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5Cs STP 4Ps
Product
Price
Place
Promotion
Segmentation
Targeting
Positioning
What are the three phases of the buying process? What kinds of purchases are there? How do consumers make purchase decisions—and how can marketers use this information?
Customer
Company
Context
Collaborators
Competitors
Managerial Checklist
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1 Why Is Marketing Management Important?
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Chapter 1 Why Is Marketing Management Important? 3
1-1 Defining Marketing Ask the average person, “What is marketing?” and you might hear something like
>> “Marketing is sales and advertising.”
>> “Marketers make people buy stuff they don’t need and can’t afford.”
>> “Marketers are the people who call you while you’re try- ing to eat dinner.”
Those comments are probably all deserved—unfortunately our profession, like any other, has its unsavory members. But in this book we’ll take a more enlightened view.
This chapter begins with an overview of marketing con- cepts and terms. We’ll see the importance of marketing in today’s corporation. We then present the Marketing Frame- work that structures the book and gives you a systematic way to think about marketing, and we’ll define all the terms in the framework: 5Cs, STP, and 4Ps.
1-2 Marketing Is an Exchange Relationship Marketing is defined as an exchange between a firm and its customers.1 Figure 1.1 shows the customer wants something from the firm, and the firm wants something from the cus- tomer. Marketers try to figure out what customers want and how to provide it profitably.
Ideally, this can be a nice, symbiotic relationship. Customers don’t mind pay- ing for their purchases—and sometimes they pay a lot—if they really want what they’re about to buy. Companies like taking in profits, of course, but great companies really do care about their customers. If we’re lucky, the exchange depicted in Figure 1.1 continues iterating between the customer and the company, strength- ening the tie between them.
As a lifelong customer, you are already somewhat familiar with marketing from the consumer side. But on the job, you’ll need to un- derstand marketing from the firm’s point of view. Throughout this book, you’ll see both perspectives. In par- ticular, you’ll see all the issues
that marketers deal with as they try to deliver something of value to their customers while trying to derive value from them.
1-2a Marketing Is Everywhere Figure 1.2 illustrates that you can market just about anything. Marketing managers sell simple, tangible goods such as soap or shampoo, as well as high-end luxury goods such as Hermès Birkin handbags. Other marketing managers work in services, such as haircuts, airlines, hotels, or department stores. Market- ers oversee experiences like virtual reality games or concerts and events. Marketers help entertainers, athletes, politicians, and other celebrities with their images in their respective “mar- ketplaces” (fans, agents, intelligentsia, opinion). Tourist bureaus have marketers who advertise the selling points of their city’s or country’s unique features. Information providers use marketing
because they want customers to think they’re the best (and thereby maxi- mize their ad revenue). Marketers at nonprofits and government agencies work on “causes” (e.g., recycle, don’t drink or text and drive). Industries also market: avocados, got milk, beef– real food. Naturally, companies use marketing for their brands and them-
selves. And you can market yourself, e.g., to a job interviewer or potential amor. These goals may look different, but marketing can be used beneficially in all these situations.
Customers’ Perspective Marketing can seem intuitive because we’re all consumers. But we’re not always the target customer for the brands we’re building. As a Brand Manager, it is important to see the world through your customers’ eyes. Often that requires doing some marketing research. Spending money on marketing research doesn’t seem sexy, but if you want to be CEO someday, think of it as a worthy investment to learn what customers think about your brand.
Customer
The customer seeks bene�ts from the company and expects to pay.
The company offers bene�ts to its customers and seeks pro�ts.
Company
Figure 1.1 Marketing Is an Exchange
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“Marketing oversees the customer-brand exchange.”
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4 Part 1 Marketing Strategy
Figure 1.2 What We Can “Market”
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Chapter 1 Why Is Marketing Management Important? 5
1-3 Why Is Marketing Management Important? Marketers have evolved beyond being merely product or production focused, where the company mind-set is “Let’s just build a better mouse trap.” We know that approach doesn’t work. There’s no point in just cranking out better gadgets unless the customers want them because the gad- gets won’t sell. However, there are still pockets of marketing naïveté in a number of industries. For example, some opera companies believe they don’t need marketing. They think people should appreciate their performances, and if not, it’s because the public is ignorant. Perhaps the general public is indeed relatively unsophisticated culturally, but marketing can be used to educate the public.
