproject: Learn by Doing

What product characteristics do consumetS think are important in a new product? What types of service components do they demand? Mos1 important, how do marketers know how to develop successful new products? This miniproject is designed

260 PART THREE j DEVELOP THE VALUE PROPOSITION FOR THE CUS TOMER

to let you make some of these decisions as you walk through several steps of the new product development process.

8-35. Develop a presentation that summarizes your efforts for each of the following phases of new product devel- opment: a. Phase 1: Idea generation: Create (in your mind) a

new product item that might be of interest to col- lege students such as yourself. Develop a written description and possibly a drawing of this new product. Describe the benefits of the product.

b. Phase 2: Product concept development and screen- ing: Desaibe what features the product should have and the benefits those features will provide for consumers. Estimate both the technical success and the commercial success of the product.

c. Phase 3: Marketing strategy development: Develop a simple marketing plan that identifies the target market and how you can position the product to meet that market's needs.

Assume now that you have undergone a thorough business analysis (phase 4) and have built a prototype of the product (phase 5). d. Phase 6: Market test: Describe your product to five

other college students. as if you had an actual pro- totype of the product. What is their overall opinion of the new product? Would they try the product? How could you influence them to buy the product?

e. Phase 7: Commercialization: Based on the informa- tion you have collected, determine whether you are ready to launch the product. If not, describe the reasons why.

Marketing in Action Case Real Choices at Facebook Can virtual reality go mainstream? Facebook would like to believe the answer to that question is a resounding "yes!• The company has big plans for its virtual reality offering, the Oculus Rift, which is designed to transform how people play games, view videos. and share the experiences of their social lives. The Rift is one of three premium virtual reality headsets new to the market. and it's no small market with estimated value at more than $16 billion. Facebook CEO Mark Zuckerberg believes that virtual reality has come a long way in a short time and that we are "entering the golden age of video and animation.•

Inspired by the gaming market, Palmer Luckey, founder of Oculus, created a prototype for a virtual reality headset that would later become the Oculus Rift. In 2012, he began a Kickstarter crowdfunding campaign to finance the develop- ment of the product, eventually generating more than $2.4 million in funds. Over the next few years, the product went through five working prototypes released to developers and the public for feedback. In 2014, Zuckerberg raised the ques- tion of what will be the next best thing in tech, and the an- swer was that it would be the viewing of movies. television, and other content in an immersive 3-D environment. Soon after, Facebook purchased Oculus for $2 billion.

In 2016, the Rift went on sale fOl $599, supported by doz- ens of games. Other uses include viewing conventional movies and videos, 360° 30 videos, and "virtual reality movies.• But alas, problems plagued the earty stages of the product~ introduction. The first shipments vvere delayed by a component shortage in lhe production p<0cess. Jason Rubin, Head of Studio, expressed the comp~ embarrassment, apologized for the delays, and offered free shipping to everyone who had placed orders. In ad- dition, some people complained of motion sickness when using the Rift. Oculus has since issued developers a software fix that reduces the likelihood that anyone will suffer any nausea.

Other companies are rushing to join the virtual reality marketplace as well. Two of the major players are HTC and

Sony. HTC, working with Valve Corp., introduced the Vwe, a $799 headset designed to use while the user is standing up and walking around. Sony introduced the $399 PlayStation VR headset to compete as a lower priced option for the market. In conjunction with its launch, Sony created a new PlayStation 4 with better performance 10 effectively run the virtual reality options.

Facebook understands that the Rift represents a really new technology and thus will initially appeal to a limited mar- ket, although the growth potential is very high. Zuckerberg recognizes that video is presently the most popular mode of sharing but that virtual reality will soon be in second place. The outlook is favorable, and some professional revievvers have suggested that this may be the biggest tech product since the introduction of the iPhone (although using the Oculus Rift is significantly more complicated than using a smartphone). Yet despite the potential, success for the product and the technol- ogy overall is not guaranteed. Now that Facebook has taken the steps to develop its new product, it has to find ways to convince customers to adopt it.

