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Principles of Marketing

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Principles of Marketing

Global Edition

Philip Kotler Northwestern University

Gary Armstrong University of North Carolina

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ISBN-13: 978-0-273-78699-3

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Dedication

To Kathy, Betty, Mandy, Matt, KC, Keri, Delaney, Molly, Macy, and Ben;

Nancy, Amy, Melissa, and Jessica

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About The Authors

Philip Kotler is S. C. Johnson & Son Distinguished Professor

of International Marketing at

the Kellogg School of Manage-

ment, Northwestern Univer-

sity. He received his master’s

degree from the University

of Chicago and his PhD from

M.I.T., both in economics. Dr.

Kotler is author of Marketing Management (Pearson Prentice Hall), now in its fourteenth

edition and the most widely

used marketing textbook in

graduate schools of business worldwide. He has authored doz-

ens of other successful books and has written more than 100

articles in leading journals. He is the only three-time winner of

the coveted Alpha Kappa Psi award for the best annual article

in the Journal of Marketing. Professor Kotler was named the first recipient of two ma-

jor awards: the Distinguished Marketing Educator of the Year

Award given by the American Marketing Association and the

Philip Kotler Award for Excellence in Health Care Marketing pre-

sented by the Academy for Health Care Services Marketing. His

numerous other major honors include the Sales and Marketing

Executives International Marketing Educator of the Year Award;

the European Association of Marketing Consultants and Trainers

Marketing Excellence Award; the Charles Coolidge Parlin Mar- keting Research Award; and the Paul D. Converse Award, given by the American Marketing Association to honor “outstanding

contributions to science in marketing.” A recent Forbes survey

ranks Professor Kotler in the top 10 of the world’s most influen-

tial business thinkers. In a recent Financial Times poll of 1,000 se- nior executives across the world, Professor Kotler was ranked

as the fourth “most influential business writer/guru” of the

twenty-first century. And he recently topped BusinessEducators

.com’s “Management A-List of Academics,” based on outstand-

ing achievements as well as Google global Web search interest.

Dr. Kotler has served as chairman of the College on Mar-

keting of the Institute of Management Sciences, a director of the

American Marketing Association, and a trustee of the Marketing

Science Institute. He has consulted with many major U.S. and

international companies in the areas of marketing strategy and

planning, marketing organization, and international marketing.

He has traveled and lectured extensively throughout Europe,

Asia, and South America, advising companies and governments

about global marketing practices and opportunities.

Gary Armstrong is Crist W. Blackwell Distinguished Profes-

sor Emeritus of Undergraduate

Education in the Kenan-Flagler

Business School at the Uni-

versity of North Carolina at

Chapel Hill. He holds under-

graduate and master’s degrees

in business from Wayne State

University in Detroit, and he

received his PhD in marketing

from Northwestern Univer-

sity. Dr. Armstrong has con-

tributed numerous articles to

leading business journals. As a consultant and researcher, he

has worked with many companies on marketing research, sales

management, and marketing strategy.

But Professor Armstrong’s first love has always been

teaching. His long-held Blackwell Distinguished Professor-

ship is the only permanently endowed professorship for dis-

tinguished undergraduate teaching at the University of North

Carolina (UNC) at Chapel Hill. He has been very active in the

teaching and administration of Kenan-Flagler’s undergradu-

ate program. His administrative posts have included Chair of

Marketing, Associate Director of the Undergraduate Business

Program, Director of the Business Honors Program, and many

others. Through the years, he has worked closely with business

student groups and has received several UNC campus-wide

and Business School teaching awards. He is the only repeat

recipient of the school’s highly regarded Award for Excellence

in Undergraduate Teaching, which he received three times.

Most recently, Professor Armstrong received the UNC Board of

Governors Award for Excellence in Teaching, the highest teach-

ing honor bestowed by the 16-campus University of North

Carolina system.

As a team, Philip Kotler and Gary Armstrong provide a blend of skills uniquely suited to writing

an introductory marketing text. Professor Kotler is

one of the world’s leading authorities on marketing.

Professor Armstrong is an award-winning teacher

of undergraduate business students. Together they

make the complex world of marketing practical,

approachable, and enjoyable.

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Preface 16

Part 1 Defining Marketing and the Marketing Process 24 1 Marketing: Creating and Capturing Customer Value 24

2 Company and Marketing Strategy: Partnering to Build Customer Relationships 60

Part 2 Understanding the Marketplace and Consumers 90 3 Analyzing the Marketing Environment 90

4 Managing Marketing Information to Gain Customer Insights 122

5 Consumer Markets and Consumer Buyer Behavior 156

6 Business Markets and Business Buyer Behavior 188

Part 3 Designing a Customer-Driven Strategy and Mix 212 7 Customer-Driven Marketing Strategy: Creating Value for Target Customers 212

8 Products, Services, and Brands: Building Customer Value 246

9 New-Product Development and Product Life-Cycle Strategies 282

10 Pricing: Understanding and Capturing Customer Value 310

11 Pricing Strategies: Additional Considerations 334

12 Marketing Channels: Delivering Customer Value 360

13 Retailing and Wholesaling 394

14 Communicating Customer Value: Integrated Marketing Communications Strategy 426

15 Advertising and Public Relations 454

16 Personal Selling and Sales Promotion 482

17 Direct and Online Marketing: Building Direct Customer Relationships 514

Part 4 Extending Marketing 546 18 Creating Competitive Advantage 546

19 The Global Marketplace 572

20 Sustainable Marketing: Social Responsibility and Ethics 602

Appendix 1 Marketing Plan 633

Appendix 2 Marketing by the Numbers 643

Appendix 3 Marketing Careers 661

Glossary 673

Index 683

Brief Contents

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Preface 16

Part 1: Defining Marketing and the Marketing Process 24

Marketing: Creating and Capturing Customer Value 24

What Is Marketing? 26

Marketing Defined 27 | The Marketing Process 27

Understanding the Marketplace and Customer Needs 28

Customer Needs, Wants, and Demands 28 | Market

Offerings—Products, Services, and Experiences 28 |

Customer Value and Satisfaction 29 | Exchanges and

Relationships 29 | Markets 29

Designing a Customer-Driven Marketing Strategy 30

Selecting Customers to Serve 31 | Choosing a Value

Proposition 31 | Marketing Management Orientations 31

Preparing an Integrated Marketing Plan and Program 34

Building Customer Relationships 34

Customer Relationship Management 34 | The Changing

Nature of Customer Relationships 38 | Partner Relationship

Management 41

Capturing Value from Customers 41

Creating Customer Loyalty and Retention 42 | Growing Share

of Customer 42 | Building Customer Equity 43

The Changing Marketing Landscape 44

The Changing Economic Environment 44 | The Digital

Age 45 | The Growth of Not-for-Profit Marketing 48 | Rapid

Globalization 48 | Sustainable Marketing—The Call for More

Social Responsibility 49

So, What Is Marketing? Pulling It All Together 50

Reviewing Objectives and Key Terms 51 | Objectives Review 51 |

Key Terms 53 | Discussion and Critical Thinking 53 |

Discussion Questions 53 | Critical Thinking Exercises 53 |

Applications and Cases 54 | Marketing Technology 54 |

Marketing Ethics 54 | Marketing by the Numbers 54 | Video Case:

Zappos 55 | Company Case: Abou Shakra Restaurant 55

Contents

Company and Marketing Strategy: Partnering to Build Customer Relationships 60

Company-Wide Strategic Planning: Defining Marketing’s

Role 63

Defining a Market-Oriented Mission 63 | Setting Company

Objectives and Goals 64 | Designing the Business Portfolio 65

Planning Marketing: Partnering to Build Customer

Relationships 70

Partnering with Other Company Departments 71 | Partnering

with Others in the Marketing System 72

Marketing Strategy and the Marketing Mix 72

Customer-Driven Marketing Strategy 73 | Developing an

Integrated Marketing Mix 76

Managing the Marketing Effort 77

Marketing Analysis 77 | Marketing Planning 78 | Marketing

Implementation 79 | Marketing Department Organization 80 |

Marketing Control 81

Measuring and Managing Return on Marketing Investment 81

Reviewing Objectives and Key Terms 61 | Objectives Review

83 | Key Terms 62 | Discussion and Critical Thinking 62 |

Discussion Questions 84 | Critical Thinking Exercises 63 |

Applications and Cases 63 | Marketing Technology 85 |

Marketing Ethics 63 | Marketing by the Numbers 85 |

Video Case: OXO 64 | Company Case: Trap-Ease America 86

Part 2: Understanding the Marketplace and Consumers 90

Analyzing the Marketing Environment 90

The Microenvironment 93

The Company 93 | Suppliers 93 | Marketing Intermediaries 94 |

Competitors 94 | Publics 95 | Customers 95

The Macroenvironment 96

The Demographic Environment 96 | The Economic

Environment 103 | The Natural Environment 104 |

Part 1: Defining Marketing and the Marketing Process (Chapters 1–2)

Part 2: Understanding the Marketplace and Consumers (Chapters 3–6)

Part 3: Designing a Customer-Driven Strategy and Mix (Chapters 7–17)

Part 4: Extending Marketing (Chapters 18–20)

12 Contents

The Technological Environment 106 | The Political and Social

Environment 107 | The Cultural Environment 110

Responding to the Marketing Environment 113

Reviewing Objectives and Key Terms 93 | Objectives Review

115 | Key Terms 94 | Discussion and Critical Thinking 94 |

Discussion Questions 116 | Critical Thinking Exercises 95 |

Applications and Cases 95 | Marketing Technology 117 |

Marketing Ethics 95 | Marketing by the Numbers 96 |

Video Case: Ecoist 96 | Company Case: Xerox 118

Managing Marketing Information to Gain Customer Insights 122

Marketing Information and Customer Insights 124

Assessing Marketing Information Needs 125

Developing Marketing Information 126

Internal Data 126 | Competitive Marketing Intelligence 127

Marketing Research 128

Defining the Problem and Research Objectives 129 |

Developing the Research Plan 129 | Gathering Secondary

Data 130 | Primary Data Collection 131 | Implementing the

Research Plan 140 | Interpreting and Reporting the Findings 141

Analyzing and Using Marketing Information 141

Customer Relationship Management 141 | Distributing and

Using Marketing Information 142

Other Marketing Information Considerations 144

Marketing Research in Small Businesses and Nonprofit

Organizations 145 | International Marketing Research 146 |

Public Policy and Ethics in Marketing Research 147

Reviewing Objectives and Key Terms 126 | Objectives Review

148 | Key Terms 149 | Discussion and Critical Thinking 128 |

Discussion Questions 128 | Critical Thinking Exercises 128 |

Applications and Cases 128 | Marketing Technology 150 |

Marketing Ethics 129 | Marketing by the Numbers 129 | Video

Case: Domino’s 151 | Company Case: Meredith 152

Consumer Markets and Consumer Buyer Behavior 156

Model of Consumer Behavior 158

Characteristics Affecting Consumer Behavior 159

Cultural Factors 159 | Social Factors 162 | Personal

Factors 167 | Psychological Factors 171

Types of Buying Decision Behavior 174

Complex Buying Behavior 174 | Dissonance-Reducing Buying

Behavior 175 | Habitual Buying Behavior 175 | Variety-Seeking

Buying Behavior 175

The Buyer Decision Process 176

Need Recognition 176 | Information Search 176 | Evaluation

of Alternatives 177 | Purchase Decision 177 | Postpurchase

Behavior 178

The Buyer Decision Process for New Products 178

Stages in the Adoption Process 179 | Individual Differences in

Innovativeness 179 | Influence of Product Characteristics on

Rate of Adoption 180

Reviewing Objectives and Key Terms 159 | Objectives Review

181 | Key Terms 160 | Discussion and Critical Thinking 160 |

Discussion Questions 160 | Critical Thinking Exercises 182 |

Applications and Cases 161 | Marketing Technology 161 |

Marketing Ethics 161 | Marketing by the Numbers 183 | Video

Case: Goodwill Industries 162 | Company Case: Porsche 184

Business Markets and Business Buyer Behavior 188

Business Markets 190

Market Structure and Demand 191 | Nature of the Buying Unit 191

Business Buyer Behavior 193

Major Types of Buying Situations 193 | Participants in

the Business Buying Process 194 | Major Influences on

Business Buyers 194 | The Business Buying Process 197 |

E-Procurement: Buying on the Internet 199

Institutional and Government Markets 200

Institutional Markets 202 | Government Markets 203

Reviewing Objectives and Key Terms 183 | Objectives

Review 205 | Key Terms 184 | Discussion and Critical Thinking

184 | Discussion Questions 206 | Critical Thinking Exercises

185 | Applications and Cases 185 | Marketing Technology 185 |

Marketing Ethics 207 | Marketing by the Numbers 186 | Video

Case: Eaton 186 | Company Case: Cisco Systems 208

Part 3: Designing a Customer-Driven Strategy and Mix 212

Customer-Driven Marketing Strategy: Creating Value for Target Customers 212

Market Segmentation 215

Segmenting Consumer Markets 215 | Segmenting Business

Markets 222 | Segmenting International Markets 223 |

Requirements for Effective Segmentation 224

Market Targeting 224

Evaluating Market Segments 224 | Selecting Target Market

Segments 225

Differentiation and Positioning 232

Positioning Maps 232 | Choosing a Differentiation and

Positioning Strategy 233 | Communicating and Delivering the

Chosen Position 238

Reviewing Objectives and Key Terms 217 | Objectives Review

217 | Key Terms 240 | Discussion and Critical Thinking 218 |

Discussion Questions 218 | Critical Thinking Exercises 240 |

Applications and Cases 219 | Marketing Technology 219 |

Marketing Ethics 241 | Marketing by the Numbers 219 | Video

Case: Boston Harbor Cruises 241 | Company Case: Bentley

Motors 242

Contents 13

Products, Services, and Brands: Building Customer Value 246

What Is a Product? 248

Products, Services, and Experiences 249 | Levels of

Product and Services 249 | Product and Service

Classifications 250

Product and Service Decisions 253

Individual Product and Service Decisions 253 | Product Line

Decisions 258 | Product Mix Decisions 258

Services Marketing 259

The Nature and Characteristics of a Service 260 | Marketing

Strategies for Service Firms 261

Branding Strategy: Building Strong Brands 266

Brand Equity 266

Building Strong Brands 267 | Managing Brands 274

Reviewing Objectives and Key Terms 253 | Objectives Review

275 | Key Terms 254 | Discussion and Critical Thinking 254 |

Discussion Questions 254 | Critical Thinking Exercise 276 |

Applications and Cases 255 | Marketing Technology 255 |

Marketing Ethics 255 | Marketing by the Numbers 255 | Video

Case: Life Is Good 277 | Company Case: Mavi Jeans 278

New-Product Development and Product Life-Cycle Strategies 282

New-Product Development Strategy 284

The New-Product Development Process 285

Idea Generation 285 | Idea Screening 287 | Concept

Development and Testing 289 | Marketing Strategy

Development 290 | Business Analysis 291 | Product

Development 291 | Test Marketing 292 |

Commercialization 293

Managing New-Product Development 293

Customer-Centered New-Product Development 293 | Team-

Based New-Product Development 294 | Systematic New-

Product Development 294 | New-Product Development in

Turbulent Times 295

Product Life-Cycle Strategies 295

Introduction Stage 297 | Growth Stage 298 | Maturity Stage

298 | Decline Stage 299

Additional Product and Service Considerations 301

Product Decisions and Social Responsibility 301 |

International Product and Services Marketing 303

Reviewing Objectives and Key Terms 282 | Objectives Review

282 | Key Terms 283 | Discussion and Critical Thinking 283 |

Discussion Questions 283 | Critical Thinking Exercises 305 |

Applications and Cases 284 | Marketing Technology 284 |

Marketing Ethics 284 | Marketing by the Numbers 306 | Video

Case: Subaru 285 | Company Case: Google 307

Pricing: Understanding and Capturing Customer Value 310

What Is a Price? 312

Major Pricing Strategies 313

Customer Value-Based Pricing 313 | Cost-Based Pricing 317 |

Competition-Based Pricing 321

Other Internal and External Considerations Affecting Price

Decisions 321

Overall Marketing Strategy, Objectives, and Mix 321 |

Organizational Considerations 324 | The Market and

Demand 324 | The Economy 327 | Other External Factors 327

Reviewing Objectives and Key Terms 306 | Objectives

Review 328 | Key Terms 307 | Discussion and Critical

Thinking 307 | Discussion Questions 307 | Critical Thinking

Exercises 329 | Applications and Cases 308 | Marketing

Technology 308 | Marketing Ethics 308 | Marketing by the

Numbers 330 | Video Case: Smashburger 309 | Company Case:

Cath Kidston 331

Pricing Strategies: Additional Considerations 334

New-Product Pricing Strategies 336

Market-Skimming Pricing 336 | Market-Penetration

Pricing 337

Product Mix Pricing Strategies 337

Product Line Pricing 338 | Optional Product Pricing 338 |

Captive Product Pricing 338 | By-Product Pricing 339 |

Product Bundle Pricing 339

Price Adjustment Strategies 339

Discount and Allowance Pricing 340 | Segmented Pricing 340 |

Psychological Pricing 341 | Promotional Pricing 343 |

Geographical Pricing 344 | Dynamic and Internet Pricing 345 |

International Pricing 346

Price Changes 347

Initiating Price Changes 347 | Responding to Price

Changes 350

Public Policy and Pricing 351

Pricing within Channel Levels 352 | Pricing across Channel

Levels 352

Reviewing Objectives and Key Terms 331 | Objectives

Review 353 | Key Terms 332 | Discussion and Critical

Thinking 333 | Discussion Questions 333 | Critical Thinking

Exercises 333 | Applications and Cases 333 | Marketing

Technology 355 | Marketing Ethics 334 | Marketing by the

Numbers 334 | Video Case: Hammerpress 356 | Company Case:

Amazon vs. Walmart 357

14 Contents

Marketing Channels: Delivering Customer Value 360

Supply Chains and the Value Delivery Network 362

The Nature and Importance of Marketing Channels 363

How Channel Members Add Value 364 | Number of Channel

Levels 365

Channel Behavior and Organization 366

Channel Behavior 366 | Vertical Marketing Systems 367 |

Horizontal Marketing Systems 369 | Multichannel Distribution

Systems 370 | Changing Channel Organization 370

Channel Design Decisions 371

Analyzing Consumer Needs 372 | Setting Channel Objectives 372

Identifying Major Alternatives 373 | Evaluating the Major

Alternatives 374 | Designing International Distribution Channels 374

Channel Management Decisions 375

Selecting Channel Members 375 | Managing and Motivating

Channel Members 376 | Evaluating Channel Members 376

Public Policy and Distribution Decisions 376

Marketing Logistics and Supply Chain Management 379

Nature and Importance of Marketing Logistics 379 | Goals of

the Logistics System 380 | Major Logistics Functions 381 |

Integrated Logistics Management 383

Reviewing Objectives and Key Terms 365 | Objectives Review

387 | Key Terms 366 | Discussion and Critical Thinking 367 |

Discussion Questions 367 | Critical Thinking Exercises 367 |

Applications and Cases 367 | Marketing Technology 389 |

Marketing Ethics 368 | Marketing by the Numbers 368 | Video

Case: Gaviña Gourmet Coffee 368 | Company Case: Pandora 390

Retailing and Wholesaling 394

Retailing 374

Types of Retailers 397 | Retailer Marketing Decisions 402 |

Retailing Trends and Developments 408

Wholesaling 414

Types of Wholesalers 415 | Wholesaler Marketing

Decisions 415 | Trends in Wholesaling 418

Reviewing Objectives and Key Terms 397 | Objectives

Review 419 | Key Terms 398 | Discussion and Critical

Thinking 398 | Discussion Questions 420 | Critical Thinking

Exercises 399 | Applications and Cases 399 | Marketing

Technology 399 | Marketing Ethics 421 | Marketing by the

Numbers 400 | Video Case: Home Shopping Network 400 |

Company Case: Leader Price 422

Communicating Customer Value: Integrated Marketing Communications Strategy 426

The Promotion Mix 428

Integrated Marketing Communications 429

The New Marketing Communications Model 429 | The Need

for Integrated Marketing Communications 431

A View of the Communication Process 434

Steps in Developing Effective Marketing Communication 435

Identifying the Target Audience 436 | Determining the

Communication Objectives 436 | Designing a Message 437 |

Choosing Media 438 | Selecting the Message Source 439 |

Collecting Feedback 440

Setting the Total Promotion Budget and Mix 440

Setting the Total Promotion Budget 440 | Shaping the Overall

Promotion Mix 443 | Integrating the Promotion Mix 445

Socially Responsible Marketing Communication 446

Advertising and Sales Promotion 446 | Personal Selling 446

Reviewing Objectives and Key Terms 425 | Objectives Review

447 | Key Terms 426 | Discussion and Critical Thinking 426 |

Discussion Questions 448 | Critical Thinking Exercises 427 |

Applications and Cases 427 | Marketing Technology 427 |

Marketing Ethics 449 | Marketing by the Numbers 428 | Video

Case: OXO 428 | Company Case: Red Bull 450

Advertising and Public Relations 454

Advertising 456

Setting Advertising Objectives 457 | Setting the Advertising

Budget 459 | Developing Advertising Strategy 459 | Evaluating

Advertising Effectiveness and the Return on Advertising

Investment 469 | Other Advertising Considerations 470

Public Relations 472

The Role and Impact of PR 472 | Major Public Relations

Tools 473

Reviewing Objectives and Key Terms 453 | Objectives Review 475 |

Key Terms 454 | Discussion and Critical Thinking 454 | Discussion

Questions 476 | Critical Thinking Exercise 455 | Applications and

Case: The Super Bowl 478

Personal Selling and Sales Promotion 482

Personal Selling 484

The Nature of Personal Selling 484 | The Role of the Sales

Force 485

Managing the Sales Force 486

Designing the Sales Force Strategy and Structure 487 |

Recruiting and Selecting Salespeople 490 | Training

Salespeople 491 | Compensating Salespeople 492 |

Supervising and Motivating Salespeople 492 |

Evaluating Salespeople and Sales Force Performance 496

The Personal Selling Process 497

Steps in the Selling Process 497 | Personal Selling

and Managing Customer Relationships 499

Contents 15

Sales Promotion 501

The Rapid Growth of Sales Promotion 502 | Sales Promotion

Objectives 502 | Major Sales Promotion Tools 503 |

Developing the Sales Promotion Program 506

Reviewing Objectives and Key Terms 485 | Objectives Review

507 | Key Terms 486 | Discussion and Critical Thinking 486 |

Discussion Questions 486 | Critical Thinking Exercise 508 |

Applications and Cases 487 | Marketing Technology 487 |

Marketing Ethics 487 | Marketing by the Numbers 509 | Video

Case: MedTronic 488 | Company Case: Salesforce.com 510

Direct and Online Marketing: Building Direct Customer Relationships 514

The New Direct Marketing Model 516

Growth and Benefits of Direct Marketing 517

Benefits to Buyers 517 | Benefits to Sellers 518

Customer Databases and Direct Marketing 518

Forms of Direct Marketing 521

Direct-Mail Marketing 521 | Catalog Marketing 522 |

Telemarketing 523 | Direct-Response Television Marketing 523 |

Kiosk Marketing 524

Online Marketing 525

Marketing and the Internet 525 | Online Marketing Domains

526 | Setting Up an Online Marketing Presence 528

Public Policy Issues in Direct Marketing 536

Irritation, Unfairness, Deception, and Fraud 536 | Consumer

Privacy 537 | A Need for Action 537

Reviewing Objectives and Key Terms 517 | Objectives Review

539 | Key Terms 518 | Discussion and Critical Thinking 518 |

Discussion Questions 518 | Critical Thinking Exercises 540 |

Applications and Cases 519 | Marketing Technology 519 |

Marketing Ethics 519 | Marketing by the Numbers 541 | Video

Case: Home Shopping Network 520 | Company Case: EBay 542

Part 4: Extending Marketing 546

Creating Competitive Advantage 546

Competitor Analysis 548

Identifying Competitors 549 | Assessing Competitors 551 |

Selecting Competitors to Attack and Avoid 553 | Designing a

Competitive Intelligence System 555

Competitive Strategies 555

Approaches to Marketing Strategy 555 | Basic Competitive

Strategies 557 | Competitive Positions 558 | Market Leader

Strategies 560 | Market Challenger Strategies 563 | Market

Follower Strategies 564 | Market Nicher Strategies 564

Balancing Customer and Competitor Orientations 565

Reviewing Objectives and Key Terms 544 | Objectives Review 566 |

Key Terms 545 | Discussion and Critical Thinking 545 | Discussing

the Concepts 545 | Critical Thinking Exercises 567 | Applications

and Cases 546 | Marketing Technology 546 | Marketing Ethics 546 |

Marketing by the Numbers 546 | Video Case: Umpqua Bank 568 |

Company Case: Ford 569

The Global Marketplace 572

Global Marketing Today 574

Looking at the Global Marketing Environment 576

The International Trade System 576 | Economic Environment 578 |

Political-Legal Environment 580 | Cultural Environment 581

Deciding Whether to Go Global 583

Deciding Which Markets to Enter 584

Deciding How to Enter the Market 585

Exporting 585 | Joint Venturing 586 | Direct Investment 587

Deciding on the Global Marketing Program 588

Product 590 | Promotion 592 | Price 593 | Distribution

Channels 593

Deciding on the Global Marketing Organization 594

Reviewing Objectives and Key Terms 573 | Objectives Review

595 | Key Terms 574 | Discussion and Critical Thinking 574 |

Discussion Questions 596 | Critical Thinking Exercises 575 |

Applications and Cases 575 | Marketing Technology 575 |

Marketing Ethics 575 | Marketing by the Numbers 597 | Video

Case: The U.S. Film Industry 576 | Company Case: Buick 598

Sustainable Marketing: Social Responsibility and Ethics 602

Sustainable Marketing 604

Social Criticisms of Marketing 606

Marketing’s Impact on Individual Consumers 606 | Marketing’s

Impact on Society as a Whole 610 | Marketing’s Impact on

Other Businesses 612

Consumer Actions to Promote Sustainable Marketing 613

Consumerism 613 | Environmentalism 614 | Public Actions to

Regulate Marketing 618

Business Actions Toward Sustainable Marketing 618

Sustainable Marketing Principles 619 | Marketing Ethics 623 |

The Sustainable Company 625

Reviewing Objectives and Key Terms 604 | Objectives Review

626 | Key Terms 605 | Discussion and Critical Thinking 605 |

Discussion Questions 605 | Critical Thinking Exercises 605 |

Applications and Cases 605 | Marketing Technology 627 |

Marketing Ethics 606 | Marketing by the Numbers 606 | Video

Case: Life Is Good 606 | Company Case: International Paper 628

Appendix 1: Marketing Plan 633

Appendix 2: Marketing by the Numbers 643

Appendix 3: Marketing Careers 661

Glossary 673

Index 683

The Fifteenth Edition of Principles of Marketing

Students across six continents, more than 40 countries, and 24 languages rely on Kotler/

Armstrong’s Principles of Marketing

Principles of Marketing remains the

and Relationships

Principles of Marketing

Creating value for customers in order to capture value from customers in return. Today’s creating customer value and managing customer relationships

creates customer captures

Preface

Preface 17

deep focus on brands, anchored by the Chapter 30 section “Branding Strategy: Building

Strong Brands.”

3. Harnessing new marketing technologies. New digital and other high-tech marketing de- velopments are dramatically changing how consumers and marketers relate to one

another. No other force is having more impact than technology on marketing strategy

and practice. The fifteenth edition thoroughly explores the new technologies impacting

marketing, from digital relationship-building tools in Chapter 1 to new digital market-

ing and online technologies in Chapters 15 and 17 to the exploding use of online social

networks and consumer-generated marketing in Chapters 1, 5, 14, 15, 17—and just

about everywhere else in the text.

4. Measuring and managing return on marketing. Especially in uncertain economic times, marketing managers must ensure that their marketing dollars are being well spent.

In the past, many marketers spent freely on big, expensive marketing programs, often

without thinking carefully about the financial returns on their spending. But all that

has changed rapidly. “Marketing accountability”—measuring and managing return

on marketing investments—has now become an important part of strategic marketing

decision making. This emphasis on marketing accountability is addressed throughout

the fifteenth edition.

5. Sustainable marketing around the globe. As technological developments make the world an increasingly smaller and more fragile place, marketers must be skilled at marketing

their brands globally and in sustainable ways. New material throughout the fifteenth

edition emphasizes the concepts of global marketing and sustainable marketing—

meeting the present needs of consumers and businesses while also preserving or

enhancing the ability of future generations to meet their needs. The fifteenth edition

integrates global marketing and sustainability topics throughout the text. It then pro-

vides focused coverage of each topic in Chapters 41 and 42, respectively.

New in the Fifteenth Edition We’ve thoroughly revised the fifteenth edition of Principles of Marketing to reflect the major trends and forces impacting marketing in this high-tech era of customer value and relation-

ships. Here are just some of the major and continuing changes you’ll find in this edition:

now affecting the ways in which marketers and customers learn about and relate to

each other. In recent years, nothing has had greater impact than technology on consum-

ers and the marketers who serve them. Every chapter of the fifteenth edition features

new, revised, and expanded discussions of the explosive impact of the exciting new marketing technologies shaping marketing strategy and practice—from online social networks and brand communities discussed in Chapters 1, 5, 14, 15, and 17; to “online

listening” and Webnology research tools in Chapter 4, neuromarketing in Chapter 5,

Create value for customers and build customer relationships

Capture value from customers in return

Capture value from customers to create profits and customer equity

Build profitable relationships and create customer

delight

Construct an integrated

marketing program that delivers

superior value

Design a customer-driven

marketing strategy

Understand the marketplace and customer needs

and wants

Marketing: Creating and Capturing Customer Value

FIGURE | 1.1 A Simple Model of the Marketing Process

18 Preface

and location-based marketing in Chapter 7; to the use of social networks in business-to-

business marketing and sales in Chapters 6 and 16; to Internet and mobile marketing

and other new communications technologies in Chapters 1, 14, 15, 17, and throughout.

The fifteenth edition is packed with new stories and examples illustrating how com-

panies employ technology to gain competitive advantage—from traditional marketing

all-stars such as P&G, McDonald’s, and Nike to new-age digital competitors such as

Apple, Google, Amazon.com, and Facebook.

customer-value framework from previous editions. The customer-value model presented in the first chapter is fully integrated throughout the remainder of the book. No other marketing

text presents such a clear and compelling customer-value approach.

changing nature of customer relationships with companies and brands. Today’s marketers are creating deep consumer involvement and a sense of customer community surrounding

their brands—making brands a meaningful part of consumers’ conversations and lives.

Today’s new relationship-building tools include everything from Web sites, blogs, in-

person events, and video sharing to online communities and social networks such as

Facebook, YouTube, Pinterest, Twitter, or a company’s own social networking sites. For

just a few examples, see Chapter 1 (the section “The Changing Nature of Customer Re-

lationships”); Chapter 4 (qualitative approaches to gaining deeper customer insights);

Chapter 5 (managing online influence and marketing through social networks); Chap-

ter 9 (customer-driven new-product development and co-creation); Chapters 14 and

15 (the shift toward more personalized, interactive communications); and Chapter 39

(online social networks, customer communities, and direct digital media).

ward two-way interactions between customers and brands, including such topics as

customer-managed relationships, consumer empowerment, crowdsourcing, customer co-creation, and consumer-generated marketing. Today’s more empowered customers are giving as much as they get in the form of two-way relationships (Chapter 1), a more

active role in providing customer insights (Chapter 4), crowdsourcing and co-creating new

products (Chapter 8), consumer-generated marketing content (Chapters 1 and 15), devel-

oping or passing along brand messages (Chapters 1, 5, 8, 14, and 15), interacting in cus-

tomer communities (Chapters 5, 15, and 17), and other developments.

sumers are dealing with marketing in an uncertain economy in the lingering after- math of the recent Great Recession. Starting with a section and feature in Chapter 1

and continuing with new sections, discussions, and examples integrated throughout

the text, the fifteenth edition shows how now, even as the economy recovers, marketers

must focus on creating customer value and sharpening their value propositions in this

era of more sensible consumption.

sustainable marketing. The discussion begins in Chapter 1 and ends in Chapter 20, which pulls marketing concepts together under a sustainable marketing framework. In

between, frequent discussions and examples show how sustainable marketing calls for

socially and environmentally responsible actions that meet both the immediate and the

future needs of customers, companies, and society as a whole.

global mar- keting. As the world becomes a smaller, more competitive place, markets face new global marketing challenges and opportunities, especially in fast-growing emerging markets

such as China, India, Brazil, Africa, and others. You’ll find much new coverage of global

marketing throughout the text, starting in Chapter 1 and discussed fully in Chapter 19.

in the fast-changing areas of integrated marketing communications and direct and online marketing. It tells how marketers are blending the new digital and direct technologies—everything from Internet and mobile marketing to blogs, viral videos,

and online social networks—with traditional media to create more targeted, personal,

and interactive customer relationships. Marketers are no longer simply creating inte-

grated promotion programs, they are practicing marketing content management in paid, owned, earned, and shared media. No other text provides more current or encompass-

ing coverage of these exciting developments.

Preface 19

measuring and managing return on marketing, including many new end-of-chapter financial and quantitative marketing exercises that let students apply analytical thinking to relevant concepts in each chap-

ter and link chapter concepts to the text’s innovative and comprehensive Appendix 2:

Marketing by the Numbers.

innovative learning design. The text’s active and integrative presentation includes learning enhancements such as

annotated chapter-opening stories, a chapter-opening objective outline, and ex-

planatory author comments on major chapter figures. The chapter-opening layout

helps to preview and position the chapter and its key concepts. Figures annotated

with author comments help students to simplify and organize chapter material.

End-of-chapter features help to summarize important chapter concepts and high-

light important themes, such as marketing technology, ethics, and financial market-

ing analysis. This innovative learning design facilitates student understanding and

eases learning.

which students can apply what they learn to actual company situations. The fifteenth

edition also features many new video cases, with brief end-of-chapter summaries and

discussion questions. A newly revised Appendix 1: Marketing Plan presents a brand new marketing plan by which students can apply text concepts to a hypothetical brand

and situation. Finally, all of the chapter-opening stories and Real Marketing highlights

in the fifteenth edition are either new or revised for currency.

An Emphasis on Real Marketing Principles of Marketing, fifteenth edition, takes a practical marketing-management approach, providing countless in-depth, real-life examples and stories that show concepts in action

and reveal the drama of modern marketing. In the fifteenth edition, every chapter-opening

vignette and Real Marketing highlight is new or revised, providing fresh insights into real

marketing practices. Learn how:

made it the world’s leading online retailer.

and profitable online marketers—but it’s just getting started.

even a dominant marketing leader—fails to adapt to its changing environment.

listening to customers and using the insights gained to develop better products and

marketing.

that has produced stunning sales and profit results.

showrooms to scope out merchandise.

pany as “socially responsible”—doing good is ingrained in everything the company

does.

chant, are fighting it out online on price.

expressive lifestyle brand befitting current times.

some honey.”

ers asking: “Who needs face-to-face selling anymore?”

same time reducing its impact on the planet.

20 Preface

Beyond these features, each chapter is packed with countless real, relevant, and timely

examples that reinforce key concepts. No other text brings marketing to life like the fifteenth

edition of Principles of Marketing.

Learning Aids That Create More Value for You A wealth of chapter-opening, within-chapter, and end-of-chapter learning devices help you

to learn, link, and apply major concepts:

Integrated chapter-opening preview sections. The active and integrative chapter-opening spread in each chapter starts with a Chapter Preview, which briefly previews chapter concepts, links them with previous chapter concepts, and introduces the chapter-

opening story. This leads to a chapter-opening vignette—an engaging, deeply devel-

oped, illustrated, and annotated marketing story that introduces the chapter material

and sparks your interest. Finally, an Objective Outline provides a helpful preview of chapter contents and learning objectives, complete with page numbers.

Real Marketing highlights. Each chapter contains two carefully developed highlight features that provide an in-depth look at real marketing practices of large and small

companies.

Author figure annotations. Each figure contains author comments that aid your under- standing and help organize major text sections.

Reviewing Objectives and Key Terms. A summary at the end of each chapter reviews ma- jor chapter concepts, chapter objectives, and key terms.

Discussion and Critical Thinking Questions and Exercises. Sections at the end of each chap- ter help you to keep track of and apply what you’ve learned in the chapter.

Applications and Cases. Brief Marketing Technology, Marketing Ethics, and Marketing by the Numbers sections at the end of each chapter provide short application cases that facilitate discussion of current issues and company situations in areas such as market-

ing technology, ethics, and financial marketing analysis. A Video Case section contains short vignettes with discussion questions to be used with a set of mostly new four- to

seven-minute videos that accompany the fifteenth edition. End-of-chapter Company Case sections provide all-new or revised company cases that help you to apply major marketing concepts to real company and brand situations.

Marketing Plan appendix. Appendix 1 contains a brand new sample marketing plan that helps you to apply important marketing planning concepts.

Marketing by the Numbers appendix. An innovative Appendix 2 provides you with a comprehensive introduction to the marketing financial analysis that helps to guide,

assess, and support marketing decisions. An exercise at the end of each chapter lets

you apply analytical and financial thinking to relevant chapter concepts and links the

chapter to the Marketing by the Numbers appendix.

More than ever before, the fifteenth edition of Principles of Marketing creates value for you— it gives you all you need to know about marketing in an effective and enjoyable total learn-

ing package!

Supplements for Instructors The following supplements are available to adopting instructors at the Pearson Instructor

Resource Center, http://www.pearsonglobaleditions.com/kotler.

Instructor’s Manual: provides the following for every chapter in the book: overview, outline, end-of-chapter solutions, additional projects, and examples and Web resources.

Test Bank: includes 3,000 questions, consisting of multiple-choice, true/false, short- answer, and essay questions.

Image Library: access many of the images, ads, and illustrations from the text. PowerPoint slides: includes basic chapter outlines, key points from each chapter, ad- vertisements and art from the text, and discussion questions.

No book is the work only of its authors. We greatly appreciate the valuable contributions of

several people who helped make this new edition possible. As always, we owe very special

thanks to Keri Jean Miksza for her dedicated and valuable help in all phases of the project, and to her husband Pete and little daughters Lucy and Mary for all the support they pro-

vide Keri during this often-hectic project.

We owe substantial thanks to Andy Norman of Drake University, for his valuable revi-

sion advice and skillful contributions in developing chapter vignettes and highlights, com-

pany and video cases, the Marketing Plan appendix, and selected marketing stories. This

edition has benefited greatly from Andy’s assistance. We also thank Laurie Babin of the Uni-

versity of Louisiana at Monroe for her dedicated efforts in preparing end-of-chapter materi-

als and keeping our Marketing by the Numbers appendix fresh. Additional thanks also go

to Dr. Andrew Lingwall of the Clarion University of Pennsylvania for revising the Instruc-

tor’s Manual, to Mary Albrecht of Maryville University for revising the PowerPoint sets,

and to the team at ANSR Source Group for revising the Test Bank for the fifteenth edition.

Many reviewers at other colleges and universities provided valuable comments and

suggestions for this and previous editions. We are indebted to the following colleagues for

their thoughtful input:

Acknowledgments

Fifteenth Edition Reviewers Greg Black, Metropolitan State University of Denver

Rod Carveth, Naugatuck Valley Community College

Linda Morable, Richland College

Randy Moser, Elon University

David Murphy, Madisonville Community College

Donna Waldron, Manchester Community College

Douglas Witt, Brigham Young University

Fourteenth Edition Reviewers Rod Carveth, Naugatuck Valley Community College

Anindja Chatterjee, Slippery Rock University of Pennsylvania

Mary Conran, Temple University

Eloise Coupey, Virginia Tech

Alan Dick, University of Buffalo

Karen Gore, Ivy Tech Community College, Evansville Campus

Charles Lee, Chestnut Hill College

Samuel McNeely, Murray State University

Chip Miller, Drake University

David Murphy, Madisonville Community College

Esther Page-Wood, Western Michigan University

Tim Reisenwitz, Valdosta State University

Mary Ellen Rosetti, Hudson Valley Community College

William Ryan, University of Connecticut

Roberta Schultz, Western Michigan University

J. Alexander Smith, Oklahoma City University

Deb Utter, Boston University

Donna Waldron, Manchester Community College

Wendel Weaver, Oklahoma Wesleyan University

22 Acknowledgments

We also owe a great deal to the people at Pearson who helped develop this book. Se-

nior Acquisitions Editor Erin Gardner provided fresh ideas and support throughout the

revision. Project Manager Meeta Pendharkar provided valuable assistance in managing

the many facets of this complex revision project. Senior Art Director Janet Slowik devel-

oped the fifteenth edition’s exciting design, and Senior Production Project Manager Karalyn

Holland helped guide the book through the complex production process. We’d also like to

thank Stephanie Wall, Anne Fahlgren, Judy Leale, and Jacob Garber for their contributions.

We are proud to be associated with the fine professionals at Pearson Education. We also owe

a mighty debt of gratitude to Project Editor Roxanne Klaas and the fine team at S4Carlisle

Publishing Services.

Finally, we owe many thanks to our families for all of their support and

encouragement—Kathy, Betty, Mandy, Matt, KC, Keri, Delaney, Molly, Macy, and Ben

from the Armstrong clan and Nancy, Amy, Melissa, and Jessica from the Kotler family.

To them, we dedicate this book.

Gary Armstrong Philip Kotler

Global Edition Reviewers

Global Edition Contributors

Dr. Moh’d A Al-hawari, Business College, University of

Sharjah, UAE.

Assoc. Prof. Dr. Serap Atakan, Department of Business

Administration, Istanbul Bilgi University, Turkey.

Professor Alan Au, Associate Dean, Lee Shau Kee School of

Business and Administration, The Open University of

Hong Kong, Hong Kong.

Nadia Azzam, Department of Marketing, Lebanese American

University, Beirut, Lebanon.

Dr. Jeanne Sørensen Bentzen, Department of Business and

Management, Aalborg University, Denmark.

Prof. Erinc Boge, Faculty of Economics and Administrative

Sciences, Baskent University Ankara, Turkey.

Dina Ashmawy, School of Business, The American University

in Cairo, Egypt

Rania Deeb, Business Consultant, United Arab Emirates.

Randa Fadly, School of Business, The American University in

Cairo, Egypt.

Dr. ‘Tunji Gbadamosi, Royal Docks Business School,

University of East London, UK.

Ali El Hallak, Digital Marketing Strategist.

Dr. Hamed M. Shamma, School of Business, The American

University in Cairo, Egypt.

Tanja Dmitrović , Faculty of Economics, University of

Ljubljana, Slovenia.

Prof. Dr. Michael A. Grund, Head Center for Marketing, HWZ

University of Applied Sciences in Business Administration

Zurich, Switzerland.

Li Sean Lum, Wawasan Open University, Malaysia.

Daisy Lee Suet Mui, Department of Marketing, City

University of Hong Kong.

Caroline Rosie Jeffrey Nasah, Labuan School of International

Business and Finance, Universiti Malaysia Sabah, Malaysia.

Andrew Ng, Faculty of Engineering, National University of

Singapore.

Dr. Frederick Yim, Hong Kong Baptist University.

Dr. Ronan de Kervenoael, School of Management, Sabanci

University, Turkey, and Aston Business School, UK.

Jie Liu, Department of Business and Management Studies,

Manchester Metropolitan University, UK.

Lora Saleh, School of Business, The American University in

Cairo, Egypt.

Serdar Sayman, Business Administration Department, Koç

University, Istanbul, Turkey

Sophie Yang, Department of Strategy & Applied Management,

Coventry Business School, Coventry University.

Principles of Marketing

Amazon.com’s deep-down passion for

creating customer value and relationships has made it the world’s leading online retailer. Amazon has become the model

for companies that are obsessively and successfully focused on delivering customer value.

Part 1: Defining Marketing and the Marketing Process (Chapters 1–2)

Part 2: Understanding the Marketplace and Consumers (Chapters 3–6)

Part 3: Designing a Customer-Driven Strategy and Mix (Chapters 7–17)

Part 4: Extending Marketing (Chapters 18–20)

Bezos puts it in three simple words: “Obsess over customers.”

To its core, the company is relentlessly customer driven. “The

thing that drives everything is creating genuine value for cus-

tomers,” says Bezos. Amazon believes that if it does what’s good

for customers, profits will follow. So the company starts with

the customer and works backward. Rather than asking what it

can do with its current capabilities, Amazon first asks Who are

our customers? What do they need? Then, it develops whatever

capabilities are required to meet those customer needs.

At Amazon, such words are more than just “customer-

speak.” Every decision is made with an eye toward improving

the Amazon.com customer experience. In fact, at many Amazon

meetings, the most influential figure in the room is “the empty

W hen you think of shopping online, chances are

good that you think first of Amazon. The online

pioneer first opened its virtual doors in 1995,

selling books out of founder Jeff Bezos’s garage

in suburban Seattle. Amazon still sells books—lots and lots of

books. But it now sells just about everything else as well, from

music, electronics, tools, housewares, apparel, and groceries to

loose diamonds and Maine lobsters.

From the start, Amazon has grown explosively. Its annual

sales have rocketed from a modest $150 million in 1997 to more

than $48 billion today. During the past two years alone, despite

a shaky economy, Amazon’s revenues and profits both nearly

doubled, growing by 40 percent annually. This past holiday sea-

son, at one point, Amazon.com’s more than 173 million active

customers worldwide were purchasing 110 items

per second. Analysts predict that by 2015,

Amazon will become the youngest

company in history to hit $100 bil-

lion in revenues (it took Walmart 34

years). That would make it the na-

tion’s second largest retailer, trailing

only Walmart.

What has made Amazon such an

amazing success story? Founder and CEO

Amazon.com: Obsessed with Creating Customer Value and Relationships

Understanding these basic concepts and forming your own ideas

about what they really mean to you will provide a solid foundation

for all that follows.

Let’s start with a good story about marketing in action at

Amazon.com, by far the world’s leading online marketer. The se-

cret to Amazon’s success? It’s really no secret at all. Amazon is

flat-out customer obsessed. It has a deep-down passion for creat-

ing customer value and relationships. In return, customers reward

Amazon with their buying dollars and loyalty. You’ll see this theme

of creating customer value in order to capture value in return re-

peated throughout this chapter and the remainder of the text.

Chapter Preview This chapter introduces you to

the basic concepts of market-

ing. We start with the question: What is marketing? Simply put,

marketing is managing profitable customer relationships. The aim

of marketing is to create value for customers in order to capture

value from customers in return. Next we discuss the five steps

in the marketing process—from understanding customer needs,

to designing customer-driven marketing strategies and integrated

marketing programs, to building customer relationships and cap-

turing value for the firm. Finally, we discuss the major trends and

forces affecting marketing in this age of customer relationships.

Marketing Creating and Capturing Customer Value1

Chapter 1 | Marketing: Creating and Capturing Customer Value 25 chair”—literally an empty chair at the table that represents the

important customer. At times, the empty chair isn’t empty,

but is occupied by a “Customer Experience Bar Raiser,” an em

ployee who is specially trained to represent customers’ interests.

To give the empty chair a loud, clear voice, Amazon relentlessly

related goals.

Amazon’s obsession with serving the needs of its custom

ers drives the company to take risks and innovate in ways that

ever original product. The Kindle took more than four years and

the company’s number one selling product, and Amazon.com

bined. What’s more, the company’s new Kindle Fire tablet now

started as an effort to improve the customer experience now

gives Amazon a powerful presence in the burgeoning world of

music, videos, and apps sold by Amazon, it makes interacting

with the online giant easier than ever.

Perhaps more important than what Amazon sells is how it sells. Amazon wants to deliver a special experience to every cus

tomer. Most Amazon.com regulars feel a surprisingly strong rela

tionship with the company, especially given the almost complete

lack of actual human interaction. Amazon obsesses over making

each customer’s experience uniquely personal. For example, the

Amazon.com site greets customers with their very own person

alized home pages, and its “Recommendations for You” feature

offers personalized product recommendations. Amazon was the

sifts through each customer’s past purchases and the purchas

personalized site content. Amazon wants to personalize the shop

ping experience for each individual customer. If it has 173 million

customers, it reasons, it should have 173 million stores.

huge selection, good value, low prices, and convenience. But it’s

the “discovery” factor that makes the buying experience really

special. Once on the Amazon.com site, you’re compelled to stay

for a while—looking, learning, and discovering. Amazon .com

has become a kind of online community in which customers

can browse for products, research purchase alternatives, share

opinions and reviews with other visitors, and chat online with

authors and experts. In this way, Amazon does much more than

just sell goods online. It creates direct, personalized customer

relationships and satisfying online experiences. Year after year,

Amazon places at or near the top of almost every customer sat

isfaction ranking, regardless of industry.

To create even greater selection and discovery for custom

ers, Amazon long ago began allowing competing retailers—

stores—to offer their products on Amazon.com, creating a vir

tual shopping mall of incredible proportions. It even encourages

customers to sell used items on the site. And with the recent

business and industrial customers with products ranging from

Amazon.com does

much more than just sell

goods online. It creates

satisfying online customer

experiences. “The thing

that drives everything is

creating genuine value for

customers,” says Amazon

founder and CEO Bezos,

shown above.

Contour by Getty Images

tors and industrial cutting tools.

The broader selection attracts more

“We are becoming increasingly im

portant in the lives of our custom

ers,” says an Amazon marketing

executive.

Based on its powerful growth,

many analysts have speculated

that Amazon.com will become the

Walmart of the Web. In fact, some

argue, it already is. Although Walmart’s total sales of $444 bil

lion dwarf Amazon’s $48 billion in sales, Amazon’s Internet

chasing Amazon on the Web. Put another way, Walmart wants

to become the Amazon.com of the Web, not the other way

around. However, despite its mammoth proportions, to catch

Amazon online, Walmart will have to match the superb Ama

zon customer experience, and that won’t be easy.

Whatever the eventual outcome, Amazon has become the

poster child for companies that are obsessively and successfully

focused on delivering customer value. Jeff Bezos has known from

the very start that if Amazon creates superior value for customers,

it will earn their business in return, and if it earns their business, 1

26 Part 1 | Defining Marketing and the Marketing Process

Objective Outline

Objective 1 Defi ne marketing and outline the steps in the marketing process.

What Is Marketing? (pp 26–28)

Objective 2 Explain the importance of understanding the marketplace and customers and identify the fi ve core marketplace concepts.

Understanding the Marketplace and Customer Needs (pp 28–30)

Objective 3 management orientations that guide marketing strategy.

(pp 30–33)

Preparing an Integrated Marketing Plan and Program (p 34)

Objective 4 Discuss customer relationship management and identify strategies for creating value for customers and capturing value from customers in return.

Building Customer Relationships (pp 34–41)

Capturing Value from Customers (pp 41–44)

Objective 5 Describe the major trends and forces that are changing the marketing landscape in this age of relationships.

The Changing Marketing Landscape (pp 44–51)

Today’s successful Amazon, they are strongly customer focused and heavily committed to marketing. These companies

markets. They motivate everyone in the organization to help build lasting customer rela

tionships based on creating value.

Customer relationships and value are especially important today. Facing dramatic techno

logical changes and deep economic, social, and environmental challenges, today’s customers

are spending more carefully and reassessing their relationships with brands. In turn, it’s more

important than ever to build strong customer relationships based on real and enduring value.

What Is Marketing? Marketing, more than any other business function, deals with customers. Although we will

Marketing is managing profitable customer relationships. The twofold goal of marketing is to attract new customers by promising superior value and to keep and grow current cus

tomers by delivering satisfaction.

Objective 1 Defi ne marketing and outline the

steps in the marketing process.

Chapter 1 | Marketing: Creating and Capturing Customer Value 27

favorite place and way to eat” the world over, giving it nearly as much market share as its

nearest four competitors combined. Walmart has become the world’s largest retailer—and 2

and even churches.

You already know a lot about marketing—it’s all around you. Marketing comes to

stuff your mailbox. But in recent years, marketers have assembled a host of new marketing

approaches, everything from imaginative Web sites and smartphone apps to online social

networks and blogs. These new approaches do more than just blast out messages to the

masses. They reach you directly and personally. Today’s marketers want to become a part

of your life and enrich your experiences with their brands—to help you live their brands. At home, at school, where you work, and where you play, you see marketing in almost

everything you do. Yet, there is much more to marketing than meets the consumer’s casual eye.

Behind it all is a massive network of people and activities competing for your attention and pur

chases. This book will give you a complete introduction to the basic concepts and practices of

Marketing Defi ned What is marketing? Many people think of marketing as only selling and advertising. We

However, selling and advertising are only the tip of the marketing iceberg.

Today, marketing must be understood not in the old sense of making a sale—“telling

and selling”—but in the new sense of satisfying customer needs. If the marketer understands consumer needs; develops products that provide superior customer value; and prices, dis

tributes, and promotes them effectively, these products will sell easily. In fact, according to

management guru Peter Drucker, “The aim of marketing is to make selling unnecessary.”3

marketing mix—a set of marketing tools that work together to satisfy customer needs and build customer relationships.

and organizations obtain what they need and want through creating and exchanging value

marketing as the process

by which companies create value for customers and build strong customer relationships in

order to capture value from customers in return.4

The Marketing Process Figure 1.1

steps, companies work to understand consumers, create customer value, and build strong

customer value. By creating value for consumers, they in turn capture value from consumers

In this chapter and the next, we will examine the steps of this simple model of mar

keting. In this chapter, we review each step but focus more on the customer relationship

Marketing

The process by which companies create

value for customers and build strong

customer relationships in order to capture

value from customers in return.

for customers from customers

This important figure shows marketing in

mers, marketers capture value from

process forms the marketing framework for the rest of the chapter and the remainder of the text.

FIGURE | 1.1

A Simple Model of the Marketing Process

28 Part 1 | Defining Marketing and the Marketing Process steps—understanding customers, building customer relationships, and capturing value

from customers. In Chapter 2, we look more deeply into the second and third steps—

designing marketing strategies and constructing marketing programs.

Understanding the Marketplace and Customer Needs

(1) needs, wants, and demands; (2) market offerings (products, services, and experiences); (3) value and satisfaction; (4) exchanges and relationships; and (5) markets.

Customer Needs, Wants, and Demands The most basic concept underlying marketing is that of human needs. Human needs are

states of felt deprivation. They include basic physical needs for food, clothing, warmth, and safety; social needs for belonging and affection; and individual expression. Marketers did not create these needs; they are a basic part of the human makeup.

Wants are the form human needs take as they are shaped by culture and individual

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

When backed by buying power, wants become demands. Given their wants and resources,

Outstanding marketing companies go to great lengths to learn about and under

stand their customers’ needs, wants, and demands. They conduct consumer research

and analyze mountains of customer data. Their people at all levels—including top

management—stay close to customers. For example, Kroger chairman and CEO David

Dillon regularly dons blue jeans and roams the aisles of local Kroger supermarkets,

blending in with and talking to other shoppers. He wants to see his stores through cus

to customers, successful Ford CEO Alan Mulally has been known to spend time selling

cars at Ford dealerships.5

Market Offerings—

and Experiences

through market offerings—some com

bination of products, services, informa

tion, or experiences offered to a market

to satisfy a need or a want. Market offer

ings are not limited to physical products. They also include services— activities

sentially intangible and do not result in

the ownership of anything. Examples

include banking, airline, hotel, retailing,

and home repair services.

More broadly, market offerings also

include other entities, such as persons, places, organizations, information, and ideas.

For example, the “Pure Michigan”

campaign markets the state of Michigan as

a tourism destination that “lets unspoiled

nature and authentic character revive

lic service campaign, jointly sponsored by

Needs

States of felt deprivation.

Wants

The form human needs take as they

are shaped by culture and individual

personality.

Demands

Human wants that are backed by buying

power.

Market offerings

Some combination of products, services,

information, or experiences offered to a

market to satisfy a need or want.

Marketing offerings are not limited to physical products. The Pure Michigan campaign

markets the idea of Michigan as a tourism destination that “lets unspoiled nature and

authentic character revive your spirits.”

The Michigan Economic Development Corporation

Objective 2 Explain the importance of

understanding the marketplace

and customers and identify the

fi ve core marketplace concepts.

Chapter 1 | Marketing: Creating and Capturing Customer Value 29 the U.S. Department of Agriculture and the U.S. Department of Health & Human Services,

markets the idea of reducing childhood obesity by urging kids and their families to make

healthier food choices and increase their physical activity. One ad promotes “Family Fun Fri-

day: Dance. Play. Go for a walk in the park. Make every Friday the day you and your family

get moving.”6

Many sellers make the mistake of paying more attention to the specific products they

offer than to the benefits and experiences produced by these products. These sellers suffer

from marketing myopia. They are so taken with their products that they focus only on

existing wants and lose sight of underlying customer needs.7 They forget that a product

is only a tool to solve a consumer problem. A manufacturer of quarter-inch drill bits may

think that the customer needs a drill bit. But what the customer really needs is a quarter- inch hole. These sellers will have trouble if a new product comes along that serves the

customer’s need better or less expensively. The customer will have the same need but will want the new product.

Smart marketers look beyond the attributes of the products and services they sell. By

orchestrating several services and products, they create brand experiences for consumers. For example, you don’t just visit Walt Disney World Resort; you immerse yourself and your

family in a world of wonder, a world where dreams come true and things still work the way

they should. You’re “in the heart of the magic!” says Disney.

Even a seemingly functional product becomes an experience. HP recognizes that a per-

sonal computer is much more than just a cold collection of wires and electrical components.

It’s an intensely personal user experience. As noted in one HP ad, “There is hardly anything

that you own that is more personal. Your personal computer is your backup brain. It’s your life. . . . It’s your astonishing strategy, staggering proposal, dazzling calculation.” It’s your

connection to the world around you. HP’s ads don’t talk much about technical specifica-

tions. Instead, they celebrate how HP’s technologies help create seamless connections in

today’s “instant-on world.”8

Customer Value and Satisfaction Consumers usually face a broad array of products and services that might satisfy a given

need. How do they choose among these many market offerings? Customers form expecta-

tions about the value and satisfaction that various market offerings will deliver and buy

accordingly. Satisfied customers buy again and tell others about their good experiences.

Dissatisfied customers often switch to competitors and disparage the product to others.

Marketers must be careful to set the right level of expectations. If they set expectations

too low, they may satisfy those who buy but fail to attract enough buyers. If they set expec-

tations too high, buyers will be disappointed. Customer value and customer satisfaction are

key building blocks for developing and managing customer relationships. We will revisit

these core concepts later in the chapter.

Exchanges and Relationships Marketing occurs when people decide to satisfy their needs and wants through exchange

relationships. Exchange is the act of obtaining a desired object from someone by offering

something in return. In the broadest sense, the marketer tries to bring about a response to

some market offering. The response may be more than simply buying or trading products

and services. A political candidate, for instance, wants votes; a church wants membership;

an orchestra wants an audience; and a social action group wants idea acceptance.

Marketing consists of actions taken to create, maintain, and grow desirable exchange

relationships with target audiences involving a product, service, idea, or other object. Com- panies want to build strong relationships by consistently delivering superior customer

value. We will expand on the important concept of managing customer relationships later

in the chapter.

Markets The concepts of exchange and relationships lead to the concept of a market. A market is the

set of actual and potential buyers of a product or service. These buyers share a particular

need or want that can be satisfied through exchange relationships.

Marketing myopia

The mistake of paying more attention to

the specific products a company offers

than to the benefits and experiences

produced by these products.

Exchange

The act of obtaining a desired object from

someone by offering something in return.

Market

The set of all actual and potential buyers

of a product or service.

30 Part 1 | Defining Marketing and the Marketing Process

their needs, design good market offerings, set prices for them, promote them, and store and

deliver them. Activities such as consumer research, product development, communication,

distribution, pricing, and service are core marketing activities.

Although we normally think of marketing as being carried out by sellers, buyers also

carry out marketing. Consumers market when they search for products, interact with

companies to obtain information, and make their purchases. In fact, today’s digital tech

nologies, from Web sites and online social networks to smartphones, have empowered

consumers and made marketing a truly interactive affair. Thus, in addition to customer

relationship management, today’s marketers must also deal effectively with managed relationships. Marketers are no longer asking only “How can we reach our custom ers?” but also “How should our customers reach us?” and even “How can our customers

reach each other?”

Figure 1.2 shows the main elements in a marketing system. Marketing involves

petitors research the market and interact with consumers to understand their needs. Then

they create and send their market offerings and messages to consumers, either directly

or through marketing intermediaries. Each party in the system is affected by major envi

ronmental forces (demographic, economic, natural, technological, political, and social/

cultural).

Each party in the system adds value for the next level. The arrows represent rela

tionships that must be developed and managed. Thus, a company’s success at building

low prices unless its suppliers provide merchandise at low costs. And Ford cannot deliver

service.

Once it fully understands consumers and the marketplace, marketing management can de

marketing management as the art

delivering, and communicating superior customer value.

To design a winning marketing strategy, the marketing manager must answer two

What customers will we serve (what’s our target market)? and How can we serve these customers best (what’s our value proposition)? We will discuss these market ing strategy concepts briefly here and then look at them in more detail in Chapters 2

and 7.

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

Each party in the system adds value. Walmart cannot fulfill its promise of low prices unless its suppliers provide low costs.

its dealers provide outstanding service.

FIGURE | 1.2

A Modern Marketing System

Objective 3 Identify the key elements of

strategy and discuss the

marketing management

orientations that guide marketing

strategy.

Marketing management

The art and science of choosing

target markets and building profitable

relationships with them.

Chapter 1 | Marketing: Creating and Capturing Customer Value 31

whom it will serve. It does this by dividing the market into segments of customers (market segmentation) and selecting which segments it will go after (target marketing ers as possible and increasing demand. But marketing managers know that they cannot

serve all customers in every way. By trying to serve all customers, they may not serve any

customers well. Instead, the company wants to select only customers that it can serve well

Ultimately, marketing managers must decide which customers they want to target and

customer management and demand management.

Choosing a Value Proposition The company must also decide how it will serve targeted customers—how it will differ entiate and position itself in the marketplace. A brand’s value proposition is the set of ben

you “connect and share with the people in your life,” whereas YouTube “provides a

place for people to connect, inform, and inspire others across the globe.” BMW promises

“Open your mind to the car that challenges the status quo.” New Balance’s Minimus

shoes are “like barefoot only better”;

and with Vibram FiveFingers shoes,

“You are the technology.”

ate one brand from another. They an

swer the customer ’s question, “Why

should I buy your brand rather than a

competitor ’s?” Companies must de

sign strong value propositions that give

them the greatest advantage in their

target markets. For example, Vibram

FiveFingers shoes promise the best of

two worlds—running with shoes and

without. “You get all the health and per

combined with a Vibram sole that pro

tects you from elements and obstacles

in your path. With Vibram FiveFingers

shoes “The more it looks like a foot, the

more it acts like a foot.”

Marketing Management Orientations

with target consumers. But what philosophy should guide these marketing strategies? What weight should be given to the interests of customers, the organization, and society? Very

production, product, selling, marketing, and societal marketing concepts.

The Production Concept The production concept holds that consumers will favor products that are available and

highly affordable. Therefore, management should focus on improving production and dis

The production concept is still a useful philosophy in some situations. For example,

Value propositions: With Vibram FiveFingers shoes, “You are the technology.”

Vibram USA, Inc.

Production concept

The idea that consumers will favor

products that are available and highly

affordable; therefore, the organization

should focus on improving production

and distribution efficiency.

32 Part 1 | Defining Marketing and the Marketing Process

tion concept can lead to marketing myopia. Companies adopting this orientation run a

major risk of focusing too narrowly on their own operations and losing sight of the real

objective—satisfying customer needs and building customer relationships.

The Product Concept The product concept holds that consumers will favor products that offer the most in

quality, performance, and innovative features. Under this concept, marketing strategy fo

cuses on making continuous product improvements.

Product quality and improvement are important parts of most marketing strategies.

However, focusing only on the company’s products can also lead to marketing myopia. For example, some manufacturers believe that if they can “build a better mousetrap, the world

will beat a path to their doors.” But they are often rudely shocked. Buyers may be looking

for a better solution to a mouse problem but not necessarily for a better mousetrap. The bet

ter solution might be a chemical spray, an exterminating service, a house cat, or something

else that suits their needs even better than a mousetrap. Furthermore, a better mousetrap

will not sell unless the manufacturer designs, packages, and prices it attractively; places it

in convenient distribution channels; brings it to the attention of people who need it; and

convinces buyers that it is a better product.

Many companies follow the selling concept, which holds that consumers will not buy

fort. The selling concept is typically practiced with unsought goods—those that buyers do

not normally think of buying, such as insurance or blood donations. These industries must

sell what the company makes rather than making what the market wants. It assumes that cus

tomers who are coaxed into buying the product will like it. Or, if they don’t like it, they will pos

sibly forget their disappointment and buy it again later. These are usually poor assumptions.

The Marketing Concept The marketing concept holds that achieving organizational goals depends on knowing

the needs and wants of target markets and delivering the desired satisfactions better than

competitors do. Under the marketing concept, customer focus and value are the paths to make and sell philosophy, the marketing con

sense and respond

Figure 1.3 contrasts the selling concept and the marketing concept. The selling

concept takes an perspective. It starts with the factory, focuses on the company’s

who buys or why.

In contrast, the marketing concept takes an perspective. As Herb Kelleher,

Product concept

The idea that consumers will favor

products that offer the most quality,

performance, and features; therefore,

the organization should devote its

energy to making continuous product

improvements.

The idea that consumers will not buy

enough of the firm’s products unless the

promotion effort.