We’re also more advanced than the old sales-oriented days when the action in the marketplace was, “Let’s make a deal.” This mentality still exists in places like drug companies, which push their sales forces to impress physicians. But usu- ally sales dynamics occur where the product is perceived to be a commodity. In contrast, mar- keters should be good at com- municating product distinctions. As much as direct-to-consumer pharma ads annoy physicians, they attest to the power of marketing. The ads result in pa- tients asking their doctors for particular brand names.
These days we live in a truly customer-oriented and customer-empowered marketing world. Marketing is even said to be evidence of evolved markets—that an industry or country has moved beyond production and sales and seeks true relationships with its customers. Marketers seek to identify their customers’ needs and wants, and they try to formulate attractive solutions. Marketing can make customers happier, thereby making com- panies more profitable. Throughout the book, you’ll see how.
1-3a Marketing and Customer Satisfaction Is Everyone’s Responsibility Many management gurus believe that market- ing has succeeded so well that it isn’t just a “function” in an organization anymore. Market- ing is more of a philosophy—a way to approach thinking about business. The marketing orien- tation should permeate the organization.
>> Accounting and finance need to acknowl- edge the importance of marketing. Why?
Because their CEOs do. Thinking about customers is unimportant only if you’re a monopoly, and even then, you won’t be one for long.
>> Salespeople understand marketing immediately. They’re the front line, interfacing with the customer. They want to push their firm’s stuff, but they’re thrilled when their company actually makes stuff that the customers want. Their jobs are so much easier.
>> Research and development (R&D) people tend to under- stand the marketing spirit too. They’re hired because they’re technically sophisticated, but they also get jazzed when their inventions sell and become popular. It doesn’t take much marketing research to test concepts or proto- types and to veer an R&D path one way or another.
One of the factors stressing marketers these days is the pressure to show results. It’s fair to hold any part of the corpo- ration accountable, and results may be measured for a number of marketing activities. The Chief Financial Officer (CFO) who
wants to see that a recent coupon promotion lifted sales can get rea- sonably good estimates from the CMO about effectiveness, e.g., the percentage sales increase at- tributable to the coupon introduc- tion. The Chief Operating Officer (COO) can also get good estimates of whether a recent direct mail
campaign to target customers has been effective in encourag- ing frequent buyers to go directly to the Web for purchasing.
However, it’s important not to go overboard in the effort to quantify. For example, how does one assess the value of a good segmentation study? If segments are poorly defined, any subsequent marketing efforts would be completely off, so a good segmentation scheme is invaluable. Advertising is also a little tricky. Nonmarketers have the misconception that
“Marketing is simply a customer orientation.”
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Marketing speaks to customers wherever they are.
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6 Part 1 Marketing Strategy
advertising is supposed to bump up sales. It can, and that bump is easily measured. But really great advertising isn’t intended for a short-term effect on sales. Great advertising is intended to enhance brand image, a goal that is relatively longer term and thus more difficult to measure.
In addition to quantifying the effectiveness of market- ing programs, marketers are motivated to translate their ef- forts into dollars for another reason: to have a “seat at the table.” Marketers want to make sure that the CMO carries as much weight in the firm as the CEO or CFO or COO. They all speak finance, so the marketer is frequently motivated to translate progress into financial terms. Fortunately, tech- nology and data are increasingly enabling many more op- portunities for the marketer to make such assessments. For example, a good customer relationship management (CRM) program allows marketers to run a field study to assess the impact of a new promotion, and tracking Web data allows marketers to determine the product combinations that are most attractive to customers.
1-4 The Marketing Framework: 5Cs, STP, and the 4Ps Figure 1.3 provides the marketing management frame- work. Marketing is captured by the 5Cs, STP, and the 4Ps. The 5Cs are customer, company, context, collaborators, and competitors. The 5Cs force a businessperson to sys- tematically frame the general analysis of the entire business situation. Figure 1.1 shows that the customer and company are the central players in the marketing exchange. The context includes the backdrop of macroenvironmental fac- tors: How is our economy and that of our suppliers doing? What legal constraints do we face, and are these changing? What cultural differences do our global segments mani- fest? The collaborators and competitors are the companies
and people we work with versus those we compete against (though drawing the line is sometimes difficult in today’s interconnected world).