You Make the Call 8-36. What is the decision facing Facebook? 8-37. What factors are important in understanding this deci-

sion situation? 8-38. What are the alternatives? 8-39. What decision(s) do you recommend? 8-40. What are some ways to implement your recommen-

dation?

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CHAPTER 8 j PRODUCT I INNOVATION AND NEW PRODUCT DEVELOPMENT 261

MyMarketinglab"'

Go to mymktlab.com for Auto-graded writing questions as well as the following Assisted-graded writing questions:

8-4 1. Creative Homework/Short Project Assume that you are the director of marketing for the company that has developed a smartphone to outdo the iPhone. How would you go about convincing the late maiority to go ahead and adopt it-especially because they still haven't quite caught onto the iPhone yet!

8-42. Creative Homework/Short Project You work for a large retailer and have been asked by a professor at the local university to give a presentation on how your business classifies products. Prepare a slide show that defines the vari- ous product categories. induding any subcategories, and give at least three examples of each. Include photos of the products where possible.

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Chapter 9

Product II: Product Strategy, Brand ing, and Product Management

9.1 Discuss the different product objecttves ond strategies a firm may choose. pp. 264- 270

PRODUCT PLANNING: DEVELOP PRODUCT OBJECTIVES AND PRODUCT STRATEGY p. 264

9.2 Understand how firms man- age producfs throughout the product 11re cycle. pp. 271 - 274

MARKETING TltROUGHOUT TltE PRODUCT LIFE CYCLE p. 271

9.3 Explain how branding and pcckoglng strategies contrib- ute to product Identify. pp, 274- 283

BRANDING AND PACKAGING: CREATE PRODUCT IDENTITY p. 274

Becky Frankiewicz

9.4 Descfibe how marketers struc- ture o,gonlzotlons fo, new and existing product management. pp, 284- 285

ORGANIZE FOR EFFECTIVE PRODUCT MANAGEMHIT p. 284

Chedc out lhe Chapter 9 Study Map on page 285.

T A Decision Maker at the Quaker Oats Company

Becky Frankiewkz is the Seniot Vice President and Geneta1 Manager of Quaker Foods North America. a subsidfa,y of PepsiCo, Inc .• an important bene,.for-you brand within the company\ global growth sttategy.

Becky began her PepsiCo career in finance 'NOtk.ing in the strategy/me<ger'S and ac.quisitK>ns p1actice for Frito Lay. Since then she's held a variety of roles actoss marlc:eting and innovation for Quaker Foods North America and the Global Nutfition Group.

Most ,eceody Bedy spent two yeats ope,ating in a sales capacity, leading and d<wloping PepsiCo~ Costco business globaJly across n.ine counuk>s. As part of thjs tole, she was ,esponsible for setting the long.term strategic plan, delive<ing the annual operating pl.an, and managing the ove<atl ,eiationship wit.h the customef.

In October 2014, Becky ,ejoined the Quake, Foods North America team as generaJ manager, a role that aJloM he,, to sen,e as the keepe,r of a bved and ttu:sted health and i,vellnes.s brand, steeped in nearty 140 yeafS of heritage.

Before PepsiCo, Becky worked in strat~ic consulting with Oe,loine and Andetsen Consulting and held a series of management and leade,. ship roles at Proct« & Gamble. She holds a 88A in Mar1::eting from the Univetsity of Texas and an MBA in Finance f,om the UnivefSity of Texas San Antonio.

Pas.sionate about lhe deveiopment of female leade,s in business, Becky is the exe<lltive sponsor of ~Co's Women's lndusioo Network a.nd sits on the Board of Directors for Girls in the Game, a nonprofit committed to devek>ping leadetShip io at.risk tee<1 girls.

Becky resides in the suburbs of Chjcago with he< husband and three daughters.