Marketing concept

A philosophy in which achieving

organizational goals depends on knowing

the needs and wants of target markets

and delivering the desired satisfactions

better than competitors do.

selling

marketing

The selling concept takes an

The marketing concept

FIGURE | 1.3

The Selling and Marketing

Concepts Contrasted

Chapter 1 | Marketing: Creating and Capturing Customer Value 33 market, focuses on customer needs, and integrates all the marketing activities that affect

on customer value and satisfaction.

Implementing the marketing concept often means more than simply responding to

customers’ stated desires and obvious needs. companies research custom

ers deeply to learn about their desires, gather new product ideas, and test product improve

when customers know what they want.

In many cases, however, customers don’t know what they want or even what is possi ble. As Henry Ford once remarked, “If I’d asked people what they wanted, they would have

said faster horses.”9 For example, even 20 years ago, how many consumers would have

for marketing—understanding customer needs even better than customers

themselves do and creating products and services that meet both existing and latent needs,

now and in the future. As an executive at 3M put it, “Our goal is to lead customers where

they want to go before they know where they want to go.”

The societal marketing concept questions whether the pure marketing concept over

and consumer Is

best for its consumers in the long run? The societal marketing concept holds that marketing

strategy should deliver value to customers in a way that maintains or improves both the

consumer’s and society’s sustainable marketing, socially and environ mentally responsible marketing that meets the present needs of consumers and businesses

while also preserving or enhancing the ability of future generations to meet their needs.

Even more broadly, many leading business and marketing thinkers are now preaching

the concept of shared value, which recognizes that societal needs, not just economic needs, 10

The concept of shared value focuses on creating economic value in a way that also creates value

ready embarked on important efforts to create shared economic and societal value by rethinking

the intersection between society and corporate performance. They are concerned not just with

the communities in which they produce and sell. One prominent marketer calls this Marketing 3.0.

ral, where values amount to caring about the state of the world.”

As Figure 1.4 shows, companies should balance three

and society’s interests. this well.11

pronged corporate sustainability mission stresses economic prosper ity social responsibility

environ mental stewardship ment). Whether it involves greening up its operations or urging

United campaign to improve the education, income, and health

and acting responsibly, it can “meet the needs of the enterprise . . .

while protecting and enhancing the human and natural resources

good for the planet,” says the company. “It’s good for business.”

The idea that a company’s marketing

decisions should consider consumers’

wants, the company’s requirements,

responsibility “isn’t just good for the planet. It’s good for business.”

Cheryl Gerber/AP Photo

34 Part 1 | Defining Marketing and the Marketing Process

Preparing an Integrated Marketing Plan and Program The company’s marketing strategy outlines which customers it will serve and how it will

create value for these customers. Next, the marketer develops an integrated marketing pro

gram that will actually deliver the intended value to target customers. The marketing pro

gram builds customer relationships by transforming the marketing strategy into action. It

marketing mix marketing strategy.

four Ps

how much it will charge for the offering (price) and how it will make the offering available

to target consumers (place). Finally, it must communicate with target customers about the

mix tool into a comprehensive integrated marketing program that communicates and deliv ers the intended value to chosen customers. We will explore marketing programs and the

marketing mix in much more detail in later chapters.

Building Customer Relationships

Customer Relationship Management Customer relationship management is perhaps the most important concept of modern marketing.

CRM tomers and carefully managing customer touchpoints to maximize customer loyalty. We will discuss this narrower CRM activity in Chapter 4, when dealing with marketing information.

Most marketers, however, give the concept of customer relationship management a

broader meaning. In this broader sense, customer relationship management is the

superior customer value and satisfaction. It deals with all aspects of acquiring, keeping, and

growing customers.

Relationship Building Blocks:

The key to building lasting customer relationships is to create superior customer value and

a larger share of their business.

Consumers Company

Society

UPS knows that doing what’s right benefits both consumers and the company. Social responsibility “isn’t just good for the planet,” says the company. “It’s good for business.”

FIGURE | 1.4

The Considerations Underlying

the Societal Marketing Concept

Objective 4 Discuss customer relationship

management and identify

strategies for creating value for

customers and capturing value

from customers in return.

Customer relationship management

The overall process of building and

maintaining profitable customer

relationships by delivering superior

customer value and satisfaction.

Chapter 1 | Marketing: Creating and Capturing Customer Value 35 Customer Value. often face a bewildering array of products and services from which to choose. A customer

—the customer’s

relative to those of competing offers. Importantly, customers often do not judge values and

costs “accurately” or “objectively.” They act on perceived value. To some consumers, value might mean sensible products at affordable prices. To other

exclusive features, and stunning looks.” However, Weber’s marketing also suggests that

the grill is a real value, even at the premium price. For the money, you get practical features

price compared to less expensive grills? To many consumers, the answer is no. But to the 12

Customer Satisfaction. Customer satisfaction depends on the product’s perceived performance relative to a buyer’s expectations. If the product’s performance falls short of

delighted.

Outstanding marketing companies go out of their way to keep important custom

customer loyalty, which in turn results in better company per

ising only what they can deliver and then delivering more

than they promise. Delighted customers not only make repeat

purchases but also become willing marketing partners and

“customer evangelists” who spread the word about their good

experiences to others.

For companies interested in delighting customers, excep

tional value and service become part of the overall company

culture. For example, year after year, JetBlue ranks at or near

the top of the airline industry in terms of customer satisfaction.

customers that they are at the heart of the company’s strategy 13

satisfying experiences. At JetBlue, customer care starts with

basic amenities that exceed customer expectations, especially

free premium snacks, free satellite TV. But it’s the human touch that really makes JetBlue special. JetBlue employees not only

know the company’s core values—safety, integrity, caring, pas sion, and fun—they live outstanding customer experiences, making JetBlue customers

In fact, JetBlue often lets its customers do the talking. For

person testimonials from devoted fans. And in a former advertis

ing

ees. For

attendant dashed from the plane just before takeoff to retrieve

Darien, Connecticut, told how they arrived late at night for a

family vacation in Florida with their three very tired small chil

dren only to learn that their

The customer’s evaluation of the

difference between all the benefits and all

the costs of a marketing offer relative to

those of competing offers.

Customer satisfaction

The extent to which a product’s perceived

performance matches a buyer’s

expectations.

ALL—tells customers that they are at the very heart of JetBlue’s

strategy and culture.

JetBlue Airways

36 Part 1 | Defining Marketing and the Marketing Process hotel wouldn’t take them in. “Out of nowhere we heard a voice from behind us, go ahead, take my

bringing humanity back to air travel,” says JetBlue’s senior VP of marketing.

Other companies that have become legendary for their service heroics include Zappos

Marketing 1.1). However, a

satisfaction “has a lot more to do with how well companies deliver on their basic, even

expert. “To win [customers’] loyalty, forget the bells and whistles and just solve their

problems.”14

relative to competitors, it does not attempt to maximize customer satisfaction. A com pany can always increase customer satisfaction by lowering its prices or increasing

its services. But this may result in lower profits. Thus, the purpose of marketing is to

must continue to generate more customer value and satisfaction but not “give away

the house.”

Customer Relationship Levels and Tools Companies can build customer relationships at many levels, depending on the nature

seek to develop basic relationships with them. For example, Nike does not phone or call on all of its consumers to get to know them personally. Instead, Nike creates relationships

apps. At the other extreme, in markets with few customers and high margins, sellers want

to create full partnerships with key customers. For example, Nike sales representatives

large retailers. In between these two extremes, other levels of customer relationships are

appropriate.

marketing tools to develop stronger bonds with customers. For example, many compa

nies offer frequency marketing programs that reward customers who buy

hotels give room upgrades to frequent guests, and supermarkets give

patronage discounts to “very important customers.” These days almost

every brand has a loyalty rewards program.

restaurant Panera has a MyPanera loyalty program that surprises fre

clusive tastings and demonstrations, and invitations to special events.

Almost half of all Panera purchases are logged onto MyPanera cards.

The program not only lets Panera track individual customer purchases,

it also lets the company build unique relationships with each MyPanera

member.15

Other companies sponsor club marketing programs that offer mem

Apple encourages customers to form local Apple user groups. More

than 800 registered Apple user groups worldwide offer monthly meet

ings, a newsletter, advice on technical issues, training classes, product

Weber Nation—“the site for real people who love their Weber grills.”

Membership gets you exclusive access to online grilling classes, an in

teractive recipe box, grilling tips and 24/7 telephone support, audio and

fanatics, and even a chance to star in a Weber TV commercial. “Become a

Relationship marketing tools: The MyPanera loyalty

rewards program not only lets Panera track individual

customer purchases, it also lets the company build

unique relationships with each MyPanera member.

Photo courtesy of Gary Armstrong

Chapter 1 | Marketing: Creating and Capturing Customer Value 37

Toyota Japan is renowned for its marvellous

customer service. The popular automobile

manufacturer aims to provide its customers

with the best service and make their experi

ences with the brand memorable. Toyota

has always been ranked among the top car

brands for customer service despite its re

call of cars over the past years. As a matter

of fact, the way Toyota has handled the re

call has made some customers satisfied with

Toyota’s customer service.

Toyota has carried out its business activ

ity based on the concept of “The customer

always comes first.” This concept was estab

lished in 1935 and has become the Toyota

Group’s guiding philosophy to ensure that

its customers are always provided the finest

service possible. Toyota ensures that this

philosophy is also followed by its dealers,

because the dealers importantly portray the

image of the company itself.

To ensure that high customer services is

maintained, Toyota initiated a program whereby

its representatives randomly visit customers pur

chasing from its domestic dealer in each region

of Japan, so as to check the quality of service

that is being offered to customers. The main aim

behind this is to assure that the

concept is being applied correctly.

Toyota expends great effort in gathering

information and seeking feedback from its

customers about their experiences with the

tions with customers in which they discuss the

complete Toyota experience. Toyota attends

to the opinions of its customers and constantly

works on improvement. All recommendations

posed by customers are given serious con

sideration, and any complaints are closely

analyzed in attempt to find the source of the

customer’s dissatisfaction and avoid its future

recurrence with other customers.

Information is also gathered from deal

ers, and questionnaires are given to purchas

ers of new cars to ensure that their dealers

are providing them with service of the highest

quality. This information is analyzed carefully

to identify any weak areas and develop meth

ods to improve them. Customer comments

and recommendations play a vital role in the

customer service department at Toyota. The

following are some of Toyota’s customer de

light stories:

was travelling to a funeral and heard some

unknown sounds coming from his Toyota.

He pulled into the first Toyota outlet he

encountered and requested for the car to

have a safety check. Although there were

several cars booked to have a service be

fore his car, the attendees serviced his car

first after hearing he was in a rush to attend

a funeral. The employees were very friendly

and helpful; they checked the car and did

not charge the client.

ful service at Toyota. He expresses that

the employees are always welcoming and

friendly. His service manager always gives

him a price quote and an estimation of the

time the service will take, and the time taken

never exceeds the estimation. He notes

that employees are patient, polite, and al

ways prepared to answer any questions he

has. He says that this is the best customer

service he has ever received.

rience of purchasing a Toyota. She was at

first anxious and confused, but the employ

ees at the Toyota dealership made her entire

experience relaxed and enjoyable. They pro

vided her with exceptional service and treat

ment, and she expressed the hope that all

nate as her to have such a fine experience.

Toyota launched Customer First training

centers around the world in July 2010. These

training centers instruct employees on how

to treat the customers, that the rule of “The

customer always comes first” should be ap

plied at all times and that there is no excep

tion, no matter what the situation is. These

centers were established to ensure that

Toyota’s global associates provide all cus

tomers with outstanding service, just as the

main branch in Japan does. Although these

training centers have only recently been es

tablished, the philosophy behind them has

been fundamental in Toyota since the com

pany was founded.

Toyota is training its employees in spe

cific workplace and customer service skills to

enable them to provide their customers with

all necessary information. It is important for

the employees to be able to explain the key

benefits that Toyota has to offer to potential

customers, and equally important to look

Real Marketing 1.1 Toyota Japan: The Customer Always Comes First

Toyota Japan is well known for going beyond the call of duty when it comes

to customer service and uses feedback to constantly improve the services

it offers.

Naiyyer/Shutterstock.com

38 Part 1 | Defining Marketing and the Marketing Process

tive. Therefore, the provision of training for its

employees ensures tremendous benefit to

Toyota.

The company specifically established

nizations with the aim of directly addressing

customer concerns after the purchase of a

portant component because it demonstrates

that Toyota will continue to provide its custom

ers with the same quality of service that they

received when purchasing their vehicles, and

has led to increased customer satisfaction.

The Toyota Customer Assistance Cen

ter, as well as the Lexus Information Desk

devoted to the Lexus brand models, provides

24 hours a day, in Japan. The center aims to

improve convenience for customers, and em

ployees are prepared to respond to opinions

and complaints at any time of the day. Toyota

thus indicates to its customers how much

they are valued by having dedicated employ

ees waiting for their calls 24 hours a day.

In addition to providing information about

Toyota vehicles, the Customer Assistance

Center provides customers with informa

tion regarding various other concerns. For

example, after the recent East Japan earth

quake, customers were primarily concerned

with where to get fuel, which service stations

were operating, and how to deal with vehicles

damaged in the earthquake. When employ

ees were faced with such questions, they an

swered them politely and in the same manner

as they would answer any question concern

ing the company, providing stability and reas

surance in troubled times and highlighting the

company’s focus on the customer.

Sources:

.com/company/toyota_traditions/philosphy, accessed November 5, 2012; “Relations with Customers: Ensuring

High Quality,” www.toyota.co.jp/en/environment, accessed November 5, 2012; and “Relations with Customers:

Toyota’s Customer First Policy,” www.toyota.co.jp/en/environmental_rep, accessed November 5, 2012.

The Changing Nature of Customer Relationships

terday’s companies focused on mass marketing to all customers at arm’s length. Today’s

companies are building deeper, more direct, and lasting relationships with more carefully

selected customers. Here are some important trends in the way companies and customers

are relating to one another.

customer who comes along. Today, most marketers realize that they don’t want relation

serve than to lose.”17

customers and target winning ones for pampering. One approach is to preemptively screen

prospective customers a series of screening questions to determine if they are right for the

just the ones who ask for more than they give.” Adds another marketer, “Firing the custom

ers you can’t possibly please gives you the bandwidth and resources to coddle the ones

that truly deserve your attention and repay you with referrals, applause, and loyalty.”19

ily customers, not employees. For about a year, the

Marketers don’t want relationships

with every possible customer. In

fact, a company might want to “fi re”

customers that cost more to serve

than to lose.

Chapter 1 | Marketing: Creating and Capturing Customer Value 39

Marketing relationships in which

customers, empowered by today’s

new digital technologies, interact with

companies and with each other to shape

their relationships with brands.

were calling customer care hundreds of times a month . . . on the same issues, even after we felt

those issues had been resolved.” Ultimately, the company determined it could not meet the needs

of this subset of subscribers and, therefore, waived their termination fees and cut off their service.

approaches and technologies have made it easier to focus on retaining the right customers and,

by extension, showing problem customers the door.

Relating More Deeply and Interactively Beyond choosing customers more selectively, companies are now relating with chosen

messages only, today’s marketers are incorporating new, interactive approaches that help

Interactive Customer Relationships. New technologies have profoundly changed the ways in which people relate to one another. New tools for relating include everything from

networks, such as Facebook, YouTube, Pinterest, and Twitter.

This changing communications environment also affects how companies and brands re

late to customers. The new communications approaches let marketers create deeper customer

involvement and a sense of community surrounding a brand—to make the brand a mean

ingful part of consumers’ conversations and lives. “Becoming part of the conversation be

advertising,” says one marketing expert. It’s no longer about “just pushing messages out,”

says another. “It’s allowing the individual, the person, to really feel like they’re part of your

brand in a unique way.”20

for marketers, however, they also create challenges. They give consumers greater power

and control. Today’s consumers have more information about brands than ever before, and

they have a wealth of platforms for airing and sharing their brand views with other con

sumers. Thus, the marketing world is now embracing not only customer relationship man

agement, but also .

Greater consumer control means that companies can no longer rely on marketing by

trusion. Instead, marketers must practice marketing by attraction—creating market offerings and messages that involve consumers rather than interrupt them. Hence, most marketers

For example, many brands are creating dialogues with consumers via their own or

existing online social networks. To supplement their traditional marketing campaigns, com

sites. They join social networks. Or they launch their own blogs, online communities, or

personal, interactive level.

Take Twitter, for example. Organizations ranging from Dell, JetBlue Airways, and

have created Twitter pages and promotions. They use “tweets” to start conversations with

Twitter’s more than 300 million registered users, address customer service issues, research

consumers involved with and talking about a brand.

40 Part 1 | Defining Marketing and the Marketing Process

views with the company and fellow ice cream lovers, and learn

both customer relationships and sales. In response to a recent

printed more than 500,000 coupons in just three weeks, redeem

the company’s advertising budget is now dedicated to nontra

ditional activities like social media.

Most marketers are still learning how to use social media

effectively. Using such media approaches calls for caution.

Because consumers have so much control, even the seem

example, McDonald’s recently launched a Twitter campaign

was hijacked by Twitter users, who turned the hashtag into

pulled the campaign within only two hours, but the hashtag

was still churning weeks later. “You’re going into the consum

cooker,” says another. “The hundreds of thousands, or millions, of people out there are

weak or stupid in it.”22

making relevant and genuine contributions to consumer conversations. “Nobody wants to

be friends with a brand,” says an online marketing executive. “Your job [as a brand] is to be

part of other friends’ conversations.”23

A growing part of the new customer dialogue is , by which consumers themselves are playing

a bigger role in shaping their own brand experiences and those of others. This might

sites, and other digital forums. But increasingly, companies are inviting consumers to play a more active role in shaping products and brand messages.

to hear it.” The site invites customer to share their ideas, vote on and discuss the ideas of 24

Other companies are inviting customers to play an active role in shaping ads. For ex

Davidson,

have been aired on national television. For the past several years, PepsiCo’s Doritos brand

has held a “Crash the

USA Today’s two separate AdMeter rankings, earning each of their creators a cool $1 million cash prize from PepsiCo. A spot called “Man’s Best Friend,” featuring a dog that bribes a

tional AdMeter ratings by people watching the big game. That ad cost all of $20 to make.

Brand exchanges created by consumers

themselves—both invited and uninvited—

by which consumers are playing an

increasing role in shaping their own

brand experiences and those of other

consumers.

social media to engage customers on a more personal, interactive

an ice cream social.

Kahala Corp. Facebook is a trademark of Facebook, Inc.

Chapter 1 | Marketing: Creating and Capturing Customer Value 41 yard to nab a bag of Doritos from a taunting kid, grabbed

USA Today/ Facebook social media AdMeter.25

nies may find it difficult to glean even a little gold from

all the garbage. For example, when Heinz invited

consumers to submit homemade ads for its ketchup

on its YouTube page, it ended up sifting through more

of the amateur ads were very good—entertaining and

best, and others were downright dreadful. In one ad,

a contestant chugged ketchup straight from the bottle.

washed his hair, and shaved his face with Heinz’s

product.

eos, reviews, blogs, and Web sites, consumers are play

ing an increasing role in shaping their own brand experiences. Beyond creating brand

conversations, customers are having an increasing say about everything from product

design, usage, and packaging to pricing and distribution. Brands need to accept and em

as either consumers or couch potatoes, are now creators and thought leaders, passive

no more.”27

Partner Relationship Management When it comes to creating customer value and building strong customer relationships,

today’s marketers know that they can’t go it alone. They must work closely with a variety

of marketing partners. In addition to being good at customer relationship management, mar keters must also be good at partner relationship management—working closely with

others inside and outside the company to jointly bring more value to customers.

Traditionally, marketers have been charged with understanding customers and rep

resenting customer needs to different company departments. However, in today’s more

connected world, every functional area in the organization can interact with customers.

The new thinking is that—no matter what your job is in a company—you must understand

marketing and be customer focused. Rather than letting each department go its own way,

Marketers must also partner with suppliers, channel partners, and others outside the

company. Marketing channels consist of distributors, retailers, and others who connect the

company to its buyers. The supply chain describes a longer channel, stretching from raw supply

chain management, companies today are strengthening their connections with partners all along the supply chain. They know that their fortunes rest on more than just how well they

performs against competitors’ supply chains.

Capturing Value from Customers

share of customer, and customer equity.

consumers to submit homemade ads for its ketchup brand on YouTube,

or even downright dreadful.

AJ Mast/The New York Times/Redux Pictures

Partner relationship management

Working closely with partners in other

company departments and outside the

company to jointly bring greater value to

customers.

42 Part 1 | Defining Marketing and the Marketing Process Creating Customer Loyalty and Retention

customers remain loyal and talk favorably to others about the company and its products.

an enormous drop in loyalty. Thus, the aim of customer relationship management is to cre

ate not only customer satisfaction but also customer delight.

The recent Great Recession and the economic uncertainty that followed it put strong

pressures on customer loyalty. It created a new sensibility in consumer spending that will

last well into the future. Recent studies show that, even in an improved economy, 55 per

50 percent of consumers now purchase store brands “all the time” as part of their regular

will now shop at a different store with lower prices even if it’s less convenient. Research

Thus, companies today must shape their value propositions even more carefully and treat 28

stream of purchases that the customer would make over a lifetime of patronage. For ex

ample, here is a classic illustration of customer lifetime value 29

Why? Because his average customer spends about $100 a week, shops 50 weeks a year, and re

mains in the area for about 10 years. If this customer has an unhappy experience and switches to

greater if the disappointed customer shares the bad experience with other customers and causes

them to defect.

ated what the New York Times has dubbed the “Disneyland of

entertainment, a petting zoo, and animatronics throughout

the store. From its humble beginnings as a small dairy store in

29 additions onto the original store, which now serves more

than 300,000 customers each week. This legion of loyal shop

pers is largely a result of the store’s passionate approach to

customer service.

lifetime sales. And the estimated lifetime value of a young 30 In fact, a company can

must aim high in building customer relationships. Customer

delight creates an emotional relationship with a brand, not

just a rational preference. And that relationship keeps cus

tomers coming back.

Beyond simply retaining good customers to capture customer lifetime value, good cus

tomer relationship management can help marketers increase their share of customer—

the share they get of the customer’s purchasing in their product categories. Thus, banks

of stomach.” Car companies want to increase “share of garage,” and airlines want greater

“share of travel.”

Leonard’s has created the “Disneyland of dairy stores.” Rule #1—The

customer is always right. Rule #2—If the customer is ever wrong,

reread Rule #1.

Courtesy of Stew Leonard’s

Customer lifetime value

The value of the entire stream of

purchases a customer makes over a

lifetime of patronage.

The portion of the customer’s purchasing

that a company gets in its product

categories.

Chapter 1 | Marketing: Creating and Capturing Customer Value 43

to existing customers. For example, Amazon.com is highly skilled at leveraging relation

ships with its 173 million customers to increase its share of each customer ’s spending 31

Once they log onto Amazon.com, customers often buy more than they intend. And Amazon does

all it can to help make that happen. The online giant continues to broaden its merchandise assort

search history, the company recommends related products that might be of interest. This recom

fee of $79, Prime members receive delivery of all their purchases within two days, whether it’s

reliably appear two days after the order, into Amazon addicts.” As a result, after signing up for

Prime, shoppers more than triple their annual Amazon.com purchases. The shipping program is

Building Customer Equity We can now see the importance of not only acquiring customers but also keeping and grow

ing them. The value of a company comes from the value of its current and future customers.

chases, and capture their customer lifetime value.

What Is Customer Equity? The ultimate aim of customer relationship management is to produce

high customer equity.32 Customer equity is the total combined customer lifetime values of all of the company’s current and potential custom

ers. As such, it’s a measure of the future value of the company’s cus

higher its customer equity. Customer equity may be a better measure of

and 33

In the 1970s and 1980s, Cadillac had some of the most loyal customers in the

industry. To an entire generation of car buyers, the name Cadillac

brand’s future looked rosy. However, measures of customer equity would

have painted a bleaker picture. Cadillac customers were getting older (aver

buyers were on their last cars. Thus, although Cadillac’s market share was

good, its customer equity was not.

Compare this with BMW. Its more youthful and vigorous image didn’t

win BMW the early market share war. However, it did win BMW younger

customers (average age about 40) with higher customer lifetime values.

soared while Cadillac’s fortunes eroded badly. BMW overtook Cadillac in

the 1980s. In recent years, Cadillac has struggled to make the Caddy cool

of the World” with marketing pitches based on “power, performance, and

about current sales and market share. Customer lifetime value and cus

tomer equity are the name of the game.

Managing customer equity: To increase customer

lifetime value, Cadillac is trying to make the Caddy cool

a younger generation of consumers.

Customer equity

The total combined customer lifetime

values of all of the company’s customers.

44 Part 1 | Defining Marketing and the Marketing Process Building the Right Relationships with the Right Customers Companies should manage customer equity carefully. They should view customers as as

sets that need to be managed and maximized. But not all customers, not even all loyal cus

and retain?

The company can classify customers according to their potential

age its relationships with them accordingly. Figure 1.5 34 Each group re

quires a different relationship management strategy. Strangers show low

the company’s offerings and their needs. The relationship management

Butterflies

they’re gone. An example is stock market investors who trade shares

often and in large amounts but who enjoy hunting out the best deals

without building a regular relationship with any single brokerage

them, capturing as much of their business as possible in the short

time during which they buy from the company. Then, it should cease

investing in them until the next time around.

True friends

delight these customers and nurture, retain, and grow them. It wants to turn true friends

into true believers, who come back regularly and tell others about their good experiences with the company.

Barnacles needs and the company’s offerings. An example is smaller bank customers who bank regu

larly but do not generate enough returns to cover the costs of maintaining their accounts.

them more, raising their fees, or reducing service to them. However, if they cannot be made

lationship management strategies. The goal is to build the right relationships with the right customers.

The Changing Marketing Landscape

served, “The pace of change is so rapid that the ability to change has now become a com

petitive advantage.” Yogi Berra, the legendary New York Yankees catcher and manager,

summed it up more simply when he said, “The future ain’t what it used to be.” As the

marketplace changes, so must those who serve it.

In this section, we examine the major trends and forces that are changing the market

changing economic environment, the digital age, rapid globalization, and the call for more

ethics and social responsibility.

The Changing Economic Environment

a stunning economic meltdown unlike anything since the Great Depression of the 1930s.

The stock market plunged, and trillions of dollars of market value simply evaporated. The

FIGURE | 1.5

Customer Relationship Groups

Objective 5 Describe the major trends and

forces that are changing the

marketing landscape in this age

of relationships.

Chapter 1 | Marketing: Creating and Capturing Customer Value 45

losses in income, a severe credit crunch, declining home values, and rising unemployment.

The Great Recession caused many consumers to rethink their spending priorities

and cut back on their buying. After two decades of overspending, consumers tightened

their purse strings and changed their buying attitudes and habits. More than just a tem

porary change, the new consumer values and consumption patterns will likely remain

for many years to come. Even as the economy strengthens, consumers continue to spend

more carefully and sensibly (see Real Marketing 1.2).

In response, companies in all industries—from discounters such as Target to luxury

ities. More than ever, marketers are emphasizing the value in their value propositions. They

and marketing pitches.

For example, for years discount retailer

Target focused increasingly on the “Expect

discounter” image successfully differentiated it

position. But when the economy soured, many

consumers worried that Target’s trendier as

sortments and hip marketing also meant higher

Target shifted its balance more toward the “Pay

prices are in line with Walmart’s and that cus

tomers know it. Although still trendy, Target’s

marketing now emphasizes more practical price

and savings appeals. “We let too much space drift

we’ve negated the price perception issues,” says

the executive.35

In adjusting to the new economy, companies

may be tempted to cut their marketing budgets

and slash prices in an effort to coax more frugal customers into opening their wallets. How

ever, although cutting costs and offering selected discounts can be important marketing

term brand images and customer relationships. The challenge is to balance the brand’s value

“A recession creates winners and losers just like a boom,” notes one economist. “When

a recession ends, when the road levels off and the world seems full of promise once more,

your position in the competitive pack will depend on how skillfully you managed [dur

ing the tough times].”

ers held the line on prices and instead explained why their brands were worth it. And

rather than cutting their marketing budgets, companies such as McDonald’s, Hyundai,

and General Mills maintained or actually increased their marketing spending, leaving

them stronger when the economy strengthened. The goal in uncertain economic times is

to build market share and strengthen customer relationships at the expense of competitors

who cut back.

The Digital Age The explosive growth in digital technology has fundamentally changed the way we live—

how we communicate, share information, learn, shop, and access entertainment. In turn, it

has had a major impact on the ways companies bring value to their customers. For better or 37

Karl and Dorsey Gude can remember simpler mornings when they used to chat as they ate break

fast and read the newspaper and competed only with the television for the attention of their two

teenage sons. Today, Karl wakes and immediately checks his work e mail and his Facebook and

In the current economic environment, companies must emphasize the value

in their value propositions. Target has shifted the balance more toward the “Pay

Less” half of its “Expect More. Pay Less.” positioning.

Associated Press

46 Part 1 | Defining Marketing and the Marketing Process

The Great Recession of 2008 to 2009 and its

aftermath hit American consumers hard. The

housing bust, credit crunch, high unemploy

ment, and plunging stock market blew away

the savings and confidence of consumers who

losophy, chasing bigger homes, bigger cars,

and better brands. The new economic realities

forced consumers to bring their excessive con

sumption back in line with their incomes and

rethink buying priorities. People across all in

come segments reined in their spending, post

poned big purchases, searched for bargains,

and hunkered down to weather the worst eco

nomic crisis since the Great Depression rocked

the worlds of their parents or grandparents.

incomes and spending are again on the rise.

However, even as the economy strengthens,

ways, Americans are now showing an enthu

siasm for frugality not seen in decades. Sen

sible consumption has made a comeback, and

it might be here to stay. The behavioral shift

isn’t simply about spending less. The new con

sumption ethic emphasizes simpler living and

more value for the dollar. It focuses on living

with less, fixing something yourself instead of

buying a new one, packing a lunch instead of

eating out, spending more time in discount and

dollar chains, or trading down to store brands.

Despite their rebounding means, consumers

are now clipping more coupons, swiping their

credit cards less, and putting more in the bank.

For example, not that long ago, yoga

teacher Gisele Sanders shopped at the

Nordstrom in Portland, Oregon, and didn’t

think twice about dropping $30 for a bottle of

Chianti to go with dinner. That was before the

recession, when her husband, a real estate

agent, began to feel the brunt of slowing home

sales. Now, even with the improved economy,

or less per bottle, shops for used clothes, and

takes her mother’s advice about turning down

the thermostat during winter. “It’s been a long

time coming,” she said. “We were so off the

charts before.”

more than just a fad—most experts agree that

the impact of the Great Recession will last well

into the future. The new frugality appears to be

a lasting lifestyle change based on a broad re

assessment values. The old expression “Shop

till you drop” has been replaced by “No, not

today.”

The pain of the Great Recession moved

many consumers to reconsider their very defi

nition of the good life, changing the way they

community—and in activities and relation

ships outside the consumer realm,” says John

Gerzema, chief insights officer for ad agency

Young & Rubicam, which maintains one of the

world’s largest databases of information about

consumer attitudes. In what Gerzema calls the

“spend shift,” consumers have become uneasy

with debt and excess spending and skeptical

of materialistic values. “From now on, our pur

chases will be more considered. We are mov

ing from mindless to mindful consumption.”

Most consumers see the new frugality as

a good thing. One recent survey showed that

78 percent of people believe the recession has

changed their spending habits for the better. In

another survey, 79 percent of consumers agreed

with the statement, “I feel a lot smarter now

about the way I shop versus two years ago.”

the recession I realize I am happier with a simpler

searcher, “They look at their old spending habits

and are a bit embarrassed by their behavior. So

while consumption may [not] be as carefree and

fun as it was before, consumers seem to like

their new outlook, mindfulness, and strength.”

For example, in Maine, Sindi Card says

her husband’s job is now secure. However,

because the couple has two sons in college,

even in the more buoyant economy, she fixed

was a stark change from the past, when she

would have taken the old model to the dump

and had a new one delivered. With help from

dreds of dollars. “We all need to find a way to

live within our means,” she said.

The new, more practical spending values

don’t mean that people have resigned them

selves to lives of deprivation. As the economy

has improved, consumers are indulging in luxu

sensibly. “We’re seeing an emergence in what

we call ‘conscious recklessness,’ where con

sumers actually plan out frivolous or indulgent

spending,” says the researcher. It’s like some

one on a diet who saves up calories by eating

Real Marketing 1.2 A New Era of More Sensible Consumption

Americans are now showing an enthusiasm for frugality not seen in decades. More

sensible spending might be here to stay.

Igor Kisselev/Shutterstock.com

Chapter 1 | Marketing: Creating and Capturing Customer Value 47

Internet

A vast public web of computer networks

that connects users of all types all

around the world to each other and to an

amazingly large information repository.

prudently during the week and then lets loose on

Friday night. But “people are more mindful now

and aware of the consequences of their (and

do’ list, but people are taking a more mindful ap

proach to where, how, and on what they spend.”

What does the new era of consumer

spending mean to marketers? Whether it’s for

everyday products like cereal and detergents

or expensive luxuries like Starbucks coffee or

diamonds, marketers must clearly spell out their

value propositions: what it is that makes their

Frugality is in; value is under scrutiny. For com

panies, it’s not about cutting costs and prices.

Instead, they must use a different approach

to reach today’s more pragmatic consumers:

Forego the flash and prove your products’ worth.

According to Starbucks CEO Howard Schultz:

There’s been a real sea change in consumer

behavior. And [companies] must appeal to the

consumer in a different way today than they did

two or three years ago. And it’s not all based

on value. Cutting prices or putting things on

sale is not sustainable business strategy. . . .

You can’t cut enough costs to save your way

to prosperity. I think the question is, What is

your relevancy to the life of the new consumer,

who is more discriminating about what they’re

going to spend money on?

Even diamond marketer De Beers has

adjusted its longstanding “A diamond is for

ever” value proposition to these more sensible

times. One ad, headlined “Here’s to Less,”

makes that next diamond purchase seem—

what else—downright practical. Although a

diamond purchase might be spendy up front,

it’s something you’ll never have to replace or

throw away. As the old James Bond thriller

suggests, a diamond is forever.

Sources:

Recession,” Fortune, April 2, 2012, http://finance

Catalina Gorla, “The Decline and Rise of Thrift”, Forbes, April 23, 2012, www.forbes.com; Mark Dolliver, “Will Trauma

tized Consumers Ever Recover?” Adweek, March 22, 2010, www.adweek.com; Dan Sewell, “New Frugality Emerges,”

Washington Times, December 1, 2008; John Gerzema, “How U.S. Consumers Are Steering the Spend Shift,” Adver

tising Age Inc., April 2011,

pp. 52–53; and Kathleen Madigan, “For Lasting Recovery, Savings as Important as Spending,” Wall Street Journal,

Twitter accounts. Dorsey cracks open her laptop right after break

fast. The Gudes’ sons sleep with their phones next to their beds,

starting each day with text messages from Karl in place of alarm

clocks. “I could just walk up stairs, but they always answer their

texts,” says Karl. Welcome to the digital age. By one account, dig

5.3 billion mobile phones in use, compared to only 4.3 billion toilets.

The digital age has provided marketers with exciting new

ways to learn about and track customers and create products and

services tailored to individual customer needs. Digital technology

has also brought a new wave of communication, advertising, and

apps. The digital shift means that marketers can no longer expect

consumers to always seek them out. Nor can they always control

conversations about their brands. The new digital world makes it

easy for consumers to take marketing content that once lived only

in advertising or on an online brand site with them wherever they

marketing channels, the new digital media must be fully inte

The most dramatic digital technology is the Internet

adult population now has Internet access. Of all adults with Internet access, 91 check their

mortar companies. They have ventured online to attract new customers and build stronger

In this digital age, for better or worse, technology has become

an indispensable part of our lives. The technology boom provides

exciting new opportunities for marketers.

David Sacks/Getty Images

48 Part 1 | Defining Marketing and the Marketing Process relationships with existing ones. Today, 71 percent of American online users use the Internet

13 percent over the previous year.39

booming.

Thus, the technology boom is providing exciting new opportunities for marketers.

We will explore the impact of digital marketing technologies in future chapters, especially

Chapter 17.

support.

some 5,700 patients each year and is the nation’s top children’s cancer

$1.7 million daily operating budget? By raising funds through power 40

on the Discovery Channel’s “American Chopper,” on the lapel pins of

peddler Domino’s. None of this happened by chance. Rather, it resulted

ers using a mix of event marketing, celebrity star power, and corporate

`Til Dawn student challenge, and a Dream Home Giveaway. More than

and Giving campaign, which asks consumers to “give thanks for the

healthy kids in your life, and give to those who are not.” The companies

donate a portion of their sales or ask customers to donate at the sales

of dollars each year—nearly $700 million last year alone.

Government agencies have also shown an increased interest in

attract recruits to its different services, and various government agencies are now de

signing social marketing campaigns to encourage energy conservation and concern for the

stamps, promote its Priority Mail services, and lift its image as a contemporary and com

with an annual advertising budget of more than $1.1 billion.41

Rapid Globalization

at the ways in which they relate with the broader world around them. Today, almost every

company, large or small, is touched in some way by global competition. A neighborhood

Giving campaign asks consumers to “give thanks for the

healthy kids in your life, and give to those who are not.”

PR Newswire/Associated Press

Chapter 1 | Marketing: Creating and Capturing Customer Value 49

goods producer introduces new products into emerging markets abroad.

companies in a wide range of industries have developed truly global operations, mak

ing and selling their products worldwide. Quintessentially American McDonald’s now

42 Today, companies are not just selling more of their lo

cally produced goods in international markets; they are also sourcing more supplies and

components abroad.

Thus, managers in countries around the world are increasingly taking a global, not

What is global marketing? How does it differ from domestic marketing? How do global

competitors and forces affect our business? To what extent should we “go global”? We will

discuss the global marketplace in more detail in Chapter 19.

Marketers are reexamining their relationships with social values and responsibilities

and with the very Earth that sustains us. As the worldwide consumerism and envi

ronmentalism movements mature, today’s marketers are being called on to develop

sustainable marketing practices. Corporate ethics and social responsibility have become hot topics for almost every business. And few companies can ignore the renewed and

very demanding environmental movement. Every company action can affect customer

relationships. Today’s customers expect companies

to deliver value in a socially and environmentally re

sponsible way.

ments will place even stricter demands on companies

budging only when forced by legislation or organized

ever, readily accept their responsibilities to the world

around them. They view sustainable marketing as an

opportunity to do well by doing good. They seek ways

run interests of their customers and communities.

Timberland, Method, and others, practice caring capi talism, setting themselves apart by being civic minded and responsible. They build social responsibility and

action into their company value and mission state

ments. For example, when it comes to environmen

tal responsibility, outdoor gear marketer Patagonia is

“committed to the core.” “Those of us who work here

share a strong commitment to protecting undomes

ticated lands and waters,” says the company’s Web

site. “We believe in using business to inspire solutions

to the environmental crisis.” Patagonia backs these

words with actions. Each year it pledges at least 1 per

greater, to the protection of the natural environment.43

We will revisit the topic of sustainable marketing in

greater detail in Chapter 20.

solutions to the environmental crisis.” It backs these words by pledging at

least 1 percent of its sales or 10 percent of its profi ts, whichever is greater,

to the protection of the natural environment.

Patagonia, Inc.

50 Part 1 | Defining Marketing and the Marketing Process

Pulling It All Together At the start of this chapter, Figure 1.1 presented a simple model of the marketing process.

Now that we’ve discussed all the steps in the process, Figure 1.6 presents an expanded

and capturing value in return.

(market segmentation and targeting). Good marketing companies know that they cannot serve

all customers in every way. Instead, they need to focus their resources on the customers they

best serve targeted customers?” (differentiation and positioning). Here, the marketer outlines a

value proposition that spells out what values the company will deliver to win target customers.

With its marketing strategy chosen, the company now constructs an integrated market

ing program—consisting of a blend of the four marketing mix elements—the four Ps—that

transforms the marketing strategy into real value for customers. The company develops

product offers and creates strong brand identities for them. It prices these offers to create

real customer value and distributes the offers to make them available to target consumers.

Finally, the company designs promotion programs that communicate the value proposition

to target customers and persuade them to act on the market offering.

Design a

iven marketing strategy

Construct an

marketing program ers

superior v

create customer mark

ants

Create satisfied, loyal customers

for customers from customers

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

FIGURE | 1.6

An Expanded Model of the Marketing Process

Chapter 1 | Marketing: Creating and Capturing Customer Value 51

practice customer relationship management to create customer satisfaction and delight. In

creating customer value and relationships, however, the company cannot go it alone. It

must work closely with marketing partners both inside the company and throughout its

must also practice good partner relationship management.

for step, the company reaps the rewards of its strong customer relationships by capturing value

from will buy more and buy again. This helps the company capture customer lifetime value and

Finally, in the face of today’s changing marketing landscape, companies must take into

account three additional factors. In building customer and partner relationships, they must

harness marketing technology, take advantage of global opportunities, and ensure that they

act in an environmentally and socially responsible way.

introduce the marketing process, with a focus on building customer relationships and cap

process—understanding the marketing environment, managing marketing information,

and understanding consumer and business buyer behavior. In Chapter 7, we look more

serve (segmentation and targeting) and determining a value proposition (differentiation

and positioning). Chapters 8 through 17 discuss the marketing mix variables, one by one.

global marketing and sustainable marketing.

Reviewing the Concepts

cus and a heavy commitment to marketing. The goal of marketing

is to build and manage profitable customer relationships.

Defi ne marketing and outline

the steps in the marketing

process. (pp 26–28)

Marketing is the process by which companies create value for

customers and build strong customer relationships in order to

capture value from customers in return.

The marketing process involves five steps. The first four steps

create value for customers. First, marketers need to understand

the marketplace and customer needs and wants. Next, market

of getting, keeping, and growing target customers. In the third

step, marketers construct a marketing program that actually

delivers superior value. All of these steps form the basis for the

fourth step, building profitable customer relationships and creat

ing customer delight. In the final step, the company reaps the

rewards of strong customer relationships by capturing value from

customers.

Reviewing Objectives and Key Terms

Objectives Review

Objective 1

52 Part 1 | Defining Marketing and the Marketing Process Explain the importance of

understanding the marketplace

and customers and identify the fi ve core

marketplace concepts. (pp 28–30)

Outstanding marketing companies go to great lengths to learn

about and understand their customers’ needs, wants, and

mands

which they can capture customer lifetime value and greater share

of customer customer equity

for the firm.

The core marketplace concepts are needs, wants, and de

mands; market offerings (products, services, and experiences);

value and satisfaction; exchange and relationships; and markets.

Wants are the form taken by human needs when shaped by cul

ture and individual personality. When backed by buying power,

wants become demands. Companies address needs by putting

forth a value proposition, a set of benefits that they promise to

consumers to satisfy their needs. The value proposition is ful

filled through a market offering, which delivers customer value

with customers.

Identify the key elements of

strategy and discuss the marketing management

orientations that guide marketing strategy.

(pp 30–34)

To design a winning marketing strategy, the company must first

decide whom it will serve. It does this by dividing the market into

segments of customers (market segmentation) and selecting

which segments it will cultivate (target marketing). Next, the com

pany must decide how it will serve targeted customers (how it will

differentiate and position itself in the marketplace).

Marketing management can adopt one of five competing

market orientations. The production concept holds that manage

ment’s task is to improve production efficiency and bring down

prices. The product concept holds that consumers favor prod

ucts that offer the most in quality, performance, and innovative

features; thus, little promotional effort is required. The selling

concept holds that consumers will not buy enough of an orga

promotion effort. The marketing concept holds that achieving or

ganizational goals depends on determining the needs and wants

of target markets and delivering the desired satisfactions more

effectively and efficiently than competitors do. The societal mar

keting concept holds that generating customer satisfaction and

egies is key to both achieving the company’s goals and fulfilling

its responsibilities.

Discuss customer relationship

management and identify

strategies for creating value for customers and

capturing value from customers in return.

(pp 34–44)

Broadly defined, customer relationship management is the pro

cess of building and maintaining profitable customer relationships

by delivering superior customer value and satisfaction. The aim of

customer relationship management is to produce high customer

equity, the total combined customer lifetime values of all of the

company’s customers. The key to building lasting relationships is

the creation of superior customer value and satisfaction.

Companies want to not only acquire profitable customers but

also build relationships that will keep them and grow “share of

customer.” Different types of customers require different cus

tomer relationship management strategies. The marketer’s aim

is to build the right relationships with the right customers. In

return for creating value for targeted customers, the company

captures value from customers in the form of profits and cus

tomer equity.

In building customer relationships, good marketers realize that

they cannot go it alone. They must work closely with marketing

partners inside and outside the company. In addition to being

good at customer relationship management, they must also be

good at partner relationship management.

Describe the major trends and

forces that are changing the

marketing landscape in this age of relationships.

(pp 44–51)

Dramatic changes are occurring in the marketing arena. The

Great Recession left many consumers short of both money and

confidence, creating a new age of consumer frugality that will last

well into the future. More than ever, marketers must now em

phasize the value in their value propositions. The challenge is to

balance a brand’s value proposition with current times while also

The boom in digital technology has created exciting new ways

to learn about and relate to individual customers. It has also al

lowed new approaches by which marketers can target consumers

in the digital era. In recent years, marketing also has become a

such as colleges, hospitals, museums, zoos, symphony orches

tras, and even churches.

In an increasingly smaller world, many marketers are now con

nected globally with their customers and marketing partners. To

day, almost every company, large or small, is touched in some

way by global competition. Finally, today’s marketers are also

reexamining their ethical and societal responsibilities. Marketers

are being called to take greater responsibility for the social and

environmental impact of their actions.

Pulling it all together, as discussed throughout the chapter, the

major new developments in marketing can be summed up in a

single word: relationships. Today, marketers of all kinds are tak

ing advantage of new opportunities for building relationships with

their customers, their marketing partners, and the world around

them.

Objective 2 Objective 4

Objective 5

Objective 3

Chapter 1 | Marketing: Creating and Capturing Customer Value 53

Key Terms

Objective 1 Marketing (p 27)

Objective 2 Needs (p 28)

Wants (p 28)

Demands (p 28)

Market offerings (p 28)

Marketing myopia (p 29)

Exchange (p 29)

Market (p 29)

Objective 3 Marketing management (p 30)

Production concept (p 31)

Product concept (p 32)

Selling concept (p 32)

Marketing concept (p 32)

Societal marketing concept (p 33)

Objective 4 Customer relationship management

(p 34)

Customer-perceived value (p 35)

Customer satisfaction (p 35)

Customer-managed relationships

(p 39)

Consumer-generated marketing (p 40)

Partner relationship management

(p 41)

Customer lifetime value (p 42)

Share of customer (p 42)

Customer equity (p 43)

Objective 5 Internet (p 47)

Discussion and Critical Thinking

Discussion Questions

1. Define marketing and outline the steps in the marketing pro- cess. (AACSB: Communication)

2. What is marketing myopia, and how can it be avoided? (AACSB: Communication; Reflective Thinking)

3. What is customer-perceived value, and what role does it play in customer satisfaction? (AACSB: Communication; Reflective

Thinking)

4. Discuss trends impacting marketing and the implications of these trends for how marketers deliver value to customers.

(AACSB: Communication)

Critical Thinking Exercises

1. Form a small group of three or four students. Discuss a need or want you have that is not adequately satisfied by any offer-

ings currently in the marketplace. Think of a product or service

that will satisfy that need or want. Describe how you will dif-

ferentiate and position your offering in the marketplace and

develop the marketing program for your offering. Present your

ideas to the other groups. (AACSB: Communication; Reflec-

tive Thinking)

2. Search the Internet for salary information regarding jobs in marketing from a Web site such as www.simplyhired.com/a/

salary/search/q-marketing or a similar site. What is the na-

tional average salary for five different jobs in marketing? How

do the averages compare in different areas of the country?

Write a brief report on your findings. (AACSB: Communication;

Use of IT; Reflective Thinking)

3. Interview someone who works in a marketing job and ask him or her the following questions:

a. What does your job entail?

b. How did you get to this point in your career? Is this what

you thought you’d be doing when you grew up? What in-

fluenced you to get into this field?

c. What education is necessary for this job?

d. What advice can you give to college students?

e. Add one additional question that you create.

Write a brief report of the responses to your questions and

explain why you would or would not be interested in working in

this field. (AACSB: Communication; Reflective Thinking)

54 Part 1 | Defining Marketing and the Marketing Process

Applications and Cases

Marketing Technology Apple and Adobe—Flash Clash Apple’s iDevices are wildly popular, starting with the iPod followed

by iPhones and iPads. But where’s the flash? Adobe Flash, that

is. Adobe’s Flash, the long-standing multimedia platform behind

approximately 75 percent of the animated and streaming audio

and video on the Internet, is not supported by Apple’s devices.

Many purchasers were disappointed after spending hundreds of

dollars on sleek iPads only to realize they couldn’t play their fa-

vorite Internet game or watch that funny video on their device.

And they still can’t, even with the second-generation device, the

iPad 3. It seems Apple’s late founder and CEO, Steve Jobs, didn’t

like Flash and would not support it on Apple’s devices. Instead,

app developers must conform to Apple’s operating system and

existing applications on the Web must convert to HTML5 to play

on an Apple product. Adobe’s co-founders claim Apple is “un-

dermining the next chapter of the Web” and bloggers exclaim

this is not just an “Adobe/Apple problem . . . but an Apple/World

problem.”

1. Does Apple appear to embrace the marketing concept? (AACSB: Communication; Reflective Thinking)

2. Research the controversy surrounding this issue and debate whether Apple did the right thing for its customers by not in-

cluding the ubiquitous Adobe Flash software on Apple’s prod-

ucts. (AACSB: Communication; Reflective Thinking)

Marketing Ethics Goodbye Big Gulp

Marketing by the Numbers How Much Is Enough?

With two-thirds of adults and one-third of school-aged children

in the United States overweight or obese, New York City Mayor

Michael Bloomberg is taking action against the soft drink indus-

try. Mayor Bloomberg proposed a ban on big sugary drinks such

as 7–11’s mammoth 32-ounce “Big Gulp.” The ban would put a

16-ounce cap on fountain and bottled drinks sold at restaurants,

theaters, and sporting events. While it applies to drinks having

more than 25 calories per 8 ounces, it does not apply to 100 per-

cent juice or milk-based beverages. Establishments serving foun-

tain drinks will see a significant revenue drop because these drinks

are often marked up 10 to 15 times their cost. Many consumers

oppose the ban because they perceive it as further encroach-

ment of the “nanny state.” Mayor Bloomberg has already banned

Marketing is expensive! A 30-second advertising spot during the

2012 Super Bowl cost $3.5 million, and that doesn’t include the

$500,000 or more to produce the commercial. Anheuser-Busch

usually purchases multiple spots each year. Similarly, sponsoring

one car during one NASCAR race costs $500,000. But Sprint,

the sponsor of the popular Sprint Cup, pays much more than

that. And what marketer sponsors only one car for only one race?

Want customers to order your product by phone? That will cost

you $8 to $13 per order. Or how about a sales representative

calling on customers? That costs about $100 per sales call, and

that’s if the rep doesn’t have to get on an airplane and stay in

a hotel, which can be very costly considering some companies

have thousands of sales reps calling on thousands of customers.

And what about the $1-off coupon for Tropicana orange juice that

smoking in public parks and trans fats in restaurant foods, as well

as requiring chain restaurants to include calorie information on

menus. This leads many to ask, “What’s next?”

1. Is it fair to single out soda in such a ban? Debate this argu- ment from all sides of this issue: government, soft drink mar-

keters, and consumers. (AACSB: Communication; Reflective

Thinking)

2. Should marketers embrace the societal marketing concept with respect to foods or products that could be harmful to

consumers? Discuss an example of a company embracing

the societal marketing concept with respect to the obesity

epidemic. (AACSB: Communication; Ethical Reasoning)

you got in the Sunday newspaper? It costs Tropicana more than a

$1 when you redeem it at the store. These are all examples of just

one marketing element—promotion. Marketing costs also include

the costs of product research and development, the costs of dis-

tributing products to buyers, and the costs of all the employees

working in marketing.

1. Describe trends in marketing expenditures. What factors are driving these trends? (AACSB: Communication; Analytic

Reasoning)

2. What percentage of sales should a business devote to mar- keting? Discuss the factors used in this decision. (AACSB:

Communication; Analytic Reasoning)

Chapter 1 | Marketing: Creating and Capturing Customer Value 55

Video Case Zappos These days, online retailers are a dime a dozen. But in a short

period of time, Zappos has become a billion-dollar e-tailer. How

did it hit the dot-com jackpot? By providing some of the best

service available anywhere. Zappos customers are showered

with such perks as free shipping both ways, surprise upgrades

to overnight service, a 365-day return policy, and a call center

that is always open. Customers are also delighted by employees

who are empowered to spontaneously hand out rewards based

on unique needs.

With such attention to customer service, it’s no surprise that

Zappos has an almost cultlike following of repeat customers.

But remaining committed to the philosophy that the customer is

always right can be challenging. This video highlights some of the

dilemmas that can arise from operating within a highly customer-

centric strategy. Zappos also demonstrates the ultimate rewards

it receives from keeping that commitment.

After viewing the video featuring Zappos, answer the following

questions:

1. Describe Zappos’ market offering.

2. What is Zappos’ value proposition? How does it relate to its market offering?

3. How does Zappos build long-term customer relationships?

Abou Shakra Restaurant: Creating Customer Value The Old-Fashioned Way

Abou Shakra is a chain of restaurants in Egypt well known for

charcoal cooking—grilled meat, kebabs, and kofta. In 1947

Ahmed Abou Shakra opened his first Abou Shakra restaurant in

El Kasr El Einy, a famous central district in Cairo. The first restau-

rant was not in a consumer-attractive neighborhood, but that did

not stop Abou Shakra, who believed that offering healthy, tasty,

and well- marinated food was more important than location in at-

tracting customers and having them return time and again—if

they received a good meal, the location of the restaurant would

not have much bearing on their future dining decisions.

Initially the restaurant’s menu was very simple; it mainly con-

sisted of basic traditional Egyptian dishes, which was the stan-

dard menu offered in similar establishments at the time. Abou

Shakra decided to keep his menu simple and traditional to avoid

the risks associated with offering unfamiliar dishes to consumers.

As a result, he focused on providing well-known traditional dishes

of exceptional quality.

Successing in a Competitive Market When the first Abou Shakra restaurant was established, there was

not a wide variety of cuisines featured at restaurants, such as Indian,

Chinese, and Italian, which are widely available today. As noted,

Abou Shakra’s competitors at the time also offered traditional oriental

Egyptian food, and due to the lack of other cuisines, he was essen-

tially competing with the whole market. It was thus very challenging

to start up a business in this highly competitive market, and it was

necessary for Abou Shakra to ensure that he could offer something

that would give him an advantage over his competitors. This ad-

vantage turned out to be the great customer value offered by Abou

Shakra, which was not offered by the majority of his competitors.

The Abou Shakra restaurants have maintained the persistent

focus on customer well-being and satisfaction that originally gave

them an advantage over their competitors, and this is one of the

reasons for their success. The importance that the company places

on elegant dishes, prepared with passion, and providing a memo-

rable experience to their guests had endured right from the Abou

Shakra’s establishment. Since it was established, Abou Shakra res-

taurants have been following that philosophy, and this is another

reason for their success. We will now take a closer look at how

Abou Shakra applies this philosophy and offers customer value.

Abou Shakra owns its own factory, which supplies all branches

and outlets with their daily requirements of fresh meat and poultry.

The meat is of high quality—only the best beef and lamb. Meat

is delivered to the factory daily, and a governmental veterinary

inspection is performed to ensure that the meat is fresh and of

good quality. The factory is equipped with the latest technology

to guarantee that the meat is stored at the correct temperature to

ensure its freshness.

The fruits and vegetables are also delivered daily and are

specially stored to maintain freshness up to the time of serving.

Abou Shakra’s quality control department ensures that all finished

products are of outstanding quality, and oversees practices that

prevent any of the ingredients from being contaminated. The

company has signed a contract with SGS Egypt to supervise its

health, safety, and hygiene practices, ensuring that they are of the

highest standard.

The Abou Shakra menu has changed very little over the past

60 years, maintaining the simple offering of traditional Egyptian

dishes with a particular focus on grilled dishes, which is now

Abou Shakra’s speciality.

The primary aim of Abou Shakra is to keep the menu simple so

as to wholly master the dishes offered. This has encouraged cus-

tomer loyalty, as customers often choose their favorite dishes for

which they have come especially for. This has led to Abou Shakra

being one of the most popular places for oriental food in Egypt.

Keeping the menu simple also limits the costs of purchasing

different ingredients from several suppliers. If this was not the

case, the recruitment of more managers would be required to

contact the suppliers and follow up on the orders. There would

also be more supervisors needed to ensure that the delivery and

storage processes take place smoothly and that each outlet re-

ceives its supplies on time. In addition, more chefs who are spe-

cialized in the new dishes added to the menu would be necessary

as well.

Abou Shakra’s managers pay attention to every small detail;

they ensure that each restaurant is spotless and that the kitchen

is held to the highest cleanliness standards. All utensils and cut-

lery go through a sterilization process to ensure their sanitation

and safety. The tables are wiped with a special detergent so that

customers feel they are eating in a hygienic environment.

Company Case

56 Part 1 | Defining Marketing and the Marketing Process Focusing on Customer Service Abou Shakra restaurants do not rely solely on their food to please

their customers, but also on well-trained employees who deliver

extraordinary customer service. They hire energetic, friendly, and

passionate employees. Abou Shakra restaurants realized the

significance of educating their workers as to the importance of

customer satisfaction, and this led to the establishment of their

own training center. The center has a proficient team of trainers

who ensure that employees will have the necessary skills so that

guests will be provided with the best service. Abou Shakra relies

on continuous training to provide employees with the necessary

confidence and skills to provide the utmost customer satisfaction.

The company believes that its greatest asset is its employees, and

Abou Shakra thus invests heavily in appropriately recruiting and

training them in order to maintain the company’s standards in the

competitive market. One of the core principles of the company is

that by taking good care of the employees, the employees will take

good care of the customers.

International Expansion Abou Shakra’s solid customer base is not only due to the quality

of the food and the service offered, but also to its slow-growth

expansion strategy. Abou Shakra restaurants cannot be found

on every corner; after 65 years, only 12 outlets are operating

throughout Egypt. Abou Shakra decided to stay small and focus

on having a few outlets that provide outstanding service rather

than have many outlets with average service. A new outlet is only

opened when the required employees have been trained and

are prepared to offer the outstanding service that is associated

with Abou Shakra. It took the company 56 years to open its first

branch outside Cairo, which debuted in Alexandria in 2003.

The popularity of Abou Shakra has extended far beyond Egypt,

with the company receiving many requests to open international

branches from customers living abroad who had tasted Abou

Shakra while on holiday. The opening of a branch in Saudi Arabia

in 2005 and another in Kuwait in 2007 are great milestones in the

history of Abou Shakra.

This expansion was not an easy step for the company, and a

great deal of research was undertaken beforehand to find the cor-

rect locations for the restaurants. First, Abou Shakra needed to

find suppliers who could deliver fresh ingredients on a daily basis;

this was an important factor, because for Abou Shakra to suc-

ceed, it had to be ensured that the quality of food provided in any

new outlets would equal that of the Egyptian branches. Employ-

ees also needed to be recruited and trained in the same manner

as the employees in Egypt, to make sure that they provide their

customers with the same outstanding service.

Along with other aspects of its simple but focused strategy,

Abou Shakra does not spend a great deal on advertising. Only

a small proportion of its budget is set aside for advertising in

newspapers and on television, as the company relies heavily on

word-of-mouth recommendations between customers and their

friends and families. Abou Shakra believes that the main objec-

tive is to take care of customers, and that to provide them with

high-quality food and service is better than spending money on

advertising, as satisfied customers will be the best advertising

tool. They will tell their friends and family about their positive

experiences at Abou Shakra, and consumers are more likely to

follow the advice of people close to them than promotional ads.

This is also a strategy the company uses to reduce expenses,

as instead of spending a large amount of money on advertising,

which may not generate profitable returns, that money is instead

spent on increasing the quality of the food and service provided.

Many have questioned whether or not Abou Shakra’s 65-year

legacy can be sustained. Its restaurants are run by co-founders

and owners Ahmed and Hussein Abou Shakra, who have drawn

up an efficient blueprint for all of their employees to follow. They

believe that if desirable employees are recruited and trained cor-

rectly and provided with the appropriate working environment,

then the success of the business is inevitable.

Ahmed Abou Shakra, the company’s chairman, played a criti-

cal role in the formation of the strategy that the company would

follow. He detailed the long- and short-term goals in a manner

that is easy for all involved to comprehend. The daily operations

are organized and controlled by him, and he has developed an

efficient system to ensure that managers report to him. This sys-

tem was developed when the business began to grow, as one

person could not manage the daily operations of every restaurant

efficiently.

Hussein Abou Shakra is the vice chairman of the company,

and he ensures that the financial goals and objectives of the com-

pany are being met. He supervises the preparation of the financial

statements and the budgets of the company. In the same manner

as the chairman, he has set up a structure by which all the finance

managers report to him with daily updates.

The legacy of Abou Shakra is expected to continue with or

without its founders. This is because Abou Shakra has become

a corporation that was established with strategies and objectives

that, if managed correctly, will lead to a successful business. This

business legacy is much bigger than its founders, and so long as

the business objectives are being met and the customers con-

tinue to be placed first, it is expected to last.

Questions for Discussion 1. Describe Abou Shakra in terms of the value it provides for

customers.

2. Do you think Abou Shakra should develop a high-growth strategy? Why or why not?

3. Should Abou Shakra spend more on advertising than is cur- rently expended?

4. Do you think that the legacy of Abou Shakra will continue, with consumer tastes changing and moving toward nontraditional

cuisine? Why or why not?

5. Suggest other methods by which Abou Shakra can provide value to its customers.

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rant_Review-g294201-d1201482-Reviews-Abou_Shakra-Cairo.html, ac-

cessed November 5, 2012; and “Abou Shakra,” www.aboushakra.net/

main.htm, accessed November 5, 2012.

Chapter 1 | Marketing: Creating and Capturing Customer Value 57 References 1. See George Anders, “Inside Amazon’s Idea Machine,” Forbes, April 4,

2012, p. 1; David Welch, “Why Wal-Mart Is Worried About Amazon,”

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Customer Needs,” Marketing Management, January/February

2009, pp. 46–51; N. Craig Smith, Minette E. Drumright, and Mary

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.forbes.com/sites/kashmirhill/2012/01/24/mcdstories-when-a-

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ruary 8, 2012, www.adweek.com/adfreak/doritos-pays-double-

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58 Part 1 | Defining Marketing and the Marketing Process 26. See Gavin O’Malley, “Entries Pour in for Heinz Ketchup Commercial

Contest,” August 13, 2007, http://publications.mediapost.com; and

www.youtube.com/watch?v=JGY-ubAJSyI; accessed November 2012.

27. “Teaching Brands New Tricks,” Adweek, April 4, 2011, pp. 12–13. Also see Steven Rosenbaum, Curator Nation: How to Win in the

World Where Consumers Are Creators (New York: McGraw-Hill,

2011).

28. “Consumer ‘New Frugality’ May Be an Enduring Feature of Post- Recession Economy, Finds Booz & Company Survey,” Business

Wire, February 24, 2010; Ely Portillo, “In Weak Economy, Store

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accessed November 2012.

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discussions of customer lifetime value, see Norman W. Marshall,

“Commitment, Loyalty, and Customer Lifetime Value: Investigating

the Relationships Among Key Determinants,” Journal of Business &

Economics Research, August 2010, pp. 67–85; V. Kumar and Den-

ish Shah, “Can Marketing Lift Stock Prices?” MITSloan Management

Review, Summer 2011, pp. 23–26; and Christian Gronroos and Pe-

kka Helle, “Return on Relationships: Conceptual Understanding and

Measurement of Mutual Gains from Relational Business Engage-

ments,” Journal of Business & Industrial Marketing, Vol. 27, Iss. 5,

2012, pp. 344–359.

31. Based on quotes and information from Heather Green, “How Amazon Aims to Keep You Clicking,” BusinessWeek, March 2,

2009, pp. 34–40; Brad Stone, “What’s in the Box? Instant Grati-

fication,” Bloomberg BusinessWeek, November 29–December 5,

2010, pp. 39–40; JP Mangalindan, “Amazon’s Prime and Punish-

ment,” CNNMoney, February 21, 2012, http://tech.fortune.cnn

.com/2012/02/21/prime-and-punishment/; and www.amazon.com/

gp/prime/ref=footer_prime, accessed July 2012.

32. For more discussions on customer equity, see Roland T. Rust, Valerie A. Zeithaml, and Katherine A. Lemon, Driving Customer

Equity (New York: Free Press, 2000); Rust, Lemon, and Zeithaml,

“Return on Marketing: Using Customer Equity to Focus Marketing

Strategy,” Journal of Marketing, January 2004, pp. 109–127; Domi-

nique M. Hanssens, Daniel Thorpe, and Carl Finkbeiner, “Marketing

When Customer Equity Matters,” Harvard Business Review, May

2008, pp. 117–124; V. Kumar and Denish Shaw, “Expanding the

Role of Marketing: From Customer Equity to Market Capitalization,”

Journal of Marketing, November 2009, p. 119; Crina O. Tarasi et

al., “Balancing Risk and Return in a Customer Portfolio,” Journal

of Marketing, May 2011, pp. 1–17; and Christian Gronroos and

Pekka Helle, “Return on Relationships: Conceptual Understand-

ing and Measurement of Mutual Gains from Relational Business

Engagements,” Journal of Business & Industrial Marketing, Vol. 27,

Iss. 5, 2012, pp. 344–359.