STP stands for segmentation, targeting, and positioning. A company or a brand may want to be all things to all peo- ple, but it just can’t. It’s best to identify groups, or segments, of customers who share similar needs and wants. Once we understand the different segments’ preferences, we’re in a position to identify the segment we should target with our marketing efforts. We then begin to develop a relationship with that target segment by positioning our product to them in the marketplace, via the 4Ps.
The 4Ps are product, price, promotion, and place. A marketer is responsible for creating a product (goods or services) that customers need or want, for setting the ap- propriate price for the product, for promoting the prod- uct via advertising and sales promotions to help customers understand the product’s benefits and value, and finally for making the product available for purchase in easily ac- cessed places.2
Marketing management oversees the 5Cs, STP, and 4Ps with the goal of enhancing the marketing exchange (of goods, services, payment, ideas and information, etc.) between a customer base and a firm. It all sounds easy! Group your cus- tomers, and figure out which group to target. Then create a position in the marketplace by means of the features of the product, its price, your communications and promotions, and your distribution choices. Ah, but don’t dismiss marketing as only common sense; after all, consider how few companies do it well!
If marketing is an exchange, then, just like an interaction between two people, a company has its best chance at keep- ing its customers happy if it is in close communication with them. The company that does its marketing research and re- ally listens to its customers will be able to deliver goods and services that delight those customers. The best marketers put themselves in the place of their customers: What are they like? What do they want? How can we play a role in their
5Cs STP 4Ps
Product
Price
Place
Promotion
Segmentation
Targeting
Positioning
Customer
Company
Context
Collaborators
Competitors
Figure 1.3 Marketing Framework
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Chapter 1 Why Is Marketing Management Important? 7
lives? In this book, we’ll elaborate on these themes. If you get overloaded while reading this book, you can step back and remember this: You’ll always be a step ahead of your compe- tition if you simply think about your customers! All marketing strategy derives from that.
Start with a situation analysis, and sketch answers to the following questions:
>> Customers: Who are they? What are they like? Do we want to draw different customers?
>> Company: What are our strengths and weaknesses? What customer benefits can we provide?
>> Context: What is happening in our industry that might reshape our future business?
>> Collaborators: Can we address our customers’ needs while strengthening our business-to-business (B2B) partnerships?
>> Competitors: Who are the competitors we must con- sider? What are their likely actions and reactions?
With that background analysis, proceed to strategic marketing planning via STP:
>> Segmentation: Customers aren’t all the same; find out how they vary in their prefer- ences, needs, and resources.
>> Targeting: Pursue the group of customers that makes the most sense for our company.
>> Positioning: Commu- nicate our product’s benefits clearly to the in- tended target customers.
Similarly, marketing tactics to execute the intended po- sitioning derive from a cus- tomer focus:
>> Product: Will customers want what your company is prepared to produce?
>> Price: Will customers pay what you’d like to charge?
>> Place: Where and how will customers purchase your market offering?
>> Promotion: What can you tell your customers or do for them to entice them to purchase?
That doesn’t sound too difficult, right? But customers’ preferences change. And the competition is also dynamic; who they are changes as well as what they offer your cus- tomers. Factors that are out of your control change as well. For example, as marketing manager or CMO, you won’t have determination over whether your company is
merged with another whose image seems inconsistent with your brand, but you’ll have to deal with it. Further, the legal environment in this country is different from that in anoth- er’s, and each is always in flux. Many such contingencies call
“Good marketing makes any company better.”
Ethics: Have a Heart It is a good thought exercise to consider any dilemma from two perspectives:
1) Outcomes a) An outcome orientation is called consequentialism or teleological ethics (fancy words to
impress an interviewer). b) This perspective believes that “the end justifies the means.” c) As a manager, it prompts you to ask, “What should I do to produce the most good (or the least
harm)?” 2) Processes
a) An orientation toward fair process is called deontological ethics. b) The idea is that the process must be fair, regardless of the outcome that might result. c) Managers suggest an action as the right one to take according to a principle, such as human
rights (e.g., fair pay), or environmental sustenance (e.g., green packaging).