Whal I do when I'm not working: I have three beautiful daughters-Parker (15), Paytoo (13), and Piper {I l}-who ke€p me quite busy. They are all very strong sl!Jdents in school and all three dance competitively outside of school They are my "wh( to borrow Simon Sinek's term. I want to empower !hem to be and do what- ever they dloose in life and show them !hat yoo can have a family and achieve your career goals. My husband, Marek, and

I were college sweelhearts and have been married for 20 years! He's a keeper.

First Job out of school: I worked in retail sales for Procter & Gam- ble going door to door to grocery stOles. Ir was a critiGII experience as it taught me what retail managers' value and gave a bit of insight into how conS1Jmers make decisions. I say a bit of insight-as it's the reason I've stayed in this business.

With all of the tools we have today in martceting, there is not a rehable tool to predia consumer behavior. It's the beauty of humanity; we are all different in certain ways and we continue to change making us ultimately unprediaable!

Business book I'm reading now: The Road co Character by David Brooks

262

Myheto: My mom. She wocked outside the home at a time very few women did and although

whatever I wanted in life-and I believed her. She is truly remarkable!

to listen very well A wise person once shared this morto with me, and I've adopted it

I imelleaually know she worked long hours, I never felt her absence at home. She taught me very early that I could do

My motto to live by: What drives me:

Listen for what you do not want ro heat My family, helping consumers live more balanced lives. feeling like I'm oo lhe path for my purpose.

As you gro,1 as a leader-it becanes harder fotyou mget lhe 'real' story so you have

Here's my

Quaker is one of me oldest registered uademarl« in 1he United States. The original trademark was filed in 1877, so

the brand has a rich history. We know (and love} that for many people. Quaker is synonymous with oatmeal It's what they grew up eating, continue to eat in their adulthood, and in many cases feed their own children.

Through a commitment to innovation, OYer the last several decades the Quaker brand has been able to expand its offerings beyond traditional oatmeal to aoss into many different types of produas and sub-brands. This indudes mings like granola bar.; (e.g .• 1he Quaker Chewy sub-brand) as well as ready-to-eat cereals (e.g., the Quaker Oatmeal Squares or Quaker Life Cereal sub-brands}. Almough oauneal continues to-and will always-be our heart and soul we actually make many different types of v,ilolesome and delidous products for people to en joy.

flfther. although Quaker has ilfflays thought of ol.f core consumer as moms (who act as the primary grocery shopper for their families}, 1he brand has at times had to evol\•e how we position ourselves giYen that consumers and meir prefeiences are constantly changing, especially when h comes to food.

When I joined the Quaker business in October 2014. one of me lir.;t things I did was examine our marketing app,oach. for the last several years. Quaker had been operating under what is called a "master brand strategy,· in that it applied a singular brand position, message. and look and feel across all Quaker products and sub-brands. It also targeted the same, universal audience (in our case, women ages 25-44, with 2 + school-aged kids}. This strate9'1 came to life as a campaign called 'Quaker Up,· and carried the message that Quaker could help fuel families by delivering good f'1ergy mrough me power of whole grain oats.

Although our initial intent was to continue operating under this type of mastt'f brand strategy, we had to pause given that we we1e not seeing the halo we hoped for across ow full portfo6o. The hypothesis was mat communi- cating a singular benefit was potentially a lowest common denominator across our full business. but it was dear that some ixoducts were benefiting from the singular message more than others.

The key question became dear: would using the Quaker Up/energy mes· sage acrO<S aU products and sub-brands drive rerum on investrnall (ROI} as effectively and efficiently as ha.ing a separate message for each product?

MyM arketinglab"' 0 Improve You r Grade!

Becky considered her Options 1 ·2

1 Continue on the current path with the same brand positioning and target through the master brand ap-proach. This ,volld be the safest route to maintain 1he equity of the lxand. and we cou11 confidentlf estinate ROI based on the brand's Opflon performance in prior years. In adation, sticking whh 1he master brand awroach wot.Id be the most econorni:al ~om a media buy pe,,peet;,o because k re- cpired a lo.ver spend on each portion r:J the prxtfoli~ and we hoped the singular Quaker message woo11 have a halo effect that equally benefitted aH of our produ:ts.