33. This example is adapted from information found in Rust, Lemon, and Zeithaml, “Where Should the Next Marketing Dollar Go?” Marketing

Management, September–October 2001, pp. 24–28; with informa-

tion from Dan Slater, “She Drives a Cadillac,” Fast Company, Febru-

ary 2012, pp. 26–28.

34. Based on Werner Reinartz and V. Kumar, “The Mismanagement of Customer Loyalty,” Harvard Business Review, July 2002, pp. 86–94.

Also see Stanley F. Slater, Jakki J. Mohr, and Sanjit Sengupta,

“Know Your Customer,” Marketing Management, February 2009,

pp. 37–44; and Crina O. Tarasi, et al., “Balancing Risk and Return

in a Customer Portfolio,” Journal of Marketing, May 2011, pp. 1–17.

35. Natalie Zmuda, “Why the Bad Economy Has Been Good for Tar- get,” Advertising Age, October 4, 2010, p. 1; Sharon Edelson,

“Target Eying $100 Billion in Sales,” WWD, February 25, 2011,

p. 2; Matt Townsend, “Why Target’s Cheap-Chic Glamour Is Fad-

ing,” Bloomberg Businessweek, September 26, 2012, pp. 30–31;

and “Our Mission,” http://sites.target.com/site/en/company/page

.jsp?contentId=WCMP04-031699, accessed November 2012.

36. Emily Thornton, “The New Rules,” BusinessWeek, January 19, 2009, pp. 30–34. Also see Christine Birkner, “The End of the Mid-

dle,” Marketing News, January 31, 2012, pp. 22–23.

37. Adapted from information in Brad Stone, “Breakfast Can Wait. To- day’s First Stop Is Online,” New York Times, August 10, 2009, p. A1;

with information from R. Gary Bridge, “Get Connected for Better

Service,” Marketing Management, Winter 2011, pp. 21–24.

38. Internet usage stats from www.internetworldstats.com/stats.htm, accessed July 2012; “Digital Hotlist: By the Numbers,” Adweek,

October 11, 2010, p. 20; and “Pew Internet and the American Life

Project: Trend Data,” http://pewinternet.org/Trend-Data/Online-

Activites-Total.aspx, accessed June 2012.

39. “Pew Internet and the American Life Project: Trend Data,” http:// pewinternet.org/Trend-Data/Online-Activites-Total.aspx, accessed

June 2012; and Anthony DeMarco, “Retail E-Commerce Spend-

ing Totals $161.5 Billion in 2011,” Forbes, February 6, 2012, www

.forbes.com/sites/anthonydemarco/2012/02/06/retail-e-commerce-

spending-totals-161-5-billion-in-2011/.

40. See Natalie Zmuda, “St. Jude’s Goes from Humble Beginnings to Media Ubiquity,” Advertising Age, February 14, 2011, p. 37; and

various pages at www.stjude.org, accessed November 2012.

41. “Leading National Advertisers,” Advertising Age, June 20, 2011, pp. 8–24. For more on social marketing, see Philip Kotler, Ned

Roberto, and Nancy R. Lee, Social Marketing: Improving the Quality

of Life, 2nd ed. (Thousand Oaks, CA: Sage Publications, 2002).

42. www.aboutmcdonalds.com/mcd and www.nikeinc.com, accessed June 2012.

43. Quotes and information found at www.patagonia.com/web/us/ contribution/patagonia.go?assetid=2329, accessed November 2012.

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customers each day through more than 33,000 restaurants in 118

countries, racking up system-wide sales of more than $85 billion

annually. The Golden Arches are one of the world’s most famil-

iar symbols; other than Santa Claus, no character in the world is

more recognizable than Ronald McDonald.

In the mid-1990s, however, McDonald’s fortunes began to

turn. The company appeared to fall out of touch with custom-

ers. Americans were looking for fresher, better-tasting food

Part 1: Defining Marketing and the Marketing Process (Chapters 1–2)

Part 2: Understanding the Marketplace and Consumers (Chapters 3–6)

Part 3: Designing a Customer-Driven Strategy and Mix (Chapters 7–17)

Part 4: Extending Marketing (Chapters 18–20)

Chapter Preview In the first chapter, we ex-

plored the marketing process

by which companies create value for consumers to capture value

from them in return. In this chapter, we dig deeper into steps two

and three of that process: designing customer-driven marketing

strategies and constructing marketing programs. First, we look at

the organization’s overall strategic planning, which guides market-

ing strategy and planning. Next, we discuss how, guided by the

strategic plan, marketers partner closely with others inside and

outside the firm to create value for customers. We then examine

marketing strategy and planning—how marketers choose target

markets, position their market offerings, develop a marketing mix,

and manage their marketing programs. Finally, we look at the im-

portant step of measuring and managing return on marketing in-

vestment (marketing ROI).

Let’s begin by looking at McDonald’s, a good company and

marketing strategy story. When it burst onto the scene more than

55 years ago, McDonald’s perfected the modern fast-food con-

cept and grew rapidly. By the turn of the twenty-first century, how-

ever, McDonald’s once-shiny Golden Arches seemed to be losing

some of their luster. But thanks to a new customer-focused strate-

gic blueprint—called the “Plan to Win”—McDonald’s launched an

amazing turnaround that once again has both customers and the

company humming the chain’s catchy jingle, “i’m lovin’ it.”

McDonald’s: A Customer-Focused “Plan to Win” Strategy

M ore than half a century ago, Ray Kroc, a 52-year-

old salesman of milkshake-mixing machines, set

out on a mission to transform the way Americans

eat. In 1955, Kroc discovered a string of seven

restaurants owned by Richard and Maurice McDonald. He

saw the McDonald brothers’ fast-food concept as a perfect fit

for America’s increasingly on-the-go, time-squeezed, family-

oriented lifestyles. Kroc bought the small chain for $2.7 million,

and the rest is history.

From the start, Kroc preached a motto of QSCV—

quality, service, cleanliness, and value. These

goals became mainstays in McDonald’s

corporate and marketing strategy. By

applying these values, the company

perfected the fast-food concept—

delivering convenient, good- quality

food at affordable prices.

McDonald’s grew quickly to be-

come the world’s largest fast-feeder. The

fast-food giant now serves more than 68 million

Fast-food giant McDonald’s knows the importance of good strategic and marketing

planning. Thanks to its new customer-focused strategic blueprint—called the Plan to Win—customers

and the company alike are once again humming the chain’s catchy jingle, “i’m lovin’ it.”

Company and Marketing Strategy Partnering to Build Customer Relationships

Chapter 2 | Company and Marketing Strategy: Partnering to Build Customer Relationships 61 and more contemporary atmospheres. They were also seek

to adapt.

of this strategic plan was a new mission statement that re

healthier options at the same time

cent of total company sales.

McDonald’s successful

strategy—called the Plan

to Win—got the company

back to the profi table

basics of creating

exceptional customer

experiences.

Bloomberg via Getty Images

62 Part 1 | Defining Marketing and the Marketing Process

combined.

Objective Outline

Objective 1

(pp 63–65)

Objective 2

Designing the Business Portfolio (pp 65–70)

Objective 3

(pp 70–72)

Objective 4 infl uence it.

(pp 72–77)

Objective 5 List the marketing management functions, including the elements of a marketing plan,

Managing the Marketing Effort (pp 77–81)

(pp 81–83)

Like McDonald’s

process.

Chapter 2 | Company and Marketing Strategy: Partnering to Build Customer Relationships 63

strategic planning

Figure 2.1

Mission

is should

mission statement is a state

market oriented and defi ned in terms of satisfying

Objective 1

planning and its four steps.

level level

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

The process of developing and

maintaining a strategic fit between the

organization’s goals and capabilities and

its changing marketing opportunities.

Mission statement

A statement of the organization’s

purpose—what it wants to accomplish in

the larger environment.

| 2.1

Steps in Strategic Planning

commitment to good food made from natural, local, and sustainably

raised ingredients.

64 Part 1 | Defining Marketing and the Marketing Process

cal ingredients. Table 2.1

profi ts will follow.

Company

Facebook We are an online social network. We connect people around the world and help them

share important moments in their lives.

Hulu We are an online video service. We help people enjoy their favorite video content

anytime, anywhere.

Home Depot We sell tools and home repair

and improvement items.

We empower consumers to achieve the homes of their

dreams.

NASA We explore outer space. We reach for new heights and reveal the unknown so

that what we do and learn will benefit all humankind.

Revlon We make cosmetics.

Hotels & Resorts

We rent rooms.

stay that far exceeds guests’ already high expectations.

Walmart We run discount stores. We deliver low prices every day and give ordinary folks

the chance to buy the same things as rich people.

“Save Money. Live Better.”

Table 2.1 |

Chapter 2 | Company and Marketing Strategy: Partnering to Build Customer Relationships 65

Designing the Business Portfolio

business portfolio

current future

and downsizing.

Analyzing the Current Business Portfolio portfolio analysis

called strategic business units

Business portfolio

The collection of businesses and

products that make up the company.

Objective 2

strategies.

Portfolio analysis

The process by which management

evaluates the products and businesses

that make up the company.

66 Part 1 | Defining Marketing and the Marketing Process

Nominated by Webby Awards as one of the five

best news Web sites, along with BBC News,

National Geographic, and The Smoking Gun,

Al Jazeera was also voted by brandchannel

.com readers as the fifth most influential global

brand, behind Apple, Google, Ikea, and Star

bucks. In 2011, Salon.com noted Al Jazeera’s

coverage of the 2011 Egyptian protests as

superior to that of the American news media,

and U.S. Secretary of State Hillary Clinton also

stated that the network’s news coverage was

American journalism.

Al Jazeera started out in 1996 as the

first independent Arabic news channel in

the world dedicated to providing compre

hensive television news and live debate for

the Arab world. The Al Jazeera Network now

consists of the flagship Al Jazeera Arabic

channel, as well as several additional chan

nels including Al Jazeera English, Al Jazeera

Sport, Al Jazeera Documentary, Al Jazeera

Children, the Al Jazeera Media Training and

Development Center, and the Al Jazeera

Center for Studies.

Here’s a brief summary of the incredible

variety of entities now tied together under the

Al Jazeera brand:

Television: Initially launched as an Arabic

news and current affairs satellite TV chan

nel, Al Jazeera has since expanded into a

network with several outlets. As of early

2007, the Al Jazeera network’s TV chan

nels included the original international

Jazeera English, Al Jazeera Children, and

Al Jazeera Sport, which owns the exclusive

broadcasting rights in the Middle East for

major football leagues, such as the Spanish

La Liga, the French Ligue 1, and the Italian

Serie A. Al Jazeera charges $50 per year

and $10 per month to watch the Al Jazeera

Sports TV channels +1 to +8, and $35 per

year to watch the Al Jazeera Sports TV

channels +9, +10, HD1, and HD2.

work, launched over the summer of 2012

and purchased broadcast TV rights for soc

cer leagues in France and Spain. beIN Sport

also has rights to four U.S. 2013 World Cup

qualifiers, the games at Costa Rica, Hondu

ras, Jamaica, and Panama. In November

2012, Al Jazeera’s beIN Sport passed the

milestone of 1 million subscribers.

Online:

language news edition of its online content

along with the launch of Al Jazeera En

glish. The English and Arabic sections are

editorially distinct, with their own selection

of news and comments. Al Jazeera and Al

Jazeera English are streamed live on the

official site as well as on YouTube. In April

2009, Al Jazeera launched condensed ver

sions of its English and Arabic sites for mo

bile device users.

During the Arab Spring, Al Jazeera’s on

line viewership per month grew more than

1,000 percent. Its next phase of growth will

be through social media. Al Jazeera plans

to become more socially connected with its

users, so that it can understand their “likes”

and “dislikes.”

Al Jazeera also operates the Al Jazeera

Sport Web site, which is an official premium

sports service that enables users to watch Al

Jazeera Sport TV channels on their comput

ers and through their mobile and tablet apps,

technology. A subscription to the Al Jazeera

Sport Web site includes full access to the

premium channels Al Jazeera Sport +1 to

+10, HD1, and HD2, which show official

LIVE streams in high quality. Video on De

mand video highlights are also available in

Al Jazeera Media Training and Develop

ment Center: As part of its role in the de

velopment of the Arab media, Al Jazeera

launched the Al Jazeera Media Training

and Development Center to contribute to

the theoretical and practical development

of media in various fields and at various

levels. Through training media profession

als, developing their skills, and raising their

efficiency, it aims to extend the knowledge,

deepen the understanding, develop the

experience, and elevate the level of perfor

mance of employees of Arab regional and

international media organizations, as well

Al Jazeera Center for Studies: Established

in 2006, the Al Jazeera Center for Stud

affairs at both regional and global levels.

Real Marketing Al Jazeera: An Expanding Business Portfolio

research issues in geopolitics and economics, and training centers to practically

2.1

Chapter 2 | Company and Marketing Strategy: Partnering to Build Customer Relationships 67

Its research agenda focuses primarily on

geo politics and strategic developments in

the Arab world and surrounding regions.

Network, the center endeavors to con

duct research and build relevant, insight

organization.

Managing this successful and growing

brand portfolio is no easy proposition, but Al

Jazeera has been more than up to the task.

What ties it all together? Al Jazeera has been

building relations with people during the years.

That’s it: Al Jazeera has not dealt with Arabs

as audiences, but as its “people.” It has em

powered them to express their opinions, send

messages, join online forums and chats, post

videos, and build the new brand identity of the

channel all together. People feel proximity with

Al Jazeera, and the new media have played a

big role in this.

Al Jazeera’s future projects include pro

gramming in other languages, such as Al

cater mainly to Pakistani market and possibly

some Indians, as well as a Kiswahili service

called Al Jazeera Kiswahili to be based in

Nairobi and broadcast in Kenya, Tanzania,

Uganda, Rwanda, and Burundi.

In addition, Al Jazeera has been prepar

nel. In February 2012, it acquired Turkey’s

Cine 5 television channel. Al Jazeera has also

Sources: Based on information from Wikipedia, “Al Jazeera,” http://en.wikipedia.org/wiki/Al_Jazeera, ac

cessed

One Million Subscribers,” digitaltveurope.net, November 8, 2012, www.digitaltveurope.net/29809/

to Integrate Social Media into Its Operations,” Gulf News,

with Arabs as People, Not as Numbers,” http://mediaoriente.com/2011/02/27/1088/, accessed No

Sports,” Chicago Tribune

Figure 2.2.

evaluates a company’s SBUs in terms of

market growth rate and relative market

share.

High Low

L o

w H

ig h

Cash cow Dog

Star Question mark

Dog

Under the classic BCG portfolio planning approach, the company invests funds from mature, successful products and businesses (cash cows) to support promising products and businesses in

them into future cash cows.

The company must decide how much it will invest in each product or business (SBU). For each SBU, it must decide whether to build, hold, harvest, or divest.

| 2.2

news network to cater mainly to Spain and

Hispanic Latin America, similar to the Iranian

cable TV network HispanTV. Al Jazeera is also

reported to be planning to launch an interna

tional newspaper. Al Jazeera, best known for

its Middle Eastern news coverage, also aims

to become a global powerhouse in sports

broadcasting over the next five years.

68 Part 1 | Defining Marketing and the Marketing Process market growth rate

relative market share

Stars.

Cash cows.

3. Question marks.

Dogs.

build hold harvest

divest elsewhere.

current future planning.

Chapter 2 | Company and Marketing Strategy: Partnering to Build Customer Relationships 69

companies.

is the product/market expansion grid Figure 2.3.

market penetration

Martin Beddall/Alamy

Existing markets

New markets

Existing products

New products

Through diversification, companies can grow by starting or buying businesses outside their current product/markets. For example, Starbucks is entering the “health and wellness” market with stores called Evolution By Starbucks.

Companies can grow by developing new markets for existing products. For example, Starbucks is expanding rapidly in China, which by 2015 will

only the United States.

Product/market expansion grid

company growth opportunities through

market penetration, market development,

product development, or diversification.

Market penetration

Company growth by increasing sales

of current products to current market

segments without changing the product.

| 2.3

The Product/Market

Expansion Grid

70 Part 1 | Defining Marketing and the Marketing Process

for

product

coffee extract.

also strategies for downsizing

philosophy

Bloomberg via Getty Images

Company growth by identifying and

developing new market segments for

current company products.

Company growth by offering modified

or new products to current market

segments.

Company growth through starting up

or acquiring businesses outside the

company’s current products and markets.

Objective 3 Explain marketing’s role in

Chapter 2 | Company and Marketing Strategy: Partnering to Build Customer Relationships 71

inputs

strategies for

customer relationship management partner relationship management

value chain that

value delivery network

network.

chain.

other departments.

cess depends on how well each department performs its work of add

low prices.

in their terms

Value chain

The series of internal departments that

design, produce, market, deliver, and

support a firm’s products.

all of the company’s departments.

72 Part 1 | Defining Marketing and the Marketing Process

system

is shown in Figure 2.4

marketing strategy

The network made up of the company, its

suppliers, its distributors, and, ultimately,

its customers who partner with each

other to improve the performance of the

entire system.

Customer value and relationshipsMarketing strategy

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

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

| 2.4

Managing Marketing

Strategies and the

Marketing Mix

Objective 4 Describe the elements of a

strategy and mix and the forces

that infl uence it.

Chapter 2 | Company and Marketing Strategy: Partnering to Build Customer Relationships 73 Marketing strategy

The marketing logic by which the

company hopes to create customer

value and achieve profitable customer

relationships.

into smaller segments, selects the most promising segments, and focuses on serving and

satisfying the customers in these segments.

Guided by marketing strategy, the company designs an integrated marketing mix made up of factors under its control—product, price, place, and promotion (the four Ps). To find

the best marketing strategy and mix, the company engages in marketing analysis, planning,

implementation, and control. Through these activities, the company watches and adapts to

the actors and forces in the marketing environment. We will now look briefly at each activ-

ity. In later chapters, we will discuss each one in more depth.

Customer-Driven Marketing Strategy As emphasized throughout Chapter 1, to succeed in today’s competitive marketplace, com-

panies must be customer centered. They must win customers from competitors and then

keep and grow them by delivering greater value. But before it can satisfy customers, a com-

pany must first understand customer needs and wants. Thus, sound marketing requires

careful customer analysis.

Companies know that they cannot profitably serve all consumers in a given market—at

least not all consumers in the same way. There are too many different kinds of consumers

with too many different kinds of needs. Most companies are in a position to serve some seg-

ments better than others. Thus, each company must divide up the total market, choose the

best segments, and design strategies for profitably serving chosen segments. This process

involves market segmentation, market targeting, differentiation, and positioning.

Market Segmentation The market consists of many types of customers, products, and needs. The marketer must

determine which segments offer the best opportunities. Consumers can be grouped and

served in various ways based on geographic, demographic, psychographic, and behavioral

factors. The process of dividing a market into distinct groups of buyers who have different

needs, characteristics, or behaviors, and who might require separate products or marketing

programs, is called market segmentation.

Every market has segments, but not all ways of segmenting a market are equally

useful. For example, Tylenol would gain little by distinguishing between low-income

and high-income pain-relief users if both respond the same way to marketing efforts.

A market segment consists of consumers who respond in a similar way to a given set

of marketing efforts. In the car market, for example, consumers who want the biggest,

most comfortable car regardless of price make up one market segment. Consumers who

care mainly about price and operating economy make up another segment. It would be

difficult to make one car model that was the first choice of consumers in both segments.

Companies are wise to focus their efforts on meeting the distinct needs of individual

market segments.

Market Targeting After a company has defined its market segments, it can enter one or many of these seg-

ments. Market targeting involves evaluating each market segment’s attractiveness and

selecting one or more segments to enter. A company should target segments in which it can

profitably generate the greatest customer value and sustain it over time.

A company with limited resources might decide to serve only one or a few special

segments or market niches. Such nichers specialize in serving customer segments that ma-

jor competitors overlook or ignore. For example, Ferrari sells only 1,500 of its very-high-

performance cars in the United States each year but at very high prices—such as its Ferrari

458 Italia at $255,000 or the 740-horsepower F-12 Berlinetta at an eye-opening $400,000.

Although it was only established in 2003, Abu Dhabi’s Etihad Airways has differenti-

ated itself from fierce competition by focusing on a niche in the luxury air travel market.

High-quality customer service and the onboard comfort of its award-winning “Diamond

Class,” along with loyalty programs, allow Etihad Airways to avoid direct competition

with many airlines (see Real Marketing 2.2).

Alternatively, a company might choose to serve several related segments—perhaps

those with different kinds of customers but with the same basic wants. Abercrombie

& Fitch, for example, targets college students, teens, and kids with the same upscale,

casual clothes and accessories in three different outlets: the original Abercrombie

Market segmentation

Dividing a market into distinct groups

of buyers who have different needs,

characteristics, or behaviors, and who

might require separate products or

marketing programs.

Market segment

A group of consumers who respond in

a similar way to a given set of marketing

efforts.

Market targeting

The process of evaluating each market

segment’s attractiveness and selecting

one or more segments to enter.

74 Part 1 | Defining Marketing and the Marketing Process

Etihad Airways is considered to be one of

the youngest, yet most successful airlines in

the aviation industry. It was established by

Royal (Amiri) Decree of Abu Dhabi in July

2003 as the national carrier of the United

Arab Emirates, and became commercial in

November 2003, from Abu Dhabi to the rest

of the world. Etihad (which is an Arabic word

for “United”) was strategically chosen as its

brand name, as the airline unites Abu Dhabi

with the West and East, and it connects with

the airline’s tagline: “Connecting Abu Dhabi

to the World.”

The company’s unique vision of reflect

ing Arabian hospitality within the flights,

consisting of warm, generous, and consid

erate treatment, as well as enhancing the

prestige of the Abu Dhabi culture is what

helps stand the company out from the com

petition. Etihad has received several awards

that reflect its status as the leading premium

airline, including World’s Leading Airline at

the World Travel Awards in 2009, 2010, and

2011. Its wide variety of awards emphasizes

ognition for the constant effort to maintain

at the top of the industry. As this acclaim

progresses, the Etihad Airways brand name

strengthens and spreads within the region,

existing popularity.

Etihad has a fleet of 66 aircraft that serve

the international network with 1,000 flights

per week to 87 destinations in 55 countries.

Its cargo destinations range from the Middle

East and Africa to Europe, Australia, Asia, and

Seychelles, nearly 30 percent of Air Berlin,

10 percent of Virgin Australia, and almost 3 per

cent of Aer Lingus.

Etihad Airways’ goal is to differentiate it

self as a global airline that is challenging and

changing the conventional notion of airline

hospitality—besides providing a relaxing ex

perience, the airline strives to make travel as

safe and environmentally friendly as possible

by adhering to the highest global standards.

Etihad is planning new route launches and

introducing new aircraft to further its suc

cess, and offers lower prices than its main

competitors in the region. Its diversification

through cargo, holiday, and air transporta

tion services has resulted in total revenue of

2.3 billion dollars. Innovative cabins also at

promising potential opportunities for future

advances.

What helps this business differentiate it

self within the market is its unique “Diamond

Class” service, which targets the business

travelers segment by introducing a luxuri

ous class with complete complementary of

ferings, taking into consideration their need

for personal space and to maintain their

elite lifestyle, on the ground and up in the

air. The airline empowers its passengers by

giving them access to their own lounges—

which includes spas, showers and cigar

lounges, while also considering family enter

tainment aspects by offering a wide range

of television shows and Internet access.

The Diamond Class service also exclusively

style doors, luxurious extended “Poltrona

electronic device, wardrobe space, and an

exclusive marble bathroom. In addition, a

wide variety of food and beverages is avail

catering inspired by industries outside the

airline industry. These special services led

to four global awards, including World Best

First Class, Best First Class Seat, and Best

First Class Onboard Catering, as well as the

Passenger Choice Award voted for by 17.9

million travelers around the world.

Etihad also created a loyalty program

to the brand, as well as to increase cus

tomer relationship management interactions,

to create a sense of belonging between the

customers and the brand. The collection of

guest mile points that can be redeemed with

the airline furthers these goals, and also en

ables the company to collect information on

its customers for free, such as keeping track

of customer needs, demographic changes,

and travelling patterns through feedback and

supporting statistics. Thus, the Etihad loyalty

program plays a large role in the company’s

standing of customer wants and needs. The

company recently launched an Apple iPhone

loyalty program application for its members,

promoting its services in the digital market.

Real Marketing 2.2 Connecting Abu Dhabi

to the World

Christopher Parypa/Shutterstock.com

Chapter 2 | Company and Marketing Strategy: Partnering to Build Customer Relationships 75

Positioning

Arranging for a product to occupy a clear,

distinctive, and desirable place relative

to competing products in the minds of

target consumers.

was launched in August 2006, which quickly

attracted attention for its innovation and

grew faster than any loyalty program in the

industry as a result. The airline’s members—

over 1.3 million—are offered the opportu

nity to accumulate miles from flights that

can then be exchanged for a wide selection

from over 200 partners with Etihad Airways.

modations in hotels to discounts in the com

pany’s “Reward Shop” and even to car rental

and retail discounts. This allows its custom

ers to feel a sense of accomplishment and

a return for their loyalty with Etihad Airways,

and is a good form of motivation for them

to continue that loyalty in the future. It also

advertising to spread concerning positive

customer experiences, thus attracting new

potential consumers.

All in all, Etihad Airways has proven in

merely eight years to be a strong standing

competitor, with its plan to “Connect Abu

Dhabi to the World,” and has won a large

range of awards, reflecting its position as

one of the leading premium global airline

brands. By maintaining its image, constantly

innovating, and keeping up with consumer

needs, Etihad Airways will continue to grow

in the region and add on to its existing

awards. Its current earnings and expected

growth surpass those of its competitors,

growing airlines in the history of commercial

aviation.

Sources: Based on information from Abu Shahout, Abdel Razzq, Fain Abraham Punnose, and Khalil Khalifa,

“Etihad Airways Marketing Strategy,” Scribd,

Scribd,

“Vision,” n.d., www.etihadairways.com/sites/Etihad/eg/en/aboutetihad/etihadstory/pages/etihadvsion.asp&xgt,

accessed October 30, 2012.

market segments.

It designs dif

Market Differentiation and Positioning

mine how to differentiate its market offering for each targeted segment and

position is

Positioning

BURT’S BEES® is a registered trademark of Burt’s Bees, Inc. Used with

76 Part 1 | Defining Marketing and the Marketing Process

promises deliver differentiation differentiating

the details of the marketing mix

Figure 2.5

Product

Price

Place

Differentiation

Actually differentiating the market offering

to create superior customer value.

Marketing mix

The set of tactical marketing tools—

product, price, place, and promotion—

that the firm blends to produce the

response it wants in the target market.

Target customers

Intended positioning

PlacePromotion

Product Price

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

| 2.5

The Four Ps of the

Marketing Mix

Chapter 2 | Company and Marketing Strategy: Partnering to Build Customer Relationships 77 Promotion

lishing strong positioning in target markets.

P service products

4Ps 4Cs

Product Customer solution

Price Customer cost

Place Convenience

Promotion Communication

Managing the Marketing Effort marketing

to pay attention to the management Figure 2.6 analysis planning implementation

and control

Marketing Analysis

Figure 2.7

An overall evaluation of the company’s

strengths (S), weaknesses (W),

opportunities (O), and threats (T).

Objective 5 List the marketing management

functions, including the elements

of a marketing plan, and discuss

the importance of measuring and

managing return on marketing

78 Part 1 | Defining Marketing and the Marketing Process

challenges to performance.

Marketing Planning

Table 2.2

Control

Analysis

Planning Implementation

The first part of the chapter dealt with this—developing

marketing strategies and plans.

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

Internal

External

Positive Negative

SStrengths WWeaknesses O Opportunities

T Threats

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

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

| 2.6

Managing Marketing:

Analysis, Planning,

Implementation,

and Control

| 2.7

SWOT Analysis:

Strengths (S),

Weaknesses (W),

Opportunities (O),

and Threats (T)

Chapter 2 | Company and Marketing Strategy: Partnering to Build Customer Relationships 79 A marketing strategy

marketing budget

Marketing imple

mentation plans into marketing actions to accomplish what and why of

who where when how.

Table 2.2 |

Section

Executive summary Presents a brief summary of the main goals and recommendations of the plan for management review,

helping top management find the plan’s major points quickly.

Current marketing

situation

Describes the target market and the company’s position in it, including information about the market,

product performance, competition, and distribution. This section includes the following:

market description that defines the market and major segments and then reviews customer needs

and factors in the marketing environment that may affect customer purchasing.

product review that shows sales, prices, and gross margins of the major products in the

product line.

competition that identifies major competitors and assesses their market positions and

strategies for product quality, pricing, distribution, and promotion.

distribution that evaluates recent sales trends and other developments in major distribution

channels.

Threats and

opportunities analysis

Assesses major threats and opportunities that the product might face, helping management to

anticipate important positive or negative developments that might have an impact on the firm and its

strategies.

Objectives and issues States the marketing objectives that the company would like to attain during the plan’s term and

discusses key issues that will affect their attainment.

Marketing strategy Outlines the broad marketing logic by which the business unit hopes to create customer value and

relationships and the specifics of target markets, positioning, and marketing expenditure levels. How will

the company create value for customers in order to capture value from customers in return? This section

also outlines specific strategies for each marketing mix element and explains how each responds to the

threats, opportunities, and critical issues spelled out earlier in the plan.

Action programs Spells out how marketing strategies will be turned into specific action programs that answer the following

questions: What will be done? When will it be done? Who will do it? How much will it cost?

Budgets

expected revenues and expected costs of production, distribution, and marketing. The difference is the

projected profit. The budget becomes the basis for materials buying, production scheduling, personnel

planning, and marketing operations.

Controls Outlines the controls that will be used to monitor progress, allow management to review implementation

results, and spot products that are not meeting their goals. It includes measures of return on marketing

investment.

Marketing implementation

Turning marketing strategies and plans

into marketing actions to accomplish

strategic marketing objectives.

80 Part 1 | Defining Marketing and the Marketing Process

strategies and plans.

Marketing Department

chief marketing officer

mon form of marketing organization is the functional organization. Under this orga

geographic organization. Its sales and marketing people are

product management organization

market or customer management organization

Michelin North America

Chapter 2 | Company and Marketing Strategy: Partnering to Build Customer Relationships 81

combination of

zation forms.

toward customer management

Marketing Control

marketing control

Operating control

Strategic control

Marketers must continually plan their analysis, implementation, and

Marketing control

Measuring and evaluating the results

of marketing strategies and plans and

taking corrective action to ensure that the

objectives are achieved.

82 Part 1 | Defining Marketing and the Marketing Process

(or Marketing ROI

R and the I

marketing dashboards

tomer relationships. Figure 2.8

The net return from a marketing

investment divided by the costs of the

marketing investment.

Marketing returns

Marketing investments

Return on marketing investment

Beyond measuring return on marketing investment in terms of standard performance measures such as sales or market share,

relationship measures, such as customer satisfaction, retention, and equity. These are more difficult to measure but capture both current and future performance.

| 2.8

Return on Marketing Investment Source: Adapted from Roland T. Rust, Katherine

N. Lemon, and Valerie A. Zeithaml, “Return on

Marketing: Using Consumer Equity to Focus

Marketing Strategy,” Journal of Marketing,

Chapter 2 | Company and Marketing Strategy: Partnering to Build Customer Relationships 83

Reviewing the Concepts

In Chapter 1, we defined marketing and outlined the steps in the

marketing process.

strategic planning and marketing’s role in the organization. Then

we looked more deeply into marketing strategy and the marketing

mix and reviewed the major marketing management functions.

So you’ve now had a pretty good overview of the fundamentals

of modern marketing.

planning and its four steps.

(pp 63–65)

Strategic planning sets the stage for the rest of the company’s

planning. Marketing contributes to strategic planning, and the

overall plan defines marketing’s role in the company.

survival and growth. It consists of four steps: (1) defining the com

pany’s mission, (2) setting objectives and goals, (3) designing a

pany’s mission should be market oriented, realistic, specific, mo

tivating, and consistent with the market environment. The mission

is then transformed into detailed supporting goals and objectives,

which in turn guide decisions about the business portfolio. Then

each business and product unit must develop detailed marketing

plans

strategies. (pp 65–70)

Guided by the company’s mission statement and objectives,

management plans its business portfolio, or the collection of busi

nesses and products that make up the company. The firm wants

to produce a business portfolio that best fits its strengths and

weaknesses to opportunities in the environment. To do this, it must

analyze and adjust its current business portfolio and develop growth

and downsizing strategies for adjusting the future portfolio. The

approaches that better suit their unique situations.

Explain marketing’s role in

(pp 70–72)

Under the strategic plan, the major functional departments—

marketing, finance, accounting, purchasing, operations, informa

tion systems, human resources, and others—must work together

to accomplish strategic objectives. Marketing plays a key role in

the company’s strategic planning by providing a marketing concept

philosophy and inputs regarding attractive market opportunities.

Within individual business units, marketing designs strategies for

reaching the unit’s objectives and helps to carry them out profitably.

Marketers alone cannot produce superior value for customers.

Marketers must practice partner relationship management, work

ing closely with partners in other departments to form an effective

value chain that serves the customer. And they must also partner

effectively with other companies in the marketing system to form

a competitively superior value delivery network.

Describe the elements of a

strategy and mix and the forces that infl uence it.

(pp 72–77)

Customer value and relationships are at the center of marketing

strategy and programs. Through market segmentation, targeting,

Reviewing Objectives and Key Terms

Objectives Review

Objective 1

Objective 2

Objective 3

Objective 4

84 Part 1 | Defining Marketing and the Marketing Process differentiation, and positioning, the company divides the total

market into smaller segments, selects segments it can best serve,

and decides how it wants to bring value to target consumers in

the selected segments. It then designs an integrated marketing

mix to produce the response it wants in the target market. The

marketing mix consists of product, price, place, and promotion

decisions (the four Ps).

List the marketing management

functions, including the elements

of a marketing plan, and discuss the importance

of measuring and managing return on marketing

(pp 77–83)

To find the best strategy and mix and to put them into action, the

company engages in marketing analysis, planning, implementa

tion, and control. The main components of a marketing plan are

the executive summary, the current marketing situation, threats

and opportunities, objectives and issues, marketing strategies,

action programs, budgets, and controls. Planning good strat

egies is often easier than carrying them out. To be successful,

companies must also be effective at implementation—turning

marketing strategies into marketing actions.

Marketing departments can be organized in one or a com

bination of ways: functional marketing organization, geographic

organization, product management organization, or market man

agement organization. In this age of customer relationships, more

and more companies are now changing their organizational focus

from product or territory management to customer relationship

management. Marketing organizations carry out marketing con

trol, both operating control and strategic control.

Marketing managers must ensure that their marketing dollars

are being well spent. In a tighter economy, today’s marketers face

growing pressures to show that they are adding value in line with

their costs. In response, marketers are developing better mea

sures of return on marketing investment. Increasingly, they are

input into their strategic decision making.

Objective 5

Key Terms

Objective 1 Strategic planning (p 63)

Mission statement (p 63)

Objective 2 Business portfolio (p 65)

Portfolio analysis (p 65)

(p 67)

(p 69)

Market penetration (p 69)

Market development (p 70)

Product development (p 70)

Diversification (p 70)

Objective 3 Value chain (p 71)

Value delivery network (p 72)

Objective 4 Marketing strategy (p 72)

Market segmentation (p 73)

Market segment (p 73)

Market targeting (p 73)

Positioning (p 75)

Differentiation (p 76)

(p 76)

Objective 5 SWOT analysis (p 77)

Marketing implementation (p 79)

Marketing control (p 81)

Return on marketing investment

(marketing ROI) (p 82)

Discussion and Critical Thinking

1. Define strategic planning and briefly describe the four steps that lead managers and the firm through the strategic plan

ning process. Discuss the role marketing plays in this process.

(AACSB: Communication)

2. Name and describe the four product/market expansion grid strategies. Provide an example of a company implementing

3. Explain the roles of market segmentation, market targeting, differentiation, and positioning in implementing an effective

marketing strategy. (AACSB: Communication)

4. Define each of the four Ps. What insights might a firm gain by considering the four Cs rather than the four Ps? (AACSB:

5. Discuss the four marketing management functions. (AACSB: Communication)

Discussion Questions

Chapter 2 | Company and Marketing Strategy: Partnering to Build Customer Relationships 85

Critical Thinking Exercises 1. Form a small group and conduct a SWOT analysis for a pub-

licly traded company. Based on your analysis, suggest a

strategy from the product/market expansion grid and an ap-

propriate marketing mix to implement that strategy. (AACSB:

Communication; Reflective Thinking)

2. Find the mission statements of two for-profit and two not-for- profit organizations. Evaluate these mission statements with

respect to their market orientation. (AACSB: Communication;

Reflective Thinking)

Applications and Cases

Marketing Technology Google’s Nexus 7 Tablet

Google is making a move into the consumer electronics market.

In 2012, Google introduced the Nexus 7 tablet that runs on its

popular Android operating system. Priced at $199 to $249, it is

much cheaper than Apple’s iPad but comparable to Amazon’s

Kindle Fire. In fact, it is very similar to the Kindle Fire in terms of

size, weight, and features. The Kindle Fire also runs on Google’s

Android operating system, but the Nexus 7 runs on Google’s

newest version of Android called Jelly Bean. One feature the

Nexus 7 has that the Kindle doesn’t have is a voice-activated

assistant, similar to Apple’s Siri on the iPhone 4S. Google is also

introducing Nexus Q, which is a $300 black ball-shaped home-

entertainment amplifier that wirelessly streams content to other

devices. For $1,500, Google offers Google Glass, which is an

eyeglasses-like device that displays Internet information in front of

the wearer’s eyes. Google purchased Motorola Mobility, so keep

your eye out for another entrant in the smartphone category.

1. Learn more about Google and its products/services and cre- ate a BCG growth-share matrix for this company. On which

products and services should Google concentrate its market-

ing efforts? (AACSB: Communication; Reflective Thinking)

2. How is Google positioning the Nexus 7 tablet? Does this prod- uct offer significant differentiation from competing offerings so

that consumers will perceive it to have higher value? (AACSB:

Communication; Reflective Thinking)

Marketing Ethics Tiny Hearts You’ve probably heard of heart procedures such as angioplasty

and stents that are routinely performed on adults. But such heart

procedures, devices, and related medications are not available for

infants and children, despite the fact that almost 40,000 children

a year are born in the United States with heart defects that of-

ten require repair. This is a life-or-death situation for many young

patients, yet doctors must improvise by using devices designed

and tested on adults. For instance, doctors use an adult kidney

balloon on an infant’s heart because it is the appropriate size for

a newborn’s aortic valve. However, this device is not approved

for the procedure. Why are specific devices and medicines de-

veloped for the multibillion-dollar cardiovascular market not also

designed for kids? It’s a matter of economics—this segment of

young consumers is just too small. One leading cardiologist attrib-

uted the discrepancy to a “profitability gap” between the children’s

market and the much more profitable adult market for treating

heart disease. Although this might make good economic sense

for companies, it is of little comfort to the parents of these small

patients.

1. Is it wrong for these companies to not address the needs of this segment? Suggest some arguments in defense of com-

panies not offering products to meet these needs. (AACSB:

Communication; Reflective Thinking; Ethical Reasoning)

2. Suggest some solutions to this problem. (AACSB: Communi- cation; Reflective Thinking)

Marketing by the Numbers Walmart vs. Target For the period ending January 2012, Walmart reported profits

of almost $16 billion on sales of just under $450 billion. For that

same period, Target posted a profit of $3 billion on sales of al-

most $70 billion. Walmart is a better marketer, right? Sales and

profits provide information to compare the profitability of these two

competitors, but between these numbers is information regard-

ing the efficiency of marketing efforts in creating those sales and

profits. Appendix 24, Marketing by the Numbers, discusses other

marketing profitability measures beyond the return on marketing

investment (marketing ROI) measure described in this chapter.

86 Part 1 | Defining Marketing and the Marketing Process Review Appendix 24 to answer the questions using the following

information from Walmart’s and Target’s income statements (all

numbers are in thousands):

Period Ending

January, 2012 Walmart Target

Sales $446,950,000 $69,865,000

Gross Profit $111,823,000 $22,005,000

Marketing Expenses $ 63,948,750 $10,914,000

Net Income (Profit) $ 15,699,000 $ 2,929,000

1. Calculate profit margin, net marketing contribution, market- ing return on sales (or marketing ROS), and marketing return

on investment (or marketing ROI) for both companies. Which

company is performing better? (AACSB: Communication; Use

of IT; Analytic Thinking)

2. Go to Yahoo! Finance (http://finance.yahoo.com/) and find the income statements for two other competing companies.

Perform the same analysis for these companies that you per-

formed in the previous question. Which company is doing

better overall and with respect to marketing? For marketing

expenses, use 75 percent of the company’s reported “Selling

General and Administrative” expenses. (AACSB: Communica-

tion; Analytic Reasoning; Reflective Thinking)

Video Case OXO You might know OXO for its well-designed, ergonomic kitchen

gadgets. But OXO’s expertise at creating handheld tools that look

great and work well has led it to expand into products for bath-

rooms, garages, offices, babies’ rooms, and even medicine cabi-

nets. In the past, this award-winning manufacturer has managed

to move its products into almost every home in the United States

by relying on a consistent and in some cases nontraditional mar-

keting strategy.

But in a highly competitive and turbulent market, OXO has

focused on evaluating and modifying its marketing strategy in

order to grow the brand. This video demonstrates how OXO is

using strategic planning to ensure that its marketing strategy re-

sults in the best marketing mix for the best and most profitable

customers.

After viewing the video featuring OXO, answer the following

questions:

1. What is OXO’s mission?

2. What are some of the market conditions that have led OXO to reevaluate its marketing strategy?

3. How has OXO modified its marketing mix? Are these changes in line with its mission?

Company Case Trap-Ease America: The Big Cheese of Mousetraps

Conventional Wisdom One April morning, Martha House, president of Trap-Ease Amer-

ica, entered her office in Costa Mesa, California. She paused for

a moment to contemplate the Ralph Waldo Emerson quote that

she had framed and hung near her desk:

If a man [can] . . . make a better mousetrap than his neigh-

bor, the world will make a beaten path to his door.

Perhaps, she mused, Emerson knew something that she

didn’t. She had the better mousetrap—Trap-Ease—but the world

didn’t seem all that excited about it.

Martha had just returned from the National Hardware Show

in Chicago. Standing in the trade show display booth for long

hours and answering the same questions hundreds of times had

been tiring. Yet, all the hard work had paid off. Each year, National

Hardware Show officials held a contest to select the best new

product introduced at that year’s show. The Trap-Ease had won

the contest this year, beating out over 300 new products.

Such notoriety was not new for the Trap-Ease mousetrap,

however. People magazine had run a feature article on the trap,

and the trap had been the subject of numerous talk shows and

articles in various popular press and trade publications.

Despite all of this attention, however, the expected demand for

the trap had not materialized. Martha hoped that this award might

stimulate increased interest and sales.

Background A group of investors had formed Trap-Ease America in January

after it had obtained worldwide rights to market the innovative

mousetrap. In return for marketing rights, the group agreed to pay

the inventor and patent holder, a retired rancher, a royalty fee for

each trap sold. The group then hired Martha to serve as president

and to develop and manage the Trap-Ease America organization.

Trap-Ease America contracted with a plastics-manufacturing

firm to produce the traps. The trap consisted of a square, plas-

tic tube measuring about 6 inches long and 1-1/2 inches in

diameter. The tube bent in the middle at a 30-degree angle, so

that when the front part of the tube rested on a flat surface, the

other end was elevated. The elevated end held a removable

cap into which the user placed bait (cheese, dog food, or some

other aromatic tidbit). The front end of the tube had a hinged

door. When the trap was “open,” this door rested on two nar-

row “stilts” attached to the two bottom corners of the door.

(See Exhibit.)

The simple trap worked very efficiently. A mouse, smelling the

bait, entered the tube through the open end. As it walked up the

angled bottom toward the bait, its weight made the elevated end

of the trap drop downward. This action elevated the open end,

allowing the hinged door to swing closed, trapping the mouse.

Small teeth on the ends of the stilts would catch in a groove on

Chapter 2 | Company and Marketing Strategy: Partnering to Build Customer Relationships 87 the bottom of the trap, locking

the door closed. The user could

then dispose of the mouse while

it was still alive, or the user could

leave it alone for a few hours to

suffocate in the trap.

Martha believed the trap had

many advantages for the con-

sumer when compared with tra-

ditional spring-loaded traps or

poisons. Consumers could use

it safely and easily with no risk

of catching their fingers while

loading it. It posed no injury or

poisoning threat to children or

pets. Furthermore, with Trap-

Ease, consumers avoided the

unpleasant “mess” they often

encountered with the violent

spring-loaded traps. The Trap-

Ease created no “clean-up”

problem. Finally, the user could reuse the trap or simply throw

it away.

Martha’s early research suggested that women were the best tar-

get market for the Trap-Ease. Men, it seemed, were more willing to

buy and use the traditional, spring-loaded trap. The targeted women,

however, did not like the traditional trap. These women often stayed

at home and took care of their children. Thus, they wanted a means

of dealing with the mouse problem that avoided the unpleasantness

and risks that the standard trap created in the home.

To reach this target market, Martha decided to distribute Trap-

Ease through national grocery, hardware, and discount chains.

She sold the trap directly to these large retailers, avoiding any

wholesalers or other middlemen.

The traps sold in packages of two, with a suggested retail

price of $5.99. Although this price made the Trap-Ease about five

times more expensive than smaller, standard traps, consumers

appeared to offer little initial price resistance. The manufactur-

ing cost for the Trap-Ease, including freight and packaging costs,

was about 59 cents per unit. The company paid an additional

19 cents per unit in royalty fees. Martha priced the traps to retail-

ers at $2.38 per unit (two units to a package) and estimated that,

after sales and volume discounts, Trap-Ease would produce net

revenue from retailers of $1.50 per unit.

To promote the product, Martha had budgeted approximately

$145,000 for the first year. She planned to use $100,000 of this

amount for travel costs to visit trade shows and to make sales

calls on retailers. She planned to use the remaining $45,000 for

advertising. So far, however, because the mousetrap had gen-

erated so much publicity, she had not felt that she needed to

do much advertising. Still, she had placed advertising in Good

Housekeeping (after all, the trap had earned the Good House-

keeping Seal of Approval) and in other “home and shelter” mag-

azines. Martha was the company’s only salesperson, but she

intended to hire more salespeople soon.

Martha had initially forecasted Trap-Ease’s first-year sales at

5 million units. Through April, however, the company had only sold

several hundred thousand units. Martha wondered if most new

products got off to such a slow start, or if she was doing something

wrong. She had detected some problems, although none seemed

overly serious. For one, there had not been enough repeat buy-

ing. For another, she had noted that many of the retailers upon

whom she called kept their sample mousetraps on their desks as

conversation pieces—she wanted the traps to be used and dem-

onstrated. Martha wondered if consumers were also buying the

traps as novelties rather than as solutions to their mouse problems.

Martha knew that the investor group believed that Trap-Ease

America had a “once-in-a-lifetime chance” with its innovative

mousetrap, and she sensed the group’s impatience with the

company’s progress so far. She had budgeted approximately

$500,000 in administrative and fixed costs for the first year (not

including marketing costs). To keep the investors happy, the com-

pany needed to sell enough traps to cover those costs and make

a reasonable profit.

Back to the Drawing Board In these first few months, Martha had learned that marketing a

new product was not an easy task. Some customers were very

demanding. For example, one national retailer had placed a large

order with instructions that Trap-Ease America was to deliver the

order to the loading dock at one of the retailer’s warehouses be-

tween 1:00 and 3:00 p.m. on a specified day. When the truck de-

livering the order arrived after 3:00 p.m., the retailer had refused

to accept the shipment. The retailer had told Martha it would be a

year before she got another chance.

As Martha sat down at her desk, she realized she needed to

rethink her marketing strategy. Perhaps she had missed some-

thing or made some mistake that was causing sales to be so

slow. Glancing at the quotation again, she thought that perhaps

she should send the picky retailer and other customers a copy of

Emerson’s famous quote.

Questions for Discussion 1. Martha and the Trap-Ease America investors believe they face

a once-in-a-lifetime opportunity. What information do they

need to evaluate this opportunity? How do you think the group

would write its mission statement? How would you write it?

2. Has Martha identified the best target market for Trap-Ease? What other market segments might the firm target?

3. How has the company positioned the Trap-Ease for the cho- sen target market? Could it position the product in other

ways?

4. Describe the current marketing mix for Trap-Ease. Do you see any problems with this mix?

5. Who is Trap-Ease America’s competition?

E PLACEMENT OR REFU ND

A L IMITE

D WARRANTY TO

Good Housekeeping a

Bait attracts mouse into trap. Weight of mouse trips trap.

A M E R I C A T h e B i g C h e e s e o f M o u s e t r a p s ®

88 Part 1 | Defining Marketing and the Marketing Process 6. How would you change Trap-Ease’s marketing strategy?

What kinds of control procedures would you establish for this

strategy?

References 1. Quotes, and other information found in Keith O’Brien, “How McDon-

ald’s Came Back Bigger Than Ever,” New York Times, May 4, 2012;

Andrew Martin, “McDonald’s Maintains Momentum in Bad Times,”

New York Times, January 11, 2009; Beth Kowitt, “Why McDonald’s

Wins in Any Economy,” Fortune, September 5, 2011, pp. 71–77;

“McDonald’s Stock: Can the New CEO Maintain the Incredible Focus

on Incremental Improvement?” Forbes, March 22, 2012, www.forbes.

com/sites/ycharts/2012/03/22/mcdonalds-stock-can-the-new-

ceo-maintain-the-incredible-focus-on-incremental- improvement/;

and financial and other company information and facts from www

.aboutmcdonalds.com/mcd/media_center.html/invest.html and www

.aboutmcdonalds.com/mcd, accessed September, 2012.

2. The NASA mission statement is from www.nasa.gov/about/high- lights/what_does_nasa_do.html; accessed November 2012.

3. For more discussion of mission statements and examples, both good and bad, see Jack and Suzy Welch, “State Your Business;

Too Many Mission Statements Are Loaded with Fatheaded Jargon.

Play It Straight,” BusinessWeek, January 14, 2008, p. 80, Piet Levy,

“Mission vs. Vision,” Marketing News, February 28, 2011, p. 10; Se-

tayesh Sattari, et al., “How Readable Are Mission Statements? An

Exploratory Study,” Corporate Communications,” 2011, p. 4; and www

.missionstatements.com/fortune_500_mission_statements.html, ac-

cessed November 2012.

4. Information about Heinz and its mission from www.heinz.com/our- company/about-heinz/mission-and-values.aspx and www.heinz .com,

accessed November 2012.

5. The following discussion is based in part on information found at www .bcg.com/documents/file13904.pdf, accessed November 2012.

6. Lisa Richwine, “Disney Earnings Beat Despite Shaky Economy,” Reuters.com, February 8, 2012, www.reuters.com/article/2012/02/08/

us-disney-idUSTRE8161TE20120208; and http://corporate.disney

.go.com/investors/annual_reports.html, accessed September 2012.

7. H. Igor Ansoff, “Strategies for Diversification,” Harvard Business Re- view, September–October 1957, pp. 113–124.

8. Facts in this and the following paragraphs are based on information found in Tess Steins, “Starbucks Details Plans for Energy Drink, Interna-

tional Expansion,” Wall Street Journal, March 21, 2012, http://online.wsj

.com/article/SB10001424052702304636404577295673557464182

.html; David A. Kaplan, “Strong Coffee,” Fortune, December 12, 2011,

pp. 123–137; Jon Carter, “Starbucks: For Infusing a Steady Stream

of New Ideas to Revise Its Business,” Fast Company, March 2012,

pp. 134+; and www.starbucks.com, accessed September 2012.

9. See Michael E. Porter, Competitive Advantage: Creating and Sustaining Superior Performance (New York: Free Press, 1985); and

Michael E. Porter, “What Is Strategy?” Harvard Business Review,

November–December 1996, pp. 61–78. Also see “The Value Chain,”

www . quickmba.com/strategy/value-chain, accessed July 2012; and

Philip Kotler and Kevin Lane Keller, Marketing Management, 14th

ed. (Upper Saddle River, NJ: Prentice Hall, 2012), pp. 34–35 and

pp. 203–204.

10. Nirmalya Kumar, “The CEO’s Marketing Manifesto,” Marketing Man- agement, November–December 2008, pp. 24–29; and Tom French

and others, “We’re All Marketers Now,” McKinsey Quarterly, July

2011, www.mckinseyquarterly.com/Were_all_marketers_now_2834.

11. See http://nikeinc.com/pages/about-nike-inc, accessed September 2012.

12. BURT’S BEES® is a registered trademark of Burt’s Bees, Inc. Used with permission.

13. “Advertising Spending,” Advertising Age, December 19, 2011, p. 4. 14. The four Ps classification was first suggested by E. Jerome McCarthy,

Basic Marketing: A Managerial Approach (Homewood, IL: Irwin,

1960). For the four Cs, other proposed classifications, and more dis-

cussion, see Robert Lauterborn, “New Marketing Litany: 4P’s Passé

C-Words Take Over,” Advertising Age, October 1, 1990, p. 26; Phillip

Kotler, “Alphabet Soup,” Marketing Management, March–April 2006,

p. 73; Nirmalya Kumer, “The CEO’s Marketing Manifesto,” Market-

ing Management, November/December 2008, pp. 24–29; and Roy

McClean, “Marketing 101—4 C’s versus the 4 P’s of Marketing,” www

.customfitfocus.com/marketing-1.htm, accessed November 2012.

15. For more discussion of the chief marketing officer position, see Philip Kotler and Kevin Lane Keller, Marketing Management, 14th ed. (Up-

per Saddle River, NJ: Prentice Hall, 2012), p. 17; and Natalie Zmuda,

“When CMOs Learn to Love Data, They’ll Be VIPs,” Advertising Age,

February 13, 2012, p. 2.

16. Adapted from information found in Diane Brady, “Making Marketing Measure Up,” BusinessWeek, December 13, 2004, pp. 112–113; and

J. Mark Carr and Richard Schreuer, Marketing Management, Summer

2010, pp. 26–32.

17. Paul Albright, “Metrics Must Show Impact of Marketing on Revenue,” DM News, December 1, 2011, p. 15; and “Study Finds Marketers

Don’t Practice ROI They Preach,” Advertising Age, March 11, 2012,

http://adage.com/article/233243/.

18. See “We Believe Research Should Lead to Action,” Marketing News, November 15, 2009, p. 30; and http://marketingnpv.com/dashboard-

platform, accessed September 2012.

19. For a full discussion of this model and details on customer-centered measures of return on marketing investment, see Roland T. Rust,

Katherine N. Lemon, and Valerie A. Zeithaml, “Return on Market-

ing: Using Customer Equity to Focus Marketing Strategy,” Journal of

Marketing, January 2004, pp. 109–127; Roland T. Rust, Katherine N.

Lemon, and Das Narayandas, Customer Equity Management (Up-

per Saddle River, NJ: Prentice Hall, 2005); Roland T. Rust, “Seeking

Higher ROI? Base Strategy on Customer Equity,” Advertising Age,

September 10, 2007, pp. 26–27; Andreas Persson and Lynette Ryals,

“Customer Assets and Customer Equity: Management and Measure-

ment Issues,” Marketing Theory, December 2010, pp. 417–436; and

Kirsten Korosec, “‘Tomāto, Tomäto’? Not Exactly,” Marketing News,

January 13, 2012, p. 8.

20. Elizabeth A. Sullivan, “Measure Up,” Marketing News, May 30, 2009, pp. 30–39; and “Marketing Strategy: Diageo CMO: ‘Workers Must Be

Able to Count,’” Marketing Week, June 3, 2010, p. 27.

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third-most visited Web site on the Internet, trailing only Google

(its parent company) and Facebook.

Rather than simply surviving in its chaotic environment,

YouTube is thriving, leading the way in shaping how video

is produced, distributed, and monetized. For the first several

years, YouTube’s revenues barely covered costs. Recently,

however, the video-sharing site has reached the Valhalla of

dot-coms. Not only is it generating mind-numbing traffic, it’s

also making money. With 98 of Advertising Age’s top 100 adver- tisers now using YouTube as a promotional channel, the online

video giant generates more than $1 billion in annual revenue

for Google.

Part 1: Defining Marketing and the Marketing Process (Chapters 1–2)

Part 2: Understanding the Marketplace and Consumers (Chapters 3–6)

Part 3: Designing a Customer-Driven Strategy and Mix (Chapters 7–17)

Part 4: Extending Marketing (Chapters 18–20)

Analyzing the Marketing Environment3

Chapter Preview So far, you’ve learned about

the basic concepts of mar-

keting and the steps in the marketing process for building prof-

itable relationships with targeted consumers. Next, we’ll begin

digging deeper into the first step of the marketing process—

understanding the marketplace and customer needs and

wants. In this chapter, you’ll see that marketing operates in

a complex and changing environment. Other actors in this

environment—suppliers, intermediaries, customers, competi-

tors, publics, and others—may work with or against the com-

pany. Major environmental forces—demographic, economic,

natural, technological, political, and cultural—shape marketing

opportunities, pose threats, and affect the company’s ability to

build customer relationships. To develop effective marketing

strategies, a company must first understand the environment

in which marketing operates.

To start, let’s look at YouTube, the Internet video-sharing giant

that burst onto the scene only a few short years ago. Last year,

YouTube captured more than 1 trillion video views worldwide, giv-

ing it a 43 percent share of the online video market. To stay on top

and grow profitably, however, YouTube will have to adapt nimbly

to the fast-changing marketing environment.

YouTube: Adapting to the Fast-Changing Marketing Environment

S ome 2,500 years ago, Greek philosopher Heraclitus

observed, “Change is the only constant.” That state-

ment holds especially true today in the turbulent

video entertainment industry. Today’s environment

is a far cry from the old days when you found video entertain-

ment only on your TV from schedules set by the networks. In-

stead, consumers now face a bewildering array of choices about

what they watch, when, and where. But if the fast-changing

video environment befuddles consumers, it’s doubly daunting

for the companies that serve them.

Perhaps no company has navigated this changeable mar-

keting environment better than Google-owned YouTube.

YouTube’s mission is to provide a distribution platform by

which people can discover, watch, and share video en-

tertainment. Last year, YouTube had more than

1 trillion video views worldwide—that’s

140 views for every man, woman,

and child on the globe. More video

is uploaded to YouTube in one

month than the three major U.S.

networks created in 60 years. You-

Tube captures a stunning 43 percent

of the online video market (number two

is China’s YouKu with only 2.3 percent). It’s the

Video-sharing giant YouTube dwarfs its competitors, capturing a 43 percent share of

the online video market. But to stay on top, it will have to adapt nimbly to the turbulent marketing

environment.

Chapter 3 | Analyzing the Marketing Environment 91 YouTube began as a place where regular folks

YouTube worked with

Kraft’s Philadelphia Cream

Cheese brand to create

based campaign, built

around the Real Women

of Philadelphia YouTube

channel featuring Food

Network chef Paula Deen.

Jarrod Weaton/Weaton Digital, Inc.

92 Part 2 | Understanding the Marketplace and Consumers

Objective Outline

Objective 1 Describe the environmental forces that affect the company’s ability to serve its customers.

The Microenvironment (pp 93–96)

The Macroenvironment (p 96)

Objective 2 Explain how changes in the demographic and economic environments affect marketing decisions.

The Demographic Environment (pp 96–103)

The Economic Environment (pp 103–104)

Objective 3 Identify the major trends in the fi rm’s natural and technological environments.

The Natural Environment (pp 104–105)

The Technological Environment (p 106)

Objective 4 Explain the key changes in the political and cultural environments.

The Political and Social Environment (pp 107–110)

The Cultural Environment (pp 110–113)

Objective 5 Discuss how companies can react to the marketing environment.

Responding to the Marketing Environment (pp 113–115)

A company’s marketing environmentMarketing environment The actors and forces outside marketing

that affect marketing management’s

ability to build and maintain successful

relationships with target customers.

Chapter 3 | Analyzing the Marketing Environment 93

microenvironment and a macroenvironment microenvironment

macroenvironment

The Microenvironment

Figure 3.1

The Company

Suppliers

Marketers must work in harmony with other company departments to create customer value and relationships.

Customers are the most important actors in the company’s microenvironment. The aim of the entire value delivery system is to serve target customers and create strong relationships with them.

In creating value for customers, marketers must partner with other firms in the company’s value delivery network.

FIGURE | 3.1

Actors in the Microenvironment

Microenvironment

The actors close to the company that

affect its ability to serve its customers—

the company, suppliers, marketing

intermediaries, customer markets,

competitors, and publics.

Macroenvironment

The larger societal forces that affect

the microenvironment—demographic,

economic, natural, technological, political,

and cultural forces.

Objective 1 Describe the environmental

forces that affect the company’s

ability to serve its customers.

94 Part 2 | Understanding the Marketplace and Consumers

Marketing Intermediaries Marketing intermediaries

Resellers

Physical distribution firms Marketing services agencies

Giant Swedish furniture manufacturer IKEA doesn’t

just buy from suppliers. It involves them deeply in the

process of delivering a stylish and affordable lifestyle to

its customers worldwide.

Used with the permission of Inter IKEA Systems B.V.

Marketing intermediaries

Firms that help the company to promote,

sell, and distribute its goods to final

buyers.

Financial interme diaries

Competitors

Chapter 3 | Analyzing the Marketing Environment 95

Publics public

Financial publics:

Media publics:

Government publics:

Public

Any group that has an actual or potential

interest in or impact on an organization’s

ability to achieve its objectives.

Publics: The Life is good Company recognizes the importance of

community publics. Its Life is good Playmakers program provides

world to use the power of play to help children overcome challenges

ranging from violence and illness to extreme poverty.

The Life is good Company

Local publics:

General public.

Internal publics.

Customers

96 Part 2 | Understanding the Marketplace and Consumers

Consumer markets Business markets

reseller mar kets Government markets

international markets

The Macroenvironment

Figure 3.2

The Demographic Environment Demography

The Changing Age Structure of the Population

The Baby Boomers. baby boomers

Company

Changing demographics mean changes in markets and marketing strategies. For example, Merrill Lynch targets aging baby boomers to help them overcome the hurdles to retirement planning.

Marketers also want to be socially responsible citizens in their markets and communities. For example, shoe brand TOMS was founded on a cause: “No complicated formulas. It’s simple,” says the company’s founder. “You buy a pair of TOMS and I give a pair to a child on your behalf.”

Concern for the natural environment

movement. For example, last year HP recovered and recycled 800 jumbo jets worth of electronics globally.

FIGURE | 3.2

Major Forces in the Company’s

Macroenvironment

Objective 2 Explain how changes in the

demographic and economic

environments affect marketing

decisions.

Demography

The study of human populations in terms

of size, density, location, age, gender,

race, occupation, and other statistics.

Baby boomers

The 78 million people born during the

years following World War II and lasting

until 1964.

Chapter 3 | Analyzing the Marketing Environment 97

After a decade of struggle, the year 2011 was

supposed to be a comeback year for Sony.

The consumer electronics and entertainment

giant had one its best batches of new prod

ucts ever heading for store shelves. Even

more important, Sony was heading back into

the digital big leagues with the launch of an

combine Sony’s strengths in movies, music,

and video games for all its televisions, PCs,

phones, and tablets. Analysts forecasted a

$2 billion profit. “I really and truly believed that

I was going to have a year to remember,” says

Sony’s chairman Sir Howard Stringer. “And I

did, but in the wrong way.”

Instead of a banner year, 2011 produced a

for Sony. For starters, in March 2011, eastern

Japan was devastated by a mammoth earth

quake and tsunami. The disaster forced Sony

to shutter 10 plants, disrupting operations and

the flow of Sony products worldwide. In April,

a hacking attack on the company’s Internet

online data breach in U.S. history—forced the

company to shut down its PlayStation Net

work. Only four months later, fires set by rioters

in London destroyed a Sony warehouse and

an estimated 25 million CDs and DVDs, gut

ting an inventory of 150 independent labels.

To round out the year, floods in Thailand shut

down component plants there.

When the rubble was cleared, Sony’s

projected $2 billion profit ended up as a

$3.1 billion loss—the largest in 16 years. That

had begun with yet another environmental

upheaval—the Great Recession and global

spoke out publicly about Sony’s “sense of

crisis,” projecting yet another annual loss in

excess of a billion dollars.

There’s no doubt that environmental

unforeseeables have dealt Sony some heavy

blows. But not all the blame for Sony’s woes

goes to uncontrollable environmental forces.

Sony’s current difficulties began long before

the recent string of events. More to blame than

term inability to adapt to one of the most

powerful environmental forces of our time—

dramatic changes in technology.

Interestingly, it was Sony’s magical touch

with technology that first built the company into

a global powerhouse. Only a dozen years ago,

chant of cool. Not only was it the world’s larg

est consumer electronics company, its history

of innovative products—such as Trinitron TVs,

Walkman portable music players, Handycam

video recorders, and PlayStation video game

consoles—had revolutionized entire industries.

Sony’s innovations drove pop culture, earned

the adoration of the masses, and made money

for the company. The Sony brand stood for in

novation, style, and high quality.

billion company, Sony is more a relic than a

as Apple, Samsung, and Microsoft. Samsung

overtook Sony as the world’s largest consumer

electronics maker nearly a decade ago. Sam

sung’s sales last year bested Sony’s by 50 per

cent, and Samsung earned profits of $14 billion

while Sony lost $3.2 billion. Likewise, Apple

has pounded Sony with one new product after

another. “When I was young, I had to have a

Sony product,” summarizes one analyst, “but

for the younger generation today it’s Apple.”