Throughout the book, we’ll encounter several classes of ethical issues: don’t price discriminate, don’t target uninformed groups, don’t advertise deceptively, etc. If you want an additional challenge, assess a scenario from multiple viewpoints. For example, deontologically, we might say, “We never price discriminate!” Teleologically, we might say, “To maximize value to our shareholders, we should charge different prices to different customers segments.” See? The plot thickens!
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8 Part 1 Marketing Strategy
for modifying marketing plans. So the inputs keep chang- ing. (But if marketing weren’t challenging, where would the fun be in that?)
As Figure 1.3 indicates, if we keep an ongoing read on the 5Cs, it will make us better informed as we approach the STP task. These background indicators will apprise us of which qualities of a customer base are likely to be rel- evant as we identify segments. The P of positioning in STP is done via all 4Ps. Thus, the 5Cs, STP, and 4Ps operate interdependently. Optimal business solutions (in real life or in class case discussions) should reflect a working knowl- edge of all of these elements, and their connections; as a contextual factor changes, what is the predicted impact on distribution channels? As a collaborator shifts its demands, what will that do to our pricing structure? As our company sells off a nonperforming function, what impact might that have on our positioning and customer satisfaction? The plot thickens!
1-4a Book Layout Marketing is involved in designing products that custom- ers will enjoy, pricing them appropriately, making them available for purchase at easy points of access in the mar- ketplace, and advertising the products’ benefits to custom- ers. Throughout this book, we’ll assume that we’re talking about customers all over the world. This internationalism is already true for most big firms, and it will be true even for small entrepreneurs via the Internet or once they suc- ceed and grow. We’ll also assume the omnipresence of the Internet and always consider it a factor in data intake or in customer channels of interactions with the company. In
addition to aiming for global citizenship and recognizing the Internet as essential as air, we will offer fresh, fun examples throughout the book, such as Vegas and Ferrari, instead of laundry detergent.
This book will train you to think like a marketer. You’ll see that great marketing is not a soft discipline, it’s not an art, nor is it intuitive. Great marketing is based on sound, logical—economic and psychological—laws of human and organizational behavior. You will learn the scientific and rigorous way to think about marketing issues, so that, in the future, when your situation looks nothing like the ones you’ve talked about in school, you’ll know how to proceed in finding your optimal solution. (Hint: Keep the framework close at hand!)
1-4b Learning from the Marketing Framework There are two key features to how the material is organized in this book. First, MBA and executive students learning mar- keting management typically want to see a framework de- picting how all the marketing pieces come together to form the whole picture. To give you the big picture as well as to provide you with the in-depth details, we use Figure 1.3 to begin every chapter with a Managerial Checklist of questions and issues that the reader can expect to understand better at the close of the chapter. Those questions are revisited at the end of the chapter in a list format called Managerial Recap. The chapters are mapped onto the framework as depicted in Figure 1.4.
You’ll become very familiar with this marketing man- agement framework. You will see the 5Cs, STP, and 4Ps
5Cs STP 4Ps
Product
Price
Place
Promotion
Segmentation
Targeting
Positioning
Prom
Chs. 11, 12, 13
4Ps
Pro
Chs. 6, 7, 8
Chs. 16, 17
Chs. 15, 16
Chs. 10, 16 ce
motion
Ch. 10
ce
c
4Ps
duct
e
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Ch. 9
Chs. 15, 16
Pos
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Ch. 4
Customer
Company
Context
Collaborators
Competitors
Chs. 1, 2, 14
Figure 1.4 Chapters Mapped to the Marketing Framework
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Chapter 1 Why Is Marketing Management Important? 9
over and over again, so you’ll pick them up nearly by osmosis. We want to make great marketing part of your DNA. You’ll know that any marketing strategy and plan- ning must begin with a 5Cs assessment and then a stra- tegic look at STP, before turning to the strategies and tactics of the 4Ps.
When you’re . . .