Explore a ne-w positioning and target through a consumer deep dive that could halo across all prod· ucts yet be customized with different reasons to believe (meaning proof that the brand delivers the

OpHon benefits that it promises) for each. At a minimum, this option wouJd benefit the business because the brand management team would gain a deeper understanding of the benefits consumers are looking for in the current mar1<etpface.Additionally, mese insights would help improve our brand positioning with aedJbJe reasons to believe, which shouJd accelerate growth. On the other hand, developing a new positioning strategy would be less effi· dent compared to the master brand approach because we would ha\•e to invest additional marketing funds for each category or sub-brand across the portfolio. Therefore,. we would likely have to prioritize how we spent our dollars across products. Plus, there is the risk that the change in positioning may not resonate with consumers of a well-established, mature brand like Quakef.

Now put your.;elf in Becky's shoes: Which option would you choose, and why?

O•iilA,Ul.t1J Which Option would you choose, and why? D Option 1 D Option 2

See what option Becky chose in MyMarketingLabT ..

Over IO million students imp-roved their results using the Pearson Mylabs. Visit mymktlab.com for simulations, tutoriaJs. and end-of-chapter problems.

263

264 PART THREE ] DEVELOP THE VALUE PROPOSITION FOR THE CUSTOMER

Chapter 9

I 9.1 OBJECTIVE

Discuss the different

Product Planning: Develop Product Objectives and Product Strategy

product management The systematic and usually team-based a,wroach to cOOfdinating all aspects of a producc's strategy development and execution.

Figu,e9.1 ~ Process I Steps to Manage Products

product objectives and strategies a firm

may choose.

(pp. 264-270)

What ma.kcs one product fail and another succeed? It's \.,rorlh reem• phasizing what you learned in Chapter 3: Firms iltat plan well succeed. Product planning plays a big role in the firm's market plmmi11g. And

among the famous four Ps of the marketing mix, each Pis not created equal- that is, the best pricing, promotion, and physical distribution

strategies cannot overcome fundamental problems with the product ovc-r the long run!

Hence, product planning takes on special significance in marketing. Strategies outlined within the pn)duct specify how the ft.rm expects to develop a value

proposition that will meet marketing objectives. Product planning is guided by the con•

tinual process of product management_, which is the systematic and usually team•based approad, to coon:tinating all aspects of a product's strategy development and execution. In some companies, product management ls sometimes also called braud managemeut, and the terms refer to essentially the same thing. The organization members that coo.n:linatc these processes are called prodtlCI managers or brand managers. Vle discuss the role of tht$C indi· viduaL,; in mo~ detaiJ later in the chapter.

As more and more competitors enter the global marketplace and as technology moves fonvard at an ever-increasing pace, firms create prod.ucts that grow, malutf", and then de• dine a t faster and faster speeds. This acceleration underscores that smart product manage,.

mcnt strategies are more critical than ever. Marketers just don' t have the luxury of trying one thing, find.U,g out it doesn't work., and then trying the next thing; they have to multi• task when it comes to product management!

In Chapte:r 8, we talked about how markct·ers think about products-both core and augmented-and about how companies develop and introduce new products. ln this chapter, we finish the product part of th.e s tory as 1ve see how com0es manage products., and then we examine the steps in product planning. shown in /2 Figure 9.1 . These steps include developing product objectives and the related strategies required

Effective product strategies come from a seties of 0<der1y steps.

to successfully market products as they evolve from Hncwbies" to tricdaand•truc

favorites-and in some cases finding new markets for these favori tes. Next, we discuss branding and packaging.. Lwo of the more: important tactical decisions product planncrs make. Finally, we examine how firms organize for effective

product management. Let's start with an overview of how firms develop pmducta related objectives.