Apple’s zooming stock price has made it the

most valuable company in history. Meanwhile,

Sony’s stock price recently hit a low of around

$15, a stunning slide from its high of more than

$300 just a decade ago. All of this has turned

Sony’s current “Make. Believe.” brand promise

How did Sony fall so hard so fast? It fell

empire based on the innovative engineering

and design of standalone electronics—TVs,

CD players, and video game consoles. As the

Internet surged, however, creating a more con

nected and mobile world, standalone hardware

was rapidly replaced by new connecting tech

nologies, media, and content. As our entertain

ment lives swirled toward digital downloads and

shared content accessed through PCs, iPods,

Sony was late to adapt.

Behaving as though its superiority could

never be challenged, an arrogant Sony clung

to its successful old technologies rather than

embracing the new. For example, prior to the

launch of Apple’s first iPod in 2001, Sony had

already developed devices that would down

load and play digital music files. Sony had ev

erything it needed to create an iPod device,

including its own recording company. But

it passed on that idea in favor of continued

3.1Real Marketing Sony: Battling the Marketing Environment’s “Perfect Storm”

The marketing environment: Environmental unforeseeables have dealt Sony

some heavy blows. But the company’s inability to adapt to the changing

technological environment has turned Sony’s current “Make. Believe.”

Bloomberg via Getty Images

98 Part 2 | Understanding the Marketplace and Consumers

business. “[Apple’s] Steve Jobs figured it out,

we figured it out, we didn’t execute,” says

Sony chairman Stringer. “The music guys

didn’t want to see the CD go away.”

Similarly, as the world’s largest TV pro-

ducer, Sony clung to its cherished Trinitron

cathode- ray-tube technology. Meanwhile, Sam-

sung, LG, and other competitors were moving

rapidly ahead with flat screens. Sony eventu-

ally responded. But today, both Samsung and

LG sell more TVs than Sony. Sony’s TV busi-

ness, once its main profit center, has lost nearly

$8.5 billion over the past eight years.

It was a similar story for Sony’s PlayStation

consoles, once the undisputed market leader

and accounting for one-third of Sony’s profits.

Sony yawned when Nintendo introduced its

innovative motion-sensing Nintendo Wii, dis-

missing it as a “niche game device.” Instead,

Sony engineers loaded up the PS3 with pricey

technology that produced a loss of $300 per

unit sold. Wii became a smash hit and the best-

selling game console; the PS3 has lost billions

for Sony, dropping it from first place to third.

Even as a money loser, the PS3 with its

elegant blending of hardware and software

had all the right ingredients to make Sony a

leader in the new world of digital entertain-

ment distribution and social networking. Ex-

ecutives inside Sony even recognized the

PlayStation platform as the “epitome of con-

vergence,” with the potential to create “a fu-

sion of computers and entertainment.” But

that vision never materialized, and Sony has

lagged in the burgeoning business of con-

necting people to digital entertainment.

To his credit, Howard Stringer made a

credible effort to reignite Sony. After taking

over in 2005, he drew up a turnaround plan

aimed at changing the Sony mind-set and

moving the company into the new connected

and mobile digital age. Under his early lead-

ership, the consumer electronics giant began

to show renewed life as revenues and profits

rose. Then came the Great Recession, once

again knocking the bottom out of profits. And

just as Sony began digging out from that di-

saster, it was struck by the string of 2011 envi-

ronmental calamities.

Thus, environmental forces—whether

unforeseeable natural and economic events

or more predictable turns in technology—can

heavily impact company strategy. Sony’s diffi-

cult times provide a cautionary tale of what can

happen when a company—even a dominant

market leader—fails to adapt to its changing

marketing environment. Despite the setbacks,

however, giant Sony still has a lot going for it.

It recently announced new plans to revitalize its

core electronics businesses through renewed

innovation. Now, if Sony can just get the econ-

omy and Mother Nature to cooperate. . . .

Sources: Bryan Gruley and Cliff Edwards, “Sony Needs a Hit,” Bloomberg Businessweek, November 21, 2011,

pp. 72–77; Mariko Yasu and Cliff Edwards, “Sony’s Hirai Vows to Deliver Stringer Vision with Cost Cuts,” Bloomberg

Businessweek, February 5, 2012, www.businessweek.com/news/2012-02-05/sony-s-hirai-vows-to-deliver-stringer-

vision-with-cost-cuts.html, and information from www.sony.net/SonyInfo/IR/, accessed September 2012.

been one of the most powerful forces shaping the marketing environment. The youngest

boomers are now moving into their fifties; the oldest are in their late sixties and entering

retirement. The maturing boomers are rethinking the purpose and value of their work, re-

sponsibilities, and relationships.

After years of prosperity, free spending, and saving little, the Great Recession hit many

baby boomers hard, especially the preretirement boomers. A sharp decline in stock prices

and home values ate into their nest eggs and retirement prospects. As a result, many boom-

ers are now spending more carefully and planning to work longer.

However, although some might be feeling the postrecession pinch, the baby boomers

are still the wealthiest generation in U.S. history. Today’s baby boomers account for about

25 percent of the U.S. population but control an estimated 80 percent of the nation’s per-

sonal wealth. The 50-plus consumer segment now accounts for nearly half of all discretion-

ary consumer spending.7 As they reach their peak earning and spending years, the boomers

will continue to constitute a lucrative market for financial services, new housing and home

remodeling, new cars, travel and entertainment, eating out, health and fitness products,

and just about everything else.

It would be a mistake to think of the older boomers as phasing out or slowing

down. Today’s boomers think young no matter how old they are. One study showed

that boomers, on average, see themselves as 12 years younger than they actually are.

And rather than viewing themselves as phasing out, they see themselves as entering

new life phases. The more active boomers—sometimes called zoomers, or baby boom-

ers with zip—have no intention of abandoning their youthful lifestyles as they age. For

example, a recent study found that whereas 9 percent of baby boomers attended the

symphony or opera during the previous 12 months, 12 percent attended a rock concert.

“Baby Boomers represent a segment of the American population that has a thirst for

adventure, and the financial freedom to explore that passion,” notes one expert. Says

another, “They are showing the nation that their heyday is far from over by taking plea-

sure in life’s adventures.”8

Chapter 3 | Analyzing the Marketing Environment 99

Targeting Gen Xers: Dairy Queen’s “So Good It’s RiDQulous” campaign

targets Gen Xers with irreverent humor and online ad placements.

American Dairy Queen Corporation

Generation X.

Generation X

Targeting baby boomers: Travel companies such as ElderTreks target

travel but prefer to do it with others their own age—no young‘uns allowed.

ELDERTREKS

Generation X

The 49 million people born between 1965

and 1976 in the “birth dearth” following

the baby boom.

100 Part 2 | Understanding the Marketplace and Consumers

Millennials. Millennials Generation YMillennials (or Generation Y)

The 83 million children of the baby

boomers born between 1977 and 2000.

Targeting Millennials: The Keds “How Do You Do?” campaign

urges young Millennial consumers to engage, create, and collaborate,

emphasizing Keds sneakers as a canvas used to express that creativity.

Xiao Chang/The Daily Pennsylvanian

Generational Marketing.

Chapter 3 | Analyzing the Marketing Environment 101 The Changing American Family

Geographic Shifts in Population

102 Part 2 | Understanding the Marketplace and Consumers

More Professional Population

Increasing Diversity

Harlistas: An American Journey

Modern Family and Glee, Brokeback Mountain and The Kids Are All Right,

Out The Advocate Out Traveler

Serving the telecommuter market: Companies such

as Grind rent out shared offi ce space by the day or

month to telecommuters and others who work away

from the main offi ce.

Grind, LLC

Chapter 3 | Analyzing the Marketing Environment 103

The Economic Environment economic environment

industrial economies subsistence economies

develop ing economies

Changes in Consumer Spending

Targeting consumers with disabilities: Samsung features people

with disabilities in its mainstream advertising and signs endorsement

deals with Paralympic athletes.

GEPA/Imago/Icon SMI/Newscom

Economic environment

Economic factors that affect consumer

purchasing power and spending patterns.

104 Part 2 | Understanding the Marketplace and Consumers

value marketing has be

Income Distribution income distribution as well

The Natural Environment The natural environment

Natural environment

The physical environment and the natural

resources that are needed as inputs

by marketers or that are affected by

marketing activities.

Objective 3 Identify the major trends in the

fi rm’s natural and technological

environments.

Economic environment: To capture India’s growing middle class,

Tata Motors introduced the small, affordable Tata Nano. “Can you

imagine a car within the reach of all?” asks this advertisement. “Now

you can.”

Tata Motors Ltd.

Chapter 3 | Analyzing the Marketing Environment 105

increased pollution

increased government intervention

Environmental sustainability

Developing strategies and practices that

create a world economy that the planet

can support indefinitely.

Environmental sustainability: Timberland

is on a mission to do everything it can to

reduce its impact on the planet while at the

same time making better outdoor gear.

The Timberland Company

environmental sustainability

106 Part 2 | Understanding the Marketplace and Consumers The Technological Environment The technological environment

Technological environment

Forces that create new technologies,

creating new product and market

opportunities.

Technological environment: Envision a world in which every

product contains a transmitter loaded with information. In fact,

it’s already happening on the back of RFID product labels like this

one at Walmart.

Marc F. Henning/Alamy

Chapter 3 | Analyzing the Marketing Environment 107 The Political and Social Environment

The political environment

Legislation Regulating Business

public policy

Table 3.1

protect companies

protect consumers

protect the interests of society

Increased Emphasis on Ethics and Socially Responsible Actions

Political environment

Laws, government agencies, and

pressure groups that influence and limit

various organizations and individuals in a

given society.

Objective 4 Explain the key changes

in the political and cultural

environments.

108 Part 2 | Understanding the Marketplace and Consumers

Table 3.1 | Major U.S. Legislation Affecting Marketing

Legislation Purpose

Sherman Antitrust Act (1890)

competition in interstate commerce.

Federal Food and Drug Act (1906) Created the Food and Drug Administration (FDA). It forbids the manufacture or sale of

adulterated or fraudulently labeled foods and drugs.

Clayton Act (1914) Supplements the Sherman Act by prohibiting certain types of price discrimination, exclusive

dealing, and tying clauses (which require a dealer to take additional products in a seller’s line).

Federal Trade Commission

Act (1914)

Established the Federal Trade Commission (FTC), which monitors and remedies unfair trade

methods.

Amends the Clayton Act to define price discrimination as unlawful. Empowers the FTC

to establish limits on quantity discounts, forbid some brokerage allowances, and prohibit

promotional allowances except when made available on proportionately equal terms.

Makes deceptive, misleading, and unfair practices illegal regardless of injury to competition.

Places advertising of food and drugs under FTC jurisdiction.

Lanham Trademark Act (1946) Protects and regulates distinctive brand names and trademarks.

National Traffic and Safety Act (1958) Provides for the creation of compulsory safety standards for automobiles and tires.

Fair Packaging and Labeling

Act (1966)

Provides for the regulation of the packaging and labeling of consumer goods. Requires that

manufacturers state what the package contains, who made it, and how much it contains.

Child Protection Act (1966)

Federal Cigarette Labeling and

Advertising Act (1967)

Requires that cigarette packages contain the following statement: “Warning: The Surgeon

General Has Determined That Cigarette Smoking Is Dangerous to Your Health.”

National Environmental

Policy Act (1969)

Establishes a national policy on the environment. The 1970 Reorganization Plan established

the Environmental Protection Agency (EPA).

Consumer Product Safety

Act (1972)

Establishes the Consumer Product Safety Commission and authorizes it to set safety standards

for consumer products as well as exact penalties for failing to uphold those standards.

Act (1975)

Authorizes the FTC to determine rules and regulations for consumer warranties and provides

consumer access to redress, such as the class action suit.

Children’s Television Act (1990) Limits the number of commercials aired during children’s programs.

Nutrition Labeling and

Education Act (1990)

Requires that food product labels provide detailed nutritional information.

Telephone Consumer

Protection Act (1991)

Establishes procedures to avoid unwanted telephone solicitations. Limits marketers’ use of

automatic telephone dialing systems and artificial or prerecorded voices.

Americans with Disabilities

Act (1991)

Makes discrimination against people with disabilities illegal in public accommodations,

transportation, and telecommunications.

Children’s Online Privacy

Protection Act (2000)

Prohibits Web sites or online services operators from collecting personal information from

children without obtaining consent from a parent and allowing parents to review information

collected from their children.

Act (2003)

Authorizes the FTC to collect fees from sellers and telemarketers for the implementation and

Financial Reform Law (2010) Created the Bureau of Consumer Financial Protection, which writes and enforces rules for the

Chapter 3 | Analyzing the Marketing Environment 109 Socially Responsible Behavior.

too

Trailer Program provides free batteries and fl ashlights as

well as charging stations for phones and laptops to people in

The Procter & Gamble Company

110 Part 2 | Understanding the Marketplace and Consumers

and an

The Cultural Environment The cultural environment

The Persistence of Cultural Values

Core

Secondary

Shifts in Secondary Cultural Values

People’s Views of Themselves.

Cultural environment

Institutions and other forces that affect

society’s basic values, perceptions,

preferences, and behaviors.

Chapter 3 | Analyzing the Marketing Environment 111

People’s Views of Others.

mass mingling

out

People’s Views of Organizations.

People’s Views of Society.

USS Constitution

appeals to people who view themselves as outgoing

fashion individualists.

Courtesy of Benjamin Moore Paints

112 Part 2 | Understanding the Marketplace and Consumers

People’s Views of Nature.

People’s Views of the Universe.

Riding the trend toward all things natural: Tom’s of Maine

“makes uncommonly good products that serve the common good.”

Tom’s of Maine

Chapter 3 | Analyzing the Marketing Environment 113 This changing spiritualism affects consumers in everything from the television shows they

watch and the books they read to the products and services they buy.

Responding to the Marketing Environment Someone once observed, “There are three kinds of companies: those who make things

happen, those who watch things happen, and those who wonder what’s happened.”

Many companies view the marketing environment as an uncontrollable element to

which they must react and adapt. They passively accept the marketing environment

and do not try to change it. They analyze environmental forces and design strategies

that will help the company avoid the threats and take advantage of the opportunities

the environment provides.

Other companies take a proactive stance toward the marketing environment. “In- stead of letting the environment define their strategy,” advises one marketing expert,

“craft a strategy that defines your environment.”47 Rather than assuming that strate-

gic options are bounded by the current environment, these firms develop strategies to

change the environment. “Business history . . . reveals plenty of cases in which firms’

strategies shape industry structure,” says the expert, “from Ford’s Model T to Nin-

tendo’s Wii.”

Even more, rather than simply watching and reacting to environmental events, these

firms take aggressive actions to affect the publics and forces in their marketing environ-

ment. Such companies hire lobbyists to influence legislation affecting their industries and

stage media events to gain favorable press coverage. They run “advertorials” (ads express-

ing editorial points of view) and blogs to shape public opinion. They press lawsuits and file

complaints with regulators to keep competitors in line, and they form contractual agree-

ments to better control their distribution channels.

By taking action, companies can often overcome seemingly uncontrollable environ-

mental events. For example, whereas some companies try to hush up negative talk about

their products, others proactively counter false information. Taco Bell did this when its

brand fell victim to potentially damaging claims about the quality of the beef filling in

its tacos.48

When a California woman’s class-action suit questioned whether Taco Bell’s meat filling could

accurately be labeled “beef,” the company’s reaction was swift and decisive. The suit claimed

that Taco Bell’s beef filling is 65 percent binders, extenders, preservatives, additives, and other

agents. It wanted Taco Bell to stop calling it “beef.” But Taco Bell fought back quickly with

a major counterattack campaign, in print and on YouTube and Facebook. In full-page ads in

the Wall Street Journal, the New York Times, and USAToday, the company boldly thanked those behind the lawsuit for giving it the opportunity to tell the “truth” about its “seasoned beef,”

which it claimed contains only quality beef with other ingredients added to maintain the prod-

uct’s flavor and quality. Taco Bell further announced that it would take legal action against

those making the false statements. The company’s proactive counter-campaign quickly

squelched the false information in the lawsuit, which was voluntarily withdrawn only a few

months later.

Marketing management cannot always control environmental forces. In many cases, it

must settle for simply watching and reacting to the environment. For example, a company

would have little success trying to influence geographic population shifts, the economic

environment, or major cultural values. But whenever possible, smart marketing manag-

ers take a proactive rather than reactive approach to the marketing environment (see Real Marketing 3.2).

Objective 5 Discuss how companies

can react to the marketing

environment.

114 Part 2 | Understanding the Marketplace and Consumers

Marketers have hailed the Internet as the

great new relational medium. Companies use

the Web to engage customers, gain insights

into their needs, and create customer com

share their brand experiences with companies

helps both the company and its customers.

But sometimes, the dialog can get nasty.

Consider the following examples:

puter monitor via FedEx, YouTube user

goobie55 posts footage from his security

camera. The video clearly shows a FedEx

delivery man hoisting the monitor package

over his head and tossing it over goobie55’s

front gate, without ever attempting to ring

the bell, open the gate, or walk the package

to the door. The video—with FedEx’s famil

iar purple and orange logo prominently dis

played on everything from the driver’s shirt to

the package and the truck—goes viral with 5

million hits in just five days. TV news and talk

shows go crazy discussing the clip.

Washington, D.C., gets mad when she learns

month fee on debit card users. She starts

a petition on Change.org, declaring: “The

American people bailed out Bank of America

during a financial crisis the banks helped cre

ate. How can you justify squeezing another

$60 a year from your debit card customers?

This is despicable.” In less than a month, the

petition garners more than 300,000 signa

tures from similarly enraged consumers.

Carroll’s damage claim after its baggage han

dlers break his guitar, he produces a catchy

music video, “United Breaks Guitars,” and

posts it on YouTube. “I should’ve flown with

someone else or gone by car,” he despairs

in the video. “‘Cause United breaks guitars.”

The video becomes one of YouTube’s great

est hits—nearly 12 million people have now

viewed it—and causes an instant media

frenzy across major global networks.

crayon drawing of an airplane he’s designed

to Boeing with a suggestion that they might

want to manufacture it, the company re

do not accept unsolicited ideas,” the letter

states. “We regret to inform you that we

have disposed of your message and re

tain no copies.” The embarrassing blunder

would probably go unnoticed were it not for

the fact that Harry’s father—John Winsor, a

prominent ad exec—blogs and tweets about

the incident, making it instant national news.

Extreme events? Not anymore. The Internet

has turned the traditional power relationship be

tween businesses and consumers upside down.

In the good old days, disgruntled consumers

could do little more than bellow at a company

service rep or shout out their complaints from a

street corner. Now, armed with only a PC or a

smartphone, they can take it public, airing their

gripes to millions on blogs, chats, online social

networks, or even hate sites devoted exclusively

to their least favorite corporations.

“I hate” and “sucks” sites are almost

commonplace. These sites target some highly

respected companies with some highly disre

spectful labels: Walmartblows.com; PayPalSucks

.com (aka NoPayPal); IHateStarbucks.com;

DeltaREALLYsucks.com; and UnitedPackage

Smashers.com (UPS), to name only a few.

“Sucks” videos on YouTube and other video

sites also abound. For example, a search of

“Apple sucks” on YouTube turns up 12,900 vid

eos; a similar search for Microsoft finds 17,900

videos. An “Apple sucks” search on Facebook

links to hundreds of groups. If you don’t find

one you like, try “Apple suks” or “Apple sux” for

hundreds more.

Some of these sites, videos, and other

online attacks air legitimate complaints that

should be addressed. Others, however, are

little more than anonymous, vindictive slurs

that unfairly ransack brands and corporate

reputations. Some of the attacks are only a

passing nuisance; others can draw serious at

tention and create real headaches.

How should companies react to on

line attacks? The real quandary for targeted

3.2Real Marketing When the Dialog Gets Nasty: Turning Negatives into Positives

Today’s empowered consumers: Boeing’s embarrassing blunder over young Harry

Winsor’s airplane design made instant national news. However, Boeing quickly took

responsibility and turned the potential PR disaster into a positive.

John Winsor

Chapter 3 | Analyzing the Marketing Environment 115

companies is figuring out how far they can

go to protect their images without fueling the

already raging fire. One point on which all ex-

perts seem to agree: Don’t try to retaliate in

kind. “It’s rarely a good idea to lob bombs at

the fire starters,” says one analyst. “Preemp-

tion, engagement, and diplomacy are saner

tools.”

Some companies have tried to silence

the critics through lawsuits, but few have suc-

ceeded. The courts have tended to regard

such criticism as opinion and, therefore, pro-

tected speech. In general, attempts to block,

counterattack, or shut down consumer at-

tacks may be shortsighted. Such criticisms

are often based on real consumer concerns

and unresolved anger. Hence, the best strat-

egy might be to proactively monitor these

sites and respond to the concerns they ex-

press. “The most obvious thing to do is talk to

the customer and try to deal with the problem,

instead of putting your fingers in your ears,”

advises one consultant.

For example, Boeing quickly took respon-

sibility for mishandling aspiring Harry Winsor’s

designs, turning a potential PR disaster into a

positive. It called and invited young Harry to

visit Boeing’s facilities. On its corporate Twitter

site, it confessed “We’re experts at airplanes

but novices in social media. We’re learning

as we go.” Similarly, FedEx drew praise by

immediately posting its own YouTube video

addressing the monitor-smashing incident.

In the video, FedEx Senior Vice President of

Operations Matthew Thornton stated that he

had personally met with the aggrieved cus-

tomer, who had accepted the company’s

apology. “This goes directly against all FedEx

values,” declared Thornton. The FedEx video

struck a responsive chord. Numerous jour-

nalists and bloggers responded with stories

about FedEx’s outstanding package handling

and delivering record.

Bank of America and United, however,

haven’t fared so well. After Bank of America

finally backed down and reversed the debit

card user fees, an executive eventually called

Katchpole to explain. But by then, it had al-

ready lost her as a customer. And after Dave

Carroll’s YouTube video went platinum, United

belatedly offered to pay for his ruined guitar.

Carroll politely declined but thanked the com-

pany for boosting his career. Today Carroll is a

professional public speaker and author on the

topic of customer service. He also founded

Gripevine.com, “the first online social media

platform for consumer-complaint resolution.”

Perhaps United will soon be a client.

Many companies have now created

teams of specialists that monitor online con-

versations and engage unhappy consumers.

For example, Dell has set up a 40-member

“communities and conversation team,” which

does outreach on Twitter and Facebook and

communicates with bloggers. The social me-

dia team at Southwest Airlines includes a chief

Twitter officer who tracks Twitter comments

and monitors Facebook groups, an online

representative who checks facts and interacts

with bloggers, and another person who takes

charge of the company’s presence on sites

such as YouTube, Flickr, and LinkedIn. So if

someone posts an online complaint, the com-

pany can respond in a personal way.

Thus, by listening and proactively re-

sponding to seemingly uncontrollable events

in the environment, companies can prevent

the negatives from spiraling out of control or

even turn them into positives. Who knows?

With the right responses, Walmart-blows.com

might even become Walmart-rules.com. Then

again, probably not.

Sources: Quotes, excerpts, and other information from Gregory Karp, “United Breaks Guitars Spawns Complaint Site,”

McClatchy-Tribune Business News, February 3, 2012; Nicholas D. Kristof, “After Recess: Change the World,” New

York Times, February 4, 2012, p. SR11; Vanessa Ko, “FedEx Apologizes after Video of Driver Throwing Fragile Pack-

age Goes Viral,” Time, December 23, 2011, http://newsfeed.time.com/2011/12/23/fedex-apologizes-after-video-of-

driver-throwing-fragile-package-goes-viral/; Michelle Conlin, “Web Attack,” BusinessWeek, April 16, 2007, pp. 54–56; “Boeing’s Social Media Lesson,” May 3, 2010, http://mediadecoder.blogs.nytimes.com/2010/05/03/boeings-social-

media-lesson/; Ben Nuckols, “Part-Time Nanny Helps to End Bank of America Fee,” Herald-Sun (Durham), November 4,

2011, p. A4; www.youtube.com/watch?v55YGc4zOqozo and www.youtube.com/watch?v5C5uIH0VTg_o, accessed

June 2012; and “Corporate Hate Sites,” New Media Institute, www.newmedia.org/articles/corporate-hate-sites---

nmi-white-paper.html, accessed September 2012.

Reviewing the Concepts

In this chapter and the next three chapters, you’ll examine the en-

vironments of marketing and how companies analyze these envi-

ronments to better understand the marketplace and consumers.

Companies must constantly watch and manage the marketing

environment to seek opportunities and ward off threats. The mar-

keting environment consists of all the actors and forces influenc-

ing the company’s ability to transact business effectively with its

target market.

Reviewing Objectives and Key Terms

Objectives Review

MyMarketingLab™ Go to www.mymktlab.com to complete the problems marked with this icon .

116 Part 2 | Understanding the Marketplace and Consumers Describe the environmental

forces that affect the company’s

ability to serve its customers. (pp 93–96)

The company’s microenvironment consists of actors close to the

company that combine to form its value delivery network or that

affect its ability to serve its customers. It includes the company’s

internal environment—its several departments and management

levels—as it influences marketing decision making. Marketing

channel firms —suppliers, marketing intermediaries, physical dis

tribution firms, marketing services agencies, and financial inter

mediaries—cooperate to create customer value. Competitors vie

with the company in an effort to serve customers better. Various

publics have an actual or potential interest in or impact on the

company’s ability to meet its objectives. Finally, five types of cus

tomer markets exist: consumer, business, reseller, government,

and international markets.

The macroenvironment consists of larger societal forces that

affect the entire microenvironment. The six forces making up

the company’s macroenvironment are demographic, economic,

natural, technological, political/social, and cultural forces. These

forces shape opportunities and pose threats to the company.

Explain how changes in the

demo graphic and economic

environments affect marketing decisions. (pp 96–104)

Demography is the study of the characteristics of human popula

tions. Today’s demographic environment shows a changing age

structure, shifting family profiles, geographic population shifts, a

ing diversity. The economic environment consists of factors that

affect buying power and patterns. The economic environment is

characterized by more frugal consumers who are seeking greater

value—the right combination of good quality and service at a fair

price. The distribution of income also is shifting. The rich have

grown richer, the middle class has shrunk, and the poor have

Identify the major trends in the

fi rm’s natural and technological

environments. (pp 104–106)

The natural environment shows three major trends: shortages of

certain raw materials, higher pollution levels, and more govern

ment intervention in natural resource management. Environmental

concerns create marketing opportunities for alert companies. The

technological environment creates both opportunities and chal

lenges. Companies that fail to keep up with technological change

will miss out on new product and marketing opportunities.

Explain the key changes

in the political and cultural

environments. (pp 107–113)

The political environment consists of laws, agencies, and groups

that influence or limit marketing actions. The political environ

ment has undergone changes that affect marketing worldwide:

increasing legislation regulating business, strong government

agency enforcement, and greater emphasis on ethics and so

cially responsible actions. The cultural environment consists of

institutions and forces that affect a society’s values, perceptions,

preferences, and behaviors. The environment shows trends to

ward “mass mingling,” a lessening trust of institutions, increasing

patriotism, greater appreciation for nature, a changing spiritual

ism, and the search for more meaningful and enduring values.

Discuss how companies

can react to the marketing

environment. (pp 113–115)

Companies can passively accept the marketing environment as

an uncontrollable element to which they must adapt, avoiding

threats and taking advantage of opportunities as they arise. Or

they can take a proactive stance, working to change the environ

ment rather than simply reacting to it. Whenever possible, com

panies should try to be proactive rather than reactive.

Objective 1

Objective 2

Objective 3

Objective 4

Objective 5

Objective 1 Marketing environment (p 92)

Microenvironment (p 93)

Macroenvironment (p 93)

Marketing intermediaries (p 94)

Public (p 95)

Objective 2 Demography (p 96)

Baby boomers (p 96)

Generation X (p 96)

Millennials (Generation Y) (p 100)

Economic environment (p 103)

Objective 3 Natural environment (p 104)

Environmental sustainability (p 105)

Technological environment (p 106)

Objective 4 Political environment (p 107)

Cultural environment (p 110)

Discussion and Critical Thinking

Discussion Questions

1. Compare and contrast a company’s microenvironment with a company’s macroenvironment. (AACSB: Communication)

2. Describe the five types of customer markets. (AACSB: Communication)

Chapter 3 | Analyzing the Marketing Environment 117

Critical Thinking Exercises

1. The Wall Street Reform and Consumer Protection Act of 2010 created the Consumer Financial Protection Bureau (CFPB).

Learn about this act and the responsibilities of the CFPB, then

write a brief report about how the act impacts businesses and

consumers. (AACSB: Communication; Use of IT)

2. Cause-related marketing has grown considerably over the past 10 years. Visit www.causemarketingforum.com to learn

about companies that have won Halo Awards for outstanding

cause-related marketing programs. Present an award-winning

case study to your class. (AACSB: Communication; Use of IT)

3. Various federal agencies impact marketing activities. Research each of the following agencies, discuss the elements of mar-

keting that are impacted by each agency, and present a recent

marketing case or issue on which each agency has focused.

(AACSB: Communication; Reflective Thinking)

a. Federal Trade Commission (www.ftc.gov)

b. Food and Drug Administration (www.fda.gov)

c. Consumer Product Safety Commission (www.cpsc.gov)

Applications and Cases

Marketing Technology Crowdfunding If you have a great product idea but no money, never fear, there’s

Kickstarter, an online crowdfunding site. Founded in 2008, Kick-

starter enables companies to raise money from multiple individuals

and has helped launch more than 60,000 projects. Pebble Technol-

ogy Corporation created a “smart” wristwatch called Pebble, which

works with iPhones or Android phones, but didn’t have the funding

to produce and market the device. So young CEO Eric Migicovsky

turned to Kickstarter for crowdfunding. His modest goal was to

raise $100,000, but the company raised $1 million in only one day

and a total of $10.27 million in just over one month! Nearly 70,000

people preordered the $115 watch, and Pebble now has to de-

liver on the promise. Kickstarter takes a 5 percent fee on the total

funds raised and Amazon Payments handles the processing of the

funds. Kickstarter charges pledgers’ credit cards and the project

creator receives the funds within only a few weeks. The JOBS Act

legislation signed into law in 2012 provides a legal framework for

this type of financing, which is expected to grow even faster as a

result. However, Kickstarter and similar sites don’t guarantee that

the projects will be delivered as promised, and some people are

concerned that crowdfunding will beget crowdfrauding.

1. Find another crowdfunding site and describe two projects fea- tured on that site. (AACSB: Communication; Use of IT; Reflec-

tive Thinking)

2. Learn more about the JOBS Act and how it impacts crowd- funding for start-up businesses. What protections are in place

for investors with regard to crowdfrauding? (AACSB: Commu-

nication; Use of IT; Reflective Thinking)

3. Compare and contrast core beliefs/values and secondary beliefs/values. Provide an example of each and discuss the

potential impact marketers have on each. (AACSB: Communi-

cation; Reflective Thinking)

4. How should marketers respond to the changing environment? (AACSB: Communication)

Marketing Ethics Targeting Children Online The almost 24 percent of the U.S. population under 18 years old

wields billions of dollars in purchasing power. Companies such

as eBay and Facebook want to capitalize on those dollars—

legitimately, that is. EBay is exploring ways to allow consumers

under 18 years old to set up legitimate accounts to buy and sell

goods. Children already trade on the site, either through their par-

ents’ accounts or through accounts set up after they lie about

their ages. Similarly, even though children under 13 are not al-

lowed to set up Facebook accounts, about 7.5 million of them

have accounts, and nearly 5 million account holders are un-

der 10 years old. That translates to almost 20 percent of U.S.

10-year-olds and 70 percent of 13-year-olds active on Facebook.

Many of these accounts were set up with parental knowledge and

assistance. Both eBay and Facebook say that protections will be

put in place on children’s account and that parents will be able to

monitor to their children’s accounts.

1. Debate the pros and cons of allowing these companies to target children. Are these efforts socially responsible behavior? (AACSB:

Communication; Reflective Thinking; Ethical Reasoning)

2. Review the Children’s Online Privacy Protection Act at www .coppa.org/. Explain how eBay and Facebook can target this

market and still comply with this act. (AACSB: Communica-

tion; Use of IT; Reflective Thinking)

118 Part 2 | Understanding the Marketplace and Consumers

Company Case Xerox: Adapting to the Turbulent Marketing Environment

Xerox introduced the first plain-paper office copier more than

50 years ago. In the decades that followed, the company that in-

vented photocopying flat-out dominated the industry it had created.

The name Xerox became almost generic for copying (as in “I’ll Xerox

this for you”). Through the years, Xerox fought off round after round

of rivals to stay atop the fiercely competitive copier industry. Through

the late 1990s, Xerox’s profits and stock price were soaring.

Then things went terribly wrong for Xerox. The legendary com-

pany’s stock and fortunes took a stomach-churning dive. In only

18 months, Xerox lost some $38 billion in market value. By mid-

2001, its stock price had plunged from almost $70 in 1999 to under

$5. The once-dominant market leader found itself on the brink of

bankruptcy. What happened? Blame it on change or—rather—on

Xerox’s failure to adapt to its rapidly changing marketing environ-

ment. The world was quickly going digital, but Xerox hadn’t kept up.

In the new digital environment, Xerox customers no longer re-

lied on the company’s flagship products—standalone copiers—to

share information and documents. Rather than pumping out and

distributing stacks of black-and-white copies, they created digi-

tal documents and shared them electronically. Or they printed out

multiple copies on their nearby networked printer. On a broader

level, while Xerox was busy perfecting copy machines, customers

were looking for more sophisticated “document management solu-

tions.” They wanted systems that would let them scan documents

in Frankfurt; weave them into colorful, customized showpieces in

San Francisco; and print them on demand in London—even alter-

ing for American spelling.

This left Xerox on the edge of financial disaster. “We didn’t

have any cash and few prospects for making any,” says current

Xerox CEO Ursula Burns. “The one thing you wanted was good

and strong leaders that were aligned and could get us through

things and we didn’t have that.” Burns didn’t realize it at the time,

but she would one day lead the company where she had been

groomed for over 20 years. In fact, she was on the verge of leav-

ing the company when her colleague and friend, Anne Mulcahy,

became CEO and convinced Burns to stay. Burns was then given

charge to start cleaning house.

The Turnaround Begins Task number one: outsource Xerox’s manufacturing. An often

criticized and unpopular move, outsourcing was critical to Xerox’s

cost-saving efforts. Burns oversaw the process in a way that pre-

served quality while achieving the desired cost benefits. And she

did so with the blessing of Xerox’s employee union after convinc-

ing the union that it was either lose some jobs or have no jobs

at all. With the restructuring of manufacturing, Xerox’s workforce

dropped from 100,000 employees to 55,000 in just four years. Al-

though this and other efforts returned Xerox to profitability within

a few years, the bigger question still remained: What business is

Xerox really in?

To answer this question, Xerox renewed its focus on the

customer. Xerox had always focused on copier hardware. But

“we were being dragged by our customers into managing large,

complex business processes for them,” says Burns. Before

Marketing by the Numbers Demographic Trends Do you know Danica from the Philippines, Peter from London,

Nargis from India, Marina from Russia, Chieko from Japan, or

Miran from the United States? These are some of the babies

whose parents claimed they were the 7th billion human born into

the world. The world population continues to grow, even though

women are having fewer children than before. Markets are made

up of people, and to stay competitive, marketers must know

where populations are located and where they are going. The

fertility rate in the United States is declining and the population

is aging, creating opportunities as well as threats for marketers.

That is why tracking and predicting demographic trends are so

important in marketing. Marketers must plan to capitalize on op-

portunities and deal with the threats before it is too late.

1. Develop a presentation on a specific demographic trend in the United States. Explain the reasons behind this trend and dis-

cuss the implications for marketers. (AACSB: Communication;

Analytical Reasoning)

2. Discuss global demographic trends. What are the implications of those trends and how should marketers respond to them?

(AACSB: Communication; Reflective Thinking)

Video Case Ecoist At least one company has taken the old phrase “One man’s trash

is another man’s treasure” and turned it into a business model.

Ecoist is a company that uses discarded packaging materials

from multinational brands like Coca-Cola, Frito-Lay, Disney, and

Mars to craft high-end handbags that would thrill even the most

discriminating fashionistas.

When the company first started in 2004, consumer percep-

tions of goods made from recycled materials weren’t very posi-

tive. This video describes how Ecoist found opportunity in a

growing wave of environmentalism. Not only does Ecoist capital-

ize on low-cost materials and the brand images of some of the

world’s major brands, it comes out smelling like a rose as it saves

tons of trash from landfills.

After viewing the video featuring Ecoist, answer the following

questions:

1. How engaged was Ecoist in analyzing the marketing environ- ment before it launched its first company?

2. What trends in the marketing environment have contributed to the success of Ecoist?

3. Is Ecoist’s strategy more about recycling or about creating value for customers? Explain.

Chapter 3 | Analyzing the Marketing Environment 119 developing new products, Xerox researchers held seemingly end-

less customer focus groups. Sophie Vandebroek, Xerox’s chief

technology officer, called this “dreaming with the customer.” The

goal, she argued, was “involving [Xerox] experts who know the

technology with customers who know the pain points. . . .Ulti-

mately innovation is about delighting the customer.” Xerox was

discovering that understanding customers is just as important as

understanding technology.

What Xerox learned is that customers didn’t want just copi-

ers; they wanted easier, faster, and less costly ways to share

documents and information. As a result, the company had to re-

think, redefine, and reinvent itself. Xerox underwent a remarkable

transformation. It stopped defining itself as a “copier company.”

In fact, it even stopped making standalone copiers. Instead, Xe-

rox began billing itself as the world’s leading document manage-

ment technology and services enterprise. The company’s newly

minted mission was to help companies “be smarter about their

documents.”

This shift in emphasis created new customer relationships, as

well as new competitors. Instead of selling copiers to equipment

purchasing managers, Xerox found itself developing and selling

document management systems to high-level information tech-

nology (IT) managers. Instead of competing head-on with copy

machine competitors like Sharp, Canon, and Ricoh, Xerox was

now squaring off against IT companies like HP and IBM. Although

it encountered many potholes along the way, the company once

known as the iconic “copier company” became increasingly

comfortable with its new identity as a document management

company.

Building New Strengths Xerox’s revenue, profits, and stock price began to show signs

of recovery. But before it could declare its troubles over, yet an-

other challenging environmental force arose—the Great Reces-

sion. The recession severely depressed Xerox’s core printing and

copying equipment and services business, and the company’s

sales and stock price tumbled once again. So in a major move to

maintain its transition momentum, Xerox acquired Affiliated Com-

puter Services (ACS), a $6.4-billion IT services powerhouse with

a foot in the door of seemingly every back office in the world. The

expertise, capabilities, and established channels of ACS were just

what Xerox needed to take its new business plan to fruition.

The synergy between Xerox, ACS, and other acquired compa-

nies has resulted in a broad portfolio of customer-focused prod-

ucts, software, and services that help the company’s customers

manage documents and information. In fact, Xerox has intro-

duced more than 130 innovative new products in the past four

years alone. It now offers digital products and systems ranging

from network printers and multifunction devices to color printing

and publishing systems, digital presses, and “book factories.” It

also offers an impressive array of print management consulting

and outsourcing services that help businesses develop online

document archives, operate in-house print shops or mailrooms,

analyze how employees can most efficiently share documents

and knowledge, and build Internet-based processes for person-

alizing direct mail, invoices, and brochures.

These new products have allowed Xerox to supply solutions

to clients, not just hardware. For example, it has a new device

for insurance company customers—a compact computer with

scanning, printing, and Internet capabilities. Instead of relying

on the U.S. Postal Service to transport hard copies of claims,

these and related documents are scanned on-site, sorted,

routed, and put immediately into a workflow system. This isn’t

just a fancy new gadget for the insurance companies. They are

seeing real benefits. Error rates have plummeted along with pro-

cessing time, and that means increases in revenues and cus-

tomer satisfaction.

Dreaming Beyond Its Boundaries With the combination of Xerox’s former strengths and its new

acquisitions, Burns and the rest of the Xerox team now have a

utopian image of what lies ahead. They believe the tools and ser-

vices they offer clients are getting smarter. “It’s not just processing

Medicaid payments,” says Stephen Hoover, director of Xerox’s

research facilities. “It’s using our social cognition research to add

wellness support that helps people better manage conditions like

diabetes.” Hoover adds that the future may see a new generation

of Xerox devices, such as those that can analyze real-time park-

ing and traffic data for municipal customers, allowing them to help

citizens locate parking spots or automatically ticket them when

they are going too fast. Already, Xerox is market testing parking

meters that are capable of calling 911 or taking photos when a

button is pushed. Not all products such as these will hit the mar-

ket, but Xerox now has a model that allows it to dream beyond

its known boundaries.

Throughout this corporate metamorphosis, Xerox isn’t fo-

cused on trying to make better copiers. Rather, it is focused on

improving any process that a business or government needs to

perform and perform it more efficiently. Xerox’s new-era machines

have learned to read and understand the documents they scan,

reducing complex tasks that once took weeks down to minutes

or even seconds. From now on, Xerox wants to be a leading

global document management and business-process technology

and services provider.

With all the dazzling technologies emerging today, Burns ac-

knowledges that the business services industry in which Xerox is

developing its new core competencies is decidedly unsexy. But,

she also points out, “These are processes that a company needs

to run their business. They do it as a sideline; it’s not their main

thing.” Her point is, running these business processes is now Xe-

rox’s main thing. In other words, Xerox provides document and IT

services to customers so that the customers can focus on what

matters most—their real businesses.

Xerox’s transition is still a work in progress. Over the last three

years, the company’s revenues and profits have been growing

modestly while its stock price has fluctuated. Just as e-mail and

desktop software killed photocopying, smartphones and tablets

are killing inkjet and photo printers. Even with the recent diversi-

fication strategy, Xerox still relies to some extent on these copier

and printer product categories. But it depends much less on

such products than competitors Hewlett-Packard and Lexmark

International do. Thus, experts predict, Xerox will rebound much

more quickly than its rivals in the coming years. Burns and crew

are also confident that as Xerox continues its transition to a solu-

tions provider, the seeds it has planted over the past few years

will soon bear fruit.

Xerox knows that change and renewal are ongoing and never-

ending. “The one thing that’s predictable about business is that

it’s fundamentally unpredictable,” says the company’s annual

report. “Macroforces such as globalization, emerging technolo-

gies, and, most recently, depressed financial markets bring new

challenges every day to businesses of all sizes.” The message is

clear. Even the most dominant companies can be vulnerable to

the often turbulent and changing marketing environment. Com-

panies that understand and adapt well to their environments can

thrive. Those that don’t risk their very survival.

120 Part 2 | Understanding the Marketplace and Consumers Questions for Discussion 1. What microenvironmental factors have affected Xerox’s perfor-

mance since the late 1990s?

2. What macroenvironmental factors have affected Xerox’s per- formance during that same period?

3. By focusing on the business services industry, has Xerox pur- sued the best strategy? Why or why not?

4. What alternative strategy might Xerox have followed in re- sponding to the first signs of declining revenues and profits?

5. Given Xerox’s current situation, what recommendations would you make to Burns for the future of Xerox?

Sources: Quotes and other information from or adapted from Ellen McGirt, “Fresh Copy: How Ursula Burns Reinvented Xerox,” Fast Com-

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ursula-burns-xerox; “Xerox Expands Electronic Discovery Services Offer-

ings with Acquisition of Lateral Data,” Business Wire, July 2, 2012, www

.bloomberg.com/article/2012-07-02/aNQNfEipo9Lk.html; Scott Gamm,

“Xerox Works to Duplicate Copier Glory in Digital Services Model,” Forbes,

July 19, 2012, www.forbes.com/sites/scottgamm/2012/07/19/xerox-

works-to-duplicate-copier-glory-in-digital-services-model/; Richard Wa-

ters, “Xerox Chief Sets Out the Big Picture,” Financial Times, May 6, 2010, p. 16; Geoff Colvin, “Ursula Burns Launches Xerox into the Future,” Fortune,

May 3, 2010, p. 5; and annual reports and other information at www.xerox

.com, accessed July 2012.

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education.html; and U.S. Department of Labor, “Employment Projec-

tions: 2010-2020 Summary,” February 1, 2012, www.bls.gov/ooh/.

24. See U.S. Census Bureau, “U.S. Population Projections,” www .census.gov/population/www/projections/summarytables.html,

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Population by Nativity and US Citizenship Status,” www.census

.gov/population/www/socdemo/foreign/cps2008.html.

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26. “America’s LGBT 2012 Buying Power Projected at $790 Billion,” Echelon Magazine, March 27, 2012, www.echelonmagazine.com/

index.php?id�2597&title�America%60s_LGBT_2012_Buying_

Power_Projected_at_$790_Billion.

27. See Brandon Miller, “And the Winner Is . . .” Out Traveler, Winter 2008, pp. 64–65; Bradley Johnson, “Why (and How) You Should

Go after the Gay Dollar,” Advertising Age, October 11, 2010, p. 22;

Tanya Irwin, “American Airlines, GayCities Partner for Promo,” Mar-

keting Daily, January 15, 2012, www.mediapost.com/publications/

article/165789/american-airlines-gaycities-partner-for-promo.html;

and www.aa.com/rainbow, accessed November 2012.

28. Witeck-Combs Communications, “America’s Disability Market at a Glance,” Andrew Adam Newman, “Web Marketing to a Segment

Too Big to Be a Niche,” New York Times, October 30, 2007, p. 9;

Kenneth Hein, “The Invisible Demographic,” Brandweek, March 3,

2008, p. 20; Tanya Mohn, “Smoothing the Way,” New York Times, April 26, 2010, www.nytimes.com; and www.disability-marketing

.com/facts/, accessed May 2011.

29. See Alex Taylor III, “Tata Takes on the World: Building an Auto Em- pire in India,” Fortune, May 2, 2011, pp. 87–92; and http://tatanano

.inservices.tatamotors.com/tatamotors/, accessed November 2012.

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www.census.gov/prod/2011pubs/p60-239.pdf; and “The Growing

Wealth Gap,” Fortune, November 7, 2011, p. 28.

31. See “Warm Weather Puts Chill on Brands’ Winters,” Advertising Age, February 19, 2012, http://adage.com/print/232824; and Alex

Taylor III, “Toyota’s Comeback Kid,” Fortune, February 27, 2012,

pp. 72–79.

32. The 2030 Water Resources Group, “Charting Our Water Future: Ex- ecutive Summary,” 2009, www.mckinsey.com/clientservice/water/

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34. Maid Napolitano, “RFID Surges Ahead,” Materials Handling, April 2012, pp. S48–S50.

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Shoe Brand Extra Shine,” Wall Street Journal, April 1, 2010, p. D7;

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36. Emily Steel, “Cause-Tied Marketing Requires Care,” Wall Street Journal, March 21, 2011, p. B4.

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.com, May 2011, http://trendwatching.com/trends/pdf/trendwatching

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39. “The F-Factor,” Trendingwatching.com, p. 1. 40. Laura Feldmann, “After 9/11 Highs, America’s Back to Good Ol’ Pa-

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41. See Stuart Elliott, “This Column Was 100% Made in America,” New York Times, February 15, 2012; and Jeff Bennett and Suzanne

Vranica, “Chrysler Dealers Defend ‘Halftime in America’ Ad,” Wall

Street Journal, February 9, 2012, http://online.wsj.com/article/

SB10001424052970204136404577211391719237160.html.

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taco-bell/53157494/1.

chatter and solicited thousands of direct consumer feedback

messages via Facebook, Twitter, and other social media. Then,

based on insights it gained online, Domino’s launched a wave

of good old-fashioned, tried-and-true focus groups to engage

customers directly in face-to-face conversations.

The online feedback and focus group results were as dif-

ficult to digest as a cold Domino’s pizza. The most common

complaint: Domino’s pizza crust “tasted like cardboard.”

But that was just the beginning. One after another, pizza lov-

ers panned Domino’s pies with biting comments such as

“Totally devoid of flavor.” “The sauce tastes like ketchup.”

“Worst excuse for pizza I’ve ever had.” “Processed cheese!!”

Part 1: Defining Marketing and the Marketing Process (Chapters 1–2)

Part 2: Understanding the Marketplace and Consumers (Chapters 3–6)

Part 3: Designing a Customer-Driven Strategy and Mix (Chapters 7–17)

Part 4: Extending Marketing (Chapters 18–20)

Managing Marketing Information to Gain Customer Insights

Chapter Preview In this chapter, we continue

our exploration of how mar-

keters gain insights into consumers and the marketplace. We look

at how companies develop and manage information about impor-

tant marketplace elements: customers, competitors, products,

and marketing programs. To succeed in today’s marketplace,

companies must know how to turn mountains of marketing in-

formation into fresh customer insights that will help them deliver

greater value to customers.

Let’s start with a story about marketing research and cus-

tomer insights in action. Good marketing research can involve

a rich variety of sophisticated data collection and analysis tech-

niques. But sometimes research is as simple as just talking with

customers directly, listening openly to what they have to say, and

using those insights to develop better products and marketing.

That’s how Domino’s Pizza turned a five-year revenue slide into a

fresh, hot turnaround.

Domino’s Pizza: Listening to Consumers and Letting Them Know You Heard Them

A fter five years of stagnant or declining revenues,

Domino’s Pizza did something practically unheard

of in the business world. “First,” says an industry

observer, “it asked customers for honest feedback.

Second, it actually listened to the painful truth [punctuated by

words like “cardboard crust” and “totally devoid of flavor”].

Finally—and here’s the most shocking part—the company

reinvented its product ‘from the crust up.’” What follows is

the full story behind Domino’s impressive “Pizza Turnaround”

campaign.

The turnaround began with marketing research to under-

stand what customers thought and wanted. Industry research

showed that although Domino’s was tops in service, conve-

nience, and value for the money, it trailed far behind

competitors in taste. One taste preference

survey placed Domino’s dead last, tied

with—of all possibilities—Chuck E.

Cheese, a competitor not known for

culinary excellence.

To gain deeper insights into

what consumers really thought

about its pizzas, Domino’s turned to

research using social media channels and

focus groups. It monitored consumer online

When consumer research turned up

painful truths about its pizza (“cardboard crust,” “totally devoid of flavor”), Domino’s completely reformulated its product and launched its startlingly honest, highly successful Pizza Turnaround

campaign. Thanks to the research insights, says the CEO, “We’re a new Domino’s.”

Chapter 4 | Managing Marketing Information to Gain Customer Insights 123

Advertising Age Brandweek

When online and focus

group research showed

that pizza lovers thought

Domino’s pizza “tasted

like cardboard” (and

worse), the company

threw out the recipe and

reinvented its pizza from

the ground up. “Oh Yes

We Did.”

Dominoes Pizza, LLC

124 Part 2 | Understanding the Marketplace and Consumers

As the Domino’s story

use customer and market insights

Marketing Information and Customer Insights

Objective Outline

Objective 1 Explain the importance of information in gaining insights about the marketplace and customers.

Marketing Information and Customer Insights (pp 124–125)

Objective 2 Defi ne the marketing information system and discuss its parts.

Assessing Marketing Information Needs (pp 125–126)

Developing Marketing Information (pp 126–128)

Objective 3 Outline the steps in the marketing research process.

Marketing Research (pp 128–141)

Objective 4 Explain how companies analyze and use marketing information.

Analyzing and Using Marketing Information (pp 141–144)

Objective 5 Discuss the special issues some marketing researchers face, including public policy and ethics issues.

Other Marketing Information Considerations (pp 144–148)

Objective 1 Explain the importance of

information in gaining insights

about the marketplace and

customers.

Chapter 4 | Managing Marketing Information to Gain Customer Insights 125

more better use

customer insights

customer insights teams

use

marketing

information system (MIS)

Figure 4.1

assess information needs develop needed information

ana lyze and use

Assessing Marketing Information Needs

like need feasible

Key customer insights, plus a dash of Apple’s design

and usability magic, have made the iPod a blockbuster.

It now captures a more than 78 percent market share

and has spawned other Apple blockbusters such as the

iPhone and iPad.

Newscom

Customer insights

Fresh understandings of customers

and the marketplace derived from

marketing information that become the

basis for creating customer value and

relationships.

Marketing information system (MIS)

People and procedures dedicated to

assessing information needs, developing

the needed information, and helping

decision makers to use the information

to generate and validate actionable

customer and market insights.

Objective 2 Defi ne the marketing information

system and discuss its parts.

126 Part 2 | Understanding the Marketplace and Consumers

Developing Marketing Information internal data marketing intelligence

marketing research

Internal Data internal databases

Marketing managers and other information users

Marketing environment

Marketing information system

This chapter is all about managing marketing information to gain customer insights. And this important figure organizes the entire chapter. Marketers start by assessing user information needs. Then they develop the needed information using internal data, marketing intelligence, and marketing research processes. Finally they make the information available to users in the right form at the right time.

Internal databases

Electronic collections of consumer and

market information obtained from data

sources within the company network.

Internal data: Financial services provider USAA uses its

extensive database to tailor its services to the specifi c needs of

individual customers, creating incredible loyalty.

Courtney Young

FIGURE | 4.1

The Marketing

Information System

Chapter 4 | Managing Marketing Information to Gain Customer Insights 127

Competitive Marketing Intelligence Competitive marketing intelligenceCompetitive marketing

intelligence

The systematic collection and analysis

of publicly available information

about consumers, competitors,

and developments in the marketing

environment.

Mission control: PepsiCo’s Gatorade brand has created an extensive control

The Gatorade Company

128 Part 2 | Understanding the Marketplace and Consumers knew to bulk up on production of its recovery drinks because of complaints they were selling out.

Beyond just monitoring social media conversations, the Mission Control team sometimes joins

them, as when staffers recently jumped into a Facebook conversation to answer a poster’s ques-

tions about where to buy products.

Many companies have even appointed chief listening officers, who are charged with sifting through online customer conversations and passing along key insights to market-

ing decision makers. Dell created a position called Listening Czar two years ago. “Our chief listener is critical to making sure that the right people in the organization are aware

of what the conversations on the Web are saying about us, so the relevant people in the

business can connect with customers,” says a Dell marketing executive.7

Companies also need to actively monitor competitors’ activities. Firms use competi-

tive marketing intelligence to gain early warnings of competitor moves and strategies,

new product launches, new or changing markets, and potential competitive strengths

and weaknesses. Much competitor intelligence can be collected from people inside the

company— executives, engineers and scientists, purchasing agents, and the sales force. The

company can also obtain important intelligence information from suppliers, resellers, and

key customers. It can monitor competitors’ Web sites and use the Internet to search specific

competitor names, events, or trends and see what turns up. And tracking consumer conver-

sations about competing brands is often as revealing as tracking conversations about the

company’s own brands.

Intelligence seekers can also pour through any of thousands of online databases. Some

are free. For example, the U.S. Security and Exchange Commission’s database provides a

huge stockpile of financial information on public competitors, and the U.S. Patent Office

and Trademark database reveals patents that competitors have filed. For a fee, companies

can also subscribe to any of the more than 3,000 online databases and information search

services, such as Hoover ’s, LexisNexis, and Dun & Bradstreet. Today’s marketers have

an almost overwhelming amount of competitor information only a few keystrokes away.

The intelligence game goes both ways. Facing determined competitive marketing intel-

ligence efforts by competitors, most companies are now taking steps to protect their own in-

formation. For example, Apple is obsessed with secrecy, and it passes that obsession along

to its employees. “At Apple everything is a secret,” says an insider. “Apple wants new

products to remain in stealth mode until their release dates.” Information leaks about new

products before they are introduced gives competition time to respond, raises customer

expectations, and can steal thunder and sales from current products. So Apple employees

are taught a “loose-lips-sink-ships” mentality: A T-shirt for sale in the company store reads,

“I visited the Apple campus, but that’s all I’m allowed to say.”8

The growing use of marketing intelligence also raises ethical issues. Some intelligence

gathering techniques may involve questionable ethics. Clearly, companies should take ad-

vantage of publicly available information. However, they should not stoop to snoop. With

all the legitimate intelligence sources now available, a company does not need to break the

law or accepted codes of ethics to get good intelligence.

Marketing Research In addition to marketing intelligence information about general consumer, competitor, and

marketplace happenings, marketers often need formal studies that provide customer and

market insights for specific marketing situations and decisions. For example, Budweiser

wants to know what appeals will be most effective in its Super Bowl advertising. Yahoo! wants

to know how Web searchers will react to a proposed redesign of its site. Or Samsung wants to

know how many and what kinds of people will buy its next-generation, ultrathin televisions.

In such situations, managers will need marketing research.

Marketing research is the systematic design, collection, analysis, and reporting of

data relevant to a specific marketing situation facing an organization. Companies use mar-

keting research in a wide variety of situations. For example, marketing research gives mar-

keters insights into customer motivations, purchase behavior, and satisfaction. It can help

them to assess market potential and market share or measure the effectiveness of pricing,

product, distribution, and promotion activities.

Some large companies have their own research departments that work with mar-

keting managers on marketing research projects. In addition, these companies—like

Objective 3 Outline the steps in the

marketing research process.

Marketing research

The systematic design, collection,

analysis, and reporting of data relevant to

a specific marketing situation facing an

organization.

Chapter 4 | Managing Marketing Information to Gain Customer Insights 129

This first step is probably the most difficult but also the most important one. It guides the entire research process. It’s frustrating to reach the end of an expensive research project only to learn that you’ve addressed the wrong problem!

Figure 4.2

Defi ning the Problem and Research Objectives

exploratory research

descriptive research

causal research

Developing the Research Plan

Exploratory research

Marketing research to gather preliminary

information that will help define problems

and suggest hypotheses.

Descriptive research

Marketing research to better describe

marketing problems, situations,

or markets, such as the market potential

for a product or the demographics and

attitudes of consumers.

Causal research

Marketing research to test hypotheses

FIGURE | 4.2

The Marketing Research

Process

130 Part 2 | Understanding the Marketplace and Consumers

written proposal

A decision by Red Bull to add a line of enhanced waters to its already successful

mix of energy drinks would call for marketing research that provides lots of specifi c

information.

Jarrod Weaton/Weaton Digital, Inc.

Secondary data

Primary data

Gathering Secondary Data

commercial online databases

Internet search engines

Secondary data

Information that already exists

somewhere, having been collected for

another purpose.

Primary data

Information collected for the specific

purpose at hand.

Chapter 4 | Managing Marketing Information to Gain Customer Insights 131

relevant accurate

current impartial

Primary Data Collection

Table 4.1

research approaches contact methods sam pling plan research instruments

Research Approaches

Observational Research. Observational research

Consumer database services such as Experian Simmons

sell an incredible wealth of information on everything from the

products consumers buy and the brands they prefer to their

lifestyles, attitudes, and media preferences. Experian Simmons

“provides the most comprehensive view of the American

consumer.”

Experian Simmons

Table 4.1 | Planning Primary Data Collection

Research Approaches

Contact Methods

Sampling Plan

Research Instruments

Observation Mail Sampling unit Questionnaire

Survey Telephone Sample size Mechanical instruments

Experiment Personal Sampling procedure

Online

Observational research

Gathering primary data by observing

relevant people, actions, and situations.

132 Part 2 | Understanding the Marketplace and Consumers

ethnographic research

Netnography

Survey Research. Survey research

Ethnographic research: To better understand the needs of the world’s poor, P&G sends

researchers trekking through the jungles of Brazil, the slums of India, and farming villages

in rural China to observe consumers in their “natural environments.” Here, they watch

Chinese potato farmer Wei Xiao Yan wash her long black hair with great care using only

three cups of water.

Benjamin Lowy/Getty Images

Ethnographic research

A form of observational research that

involves sending trained observers to

watch and interact with consumers in

their “natural environments.”

Survey research

Gathering primary data by asking people

questions about their knowledge,

attitudes, preferences, and buying

behavior.

Chapter 4 | Managing Marketing Information to Gain Customer Insights 133

Experimental Research. experimental research

Contact Methods Table 4.2

Mail, Telephone, and Personal Interviewing. Mail questionnaires

Experimental research

Gathering primary data by selecting

matched groups of subjects, giving them

different treatments, controlling related

factors, and checking for differences in

group responses.

Table 4.2 | Strengths and Weaknesses of Contact Methods

Mail Telephone Personal Online

Flexibility Poor Good Excellent Good

Quantity of data that

can be collected

Good Fair Excellent Good

Control of interviewer

effects

Excellent Fair Poor Fair

Control of sample Fair Excellent Good Excellent

Speed of data collection Poor Excellent Good Excellent

Response rate Poor Poor Good Good

Cost Good Fair Poor Excellent

Source: Based on Donald S. Tull and Del I. Hawkins, Marketing Research: Measurement and Method, 7th ed.

(New York: Macmillan Publishing Company, 1993). Adapted with permission of the authors.

134 Part 2 | Understanding the Marketplace and Consumers

who

Telephone interviewing

Personal interviewing Individual interviewing

Group interviewing

focus group interviewing

immersion groups

Focus group interviewing

Personal interviewing that involves inviting

6 to 10 people to gather for a few hours

with a trained interviewer to talk about

a product, service, or organization.

The interviewer “focuses” the group

discussion on important issues.

Chapter 4 | Managing Marketing Information to Gain Customer Insights 135

Online Marketing Research.

online marketing research

quantitative

New focus group environments: Lexus USA general manager Mark Templin hosts

“An Evening with Lexus” dinners with luxury car buyers to fi gure out why they did or

didn’t become Lexus owners.

Courtesy of Lexus

Online marketing research

Collecting primary data online through

Internet surveys, online focus groups,

consumers’ online behavior.

136 Part 2 | Understanding the Marketplace and Consumers

qualitative

online focus groups

Online research: Thanks to survey services such as Snap Surveys, almost any business,

large or small, can create, publish, and distribute its own custom online or mobile surveys

in minutes.

Snap Surveys

Online focus groups: FocusVision’s InterVu service lets focus group participants at

FocusVision Worldwide, Inc.

Online focus groups

Gathering a small group of people online

with a trained moderator to chat about

a product, service, or organization and

gain qualitative insights about consumer

attitudes and behavior.

Chapter 4 | Managing Marketing Information to Gain Customer Insights 137

Sampling Plan

sample

who sam pling unit

how many sample size

how chosen sampling procedure Table 4.3 probability samples

nonprobability

Sample

A segment of the population selected

for marketing research to represent the

population as a whole.

Table 4.3 | Types of Samples

Probability Sample

Simple random sample Every member of the population has a known and equal chance of selection.

Stratified random sample The population is divided into mutually exclusive groups (such as age groups), and random samples

are drawn from each group.

Cluster (area) sample The population is divided into mutually exclusive groups (such as blocks), and the researcher draws

a sample of the groups to interview.

Nonprobability Sample

Convenience sample The researcher selects the easiest population members from which to obtain information.

Judgment sample The researcher uses his or her judgment to select population members who are good prospects for

accurate information.

Quota sample The researcher finds and interviews a prescribed number of people in each of several categories.

138 Part 2 | Understanding the Marketplace and Consumers

Thanks to the burgeoning world of blogs,

social networks, and other Internet forums,

to a flood of online consumer information.

It’s all there for the digging—praise, criticism,

recommendations, actions—revealed in what

consumers are saying and doing as they ply

now mining valuable customer insights from

up” information.

Whereas traditional marketing research

provides more logical consumer responses

to structured and intrusive research ques

tions, online listening provides the passion

and spontaneity of unsolicited consumer

opinions.

Listening online might involve something

as simple as scanning customer reviews on

the company’s brand site or on popular shop

ping sites such as Amazon.com or BestBuy.

com. Such reviews are plentiful, address spe

cific products, and provide unvarnished cus

tomer reactions. If customers in the market for

a company’s brands are reading and reacting

to such reviews, so should the company’s

marketers.

At a deeper level, marketers now em

listen in on and mine nuggets from the

churning mass of consumer comments and

conversations in blogs, news articles, online

forums, and social networking sites such as

Facebook or Twitter. But beyond monitoring

what customers are saying about them on

line, companies are also watching what cus

tomers are doing online. Marketers scrutinize

detail and use the resulting insights to per

sonalize shopping experiences.

For example, based on her current and

past browsing behavior, a customer check

ing out shoes at a favorite online apparel

site might also receive unsolicited “just for

you” suggestions for matching accessories

tailored to her specific needs and tastes.

Her online shopping experience might also

depend on other browsing behaviors. For in

stance, more leisurely browsers—say, those

shopping from home and spending lots of

time on each screen—might see more vid

eos, features, and product descriptions.

Those whose browsing behavior suggests

that they might be in a hurry—say, shopping

from work and clicking rapidly from screen to

screen—might see simpler pages and more

direct paths to checkout.

More broadly, information about what

consumers do while trolling the vast ex

panse of the Internet—what searches they

make, the sites they visit, what music and

programming they consume, how they

shop, and what they buy—is pure gold to

marketers. And today’s marketers are busy

mining that gold.

On the Internet today, everybody knows

who you are. In fact, legions of Internet

companies know your gender, your age,

the neighborhood you live in, what you are

saying on Facebook and Twitter, that you

like pickup trucks, and that you spent, say,

three hours and 43 seconds on a Web site

for pet lovers on a rainy day in January. All

that data streams through myriad computer

networks, where it’s sorted, cataloged, ana

lyzed, and then used to deliver ads aimed

squarely at you, potentially

anywhere you travel on the

Internet. It’s called behavioral

targeting—tracking consum

ers’ online behavior and us

ing it to target ads to them.

So, for example, if you place

a mobile phone in your Ama

zon.com shopping cart but

don’t buy it, you might expect

to see some ads for that very

type of phone the next time

you visit your favorite ESPN

site to catch up on the latest

sports scores.