>> working on a case for class,
>> or trying to answer an interviewer intelligently,
>> or trying to impress your boss at work,
>> or trying to launch your own business,
>> and you need to remember everything that needs to be addressed and how all the pieces fit together, you’ll see this framework in your head. It will make your process- ing of these marketing questions very thoughtful and very systematic.
1-4c The Flow in Each Chapter: What? Why? How? The presentation scheme we’ve adopted in this book is that each chapter covers the What, Why, and How. Specifically,
>> What is the topic in this chapter?
>> Why does it matter?
>> How do I do this? Show me what to do so that I can be successful!
Between the marketing framework and the practical flow of the chapters, you’ll gain a strong, clear knowledge of marketing both at the strategic, conceptual level and at the tactical, hands-on level. Both levels of insight will help en- sure your success throughout your career, whether you’re a marketer, a brand manager, an advertising exec, a CMO, or a well-informed financial analyst, a CEO, or a world guru.
Managerial recap
Marketing can make customers happier and therefore com- panies more profitable. Marketing will enhance your ca- reer, and marketing can also make the world a better place. Honest!
>> Marketing is about trying to find out what customers would like, providing it to them, and doing so profitably.
>> Ideally, marketing facilitates a relationship between cus- tomers and a company.
>> Just about anything can be marketed.
>> The overarching marketing management framework— 5Cs, STP, 4Ps—will structure the book and help you to think methodically about the big picture of marketing.
>> Don’t forget! Stay focused on your customer! If you can remain customer-centric, you’ll be five steps ahead of the competition.
How to Issue an Attractive Credit Card
data by issuing periodic surveys, about once a quarter, via email. The sole, young marketer at the table asks, “Well, yah, that’s good for us, but how is it attractive to our customers? Why would they want this card when there are plenty of other cards out there?” One older manager shot the young man a withering look. But the senior-most manager spoke up and re- sponded, “Well, you’re right; we’re only looking at it from our point of view. What would a card look like that our customers would want—and that can be profitable to us?”
A large national retail bank wishes to issue a new credit card. The bank wants its customers to use the card so that the bank can make money, of course. In addition, the bank would like to obtain data about the customers’ profiles, in terms of spending, debt, risk, etc., in at least this one part of their fi- nancial consumption.
Credit cards vary in many ways. Initially, the bank manag- ers propose to issue a card with a fairly high annual percentage rate (APR) and a $50 annual fee and to get the supplementary
Mini-Case
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10 Part 1 Marketing Strategy
What would help this marketer? What steps could the bank take to design a card that would be both optimally ap- pealing to its customers (and perhaps attract new customers), as well as optimally profitable to the bank?
A card could vary on many parameters, such as APR, an- nual fee, brand (e.g., Visa or MasterCard), benefits (e.g., af- filiation with an airline, a professional sports team, or one’s college alma mater). Which features should be recommended to the bank as it designs the credit card?
1. Are the older managers right? All the other banks focus on APR and annual fees. Isn’t that what this card should do, to be seen as a legitimate competitor and not to confuse customers?
2. Are the finance people in the room a good proxy for their cus- tomers? Are the marketers? Are the young managers a better proxy than the older managers are?
3. What additional information would be helpful to strengthen a recommendation?
4. How would that information best be obtained?
Located at the back of the textbook
□ Rip Out Reference Card
Located at www.cengagebrain.com
□ Develop a Marketing Plan online. □ Watch the video on Southwest Airlines for a real
company example. □ Complete the interactive quiz to prepare for tests. □ Complete the B2B Interactive Analytical Tool
online . . . and more!
Further Reference
Discussion Questions
This bank has little experience in marketing research as well, so the older managers were uncertain as to how to proceed. One mentioned a focus group, another sug- gested an ethnography, and a third mentioned surveys. The information that is sought, as well as the method by which the information would be obtained, is to be de- termined. Naturally, the bank wants to roll out the new card as soon as possible, and the research project will be underfunded.
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Rip out the Review Cards in the back of your book to study. Or Visit CourseMate to: Read, search, highlight, and take notes in the Interactive eBook Review Flashcards (Print or Online) to master key terms Test yourself with Auto-Graded Quizzes Bring concepts to life with Games, Videos, and Animations!
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