Develop Product Objectives

• For individual products • For product lines and mixes

t Design Product Strategies

t Make Tactical Product Decisions

• Product branding • Packaging and labeling design

t Organize fOf' Product Management

Getting Product Objectives Right When markeh:~rs develop product strategics, they make decisions about product

benefits, foaturcs, s tyling, branding, labeling, and packaging. But what do they want to accomplish? Clearly stated product objectives provide focus and direc• tion. They should support the broader marketing objectives of the business u n.it

in addition to being consistent with the firm's overall mission. For example, the objed.ivcs of the firm may focus on return on investment (ROI). Marketing objec• tivcs then may concentrate on building market share or the unit or dollar sales

volume: necessary to attain that ROI. Product objectives need to specify how product decisions will contribute to reaching a desired market share or Jeve:1 of saJes.

To be clfective, product•rclated objective-s mw;t be measurable, clear, and unam• biguous-and feasible. Also, they must indicate a specific limo frame. Consider, for

CHAPTER 9 I PRODUCT 11 : PRODUCT STRATEGY, BRAND ING, AND PRODUCT MANAGEMENT 265

example, how Amy's, a popular organic and health-conscious frozen ethnic cntr.'C manufuc• turcr, might slate its product objectives:

• '''ln the: upcoming fiscal year, reduce the fat and caJoric content of our products by 15 percent to satisfy consumers' health ooncc-ms.,.,

• "introduce thn."C new products this quartet to the product line to take advantage of incn."'ascd consumer interest in Mexican foods."

• "During the coming fiscal year, improve the chicken cntn:."'es t·o the extent that consum• cts will rate them better tasting than the compt!tition."

Planrw,rs must keep in touch with thcir customers so that thcir objcctives accurately r.~ spond to thcir needs. In Chapter 2, we introduced you to the idea of COIIIP<'litive i11telligena, and an up•to-date knowledge of competitive product innovations is important to develop product objectives. Above alL these objectives should consider the long-lenn i111pliailio11s o{ product ded· sions. PlannctS who sacrifice lhe long-term health of the 6rm to n.'3Ch short-tcnn sales or finan- cial goalschoosea riskycow:se. Product plannctS mayfocusonon.,or more indi\•idual products a t a time, or they may look at a group o( product offerings as a whole. Next, we briclly examine both of~-approocMS. We also look at one important product objc'Clivc: product quality.

Objectives and Strategies for Individual Products Everybody loves the MINI Cooper. But it wasn't just luck or happenstance that turned this product into a global sensation. Just how do you launch a new car that's only 142 inches long and makes pc"Ople laugh when they see it? Its parent company BMW succeeded by

deliberately but gently poking fun at the MINI Cooper's small size. The original launch of U,e MTN! Cooper inc.luded bolting U,e MINI onto the top of a Ford Excursion with a

sign n.,ading, "What arc you doing for (un this weekend?" BMW also mocked up full0 si2c

MlNls to look like coin'"°pcratcd kiddie rides you find outside i;-rorery ston.--s with a sign proclaiming, "Rides $16,850. Quarters only." The advertising generated buzz in the 20• to 34-year-old target market, and today the MlNl is no joke.

As a smalltY brand, the MINI never had a huge advertising budget- in fact it was the first launch of a ne,,r car in modem times Lhat didn't include TV advertising. Instead, the MTN! launched \\Oth print, outdoor billboards, and online ads. It has an active and ongoing

social media presence. Th~ objecHve wasn't a traditional heavy car launch; rather, BMW en• visioned a "discovery process .. by which target COJ\Sumt?rs wouJd find out about the brand on their own and (all in love with it. Ads promoted "'motoring" instead of driving, and mag• azine inserts included MTNl 0 shapc-d air fresheners and pullout games. Wir,d magazine even ran a cardboard foldout of the MlNl suggesting that readers assemble and drive it around their desks making "putt-putt'' noises. Playboy came up with the idea of a six-page MINI "centerfold" complete with the car's vital stili.slics and hobbies. By the end of its first year on the market, the MINI was rated the St.'C.Ond•most mcJ.norable new product of the yea.t!