All this is amazing

enough, but the newest

wave of Web analytics and

targeting takes online eaves

dropping even further—from

behavioral targeting to so

cial targeting. Whereas be

havioral targeting tracks

consumer movements across online sites,

social targeting also mines individual online

social connections and conversations. Re

search shows that consumers shop a lot like

their friends and are five times more likely

to respond to ads from brands friends use.

Social targeting links customer data to so

cial interaction data from social networking

sites.

So, instead of just having a Zappos.com

ad for running shoes pop up because you’ve

recently searched for running shoes (behav

ioral targeting), an ad for a specific pair of

running shoes pops up because a friend that

you’re connected to via Twitter just bought

those shoes from Zappos.com last week

(social targeting). Social targeting can even

tions. For example, more than just targeting

fans and car enthusiasts, Chevrolet made its

ad message more relevant by targeting those

consumers while they are talking about foot

ball on a mobile Twitter app during the Super

Bowl. When they checked the app, targeted

consumers saw an ad that prompted them

to check out Chevy’s Super Bowl video on

YouTube.

Online listening. Behavioral targeting.

Social targeting. All of these are great for

marketers as they work to mine customer

insights from the massive amounts of con

sumer information swirling around the Inter

net. The biggest question? You’ve probably

4.1Real Marketing Listening Online: Sophisticated Web Research or Just a Little Bit Creepy?

Marketers watch what consumers say and do online,

then use the resulting insights to personalize online

shopping experiences. Is it sophisticated Web research

or “just a little creepy”?

Andresr/Shutterstock.com

Chapter 4 | Managing Marketing Information to Gain Customer Insights 139

already guessed it. As marketers get more

adept at trolling blogs, social networks, and

other Internet domains, what happens to

consumer privacy? Yup, that’s the down-

side. At what point does sophisticated on-

line research cross the line into consumer

stalking?

Proponents claim that behavioral and

social targeting benefit more than abuse

consumers by feeding back ads and prod-

ucts that are more relevant to their inter-

ests. But to many consumers and public

advocates, following consumers online and

stalking them with ads feels more than just

a little creepy. Regulators and others are

stepping in. The FTC has recommended

the creation of a “Do Not Track” system

(the Internet equivalent to the “Do Not Call”

registry)—which would let people opt out

of having their actions monitored online—

while some Internet browsers have heeded

the concerns by adding “Do Not Track”

features.

Despite such concerns, however, on-

line listening will continue to grow and to get

smarter. And, with appropriate safeguards,

it promises benefits for both companies and

Sources: Adapted excerpts, quotes, and other information from Amit Avner, “How Social Targeting Can Lead to

Discovery,” Adotas, February 7, 2012, www.adotas.com/2012/02/how-social-targeting-can-lead-to-discovery/;

Stephen Baker, “The Web Knows What You Want,” BusinessWeek, July 27, 2009, p. 48; Brian Morrissey, “Connect

the Thoughts,” Adweek, June 29, 2009, pp. 10–11; Paul Sloan, “The Quest for the Perfect Online Ad,” Business 2.0,

March 2007, p. 110; Elizabeth A. Sullivan, “10 Minutes with Kristin Bush,” Marketing News, September 30, 2009,

pp. 26–28; and Edward Wyatt and Tanzina Vega, “Conflict over How Open ‘Do Not Track’ Talks Will Be,” New York

Times, March 30, 2012, p. B3.

customers. Tapping into online conversa-

tions and behavior lets companies hear the

unprompted voice of customers, providing

valuable insights into real consumer feelings,

values, and brand perceptions. Companies

that can figure out how to tap online con-

sumer conversations in a meaningful way will

gain a substantial advantage over competitors

who turn a deaf ear.

samples, even though their sampling error cannot be measured. These varied ways of drawing samples have different costs and time limitations as well as different accuracy

and statistical properties. Which method is best depends on the needs of the research

project.

Research Instruments In collecting primary data, marketing researchers have a choice of two main research instru-

ments: questionnaires and mechanical devices.

Questionnaires. The questionnaire is by far the most common instrument, whether ad- ministered in person, by phone, by e-mail, or online. Questionnaires are very flexible—

there are many ways to ask questions. Closed-end questions include all the possible

answers, and subjects make choices among them. Examples include multiple-choice ques-

tions and scale questions. Open-end questions allow respondents to answer in their own

words. In a survey of airline users, Southwest Airlines might simply ask, “What is your

opinion of Southwest Airlines?” Or it might ask people to complete a sentence: “When

I choose an airline, the most important consideration is. . . .” These and other kinds of

open-end questions often reveal more than closed-end questions because they do not limit

respondents’ answers.

Open-end questions are especially useful in exploratory research, when the researcher

is trying to find out what people think but is not measuring how many people think in a certain way. Closed-end questions, on the other hand, provide answers that are easier to

interpret and tabulate.

Researchers should also use care in the wording and ordering of questions. They should use simple, direct, and unbiased wording. Questions should be arranged in a logical or-

der. The first question should create interest if possible, and difficult or personal questions

should be asked last so that respondents do not become defensive.

Mechanical Instruments. Although questionnaires are the most common research in- strument, researchers also use mechanical instruments to monitor consumer behavior.

Nielsen Media Research attaches people meters to television sets, cable boxes, and satellite

140 Part 2 | Understanding the Marketplace and Consumers

neuromarketing

Implementing the Research Plan

today’s viewers are using and reacting to television and Web content.

Chapter 4 | Managing Marketing Information to Gain Customer Insights 141 Researchers must also process and analyze the collected data to isolate important

information and insight. They need to check data for accuracy and completeness and

code it for analysis. The researchers then tabulate the results and compute statistical

measures.

Interpreting and Reporting the Findings The market researcher must now interpret the findings, draw conclusions, and report them

to management. The researcher should not try to overwhelm managers with numbers and

fancy statistical techniques. Rather, the researcher should present important findings and

insights that are useful in the major decisions faced by management.

However, interpretation should not be left only to researchers. Although they are often

experts in research design and statistics, the marketing manager knows more about the

problem and the decisions that must be made. The best research means little if the manager

blindly accepts faulty interpretations from the researcher. Similarly, managers may be bi-

ased. They might tend to accept research results that show what they expected and reject

those that they did not expect or hope for. In many cases, findings can be interpreted in

different ways, and discussions between researchers and managers will help point to the

best interpretations. Thus, managers and researchers must work together closely when in-

terpreting research results, and both must share responsibility for the research process and

resulting decisions.

Analyzing and Using Marketing Information Information gathered in internal databases and through competitive marketing intelligence

and marketing research usually requires additional analysis. Managers may need help ap-

plying the information to gain customer and market insights that will improve their mar-

keting decisions. This help may include advanced statistical analysis to learn more about

the relationships within a set of data. Information analysis might also involve the applica-

tion of analytical models that will help marketers make better decisions.

Once the information has been processed and analyzed, it must be made available to

the right decision makers at the right time. In the following sections, we look deeper into

analyzing and using marketing information.

Customer Relationship Management The question of how best to analyze and use individual customer data presents special

problems. Most companies are awash in information about their customers. In fact, smart

companies capture information at every possible customer touch point. These touch points include customer purchases, sales force contacts, service and support calls, online site vis-

its, satisfaction surveys, credit and payment interactions, market research studies—every

contact between a customer and a company.

Unfortunately, this information is usually scattered widely across the organization. It

is buried deep in the separate databases and records of different company departments. To

overcome such problems, many companies are now turning to customer relationship

management (CRM) to manage detailed information about individual customers and

carefully manage customer touch points to maximize customer loyalty.

CRM consists of sophisticated software and analytical tools from companies such as

Oracle, Microsoft, Salesforce.com, and SAS that integrate customer information from all

sources, analyze it in depth, and apply the results to build stronger customer relationships.

CRM integrates everything that a company’s sales, service, and marketing teams know

about individual customers, providing a 360-degree view of the customer relationship.

CRM analysts develop data warehouses and use sophisticated data mining techniques to unearth the riches hidden in customer data. A data warehouse is a company-wide elec-

tronic database of finely detailed customer information that needs to be sifted through for

gems. The purpose of a data warehouse is not only to gather information but also to pull

it together into a central, accessible location. Then, once the data warehouse brings the

data together, the company uses high-powered data mining techniques to sift through the

mounds of data and dig out interesting findings about customers.

Objective 4 Explain how companies analyze

and use marketing information.

Customer relationship management (CRM)

Managing detailed information about

individual customers and carefully

managing customer touch points to

maximize customer loyalty.

142 Part 2 | Understanding the Marketplace and Consumers

then relationship

Distributing and Using Marketing Information

intranet

Through its MyMacy’s program, Macy’s digs deeply into

its huge customer database and uses the resulting insights

“Happy Birthday, Keri!”

Photo courtesy of Gary Armstrong

Chapter 4 | Managing Marketing Information to Gain Customer Insights 143

Vodafone is one of the leading telecommuni

cations companies in the world. It operates in

more than 30 countries and has partner net

works in another 40 countries. It was founded

in 1983 as Racal Telecom, then demerged from

its parent company in 1991 and was named

Vodafone. The company prides itself on its rep

utation for their unique customer experience,

and ensures that this remains in place through

out the different customer touch points.

CRM applications are common in the

telecom industry, an industry that is fiercely

competing for recruiting, maintaining and

retaining valuable customers by offering a

unique customer experience. Telecom com

panies deal with a large volume of information

about customers profiles, behaviors and pro

motions. Vodafone heavily depends on CRM

systems in developing their unique customer

experience. The purpose of adopting CRM is

to assess the needs of its customers and en

sure a memorable customer experience.

Vodafone segments its consumers based

on their nature and whether their services are

for personal or business use. Based on this in

formation, Vodafone is able to provide a differ

ent product to better suit each segment and

ensure that customers receive the quality they

desire. Its customer relationship management

(CRM) program aims to position Vodafone as

a market leader, which provides great value

to customers through clever targeting, and

effective integration of the program into their

products and services.

Vodafone acknowledges that customers

are increasingly more demanding and have

access to far more information and alterna

tives; therefore, it is harder than it used to

be to win new customers as well as to retain

existing ones. Customer relationship manage

ment is the tool Vodafone uses to understand

and satisfy its customers’ needs, and to build

a reputation to gain potential customers. In or

der to achieve commercial success, the orga

nization offers its customers solutions to meet

their needs, which leads them to increase

stronger relationships with customer and to

achieve new levels of profitability.

In order to achieve the best customer ex

perience, Vodafone depends on information

from a variety of sources including; customer

demographic information and customer pur

chase. Demographic information is collected

from the customer when they first subscribe

to the service. Vodafone are also interested

to know about their customers interests. This

helps them tailor their messages to the interests

of their customers. Customer behavior infor

mation is collected from the “smart” networks.

This information is useful to understand the be

havioral patterns of the customers. Customer

inquiries whether by phone or internet are also

recorded to minimize customer complaints and

solve customer problems. This information is

integrated into one holistic system that is useful

for enhancing the customer experience.

Vodafone aims to create a consistent

customer experience across all touch points

whether in the retail shop, online services and call

centers. Whenever a Vodafone customer visits a

shop, visits their online account or makes a call

to the customer contact center this information

is recorded. All this information helps in enhanc

ing the customer experience and ensures a

more personalized customer relationship.

Vodafone believes in a holistic view of

the customer across all touch points. This en

ables Vodafone to offer personalized offerings

for its customers. This is based on analyzing

the behavior of each customer and targeting

promotions and offers that matter for each

customer. This makes Vodafone have a pro

active approach to customer needs.

depth information about customers that help

in segmenting its customers based on various

variables such as: usage behavior, purpose,

and location. This information is collected

from the telecommunications network, bill

ing systems, as well as customer contact

centers. These all become integral parts of

the CRM system. They are key in enabling a

unique customer experience. This information

is then used to better serve the diverse needs

of their customers. Based on their CRM sys

tems, they are able to provide a different prod

uct to better suit their segments and ensure

that they receive the quality that they desire.

Integration of CRM systems with exist

ing systems is what makes CRM applications

challenging to adapt. Most telecom companies

have a variety of systems such as: technical

systems, billing systems, customer contact

systems, and data warehouse systems all

which work on different platforms. However,

CRM requires integrating all these platforms into

one platform. What differentiates Vodafone from

other telecom operators is that all users whether

employees, retailers or others use one system.

This offers a unique customer experience where

information is placed in one location. This helps

in facilitating a unique customer experience.

Vodafone creates an environment of “trust,

cooperation and mutual respect” for its custom

ers in order to implement its vision. It does this

Real Marketing 4.2 Vodafone: Strong Customer Relationship Management

Vodafone maintains a vast customer database and uses its CRM system to

customers through loyalty programs.

Tupungato/Shutterstock.com

144 Part 2 | Understanding the Marketplace and Consumers

Extranets: Penske Truck Leasing’s extranet site, MyFleetAtPenske.com,

lets Penske customers access all of the data about their fl eets in one spot

and provides tools to help fl eet managers manage their Penske accounts

and maximize effi ciency.

Penske Truck Leasing

Objective 5 Discuss the special issues some

marketing researchers face,

including public policy and ethics

issues.

by involving its consumers as though they are

nity to provide input in any form to better their

mobile communications services. It prioritizes its

customer service to better its relationship with

customers and further its market share and suc

cess. Vodafone’s diverse package options and

low costs differentiate the company and provide

added value, and through extensive customer

research, it builds on these packages to fulfill

customer desires. Loyalty programs both attract

new customers and help to retain existing cus

tomers. Loyalty points are awarded to provide

customer discounts for those who remain with

Vodafone the longest, and those who spend

the most. Valuable rewards are offered, such as

new cell phones, for those who can accumulate

points, which not only allows Vodafone’s sales

to increase, but also keeps consumers happy

by giving them something extra in return.

Vodafone’s loyalty programs are key to

maintaining a sustainable customer experi

ence. The company constantly innovates in

order to obtain customer loyalty—for exam

ple, the “Vodafone One” program—as well

as expands its available products with new

credit or line options. Its CRM solutions have

enabled employees to improve customer ser

vice, increase productivity and maximize rev

enues. The automation of the workflow of the

CRM solutions has allowed the company to

manage all customer calls both efficiently and

professionally, wherein sales agents are auto

matically connected to customers and pros

pects based on product and service expertise,

named account, availability and geography.

Employees are also able to check progress

reports on customer requests to inform them

and keep them updated.

In all, Vodafone has proven that by having

one place of customer information and using this

information is crucial for their customer’s experi

ence. Customer information and analysis is key

for keeping customers happy and loyal. By utiliz

ing a CRM strategy that allows interaction and

a close relationship with customers, Vodafone

lives up to its high standards and reputation,

and exhausts all possible tools to do so. With

customers kept happy by having their needs ful

filled, and with the company up to date on any

changes in their interests, Vodafone remains at

the top of the industry with constant innovations

to help attract even more potential consumers.

extranets

Other Marketing Information Considerations

Sources: Based on information from Farhan Khan, “Positioning of Vodafone and Analysis,” Scribd, August 14, 2010,

Tools,” www.vodafone.com/content/index/about/about_us/suppliers/our_policies_processes_and_tools.html, accessed

November 18, 2012; Leha Pathrudu and Yeole Rashimi, “Vodafone CRM,” SlideShare, October 5, 2012, www

.com.eg/vodafoneportalWeb/en/P5800133251299055610945, accessed November 18, 2012; Anand Tuteja, Ankuj

Chaudhury, Sunil Albal, Nandita Katiyar, Raswider Singh, Rupal Nimbhorkar, and Shoumen Choudhury, “CRM Sys

tem in Vodafone,” Scribd,

Kills Two Birds with One Customer Loyalty Program,” Pyramid Points, August 20, 2009, www.pyramidresearch

.com/points/item/090820.htm; and “Brand Positioning—Airtel and Vodafone,” Study Mode, October 2010, www

Chapter 4 | Managing Marketing Information to Gain Customer Insights 145 Marketing Research in Small Businesses and Nonprofi t Organizations

Before opening Bibbentuckers dry cleaner, owner Robert Byerly conducted

research to gain insights into what customers wanted. First on the list: quality.

Bibbentuckers

146 Part 2 | Understanding the Marketplace and Consumers International Marketing Research

willing able

Some of the largest research services fi rms have large

international organizations. Nielsen has offi ces in more than

100 countries.

Copyrighted information of The Nielsen Company, licensed for use herein.

Chapter 4 | Managing Marketing Information to Gain Customer Insights 147 Despite these problems, as global marketing grows, global companies have little choice

but to conduct these types of international marketing research. Although the costs and prob-

lems associated with international research may be high, the costs of not doing it—in terms

of missed opportunities and mistakes—might be even higher. Once recognized, many of

the problems associated with international marketing research can be overcome or avoided.

Public Policy and Ethics in Marketing Research Most marketing research benefits both the sponsoring company and its consumers. Through

marketing research, companies gain insights into consumers’ needs, resulting in more satisfy-

ing products and services and stronger customer relationships. However, the misuse of mar-

keting research can also harm or annoy consumers. Two major public policy and ethics issues

in marketing research are intrusions on consumer privacy and the misuse of research findings.

Intrusions on Consumer Privacy Many consumers feel positive about marketing research and believe that it serves a useful

purpose. Some actually enjoy being interviewed and giving their opinions. However, oth-

ers strongly resent or even mistrust marketing research. They don’t like being interrupted

by researchers. They worry that marketers are building huge databases full of personal

information about customers. Or they fear that researchers might use sophisticated tech-

niques to probe our deepest feelings, peek over our shoulders as we shop, or track us as we

browse and interact on the Internet and then use this knowledge to manipulate our buying.

There are no easy answers when it comes to marketing research and privacy. For ex-

ample, is it a good or bad thing that marketers track and analyze consumers’ online clicks

and target ads to individuals based on their browsing and social networking behavior? Sim-

ilarly, should we applaud or resent companies that monitor consumer discussions on You-

Tube, Facebook, Twitter, or other public social networks in an effort to be more responsive?

For example, Dunkin’ Donuts regularly eavesdrops on consumer online conversations

as an important input to its customer relationship-building efforts. Take the case of customer

Jeff Lerner, who tweeted last summer about a loose lid that popped off his Dunkin’ Donuts

drive-through coffee and soaked his white shirt and new car. Within minutes, Dunkin’ picked

up Lerner’s tweet, sent him a direct message asking for his phone number, called him to apolo-

gize, and sent him a $10 gift card. Lerner found Dunkin’s actions laudable. “This is social media. This is listening. This is engagement,” he stated in a later blog post. However, some dis-

concerted consumers might see Dunkin’s Twitter monitoring as an invasion of their privacy.30

Increasing consumer privacy concerns have become a major problem for the marketing

research industry. Companies face the challenge of unearthing valuable but potentially sen-

sitive consumer data while also maintaining consumer trust. At the same time, consumers

wrestle with the trade-offs between personalization and privacy. “The debate over online

[privacy] stems from a marketing paradox,” says a privacy expert. “Internet shoppers want

to receive personalized, timely offers based on their wants and needs but they resent that

companies track their online purchase and browsing histories.” The key question: “Where

is the line between questionable and acceptable customer data gathering activities?”31 Fail-

ure to address such privacy issues could result in angry, less cooperative consumers and

increased government intervention.

The marketing research industry is considering several options for responding to in-

trusion and privacy issues. One example is the Marketing Research Association’s “Your

Opinion Counts” and “Respondent Bill of Rights” initiatives to educate consumers about

the benefits of marketing research and distinguish it from telephone selling and database

building. The industry also has considered adopting broad standards, perhaps based on

the International Chamber of Commerce’s International Code of Marketing and Social Re-

search Practice. This code outlines researchers’ responsibilities to respondents and the gen-

eral public. For example, it urges that researchers make their names and addresses available

to participants and be open about the data they are collecting.32

Most major companies—including Facebook, Microsoft, IBM, Citigroup, American Ex-

press, and even the U.S. government—have now appointed a chief privacy officer (CPO),

whose job is to safeguard the privacy of consumers who do business with the company. In

the end, if researchers provide value in exchange for information, customers will gladly

provide it. For example, Amazon.com’s customers do not mind if the firm builds a database

of products they buy as a way to provide future product recommendations. This saves time

and provides value. The best approach is for researchers to ask only for the information

148 Part 2 | Understanding the Marketplace and Consumers

Misuse of Research Findings

averaged

Misuse of research fi ndings: The Federal Trade

advertising and packaging claims that Kellogg’s Frosted

attentiveness by nearly 20%.”

Eric Meyerson/Rangelife

Reviewing the Concepts

To create value for customers and build meaningful relation

ships with them, marketers must first gain fresh, deep insights

into what customers need and want. Such insights come from

good marketing information. As a result of the recent explosion of

marketing technology, companies can now obtain great quanti

ties of information, sometimes even too much. The challenge is

to transform today’s vast volume of consumer information into

actionable customer and market insights.

Reviewing Objectives and Key Terms

Objectives Review

Chapter 4 | Managing Marketing Information to Gain Customer Insights 149 Explain the importance of

information in gaining insights

about the marketplace and customers. (pp 124–125)

The marketing process starts with a complete understanding

of the marketplace and consumer needs and wants. Thus, the

company needs sound information to produce superior value and

satisfaction for its customers. The company also requires infor

mation on competitors, resellers, and other actors and forces in

the marketplace. Increasingly, marketers are viewing information

not only as an input for making better decisions but also as an

important strategic asset and marketing tool.

Defi ne the marketing

information system and

discuss its parts. (pp 125–128)

The marketing information system (MIS) consists of people

and procedures for assessing information needs, developing

the needed information, and helping decision makers use the

information to generate and validate actionable customer and

ends with users.

The MIS first assesses information needs. The MIS primarily

serves the company’s marketing and other managers, but it may

also provide information to external partners. Then the MIS

velops information from internal databases, marketing intelligence

activities, and marketing research. Internal databases provide in

formation on the company’s own operations and departments.

Such data can be obtained quickly and cheaply but often need

to be adapted for marketing decisions. Marketing intelligence ac

tivities supply everyday information about developments in the

external marketing environment. Market research consists of col

lecting information relevant to a specific marketing problem faced

by the company. Last, the MIS helps users analyze and use the

information to develop customer insights, make marketing deci

sions, and manage customer relationships.

Outline the steps in the

marketing research process.

(pp 128–141)

The first step in the marketing research process involves

ing the problem and setting the research objectives, which may

be exploratory, descriptive, or causal research. The second step

consists of developing a research plan for collecting data from

primary and secondary sources. The third step calls for

menting the marketing research plan by gathering, processing,

and analyzing the information. The fourth step consists of inter

preting and reporting the findings. Additional information analysis

helps marketing managers apply the information and provides

them with sophisticated statistical procedures and models from

which to develop more rigorous findings.

Both internal and external secondary data sources often pro

vide information more quickly and at a lower cost than primary

data sources, and they can sometimes yield information that

a company cannot collect by itself. However, needed informa

tion might not exist in secondary sources. Researchers must

also evaluate secondary information to ensure that it is relevant,

accurate, current, and impartial.

Primary research must also be evaluated for these features.

Each primary data collection method—observational, survey, and

experimental—has its own advantages and disadvantages. Similarly,

each of the various research contact methods—mail, telephone, per

sonal interview, and online—has its own advantages and drawbacks.

Explain how companies

analyze and use marketing

information. (pp 141–144)

Information gathered in internal databases and through marketing

intelligence and marketing research usually requires more analysis.

To analyze individual customer data, many companies have now

acquired or developed special software and analysis techniques—

called customer relationship management (CRM)—that integrate,

analyze, and apply the mountains of individual customer data con

tained in their databases.

Marketing information has no value until it is used to make

better marketing decisions. Thus, the MIS must make the infor

mation available to managers and others who make marketing

decisions or deal with customers. In some cases, this means

providing regular reports and updates; in other cases, it means

making nonroutine information available for special situations and

extranets to facilitate this process. Thanks to modern technology,

today’s marketing managers can gain direct access to marketing

information at any time and from virtually any location.

Discuss the special issues

some marketing researchers

face, including public policy and ethics issues.

(pp 144–148)

Some marketers face special marketing research situations, such as

national situations. Marketing research can be conducted effectively

by small businesses and nonprofit organizations with limited bud

gets. International marketing researchers follow the same steps as

domestic researchers but often face more and different problems. All

organizations need to act responsibly concerning major public policy

and ethical issues surrounding marketing research, including issues

of intrusions on consumer privacy and misuse of research findings.

Objective 1

Objective 2

Objective 3

Objective 4

Objective 5

Key Terms

Objective 1 Customer insights (p 125)

Marketing information system

(MIS) (p 125)

Objective 2 Internal databases (p 126)

Competitive marketing intelligence (p 127)

Objective 3 Marketing research (p 128)

Exploratory research (p 129)

150 Part 2 | Understanding the Marketplace and Consumers Objective 3 (cont) Descriptive research (p 129)

Causal research (p 129)

Secondary data (p 130)

Primary data (p 130)

Observational research (p 131)

Ethnographic research (p 132)

Survey research (p 133)

Experimental research (p 133)

Focus group interviewing (p 134)

Online marketing research (p 135)

Online focus groups (p 136)

Sample (p 137)

Objective 4 Customer relationship management

(CRM) (p 141)

Discussion and Critical Thinking

Discussion Questions

1. What is a marketing information system, and how is it used to create customer insights? (AACSB: Communication)

2. Explain how marketing intelligence differs from marketing re- search. (AACSB: Communication)

3. Explain the role of secondary data in gaining customer insights. Where do marketers obtain secondary data, and what are the

potential problems in using it? (AACSB: Communication)

4. What are the advantages of Internet-based survey research over traditional survey research? (AACSB: Communication)

5. What is neuromarketing, and how is it useful in marketing re- search? Why is this research approach usually used with other

approaches? (AACSB: Communication)

Critical Thinking Exercises

1. In a small group, identify a problem faced by a local business or charitable organization and propose a research project

addressing that problem. Develop a research proposal that

implements each step of the marketing research process. Dis-

cuss how the research results will help the business or organi-

zation. (AACSB: Communication; Reflective Thinking)

2. Want to earn a little extra cash? Businesses that use focus groups and surveys to make better marketing decisions might

pay for your participation. Visit www.FindFocusGroups.com

and review the opportunities available for research participa-

tion. Find two more Web sites that recruit research participants.

Write a brief report of what you found and discuss the pros and

cons to companies of recruiting research participants this way.

(AACSB: Communication; Use of IT; Reflective Thinking)

Applications and Cases

Marketing Technology EWA Bespoke Communications In 1996, Marks & Spencer (M&S), the venerable British retailer,

launched “lunchtogo”—an online corporate catering service (see

www.lunchtogo-e.com/). But M&S found it difficult to develop

long-term relationships with corporate customers due to high

personnel turnover within customer organizations, so it turned

to EWA Bespoke Communications, a company that uses data

mining to “tell you more about your customers.” EWA used “pro-

pensity modeling” to develop a “critical lag” formula that identi-

fied customers whose last order fell outside of their expected

behavior. EWA then developed an automated system to send

communications to customers who did not reorder within the

maximum allowed order lag determined by the formula. Whereas

most customers received e-mails, the system flagged M&S’s

best corporate catering customers who should receive more

personalized phone calls because of their value and impor-

tance. EWA also implemented information systems to improve

the company’s service. Knowing more about its customers paid

off—within a short period of time, the EWA system generated

Chapter 4 | Managing Marketing Information to Gain Customer Insights 151 more than £1 million, tripling the operation’s revenues, and de-

livered an almost perfect order-accuracy rate.

1. Visit EWA Bespoke Communications at www.ewa.ltd.uk/ to learn more about its Customer Insight services and the

types of analyses performed by this company. What is pro-

pensity modeling? Review other case studies from this Web

site and write a brief report of how data-mining technology

was used to gain customer insights. (AACSB: Communica-

tion; Use of IT)

2. Describe how other organizations can benefit from these types of data-mining analyses. Find examples of other com-

panies that can offer such analysis to businesses. (AACSB:

Communication; Reflective Thinking)

Marketing Ethics Reading You E-book sales have now surpassed print book sales, resulting in

lower margins for all companies in the publishing industry value

chain. However, there is a silver lining to this trend—e-books can

read the readers. Publishers and e-book retailers are gathering

billions of bits of information from e-book readers. The publishing

industry has been notorious for not conducting research, leaving

authors to lament that they didn’t know who their readers were or

what they wanted. The only way to know if readers liked a book

was from sales data after the fact. Not anymore. Now companies

know how many hours readers spend reading a book and how

far they get when they open it. Some publishers are even test-

ing e-book manuscripts, revising them based on feedback, and

then publishing the print version. Scholastic Inc. has set up online

message boards and interactive games to learn what storylines

and characters are connecting with readers. Coliloquy digital

books let readers choose their own stories, which the company

then aggregates and sends to the authors to shape future books.

Amazon Kindle users sign an agreement giving the company per-

mission to store their reading behavior data, and the company

then highlights some of the data on its Web site. For example, the

most highlighted passage in Catching Fire, the second book of

the popular Hunger Games series, is “Because sometimes things

happen to people and they’re not equipped to deal with them.”

1. Most e-book readers do not know that their reading behavior can be tracked. What ethical concerns might readers have?

Are there any protections in place for consumers who may not

want their reading behavior tracked? (AACSB: Communica-

tion; Ethical Reasoning)

2. What would your textbook reading behavior data reveal to pub- lishers? How would the marketing of textbooks change based

on your behavior? (AACSB: Communication; Reflective Thinking)

Marketing by the Numbers Sample Size Have you ever been disappointed because a television network

cancelled one of your favorite television shows because of “low

ratings”? The network didn’t ask your opinion, did it? It probably

didn’t ask any of your friends, either. That’s because estimates

of television audience sizes are based on research done by The

Nielsen Company, which uses a sample of only 9,000 house-

holds out of the more than 113 million households in the United

States to determine national ratings for television programs. That

doesn’t seem like enough, does it? As it turns out, statistically, it’s

many more than enough.

1. Go to www.surveysystem.com/sscalc.htm to determine the ap- propriate sample size for a population of 113 million households.

Assuming a confidence interval of 5, how large should the

sample of households be if desiring a 95 percent confidence

level? How large for a 99 percent confidence level? Briefly ex-

plain what is meant by confidence interval and confidence level.

(AACSB: Communication; Use of IT; Analytical Reasoning)

2. What sample sizes are necessary at population sizes of 1 bil- lion, 10,000, and 100 with a confidence interval of 5 and a

95 percent confidence level? Explain the effect population size

has on sample size. (AACSB: Communication; Use of IT; Ana-

lytical Reasoning)

Video Case Domino’s As a delivery company, no one delivers better than Domino’s.

Its reputation for hot pizza in 30 minutes or less is ingrained in

customers’ minds. But not long ago, Domino’s began hearing its

customers talking about how its pizza was horrible. As a com-

pany that has long focused on solid marketing intelligence to

make decisions, Domino’s went to work on how it could change

consumer perceptions about its pizza.

Through marketing research techniques, Domino’s soon real-

ized that it had to take a very risky step and completely re-create

the pizza that it had been selling for over 40 years. This video illus-

trates how research not only enabled Domino’s to come up with

a winning recipe, but led to a successful promotional campaign

that has made fans of Domino’s pizza in addition to its delivery

service.

After viewing the video featuring Domino’s, answer the follow-

ing questions:

1. Explain the role that marketing research played in the creation and launch of Domino’s new pizza.

2. Are there more effective ways that Domino’s could have gone about its research process?

3. Why did it take so long for Domino’s to realize that custom- ers didn’t like its pizza? Was it an accident that it made this

realization?

152 Part 2 | Understanding the Marketplace and Consumers

Company Case Meredith: Thanks to Good Marketing Information, Meredith Knows Women

You may not recognize the name Meredith Corporation, but you

have certainly heard of the magazines it publishes. Better Homes

and Gardens, Ladies’ Home Journal, and Family Circle are some

of its oldest and best-known titles. Meredith has been publish-

ing magazines for more than 100 years and maintains many top-

10 titles, both by category and overall. With a total of 21 subscrip-

tion magazines, Meredith is also the creator of American Baby,

Parents, Fitness, Midwest Living, Every Day with Rachael Ray, and

MORE. This powerhouse publisher also produces 150 special in-

terest publications—the kind that are available only at retail outlets.

Meredith’s magazines have a combined circulation of 30 million—

Better Homes and Gardens alone reaches over 7.5 million paid

readers each month.

If Meredith’s magazines sound like something your mom

would read, that’s intentional. Meredith caters to women. In fact,

Meredith has become the undisputed leading media and market-

ing company focused on women. It has earned this reputation

by developing an expertise in managing deep relationships with

female customers. With core categories of home, health, fam-

ily, and personal development, Meredith’s goal is to touch every

lifestage of women, from young adults and new parents to estab-

lished families and empty nesters.

Print media is hardly a growth industry—in fact, it’s been

declining in recent years. But building an empire on magazines

doesn’t mean that Meredith has painted itself into a corner. In

fact, Meredith no longer describes itself as a magazine publisher.

It claims to be a creator of “content,” delivered to women “when-

ever, wherever, and however [they want] it.” Long before print me-

dia began its decline, Meredith expanded into television stations,

cable programming, and Internet sites.

Today, Meredith has a strong foundation on the Internet and

is investing heavily in its future. For example, digital versions of

most of its magazines are now available on Google Play. It re-

cently paid $175 million to acquire Allrecipes.com, the largest on-

line food site in the country. With that one acquisition, Meredith

doubled the reach of its network of more than 50 online sites to

an average of 40 million unique visitors each month. Its Inter-

net empire also includes BHG.com, Parents.com, DivineCaroline

.com, and FitnessMagazine.com to name just a few. This net-

work allows Meredith to do more than just distribute content; the

company has also become proficient in social networking. With

so many brands available through print, television, online, mobile,

and video, Meredith plans to continue to touch women’s lives in

meaningful ways for a long, long time.

Whether through print, broadcast, or digital media, how has

Meredith been able to achieve success as the leading expert on

women? In short, Meredith knows women. The company knows

women through a continual strategic effort to manage marketing

information about them. In fact, Meredith’s marketing information

system is its core competency. That system produces customer

insights that allow the company to understand women’s needs

and desires and maintain strong relationships with them.

It Starts with Data Although there are lots of different ways that companies gather

and manage marketing information, Meredith’s core strength lies

in its massive database. Meredith’s database is the largest col-

lection of customer information of any U.S. media company. With

more than 85 million unduplicated names, it contains information

on 80 percent of U.S. home-owning households as well as a

good portion of non-home-owning households. Beyond its

breadth, Meredith’s database also has unsurpassed depth. On

average, each name in the database has more than 700 data

points attached to it. If that doesn’t impress you, think about how

many pieces of information you could think of about your family

members, best friends, or even yourself. Those 700 data points

allow Meredith to truly know each person on an intimate level.

The basic information in Meredith’s database comes from typi-

cal internal company sources. Information gathered through sales

transactions alone is huge. This includes not only descriptive and

demographic information, but also information on which maga-

zines customers buy, to which magazines they subscribe, what

kinds of incentive offers they like, and how they have responded

to particular creative executions. The database also incorporates

additional internal information from product shipments, customer

satisfaction surveys, and online site visits for each specific cus-

tomer. Most companies have no idea how to process and handle

all that information. But Meredith effectively puts it all into one

place so that managers throughout the company can access it.

Beyond gathering information from internal sources, Meredith

also conducts marketing research. Online and traditional surveys

allow Meredith to dig deeper into attitudinal information. One of

the focal points is questions about customers’ life events. “Are

you having a baby, are your kids about to go to school, are your

oldest kids about to graduate, are you thinking about retiring?”

explains Cheryl Dahlquist, director of database marketing ser-

vices at Meredith. “As much as we can, we’d like to know that

information because we feel like those are the things that influ-

ence really what’s happening with someone.” Knowing a single

life event can tell a lot about a person’s needs and wants. But

possessing updated information on dozens of life events for a

given person becomes very powerful.

All the information in the world means little unless you can

make sense of it. Meredith is as skilled at analyzing and using

database information as it is at collecting it. Through complex sta-

tistical analysis, Meredith learns about each customer’s interests

and how those interests evolve throughout the customer’s life.

Through a concept Meredith calls “passion points,” the company

computes scores for numerous different interest areas, such as

cooking, fitness, and gardening. It then segments each interest

area into specifics, such that fitness becomes running, yoga, and

hiking, to name just a few. Multiple data points feed into each

score.

In this manner, Meredith not only knows what your primary

interests are, it also knows how your interest levels compare to

those of everyone else in the database. “We’ve developed through

our statistical group the ability to say when somebody reaches a

certain score, that’s when they’re really hot to trot in [say] cook-

ing, and they’re ready to respond to just about all the offers that

come their way around the cooking category.” Meredith employs

20 predictive analytical models, each designed to rank the order

of a person’s interests. All 20 models are scored and ranked each

week. That’s how Meredith gets to know women.

Putting Customer Insights to Use Based on the valuable insights that it extracts from its database,

Meredith manages relationships with its customers through various

means. For starters, customer insights not only drive the content

Chapter 4 | Managing Marketing Information to Gain Customer Insights 153 of its media products, they drive the development of new prod-

ucts. For example, over the years, Better Homes and Gardens has

spawned spin-offs such as Country Home and Traditional Home,

not to mention BHG.com and the cable program Better.

But the insights that come from Meredith’s marketing informa-

tion system also tell the company which products are the most

relevant to a given individual. And with its large and holistic port-

folio of products, there is something for almost everyone. David

Ball, vice president of consumer marketing for Meredith, explains

how this works: “We had American Baby at the very early stages

of a women going into the homeowning and child rearing years.

We filled in with Parents and Family Circle. American Baby is pre-

natal, Parents is postnatal, Family Circle is teens and tweens. And

so now we’re able to take someone who subscribes to American

Baby and really graduate them into our other products.”

The fruits of managing customer information don’t stop at

matching the right product to the customer. Rich customer in-

sights allow Meredith to meet customer needs when it comes to

promotion and pricing as well. Because Meredith has so many

media products, almost all of its promotional efforts are either

through direct mail and e-mail or cross-promoting across titles.

Based on what it knows about specific customers, Meredith

customizes the types of offers and messages contained in pro-

motions, often in real time. This makes promotional efforts much

more effective and must less costly. “I don’t want to be sending

out a million pieces of direct mail if I could send out a hundred

thousand pieces of direct mail only to the people who really want

it,” says Ball. If you think about it, this is marketing at its finest.

When customers and potential customers aren’t bothered by ir-

relevant messages and products, but are approached only with

offers that actually interest them, everyone wins.

Meredith’s ability to manage marketing information has opened

other doors for the company. Given its vast database and its skill

at managing information, Meredith can sell marketing research

to other companies that need insights on women. Its strength

in managing marketing information has also resulted in numer-

ous partnerships with leading companies such as Home Depot,

DirectTV, Chrysler, and Carnival Cruise Lines. And Meredith’s

database and research efforts have resulted in something else

that may be a first: The Meredith Engagement Dividend, a pro-

gram that guarantees Meredith advertisers an increase in sales.

Meredith can make such a guarantee because its database has

revealed that its advertisers are able to increase their product

sales by an average of 10 percent over a one-year period.

As a whole, magazine advertising has been decreasing for

years, and the decline is projected to continue. Meredith’s flat

revenues over the past 5 years suggest that, as a company, it is

still heavily tied to print media for distributing its content. But with

a consistent profit margin of 8 to 10 percent of sales, Meredith

is holding its own. More important, Meredith’s core competency

of managing customer information is not exclusive to print. It

is something that will fuel the company’s expansion into other,

faster-growing media. As Meredith maintains its marketing infor-

mation system strategy, it will continue to develop the right prod-

ucts, price, distribution methods, and promotions for each and

every woman in its database.

Questions for Discussion 1. Analyze Meredith’s marketing information system. What are its

strengths and weaknesses?

2. Can impersonal data points really result in meaningful relation- ships? Explain.

3. Does Meredith’s marketing information expertise transfer into other media and products?

4. As a company still heavily rooted in print, what does Mere- dith’s future hold?

5. What recommendations would you make to Meredith’s executives?

Sources: Officials at Meredith Corporation contributed to and supported the development of this case. Additional information comes from Erik Sass,

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www.mediapost.com/publications/article/166420/meredith-corp-buys-

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rect Marketing News, April 1, 2012, www.dmnews.com/macys-

transformation/article/233631/3/.

23. “SAS helps 1-800-Flowers.com Grow Deep Roots with Customers,” www.sas.com/success/1800flowers.html, accessed September 2012.

24. See www.pensketruckleasing.com/leasing/precision/precision_features .html, accessed November 2012.

25. Based on information in Ann Zimmerman, “Small Business; Do the Research,” Wall Street Journal, May 9, 2005, p. R3; with informa-

tion from John Tozzi, “Market Research on the Cheap,” Business-

Week, January 9, 2008, www.businessweek.com/smallbiz/content/

jan2008/sb2008019_352779.htm; and www.bibbentuckers.com,

accessed September 2012.

26. For some good advice on conducting market research in a small business, see “Conducting Market Research,” www.sba.gov/

content/conducting-market-research, accessed November 2012;

and “Researching Your Market,” Entrepreneur, www.entrepreneur

.com/article/43024-1, accessed November 2012.

27. See “Top 25 Global Market Research Organizations,” Market- ing News, August 30, 2011, p. 16; and www.nielsen.com/us/en/

about-us.html, accessed November 2012.

28. For these and other examples, see “From Tactical to Personal: Synovate’s Tips for Conducting Marketing Research in Emerging

Markets,” Marketing News, April 30, 2011, pp. 20–22. Internet stats

are from http://data.worldbank.org/indicator/IT.NET.USER.P2, ac-

cessed July 2012.

29. Subhash C. Jain, International Marketing Management, 3rd ed. (Boston: PWS-Kent, 1990), p. 338. For more discussion on inter-

national marketing research issues and solutions, see Warren J.

Keegan and Mark C. Green, Global Marketing, 6th ed. (Upper Sad-

dle River, NJ: Prentice Hall, 2011), pp. 170–201.

30. Tina Sharkey, “Who Is Your Chief Listening Officer?” Forbes, March 13, 2012, www.forbes.com/sites/tinasharkey/2012/03/13/

who-is-your-chief-listening-officer/.

31. For these quotes and discussions of online privacy, see Juan Martinez, “Marketing Marauders or Consumer Counselors?” CRM Magazine,

January 2011, accessed at www.destinationcrm.com; Lauren McKay,

“Eye on Customers: Are Consumers Comfortable with or Creeped out

by Online Data Collection Tactics?” CRM Magazine, January 2011,

accessed at www.destinationcrm.com; and Ki Mae Heussner, “Whose

Life Is It, Anyway?” Adweek, January 16, 2012, pp. 22–26.

32. “ICC/ESOMAR International Code of Marketing and Social Research Practice,” www.esomar.org/index.php/codes-guidelines.html,

accessed July 2012. Also see “Respondent Bill of Rights,” www

.mra-net.org/ga/billofrights.cfm, accessed December 2012.

33. Federal Trade Commission, “Kellogg Settles FTC Charges That Ads for Frosted Mini-Wheats Were False,” April 20, 2009, www

.ftc.gov/opa/2009/04/kellogg.shtm; “Kellogg’s Frosted Mini-Wheats

Neuroscience: The FTC Reckoning,” http://rangelife.typepad.com/

rangelife/2009/04/kelloggs-frosted-miniwheats-neuroscience-the-

ftc-reckoning.html, April 21, 2009; Todd Wasserman, “New FTC As-

serts Itself,” Brandweek, April 27, 2009, p. 8; and “FTC Investigation

of Ad Claims That Rice Krispies Benefits Children’s Immunity Leads

to Stronger Order Against Kellogg,” US Fed News Service, June 4,

2010.

34. Information at www.casro.org/codeofstandards.cfm#intro, ac- cessed December 2012.

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inspire new GoPro customers and even more video sharing. As a

result, GoPro is growing explosively. Last year, the young com-

pany sold 800,000 cameras, generating revenues of $250 million—

a 300 percent increase over the previous year—and an estimated

90 percent share of the wearable camera market.

What makes GoPro so successful? Part of the formula is

the cameras themselves: GoPro cameras are marvels of mod-

ern technology, especially given their affordable starting price

of less than $200. Only about 2 inches wide, a GoPro HD video

camera looks like little more than a small gray box. But the light-

weight, wearable or mountable GoPro is extremely versatile,

and it packs amazing power for capturing stunning HD-quality

video. A removable housing makes GoPro cameras waterproof

Part 1: Defining Marketing and the Marketing Process (Chapters 1–2)

Part 2: Understanding the Marketplace and Consumers (Chapters 3–6)

Part 3: Designing a Customer-Driven Strategy and Mix (Chapters 7–17)

Part 4: Extending Marketing (Chapters 18–20)

Consumer Markets and Consumer Buyer Behavior5

Chapter Preview You’ve studied how market-

ers obtain, analyze, and use

information to develop customer insights and assess market-

ing programs. In this chapter, we take a closer look at the most

important element of the marketplace—customers. The aim of

marketing is to affect how customers think and act. To affect the

whats, whens, and hows of buyer behavior, marketers must first

understand the whys. In this chapter, we look at final consumer

buying influences and processes. In the next chapter, we’ll study

the buyer behavior of business customers. You’ll see that under-

standing buyer behavior is an essential but very difficult task.

To get a better sense of the importance of understanding

consumer behavior, we begin by looking at GoPro. You may

never have heard of GoPro, the small but fast-growing com-

pany that makes tiny, wearable HD video cameras. Yet few

brands can match the avid enthusiasm and intense loyalty that

GoPro has created in the hearts and minds of its customers.

GoPro knows that, deep down, it offers customers much more

than just durable little video cameras. More than that, it gives

them a way to share action-charged moments and emotions

with friends.

GoPro: Be a HERO!

A growing army of GoPro customers—many of them

extreme sports enthusiasts—are now strapping

amazing little GoPro cameras to their bodies, or

mounting them on anything from the front bumpers

of race cars to the heels of skydiving boots, in order to capture

the extreme moments of their lives and lifestyles. Then, they

can’t wait to share those emotion-packed GoPro moments with

friends. In fact, the chances are good that you’ve seen a GoPro-

created video on YouTube or Facebook, or even on TV.

Maybe it’s the one shot by the skier who sets off an ava-

lanche in the Swiss Alps and escapes by parachuting off a cliff—

that amateur video received 2.6 million YouTube views in nine

months. Or maybe you saw the one where a seagull picks up a

tourist’s camera and makes off with it, capturing a bird’s-eye

view of a castle in Cannes, France (3 million views

in seven months). Or what about the video

of the mountain biker in Africa who is

ambushed by a full-grown gazelle

(more than 13 million views in four

months)?

GoPro’s avid customers have

become evangelists for the brand.

On average, they upload a new video to

YouTube every two minutes. In turn, the videos

GoPro’s runaway success comes from a

deep-down understanding of what makes its customers tick. More than just selling tiny, wearable HD video cameras,

GoPro “helps people capture and share their lives’ most meaningful experiences with others—to celebrate them together.”

Chapter 5 | Consumer Markets and Consumer Buyer Behavior 157

proof from 3,000 feet (so claims one skydiver).

But GoPro knows that consumer behavior is driven

vative features. The brand is all about what its cameras let

customers do. GoPro users don’t just want to take videos. More than that, they want to tell the stories and share the

their lifestyles. “Enabling you to share your life through in

credible photos and video is what we do,” says GoPro. We

“help people capture and share their lives’ most meaning

like the one of New Zealand’s Jed Mildon landing the

line. And when that happens, GoPro creates an emo

tional connection between the GoPro storyteller and

the audience.

Thus, making good cameras is only the start of Go

sports junkie, talks about helping customers through four essential

ation, broadcast, and recognition. Capture shooting pictures and videos. Creation is the editing and production process that turns raw footage into compelling videos. Broadcast involves distributing the video content to an audience. Recognition is the payoff for the content creator. Recognition might come in the

form of YouTube views or LIKES and SHARES on Facebook. More

probably, it’s the enthusiastic oohs and ahs that their videos evoke

from friends and family. The company’s slogan sums up pretty well

So far, GoPro has focused primarily on the capture step of

the “World’s Most Versatile Camera. Wear It. Mount It. Love It.”

It offers a seemingly endless supply of rigs, mounts, harnesses,

straps, and other accessories that make GoPro cameras wearable

or mountable just about anywhere. Users can strap the little cam

eras to their wrists or mount them on helmets. They can attach

them to the tip of a snow ski, the bottom of a skateboard, or the

underside of an RC helicopter. The handy little GoPro lets even

the rankest video amateur capture some pretty incredible footage.

But Woodman knows that to keep growing, GoPro must

broaden its offer to address the full range of customer needs and

provides free software for creating 3D videos from footage shot

YouTube to create a GoPro YouTube network and will soon offer

from their cameras or using a mobile app. As for recognition,

GoPro now airs TV commercials created from the best videos

submitted by customers at its Web site. GoPro’s future lies in en

video to sharing stories and life’s emotions with others.

GoPro’s rich understanding of what makes its customers tick

is serving the young company well. Its enthusiastic customers are

among the most loyal and engaged

Facebook fan base is more than

1.7 million and growing fast. To

put that in perspective, much larger

Canon has only 619,000 Facebook

followers; Panasonic has 146,000.

Beyond uploading nearly half a mil

lion videos a year, GoPro fans inter

act heavily across a broad range of

social media. “I think we have the most socially engaged online

audience of any consumer brand in the world,” claims Woodman.

All that customer engagement and enthusiasm has made

GoPro cameras are available in more than 10,000 stores, from

.com. GoPro’s remarkable little cameras have also spread beyond

a news show team fi lming rescues, wildlife, and storms or the

Deadliest Catch taking pictures of underwater crab pots or the sides of ships in

credibility that fuels even greater consumer demand.

customer needs and motivations. GoPro knows that it doesn’t

just make cameras. More than that, it enables customers to share

important moments and emotions. According to one industry

few years will be businesses that understand how to wrap tech

nology beautifully around human needs so that it matters to

What are we really doing here? We know that our cameras are argu

ably the most socially networked consumer devices of our time, so

it’s clear we’re not just building hardware. At a certain point, the ser

vices that you build around the hardware become more important

than the hardware itself. You think about the implications of that

and where it can go. . . . This is our DNA. This is how we grow.”1

GoPro’s amazing little

cameras let even the

rankest video amateurs

take stunning videos, giving

them a way to celebrate the

and emotions of their lives

with others.

GoPro

158 Part 2 | Understanding the Marketplace and Consumers

Objective Outline

Objective 1 Defi ne the consumer market and construct a simple model of consumer buyer behavior.

Model of Consumer Behavior (pp 158–159)

Objective 2 Name the four major factors that infl uence consumer buyer behavior.

Characteristics Affecting Consumer Behavior (pp 159–174)

Objective 3 List and defi ne the major types of buying decision behavior and the stages in the buyer decision process.

Types of Buying Decision Behavior (pp 174–176)

The Buyer Decision Process (pp 176–178)

Objective 4 Describe the adoption and diffusion process for new products.

The Buyer Decision Process for New Products (pp 178–180)

The GoPro behavior. Buying behavior is never simple, yet understanding it is an essential task of mar

keting management. Consumer buyer behavior refers to the buying behavior of fi nal

sumption. All of these fi nal consumers combine to make up the consumer market. The

American consumer market consists of more than 313 million people who consume more

than $14 trillion worth of goods and services each year, making it one of the most attractive

consumer markets in the world.2

Consumers around the world vary tremendously in age, income, education level, and

tastes. They also buy an incredible variety of goods and services. How these diverse con

sumers relate with each other and with other elements of the world around them impacts

nating array of factors that affect consumer behavior.

Model of Consumer Behavior Consumers make many buying decisions every day, and the buying decision is the focal

point of the marketer’s effort. Most large companies research consumer buying decisions in

much they buy, when they buy, and why they buy. Marketers can study actual consumer

purchases to fi nd out what they buy, where, and how much. But learning about the whys

purchases.

Consumer buyer behavior

The buying behavior of final consumers—

individuals and households that buy

goods and services for personal

consumption.

Consumer market

All the individuals and households that

buy or acquire goods and services for

personal consumption.

Objective 1 Defi ne the consumer market

and construct a simple model of

consumer buyer behavior.

Chapter 5 | Consumer Markets and Consumer Buyer Behavior 159

Buyer

People’s buying decisions reflect and contribute to their lifestyles—their whole pattern of acting and interacting in the world. For example, Pottery Barn sells more than just home furnishings. It sells an upscale yet casual,

Our buying decisions are affected by an incredibly complex combination of external and internal influences.

Many brands now target specific subcultures—such as Hispanic American, African American, and Asian American consumers—with marketing programs tailored to their specific needs and preferences.

buyer behavior shown in Figure 5.1. This fi gure shows that marketing and other stimuli

what he or she buys, when, where, and how much.

Marketers want to understand how the stimuli are changed into responses inside the

he or she perceives and reacts to the stimuli. Second, the buyer’s decision process itself af

fects his or her behavior. We look fi rst at buyer characteristics as they affect buyer behavior

and then discuss the buyer decision process.

Characteristics Affecting Consumer Behavior

cal characteristics, as shown in Figure 5.2. For the most part, marketers cannot control

such factors, but they must take them into account.

Cultural Factors

understand the role played by the buyer’s culture, subculture, and social class.

The environment Buyer responsesBuyer’s black box

We can measure the whats, wheres, and whens of consumer buying behavior. But it’s very difficult to “see” inside the consumer’s head and figure out the whys of buying behavior (that’s why it’s called the black box). Marketers spend a lot of time and dollars trying to figure out what makes customers tick.

FIGURE | 5.1

The Model of Buyer Behavior

Objective 2 Name the four major factors

that infl uence consumer buyer

behavior.

FIGURE | 5.2

Factors Influencing

Consumer Behavior

160 Part 2 | Understanding the Marketplace and Consumers Culture Culture is the most basic cause of a person’s wants and behavior. Human behavior is

largely learned. Growing up in a society, a child learns basic values, perceptions, wants,

and behaviors from his or her family and other important institutions. A child in the United

vidualism, freedom, hard work, activity and involvement, effi ciency and practicality, mate

rial comfort, youthfulness, and fi tness and health. Every group or society has a culture, and

country to country.

Marketers are always trying to spot cultural shifts so as to discover new products that

clothing, organic foods, and a variety of diets.

Subculture Each culture contains smaller subcultures, or groups of people with shared value systems

gions, racial groups, and geographic regions. Many subcultures make up important market

segments, and marketers often design products and marketing programs tailored to their

American, and Asian American consumers.

Hispanic American Consumers. nation’s more than 50 million Hispanic consumers will have total annual buying power of

$1.5 trillion by 2015, accounting for 11 percent of the nation’s total buying power. The U.S.

Hispanic population will surge to more than 132 million by 2050, close to 30 percent of the

total U.S. population.3

Although Hispanic consumers share many characteristics and behaviors with the

mainstream buying public, there are also distinct differences. They tend to be deeply family

be very brand loyal and to favor brands and sellers who

show special interest in them. Younger Hispanics, how

ever, have shown increasing price sensitivity in recent

years and a willingness to switch to store brands.

tinct subsegments based on nationality, age, income,

and other factors. A company’s product or message may

be more relevant to one nationality over another, such

Companies must also vary their pitches across different

Hispanic economic segments.

Companies such as Nestlé, McDonald’s, Walmart,

ers have developed special targeting efforts for this

learned that 78 percent of U.S. Hispanics use the Internet

as their primary information source and that Hispanics

are 58 percent more likely than the general population to

click on search ads, making the online Hispanic market

too big to ignore. Hispanics are also more active on so

cial networks than other segments. In response, Google

created a “specialist team” that focuses on helping ad

vertisers across all industries reach Hispanic consumers

through online and mobile search and display advertis

ing platforms.4

Similarly, Hispanic consumers shop for grocer

ies three times more often than the general U.S. shop

per, so Nestlé, General Mills, and other food companies

Culture

The set of basic values, perceptions,

wants, and behaviors learned by a

member of society from family and other

important institutions.

Subculture

A group of people with shared value

systems based on common life

experiences and situations.

Targeting Hispanic consumers: Nestlé’s Construye el Mejor Nido

campaign focuses heavily on how Nestlé and its brands help to build family

NESTLÉ, NEST DEVICE, GOOD FOOD, GOOD LIFE, NIDO, and DIGIORNO are registered trademarks of Societé des

Produits Nestlé S.A., Vevey, Switzerland

Chapter 5 | Consumer Markets and Consumer Buyer Behavior 161 compete heavily to get their brands into Hispanic shoppers’ grocery carts.

ate the Best Nest) marketing campaign, which connects Nestlé’s products with family nu

trition and wellness resources. The multipronged campaign includes a bilingual Web site

and healthy eating.5

African American Consumers. The U.S. African American population is growing in af

consumers will have a buying power of $1.2 trillion. Although more price conscious than

important.6

In recent years, many companies have developed special products, appeals, and mar

been the leader in African American advertising, spending nearly twice as much as the

formulated “to celebrate the beauty of women of color.”

In addition to traditional product marketing efforts,

movement.7

the movement aims “to ignite and support a sustained

national conversation by, for, and about black women”

covered that black women spend three times more than

the general market on beauty products yet feel they’re

portrayed worse than other women in media and adver

tising. Supported by brands such as Crest, Pantene, the

Black Is Beautiful movement’s goal is to empower Afri

can American women to embrace their beauty, health,

and wellness and, of course, to forge a closer relationship

in the process. My Black Is Beautiful includes a rich Web site, and Facebook page, national media presence,

and presence at key events that allow women to interact

with brands and the My Black is Beautiful movement in trusted and relevant environments.

Asian American Consumers. segment. They now number more than 16 million, with annual buying power approach

ter Hispanic Americans. And like Hispanic Americans, they are a diverse group. Chinese

Americans constitute the largest group, followed by Filipinos, Asian Indians, Vietnamese,

Korean Americans, and Japanese Americans. Yet, unlike Hispanics who all speak vari

2010 U.S. Census ran in languages ranging from Japanese, Cantonese, Khmer, Korean, and

Vietnamese to Thai, Cambodian, Hmong, Hinglish, and Taglish.8

the ethnic groups. They can be fi ercely brand loyal. As a result, many fi rms now target the 9

Last year it fi elded a comprehensive Asian American marketing campaign for its Subaru

Legacy model. Called “Sweet Tomorrow,” the campaign reinforced the brand’s strong con

nection with Asian Americans, specifi cally people of Chinese American descent, who make

up roughly 23 percent of the U.S. Asian American market. In addition to a billboard in San

Francisco’s Chinatown, the integrated campaign included Chinese print ads and Cantonese

Procter & Gamble’s roots run deep in targeting African American

consumers. For example, it’s My Black Is Beautiful movement aims to make

black women feel beautiful while also forging a closer relationship between

P&G brands and African American consumers.

The Procter & Gamble Company. Photo by Keith Major.

162 Part 2 | Understanding the Marketplace and Consumers

cess, the couple chooses Subaru as the car of choice for their impending parenthood.

though it never screams “commercial,” the humorous video continually showcases a sporty

watched page in the fi rst week and netted 1.3 million YouTube views in its fi rst month,

earning 20,000 voluntary LIKES to only 230 DISLIKES.

Beyond targeting segments such as Hispanics, African Americans, and Asian Americans with specially tailored efforts, many marketers now em

brace

sumer similarities across subcultures rather than differences. Many marketers are fi nding

cultures and ethnicities represented in the advertising and products they consume. For in

stance, McDonald’s takes cues from African Americans, Hispanics, and Asians to develop

menus and advertising in hopes of encouraging mainstream consumers to buy smoothies,

ethnic consumer tends to set trends,” says McDonald’s chief marketing offi cer. “So they

help set the tone for how we enter the marketplace.” Thus, McDonald’s might take an ad

Social Class Almost every society has some form of social class structure. Social classes are society’s

relatively permanent and ordered divisions whose members share similar values, interests,

and behaviors. Social scientists have identifi ed the seven American social classes shown in

Figure 5.3.

Social class is not determined by a single factor, such as income, but is measured as a

combination of occupation, income, education, wealth, and other variables. In some social

systems, members of different classes are reared for certain roles and cannot change their

and rigid; people can move to a higher social class or drop into a lower one.

Marketers are interested in social class because people within a given social class tend

ences in areas such as clothing, home furnishings, travel and leisure activity, fi nancial ser

vices, and automobiles.

Social Factors

groups, , and social roles and status.

Groups and Social Networks Many small groups

to which a person belongs are called membership groups. In contrast, reference groups

to belong, as when a young basketball player hopes to someday emulate basketball star

LeBron James and play in the NBA.

Social class

Relatively permanent and ordered

divisions in a society whose members

share similar values, interests, and

behaviors.

Group

Two or more people who interact to

accomplish individual or mutual goals.

Chapter 5 | Consumer Markets and Consumer Buyer Behavior 163

Upper Class

Middle Class

Working Class

Lower Class

In c

o m

e O

c c

u p

a ti

o n

E d

u c

a ti

o n

W e

a lt

America’s social classes show distinct brand preferences. Social class is not determined by a single factor but by a combination of all of these factors.

FIGURE | 5.3

The Major American

Social Classes

Marketers try to identify the reference groups of their target markets. Reference groups

concept, and create pressures to conform that may affect the person’s product and brand

strongest when the product is visible to others whom the buyer respects.

can have a powerful impact on consumer buying behavior. The personal words and recommen

dations of trusted friends, associates, and other consumers tend to be more credible than

marketers can help to create positive conversations about their brands.

opinion leaders

this group the influentials or leading adopters Marketers try to identify opinion leaders for their products and direct marketing efforts

toward them.

involves enlisting or even creating opinion leaders to serve as “brand

ambassadors” who spread the word about a company’s products. Many companies are

founder and chief fashion stylist, reality star Kim Kardashian. But the company has learned 11

The impact of the personal words and

recommendations of trusted friends,

associates, and other consumers on

buying behavior.

Opinion leader

A person within a reference group who,

because of special skills, knowledge,

personality, or other characteristics,

exerts social influence on others.

164 Part 2 | Understanding the Marketplace and Consumers

anonymous teenage girl whose online video testimonial,

than 37,000 times.

with shoes” and gushes over the service’s low prices. “The

prices are, like, perfect,” she says. At the site, other satisfi ed

customers talk about how they like the price, the selection,

come in. (“The packaging is great,” says one happy client.

what surprised them most about the company. It then dis

tributed the videos to YouTube, blogs, Twitter, Facebook,

persuasive video testimonials have now become a mainstay

instance, has been viewed more than 48,000 times. In it, an

“I love the detail. I love the pretty pink and cute bag that you

sent.” No spokesmodel could have said it better.

More broadly, over the past few years, a new type of social in Online social networks

dialog has big implications for marketers.

Marketers are working to harness the power of these new social networks and other

use the Internet and social networks to interact with consumers and become a part of their conversations and lives (see Real Marketing 5.1).

Facebook are the primary ways it communicates with college students. JetBlue listens in

on customers on Twitter and often responds; one consumer recently tweeted “I’m getting

board].” Southwest Airlines employees share stories with each other and customers on the

company’s “Nuts about Southwest” blog.

tweets, videos, and pictures posted on Facebook, Twitter, YouTube, Flickr, and an offi cial

Most brands have built a comprehensive social media presence.

through a network that includes several Web sites, a Facebook page, a YouTube channel, a

But marketers must be careful when tapping into online social networks. Results are

diffi cult to measure and control. Ultimately, the users control the content, so social network

Buzz marketing: ShoeDazzle has learned that its best spokesperson

might be, literally, the girl next door.

Jarrod Weaton/Weaton Digital, Inc.

Online social networks

Online social communities—blogs, social

networking Web sites, and other online

communities—where people socialize or

exchange information and opinions.

Chapter 5 | Consumer Markets and Consumer Buyer Behavior 165

People love talking with others about things

that make them happy—including their favor

ite products and brands. Say you really like

JetBlue Airways—the company flies with flair

and gets you there at an affordable price. Or

you just plain love your new little GoPro HD

HERO2 video camera—it’s too cool to keep to

yourself. In the old days, you’d have chatted

up these brands with a few friends and fam

ily members. But these days, thanks to Inter

net and mobile technology, anyone can share

brand experiences with thousands, even mil

lions, of other consumers online.

In response, marketers are now fever

ishly working to harness today’s newfound

technologies and get people interacting with

their brands online. Whether it’s creating on

line brand ambassadors, tapping into existing

online influentials and social networks, or de

videos, the Internet is awash with marketer

attempts to create online brand conversations

and involvement.

A company can start by creating its own

online brand evangelists. That’s what Ford

did when it launched its Fiesta subcompact

model in the United States, targeted heavily

One study found that 77 percent of Millennials

use a social networking site like Facebook

or Twitter daily and 28 percent of them have

a personal blog. So Ford created the Fiesta

Movement campaign, in which it handed

Millennials selected from 4,000 applicants.

The Fiesta ambassadors lived with the cars

for six months, completed monthly “missions”

with different themes, and shared their experi

ences via blogs, tweets, Facebook updates,

and YouTube and Flickr posts. Ford didn’t tell

the ambassadors what to say, nor did it edit

their content. “We told them to be completely

honest,” says Ford’s social media manager.

The successful Fiesta Movement campaign

among

In only six months, the consumers posted

drives.

Beyond creating their own brand am

bassadors, companies looking to harness the

Web’s social power can work with the army

Internet—independent bloggers. Believe it or

not, there are now almost as many people

making a living as bloggers as there are law

yers. No matter what the interest area, there

are probably hundreds of bloggers covering

it. Moreover, research shows that 90 percent

of bloggers post about their favorite and least

favorite brands.

As a result, most companies try to form

relationships with influential bloggers and on

line personalities. The key is to find bloggers

who have strong networks of relevant read

ers, a credible voice, and a good fit with the

brand. For example, companies ranging from

P&G and Johnson & Johnson to Walmart work

closely with influential “mommy bloggers.” And

you’ll no doubt cross paths with the likes of

climbers blogging for North Face, bikers blog

ging for Whole Foods Market or Trader Joe’s.

Other companies have found that simply

joining existing online conversations can pay

big dividends. Take Shelly Davis, owner of

she began scouring YouTube’s video blogs

on hair care products for African American

women. She jumped into the comments sec

tions, offering advice and answering ques

careful to maintain a key element of promoting

through blogs—authenticity. Within two years,

video bloggers had posted more than 5,100

different video clips on YouTube demonstrat

All that buzz increased revenues by 40 per

shelves of Target and Whole Foods Market.

Perhaps the best way to generate online

brand conversations and social involvement is

simply to do something conversation worthy—

to actually involve people with the brand

online. For the past several years, Pepsi’s

Mountain Dew brand has run “DEWmocracy”

campaigns that invite avid Mountain Dew cus

tomers to participate at all levels in launching

a new Mountain Dew flavor, from choosing

and naming the flavor to designing the can

Real Marketing 5.1 Harnessing the Power of Online Social Influence

A company can start by creating its own online brand evangelists. That’s what Ford did

when it launched its Fiesta subcompact model in the United States, targeted heavily

Ford Motor Company

166 Part 2 | Understanding the Marketplace and Consumers

to submitting and selecting TV commercials

and even picking an ad agency and media.

Presented through a dedicated Web site, as

well as Facebook, Twitter, Flickr, and other

public network pages, DEWmocracy has

been a perfect forum for getting youthful, so

cially savvy Dew drinkers talking with each

other and the company about the brand.

For example, Mountain Dew’s Facebook fan

page grew fivefold at the launch of the latest

DEWmocracy campaign.

Ironically, one of the simplest means of

capturing social influence online is one of the

oldest—produce a good ad that gets people

talking. But in this day and age, both the ads

and the conversation media have changed.

Almost every brand, large and small, is now

videos, posting them online, and hoping they’ll

go viral. Just ask Volkswagen. Its 2011 Super

using the force to start a VW Passat—went

way viral, capturing 18 million online views

before it ever aired on TV. The clever com

watched YouTube video, with more than 50

Passat teaser video called “The Bark Side,”

in which a canine chorus performs “The Im

perial March” from Star Wars, was viewed by

more than 7 million fans before the big game

began. The video also directed viewers to the

Volkswagen Web site, where they could invite

friends to Super Bowl parties with customized

versions of the video’s opening titles. Such

ads and videos create lots of online talk and

attention for the brand.

So, whether through online ambassa

about videos and events, companies are

finding innovative ways to tap social influence

online. It’s growing fast as the place to be—

for both consumers and marketers. Last year,

the time consumers spent on social network

ing sites nearly tripled; marketer spending at

those sites nearly kept pace. “Social [media]

is one of the key trends driving business,”

says a social marketing executive. “It’s more

than pure marketing. It’s about fast connec

tions with customers and building an ongoing

relationship.”

Sources: Elisabeth A. Sullivan, “Blog Savvy,” Marketing News, November 15, 2009, p. 8; Keith Barry, “Ford Bets

the Fiesta on Social Marketing,” Wired,

Nishi, “How to Sell on YouTube Without Showing a Video,” Wall Street Journal, November 15, 2010; Alan Mitchell,

Marketing, October 6, 2011, accessed at www.marketingmagazine.co.uk; Steven

Williams, “Digital, Social Media Take Center Stage,” Advertising Age, January 12, 2012, accessed at http:// adage

Commercials) Begins,” New York Times, January 24, 2012; and information from www.dewmocracy.com, accessed

March 2012.

pranksters laced Skittles tweets with profanities so they

would end up on the candy’s Web site. Skittles was

forced to abandon the campaign. We will dig deeper into

online social networks as a marketing tool in Chapter 17.

Family

The family is the most important consumer buying or

of the husband, wife, and children on the purchase of

different products and services.

uct category and by stage in the buying process. Buy

ing roles change with evolving consumer lifestyles. For

been considered the main purchasing agent for the fam

ily in the areas of food, household products, and cloth

ing. But with more women working outside the home

and the willingness of husbands to do more of the fam

ily’s purchasing, all this is changing. A recent survey of

men ages 18 to 64 found that 51 percent identify them

selves as primary grocery shoppers in their households

and 39 percent handle most of their household’s laundry. At the same time, today women

purchases.13

Using social networks: Timberland has created an extensive online

the brand through several Web sites, a Facebook page, a YouTube channel,

Courtesy of Timberland

Chapter 5 | Consumer Markets and Consumer Buyer Behavior 167 Such shifting roles signal a new marketing reality. Marketers in industries that have

care products to cars and consumer

The Jif peanut butter slogan is now “Choosey moms, and dads

showing a dad, son, and Tony tossing a football in the backyard. The trio then heads to the

you love.” The Frosted Flakes ad, which features ESPN sports anchor and dad Rece Davis,

oriented networks such as ESPN and on an ESPN

.com microsite.

To help women who do the shopping cope with signifi cant others who hate to come

phobic husbands and boyfriends can

hang out while the women shop. The

area was actually modeled after the re

arts and crafts, the men play pinball and

video games, watch sports, and eat free

hot dogs. The women are even given a

signifi cant others after 30 minutes of

shopping.14

Children may also have a strong

The nation’s 36 million children ages

9 to 12 wield an estimated $43 billion

ence an additional $150 billion that their

families spend on them in areas such as

food, clothing, entertainment, and per

sions about everything from what cars

they buy to where they eat out and take

vacations.15

Roles and Status

person’s position in each group can be defi ned in terms of both role and status. A role con

People usually choose products appropriate to their roles and status. Consider the vari

ous roles a working mother plays. In her company, she may play the role of a brand man

ager; in her family, she plays the role of wife and mother; at her favorite sporting events,

she plays the role of avid fan. As a brand manager, she will buy the kind of clothing that

her favorite team.

Personal Factors age

, occupation, , lifestyle, and .

Family buying infl uences: To help women shoppers to cope with signifi cant others who

Newspix/Getty Images

168 Part 2 | Understanding the Marketplace and Consumers

People change the goods and services they buy over their lifetimes. Tastes in food, clothes,

furniture, and recreation are often age related. Buying is also shaped by the stage of the

having children, purchasing a home, divorce, children going to col

lege, changes in personal income, moving out of the house, and

retirement. Marketers often defi ne their target markets in terms of

plans for each stage.

consumer behavior and demographic characteristics.

Beginnings, Taking Hold, , , Our Turn, Golden Years, and Active Elders. The Taking Hold group consists of

busy with their careers, social lives, and interests, especially fi tness

and active recreation.

talking about marriage and children.

haviors and purchasing preferences.” Armed with data about the

such as Squeaking By, Eye on Essentials, Tight with a Purpose, It’s My Life, , and Potential Rebounders. The Potential Re bounders are those more likely to loosen up on spending sooner. This group appears more likely than other segments to use online

research before purchasing electronics, appliances, home decor, and

jewelry. Thus, home improvement retailers appealing to this seg

ment should have a strong online presence, providing pricing, fea

tures and benefi ts, and product availability.

Occupation

the apparel carries the name Carhartt, the performance will be legendary.” Its Web site car

cold in Canada’s arctic region, reports wearing Carhartt’s lined Arctic bib overalls, Arctic

jacket, and other clothing for more than two years without a single “popped button, ripped

walking rough railroad beds, climbing around trains, and switching cars in conditions

Economic Situation A person’s economic situation will affect his or her store and product choices. Marketers

watch trends in personal income, savings, and interest rates. In the more frugal times fol

lowing the Great Recession, most companies have taken steps to redesign, reposition, and

let marketers see customers as they really are and target them

Acxiom Corporation

Chapter 5 | Consumer Markets and Consumer Buyer Behavior 169 some of its “chic” with “cheap.” It is putting more emphasis on the “Pay less” side of its

Similarly, to become more competitive with discount competitors such as Target and

Kohl’s in the tighter economy, JCPenney recently announced sweeping changes in its mar

seemingly endless deals and sales. “Enough. Is. Enough.” says the retailer’s new commer

cials, which depict shoppers screaming in frustration at having to clip coupons, rush to take

advantage of sales, and stand in line for blowout promotions.18

Lifestyle

ferent lifestyles. Lifestyle

hobbies, shopping, sports, social events), interests (food, fashion, family, recreation), and

opinions (about themselves, social issues, business, products). Lifestyle captures something

more than the person’s social class or personality. It profi les a person’s whole pattern of act

ing and interacting in the world.

When used carefully, the lifestyle concept can help marketers understand changing

consumer values and how they affect buyer behavior. Consumers don’t just buy products;

REI sells a lot more than just outdoor gear and clothing. It sells an entire outdoor lifestyle 19

At REI, says the company “we inspire, educate, and outfi t for a lifetime of outdoor adventure and

RE REI pre

REI know what a treadmill looks like,” he says, “but I’ve never actually

seen one in person.” At the REI Web site, outdoor enthusiasts can swap outdoors stories, enroll in

RE RE

outdoor travel adventures around the world.

Marketers look for lifestyle segments with needs that can be served through special

products or marketing approaches. Such segments might be defi ned by anything from fam

ily characteristics or outdoor interests to pet ownership. In fact, today’s involved pet own

pet services marketed to indulgent “pet parents.” (See Real Marketing 5.2.)

Personality refers

tonomy, defensiveness, adaptability, and aggressiveness. Personality can be useful in ana

The idea is that brands also have personalities, and consumers are likely to choose

brands with personalities that match their own. A brand personality

sincerity ex (reliable, intelligent,

and successful); sophistication (upper class and charming); and ruggedness (outdoorsy and tough). “Your personality determines what you consume, what TV shows you watch, what

Washington Post with “competence,” Method with “sincerity,” and Gucci with “class” and “sophistication.” Hence, these

brands will attract persons who are high on the same personality traits.

(also

called

possessions.

Lifestyle

A person’s pattern of living as expressed

in his or her activities, interests, and

opinions.

Personality

The unique psychological characteristics

that distinguish a person or group.

170 Part 2 | Understanding the Marketplace and Consumers

In the old days, it seems, owning a pet didn’t

require a lot. But today, the lives of many pet

owners seem to revolve around their furry

pets—whether it’s a dog, cat, parakeet, or

hedgehog—as important family members.

Some 42 percent of dogs now sleep in the

owners even think of themselves as “pet par

ents.” For such people, pet ownership doesn’t

just mean having a cute little critter around—it

defines an entire lifestyle.

The pet owner lifestyle segment consti

U.S. households own at least one pet. Collec

tively, Americans own some 75 million dogs,

88 million cats, 142 million freshwater fish,

10 million saltwater fish, 16 million birds, 24 mil

lion horses. They spend more than $50 billion a

year on their pets, more than the gross domes

tic product of all but 72 countries in the world.

For many devoted pet parents, having

a pet affects just about every decision they

make, from what car they buy or what vaca

tions they take to even what TV channels they

watch. As a result, marketers across a broad

range of industries are targeting the special

needs of this large and growing lifestyle seg

ment, offering everything from basics such

as pet food, beds, toys, gates, and other pet

gadgets to critter daycare, travel and lodging,

pet insurance, and even a cable TV channel.

The U.S. travel industry, for one, has

upped the options it offers to indulgent pet

owners. For example, many major hotel

chains offer “pet friendly” rooms and services

for owners who can’t stand leaving their pets

behind. Some hotels, however, take “pet

friendly” to a whole new level. For example,

The Benjamin Hotel in New York City features

a “Dream Dog” program, which offers “every

thing a pampered pet needs to enjoy travel

orthopedic option), plush doggie bathrobes,

canine room service, and DVDs for dogs, as

well as access to pet spa treatments and a

pet psychic. “We understand that your pet is a

special addition to your family,” says the hotel.

“We will ensure your furry friend never has to

lift a paw.”

Similarly, most airlines have policies for

transporting the 76 million pets that fly each

year, either in the cabin or the cargo hold. For

some pet owners, however, that’s just not

good enough. Alysa and Dan Binder had so

many problems flying with their dog Zoe that

specifically for pets, especially dogs and

cats. Pet Airways now serves nine U.S. cit

ies with 20 aircraft. Cabins are climate con

trolled and contain no seats, only pet cages.

Pet Airways checks its “Pawsengers” into a

and bathroom breaks, and checks on them

at least every 15 minutes during a flight. Pet

parents can track their pets via the company

Web site.

As any pet lover will tell you, pet owner

ship doesn’t come cheap. Just the everyday

costs of acquiring and maintaining pets can

be high. But it’s the unexpected costs that

can really boost the bills. Health care is of

ten the biggest culprit. Pet health care has

improved dramatically in recent years, as in

novations on the human side of health care

have made their way to the pet side, includ

ing CAT scans, MRIs, chemotherapy and

radiation, and even plastic surgery. But the

costs have soared accordingly. In only the

past decade, average annual vet expenses

for cats.

These increased vet expenses haven’t

deterred pet owners. One study found that

nearly 75 percent of pet owners are willing to

go into debt to pay for veterinary care for their

furry companions. And for many pet medical

procedures, they’d have to! If not diagnosed

quickly, even a mundane ear infection in a dog

can result in $1,000 worth of medical treat

ment. Ten days of dialysis treatment can reach

$12,000 and cancer treatment as much as

$40,000. All of this adds up to a lot of po

tential growth for pet health insurers. In re

sponse, companies such as Petplan USA and

of Nationwide Insurance, offer pet insurance

plans. VPI covers mostly dogs and cats, but

also a menagerie of other exotic critters, from

birds, rabbits, ferrets, rats, and guinea pigs to

snakes, iguanas, turtles, potbellied pigs, and

even hedgehogs.

Some owners see the logic in paying

as much as $50 a month to defray the costs

of major medical bills. For the Bongard fam

ily in Wisconsin, for example, pet insurance

meant the difference between saving their pet

hedgehog, Harriet, or letting her go. Harriet

recently had surgery to remove a cancerous

tumor, ripped open her sutures, had a sec

ond surgery to repair the damage, and ended

ance, Harriet would have been a goner. Even

with the insurance, the Bongards shelled out

$1,900 to keep Harriet alive. That kind of ex

pense sounds crazy for a hedgehog, but it

all comes back to the pet owner lifestyle and

the bond between owners and their pets. As

Kristen Bongard puts it, she just melts when

Harriet rolls up into a little ball. “It’s adorable.

All of a sudden you see a nose pop out, and

two eyes, and maybe the front two paws,

and then some ears. It’s a very cute thing to

watch.”

One of the more unusual businesses tar

geting pet owner lifestyles is DogTV, a recently

launched cable network that aims to reduce

Real Marketing 5.2 Pet Owner Lifestyles—and Marketing to Them

Catering to pet owner lifestyles: The

Benjamin Hotel’s Dream Dog program

style, from grooming services to a lush

bathrobe to a consultation with a pet

The Benjamin Hotel

Chapter 5 | Consumer Markets and Consumer Buyer Behavior 171

the separation anxiety felt by working owners

The idea is to keep dogs relaxed and enter

tained while their owners are at work. Many

people already leave their TVs on while away

to keep their dogs company, so DogTV ap

the pet owners pay the $4.99 monthly sub

scription fee, the network’s programming is

100 percent for dogs. The programming is

based on research by dog psychologists into

what dogs like to see and hear. It’s not car

chases, sirens, or other fast action—those

can cause pet stress. Instead, dogs like shows

of dogs chasing balls, and—of all things—

“SpongeBob SquarePants,” a real favorite

on the channel. You won’t find any advertis

ing on DogTV. “Advertising is difficult for us,”

says DogTV’s CEO. “Our viewers aren’t able to

speak out or purchase products.” It’s still too

early to tell how successful the show will be,

but so far dogs appear to like what they see.

“It helps if you put the television near the floor,”

notes a DogTV spokesperson.

The list of things that pet owners will do

$900). For those who don’t want their male

that comes from being neutered, there are

Neuticles, patented testicular implants for

pets. Some 425,000 dogs, cats, monkeys,

rats, and even a water buffalo sport a pair.

And for a growing number of people who find

it just too hard to part with their deceased

and preserved in a natural pose so that they’ll

always be around. Now that’s the pet owner

lifestyle.

Sources: Quotes, adapted examples, and other information from Marty Graham, “TV Network Aims for New

Viewing Audience: Dogs,” Reuters,

idUSTRE81E26220120215; Gwendolyn Bounds, “The Dog Maxed Out My Credit Card,” Wall Street Journal,

David Kestenbaum, “Health Insurance: Now for Your Dog, or Hedgehog,” Morning Edition, October 21, 2009,

www

Strange Things,” CNN

and www.thebenjamin.com/DreamDog.aspx and www.petairways.com, accessed March 2012.

brand projects a young, confi dent, manly, and mischievous per

odorant brand in the United States.21

Psychological Factors

, perception, learning, and beliefs and attitudes.

Motivation A person has many needs at any given time. Some are biological,

arising from states of tension such as hunger, thirst, or discom

A need becomes a motive when it is aroused to a suffi cient level of intensity. A motive (or

drive) is a need that is suffi ciently pressing to direct the person to seek satisfaction. Psy

sumer analysis and marketing.

Sigmund Freud assumed that people are largely unconscious about the real psycho

logical forces shaping their behavior. His theory suggests that a person’s buying decisions

are affected by subconscious motives that even the buyer may not fully understand. Thus,

likes the feel of the wind in his thinning hair. At a deeper level, he may be trying to impress

others with his success. At a still deeper level, he may be buying the car to feel young and

independent again.

Brand personality: Consumers are likely to choose brands with

personalities that match their own. The Gucci brand is associated

Associated Press

Motive (drive)

A need that is sufficiently pressing to

direct the person to seek satisfaction of

the need.

172 Part 2 | Understanding the Marketplace and Consumers The term

hidden, subconscious motivations. Consumers often don’t know or can’t describe why they

underlying emotions and attitudes toward brands and buying situations.

Many companies employ teams of psychologists, anthropologists, and other social sci

asks consumers to describe their favorite brands as animals or cars (say, a Mercedes versus

a Chevy) to assess the prestige associated with various brands. Still others rely on hypnosis,

dream therapy, or soft lights and mood music to plumb the murky depths of consumer

psyches.

now sometimes called , to dig deeper into consumer psyches

and develop better marketing strategies.

ticular times. Why does one person spend a lot of time and energy on personal safety and

another on gaining the esteem of others? Maslow’s answer is that human needs are ar

ranged in a hierarchy, as shown in Figure 5.4, from the most pressing at the bottom to

the least pressing at the top.22 They include physiological needs, safety needs, social needs, needs, and needs.

A person tries to satisfy the most important need fi rst. When that need is satisfi ed, it

esteemed by others (social or esteem needs) nor even in whether they are breathing clean

come into play.

Perception

prets this sensory information in an individual way. Perception is the process by which

People can form different perceptions of the same stimulus because of three percep

mated 3,000 to 5,000 ad messages every day.23 It is impossible for a person to pay attention

actualization needs

Esteem needs

Safety needs

Physiological needs

Social needs

According to Maslow, human needs are arranged in a hierarchy. Starving people will take little interest in the latest happenings in the art world.

FIGURE | 5.4

Maslow’s Hierarchy of Needs

Perception

The process by which people select,

organize, and interpret information to

form a meaningful picture of the world.

Chapter 5 | Consumer Markets and Consumer Buyer Behavior 173 to all these stimuli. Selective attention

to attract the consumer’s attention.

Even noticed stimuli do not always come across in the intended way. Each person fi ts

Selective distortion describes the tendency of people to interpret information in a way that will support what they already believe. Peo

ple also will forget much of what they learn. They tend to retain information that supports

their attitudes and beliefs. Selective retention means that consumers are likely to remember good points made about a brand they favor and forget good points made about competing

brands. Because of selective attention, distortion, and retention, marketers must work hard

to get their messages through.

Interestingly, although most marketers worry about whether their offers will be per

ceived at all, some consumers worry that they will be affected by marketing messages with

. More than 50 years ago, a researcher

screen in a New Jersey movie theater every fi ve seconds for 1/300th of a second. He re

them subconsciously and bought 58 percent more popcorn and 18 percent more Coke. Sud

nal perception. Although the researcher later admitted to making up the data, the issue has

not died. Some consumers still fear that they are being manipulated by

subliminal messages.

Numerous studies by psychologists and consumer researchers have

found little or no link between subliminal messages and consumer behav

ior. Recent brain wave studies have found that in certain circumstances,

our brains may register subliminal messages. However, it appears that sub

liminal advertising simply doesn’t have the power attributed to it by its

critics.

tainly do.”24

Learning When people act, they learn. Learning describes changes in an individ

human behavior is learned. Learning occurs through the interplay of

drives, stimuli, cues, responses, and reinforcement.

A drive is a strong internal stimulus that calls for action. A drive be comes a motive when it is directed toward a particular . For

her to look into buying a camera. The consumer’s response to the idea of

buying a camera is conditioned by the surrounding cues. Cues are minor stimuli that determine when, where, and how the person responds. For

hear of a special sale price, or discuss cameras with a friend. These are all

response to his or her interest in buying the product.

warding, the consumer will probably use the camera more and more, and

his or her response will be reinforced for a camera, or for binoculars or some similar product, the probability is

greater that he or she will buy a Nikon product. The practical signifi cance

of learning theory for marketers is that they can build up demand for a

product by associating it with strong drives, using motivating cues, and

providing positive reinforcement.

Beliefs and Attitudes

their buying behavior. A belief is a descriptive thought that a person has about something.

This classic ad from the American Association of

Advertising Agencies pokes fun at subliminal advertising.

American Association of Advertising Agencies

Learning

Changes in an individual’s behavior

arising from experience.

Belief

A descriptive thought that a person holds

about something.

174 Part 2 | Understanding the Marketplace and Consumers Beliefs may be based on real knowledge, opinion, or faith and may or may not carry an

emotional charge. Marketers are interested in the beliefs that people formulate about spe

cifi c products and services because these beliefs make up product and brand images that

affect buying behavior. If some of the beliefs are wrong and prevent purchase, the marketer

will want to launch a campaign to correct them.

People have attitudes regarding religion, politics, clothes, music, food, and almost ev

erything else. Attitude describes a person’s relatively consistent evaluations, feelings, and

tendencies toward an object or idea. Attitudes put people into a frame of mind of liking

attitudes such as “Buy the best,” “The Japanese make the best electronics products in the

Attitudes are diffi cult to change. A person’s attitudes fi t into a pattern; changing one

vailing attitudes. Convincing the children themselves seems like an even bigger challenge.

It can be hard selling children on the idea of eating onions. have a strong smell, they can

make you cry, and many kids simply refuse to eat them. So to help change these attitudes, the

It employed Shrek, the famous ogre from the hugely popular

animated fi lms. The inspiration came from a scene in the fi rst Shrek fi lm, in which Shrek

ogres says

onions. End of story.”

with both the onion harvest and the premier of the latest Shrek fi lm. The campaign featured gi

ant Shrek placards in grocery store aisles alongside bags of Vidalia onions on which Shrek asked,

“What do ogres and onions have in common?”

onions, and surprised and delighted parents responded. Sales of bagged Vidalia onions increased

almost 30 percent for the season.

We can now appreciate the many forces acting on consumer behavior. The consumer’s

factors.

Types of Buying Decision Behavior Buying behavior differs greatly for a tube of toothpaste, a smartphone, fi nancial services,

buyer deliberation. Figure 5.5 shows the types of consumer buying behavior based on

the degree of buyer involvement and the degree of differences among brands.

Complex Buying Behavior Consumers undertake complex buying behavior when they are highly involved in a

purchase and perceive signifi cant differences among brands. Consumers may be highly

ample, a PC buyer may not know what attributes to consider. Many product features carry

This buyer will pass through a learning process, fi rst developing beliefs about the

attributes and their relative importance. They need to differentiate their brand’s features,

perhaps by describing the brand’s benefi ts using print media with long copy. They must

Attitude

A person’s consistently favorable or

unfavorable evaluations, feelings, and

tendencies toward an object or idea.

Attitudes and beliefs are diffi cult

to change: The Vidalia Onion

and Onions campaign made children

believers and delighted their parents.

Sales of bagged Vidalia onions shot

up 30 percent.

Vidalia® is a registered certification mark of Georgia

Department of Agriculture

Objective 3 List and defi ne the major types

of buying decision behavior and

the stages in the buyer decision

process.

Complex buying behavior

Consumer buying behavior in situations

characterized by high consumer

involvement in a purchase and significant

perceived differences among brands.

Chapter 5 | Consumer Markets and Consumer Buyer Behavior 175

High involvement

Significant differences between brands

Complex buying

behavior

Few differences between brands

reducing buying behavior

Low involvement

Var seeking

buying behavior

Habitual buying

behavior

Buying behavior varies greatly for different types of products. For example, someone buying an expensive new PC

gathering and brand evaluation process.

At the other extreme, for

consumers may simply select a familiar brand out of habit. For example, what brand of salt do you buy and why?

FIGURE | 5.5

Four Types of Buying Behavior Source: Adapted from Henry Assael, Consumer

Behavior and Marketing Action

Publishing Company, 1987), p. 87. Used with

permission of the author.

occurs when consumers are highly involved

a given price range to be the same. In this case, because perceived brand differences are not

may respond primarily to a good price or purchase convenience.

postpurchase dissonance comfort) when they notice certain disadvantages of the purchased carpet brand or hear

favorable things about brands not purchased. To counter such dissonance, the marketer’s

good about their brand choices.

Habitual Buying Behavior Habitual buying behavior

a brand. If they keep reaching for the same brand, it is out of habit rather than

strong brand loyalty. Consumers appear to have low involvement with most

mation about the brands, evaluate brand characteristics, and make weighty

decisions about which brands to buy. Because they are not highly involved with

the product, consumers may not evaluate the choice, even after purchase. Thus,

the buying process involves brand beliefs formed by passive learning, followed

by purchase behavior, which may or may not be followed by evaluation.

involvement products with few brand differences often use price and sales

promotions to promote buying. Alternatively, they can add product features or

enhancements to differentiate their brands from the rest of the pack and raise

involvement.

sue offers Ultrastrong, Ultrasoft, Sensitive, Basic, and Freshmate (wet wipe)

versions, so that there’s sure to be one that’s right for any family’s “bottom

Web site and mobile app that helps travelers who “Gotta go on the go!” fi nd and

rate clean public restrooms wherever they travel.

Consumers undertake in situations char

when buying cookies, a consumer may hold some beliefs, choose a cookie brand

without much evaluation, and then evaluate that brand during consumption.

behavior

Consumer buying behavior in situations

characterized by high involvement but

few perceived differences among brands.

Habitual buying behavior

Consumer buying behavior in situations

characterized by low consumer

involvement and few significant perceived

brand differences.

Creating product involvement: Charmin offers

enhancements that boost involvement and set it

apart from other brands, including sponsoring a

clean public restrooms anywhere they travel.

Jarrod Weaton/Weaton Digital, Inc.

Consumer buying behavior in situations

characterized by low consumer

involvement but significant perceived

brand differences.

176 Part 2 | Understanding the Marketplace and Consumers

something different. Brand switching occurs for the sake of variety rather than because of

dissatisfaction.

In such product categories, the marketing strategy may differ for the market leader and

minor brands. The market leader will try to encourage habitual buying behavior by domi

ing. Challenger fi rms will encourage variety seeking by offering lower prices, special deals,

coupons, free samples, and advertising that presents reasons for trying something new.

The Buyer Decision Process

consumers make buying decisions. Figure 5.6 shows that the buyer decision process

need recognition, , evaluation of alternatives, purchase decision, and postpurchase behavior. Clearly, the buying process starts long before the actual purchase and continues long after. Marketers need to focus on the entire buying process

rather than on the purchase decision only.

Figure 5.6 suggests that consumers pass through all fi ve stages with every purchase

process. And in more routine purchases, consumers often skip or reverse some of the stages.

Much depends on the nature of the buyer, the product, and the buying situation. A woman

chase decision, skipping information search and evaluation. However, we use the model in

Figure 5.6 because it shows all the considerations that arise when a consumer faces a new

Need Recognition The buying process starts with need recognition

need. The need can be triggered by

also be triggered by .

a friend might get you thinking about buying a new car. At this stage, the marketer should

research consumers to fi nd out what kinds of needs or problems arise, what brought them

about, and how they led the consumer to this particular product.

Information Search An interested consumer may or may not search for more information. If the consumer’s

drive is strong and a satisfying product is near at hand, he or she is likely to buy it then.

If not, the consumer may store the need in memory or undertake an information search

will probably pay more attention to car ads, cars owned by friends, and car conversations.

ways.

Consumers can obtain information from any of several sources. These include personal sources (advertising, sales people, dealer Web sites, packaging, displays), public sources (mass media, consumer rating

experiential sources

product and the buyer.

Traditionally, consumers have received the most information about a product from

ever, tend to be personal. Commercial sources normally the buyer, but personal

The buying process starts long before the actual purchase and continues long after. In fact, it might result in a decision not to buy. Therefore, marketers must focus on the entire buying process, not just the purchase decision.

FIGURE | 5.6

Buyer Decision

Process

Need recognition

The first stage of the buyer decision

process, in which the consumer

recognizes a problem or need.

Information search

The stage of the buyer decision process

in which the consumer is motivated to

search for more information.

Chapter 5 | Consumer Markets and Consumer Buyer Behavior 177 sources or evaluate products for the buyer. As one marketer states, “It’s rare that an advertising campaign can be as effective as a neighbor

Increasingly, that “neighbor’s fence” is a digital one. Today, buyers

TripAdvisor, Epinions, and Epicurious. Although individual user reviews

As more information is obtained, the consumer’s awareness and

knowledge of the available brands and features increase. In your car infor

mation search, you may learn about several brands that are available. The

information might also help you to drop certain brands from consideration.

knowledgeable about its brand. It should carefully identify consumers’

sources of information and the importance of each source.

Evaluation of Alternatives We have seen how consumers use information to arrive at a set of fi nal

alternative evalua

tion, that is, how consumers process information to choose among alter

native brands. Unfortunately, consumers do not use a simple and single

evaluation process in all buying situations. Instead, several evaluation pro

cesses are at work.

How consumers go about evaluating purchase alternatives depends on

the individual consumer and the specifi c buying situation. In some cases,

consumers use careful calculations and logical thinking. At other times, the

same consumers do little or no evaluating. Instead they buy on impulse

and rely on intuition. Sometimes consumers make buying decisions on

their own; sometimes they turn to friends, online reviews, or salespeople

for buying advice.

Suppose you’ve narrowed your car choices to three brands. And suppose that you are

this time, you’ve probably formed beliefs about how each brand rates on each attribute.

Clearly, if one car rated best on all the attributes, the marketer could predict that you would

choose it. However, the brands will no doubt vary in appeal. You might base your buying

decision mostly on one attribute, and your choice would be easy to predict. If you wanted

style above everything else, you would buy the car that you think has the most style. But

most buyers consider several attributes, each with different importance. By knowing the

importance that you assigned to each attribute, the marketer could predict your car choice

more reliably.

Marketers should study buyers to fi nd out how they actually evaluate brand alterna

the buyer’s decision.

Purchase Decision In the evaluation stage, the consumer ranks brands and forms purchase intentions. Gener

ally, the consumer’s purchase decision will be to buy the most preferred brand, but two

factors can come between the purchase intention and the purchase decision. The fi rst factor is the attitudes of others

The second factor is unexpected situational factors. The consumer may form a purchase

the economy might take a turn for the worse, a close competitor might drop its price, or a

friend might report being disappointed in your preferred car. Thus, preferences and even

purchase intentions do not always result in an actual purchase choice.

Need recognition can be triggered by advertising:

Time for a snack?

SNICKERS® and SQUARED & Design® are registered trademarks of Mars,

Incorporated. These trademarks are used with permission. Mars, Incorporated

is not associated with Pearson. The images of the SNICKERS® and SQUARED &

Design® marks, and the SNICKERS® and SNICKERS® Peanut Butter Squared bars

are printed with permission of Mars, Incorporated.

Alternative evaluation

The stage of the buyer decision process

in which the consumer uses information

to evaluate alternative brands in the

choice set.

Purchase decision

The buyer’s decision about which brand

to purchase.

178 Part 2 | Understanding the Marketplace and Consumers Postpurchase Behavior The marketer’s job does not end when the product is bought. After purchasing the prod

uct, the consumer will either be satisfi ed or dissatisfi ed and will engage in postpurchase

behavior of interest to the marketer. What determines whether the buyer is satisfi ed or

dissatisfi ed with a purchase? The answer lies in the relationship between the

expectations and the product’s

performance, the greater the consumer’s dissatisfaction. This suggests that sellers should

promise only what their brands can deliver so

that buyers are satisfi ed.

Almost all major purchases, however, re

sult in cognitive dissonance, or discomfort

chase, consumers are satisfi ed with the benefi ts

of the chosen brand and are glad to avoid the

drawbacks of the brands not bought. However,

every purchase involves compromise. So con

backs of the chosen brand and about losing the

benefi ts of the brands not purchased. Thus,

consumers feel at least some postpurchase dis

sonance for every purchase.27

Why is it so important to satisfy the cus

tomer? Customer satisfaction is a key to build

ing profi table relationships with

keeping and growing consumers and reaping

their customer lifetime value. Satisfi ed custom

ers buy a product again, talk favorably to others

about the product, pay less attention to com

peting brands and advertising, and buy other

products from the company. Many marketers

go beyond merely

delight customers. A dissatisfi ed consumer responds differently. Bad word of mouth often travels farther

company and its products. But companies cannot simply wait for dissatisfi ed customers to

volunteer their complaints. Most unhappy customers never tell the company about their

problems. Therefore, a company should measure customer satisfaction regularly. It should

set up systems that encourage customers to complain. In this way, the company can learn how well it is doing and how it can improve.

By studying the overall buyer decision process, marketers may be able to fi nd ways to

because they do not perceive a need for it, marketing might launch advertising messages

that trigger the need and show how the product solves customers’ problems. If customers

know about the product but are not buying because they hold unfavorable attitudes toward

it, marketers must fi nd ways to change either the product or consumer perceptions.

The Buyer Decision Process for New Products We now look at how buyers approach the purchase of new products. A new product is a

good, service, or idea that is perceived by some potential customers as new. It may have been

around for a while, but our interest is in how consumers learn about products for the fi rst time

and make decisions on whether to adopt them. We defi ne the adoption process as the men

tal process through which an individual passes from fi rst learning about an innovation to fi nal

adoption. Adoption is the decision by an individual to become a regular user of the product.28

Postpurchase behavior

The stage of the buyer decision process

in which consumers take further action

after purchase, based on their satisfaction

or dissatisfaction.

Postpurchase cognitive dissonance: No matter what choice they make,

consumers feel at least some postpurchase dissonance for every decision.

Stephane Bidouze/Shutterstock.com

Cognitive dissonance

Buyer discomfort caused by

postpurchase conflict.

Objective 4 Describe the adoption and

diffusion process for new

products.

New product

A good, service, or idea that is perceived

by some potential customers as new.

Adoption process

The mental process through which an

individual passes from first hearing about

an innovation to final adoption.

Chapter 5 | Consumer Markets and Consumer Buyer Behavior 179 Stages in the Adoption Process

Awareness: The consumer becomes aware of the new product but lacks information about it.

Interest: The consumer seeks information about the new product.

Evaluation: The consumer considers whether trying the new product makes sense.

Trial: The consumer tries the new product on a small scale to improve his or her estimate of its value.

Adoption: The consumer decides to make full and regular use of the new product.

to help concerned customers get past a hurdle in the buying process and make a positive 29

Prior to a recent holiday shopping season, to convince buyers to upgrade to

that whatever they bought might soon be obsolete. In one study, 40 percent

of consumers said that concerns about technology becoming outdated were

preventing them from buying electronic products such as TVs, mobile phones,

and computers. That left electronics retailers like Best Buy with aisles stacked

high with unsold electronics.

To help customers past this buying hurdle, Best Buy began offering a

price, Best Buy promises customers that, when they’re ready for something

new, it will redeem purchases in good working order for up to 50 percent of

the purchase price, depending on how many months pass before they up

ing to make a purchase because they fear some other new thing will come

and make that purchase with confi dence.” Competitors such as Radio Shack,

Individual Differences in Innovativeness People differ greatly in their readiness to try new products. In each prod

individuals adopt new products much later. People can be classifi ed into

the adopter categories shown in Figure 5.7.30 As shown by the curve,

after a slow start, an increasing number of people adopt the new prod

uct. As successive groups of consumers adopt the innovation, it eventu

ally reaches its cumulative saturation level. Innovators are defi ned as

the fi rst 2.5 percent of buyers to adopt a new idea (those beyond two standard deviations

and two standard deviations); and then come early mainstream, late mainstream, and

lagging adopters.

The fi ve adopter groups have differing values. Innovators try new ideas at some risk. Early adopters ers in their communities and adopt new ideas early but carefully. The is

son. The

people have tried it. Finally, lagging adopters changes and adopt the innovation only when it has become something of a tradition itself.

This adopter classifi cation suggests that an innovating fi rm should research the char

acteristics of innovators and early adopters in their product categories and direct initial

marketing efforts toward them.

The adoption process: To help potential customers

overcome obsolescence concerns that were keeping

Proof Buy Back Program.

Kenneth K. Lam/MCT/Newscom

180 Part 2 | Understanding the Marketplace and Consumers

% S

h a

re o

f a

ll a

d o

p te

Time of adoption of innovation

FIGURE | 5.7

Adopter Categories Based

on Relative Time of Adoption

of Innovations

Infl uence of Product Characteristics on Rate of Adoption The characteristics of the new product affect its rate of adoption. Some products catch on

12 percent by 2007. HDTV penetration reached 66 percent by 2012. 31

Relative advantage:

adoption.

defi nition

programs and channels have become the norm, the rate of HDTV adoption has increased

rapidly.

The degree to which the innovation is diffi cult to understand or use. HDTVs

innovations.

Divisibility: The degree to which the innovation may be tried on a limited basis. Early

of adoption. As prices have fallen, adoption rates have increased.

The degree to which the results of using the innovation can be observed

or described to others. Because HDTV lends itself to demonstration and description, its

use will spread faster among consumers.

these factors when developing the new product and its marketing program.

Chapter 5 | Consumer Markets and Consumer Buyer Behavior 181

Reviewing the Concepts

lion people who consume over $14 trillion worth of goods and

services each year, making it one of the most attractive consumer

markets in the world. Consumers vary greatly in terms of cultural,

social, personal, and psychological makeup. Understanding how

these differences affect consumer buying behavior is one of the

biggest challenges marketers face.

Defi ne the consumer market

and construct a simple model

of consumer buyer behavior. (pp 158–159)

The consumer market consists of all the individuals and house

holds that buy or acquire goods and services for personal con

sumption. The simplest model of consumer buyer behavior is the

logical, political, cultural) enter the consumer’s “black box” and

produce certain responses. Once in the black box, these inputs

produce observable buyer responses, such as product choice,

brand choice, purchase timing, and purchase amount.

Name the four major factors

that infl uence consumer buyer

behavior. (pp 159–174)

Consumer buyer behavior is influenced by four key sets of buyer

characteristics: cultural, social, personal, and psychological. Al

though many of these factors cannot be influenced by the mar

keter, they can be useful in identifying interested buyers and

shaping products and appeals to serve consumer needs better.

Culture is the most basic determinant of a person’s wants and

behavior. Subcultures are “cultures within cultures” that have dis

tinct values and lifestyles and can be based on anything from age

to ethnicity. Many companies focus their marketing programs on

the special needs of certain cultural and subcultural segments.

Social factors also influence a buyer’s behavior. A person’s

reference groups—family, friends, social networks, professional

associations—strongly affect product and brand choices. The

stances, personality, and other personal characteristics influence

his or her buying decisions. Consumer lifestyles—the whole pat

tern of acting and interacting in the world—are also an important

influence on purchase decisions. Finally, consumer buying behav

ior is influenced by four major psychological factors: motivation,

perception, learning, and beliefs and attitudes. Each of these fac

tors provides a different perspective for understanding the work

ings of the buyer’s black box.

List and defi ne the major types of

buying decision behavior and the

stages in the buyer decision process. (pp 174–178)

Buying behavior may vary greatly across different types of prod

ucts and buying decisions. Consumers undertake complex buy

ing behavior when they are highly involved in a purchase and

perceive significant differences among brands.

reducing behavior occurs when consumers are highly involved

but see little difference among brands. Habitual buying behavior

occurs under conditions of low involvement and little significant

brand difference. In situations characterized by low involvement

but significant perceived brand differences, consumers engage in

When making a purchase, the buyer goes through a deci

sion process consisting of need recognition, information search,

evaluation of alternatives, purchase decision, and postpurchase

behavior. The marketer’s job is to understand the buyer’s behav

ior at each stage and the influences that are operating. During

need recognition, the consumer recognizes a problem or need

that could be satisfied by a product or service in the market. Once

the need is recognized, the consumer is aroused to seek more

information and moves into the information search stage. With

information in hand, the consumer proceeds to alternative evalu

ation, during which the information is used to evaluate brands

in the choice set. From there, the consumer makes a purchase

decision and actually buys the product. In the final stage of the

buyer decision process, postpurchase behavior, the consumer

takes action based on satisfaction or dissatisfaction.

Describe the adoption and

diffusion process for new

products. (pp 178–180)

The product adoption process is made up of five stages: aware

keters must think about how to help consumers move through

these stages. With regard to the diffusion process for new

products, consumers respond at different rates, depending on

consumer and product characteristics. Consumers may be in

novators, early adopters, early majority, late majority, or laggards.

Reviewing Objectives and Key Terms

Objectives Review

Objective 1

Objective 2

Objective 3

Objective 4

182 Part 2 | Understanding the Marketplace and Consumers Each group may require different marketing approaches. Market-

ers often try to bring their new products to the attention of po-

tential early adopters, especially those who are opinion leaders.

Finally, several characteristics influence the rate of adoption:

relative advantage, compatibility, complexity, divisibility, and

communicability.

Key Terms

Objective 1 Consumer buyer behavior (p 158)

Consumer market (p 158)

Objective 2 Culture (p 160)

Subculture (p 160)

Social class (p 162)

Group (p 162)

Word-of-mouth influence (p 163)

Opinion leader (p 163)

Online social networks (p 164)

Lifestyle (p 169)

Personality (p 169)

Motive (drive) (p 171)

Perception (p 172)

Learning (p 173)

Belief (p 173)

Attitude (p 174)

Objective 3 Complex buying behavior (p 174)

Dissonance-reducing buying behavior

(p 175)

Habitual buying behavior (p 175)

Variety-seeking buying behavior (p 175)

Need recognition (p 176)

Information search (p 176)

Alternative evaluation (p 177)

Purchase decision (p 177)

Postpurchase behavior (p 178)

Cognitive dissonance (p 178)

Objective 4 New product (p 178)

Adoption process (p 178)

Discussion and Critical Thinking

Discussion Questions

1. Review the “black box” model of buyer behavior. Which buyer characteristics that affect buyer behavior influence you most

when selecting a restaurant? Are those the same characteris-

tics that would influence you when making a smartphone pur-

chase? Explain. (AACSB: Communication; Reflective Thinking)

2. What is an opinion leader? Describe how marketers attempt to use opinion leaders to help sell their products. (AACSB:

Communication; Reflective Thinking)

3. Name and describe the types of buying decision behavior and describe a personal example for each. (AACSB: Communica-

tion; Reflective Thinking)

4. What is a “new product,” and how do consumers go about deciding whether to adopt a new product? (AACSB:

Communication)

Critical Thinking Exercises

1. Form a small group of four or five students. Have each group member interview 10 consumers about if and when they pur-

chased their first smartphone. Research when smartphones

were first introduced, and based on each respondent’s an-

swer, identify which adopter category best describes that

consumer. Create a chart similar to Figure 5.7 to present your

results for all group members’ interviews. How far along are

smartphones in their adoption cycle? (AACSB: Communica-

tion; Diversity; Reflective Thinking)

2. Go to the Strategic Business Insights (SBI) Web site and com- plete the VALS survey at www.strategicbusinessinsights.com/

vals/presurvey.shtml. What does VALS measure and what is

your VALS type? Does it adequately describe you? On what

dimensions are the VALS types based, and how can market-

ers use this tool to better understand consumers? (AACSB:

Communication; Use of IT; Reflective Thinking)

Chapter 5 | Consumer Markets and Consumer Buyer Behavior 183

Applications and Cases

Marketing Technology Mourning 2.0 Every culture has rituals for mourning the dead, but technol-

ogy is now changing many of our long-held cultural norms. The

conservative funeral industry is slowly embracing new technolo-

gies, resulting in new mourning behaviors. High-definition video

screens play a video homage to the deceased, live-streamed fu-

nerals reach all corners of the globe, digital guest books remain

permanently active, e-mails remind the bereaved of the anniver-

sary of a loved-one’s death, and digital candles remain perpetu-

ally “lit” on memorial pages. The deceased can now live on in

cyberspace and friends can visit them on Facebook long after

they have passed on. Quick-response code chips (“QR codes”)

affixed to tombstones can bring a person “back to life” virtually

on a smartphone. With nearly half of all Americans owning smart-

phones, 20 percent owning tablets, 80 percent on the Internet,

and almost 70 percent visiting social media sites, the time is now

right for the funeral industry to capitalize on these digital trends.

And with the still-sluggish economy and new competitors (for

example, Walmart and Costco now sell caskets online) squeez-

ing profit margins, the funeral industry is more open than ever to

ways to satisfy consumers’ mourning needs digitally.

1. Research mourning customs of other cultures. What role do products and services play in making the experience mean-

ingful for mourners? Is technology changing customs outside

of the United States? (AACSB: Communication; Diversity; Re-

flective Thinking)

2. Describe the characteristics of a new product that affect its rate of adoption. Which characteristics will impact how quickly

the new services described for the funeral industry will be ac-

cepted by mourners in the United States? (AACSB: Commu-

nication; Reflective Thinking)

Marketing Ethics “Vanity Sizing” What does an “8” mean to you? Well, if you are a female, then it

means a lot, especially if you really are a “12”—size, that is. Mar-

keters know that, too, and the trend is for larger sizes to be labeled

with smaller numbers. Sizing was standardized in the 1940s and

1950s when women started purchasing mass- produced cloth-

ing. But sizes fluctuated in the following decades and the Depart-

ment of Commerce abandoned sizing standardization in 1983.

Now, the size number can mean anything the marketer wants it to

mean. Marketers know that a size-12 woman who finds out she

can fit into an 8 will get a self-esteem boost and likely purchase

more. This practice, known as “vanity sizing,” has the potential to

pay off big for clothing manufacturers. With 34 percent of adults

in the United States overweight and another 40 percent obese,

that adds up to a sizable market potential. Plus-sized clothing

designer Torrid caters to the full-sized woman with sizes ranging

from 0–5, where a size 4 is actually a size 26. If a large number

on the size label really bothers you, stick to the more expensive

brands—they tend to be the ones using vanity sizing most.

1. Which factors are clothing marketers using to influence con- sumers? Ask five female and five male friends how much the

size labeled on clothing influences their behavior. Write a brief

report of your findings. (AACSB: Communication; Reflective

Thinking)

2. Should manufacturers be allowed to pick whatever measure- ments they want and attach any size number they want to

them? Should the government or business set standardized

sizes? (AACSB: Communication; Ethical Reasoning)

Marketing by the Numbers Evaluating Alternatives One way consumers can evaluate alternatives is to identify impor-

tant attributes and assess how purchase alternatives perform on

those attributes. Consider the purchase of an automobile. Each

attribute, such as gas mileage, is given a weight to reflect its level

of importance to that consumer. Then the consumer evaluates

each alternative on each attribute. For example, in the table, gas

mileage (weighted at 0.5) is the most important attribute for this

consumer. The consumer believes that Brand C performs best

on gas mileage, rating it 7 (higher ratings indicate higher perfor-

mance). Brand B is perceived as performing the worst on this

attribute (rating of 3). Styling and price are the consumer’s next

most important attributes. Warrant is least important.

A score can be calculated for each brand by multiplying the

importance weight for each attribute by the brand’s score on that

attribute. These weighted scores are then summed to determine

the score for that brand. For example, ScoreBrand A � (0.2 � 4) � (0.5 � 6) � (0.1 � 5) � (0.2 � 4) � 0.8 � 3.0 � 0.5 � 0.8 � 5.1. This consumer will select the brand with the highest score.

Importance

Weight (e)

Alternative Brands

Attributes A B C

Styling 0.2 4 6 2

Gas mileage 0.5 6 3 7

Warranty 0.1 5 5 4

Price 0.2 4 6 7

184 Part 2 | Understanding the Marketplace and Consumers 1. Calculate the scores for Brands B and C. Which brand would

this consumer likely choose? (AACSB: Communication; Ana-

lytic Reasoning)

2. Which brand is this consumer least likely to purchase? Discuss two ways the marketer of this brand can enhance consumer

attitudes toward purchasing its brand. (AACSB: Communica-

tion; Reflective Thinking; Analytic Reasoning)

Video Case Goodwill Industries Since 1902, Goodwill Industries has funded job training and

placement programs through its chain of thrift stores. Although

selling used clothing, furniture, and other items may not seem like

big business, for Goodwill it amounts to more than $3 billion in

annual sales. You might think of thrift stores as musty, low-class

operations. But Goodwill is putting an end to such perceptions by

focusing on consumer behavior concepts.

Like any good marketing company, Goodwill recognizes that

not all customers are the same. This video demonstrates how

Goodwill caters to different types of customers by recognizing

the cultural, social, personal, and psychological factors that af-

fect how customers make buying decisions. In this way, Goodwill

maximizes customer value by offering the right mix of goods at

unbeatable bargains.

After viewing the video featuring Goodwill, answer the follow-

ing questions:

1. Describe different types of Goodwill customers.

2. Which of the four sets of factors affecting consumer behavior most strongly affects consumers’ purchase decisions when

shopping at Goodwill?

3. How does Goodwill’s recognition of consumer behavior prin- ciples affect its marketing mix?

Company Case Porsche: Guarding the Old While Bringing in the New

Porsche (pronounced Porsh-uh) is a unique company. It has al-

ways been a niche brand that makes cars for a small and distinc-

tive segment of automobile buyers. Last year, Porsche sold only

29,023 cars in the five models it sells in the United States. Honda

sold about five times that many Accords alone. But Porsche own-

ers are as rare as their vehicles. For that reason, top managers

at Porsche spend a great deal of time thinking about customers.

They want to know who their customers are, what they think, and

how they feel. They want to know why they buy a Porsche rather

than a Jaguar, or a Ferrari, or a big Mercedes coupe. These are

challenging questions—even Porsche owners themselves don’t

know exactly what motivates their buying. But given Porsche’s

low volume and the increasingly fragmented auto market, it is

imperative that management understand its customers and what

gets their motors running.

Profile of a Porsche Owner Porsche was founded in 1931 by Ferdinand Porsche, the man

credited with designing the original Volkswagen Beetle, Adolf

Hitler’s “people’s car” and one of the most successful car designs

of all time. For most of the first two decades, the company built

Volkswagen Beetles for German citizens and tanks and Beetles

for the military. As Porsche AG began to sell cars under its own

nameplate in the 1950s and 1960s, a few constants developed.

The company sold very few models, creating an image of exclu-

sivity. Those early models had a rounded, bubble shape that had

its roots in the original Beetle, but design evolved into something

more Porsche-like with the world famous 356 and 911 mod-

els. Finally, Porsche’s automobiles featured air-cooled four- and

six-cylinder “boxer” motors (cylinders in an opposed configura-

tion) in the rear of the car. This gave the cars a unique and often

dangerous characteristic—a tendency for the rear-end to swing

out when cornering hard. That’s one of the reasons that Porsche

owners were drawn to them. They were challenging to drive and

that kept most people away, making the car even more exclusive.

Since its early days, Porsche has appealed to a very narrow

segment of financially successful people. These are achievers

who see themselves as entrepreneurial, even if they work for a

corporation. They set very high goals for themselves and then

work doggedly to meet them. And they expect no less from the

clothes they wear, the restaurants they go to, or the cars they

drive. These individuals see themselves not as a part of the regu-

lar world, but as exceptions to it. They buy Porsches because the

car mirrors their self-image—it stands for the things owners like

to see in themselves and in their lives.

Most of us buy what Porsche executives call utility vehicles.

That is, we buy cars to go to work, to deliver the kids, and to

run errands. Because we have to use our cars to accomplish

these daily tasks, we base buying decisions on features such as

price, size, fuel economy, and other practical considerations. But

a Porsche is more than a utility car. Its owners see it as a car to

be enjoyed, not just used. Most Porsche buyers are not moved by

information, but by feelings. A Porsche is like a piece of clothing,

something the owner “wears” and is seen in. They develop a per-

sonal relationship with their cars, one that has more to do with the

way the car sounds, vibrates, and feels than with how many cup

holders it has or how much cargo it can tote. They admire their

Porsches as machines that perform without being flashy or phony.

People buy Porsches because they enjoy driving. If all they

needed was something to get them from point A to point B, they

could find something much less expensive. And whereas many

Porsche owners are car enthusiasts, some of them are not. One

successful businesswoman and owner of a high-end Porsche

said, “When I drive this car to the high school to pick up my

daughter, I end up with five youngsters in the car. If I drive any

other car, I can’t even find her; she doesn’t want to come home.”

From Niche to Numerous For the first few decades, Porsche AG lived by the philosophy of

Ferry Porsche, Ferdinand’s son. Ferry created the Porsche 356

Chapter 5 | Consumer Markets and Consumer Buyer Behavior 185 because no one else made a car like the one he wanted. “We did

not do market research, we had no sales forecasts, no return-on-

investment calculations. None of that. I very simply built my dream

car and figured that there would be other people who share that

dream.” So really, Porsche AG from the beginning was very much

like its customers: an achiever that set out to make the very best.

But as the years rolled on, Porsche management became

concerned with a significant issue: Were there enough Porsche

buyers to keep the company afloat? Granted, the company never

had illusions of churning out the numbers of Chevrolet or Toyota.

But to fund innovation, even a niche manufacturer has to grow a

little. And Porsche began to worry that the quirky nature of the

people who buy Porsches might just run out on them.

This led Porsche to extend its brand outside the box. In the

early 1970s, Porsche introduced the 914, a square-ish, mid-

engine two-seater that was much cheaper than the 911. This

meant that a different class of people could afford a Porsche. It

was no surprise that the 914 became Porsche’s top-selling model.

By the late 1970s, Porsche replaced the 914 with a hatchback

coupe that had something no other regular Porsche model had

ever had: an engine in the front. At less than $20,000, more than

$10,000 less than the 911, the 924 and later 944 models were

once again Porsche’s pitch to affordability. At one point, Porsche

increased its sales goal by nearly 50 percent to 60,000 cars a

year.

Although these cars were in many respects sales successes,

the Porsche faithful cried foul. They considered these entry-level

models to be cheap and underperforming. Most loyalists never

really accepted these models as “real” Porsches. In fact, they

were not at all happy that they had to share their brand with a

customer who didn’t fit the Porsche-owner profile. They were

turned off by what they saw as a corporate strategy that had

focused on mass over class marketing. This tarnished image was

compounded by the fact that Nissan, Toyota, BMW, and other

car makers had ramped up high-end sports car offerings, creat-

ing some fierce competition. In fact, both the Datsun 280-ZX and

the Toyota Supra were not only cheaper than Porsche’s 944, they

were faster. A struggling economy threw more sand in Porsche’s

tank. By 1990, Porsche sales had plummeted and the company

flirted with bankruptcy.

Return to Its Roots? But Porsche wasn’t going down without a fight. It quickly recog-

nized the error of its ways and halted production of the entry-level

models. It rebuilt its damaged image by revamping its higher-end

model lines with more race-bred technology. In an effort to regain

rapport with customers, Porsche once again targeted the high

end of the market in both price and performance. It set mod-

est sales goals and decided that moderate growth with higher

margins would be more profitable in the long term. The company

set out to make one less Porsche than the public demanded.

According to one executive, “We’re not looking for volume, we’re

searching for exclusivity.”

Porsche’s efforts had the desired effect. By the late 1990s,

the brand was once again favored by the same types of achiev-

ers who had so deeply loved the car for decades. The cars were

once again exclusive. And the company was once again profit-

able. But by the early 2000s, Porsche management was ask-

ing itself a familiar question: To have a sustainable future, could

Porsche rely on only the Porsche faithful? According to then CEO

Wendelin Wiedeking, “For Porsche to remain independent, it

can’t be dependent on the most fickle segment in the market.

We don’t want to become just a marketing department of some

giant. We have to make sure we’re profitable enough to pay for

future development ourselves.”

So in 2002, Porsche did the unthinkable. It became one of

the last car companies to jump into the insatiable SUV market.

At roughly 5,000 pounds, the Porsche Cayenne was heavier

than anything that Porsche had ever made with the exception of

some prototype military tanks it made during WWII. Once again,

the new model featured an engine up front. And it was the first

Porsche to ever be equipped with seat belts for five. As news

spread about the car’s development, howls of distress could be

heard from Porsche’s customer base.

But this time, Porsche did not seem too concerned that the

loyalists would be put off. Could it be that the company had al-

ready forgotten what happened the last time it deviated from the

mold? Apparently not. After driving one of the first Cayennes off

the assembly line, one journalist stated, “A day at the wheel of the

444 horsepower Cayenne Turbo leaves two overwhelming im-

pressions. First, the Cayenne doesn’t behave or feel like an SUV,

and second, it drives like a Porsche.” This was no entry-level car.

Porsche had created a two-and-a-half ton beast that could ac-

celerate to 60 miles per hour in just over five seconds, corner like

it was on rails, and hit 165 miles per hour, all while coddling five

adults in sumptuous leather seats with almost no wind noise from

the outside world. On top of that, it could keep up with a Land

Rover when the pavement ended. Indeed, Porsche had created

the Porsche of SUVs.

Recently, Porsche upped the ante one more time. It unveiled

another large vehicle. But this time, it was a low-slung, five-door

luxury sedan. The Porsche faithful and the automotive press

again gasped in disbelief. But by the time the Panamera hit the

pavement, Porsche had proven once again that Porsche custom-

ers could have their cake and eat it too. The Panamera is almost

as big as the Cayenne but can move four adults down the road

at speeds of up to 190 miles per hour, accelerate from a standstill

to 60 miles per hour in 3.6 seconds, and still wring 23 miles out

of a gallon of gasoline.

Although some Porsche traditionalists would never be caught

dead driving a front-engine Porsche that has more than two

doors, Porsche insists that two trends will sustain these new

models. First, a category of Porsche buyers has moved into life

stages that have them facing inescapable needs—they need to

haul more people and stuff. This not only applies to certain reg-

ular Porsche buyers, but Porsche is again seeing buyers enter

its dealerships who otherwise wouldn’t have. Only this time, the

price points of the new vehicles are drawing only the well heeled,

allowing Porsche to maintain its exclusivity. These buyers also

seem to fit the achiever profile of regular Porsche buyers.

The second trend is the growth of emerging economies.

Whereas the United States has long been the world’s biggest

consumer of Porsches, the company expects China to become

its biggest customer before long. Twenty years ago, the United

States accounted for about 50 percent of Porsche’s worldwide

sales. Now, it accounts for less than 25 percent. In China, many

people who can afford to buy a car as expensive as a Porsche

also hire a chauffer. The Cayenne and the Panamera are perfect

for those who want to be driven around in style but who may also

want to make a quick getaway if necessary.

The most recent economic downturn brought down the sales

of just about every maker of premium automobiles. When times

are tough, buying a car like a Porsche is the ultimate postponable

purchase. But as this downturn turns back up, Porsche is better

186 Part 2 | Understanding the Marketplace and Consumers positioned than ever to meet the needs of its customer base. In

fact, its global unit sales are up by 21 percent to a company record

118,867 vehicles. Porsche is also in better shape than ever to

maintain its brand image with the Porsche faithful, and with others

as well. Understanding Porsche buyers is still a difficult task. But

one former chief executive of Porsche summed it up this way: “If

you really want to understand our customers, you have to under-

stand the phrase, ‘If I were going to be a car, I’d be a Porsche.’”

Questions for Discussion 1. Analyze the buyer decision process of a traditional Porsche

customer.

2. Contrast the traditional Porsche customer decision process to the decision process for a Cayenne or Panamera customer.

3. Which concepts from the chapter explain why Porsche sold so many lower-priced models in the 1970s and 1980s?

4. Explain how both positive and negative attitudes toward a brand like Porsche develop. How might Porsche change con-

sumer attitudes toward the brand?

5. What role does the Porsche brand play in the self-concept of its buyers?

Sources: Andre Tutu, “Porsche Announces 2011 Sales Increase,” Au- toevolution, January 3, 2012, www.autoevolution.com/news/porsche-

announces-2011-us-sales-increase-41571.html; David Gumpert, “Porsche

on Nichemanship,” Harvard Business Review, March/April 1986, pp. 98–106;

Peter Robinson, “Porsche Cayenne—Driving Impression,” Car and Driver,

January, 2003, www.caranddriver.com/reviews/porsche- cayenne-first-drive-

review; Jens Meiners, “2010 Porsche Panamera S/4S/Turbo–First Drive

Review,” Car and Driver, June, 2009, www .caranddriver.com/reviews/2010-

porsche-panamera-s-4s-turbo-first-drive-review; and information from www

.porsche.com/usa/ aboutporsche/pressreleases/, accessed July 2012.

References 1. Portions adapted from information found in Tom Foster, “The Go-

Pro Army,” Inc., January 26, 2012, accessed at www.inc.com/

magazine/201202/the-gopro-army.html; Tom Foster, “How GoPro

Measures Social Engagement,” Inc., January 26, 2012, accessed

at www.inc.com/magazine/201202/the-bare-truth-gopro-social-

engagement.html; Peter Burrows, “GoPro’s Incredible Small, Du-

rable Camcorder,” Bloomberg Businessweek, June 30, 2011,

accessed at www.businessweek.com/magazine/gopros-incredible-

small- durable-camcorder-07012011.html; Casey Newton, “Go-

Pro Positioned to Grab Big Slice of Global Market,” San Francisco

Chronicle, May 6, 2011, p. D1; and www.GoPro.com and http://

gopro.com/about-us/, accessed September 2012.

2. Consumer expenditure figures from https://www.cia.gov/library/ publications/the-world-factbook/geos/us.html. Population figures

from the World POPClock, U.S. Census Bureau, www.census

.gov/main/www/popclock.html, accessed March 2012. This Web

site provides continuously updated projections of U.S. and world

populations.

3. For these and other statistics, see Terry Mangano, “As Hispanic Population Grows, So Too Do Challenges for Marketers—5 In-

sights,” Promo, January 23, 2012, http://promomagazine.com/

retail/ hispanic_shoppers_insights_0123_peo9/; Sam Fahmy, “De-

spite Recession, Hispanic and Asian Buying Power Expected to

Surge in U.S.,” November 4, 2010, accessed at www.terry.uga.edu/

news/releases/2010/minority-buying-power-report.html; Claudia

Goffan, “Hispanic Market Trends Forecast,” Target Latino, accessed

at www.targetlatino.com/hispanicmarketingtrendforecast.html, Feb-

ruary 2012; and U.S. Census Bureau, “U.S. Population Projections,”

www.census.gov/population/www/projections/summarytables

.html, accessed August 2012.

4. Laurie Sullivan, “Google Puts Resources Behind U.S. Hispanic Market,” Online Media Daily, January 27, 2012, accessed at www

.mediapost.com/publications/article/143763/; and “Hispanics More

Active on Social Media Than Other Ethnicities,” eMarketer, March 2,

2012, www.emarketer.com/Articles/Print.aspx?R=1008877.

5. “Nestlé’s New Construye El Mejor Nido (‘Create the Best Nest’) Pro- gram Supports Hispanic Heritage Month,” PRNewswire, Septem-

ber 29, 2011; Elena del Valle, “Nestlé Targets U.S. Spanish Speakers

with New Efforts,” Hispanic Marketing and Public Relations, Novem-

ber 9, 2011, www.hispanicmpr.com/2011/11/09/nestle-targets-u-

s-spanish-speakers-with-new-efforts/; and http://www.elmejornido

.com/, accessed September 2012.

6. See “Many Cultures, Many Numbers,” Brandweek, September 27, 2010, p. 16; Sam Fahmy, “Despite Recession, Hispanic and Asian

Buying Power Expected to Surge in U.S.,” accessed at www.terry

.uga.edu/news/releases/2010/minority-buying-power-report.html;

and U.S. Census Bureau reports, www.census.gov, accessed

March 2012.

7. “Procter & Gamble; P&G’s My Black Is Beautiful TV Series Celebrates Another Successful Season on BET Networks,” Marketing Weekly

News, January 1, 2011, p. 76; “Procter & Gamble’s My Black Is

Beautiful Honored with City of Cincinnati Proclamation,” PR News-

wire, May 21, 2010; and information from www. myblackisbeautiful

.com, accessed September 2012. Also see www.covergirl.com/

queen, accessed September 2012.

8. See “Many Cultures, Many Numbers,” p. 16; Sam Fahmy, “Despite Recession, Hispanic and Asian Buying Power Expected to Surge

in U.S.”; Neda Ulaby, “Corporate America Takes on Multilingual

PR,” NPR, May 5, 2011, www.npr.org/2011/05/05/135985502/

corporate-america-take-on-multilingual-pr; and U.S. Census Bureau

reports, www.census.gov, accessed March 2012.

9. For more on these and other Subaru Asian American marketing ef- forts, see “Subaru Launches Ads for Chinese-American Market,”

MarketingDaily, May 19, 2011, accessed at www.mediapost.com;

Tim Peterson, “Subaru Campaign Targets Chinese-American Con-

sumers,” Direct Marketing News, May 20, 2011, accessed at www

.dmnews.com; “2011 Subaru WRX Case Study,” accessed at http://

asianamericanadnetwork.com/#/Video/, March 2012; and www

.youtube.com/watch?v=D6BwBpIt8BQ, accessed March 2012.