Like the MlNl, product strategics often focus on a singlt? new product. (A,; an inten.'St• ing sidebar, enough customers have complained about the cramped quarters in the MlNl's backseat-it is, after all, a "mini"-that BMW acquiesced and introduced a "larger MINI.•

Now that's an oxymoron-something like a "jumbo shrimp"!)1 Strategies for individual

products may be quite different, depending on the situation: new products, regional prod• ucts, mature products, or other differences. For new products, not surprisingly, the objec• tivcs relate heavily h) producing a very successful introduction.

After a firm experiences success with a product in a locaJ or regional market, it may decide to introduce it nationally. Trader Joe's, for example, ope.neti its doors in Pasadena, California, in 1967 (and it's stiU there today). But it wasn't until 1993 that the brand moved

outside of California, heading east to Phoenix, Arizona. Today, you can find Trader Joe's throughout most of the country, though you won't yet find it in all SO states.2

266 PART THREE ] DEVELOP THE VALUE PROPOSITION FOR THE CUSTOMER

product line A litm's total produa offering designed to satisfy a single need or t!,sire of target customers.

For mature products like SO-year-old Lay's potato chips, product obj«tives may Ix,

focused on how to levcragf" the brand to develop new varictie,s of the product that appeal

to changing consumer tastes. Today there arc four different main categories of Lay's potato

chips (Traditional Lay's, Wavy, Kettle Cooked, and St>x). Each of these categories has a variety of diliercnt flavors that range from the mor~ traditional "Barbeq_uc" to the more ad ..

venturous "Kettle Cooked Wa,;abi Ginger. '"3 Lay's involves its consumers in the process of

developing new flavors through its ,,.Do Us A Flavor'' contest in which anyone is allowed to submit a flavor idea and the public is able to vote on their favori te flavors, with the ultimate winner taking home a t."001 $1 million or l pe:m.>nt of net sales through a St.>t time frame, whichever is higher). The \.'o'inner also gets th!! satisfaction of knowing that this win• n.ing flavor actually wiU be taken to market as the newest Lay's potato chip flavor. ln 2015 the winning submi.;,sion \,ras (drum.roll please): Biscuits and Cravy, proving that creativity and fun have a place in keeping even an BO-plus-year-old brand alive.•

Objectives and strategies for Multiple Products Although a small firm might get away with a focus on one product, larger firms often sell a set of related products. TI,is means that strategic decisions affect two or more~roducts simultane,.. ously. The fum must think in terms ofits entire portfolio of produc'IS. As bi] Figure 9.2 shows, product planning means developing product li11e and producJ mfr strategics to encompass multiple offerings.

A product line is a firm's total product offering to satisfy a group of target customers.

For example, as we saw in Chapter 4 Campbcll's Soup offets several different brands to

satisfy different consumer tastes and needs. One is Campbcll's Slow Kettle"' soup, which is positioned as a more luxurious experience for more discerning consumers. Slow KcttleQll

is preservative free, fe.iturcs creative combinations of ingredients, and employs a slow

s immer method of cooking to draw out each soup's unique flavor. On the olhc-t hand,

Figure 9.2 ~ Proress I Objectives for Single and Multiple Products Product objectives ptovide focus and direction fot produa strategies. Objectives can locus on a singJe product or a group of products.

Individual Products Multiple Products

~=_.::i_ u_:_e_n_ew ___ ~l ~1---~ ---P_rod_ u_ct_ u_·ne_~_Ex_t_e_n_.,_·o_n_• ____ ~--~ ~ ~ ~ Regiona l product

Introduce nationally

Mature product Increase consumer enthusiasm for the product

Stretching: Adding new items to line

Upward

Downwant

Two-way

Filling: Adding sizes

or styles