10. Eleftheria Parpis, “Goodbye Color Codes,” Adweek, September 27, 2010, pp. 24–25; “Ethnic Marketing: McDonald’s Is Lovin’ It,”

Bloomberg BusinessWeek, July 18, 2010, pp. 22–23; Stuart Elliott,

“Mosaic Marketing Takes a Fresh Look at Changing Society,” New

York Times, July 18, 2011, p. B3; and “Business: One Message, or

Many?; Ethnic Advertising,” The Economist, December 31, 2011.

11. Adapted from information found in Jennifer Alsever, “Video Testimo- nials Turn Customers into Spokespeople,” Inc., December 2011/

January 2012, pp. 116–118.

12. Victoria Taylor, “The Best-Ever Social Media Campaign,” Forbes, Au- gust 17, 2010, accessed at www.forbes.com; Bruce Horovitz, “Mar-

keters: Inside Job on College Campuses,” USA Today, October 4,

2010, p. B1; Alan Mitchell, “Word-of-Mouth Is Over-Hyped,” Market-

ing, October 6, 2011, accessed at www.marketingmagazine.co.uk;

and Steven Williams, “Digital, Social Media Take Center Stage,”

Advertising Age, January 12, 2012, accessed at http://adage.com/

article/digital/digital-social-media-center-stage-auto-show/232068/.

13. Jack Neff, “Time to Rethink Your Message: Now the Cart Belongs to Daddy,” Advertising Age, January 17, 2011, http://adage.com/

article/news/men-main-grocery-shoppers-complain-ads/148252/;

George Anderson, “Study: Men Go Grocery Shopping,” Retail Wire,

January 18, 2011, www.retailwire.com/discussion/15007/study-

men-go-grocery-shopping; and Emily Bryson York, “Retailers Adjust

Chapter 5 | Consumer Markets and Consumer Buyer Behavior 187 Marketing as More Men Take over Grocery Shopping,” Los Angeles

Times, December 29, 2011.

14. See Tim Nudd, “IKEA Debuts Mänland, a Daycare for Men while Women Shop,” Adweek, September 20, 2011, accessed at www

.adweek.com.

15. Laura A. Flurry, “Children’s Influence in Family Decision Making: Ex- amining the Impact of the Changing American Family,” Journal of

Business Research, April 2007, pp. 322–330; and “Tween Years

Prove to Be Rewarding for Toymakers,” USA Today, December 22,

2010, p. 1B.

16. Information on Acxiom’s Personicx segmentation system accessed at www.acxiom.com/Ideas-and-Innovation/Self-Assessment-Tools/,

November 2012.

17. For these and other examples and quotes, see www.carhartt.com, accessed September 2012.

18. See Stuart Elliott, “Penney’s New Approach Takes Target-Like Tack,” New York Times, January 25, 2012.

19. Quotes and other information from www.rei.com/aboutrei/about_rei .html and other pages at the www.rei.com site, accessed March

2012.

20. See Jennifer Aaker, “Dimensions of Measuring Brand Personality,” Journal of Marketing Research, August 1997, pp. 347–356; and

Kevin Lane Keller, Strategic Brand Management, 3rd ed. (Upper

Saddle River, New Jersey, 2008), pp. 66–67. For more on brand

personality, see Lucia Malär, Harley Kromer, Wayne D. Hoyer, and

Bettina Nyffenegger, “Emotional Brand Attachment and Brand Per-

sonality: The Relative Importance of the Actual and the Ideal Self,”

Journal of Marketing, July 2011, pp. 35–52; and Jack Neff, “Just

How Well-Defined Is Your Brand’s Ideal?” Advertising Age, January

16, 2012, p. 4.

21. See Chiara Atik, “Will Women Give Axe Fragrance the Ax?” The Look on Today, January 23, 2012, http://thelook.today.msnbc.msn.com/_

news/2012/01/23/10216466-will-women-give-axe- fragrance-

the-ax; “AXE Unleashes Anarchy with First-Ever Fragrance for Girls,”

PR Newswire, January 12, 2012; and www.unilever.com/brands/

personalcarebrands/axe/index.aspx, accessed September 2012.

22. See Abraham H. Maslow, “A Theory of Human Motivation,” Psycho- logical Review, 50 (1943), pp. 370–396. Also see Maslow, Motiva-

tion and Personality, 3rd ed. (New York: HarperCollins Publishers,

1987); and Michael R. Solomon, Consumer Behavior, 9th ed. (Upper

Saddle River, NJ: Prentice Hall, 2011), pp. 135–136.

23. Ellen Moore, “Letter to My Colleague: We Can Do Better,” Adweek, December 22, 2010, www.adweek.com/news/advertising-branding/

letter-my-colleagues-we-can-do-better-104084.

24. For more reading, see Lawrence R. Samuel, Freud on Madison Av- enue: Motivation Research and Subliminal Advertising in America

(Philadelphia: University of Pennsylvania Press, 2010); Charles R.

Acland, Swift Viewing: The Popular Life of Subliminal Influence (Duke

University Press, 2011); and Christopher Shea, “The History of Sub-

liminal Ads,” Wall Street Journal, February 15, 2012, http://blogs

.wsj.com/ideas-market/2012/02/15/the-history-of-subliminal-ads/.

25. Example adapted from information found in John Berman, “Shrek Boosts Vidalia Onion Sales,” June 29, 2010, http://abcnews .go

.com/WN/shrek-boosts-vidalia-onion-sales/story?id=11047273;

and “Vidalia Onion Committee Cinches Triple Crown of National

Marketing Awards,” October 20, 2011, www.vidaliaonion.org/

news/vidalia_onion_committee_cinches_triple_crown_of_national_

marketing_awards. Vidalia® is a registered certification mark of

Georgia Department of Agriculture.

26. Quotes and information from Yubo Chen and Jinhong Xie, “Online Consumer Review: Word-of-Mouth as a New Element of Market-

ing Communication Mix,” Management Science, March 2008,

pp. 477–491; “Leo J. Shapiro & Associates: User-Generated Con-

tent Three Times More Influential Than TV Advertising on Consumer

Purchase Decisions,” Marketing Business Weekly, December 28,

2008, p. 34; and The 2011 Digital Marketer: Benchmark and Trend

Report, Experian Marketing Services, accessed at www.experian

.com/ marketing-services/register-2011-digital-marketer.html.

27. See Leon Festinger, A Theory of Cognitive Dissonance (Stanford, CA: Stanford University Press, 1957); Cynthia Crossen, “‘Cognitive

Dissonance’ Became a Milestone in the 1950s Psychology,” Wall

Street Journal, December 12, 2006, p. B1; and Anupam Bawa and

Purva Kansal, “Cognitive Dissonance and the Marketing of Services:

Some Issues,” Journal of Services Research, October 2008–March

2009, p. 31.

28. The following discussion draws from the work of Everett M. Rogers. See his Diffusion of Innovations, 5th ed. (New York: Free Press,

2003).

29. Jackie Crosbie, “Best Buy Launches Gadget Buyback,” Star Tribune (Minneapolis–St. Paul), January 10, 2011; Olga Kharif, “Buyback In-

surance on an iPad Is $50 and Pays Out Half the Cost of the Device

If You Return It Within Six Weeks. Sound Like a Deal?” Bloomberg

Businessweek, August 1–August 7, 2011, pp. 35–36; and www

.bestbuy.com/site/Misc/Buy-Back-Program/pcmcat230000050010

.c?id=pcmcat230000050010&DCMP=rdr2161, accessed November

2012.

30. Based on Everett M. Rogers, Diffusion of Innovation, 5th ed. (New York: Simon & Schuster, 2003), p. 281. For more discussion, see

http://en.wikipedia.org/Everett_Rogers, accessed November 2012.

31. “HDTV Households Now Dominate U.S. Viewing Landscape, Accord- ing to LRG Study,” Broadcast Engineering, December 30, 2010, http://

broadcastengineering.com/hdtv/hdtv-households-dominate-viewing-

landscape-according-to-lrg-study-20110104/; and George Winslow,

“Two-Thirds of U.S. Households Have HDTV,” TVNewsCheck, Janu-

ary 12, 2012, www.tvnewscheck.com/tag/hdtv-penetration.

to be an enormous undertaking at first glance. KarmSolar ex-

ecutives knew they could compete in the consumer products

segment as a startup and could not sell universal, ready-made

products that can operate under any conditions, and for these

two reasons another business strategy had to be adopted.

KarmSolar’s business-to-business model is based on the

provision of custom-designed commercial solar energy applica-

tions and solutions to clients in the off-grid agricultural and in-

dustrial market. The solutions are custom designed to meet the

unique needs of each client, with the end goal of providing the

Part 1: Defining Marketing and the Marketing Process (Chapters 1–2)

Part 2: Understanding the Marketplace and Consumers (Chapters 3–6)

Part 3: Designing a Customer-Driven Strategy and Mix (Chapters 7–17)

Part 4: Extending Marketing (Chapters 18–20)

Business Markets and Business Buyer Behavior6

Chapter Preview In the previous chapter, you

studied final consumer buy-

ing behavior and factors that influence it. In this chapter, we’ll

do the same for business customers—those that buy goods

and services for use in producing their own products and ser-

vices or for resale to others. As when selling to final buyers,

firms marketing to business customers must build profitable re-

lationships with business customers by creating superior cus-

tomer value.

To start, let’s look at a startup company from Egypt. Karm-

Solar provides custom solar energy applications to the agricul-

tural and industrial market, but also provides help with financial

analysis, and overcoming the challenges that their clients face

when switching to solar power. To succeed in these business-to-

business markets, KarmSolar must do more than just design and

distribute good products. It must work closely and deeply with

its business customers to become a strategic, problem-solving

partner.

KarmSolar: Building Partnerships and Providing Cheap Sustainable Solutions

K armSolar Inc. is an Egyptian company founded in

October 2011 with the sole purpose of providing

cost-competitive renewable energy solutions to the

Egyptian market and the MENA region. But to be

able to do that, KarmSolar needed an edge, a niche, a selling

point that would set it apart from the competition. Solar energy

has been used for years, but it was always disregarded as a prac-

tical alternative when designing any commercial or agricultural

project. This fact can be attributed to many social and economi-

cal factors; however, the main reason is the lack of awareness

and understanding of the technology. It has been regarded as

a space-age technology that is too expensive to be applied in

industrial solutions, but this is far from the truth.

The real challenge for KarmSolar was

to convince customers and consum-

ers that solar energy is cheaper

than conventional fuels. And to

add to the challenges KarmSolar

faced, the Egyptian government

subsidizes all conventional energy

sources, including natural gas, diesel,

and electricity, provided by the government,

making KarmSolar’s investment in solar energy appear

“Our relationship with our customers is

based on trust. We offer them the means to grow and increase their profitability.” For KarmSolar, it’s not a one-off sale; it’s a partnership which results

in mutual benefits and business growth.

Chapter 6 | Business Markets and Business Buyer Behavior 189 client with a commercially viable energy solution. With a very

high potential for growth and expansion, KarmSolar started

comprehensive solutions with innovative solar energy solu

tions. “The key to winning clients in our fi eld is in understand

ing their challenges, and in providing them with innovative and

sustainable energy solutions to help them reduce their operat

ing costs and consequently achieve their breakthrough results,”

says Ahmed Zahran, KarmSolar CEO.

At this point, research had been under way for several

pacities, and with a very high markup. Naturally, the gap was

fi lled by diesel and natural gas generators. KarmSolar had to

be innovative: “We had to customize, and come up with a turn

key innovative technology, that would change people’s percep

tion of Solar Energy, and we did,” says Xavier Auclair, Chief

of Innovation and Technology. KarmSolar’s solution utilizes

the varying intensity of solar radiation to provide the highest

throughput and maximize the utilization of client assets.

For KarmSolar’s clients, the decision to invest in a solar

power generation plant is anything but easy. It is a very tiring

process that involves calculating and forecasting the economics

and fi nancials of such an investment. This makes it extremely

important for KarmSolar when providing the comprehensive

solution to help with all fi nancial and economical studies re

ner; it has to get involved in the client’s problems to understand

that client’s challenges. And this strategy has been very success

ful for both parties, providing mutual growth potential.

culture is highly wasteful; we do not provide solar energy as a

cheaper alternative for fossil fuels only, we also help the farms

understand how they are wasting their resources, like water, fer

tilizers, and energy, and how they can increase their effi ciency

and minimize their costs,” says Mohamed Fadly, KarmSolar’s

Innovation Offi cer. KarmSolar now operates with a partnership

mentality in all relationships with business clients, who in turn

sell their products to the market.

Every sale for KarmSolar counts, and thus is handled with

great care and attention; every project has different character

istics and conditions, which results in the complex and com

prehensive nature of the solutions. For KarmSolar, it is not a

sale—it is a partnership. “Our relationship with our customers

is based on trust. We offer them

the means to grow and increase

their profi tability; we engage them

in the design and make sure they

get what they need,” says Yumna

Madi, KarmSolar’s Chief Business

Development Offi cer. The business

strategy KarmSolar uses is simple,

and it is based on the mutual ben

efi t and growth of both businesses.

KarmSolar’s competitive edge comes from its ability to stay

one step ahead of the competition. Notes Madi, “We continu

ously invest in Research and Development to make sure we are

always ahead of our competition. Our price is the fi rst thing

customers ask about. And we have to stay appealing.” The only

grator, to keep prices down and stay competitive in the market

is by innovating and driving out all losses in its solutions. “We

provide trainings to the clients; we provide after sale support.

And we teach them how to use our solutions effectively,” notes

Madi. This wasn’t easy at the beginning, and this is why Karm

agement Interface, or SMI. This is how the KarmSolar simplifi es

its services and makes it easier for business clients to under

stand and interact with the solar power solution.

Driven by a passion to make a difference and a dream to

make solar energy viable for all business sectors, KarmSolar acts

your kitchen or living room, but some of your food might have

KarmSolar works closely

with their customers,

offering training, support,

and education, and

developing a mutually

benefi cial partnership in

the process.

190 Part 2 | Understanding the Marketplace and Consumers

Like KarmSolar, in one way or another, most large companies sell to other orga nizations. Companies such as Boeing, DuPont, IBM, Caterpillar, and countless other fi rms sell

most make products used by fi nal consumers, must fi rst sell their products to other businesses.

For example, General Mills makes many familiar consumer brands—Big G cereals (Cheerios,

Wheaties, Trix, Chex, Total, Fiber One), baking products (Pillsbury, Betty Crocker, Bisquick,

ice cream, and many others. But to sell these products to consumers, General Mills must fi rst

sell them to its wholesaler and retailer customers, who in turn serve the consumer market.

Business buyer behavior refers to the buying behavior of the organizations that buy

goods and services for use in the production of other products and services that are sold,

rented, or supplied to others. It also includes the behavior of retailing and wholesaling

fi rms that acquire goods to resell or rent them to others at a profi t. In the business buying

process, business buyers determine which products and services their organizations need

to purchase and then fi nd, evaluate, and choose among alternative suppliers and brands.

( ) marketers must do their best to understand business markets and business buyer behavior. Then, like businesses that sell to fi nal buyers, they must build

profi table relationships with business customers by creating superior customer value.

Business Markets The business market is huge. In fact, business markets involve far more dollars and items than do consumer markets. For example, think about the large number of business transac

tions involved in the production and sale of a single set of Goodyear tires. Various suppliers

sell Goodyear the rubber, steel, equipment, and other goods that it needs to produce tires.

Goodyear then sells the fi nished tires to retailers, which in turn sell them to consumers.

Objective Outline

Objective 1 Defi ne the business market and explain how business markets differ from consumer markets.

Business Markets (pp 190–192)

Objective 2 Identify the major factors that infl uence business buyer behavior.

Business Buyer Behavior (pp 193–197)

Objective 3 List and defi ne the steps in the business buying decision process.

The Business Buying Process (pp 197–199)

(pp 199–200)

Objective 4 Compare the institutional and government markets and explain how institutional and government buyers make their buying decisions.

Institutional and Government Markets (pp 200–205)

Objective 1 Defi ne the business market and

explain how business markets

differ from consumer markets.

Business buyer behavior

The buying behavior of organizations

that buy goods and services for use in

the production of other products and

services that are sold, rented, or supplied

to others.

Business buying process

The decision process by which business

buyers determine which products and

services their organizations need to

purchase and then find, evaluate, and

choose among alternative suppliers and

brands.

Chapter 6 | Business Markets and Business Buyer Behavior 191

Nature of the Buying Unit Compared with consumer purchases, a business purchase usually involves more decision par ticipants and a more professional purchasing effort. Often, business buying is done by trained pur chasing agents who spend their working lives learning how to buy better. The more complex

process. Buying committees composed of technical experts and top management are common

level,

Types of Decisions and the Decision Process Business buyers usually face more complex buying decisions than do consumer buyers. Business purchases often involve large sums of money, complex technical and economic

considerations, and interactions among people at many levels of the buyer ’s organization.

Thus, many sets of purchases were made for only one set of consumer purchases. In addition, Goodyear sells tires as original equipment to manufacturers that install them on

new vehicles and as replacement tires to companies that maintain their own fl eets of com

pany cars, trucks, or other vehicles.

In some ways, business markets are similar to consumer markets. Both involve people who

assume buying roles and make purchase decisions to satisfy needs. However, business markets

differ in many ways from consumer markets. The main differences are in market structure and demand, the , and the involved.

Market Structure and Demand The business marketer normally deals with than the consumer

marketer does. Even in large business markets, a few buyers often account for most of the

purchasing. For example, when Goodyear sells replacement tires to fi nal consumers, its

potential market includes millions of car owners around the world. But its fate in business

markets depends on getting orders from only a handful of large automakers.

Further, business demand is derived demand—it ulti

mately derives from the demand for consumer goods. For ex

manufacturers who make and sell outdoor apparel brands made

So to boost demand for

directly markets brands containing

Marmot, and The North Face to Burton and L.L. Bean—on its

To deepen its direct relationship with outdoor enthusiasts

further, Gore even sponsors an “Experience More” online commu

nity in which members can share experiences and videos, connect

with outdoor experts, and catch exclusive gear offers from partner

brands. As a result, consumers around the world have learned to

partner brands win. No matter what brand of apparel or footwear

anteed to keep you dry.”

Finally, many business markets have inelastic and more fluctuat ing demand. The total demand for many business products is not much affected by price changes, especially in the short run. A drop

in the price of leather will not cause shoe manufacturers to buy

much more leather unless it results in lower shoe prices that, in

turn, increase consumer demand for shoes. And the demand for

many business goods and services tends to change more—and

more quickly—than does the demand for consumer goods and ser

vices. A small percentage increase in consumer demand can cause

large increases in business demand. markets directly to the buyers of outdoor apparel and other

brands made from its fabrics. Both Gore and its partner

brands—here, The North Face—win.

Courtesy of W. L. Gore & Associates, Inc.

Derived demand

Business demand that ultimately comes

from (derives from) the demand for

consumer goods.

192 Part 2 | Understanding the Marketplace and Consumers The business buying process also tends to be longer and more formalized. Large business purchases usually call for detailed product specifi cations, written purchase orders, careful

supplier searches, and formal approval.

Finally, in the business buying process, the buyer and seller are often much more dependent their customers during all stages of the buying process—from helping customers defi ne

their offerings to individual customer needs. In the short run, sales go to suppliers who

and by partnering with them to help solve their problems. For example, Dow Performance Plastics doesn’t just

sell commodity plastics to its industrial customers—it works with these customers to help them succeed in their own markets:2

At Dow Performance Plastics, think

ing about how plastics can make our

lives better is at the very core of its busi

ness strategy. What makes that notewor

thy, however, is that Dow doesn’t sell its

products to you and me. Instead, it sells

mountains of raw materials to its business

customers, who in turn sell parts to the

companies who sell their products to fi nal

users. So Dow understands that it isn’t just

selling commodity plastics; it’s helping the

businesses that buy its plastics materials to

be heroes with their own customers. Dow

Performance Plastics considers itself a part

ner, not just a supplier. “Whether they’re

using Dow’s plastics to make bags for

Safeway or for complex [automotive] ap

plications, we have to help them succeed in

their markets,” says a Dow spokesperson.

“Think of Dow as the team behind your team,” says Dow at its Web site. “We believe in a

simple concept . . . if you win, we win.”

As in Dow’s case, in recent years, relationships between most customers and sup

pliers have been changing from downright adversarial to close and chummy. In fact,

many customer companies are now practicing supplier development, systematically

and materials that they use in making their own products or reselling to others. For

example, Walmart doesn’t have a “Purchasing Department”; it has a “Supplier Devel

opment Department.” The giant retailer knows that it can’t just rely on spot suppliers

who might be available when needed. Instead, Walmart manages a robust network of

sells to its customers each year.

Supplier development

Systematic development of networks

appropriate and dependable supply of

products and materials for use in making

products or reselling them to others.

Dow Performance Plastics Think of Dow as the team... behind your team.

businesses that buy its plastics to be heroes with their own customers. “We believe in a

simple concept . . . if you win, we win.”

The Dow Chemical Company

Marketing stimuli

Other stimuli

The environment

In some ways, business markets are similar to consumer markets —this model looks a lot like the model of consumer buyer behavior presented in Figure 5.1. But there are some major differences, especially in the nature of the buying unit, the types of decisions made, and the decision process.

The buying organization

The buying center

Buying decision process

Buyer responses FIGURE | 6.1 A Model of Business Buyer

Behavior

Chapter 6 | Business Markets and Business Buyer Behavior 193

Business Buyer Behavior At the most basic level, marketers want to know how business buyers will respond to vari

ous marketing stimuli. Figure 6.1 shows a model of business buyer behavior. In this

model, marketing and other stimuli affect the buying organization and produce certain buyer

responses. To design good marketing strategies, marketers must understand what happens

within the organization to turn stimuli into purchase responses.

Within the organization, buying activity consists of two major parts: the buying center, com

posed of all the people involved in the buying decision, and the buying decision process. The

model shows that the buying center and the buying decision process are infl uenced by internal

organizational, interpersonal, and individual factors as well as external environmental factors.

The model in Figure 6.1 suggests four questions about business buyer behavior: What buy

ing decisions do business buyers make? Who participates in the business buying process? What

are the major infl uences on buyers? How do business buyers make their buying decisions?

Major Types of Buying Situations There are three major types of buying situations.3 In a straight rebuy, the buyer reorders

something without any modifi cations. It is usually handled on a routine basis by the pur

chasing department. To keep the business, “in” suppliers try to maintain product and service

quality. “Out” suppliers try to fi nd new ways to add value or exploit dissatisfaction so that

the buyer will consider them.

In a modifi ed rebuy, the buyer wants to modify product specifi cations, prices, terms, or

suppliers. The “in” suppliers may become nervous and feel pressured to put their best foot

forward to protect an account. “Out” suppliers may see the modifi ed rebuy situation as an

opportunity to make a better offer and gain new business.

A company buying a product or service for the fi rst time faces a new task situation.

In such cases, the greater the cost or risk, the larger the number of decision participants

and the greater the company’s efforts to collect information. The new task situation is the

marketer ’s greatest opportunity and challenge. The marketer not only tries to reach as

many key buying infl uences as possible but also provides help and information. The buyer

makes the fewest decisions in the straight rebuy and the most in the new task decision.

Many business buyers prefer to buy a complete solution to a problem from a single

seller rather than buying separate products and services from several suppliers and put

ting them together. The sale often goes to the firm that provides the most complete

for meeting the customer ’s needs and solving its problems. Such systems sell

ing (or solutions selling) is often a key business marketing strategy for winning and

holding accounts. Consider IBM and its customer Six Flags Entertainment Corporation:4

Six Flags operates 19 regional theme parks across the

United States, Mexico, and Canada, featuring exciting rides

cial shows and concerts. To deliver a fun and safe expe

rience for guests, Six Flags much carefully and effectively

manage thousands of park assets—from rides and equip

ment to buildings and other facilities. Six Flags needed a

tool for managing all those assets effi ciently and effectively

which has software—called Maximo Asset Management

software—that handles that very problem well.

But IBM didn’t just hand the software over to Six

Flags with best wishes for a happy implementation. In

stead, IBM’s Maximo Professional Services group is

combining the software with an entire set of services

designed to get and keep the software up and running.

the application and strategically implement it across Six

training and planning workshops. “We’ve implemented

the solution at fi ve parks to date, and as the implementa

tion team completes each deployment, they move to the

next property,” says Six Flags’s director of corporate proj

ect management. “We have one implementation team to

Objective 2 Identify the major factors

that infl uence business buyer

behavior.

guests requires careful and effective management of thousands of park

Six Flags to provide not just software, but a complete solution.

Bloomberg via Getty Images

Modifi ed rebuy

A business buying situation in which

the buyer wants to modify product

specifications, prices, terms, or suppliers.

Straight rebuy

A business buying situation in which

the buyer routinely reorders something

without any modifications.

New task

A business buying situation in which the

buyer purchases a product or service for

the first time.

Systems selling (or solutions selling)

Buying a packaged solution to a problem

from a single seller, thus avoiding all the

separate decisions involved in a complex

buying situation.

194 Part 2 | Understanding the Marketplace and Consumers make sure that all the deployments across our parks are consistent.” IBM will work with Six Flags

throughout the process. Thus, IBM isn’t just selling the software, it’s selling a complete solution

to Six Flags’s complex asset management problem.

Participants in the Business Buying Process Who does the buying of the trillions of dollars’ worth of goods and services needed by busi-

ness organizations? The decision-making unit of a buying organization is called its buying

center. It consists of all the individuals and units that play a role in the business purchase

decision-making process. This group includes the actual users of the product or service,

those who make the buying decision, those who influence the buying decision, those who

do the actual buying, and those who control buying information.

The buying center includes all members of the organization who play any of five roles

in the purchase decision process:5

Users are members of the organization who will use the product or service. In many

cases, users initiate the buying proposal and help define product specifications.

Influencers often help define specifications and also provide information for evaluat-

ing alternatives. Technical personnel are particularly important influencers.

Buyers have formal authority to select the supplier and arrange terms of purchase.

Buyers may help shape product specifications, but their major role is in selecting ven-

dors and negotiating. In more complex purchases, buyers might include high-level

officers participating in the negotiations.

Deciders have formal or informal power to select or approve the final suppliers. In

routine buying, the buyers are often the deciders, or at least the approvers.

Gatekeepers control the flow of information to others. For example, purchasing

agents often have authority to prevent salespersons from seeing users or deciders.

Other gatekeepers include technical personnel and even personal secretaries.

The buying center is not a fixed and formally identified unit within the buying orga-

nization. It is a set of buying roles assumed by different people for different purchases.

Within the organization, the size and makeup of the buying center will vary for different

products and for different buying situations. For some routine purchases, one person—say,

a purchasing agent—may assume all the buying center roles and serve as the only person

involved in the buying decision. For more complex purchases, the buying center may in-

clude 20 or 30 people from different levels and departments in the organization.

The buying center concept presents a major marketing challenge. The business mar-

keter must learn who participates in the decision, each participant’s relative influence, and

what evaluation criteria each decision participant uses. This can be difficult.

The buying center usually includes some obvious participants who are involved formally

in the buying decision. For example, the decision to buy a corporate jet will probably involve

the company’s CEO, the chief pilot, a purchasing agent, some legal staff, a member of top

management, and others formally charged with the buying decision. It may also involve less

obvious, informal participants, some of whom may actually make or strongly affect the buying

decision. Sometimes, even the people in the buying center are not aware of all the buying par-

ticipants. For example, the decision about which corporate jet to buy may actually be made by

a corporate board member who has an interest in flying and who knows a lot about airplanes.

This board member may work behind the scenes to sway the decision. Many business buying

decisions result from the complex interactions of ever-changing buying center participants.

Major Influences on Business Buyers Business buyers are subject to many influences when they make their buying decisions.

Some marketers assume that the major influences are economic. They think buyers will fa-

vor the supplier who offers the lowest price or the best product or the most service. They

concentrate on offering strong economic benefits to buyers. Such economic factors are very

important to most buyers, especially in a tough economy. However, business buyers actually

respond to both economic and personal factors. Far from being cold, calculating, and imper-

sonal, business buyers are human and social as well. They react to both reason and emotion.

Today, most B-to-B marketers recognize that emotion plays an important role in busi-

ness buying decisions. Consider this example:6

Citrix creates better ways for people, IT, and business to work, using virtual meetings, desktops,

and datacenters. Citrix combines virtualization, networking, and cloud computing technologies

Buying center

All the individuals and units that play a

role in the purchase decision-making

process.

Users

Members of the buying organization who

will actually use the purchased product

or service.

Influencers

People in an organization’s buying

center who affect the buying decision;

they often help define specifications and

also provide information for evaluating

alternatives.

Buyers

People in an organization’s buying center

who make an actual purchase.

Deciders

People in an organization’s buying center

who have formal or informal power to

select or approve the final suppliers.

Gatekeepers

People in an organization’s buying center

who control the flow of information to

others.

Chapter 6 | Business Markets and Business Buyer Behavior 195 into products that let people work and play from anywhere on

any device. The company helps businesses consolidate server

hardware and centrally manage applications and desktops from

the datacenter rather than installing them on individual employee

promote these benefi ts, but the ads also pack a decidedly more

emotional wallop. Working off the notion that our technology has

begun to control us, the Simplicity Is Power campaign from Citrix

uses dramatic imagery showing a human hand in complete con

trol of technology. For example, one ad shows a hand crushing

servers; another shows laptops and applications dangling from

ages convey the message that Citrix virtual computing solutions

put unprecedented computing power back into the hands of orga

nizations and their IT departments.

Figure 6.2 lists various groups of infl uences on busi

ness buyers—environmental, organizational, interpersonal, and

individual. Business buyers are heavily infl uenced by factors

in the current and expected economic environment, such as the level of primary demand, the economic outlook, and the cost of

money. Another environmental factor is the of key mate

rials. Many companies now are more willing to buy and hold

larger inventories of scarce materials to ensure adequate sup

ply. Business buyers also are affected by technological, politi

cal, and competitive developments in the environment. Finally,

culture and customs can strongly infl uence business buyer reac tions to the marketer’s behavior and strategies, especially in the

international marketing environment (see Real Marketing 6.1).

The business buyer must watch these factors, determine how

they will affect the buyer, and try to turn these challenges into

opportunities.

Organizational factors are also important. Each buying organization has its own objectives, strategies, structure, sys

tems, and procedures, and the business marketer must under

stand these factors well. Questions such as these arise: How many people are involved

in the buying decision? Who are they? What are their evaluative criteria? What are the

company’s policies and limits on its buyers?

The buying center usually includes many participants who infl uence each other, so

interpersonal factors also infl uence the business buying process. However, it is often diffi cult to assess such interpersonal factors and group dynamics. Buying center participants do not

wear tags that label them as “key decision maker” or “not infl uential.” Nor do buying cen

ter participants with the highest rank always have the most infl uence. Participants may in

fl uence the buying decision because they control rewards and punishments, are well liked,

have special expertise, or have a special relationship with other important participants.

Interpersonal factors are often very subtle. Whenever possible, business marketers must try

to understand these factors and design strategies that take them into account.

Environmental

The economy

Supply conditions

Technology

Politics/regulation

Competition

Culture and customs

Like consumer buying decisions in Figure 5.2, business buying decisions are affected by an incredibly complex combination of environmental, interpersonal, and individual influences, but with an extra layer of organizational factors thrown into the mix.

Organizational

Objectives

Strategies

Structure

Systems

Procedures

Interpersonal

Influence

Expertise

Authority

Dynamics

Age/education Job position

Motives Personality Preferences Buying style

Individual

Buyers

FIGURE | 6.2

Major Influences on Business

Buyer Behavior

back in the hands of companies and their IT departments.

trademarks and XenServer is a registered trademark of Citrix Systems, Inc.

196 Part 2 | Understanding the Marketplace and Consumers

Picture this: Consolidated Amalgamation, Inc.,

thinks it’s time that the rest of the world en

joyed the same fine products it has offered

American consumers for two generations. It

dispatches Vice President Harry E. Slicksmile to

Europe, Asia, and Africa to explore the territory.

Mr. Slicksmile stops first in London, where he

makes short work of some bankers—he rings

them up on the phone. He handles Parisians

with similar ease: After securing a table at La

Tour d’Argent, he greets his luncheon guest, the

director of an industrial engineering firm, with the

words, “Just call me Harry, Jacques.” In Ger

many, Mr. Slicksmile is a powerhouse. Whisking

through a flashy multimedia presentation with an

compact projector, he shows ‘em that this

Georgia boy knows how to make a buck.

Mr. Slicksmile next swings through Saudi

Arabia, where he coolly presents a potential

classy pigskin binder. Heading on to Moscow,

Harry strikes up a conversation with the

Japanese businessman sitting next to him on

the plane. Harry complements the man’s cuff

links several times, recognizing him as a man of

gifts his cufflinks to Harry, presents his business

card with both hands, and bows at the waist.

Harry places his hand firmly on the man’s back

to express sincere thanks, then slips his own

business card into the man’s shirt pocket.

Harry takes Russia by storm as he meets

with the CEO of a startup tech firm. Feeling

very at ease with the Russia executive, Harry

sheds his suit coat, leans back, crosses one

foot over the other knee, and slips his hands

into his pockets. At his next stop in Beijing,

China, Harry talks business over lunch with a

group of Chinese executives. After complet

ing the meal, he drops his chopsticks into his

bowl of rice and presents each guest with a

gift as a gesture of his desire to do business

with them—an elegant Tiffany clock.

A great tour, sure to generate a pile of

orders, right? Wrong. Six months later, Con

solidated Amalgamation has nothing to show

for the extended trip but a stack of bills.

Abroad, they weren’t wild about Harry.

This hypothetical case has been exag

gerated for emphasis. Americans are seldom

such dolts. But experts say success in inter

national business has a lot to do with knowing

the territory and its people. By learning English

and extending themselves in other ways, the

world’s business leaders have met Americans

more than halfway. In contrast, Americans

too often do little except assume that others

will march to their music. “We want things to

be ‘American’ when we travel. Fast. Conve

nient. Easy. So we become ‘ugly Americans’

by demanding that others change,” says one

American world trade expert. “I think more

business would be done if we tried harder.”

Poor Harry tried, all right, but in all the

wrong ways. The British do not, as a rule, make

deals over the phone as much as Americans

do. It’s not so much a “cultural” difference as

a difference in approach. A proper French

man neither likes instant familiarity nor refers

to strangers by their first names. “That poor

fellow, Jacques, probably wouldn’t show any

thing, but he’d not be pleased,” explains an

expert on French business practices.

Harry’s flashy presentation would likely

have been a flop with the Germans, who dis

like overstatement and showiness. And to

the Saudi Arabians, the pigskin binder would

have been considered vile. An American

salesperson who actually presented such a

binder was unceremoniously tossed out of

the country, and his company was blacklisted

from working with Saudi businesses.

Harry also committed numerous faux

pas with his new Japanese acquaintance.

Because the Japanese strive to please

others, especially when someone admires

their possessions, the executive likely felt

obligated rather than pleased to give up

his cuffl inks. Harry’s “hand on the back”

probably labeled him as disrespectful and

presumptuous. Japan, like many Asian

even shaking hands is a strange experience.

Harry made matters worse with his casual

treatment of the business cards. Japanese

people revere the business card as an ex

tension of self and as an indicator of rank.

They do not hand it to people; they present

it—with both hands.

Things didn’t go well in Russia, either.

Russian business people maintain a conser

vative, professional appearance, with dark

suits and dress shoes. Taking one’s coat off

during negotiations of any kind is taken as

a sign of weakness. Placing hands in one’s

pockets is considered rude, and showing

the bottoms of one’s shoes is a dirty and

disgusting gesture. Similarly, in China, Harry

casually dropping his chopsticks could have

been misinterpreted as an act of aggression.

Stabbing chopsticks into a bowl of rice and

6.1Real Marketing International Marketing Manners

as this one from Kwintessential—that provide tips to international travelers and help

prevent them from making embarrassing mistakes while abroad.

Kwintessential Ltd.

Chapter 6 | Business Markets and Business Buyer Behavior 197

leaving them signifies death to the Chinese.

The clocks Harry offered as gifts might have

confirmed such dark intentions. To “give a

clock” in Chinese sounds the same as “see

ing someone off to his end.”

Thus, to compete successfully in global

markets, or even to deal effectively with inter

national firms in their home markets, compa

nies must help their managers to understand

the needs, customs, and cultures of interna

tional business buyers. Several companies

now offer smartphone apps that provide tips

to international travelers and help prevent

them from making embarrassing mistakes

while abroad. Cultures around the world dif

fer greatly, and marketers must dig deeply to

make certain they adapt to these differences.

“When doing business in a foreign country and

a foreign culture...take nothing for granted,”

advises an international business specialist.

“Turn every stone. Ask every question. Dig into

every detail.”

Sources: Portions adapted from Susan Harte, “When in Rome, You Should Learn to Do What the Romans Do,”

January 22, 1990, pp. D1, D6. Additional information and examples can be found

in Gary Stroller, “Doing Business Abroad? Simple Faux Pas Can Sink You,” August 24, 2007, p. 1B;

Janette S. Martin and Lillian H. Cheney, (Santa Barbara, CA: Praeger Publishers, 2013);

“Learn Tips to Do Business in China,”

and www.cyborlink.com, accessed November 2012.

Each participant in the business buying decision process brings in personal motives,

perceptions, and preferences. These individual factors are affected by personal characteristics such as age, income, education, professional identifi cation, personality, and attitudes toward

depth analyses of competitive proposals before choosing a supplier. Other buyers may be

intuitive negotiators who are adept at pitting the sellers against one another for the best deal.

The Business Buying Process Figure 6.3 lists the eight stages of the business buying process.7 Buyers who face a new

task buying situation usually go through all stages of the buying process. Buyers making

modifi ed or straight rebuys, in contrast, may skip some of the stages. We

will examine these steps for the typical new task buying situation.

Problem Recognition The buying process begins when someone in the company recognizes

a problem or need that can be met by acquiring a specifi c product or

service. Problem recognition can result from internal or external

stimuli. Internally, the company may decide to launch a new product

that requires new production equipment and materials. Or a machine

may break down and need new parts. Perhaps a purchasing manager

is unhappy with a current supplier ’s product quality, service, or prices.

Externally, the buyer may get some new ideas at a trade show, see an

ad, or receive a call from a salesperson who offers a better product or a

lower price.

In fact, in their advertising, business marketers often alert custom

ers to potential problems and then show how their products and ser

vices provide solutions.

Quill.com, an online offi ce products supplier that strives for strong customer service, highlights an important customer problem: what to

do when your printer runs out of toner. The visual in the ad—which

shows the headline fading then reappearing—effectively suggests

both the problem and the solution. “If you run out of toner,” says the

ad, “we will replace it this quickly. At Quill.com, we are here whenever you need us.”

General Needs Description Having recognized a need, the buyer next prepares a general need de

scription that describes the characteristics and quantity of the needed

item. For standard items, this process presents few problems. For com

plex items, however, the buyer may need to work with others— engineers,

users, consultants—to defi ne the item. The team may want to rank the

Problem recognition

The stage of the business buying process

in which the company recognizes a

problem or need that can be met by

acquiring a good or a service.

Objective 3 List and defi ne the steps in

the business buying decision

process.

winning ad to alert customers to both an important

whenever you need us.”

Quill.com agency—Euro RSCG Chicago, Creative Director, Blake Ebel

198 Part 2 | Understanding the Marketplace and Consumers

importance of reliability, durability, price, and other attributes desired in the item. In this

phase, the alert business marketer can help the buyers defi ne their needs and provide infor

mation about the value of different product characteristics.

Product Specifi cation The buying organization next develops the item’s technical product specifi cations, often

with the help of a value analysis engineering team. is an approach to cost

reduction in which components are studied carefully to determine if they can be redesigned,

standardized, or made by less costly methods of production. The team decides on the best

product characteristics and specifi es them accordingly. Sellers, too, can use value analysis as a

tool to help secure a new account. By showing buyers a better way to make an object, outside

sellers can turn straight rebuy situations into new task situations that give them a chance to

obtain new business.

Supplier Search The buyer now conducts a supplier search to fi nd the best vendors. The buyer can

compile a small list of qualifi ed suppliers by reviewing trade directories, doing computer

searches, or contacting other companies for recommendations. Today, more and more

companies are turning to the Internet to fi nd suppliers. For marketers, this has leveled

the playing fi eld—the Internet gives smaller suppliers many of the same advantages as

larger competitors.

The newer the buying task, and the more complex and costly the item, the greater

the amount of time the buyer will spend searching for suppliers. The supplier’s task is to

get listed in major directories and build a good reputation in the marketplace. Salespeople

should watch for companies in the process of searching for suppliers and make certain that

their fi rm is considered.

Proposal Solicitation In the proposal solicitation stage of the business buying process, the buyer invites quali

fi ed suppliers to submit proposals. In response, some suppliers will refer the buyer to their

Web sites or promotional materials or send a salesperson to call on the prospect. However,

when the item is complex or expensive, the buyer will usually require detailed written pro

posals or formal presentations from each potential supplier.

Business marketers must be skilled in researching, writing, and presenting proposals

in response to buyer proposal solicitations. Proposals should be marketing documents, not

just technical documents. Presentations should inspire confi dence and should make the

marketer’s company stand out from the competition.

Supplier Selection The members of the buying center now review the proposals and select a supplier or sup

pliers. During supplier selection, the buying center often will draw up a list of the desired

supplier attributes and their relative importance. Such attributes include product and ser

tion, and competitive prices. The members of the buying center will rate suppliers against

these attributes and identify the best suppliers.

Buyers may attempt to negotiate with preferred suppliers for better prices and terms

before making the fi nal selections. In the end, they may select a single supplier or a few sup

pliers. Many buyers prefer multiple sources of supplies to avoid being totally dependent on

General need description

The stage in the business buying

process in which a buyer describes the

general characteristics and quantity of a

needed item.

Product specifi cation

The stage of the business buying process

in which the buying organization decides

on and specifies the best technical

product characteristics for a needed item.

Supplier search

The stage of the business buying process

in which the buyer tries to find the best

vendors.

Proposal solicitation

The stage of the business buying process

in which the buyer invites qualified

suppliers to submit proposals.

Supplier selection

The stage of the business buying process

in which the buyer reviews proposals and

selects a supplier or suppliers.

Problem recognition

General need description

Product specification

Proposal solicitation

Performance review

Supplier selection specification

Supplier search

Problem recognition

General need description

Product specification

Proposal solicitation

Performance review

Supplier selection specification

Supplier search

Buyers facing new, complex buying decisions usually go through all of these stages. Those making rebuys often skip some of the stages. Either way, the business buying process is usually much more complicated than this simple flow diagram suggests.

FIGURE | 6.3

Stages of the Business

Buying Process

Chapter 6 | Business Markets and Business Buyer Behavior 199 one supplier and to allow comparisons of prices and performance of several suppliers over

time. Today’s supplier development managers want to develop a full network of supplier-

partners that can help the company bring more value to its customers.

Order-Routine Specification The buyer now prepares an order-routine specification. It includes the final order with

the chosen supplier or suppliers and lists items such as technical specifications, quantity

needed, expected delivery time, return policies, and warranties. In the case of maintenance,

repair, and operating items, buyers may use blanket contracts rather than periodic purchase

orders. A blanket contract creates a long-term relationship in which the supplier promises

to resupply the buyer as needed at agreed prices for a set time period.

Many large buyers now practice vendor-managed inventory, in which they turn over or- dering and inventory responsibilities to their suppliers. Under such systems, buyers share

sales and inventory information directly with key suppliers. The suppliers then monitor

inventories and replenish stock automatically as needed. For example, most major suppli-

ers to large retailers such as Walmart, Target, Home Depot, and Lowe’s assume vendor-

managed inventory responsibilities.

Performance Review In this stage, the buyer reviews supplier performance. The buyer may contact users and ask

them to rate their satisfaction. The performance review may lead the buyer to continue,

modify, or drop the arrangement. The seller’s job is to monitor the same factors used by the

buyer to make sure that the seller is giving the expected satisfaction.

In all, the eight-stage buying-process model shown in Figure 6.3 provides a simple

view of the business buying as it might occur in a new task buying situation. However, the

actual process is usually much more complex. In the modified rebuy or straight rebuy situ-

ation, some of these stages would be compressed or bypassed. Each organization buys in its

own way, and each buying situation has unique requirements.

Different buying center participants may be involved at different stages of the process.

Although certain buying-process steps usually do occur, buyers do not always follow them

in the same order, and they may add other steps. Often, buyers will repeat certain stages

of the process. Finally, a customer relationship might involve many different types of pur-

chases ongoing at a given time, all in different stages of the buying process. The seller must

manage the total customer relationship, not just individual purchases.

E-Procurement: Buying on the Internet Advances in information technology have changed the face of the B-to-B marketing

process. Online purchasing, often called e-procurement, has grown rapidly in recent

years. Virtually unknown a decade and a half ago, online purchasing is standard pro-

cedure for most companies today. E-procurement gives buyers access to new suppliers,

lowers purchasing costs, and hastens order processing and delivery. In turn, business

marketers can connect with customers online to share marketing information, sell prod-

ucts and services, provide customer support services, and maintain ongoing customer

relationships.

Companies can do e-procurement in any of several ways. They can conduct reverse auc- tions, in which they put their purchasing requests online and invite suppliers to bid for the business. Or they can engage in online trading exchanges, through which companies work collectively to facilitate the trading process. Companies also can conduct e-procurement by

setting up their own company buying sites. For example, GE operates a company trading site on which it posts its buying needs and invites bids, negotiates terms, and places orders. Or

companies can create extranet links with key suppliers. For instance, they can create direct procurement accounts with suppliers such as Dell or Staples, through which company buy-

ers can purchase equipment, materials, and supplies directly. Staples operates a business-

to-business procurement division called Staples Advantage, which serves the office supplies

and services buying needs of businesses of any size, from 20 employees to the Fortune 1000.

B-to-B marketers can help customers online and build stronger customer relationships

by creating well-designed, easy-to-use Web sites. For example, BtoB magazine recently rated the site of Shaw Floors—a market leader in flooring products—as one of its “10 great B-to-B

Web sites.” The site helps Shaw build strong links with its business and trade customers.8

Order-routine specification

The stage of the business buying process

in which the buyer writes the final order

with the chosen supplier(s), listing the

technical specifications, quantity needed,

expected time of delivery, return policies,

and warranties.

Performance review

The stage of the business buying

process in which the buyer assesses

the performance of the supplier and

decides to continue, modify, or drop the

arrangement.

E-procurement

Purchasing through electronic

connections between buyers and

sellers—usually online.

200 Part 2 | Understanding the Marketplace and Consumers At one time, fl ooring manufacturer Shaw Floors’ Web

site was nothing more than “brochureware.” Today,

however, the site is a true interactive experience. At the

site, design and construction professionals as well as cus

tomers can “see”—virtually—the company’s many prod

uct lines. At the popular “Try on a Floor” area, designers or

retailers can even work with fi nal buyers to upload digital

images of an actual fl oor and put any of the company’s

many carpets on it to see how they look. They can select

various lines and colors immediately without digging

through samples. And the extremely detailed images can

be rotated and manipulated so a designer, for example, can

show a client what the pile of the carpet looks like and how

deep it is.

The Shaw Floors site also provides a rich set of

products, make inventory checks, track order status, or

order brochures for their stores. At the Shaw AdSource

area, retailers can fi nd resources to create their own ads.

The Shaw Web Studio lets retailers—many of which

catalog engines, and other tools they need to build their

own Web sites. “So many retailers don’t have the time

or money to build their own online presence,” says

Shaw’s interactive marketing manager, “so this really

helps them.”

digital and social marketing approaches—from Web sites, blogs, and smartphone apps to

mainstream social networks such as Facebook, LinkedIn, YouTube, and Twitter to reach

business customers and manage customer relationships anywhere, anytime. Digital and

social marketing has rapidly become the new space for engaging business customers (see Real Marketing 6.2).

program eliminates the paperwork associated with traditional requisition and ordering

procedures and helps an organization keep better track of all purchases. Finally, beyond

ing better supply sources and working with suppliers to reduce costs and develop new

products.

For example, at the same time that the Internet makes it possible for suppliers and custom

ers to share business data and even collaborate on product design, it can also erode de

to pit suppliers against one another and search out better deals, products, and turnaround

transactions can be protected through basic encryption, the secure environment that busi

nesses need to carry out confi dential interactions is sometimes still lacking. Companies

are spending millions for research on defensive strategies to keep hackers at bay. Cisco

Systems, for example, specifi es the types of routers, fi rewalls, and security procedures

that its partners must use to safeguard extranet connections. In fact, the company goes

even further; it sends its own security engineers to examine a partner ’s defenses and

holds the partner liable for any security breach that originates from its computers.

Institutional and Government Markets So far, our discussion of organizational buying has focused largely on the buying behavior of

business buyers. Much of this discussion also applies to the buying practices of institutional

retailers. It provides marketing ideas and tools that make retailers more

Shaw Industries, Inc.

Objective 4 Compare the institutional

and government markets and

explain how institutional

and government buyers make

their buying decisions.

Chapter 6 | Business Markets and Business Buyer Behavior 201

Real Marketing The Space

to Engage Business Customers

customers through extensive digital and social marketing—everything from proprietary

Courtesy of Makino, Inc. Facebook is a trademark of Facebook, Inc.

There’s a hot new video on YouTube these

days, featured at the Makino Machine Tools

YouTube channel. It shows Makino’s D500

with metal chips flying as the machinery mills

a new industrial part. Sound exciting? Probably

not to you. But to the right industrial customer,

the video is downright spellbinding. “Wow,”

says one viewer, “that’s a new concept to have

the saddle ride in Y rather than X. Is that a rigid

ity enhancement?” In all, the video has been

viewed more than 29,000 times, mostly by cur

When you think of digital and social mar

keting, you most likely think of marketing to

upped their use of these new approaches to

reach and engage business customers. The

use of digital and social marketing channels

in business marketing isn’t just growing, it’s

keters are cutting back on traditional me

dia and event marketing, they are ramping

up their use of everything from Web sites,

blogs, apps, and proprietary online net

works to mainstream social networks such

as Facebook, LinkedIn, YouTube, and Twit

percent use existing social media, 65 percent

percent post videos online, and 46 percent

conduct webinars.

Digital and social media have become the

and strengthen customer relationships. Again,

consider Makino, a leading manufacturer of

metal cutting and machining technology:

Makino employs a wide variety of social me

dia initiatives that inform customers and en

hance customer relationships. For example,

webinars that position the company as an

industry thought leader. Makino produces

about three webinars each month and offers

a library of more than 100 on topics ranging

from optimizing machine tool performance

Webinar content is tailored to specific

6.2

industries, such as aerospace or medical,

and is promoted through carefully targeted

to build Makino’s customer database, gener

ate leads, build customer relationships, and

prepare the way for salespeople by providing

relevant information and educating custom

ers online.

Makino even uses Twitter, Facebook,

and YouTube to inform customers and pros

pects about the latest Makino innovations

and events and to vividly demonstrate the

company’s machines in action. The results

have been gratifying. “We’ve shifted dramati

cally into the electronic marketing area,” says

Makino’s marketing manager. “It speeds up

the sales cycle and makes it more efficient—

for both the company and the customer. The

results have been outstanding.”

Compared with traditional media and

sales approaches, digital and social market

ing approaches can create greater customer

keters know that they aren’t really targeting

they are targeting in

those businesses who affect buying deci

business buyers are always connected. They

have their digital devices—whether PCs,

iPads, or smartphones—hardwired to their

ing at work is no longer a place; it is a state

of mind.”

Digital and social media can play an im

nected business buyers in a way that personal

selling alone cannot. Instead of the old model

of sales reps calling on business customers at

work or maybe meeting up with them at trade

shows, the new digital approaches facilitate

anytime, anywhere connections between a

wide range of people in the selling and cus

tomer organizations. It gives both sellers and

buyers more control of and access to impor

been social network marketing, but today’s

digital environment offers an exciting array of

new networking tools and applications.

No company seems to grasp the new

digital and social media opportunities more

fully than one of the oldest companies

around—IBM. At 114 years old and with

400,000 employees in 170 countries, Big Blue

is as fresh and relevant—and profitable—as

ever when it comes to social media. It uses a

decentralized approach to social media. “We

represent our brand online the way it always

has been,” says an IBM social media execu

tive. “Our brand is largely shaped by the in

teractions that [IBMers] have with customers.”

202 Part 2 | Understanding the Marketplace and Consumers

Institutional market

Schools, hospitals, nursing homes,

prisons, and other institutions that

provide goods and services to people in

their care.

From that perspective, IBM encour-

ages employees to talk publically in the social

media—to each other and to customers—and

lets them go about it with no invention or over-

sight. And go about it they do. Thousands of

IBMers are the voice of the company. There

are 100,000 IBMers using 17,000 internal

blogs and 53,000 members on SocialBlue

(IBM’s own internal Facebook-like network).

“Run an online search for ‘IBM blog’ and you’ll

find countless IBMers posting publically on ev-

erything from service-oriented architecture to

sales to parenthood,” says one analyst. “If you

want to blog at IBM, you simply start.” IBM em-

ployees by the tens of thousands or even hun-

dreds of thousands are also actively involved

on Twitter, LinkedIn, Facebook, YouTube, and

many other public social networks.

All this IBMer-led social networking drives

an incredible amount of interaction among

IBM employees, customers, and suppliers.

For example, an IBM “innovation jam” can in-

clude a diverse group of as many as 500,000

people inside and outside the company. Such

online interactions helped spawn what is now

a major IBM movement, Smarter Planet—an

initiative that puts the collective minds and

tools at IBM and outside the company toward

solving issues ranging from rush-hour traffic to

natural disaster response.

Whether it’s IBM’s decentralized ap-

proach to digital and social media or Makino’s

more focused and deliberate one, B-to-B

marketers are discovering just how effective

these new networking channels can be for

engaging and interacting with business cus-

tomers. Digital and social marketing aren’t

passing B-to-B fads; they signal a new way of

doing business. Gone are the days when B-

to-B marketers can just push out information

about their products and services in a sales

call or at a marketing event. Instead, market-

ers need to engage customers in meaningful

and relevant ways, whenever and wherever

customers demand it, 24 hours a day, 7 days

a week. As one B-to-B social media direc-

tor states, “Customer expectations have

changed. Customers want, on demand, to

have a say in how they interact with you as a

company. We need to change and adapt our

thinking and acknowledge this shift.”

Sources: Kate Maddox, “Online Marketing Summit Focuses on Social, Search, Content,” btobonline.com, February

13, 2012; Elizabeth Sullivan, “One to One,” Marketing News, May 15, 2009, pp. 10–13; Sean Callahan, “Is B2B

Marketing Really Obsolete?” btobonline.com, January 17, 2011; Casey Hibbard, “How IBM Uses Social Media to

Spur Employee Innovation,” Socialmediaexaminer.com, February 2, 2010; Joe Pulizzi, “2012 B2B Content Market-

ing Benchmarks, Budgets, and Trends,” contentmarketinginstitute.com, December 5, 2011; “Analytics, Content,

and Apps Are Hot Topics at ‘BtoB’s’ SF NetMarketing Breakfast,” BtoB, February 17, 2012, www.btobonline.com/

article/20120217/EVENT02/302179995/analytics-content-and-apps-are-hot-topics-at-btobs-sf-netmarketing; and

www.youtube.com/user/MakinoMachineTools, accessed September 2012.

and government organizations. However, these two nonbusiness markets have additional

characteristics and needs. In this final section, we address the special features of institu-

tional and government markets.

Institutional Markets The institutional market consists of schools, hospitals, nursing homes, prisons, and other

institutions that provide goods and services to people in their care. Institutions differ from

one another in their sponsors and their objectives. For example, Tenet Healthcare runs

50 for-profit hospitals in 11 states, generating $9.2 billion in annual revenues. By contrast,

the Shriners Hospitals for Children is a nonprofit organization with 22 hospitals that pro-

vide free specialized health care for children, whereas the government-run Veterans Affairs

Medical Centers located across the country provide special services to veterans.9 Each insti-

tution has different buying needs and resources.

Institutional markets can be huge. Consider the massive and expanding U.S. prisons

economy:

Some 7.4 million Americans, more than the individual populations of 38 of the 50 states, are in

prison, on parole, or on probation. Criminal correction spending is outpacing budget growth in

education, transportation, and public assistance. For instance, during the last two decades, state

and federal spending on prisons grew by 127 percent, six times the growth rate of spending on

higher education. U.S. prisons, which hold 2.3 million adults, spend about $74 billion annually

to keep those facilities running—on average almost more than $32,000 per year per prisoner.

“One year in prison costs more than one year at Princeton,” remarks one analyst. The ultimate

captive market, it translates into plenty of work for companies looking to break into the prison

market. “Our core business touches so many things—security, medicine, education, food service,

maintenance, technology—that it presents a unique opportunity for any number of vendors to do

business with us,” says an executive at Corrections Corporation of America, the largest private

prison operator in the country.10

Many institutional markets are characterized by low budgets and captive patrons. For

example, hospital patients have little choice but to eat whatever food the hospital supplies.

Chapter 6 | Business Markets and Business Buyer Behavior 203 A hospital purchasing agent has to decide on the quality of food to buy for patients. Because

the food is provided as a part of a total service package, the buying objective is not profi t.

to others and damage the hospital’s reputation. Thus, the hospital purchasing agent must

standard and whose prices are low.

Many marketers set up separate divisions to

meet the special characteristics and needs of institu

tional buyers. For example, the General Mills Foodser

vice unit produces, packages, prices, and markets its

broad assortment of cereals, cookies, snacks, and other

products to better serve the specifi c food service re

quirements of hospitals, schools, hotels, and other in

stitutional markets. Similarly, the Procter & Gamble

Professional Division markets professional cleaning

and laundry formulations and systems to educational,

customers.11

Government Markets The government market offers large opportuni

ties for many companies, both big and small. In most

countries, government organizations are major buyers

of goods and services. In the United States alone, fed

eral, state, and local governments contain more than

88,000 buying units that purchase more than $1 trillion

in goods and services each year.12 Government buy

ing and business buying are similar in many ways. But

there are also differences that must be understood by companies that wish to sell products

and services to governments. To succeed in the government market, sellers must locate key

decision makers, identify the factors that affect buyer behavior, and understand the buying

decision process.

Government organizations typically require suppliers to submit bids, and normally

they award the contract to the lowest bidder. In some cases, a governmental unit will make

allowances for the supplier’s superior quality or reputation for completing contracts on

time. Governments will also buy on a negotiated contract basis, primarily in the case of

complex projects involving major research and development (R&D) costs and risks, and in

cases where there is little competition.

Government organizations tend to favor domestic suppliers over foreign suppliers.

A major complaint of multinationals operating in Europe is that each country shows fa

voritism toward its nationals in spite of superior offers that are made by foreign fi rms. The

European Economic Commission is gradually removing this bias.

Like consumer and business buyers, government buyers are affected by environ

mental, organizational, interpersonal, and individual factors. One unique thing about

government buying is that it is carefully watched by outside publics, ranging from Con

gress to a variety of private groups interested in how the government spends taxpayers’

money. Because their spending decisions are subject to public review, government or

ganizations require considerable paperwork from suppliers, who often complain about

shifts in procurement personnel.

Given all the red tape, why would any fi rm want to do business with the U.S.

government? The reasons are quite simple: The U.S. government is the world’s larg

est buyer of products and services—more than $461 billion worth each year—and its

checks don’t bounce. The government buys everything from socks to stealth bombers.

For example, this year, the federal government will spend a whopping $80.9 billion on

information technology, $20 billion of which is earmarked for transitioning to cloud

computing systems.13

how to sell to the government. For example, the U.S. Small Business Administration

markets professional cleaning and laundry formulations and systems

customers.

The Procter & Gamble Company

Government market

Governmental units—federal, state,

and local—that purchase or rent goods

and services for carrying out the main

functions of government.

204 Part 2 | Understanding the Marketplace and Consumers

opportunities). And the U.S. Commerce Department’s Web site is loaded with information

In several major cities, the General Services Administration operates Business Ser vice Centers with staffs to provide a complete education on the way government agencies buy, the steps that suppliers should follow, and the procurement opportunities available.

Various trade magazines and associations provide information on how to reach schools,

hospitals, highway departments, and other government agencies. And almost all of these

formation and advice.

Still, suppliers have to master the system and fi nd ways to cut through the red tape,

especially for large government purchases. Consider Envisage Technologies, a small

and human resource management platforms. All of its contracts fall in the government

sector; 65 percent are with the federal government. Envisage uses the General Services

Administration’s Web site to gain access to smaller procurements, often receiving re

sponses within 14 days. However, it puts the most sweat into seeking large, highly cov

eted contracts. A comprehensive bid proposal for one of these contracts can easily run

from 600 to 700 pages because of federal paperwork requirements. And the company’s

president estimates that to prepare a single bid proposal, the fi rm has spent as many as 14

Noneconomic criteria also play a growing role in government buying. Government buy

owned fi rms; and business fi rms that avoid race, gender, and age discrimination. Sellers

need to keep these factors in mind when seeking government business.

Many companies that sell to the government have not been very marketing oriented

for a number of reasons. Total government spending is determined by elected offi cials

rather than by any marketing effort to develop this market. Government buying has em

phasized price, making suppliers invest their effort in technology to bring costs down.

When the product’s characteristics are specifi ed carefully, product differentiation is not a

marketing factor. Nor do advertising or personal selling matter much in winning bids on

Several companies, however, have established

separate government marketing departments, includ

ing GE, Boeing, and Goodyear. Other companies

sell primarily to government buyers, such as Lock

heed Martin, which makes 84 percent of its sales from

the U.S. government, either as a prime contractor or

a subcontractor. These companies anticipate govern

ment needs and projects, participate in the product

specifi cation phase, gather competitive intelligence,

prepare bids carefully, and produce stronger commu

nications to describe and enhance their companies’

reputations.

Other companies have established customized

marketing programs for government buyers. For ex

ample, Dell has specifi c business units tailored to meet

the needs of federal as well as state and local govern

mier Dell.com Web pages that include special pricing,

online purchasing, and service and support for each

city, state, and federal government entity.

During the past decade, a great deal of the govern

ment’s buying has gone online. The Federal Business

Opportunities Web site (FedBizOpps.com at www.fbo

.gov) provides a single point of entry through which

commercial vendors and government buyers can post,

buyers, such as Lockheed Martin, which makes 84 percent of its sales to

the U.S. government.

Courtesy Lockheed Martin Corporation

Chapter 6 | Business Markets and Business Buyer Behavior 205 search, monitor, and retrieve opportunities solicited by the entire federal contracting com

munity. The three federal agencies that act as purchasing agents for the rest of government

have also launched Web sites supporting online government purchasing activity. The General

total procurement dollars, has set up a GSA Advantage! Web site (www.gsaadvantage.gov).

The Defense Logistics Agency offers an Internet Bid Board System (www.dibbs.bsm.dla.mil)

for purchases by America’s military services. And the Department of Veterans Affairs facili

Such sites allow authorized defense and civilian agencies to buy everything from of

fi ce supplies, food, and information technology equipment to construction services through

online purchasing. The General Services Administration, the Defense Logistics Agency, and

Department of Veterans Affairs not only sell stocked merchandise through their Web sites

but also create direct links between government buyers and contract suppliers. For exam

ple, the branch of the Defense Logistics Agency that sells 160,000 types of medical supplies

Internet systems promise to eliminate much of the hassle sometimes found in dealing with

government purchasing.15

Reviewing the Concepts

Business markets and consumer markets are alike in some key

ways. For example, both include people in buying roles who

make purchase decisions to satisfy needs. But business markets

also differ in many ways from consumer markets. For one thing,

the business market is huge, far larger than the consumer mar

ket. Within the United States alone, the business market includes

organizations that annually purchase trillions of dollars’ worth of

goods and services.

Defi ne the business market and

explain how business markets

differ from consumer markets. (pp 190–192)

The comprises all organizations that buy

goods and services for use in the production of other prod

ucts and services or for the purpose of reselling or renting

them to others at a profit. As compared to consumer markets,

business markets usually have fewer but larger buyers. Busi

ness demand is derived demand, which tends to be more

inelastic and fluctuating than consumer demand. The busi

ness buying decision usually involves more, and more profes

sional, buyers. Business buyers usually face more complex

buying decisions, and the buying process tends to be more

formalized. Finally, business buyers and sellers are often more

dependent on each other.

Identify the major factors

that infl uence business buyer

behavior. (pp 193–197)

Business buyers make decisions that vary with the three types of

: straight rebuys, modified rebuys, and new tasks.

center—can consist of many different persons playing many dif

ferent roles. The business marketer needs to know the following:

Who are the major buying center participants? In what decisions

do they exercise influence and to what degree? What evaluation

criteria does each decision participant use? The business marketer

also needs to understand the major environmental, organizational,

interpersonal, and individual influences on the buying process.

List and defi ne the steps in

the business buying decision

process. (pp 197–199)

The itself can be quite in

volved, with eight basic stages: problem recognition, general

Reviewing Objectives and Key Terms

Objectives Review

Objective 1

Objective 2

Objective 3

206 Part 2 | Understanding the Marketplace and Consumers need description, product specification, supplier search, pro

tion, and performance review. Buyers who face a new task

buying situation usually go through all stages of the buying

process. Buyers making modified or straight rebuys may skip

some of the stages. Companies must manage the overall cus

tomer relationship, which often includes many different buying

decisions in various stages of the buying decision process.

Advances in information technology have given birth to

all kinds of products and services online. The Internet gives

business buyers access to new suppliers, lowers purchasing

costs, and hastens order processing and delivery. However,

and create potential security problems. Still, business market

ers are increasingly connecting with customers online to share

marketing information, sell products and services, provide

customer support services, and maintain ongoing customer

relationships.

Compare the institutional and

government markets and explain

how institutional and government buyers make their

buying decisions. (pp 200–205)

The consists of schools, hospitals, prisons, and

other institutions that provide goods and services to people in their

care. These markets are characterized by low budgets and captive

patrons. The , which is vast, consists of govern

ment units—federal, state, and local—that purchase or rent goods

and services for carrying out the main functions of government.

Government buyers purchase products and services for de

fense, education, public welfare, and other public needs. Govern

ment buying practices are highly specialized and specified, with

open bidding or negotiated contracts characterizing most of the

buying. Government buyers operate under the watchful eye of

the U.S. Congress and many private watchdog groups. Hence,

they tend to require more forms and signatures and respond

more slowly and deliberately when placing orders.

Objective 4

Key Terms

Objective 1 Business buyer behavior (p 190)

Business buying process (p 190)

Derived demand (p 191)

Supplier development (p 192)

Objective 2 Straight rebuy (p 193)

Modified rebuy (p 193)

New task (p 193)

Systems selling (or solutions

selling) (p 193)

Buying center (p 194)

Users (p 194)

Influencers (p 194)

Buyers (p 194)

Deciders (p 194)

Gatekeepers (p 194)

Objective 3 Problem recognition (p 197)

General need description (p 198)

Product specification (p 198)

Supplier search (p 198)

Proposal solicitation (p 198)

Supplier selection (p 198)

Performance review (p 199)

Objective 4 Institutional market (p 202)

Government market (p 203)

Discussion and Critical Thinking

Discussion Questions

1. Explain how the market structure and demand differ for busi ness markets compared to consumer markets. (AACSB:

Communication; Reflective Thinking)

2. Name and describe the three types of business buying situa tions. (AACSB: Communication)

3. Name and describe the roles played by buying center partici pants in the business buying process. (AACSB: Communica

tion; Reflective Thinking)

4. Explain what is meant by and discuss why it is a preferred approach to buying for many organizations.

(AACSB: Communication; Reflective Thinking)

5. Compare the institutional and government markets and explain how institutional and government buyers make their

buying decisions. (AACSB: Communication)

Chapter 6 | Business Markets and Business Buyer Behavior 207

Critical Thinking Exercises

1. Business buying occurs worldwide, so marketers need to be aware of cultural factors influencing business customers. In a

small group, select a country and develop a multimedia presenta-

tion on proper business etiquette and manners, including appro-

priate appearance, behavior, and communication. Include a map

showing the location of the country as well as a description of

the country in terms of its demographics, culture, and economic

history. (AACSB: Communication; Multicultural and Diversity)

2. The U.S. government is the world’s largest purchaser of goods and services, spending more than $425 billion per year. By law,

23 percent of all government buying must be targeted to small

firms. Visit http://archive.sba.gov/contractingopportunities/

index.html to learn how small businesses can take advantage

of government contracting opportunities. Develop a brochure

explaining the process to small business owners. (AACSB:

Communication; Reflective Thinking; Use of IT)

Applications and Cases

Marketing Technology Apple’s Supply Chain How many parts go into Apple’s iPhone? Of course there are the

case, screen, camera, processor, and battery, but have you ever

considered all the other parts, such as screws and switches?

There are 40 to 50 screws alone in an iPhone, and each of the

parts—including the screws—must be sourced from suppliers.

Apple’s list of primary contractors includes more than 20 com-

panies scattered around the globe. Apple’s current CEO, Tim

Cook, was brought on by Apple co-founder, the late Steve Jobs,

to streamline Apple’s supply chain. Cook cut component suppliers

from 100 to 24 and shut down 19 Apple warehouses, resulting in a

reduction of parts inventory from one month to just six days. Most

of this is possible through technology, and as a result, Apple’s

supply chain has been ranked number one in the world three years

in a row by Gartner’s and Apple is achieving record-setting profits.

1. Go to www.gartner.com/DisplayDocument?doc_cd�234062, select another company on Gartner’s Supply Chain Top 25,

and describe that company’s supply chain. Discuss the role

technology plays in that company’s purchasing. (AACSB:

Communication; Reflective Thinking; Use of IT)

2. Discuss possible negative consequences of using technology to gain competitive advantage through purchasing and ven-

dor relationship activities. (AACSB: Communication; Reflective

Thinking)

Marketing Ethics Pink Slime In the early 1990s, Eldon Roth figured out a way to profit from

slaughterhouse meat trimmings, by-products that were once

used only in pet food and cooking oil. This cheap and safe beef

product is called “lean, finely textured beef” (LFTB). The fatty

bits of beef are heated and treated with a puff of ammonium

hydroxide gas to kill bacteria. You’ve probably eaten many ham-

burgers that included LFTB prepared by fast-feeders, at school

cafeterias, or even in your own kitchen. LFTB makes ground

beef leaner and cheaper. Shortly after it was developed, a health

safety inspector dubbed LFTB “pink slime,” but the name didn’t

become public until the major “pink slime” media brouhaha

erupted in 2012. Consumers were repulsed to learn that they

were eating unappealing beef parts that were “soaked in ammo-

nia.” Sales of ground beef fell 11 percent in one month. Ground

beef producer AFA Foods sought bankruptcy protection and

Cargill lost 80 percent of its customers. The industry’s leading

LFTB manufacturer, Beef Products, Inc., shuttered 75 percent

of its processing plants and laid off 650 workers. McDonald’s

and other fast-feeders, supermarkets, and institutional buyers

such as schools and hospitals discontinued using beef products

containing LFTB, even though the safe and inexpensive product

has been around for many years.

1. Was the uproar over LFTB warranted, given the fact that it is a product deemed safe for consumption by the U.S. Food and

Drug Administration? Research other types of products that

are included in consumer products that could face a similar

fate if consumers were aware of them. (AACSB: Communica-

tion; Reflective Thinking; Ethical Reasoning)

2. Explain the type of buying situation faced by the companies that dropped the use of LFTB. Describe the buying deci-

sion process they likely went through to find a replacement

product. (AACSB: Communication; Reflective Thinking)

208 Part 2 | Understanding the Marketplace and Consumers

Video Case Eaton With approximately 70,000 employees in more than 150 coun-

tries and annual revenues of nearly $12 billion, Eaton is one of the

world’s largest suppliers of diversified industrial goods. Eaton has

been known for products that make cars peppier and 18-wheelers

safer to drive. But a recent restructuring has made Eaton a pow-

erhouse in the growing field of power management. In short, Ea-

ton is making electrical, hydraulic, and mechanical power systems

more accessible to and more efficient for its global customers.

But Eaton isn’t successful only because of the products and ser-

vices that it sells. It is successful because it works closely with its

business customers to help them solve their problems and create

better products and services of their own. Eaton is known for high-

quality, dependable customer service and product support. In this

manner, Eaton builds strong relationships with its clients.

After viewing the video featuring Eaton, answer the following

questions:

1. What is Eaton’s value proposition?

2. Who are Eaton’s customers? Describe Eaton’s customer relationships.

3. Discuss the different ways that Eaton provides value beyond that which customers can provide for themselves

Company Case Cisco Systems: Solving Business Problems Through Collaboration

Perhaps you’ve heard of Cisco. It’s the company known for those

catchy “Human Network” ads. It produces the familiar Linksys

wireless Internet routers and owns Pure Digital Technologies,

the company that makes the trendy Flip video cameras. But

most of what Cisco Systems sells is not for regular consumers

like you. Cisco is a tried-and-true business-to-business com-

pany. In fact, it earned honors as BtoB magazine’s 2011 “mar-

keter of the year.” Three-quarters of Cisco’s sales are in routers,

switches, and advanced network technologies—the things that

keep the data moving around cyberspace 24/7. But ever since

the dot-com bust, Cisco has been pioneering the next genera-

tion of networking tools, from cybersecurity to set-top boxes to

videoconferencing.

This story is about much more than just a tech giant that

makes the equipment companies need to run their Internet and

intranet activities. It’s about a forward-thinking firm that has tran-

sitioned from a hardware company to a leadership consultancy.

In the process, there is one concept that seems to be the main

driver of Cisco’s business with other organizations: customer col-

laboration. Cisco is all about collaborating with its business cus-

tomers to help them better collaborate internally with employees

as well as externally with suppliers, partners, and their customers.

Collaboration Within and Without John Chambers became the CEO of Cisco way back in 1995,

when annual revenues were a mere $1.2 billion. He successfully

directed the growth of Cisco as a hardware provider. But fol-

lowing the dot-com bust in the early 2000s, he knew the world

had become a different place. In response, he engineered a

massive, radical, and often bumpy reorganization of the com-

pany. Chambers turned Cisco inside out and created a cul-

ture of 71,000 employees that truly thrives on collaboration. As

such, Cisco is the perfect laboratory where new products are

developed, used, and then sold to external clients. Cisco not

only manufactures hardware and software that makes all the

sharing activity possible, but is also the expert on how to use

it. All this collaboration has helped Cisco’s business explode,

hitting $43 billion last year.

Perhaps Cisco’s advertising campaign, “Human Network Ef-

fect,” best illustrates the company’s philosophy. The campaign

highlights the benefits that come to an organization when it uti-

lizes its network of people more effectively. According to Cisco,

the pragmatic approach of the campaign helps customers

understand how Cisco’s technologies can save them money,

bring products to market faster, and even have an impact on

Marketing by the Numbers fMRI Market Potential Functional magnetic resonance imaging technology (fMRI) is

making its way into the marketing research field, opening up

a new market for this high-tech medical equipment. Using

functional MRI technology, or fMRI, marketing researchers can

literally see a brain in action when consumers view an adver-

tisement or sample a product. A study in 2004 revealed that

different parts of consumers’ brains were activated when sam-

pling a product with or without knowing the brand. When con-

sumers tasted a soft drink without knowing the brand, their

brains showed activity related to taste and they preferred Brand

A. However, when subjects were shown the brands, a different

area of the brain was activated and more consumers preferred

Brand B, suggesting that advertising and marketing can acti-

vate different areas of consumers’ brains and cause them to

prefer specific brands. Several large marketing research firms

such as Nielsen now offer neuroscience marketing research

services.

1. Research the marketing research industry to identify research companies that would be in the target market for fMRI equip-

ment. How many companies make up this market? (AACSB:

Communication; Reflective Reasoning)

2. Refer to Appendix 2, Marketing by the Numbers, and use the chain-ratio method to estimate the market potential for fMRI

machines among marketing research firms. What factors

would you consider when determining the potential number

of buyers (that is, research firms) that are willing and able to

purchase fMRI machines? Assume a firm purchases one ma-

chine at an average price of $1 million in your market potential

estimation. (AACSB: Communication; Analytical Reasoning)

Chapter 6 | Business Markets and Business Buyer Behavior 209 the environment. This campaign has helped Cisco become the

13th most valuable brand in the world at the same time it has

communicated why companies need Cisco’s products and

services.

Chambers tells the story of how Cisco began its transition

from hardware into services. “Our customers literally pulled us

kicking and screaming into providing consultancy,” says Cham-

bers. Some years ago, the CEO of financial services company

USAA asked Chambers to help the company figure out what to

do with the Internet. Chambers replied that Cisco wasn’t in the

Internet consulting business. But when USAA committed to giv-

ing all its networking business to Cisco if it would take the job,

Chambers proclaimed “We are in that business!” Now, Cisco has

both the products and the knowledge to help other companies

succeed on the Internet.

A turning point for Chambers in further understanding the im-

pact that Cisco can have on clients was the major earthquake in

China in 2008.

Tae Yoo, a 19-year Cisco veteran, supervises the company’s social

responsibility efforts and sits on the China strategy board and the

emerging-countries council. “I had always been a believer in collab-

oration,” she says, but after the earthquake, “I saw it really happen.

Our local team immediately mobilized, checking in with employees,

customers, NGO partners. The council got people on the phone, on

[video conference], to give us a complete assessment of what was

happening locally. We connected West China Hospital to a special-

ized trauma center in Maryland via the network.” High-level medical

centers from the other side of the world were able to weigh in on

diagnostics remotely. Cisco employees were on the ground helping

rural areas recover and rebuild homes and schools. Within 14 days,

Yoo continues, “I walked over to the China board with a complete

plan and $45 million to fund it.” That number ultimately grew to

more than $100 million. “Our business is growing 30 percent year

over year there,” Chambers says, adding that Cisco has committed

to investing $16 billion in public-private partnerships in China. “No

one has the reach and trust that we do. No one could offer the help

that we could.”

Collaboration Benefits Cisco management knows that number one on most CEO’s lists

is to break down the communication barriers between a com-

pany and its customers, suppliers, and partners. According to

Jim Grubb, Chambers’s longtime product-demo sidekick, “If we

can accelerate the productivity of scientists who are working on

the next solar technology because we’re hooking them together,

we’re doing a great thing for the world.” Doing a great thing for

the world, while selling a ton of routers and switches.

But while routers and switches still account for most of Cis-

co’s business, the really interesting things are far more cutting

edge. Consider Cisco’s involvement in what it calls the Smart� Connected Communities initiative. Perhaps the best example

of a smart and connected community is New Songdo City in

South Korea, a city the size of downtown Boston being built from

scratch on a man-made island in the Yellow Sea. Cisco was hired

as the technology partner for this venture and is teaming up with

the construction company, architects, 3M, and United Technolo-

gies as partners in the instant-city business.

Cisco’s involvement goes way beyond installing routers,

switches, and citywide Wi-Fi. The networking giant is wiring every

square inch of the city with electronic synapses. Through trunk

lines under the streets, filaments will branch out through every

wall and fixture like a nervous system. Cisco is intent on having

this city run on information, with its control room playing the part

of New Songdo’s brain stem.

Not content to simply sell the plumbing, Cisco will sell and op-

erate services layered on top of its hardware. Imagine a city where

every home and office is wired to Cisco’s TelePresence videocon-

ferencing screens. Engineers will listen, learn, and release new

Cisco-branded services for modest monthly fees. Cisco intends

to bundle urban necessities—water, power, traffic, communica-

tions, and entertainment—into a single, Internet-enabled utility.

This isn’t just Big Brother stuff. This Cisco system will allow New

Songdo to reach new heights in environmental sustainability and

efficiency. Because of these efficiencies, the cost for such ser-

vices to residents will be cheaper as well.

Cisco believes that the smart cities business is an emerg-

ing industry with a $30-billion potential. Gale International,

the construction company behind New Songdo, believes that

China alone could use 500 such cities, each with a capacity for

1 million residents. It already has established the goal to build

20 of them.

Smart cities make one of Cisco’s other businesses all the more

relevant. Studies show that telecommuting produces enormous

benefits for companies, communities, and employees. For exam-

ple, telecommuters have higher job satisfaction. For that reason,

they are more productive, giving back as much as 60 percent of

their commuting time to the company. There is even evidence

that people like working from home so much that they would be

willing to work for less pay. An overwhelming majority of telecom-

muters produce work in a more timely manner with better quality.

Their ability to communicate with coworkers is at least as good

and in many cases better than when they work in the office. With

products like Cisco Virtual Office and the expertise that Cisco

offers to go with it, Sun Microsystems saved $68 million. It also

reduced carbon emissions by 29,000 metric tons.

Cisco has also recently unveiled a set of Internet-based

communication products to enhance organizations’ collabora-

tive activities. Cisco says this is all about making business more

people-centric than document-centric. Along with a cloud-based

mail system, WebEx Mail, Cisco Show and Share “helps organi-

zations create and manage highly secure video communities to

share ideas and expertise, optimize global video collaboration,

and personalize the connection between customers, employ-

ees, and students with user-generated content,” according to a

PR blurb. Also on its way is what Cisco calls the Enterprise Col-

laboration Platform, a cross between a corporate directory and

Facebook. These products allow the free flow of information to

increase exponentially over existing products because they exist

behind an organization’s firewall with no filters, lawyers, or secu-

rity issues to get in the way.

A Bright Future This year, thanks to the still-sluggish economy, Cisco’s financial

performance is down. But Chambers thinks that’s only a blip

in the grand scheme of things. He points out that Cisco has

emerged from every economic downturn of the past two de-

cades stronger and more flexible. During the most recent down-

turn, Cisco moved quickly, seizing every opportunity to snatch

up businesses and develop new products. During the decade

of the 2000s, Cisco acquired 48 venture-backed companies.

But last year alone, the company announced an astounding

61 new technologies, all focused on collaboration. With these

resources—and $44 billion in cash that it has stowed away—

Cisco is now expanding into 30 different markets, each with the

potential to produce $1 billion a year in revenue. Moving forward,

the company has committed to adding 20 percent more new-

market businesses annually. And because Cisco enters a new

210 Part 2 | Understanding the Marketplace and Consumers market only when it’s confident that it can gain a 40 percent

share, the chance of failure is far below normal.

The collaboration market is estimated at $35 billion, a figure

that will grow substantially in years to come. Because Cisco is

the leader in this emerging industry, analysts have no problem

accepting John Chambers’s long-term goal of 12 to 17 percent

revenue growth per year. Cisco has demonstrated that it has

the product portfolio and the leadership structure necessary

to pull it off. One thing is for sure. Cisco is no longer just a

plumber, providing the gizmos and gadgets necessary to make

the Internet go around. It is a networking leader, a core com-

petency that will certainly make it a force to be reckoned with

for years to come.

Questions for Discussion 1. Discuss the nature of the market structure and demand for

Cisco’s products.

2. Given the industries in which Cisco competes, what are the implications for the major types of buying situations?

3. What specific customer benefits likely result from the Cisco products mentioned in the case?

4. Discuss the customer buying process for one of Cisco’s prod- ucts. In what ways does this process differ from the buying

process an end user might go through in buying a broadband

router for home use?

5. Is the relationship between Cisco’s collaborative culture and the products and services it sells something that could work for

all companies? Consider this issue for a consumer-products

company such as P&G.

Sources: “Cisco Reports Fourth Quarter and Fiscal Year 2011 Earnings,” Market Wire, August 10, 2011, http://investor.cisco.com/releasedetail

.cfm?ReleaseID�598440; Ellen McGirt, “How Cisco’s CEO John Cham-

bers Is Turning the Tech Giant Socialist,” Fast Company, November 25,

2008, www.fastcompany.com/magazine/131/revolution-in-san-jose

.html; Greg Lindsay, “Cisco’s Big Bet on New Songdo,” Fast Company,

February 1, 2010, www.fastcompany.com/magazine/142/the-new-

new-urbanism.html; “Christie Blair, Cisco Systems,” BtoB, October 3,

2011, www.btobonline.com/apps/pbcs.dll/article?AID�/20111003/

FREE/310039953/0/SEARCH; and information from www.cisco.com/

web/about/index.html, accessed July 2012.

References 1. Information from www.karmsolar.com/, as well as an interview with

Ahmed Zahraan, KarmSolar’s CEO; Yumna Madi, KarmSolar’s Chief

Business Development Officer; Xavier Auclair, KarmSolar’s Chief of Inno-

vation and Technology; and Mohamed Fadly, KarmSolar’s Technology

Innovation Officer, interviews conducted November 18th, 2012.

2. Quotes and other information from www.omnexus.com/sf/ dow/?id�plastics, accessed March 2010; and http://plastics.dow

.com/, accessed March 2012.

3. This classic categorization was first introduced in Patrick J. Robinson, Charles W. Faris, and Yoram Wind, Industrial Buying Behavior and

Creative Marketing (Boston: Allyn & Bacon, 1967). Also see James C.

Anderson, James A. Narus, and Das Narayandas, Business Market

Management, 3rd ed. (Upper Saddle River, NJ: Prentice Hall, 2009),

Chapter 3; and Philip Kotler and Kevin Lane Keller, Marketing Man-

agement, 14th ed. (Upper Saddle River, NJ: Prentice Hall, 2012),

Chapter 7.

4. Based on information from “Six Flags Entertainment Corporation: Improving Business Efficiency with Enterprise Asset Management,”

July 12, 2012, www-01.ibm.com/software/success/cssdb.nsf/cs/

LWIS-8W5Q84?OpenDocument&Site=gicss67mdia&cty=en_us;

and www-01.ibm.com/software/tivoli/products/maximo-asset-

mgmt/, accessed November 2012.

5. See Frederick E. Webster Jr. and Yoram Wind, Organizational Buying Behavior (Upper Saddle River, NJ: Prentice Hall, 1972), pp. 78–80.

Also see Jorg Brinkman and Markus Voeth, “An Analysis of Buy-

ing Center Decisions Through the Sales Force,” Industrial Marketing

Management, October 2007, p. 998; and Philip Kotler and Kevin

Lane Keller, Marketing Management, 14th ed. (Upper Saddle River,

NJ: Prentice Hall, 2012), pp. 188–191.

6. Based on “Citrix Systems: Integrated Campaign—Honorable Men- tion,” BtoB, August 2009, accessed at www.btobonline.com/apps/

pbcs.dll/article?AID�/20101011/FREE/101019997; information pro-

vided by Citrix, July 2011; and information from www.citrix.com, ac-

cessed November 2012.

7. Robinson, Faris, and Wind, Industrial Buying Behavior, p. 14. Also see Kotler and Keller, Marketing Management, pp. 197–203.

8. For this and other examples, see “10 Great Web Sites,” BtoB Online, September 13, 2010. Other information from www.shawfloors.com/

About-Shaw/Retailer-Support, accessed November 2012.

9. Information from www.shrinershospitalsforchildren.org/Hospitals .aspx and www.tenethealth.com/about/pages/default.aspx, accessed

November 2012.

10. Michael Myser, “The Hard Sell,” Business 2.0, December 2006, pp. 62–65; “U.S. Prison Population Tops 2.4 Million,” PressTV,

August 9, 2011, http://presstv.com/usdetail/193137.html; Brian

Resnick, “Chart: One Year of Prison Costs More Than One Year at

Princeton,” The Atlantic, November 1, 2011, www.theatlantic.com/

national/archive/2011/11/chart-one-year-of-prison-costs-more-

than-one-year-at-princeton/247629/; and Alan Bluestein, “Market-

ing: Prison Bound,” Inc., February 2012, pp. 96–97.

11. See www.gmifs.com and www.pgpro.com, accessed April 2012. 12. Henry Canaday, “Government Contracts,” Selling Power, June

2008, pp. 59–62; and “State & Local Government Finances & Em-

ployment: Government Units,” www.census.gov/compendia/statab/

cats/state_local_govt_finances_employment/governmental_units

.html, accessed January 2012.

13. “Federal IT Spending Requests Top 2011 Levels, immixGroup Budget Briefings Reveals,” MarketWatch, October 21, 2011,

www.marketwatch.com/story/federal-it-spending-requests-top-

2011-levels-immixgroup-budget-briefing-reveals-2011-10-21; and

David Mielach, “Small Businesses Spend More to Do Business with

the Government,” BusinessNewsDaily, December 27, 2011, www

.businessnewsdaily.com/1836-government-contracts-2011.html.

14. Based on communications with Ari Vidali, CEO of Envisage Tech- nologies, July 2006 and January 2012.

15. See “GSA Organization Overview,” www.gsa.gov/portal/content/ 104438, accessed November 2012; “Defense Logistics Agency:

Medical Supply Chain,” www.dscp.dla.mil/sbo/medical.asp, ac-

cessed November 2012; and Department of Veterans Affairs Office

of Acquisition & Material Management, www1.va.gov/oamm,

accessed November 2012.

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competitively. The main vision of AirAsia is to become the largest

airline in Asia and to better connect millions of people at low-cost.

Among the key strategies that AirAsia practices is being a safe air-

line, so the company partners with the best maintenance provid-

ers to work toward surpassing global safety standards. AirAsia

also aims for high aircraft utilization, which it has achieved with

the fastest plane turnaround time—only 25 minutes—thus ensur-

ing high productivity while keeping costs low. Another aspect of

Air Asia’s strategy is being known as the low-fare, no-frills airline,

a key part of its competitive advantage. Basically, AirAsia pro-

vides passengers with customized services and doesn’t compro-

mise on quality concerning the basic services of an airline. Finally,

Part 1: Defining Marketing and the Marketing Process (Chapters 1–2)

Part 2: Understanding the Marketplace and Consumers (Chapters 3–6)

Part 3: Designing a Customer-Driven Strategy and Mix (Chapters 7–17)

Part 4: Extending Marketing (Chapters 18–20)

Customer-Driven

Marketing Strategy7

Chapter Preview So far, you’ve learned what

marketfing is and about the

importance of understanding consumers and the marketplace

environment. With that as a background, you’re now ready to

delve deeper into marketing strategy and tactics. This chap-

ter looks further into key customer-driven marketing strategy

decisions—dividing up markets into meaningful customer groups

(segmentation), choosing which customer groups to serve

(targeting), creating market offerings that best serve targeted cus-

tomers (differentiation), and positioning the offerings in the minds

of consumers (positioning). The chapters that follow explore the

tactical marketing tools—the four Ps—by which marketers bring

these strategies to life.

To open our discussion of segmentation, targeting, differen-

tiation, and positioning, let’s look at AirAsia. Despite fierce com-

petition in the airline industry, AirAsia is thriving due to careful

customer segmentation and targeting strategy. Combined with

strong marketing efforts and booming demand, AirAsia is looking

to the future with expansion in mind.

AirAsia: Success in Targeting the Right Markets

A irAsia started its operations in 2001 as the first

Asian budget airline, founded by Tony Fernandes.

He started the company by buying out a failing

airline company in Malaysia. The airline was origi-

nally owned by the Malaysian government, which eventually

sold it to Fernandes for a small price of 25 pence. Although

AirAsia had owned a lot of money, Fernandes decided to turn

the company around by developing a different marketing di-

rection through the segmentation, targeting, and positioning

process. An opportunity to target a market looking for short-

haul and inexpensive flights presented itself, and Fernandes

transformed the company into a low-cost carrier with flights to

destinations across Asia. The company began with 2 planes in

2002, and it is now up to 72 planes with over 108 routes. About

55 million people fly with AirAsia around the world. The

airline offers over 400 flights daily from Malay-

sia, Thailand, Indonesia, and Singapore,

among other cities. AirAsia combined

a strong marketing plan with tech-

nological advancement in devel-

oping its strategy for success.

A major part of its strategy was

identifying the right target market to

focus on and developing the right market-

ing mix and operations to engage the market

AirAsia has a very clear vision of

just which customers it wants to serve and how. It targets the price-conscious

passenger with a no-frills service and low fares.

Creating Value

for Target Customers

Chapter 7 | 213 the airline’s lean distribution system offers a variety of channels

through which customers can reserve bookings and buy their

tickets. AirAsia also continues to invest in and enhance its brand

image, and advertising dollars go toward generating publicity

and creating promotional campaigns that raise awareness of the

brand. AirAsia also continues to focus on friendly and personal

service care to its customers. Employees are encouraged to pro

their customer service skills. Such employees provide a strong

foundation for the value AirAsia’s customers get for their

money. Customer reviews on Skytrack show that the airline has

are pleasant, effi cient, and helpful. As is to be expected, some

customers complain of problems when there are fl ight delays,

especially when there are no explanations or apologies for the

though not really concerned about the added costs. Thus, the

majority of the target market seems to be attracted to AirAsia’s

pricing strategy.

During the initial startup stages, AirAsia began to focus

travelers who were concerned about high costs. AirAsia’s main

its hubs, which gives the company access to about 500 million

people living in Southeast Asia. The growing populations of

Malaysia, Thailand, and Indonesia are a big market for AirAsia.

The targets within these markets include individuals who may

have not been able to afford air travel or who didn’t previously

have access to airlines, as many airlines do not service such

At fi rst, AirAsia started with a simple product developed

row seats so that planes could accommodate more passengers,

fl yer program allowing for discounts. In addition, many of the

airline’s hubs were located in secondary airports to reduce asso

ciated airport fees, and the short ground waits for fl ights means

sum, AirAsia’s strategy is to lower internal operating costs.

To provide customers with the best possible service, Air

Asia relies on Internet technology. For example, online book

ing services are key channels for distributing its services.

AirAsia’s strong yield management system makes seats avail

able at different price ranges at different points in time—

reservations made earlier are cheaper than those booked later,

and routes in higher demand also have higher ticket prices.

Combined, these strategies have

helped to increase AirAsia’s revenue

by nearly 4 percent. The company’s

net income increased by 3.6 percent

to about $52 million in the third

has continued to increase, mainly as

a resulting of a 9 percent increase

in the number of passengers car

ried. To keep pace with this growth, AirAsia plans to add

noted that the cash position of the airline is strong and greater

profi ts are expected in the year to come due to the high demand

for its services. To meet the demand, AirAsia has setup subsid

iaries in other countries, including the Philippines, Thailand,

and Japan.

However, AirAsia must face a number of key challenges,

including rising fuel prices and higher labor costs, as well as

the need to upgrade its infrastructure, which is currently inad

must prepare to compete with more airlines, as Singapore Air

lines and PT Lion Mentari Airlines are set to have their own

in its ability to keep costs low. AirAsia’s current strategies for

facing these challenges include hedging fuel prices and plans

to buy 266 more planes by 2026. It is forecast that Asia’s total

the Asian economy continues to grow, and AirAsia expects to

launch more routes in order to take advantage of the higher

demand .

AirAsia has developed a

competitive advantage by

Maxene Huiyu/Shutterstock.com

214 Part 3 |

Companies today recognize that they cannot appeal to all buyers in the marketplace—or at least not to all buyers in the same way. Buyers are too numerous, widely

scattered, and varied in their needs and buying practices. Moreover, companies themselves

vary widely in their abilities to serve different market segments. Instead, like AirAsia, com

panies must identify the parts of the market they can serve best and most profi tably. They

the right customers.

Thus, most companies have moved away from mass marketing and toward target mar keting: identifying market segments, selecting one or more of them, and developing prod ucts and marketing programs tailored to each. Instead of scattering their marketing efforts

(the “shotgun” approach), fi rms are focusing on the buyers who have greater interest in the

values they create best (the “rifl e” approach).

ing strategy. In the fi rst two steps, the company selects the customers that it will serve.

Market segmentation involves dividing a market into smaller segments of buyers with

gies or mixes. The company identifi es different ways to segment the market and develops

profi les of the resulting market segments. Market targeting (or targeting) consists of

evaluating each market segment’s attractiveness and selecting one or more market seg

ments to enter.

In the fi nal two steps, the company decides on a value proposition—how it will cre

ate value for target customers. involves actually differentiating the fi rm’s

market offering to create superior customer value. Positioning consists of arranging for

a market offering to occupy a clear, distinctive, and desirable place relative to competing

products in the minds of target consumers. We discuss each of these steps in turn.

Objective Outline

Objective 1

(pp 214–215)

Objective 2

(pp 214–224)

Objective 3

Market Targeting (pp 224–232)

Objective 4

(pp 232–238)

Market segmentation

Market targeting (targeting)

Positioning

Objective 1 Defi ne the major steps in

Chapter 7 | 215

Decide on a value propositionSelect customers to serve In concept, marketing boils down to two questions: (1) Which customers will we serve? and (2) How will we serve them? Of course, the tough part is coming up with

sounding yet difficult questions. The goal is to create more value for the customers we serve than competitors do.

Decide on a value propositionSelect customers to serve

FIGURE |

Buyers in any market differ in their wants, resources, locations, buying attitudes, and

buying practices. Through market segmentation, companies divide large, heterogeneous

markets into smaller segments that can be reached more effi ciently and effectively with

portant segmentation topics: segmenting consumer markets, segmenting business markets,

There is no single way to segment a market. A marketer has to try different segmenta

tion variables, alone and in combination, to fi nd the best way to view market structure.

outlines variables that might be used in segmenting consumer markets.

Here we look at the major geographic, demographic, psychographic, and behavioral variables.

Geographic segmentation calls for dividing the market into different geographical

units, such as nations, regions, states, counties, cities, or even neighborhoods. A company

may decide to operate in one or a few geographical areas or operate in all areas but pay at

tention to geographical differences in needs and wants.

Many companies today are localizing their products, advertising, promotion, and

sales efforts to fi t the needs of individual regions, cities, and neighborhoods. For exam

ple, Domino’s Pizza is the nation’s largest pizza delivery chain. But a customer ordering a

Anaheim, California. So Domino’s keeps its marketing and customer focus decidedly local.

Hungry customers anywhere in the nation can use the pizza peddler’s online platform

or smartphone app to track down local coupon offers, locate the nearest store with a GPS

Objective 2

Table 7.1 Major Segmentation Variables for Consumer Markets

Segmentation Variable Examples

Geographic segmentation

216 Part 3 |

freshly made pizza. They can even use

Domino’s Pizza Tracker to follow their

pies locally from store to door.2

Similarly, Macy’s, the nation’s

has rolled out a localization program

called MyMacy’s in which merchan

dise is customized under 69 different

districts. At stores around the country,

Macy’s sales clerks record local shop

district managers. In turn, blending the

tion data, the district managers cus

tomize the mix of merchandise in their

stores. So, for example, Macy’s stores

in Michigan stock more locally made

Macy’s carries more swimsuits in

stores near waterparks, and more twin

bedding in stores near condominium rentals. The chain stocks extra coffee percolators in its

country. In all, the “MyMacy’s” strategy is to meet the needs of local markets, making the

giant retailer seem smaller and more in touch.3

Demographic segmentation divides the market into segments based on variables such

eration. Demographic factors are the most popular bases for segmenting customer groups.

graphic variables. Another is that demographic variables are easier to measure than most

other types of variables. Even when marketers fi rst defi ne segments using other bases, such

as benefi ts sought or behavior, they must know a segment’s demographic characteristics to

assess the size of the target market and reach it effi ciently.

Consumer needs and wants change with age. Some com panies use , offering different products or using

snack, one that “taught the world to wig

example, the Kia Soul targets young Mil

hicle with a price to match. Kia Soul

“Hamstar” ads have a distinctly youthful

appeal, featuring a trio of hamsters cruis

ing through an apocalyptic landscape ac

companied by an infectious soundtrack,

In contrast, the Toyota Venza targets older

empty nesters. Venza commercials feature

parents—who are out leading their own ac

tive lives—don’t really miss them.4

Dominos Pizza LLC

Demographic segmentation

KIA Motors America

Chapter 7 | 217

college, others are just beginning new families. Thus, age is often a poor predictor of a per

son’s life cycle, health, work or family status, needs, and buying power.

Gender segmentation has long been used in clothing, cosmetics, toiletries, and magazines. For example, P&G was among the fi rst to use gender segmentation with Se

cret, a brand specially formulated for a woman’s chemistry, packaged and advertised to

reinforce the female image. More recently, the men’s cosmetics industry has exploded, and

many cosmetics makers that previously catered primarily to women now successfully mar

ket men’s lines. Just don’t call them “cosmetics.”5

try to craft more masculine positions. For example, Mënaji promises “Skincare for the Confi dent

Mënaji products come in dis

creet packaging such as old cigar boxes, and the line’s “undetectable” foundation and concealer

Probst doesn’t call any of it makeup. “The M word is cancer to us,” she says. “We are skin care

that looks good.” Whatever you call it, Mënaji sales have grown 70 percent in each of the past

4 years.

up to new gender segments. It recently released a new scent, Anarchy, marketed in differ

and Twitter fans are women, and Unilever’s research suggested that these women have

been wanting an Axe scent of their very own. Past Axe commercials have featured young

men spraying the brand on themselves to gain an edge in the mating game. “Now women

also have something to spray on themselves,” notes an Axe marketer, creating “more of an 6

The marketers of products and services such as automobiles, clothing, cosmetics, fi nancial services, and travel have long used income segmentation. Many companies

for a dozen of the couple’s best friends. The cruisers tell the story of their cruise. Seadream offers

(and even friends of friends). Such highly personal marketing creates a community of “brand

evangelists” who tell the story to prospective affl uent buyers and friends—precisely the right

target group. This has been so successful for Seadream that it has abandoned most traditional

advertising.

Gender segmentation

Mënaji Skincare LLC

Income segmentation

218 Part 3 | However, not all companies that use income segmentation target the affl uent. For

example, many retailers—such as the Dollar General, Family Dollar, and Dollar Tree store

stores is represented by families with incomes under $30,000. When Family Dollar real

nation.

Psychographic segmentation divides buyers into different segments based on social

class, lifestyle, or personality characteristics. People in the same demographic group can

have very different psychographic characteristics.

In Chapter 5, we discussed how the products people buy refl ect their lifestyles. As a result, marketers often segment their markets by consumer lifestyles and base their market

ing strategies on lifestyle appeals. For example, retailer Anthropologie, with its whimsical,

women customers aspire. And although W Hotels books out hotel rooms by the night, just

like any other hotel chain, it doesn’t see itself as a hotel company. Instead, it positions itself

as “an iconic lifestyle brand,” inviting guests to “step inside the worlds of design, music,

VF Corporation offers a closet full of more than 30 premium lifestyle brands that “fi t

the lives of consumers the world over, from commuters to cowboys, surfers to soccer moms,

sports fans to rock bands.”8

are not the only focus for VF. The com

pany’s brands are carefully separated

into fi ve major lifestyle segments—

Jeanswear, Imagewear (workwear),

wear, and Contemporary. The North

Face and Timberland brands, both

enthusiasts. From the Sportswear

unit, Nautica focuses on people who

spired by sailing and the sea. Vans

apparel. In the Contemporary unit,

whereas 7 for All Mankind sup

plies premium denim and accesso

department stores such as Saks and

Nordstrom. At the other end of the

spectrum, Sentinel, part of the Image

wear unit, markets uniforms for secu

rity offi cers. No matter who you are,

says the company, “We fi t your life.”

Marketers also use personality variables to segment markets. For example, different soft

Psychographic segmentation

VF Corporation

Chapter 7 | 219

Fashion Next

Symmetry Live

ROCKED

W Hotels:

©VIEW Pictures Ltd/Alamy

220 Part 3 | Designing a Customer-Driven Strategy and Mix

Behavioral Segmentation Behavioral segmentation divides buyers into segments based on their knowledge, at-

titudes, uses, or responses concerning a product. Many marketers believe that behavior

variables are the best starting point for building market segments.

Occasions. Buyers can be grouped according to occasions when they get the idea to buy, actually make their purchase, or use the purchased item. Occasion segmentation can

help firms build up product usage. Campbell’s advertises its soups more heavily in the

cold winter months, and Home Depot runs special springtime promotions for lawn and

garden products. Other marketers prepare special offers and ads for holiday occasions. For

example, M&M’s runs ads throughout the year but prepares special ads and packaging for

holidays and events such as Christmas, Easter, and the Super Bowl.

Still other companies try to boost consumption by promoting usage during nontra-

ditional occasions. For example, most consumers drink orange juice in the morning, but

orange growers have promoted drinking orange juice as a cool, healthful refresher at other

times of the day. And Chick-fil-A’s “Chikin 4 Brekfust” campaign attempts to increase busi-

ness by promoting its biscuits and other sandwiches as a great way to start the day.

Benefits Sought. A powerful form of segmentation is grouping buyers according to the different benefits that they seek from a product. Benefit segmentation requires finding the major benefits people look for in a product class, the kinds of people who look for each

benefit, and the major brands that deliver each benefit.

For example, Gillette research revealed four distinct benefit segments of women

shavers—perfect shave seekers (seeking a close shave with no missed hairs), EZ seek-

ers (fast and convenient shaves), skin pamperers (easy on the skin), and pragmatic

functionalists (basic shaves at an affordable price). So Gillette designed Venus razors

for each segment. The Venus Embrace targets perfect shave seekers with five curve-

hugging, spring-mounted blades that “hug every curve to get virtually every hair.” By

contrast, the Venus Breeze is made for EZ seekers—its built-in shave gel bars lather and

shave in one step, so there’s no need for separate shave gel. The Venus Divine gives skin

Occasion segmentation

Dividing the market into segments

according to occasions when buyers

get the idea to buy, actually make their

purchase, or use the purchased item.

Benefit segmentation

Dividing the market into segments

according to the different benefits that

consumers seek from the product.

Beyond its passion for art, fashion, and

entertainment, as you might expect, another

constant at W Hotels is first-class service—

what W calls “Whatever-Whenever” service.

“We aim to provide whatever, whenever, as

long as it is legal—something that is very

much consistent throughout the W brand,”

explains one W Hotel manager. W Hotels

don’t have concierges; instead, they have

“W Insiders.” The Insiders go a step be-

yond. Rather than waiting to be asked for

advice, they proactively seek out things

they can do to enhance the stay of each

guest. In keeping with the brand’s lifestyle

positioning, insiders stay in tune with spe-

cial need-to-know happenings and advise

guests on all the latest places to see and

be seen.

Adding even more luster to W’s lifestyle

allure, the chain’s hotels attract a star-stud-

ded list of celebrities. The W South Beach in

Miami, for example, in addition to its modern

art collection, is known for guests like Sean

Penn and Leonardo DiCaprio. The hotel has

a basketball court where NBA players are

often seen shooting hoops. LeBron James

held a party there after announcing that he

was taking his “talents to South Beach,” and

Dwyane Wade celebrates birthdays there.

New York Knicks forward Amar’e Stou-

demire and Italian soccer sensation Alessan-

dro Nesta paid millions to become residents

of the elite W South Beach property.

Staying at a W Hotel isn’t cheap. The ba-

sic W room runs about $450 a night, with top

suites running up to five figures. But a W Hotel

isn’t just a place where you rent a room and

get a good night’s sleep. It’s the design of the

place, the contemporary ambiance, what’s

hanging on the walls, the music that’s playing,

the other guests who stay there—all of these

things contribute mightily to the W’s lifestyle

positioning and allure to its young, hip, up-

scale W clientele. It’s not just a room, it’s part

of an entire trendsetter lifestyle.

Sources: Janet Harmer, “W London—A Hotel That Dares to Be Different,” Caterer & Hotelkeeper, March 4–10,

2011, pp. 26–28; Nancy Keates, “The Home Front: His Hotel, His Hangout,” Wall Street Journal, June 3, 2011,

p. D6; Christina Binkley, “Putting the Hot Back in Hotel,” Wall Street Journal, August 18, 2011, accessed at http://

online.wsj.com/article/SB10001424053111903596904576514293384502896.html; “W Hotels Unveils Innovative

Design Concept of the Soon-to-Open W Paris-Opéra by Acclaimed Rockwell Group Europe,” Starwood press

release, December 14, 2011, http://development.starwoodhotels.com/news/7/336-w_hotels_unveils_innovative_

design_concept_of_the_soon-to-open_w_paris-opera_by_acclaimed_rockwell_group_europe; and information and

press releases from www.starwoodhotels.com/whotels/about/index.html, accessed September, 2012.

Behavioral segmentation

Dividing a market into segments based

on consumer knowledge, attitudes, uses,

or responses to a product.

Chapter 7 | 221

them “moisture bars that release skin conditioners to help lock in moisture.” And the

“a close shave at an affordable price.”9

time users, and regular users of a product. Marketers want to reinforce and retain regular

and newlyweds—who can be turned into heavy users. For example, to get new parents off

to the right start, P&G makes certain its Pampers Swaddlers are the diaper provided for

newborns at most U.S. hospitals. And to capture newly engaged couples who will soon

takes the usual bridal registry a step further. Through a program called “The Store Is Yours,”

it opens its stores after hours, by appointment, exclusively for individual couples to visit

Sonoma brand.

Markets can also be segmented into light, medium, and heavy product users. Heavy users are often a small percentage of the market but account for a high

percentage of total consumption. For instance, a recent study showed that heavy seafood

consumers in the United States are a small but hungry bunch. Less than 5 percent of all

shoppers buy nearly 64 percent of unbreaded seafood consumed in the United States.

their families—account for more than 54 percent of breaded seafood sales. Not surpris

ingly, breaded seafood marketers such as Gortons and Van de Kamps target these heavy

users with marketing pitches emphasizing kid appeal, family nutrition, and family meal

planning tips and recipes.

A market can also be segmented by consumer loyalty. Consumers can be loyal to brands (Tide), stores (Target),

and companies (Apple). Buyers can be divided into groups ac

cording to their degree of loyalty. Some consumers are completely

loyal—they buy one brand all the time and can’t wait to tell oth

ers about it. For example, whether they own a Mac computer, an

social networking. At the other extreme, however, are the Mac

—who can’t wait

to tell anyone within earshot of their latest Apple gadget. Such

loyal Apple devotees helped keep Apple afl oat during the lean

years, and they are now at the forefront of Apple’s burgeoning

iPod, iTunes, and iPad empire.

times buying others. Still other buyers show no loyalty to any

brand—they either want something different each time they buy,

or they buy whatever’s on sale.

A company can learn a lot by analyzing loyalty patterns in its

market. It should start by studying its own loyal customers. A re

cent study of highly loyal customers showed that “their passion is

contagious,” says an analyst. “They promote the brand via blogs,

fan Web sites, YouTube videos, and word of mouth.” Some com

panies actually put loyalists to work for the brand. For example,

ucts in harsh environments.

buyers, a company can detect which brands are most competitive

with its own. By looking at customers who are shifting away from

its brand, the company can learn about its marketing weaknesses

and take actions to correct them.Doug Hardman

222 Part 3 |

defi ned target

groups. Several business information services—such as Nielsen, Acxiom, and Experian—

provide multivariable segmentation systems that merge geographic, demographic, life

style, and behavioral data to help companies segment their markets down to zip codes,

neighborhoods, and even households.

ated by The Nielsen Company.

classifies every American household based

on a host of demographic factors—such as

age, educational level, income, occupation,

family composition, ethnicity, and hous

ing—and behavioral and lifestyle factors—

U.S. households into 66 demographically

and behaviorally distinct segments, or

City Blues,” and “Brite Lites L’il City.” The

colorful names help to bring the segments

to life.

help marketers segment people and lo

minded consumers. Each segment has its

own pattern of likes, dislikes, lifestyles, and purchase behaviors. For example, Winner’s Circle neighborhoods, part of the Elite Suburbs social group, are suburban areas popu

money neighborhoods. People in this segment are more likely to own a Mercedes GL

Class, go jogging, shop at Neiman Marcus, and read the Wall Street Journal. In contrast, the Bedrock America young, economically challenged families in small, isolated towns located throughout the

nation’s heartland. People in this segment are more likely to order from Avon, buy toy

cars, and read Parents Magazine. Such segmentation provides a powerful tool for marketers of all kinds. It can help com

panies identify and better understand key customer segments, reach them more effi ciently,

and tailor market offerings and messages to their specifi c needs.

Consumer and business marketers use many of the same variables to segment their markets.

Business buyers can be segmented geographically, demographically (industry, company

size), or by benefi ts sought, user status, usage rate, and loyalty status. Yet, business market

ers also use some additional variables, such as customer operating characteristics, purchasing approaches, situational factors, and personal characteristics.

Almost every company serves at least some business markets. For example, Starbucks

has developed distinct marketing programs for each of its two business segments: the

offi ce coffee and food service segments. In the offi ce coffee and vending segment, Star

bucks

of any size, helping them to make Starbucks coffee and related products available to their

employees in their workplaces. Starbucks helps these business customers design the best

offi ce solutions involving its coffees (the Starbucks or Seattle’s Best brands), teas (Tazo),

PRIZM is a trademark or registered trademark of Nielsen Holdings (US), LLC.

Chapter 7 | 223 syrups, and branded paper products and methods of serving them—portion packs, sin

gle cups, or vending. The Starbucks Foodservice division teams up with businesses and

other organizations—ranging from airlines, restaurants, colleges, and hospitals to baseball

Starbucks provides not only the coffee, tea, and paper products to its food service partners,

location

customers. For example, Steelcase, a major producer of offi ce furniture, fi rst divides custom

ers into seven segments: biosciences, higher education, U.S. and Canadian governments,

state and local governments, health care, professional services, and retail banking. Next,

company salespeople work with independent Steelcase dealers to handle smaller, local, or

location cus

tomers, such as ExxonMobil or IBM, have special needs that may reach beyond the scope

of individual dealers. Therefore, Steelcase uses national account managers to help its dealer

networks handle national accounts.

Few companies have either the resources or the will to operate in all, or even most, of the

sell products in more than 200 countries, most international fi rms focus on a smaller set.

are close together, can vary greatly in their economic, cultural, and political makeup. Thus,

just as they do within their domestic markets, international fi rms need to group their world

markets into segments with distinct buying needs and behaviors.

Companies can segment international markets using one or a combination of several

variables. They can segment by geographic location, grouping countries by regions such as

sumes that nations close to one another will have many common traits and behaviors. Al

though this is often the case, there are many exceptions. For example, some U.S. marketers

lic is no more like Brazil than Italy is like Sweden. Many Central and South Americans don’t

the millions in other countries who speak a variety of Indian dialects.

World markets can also be segmented based on economic factors. Countries might be grouped by population income levels or by their overall level of economic development.

therefore, the marketing opportunities it offers. For example, many companies are now

developing economies with rapidly increasing buying power.

Countries can also be segmented by political and legal factors such as the type and sta bility of government, receptivity to foreign fi rms, monetary regulations, and amount of

bureaucracy. Cultural factors can also be used, grouping markets according to common lan guages, religions, values and attitudes, customs, and behavioral patterns.

Segmenting international markets based on geographic, economic, political, cul

tural, and other factors presumes that segments should consist of clusters of countries.

However, as new communications technologies, such as satellite TV and the Inter

net, connect consumers around the world, marketers can defi ne and reach segments

intermarket

segmentation (also called ), they form segments of

consumers who have similar needs and buying behaviors even though they are located

in different countries.

regardless of their country.

special programs to target teens, core consumers of its soft drinks the world over. By 2020,

segmentation

224 Part 3 | The campaign opened with “24hr Session,” in which

singing group Maroon 5 holed up in a London studio for

worldwide attended the studio session virtually, sharing

these efforts to engage the world’s teens with a “Move to

pics, inspired by the sounds, spirit, and culture of the host

city. “The number one passion point for teens is music,”

ity to grow and connect with teens, the generation of

tomorrow.”

Clearly, there are many ways to segment a market, but

not all segmentations are effective. For example, buyers

of table salt could be divided into blonde and brunette

customers. But hair color obviously does not affect the

purchase of salt. Furthermore, if all salt buyers bought

the same amount of salt each month, believed that all

salt is the same, and wanted to pay the same price, the company would not benefi t from

segmenting this market.

To be useful, market segments must be

Measurable: The size, purchasing power, and profi les of the segments can be mea sured. Accessible: The market segments can be effectively reached and served. Substantial: The market segments are large or profi table enough to serve. A segment should be the largest possible homogeneous group worth pursuing with a tailored

marketing program. It would not pay, for example, for an automobile manufacturer to

develop cars especially for people whose height is greater than seven feet.

Differentiable: The segments are conceptually distinguishable and respond differently to different marketing mix elements and programs. If men and women respond simi

larly to marketing efforts for soft drinks, they do not constitute separate segments.

Actionable: Effective programs can be designed for attracting and serving the segments. For example, although one small airline identifi ed seven market segments, its staff was

too small to develop separate marketing programs for each segment.

Market Targeting Market segmentation reveals the fi rm’s market segment opportunities. The fi rm now has to

evaluate the various segments and decide how many and which segments it can serve best.

We now look at how companies evaluate and select target segments.

In evaluating different market segments, a fi rm must look at three factors: segment size and

growth, segment structural attractiveness, and company objectives and resources. First, a

company wants to select segments that have the right size and growth characteristics. But

always the most attractive ones for every company. Smaller companies may lack the skills

petitive. Such companies may target segments that are smaller and less attractive, in an

absolute sense, but that are potentially more profi table for them.

ment attractiveness. For example, a segment is less attractive if it already contains many

REUTERS/Toru Hanai

Objective 3

attractive market segments

Chapter 7 | 225 strong and aggressive competitors or if it is easy for new entrants to come into the segment. The existence of many actual or potential substitute products may limit prices and the profi ts that can be earned in a segment. The relative power of buyers also affects segment attractiveness. Buyers with strong bargaining power relative to sellers will try to force

prices down, demand more services, and set competitors against one another—all at the

expense of seller profi tability. Finally, a segment may be less attractive if it contains pow erful suppliers and services.

Even if a segment has the right size and growth and is structurally attractive, the

company must consider its own objectives and resources. Some attractive segments

attractive segment. For example, the economy segment of the automobile market is

large and growing. But given its objectives and resources, it would make little sense

enter segments in which it can create superior customer value and gain advantages over

its competitors.

After evaluating different segments, the company must decide which and how many seg

ments it will target. A target market consists of a set of buyers who share common needs

or characteristics that the company decides to serve. Market targeting can be carried out

at several different levels. shows that companies can target very broadly

(undifferentiated marketing), very narrowly (micromarketing), or somewhere in between (differentiated or concentrated marketing).

Using an (or mass marketing) strategy, a fi rm might

decide to ignore market segment differences and target the whole market with one offer.

Such a strategy focuses on what is common in the needs of consumers rather than on what is different. The company designs a product and a marketing program that will appeal to the largest number of buyers.

As noted earlier in the chapter, most modern marketers have strong doubts about this

strategy. Diffi culties arise in developing a product or brand that will satisfy all consumers.

better job of satisfying the needs of specifi c segments and niches.

Using a (or segmented marketing) strategy, a fi rm decides

to target several market segments and designs separate offers for each. P&G markets six

different laundry detergent brands in the United States (Bold, Cheer, Dash, Dreft, Gain, and

Tide), which compete with each other on supermarket shelves. Then, P&G further segments

each brand to serve even narrower niches. For example, you can buy any of a dozen or more

versions of Tide—from Tide with Bleach, Tide Coldwater, or Tide HE (high effi ciency) to

Tide plus Febreze or Tide plus Downey.

Perhaps no brand practices differentiated marketing like Hallmark Cards.

Targeting broadly

Targeting narrowly

This figure covers a broad range of targeting strategies, from mass marketing (virtually no targeting) to individual marketing (customizing products and programs to individual customers). An example of individual marketing: At mymms.com you can order a batch of M&M's with your face and personal message printed on each little candy.

FIGURE |

Target market

marketing

226 Part 3 | Hallmark vigorously segments the greeting card

market. In addition to its broad Hallmark card line

Shoebox Greetings, Hallmark has introduced lines

targeting a dozen or more specific segments. Fresh

cards. Hallmark’s three ethnic lines—Mahogany,

Sinceramente Hallmark, and Tree of Life—target

Jewish consum

ers, respectively. Hallmark’s newer Journeys line of

encouragement cards focuses on such challenges as

fighting cancer, coming out, and battling depression.

Specific greeting cards also benefit charities such as

nology. Musical greeting cards incorporate sound

clips from popular movies, TV shows, and songs.

of a book and have it played back as the recipient

well as personalized printed greeting cards that it

mails for consumers. For business needs, Hallmark

Business Expressions offers personalized corporate

holiday cards and greeting cards for all occasions

and events.

By offering product and marketing variations to segments, companies hope for

higher sales and a stronger position within each market segment. Developing a stronger

position within several segments creates more total sales than undifferentiated mar

keting across all segments. Thanks to its differentiated approach, Hallmark’s brands

account for almost one of every two greeting cards purchased in the United States. Simi

larly, P&G’s multiple detergent brands capture four times the market share of its nearest

rival.

But differentiated marketing also increases the costs of doing business. A fi rm

tion planning, and channel management. And trying to reach different market segments

with different advertising campaigns increases promotion costs. Thus, the company

must weigh increased sales against increased costs when deciding on a differentiated

marketing strategy.

Concentrated Marketing When using a concentrated marketing (or niche marketing) strategy, instead of

going after a small share of a large market, a firm goes after a large share of one or

a few smaller segments or niches. For example, Whole Foods Market has more than

than 3,600 stores and sales of $82 billion) and Walmart (close to 9,000 stores and sales

Yet, over the past five years, the smaller, more upscale retailer has

grown faster and more profitably than either of its giant rivals. Whole Foods thrives by

catering to affluent customers who the Walmarts of the world can’t serve well, offer

ing them “organic, natural, and gourmet foods, all swaddled in Earth Day politics.” In

fact, a typical Whole Foods customer is more likely to boycott the local Walmart than

to shop at it.

Through concentrated marketing, the fi rm achieves a strong market position because

of its greater knowledge of consumer needs in the niches it serves and the special reputation

effectively to the needs of carefully defi ned segments. It can also market more efficiently, targeting its products or services, channels, and communications programs toward only consumers that

it can serve best and most profi tably.

Concentrated (niche) marketing

Photo courtesy of Gary Armstrong

Chapter 7 | 227 Niching lets smaller companies focus their limited resources on serving niches that

may be unimportant to or overlooked by larger competitors. Many companies start as

nichers to get a foothold against larger, more resourceful competitors and then grow into

frills commuters in Texas but is now one of the nation’s largest airlines. And Enterprise

with Hertz and Avis in airport locations. Enterprise is now the nation’s largest car rental

company.

Today, the low cost of setting up shop on the Internet makes it even more profi table to

serve seemingly miniscule niches. Small businesses, in particular, are realizing riches from

serving small niches on the Web. Consider online women’s clothing

nicher Modcloth.com:

sorting through vintage clothing she’d found at local thrift shops and

boyfriend, now husband, Eric Koger, launched ModCloth.com out of their

Carnegie Mellon dorm rooms. Despite these modest beginnings, thanks to

the power of the Internet, the fl edgling company soared. Today, only a de

cade later, ModCloth.com boasts more than 275 employees, 700 indepen

blog and various social networks, and Web interactivity—such as letting

customers play a big role in selecting featured apparel and even its design

direction—have attracted a devoted following. ModCloth’s revenues have

lion visitors per month.

Concentrated marketing can be highly profi table. At the same time,

segments for all of their business will suffer greatly if the segment turns

greater resources. For these reasons, many companies prefer to diversify

in several market segments.

Micromarketing Differentiated and concentrated marketers tailor their offers and marketing programs to

meet the needs of various market segments and niches. At the same time, however, they

do not customize their offers to each individual customer. Micromarketing is the prac

tice of tailoring products and marketing programs to suit the tastes of specifi c individuals

the individual in every customer. Micromarketing includes local marketing and individual marketing.

Local marketing involves tailoring brands and promotions to the needs and wants of local customer groups—cities, neighborhoods, and even specifi c stores.

merchandise assortments to individual neighborhoods. In Manhattan, around Penn Station

foods, a shoeshine area, and a nail salon, all catering to an upscale market. In the Williamsburg

come and go in key local market areas.

Modcloth Inc.

Micromarketing

local marketing

individual marketing

Local marketing

228 Part 3 |

Groupon Inc.

Chapter 7 | 229

marketers are now tapping into what experts call the Social Local Mobile (SoLoMo) search

SoLoMo bandwagon, primarily in the form of smart

phone and tablet apps.

Mobile app Shopkick excels at SoLoMo. It sends

special offers and rewards to shoppers simply for check

ing into client stores such as Target, American Eagle, Best

Buy, or Crate&Barrel. When shoppers are near a par

ticipating store, the Shopkick app on their phone picks up

a signal from the store and spits out store coupons, deal

alerts, and product information. Similarly, shopping cen

various store sales and promotions to customers who

ers and consumers. It helps merchants get out their mes

sages while at the same time personalizing the customer ’s

shopping experience.

Local marketing has some drawbacks, however.

It can drive up manufacturing and marketing costs

by reducing the economies of scale. It can also create

logistics problems as companies try to meet the var

kets. Still, as companies face increasingly fragmented Shopkick

dot.com

Forbes

Amazon

.com

Sources:

Mashable

Bloomberg Businessweek,

Wall Street Journal,

Bloomberg Businessweek,

Wall Street Journal

Part 3 | markets, and as new supporting technologies develop, the advantages of local marketing

often outweigh the drawbacks.

In the extreme, micromarketing becomes — tailoring products and marketing programs to the needs and preferences of individual cus

tomers. Individual marketing has also been labeled , mass customization, and .

The widespread use of mass marketing has obscured the fact that for centuries con

shoes for an individual, and the cabinetmaker made furniture to order. Today, new tech

nologies are permitting many companies to return to customized marketing. More detailed

databases, robotic production and fl exible manufacturing, and interactive media such as

mobile phones and the Internet have combined to foster mass customization. Mass custom ization

Individual marketing has made relationships with customers more important than

ever. Just as mass production was the marketing principle of the twentieth century, interac

appears to be coming full circle—from the good old days when customers were treated as

individuals to mass marketing when nobody knew your name and then back again.

Companies these days are hypercustomizing everything from food to artwork, ear

phones, sneakers, and motorcycles.22

At mymms.com, candylovers can buy

M&Ms embossed with images of their

makes music earphones based on

molds of customers’ ears to provide op

timized fi t and better and safer sound.

The company even laser prints designs

on the tiny ear buds—some people re

a dog. Nike’s NikeID program lets

users choose materials for shoes’ tread

Tex, mesh, or other), pick the color of

the swoosh and stitching, and even im

right and left feet? That, too, can be re

program lets customers go online, de

sign their own Harley, and get it in as

little as four weeks. It invites customers

to explore some 8,000 ways to create

their own masterpiece. “You dream it.

We build it,” says the company.

also fi nding new ways to customize their

offerings. For example, John Deere manu

production line. Mass customization provides a way to stand out against competitors.

strategy is best depends on the company’s resources. When the fi rm’s resources are limited,

concentrated marketing makes the most sense. The best strategy also depends on the degree of

product variability. Undifferentiated marketing is more suited for uniform products, such as

grapefruit or steel. Products that can vary in design, such as cameras and cars, are more suited

Getty Images for Nike

Chapter 7 | 231 When a fi rm introduces a new product, it may be practical to launch one version only, as un

differentiated marketing or concentrated marketing may make the most sense. In the mature

stage of the product life cycle, however, differentiated marketing often makes more sense.

Another factor is market variability. If most buyers have the same tastes, buy the same amounts, and react the same way to marketing efforts, undifferentiated marketing is appro

priate. Finally, competitors’ marketing strategies are important. When competitors use differenti ated or concentrated marketing, undifferentiated marketing can be suicidal. Conversely, when

competitors use undifferentiated marketing, a fi rm can gain an advantage by using differenti

ated or concentrated marketing, focusing on the needs of buyers in specifi c segments.

Smart targeting helps companies become more effi cient and effective by focusing on the seg

ments that they can satisfy best and most profi tably. Targeting also benefi ts consumers—

companies serve specifi c groups of consumers with offers carefully tailored to their needs.

However, target marketing sometimes generates controversy and concern. The biggest issues

usually involve the targeting of vulnerable or disadvantaged consumers with controversial

or potentially harmful products.

For example, over the years marketers in a wide range of industries—from cereal, soft

drinks, and fast food to toys and fashion—have been heavily criticized for their marketing ef

tising appeals presented through the mouths of lovable animated characters will overwhelm

children’s defenses. In recent years, for instance, McDonald’s has been criticized by various

health advocates and parents groups who are concerned that its popular Happy Meals of

fers—featuring trinkets and other items tied in with children’s movies such as Toy Story—

has responded by putting the Happy Meal on a diet, cutting the

overall calorie count by 20 percent and adding fruit to every meal.23

spills over into the children’s segment—intentionally or uninten

tionally. For example, Victoria’s Secret targets its highly success

ful Pink line of young, hip, and sexy clothing to young women

Victoria’s Secret’s designs and marketing messages, tweens are

fl ocking into stores and buying Pink, with or without their moth

ers. More broadly, critics worry that marketers of everything from

Barbie dolls to lingerie are directly or indirectly targeting young

girls with provocative products, promoting a premature focus

on sex and appearance. For example, Barbie now comes in a

kini top for girls as young as 8. “The sexualization of teens is bad

enough and now it’s trickling down to our babies,” laments one

reporter.24

To encourage responsible advertising, the Children’s Ad

agency, has published extensive children’s advertising guidelines

that recognize the special needs of child audiences. Still, critics feel

that more should been done. Some have even called for a complete

ban on advertising to children.

come, urban residents who are much more likely than suburban

ites to be heavy consumers. Similarly, big banks and mortgage Jarrod Weaton/Weaton Digital, Inc.

232 Part 3 | lenders have been criticized for targeting consumers in poor urban areas with attractive

adjustable rate home mortgages that they can’t really afford.

The growth of the Internet and other carefully targeted direct media has raised fresh

concerns about potential targeting abuses. The Internet allows more precise targeting, letting

Not all attempts to target children, minorities, or other special segments draw such

criticism. In fact, most provide benefi ts to targeted consumers. For example, Pantene mar

tons, large screen text, and a louder speaker. And Colgate makes a large selection of tooth

Mild Bubble Fruit toothpaste to Colgate Dora the Explorer character toothbrushes. Such

products help make tooth brushing more fun and get children to brush longer and more

often.

Thus, in target marketing, the issue is not really who is targeted but rather how and for what. Controversies arise when marketers attempt to profi t at the expense of targeted

able products or tactics. Socially responsible marketing calls for segmentation and targeting

that serve not just the interests of the company but also the interests of those targeted.

Beyond deciding which segments of the market it will target, the company must decide on

a value proposition—how it will create differentiated value for targeted segments and what positions it wants to occupy in those segments. A is the way a product is

defined by consumers on important attributes—the place the product occupies in consumers’ minds relative to competing products. Products are made in factories, but brands happen

in the minds of consumers.

Method laundry detergent is positioned as a smarter, easier, and greener de

ily.” In the automobile market, the Nissan Versa and Honda Fit are positioned on

economy, Mercedes and Cadillac on luxury, and Porsche and BMW on performance.

Folger’s Coffee is “The best part of wakin’ up”; Honest Tea says “Nature got it

right. We put it in a bottle.”

Consumers are overloaded with information about products and services.

They cannot reevaluate products every time they make a buying decision. To sim

plify the buying process, consumers organize products, services, and companies

into categories and “position” them in their minds. A product’s position is the

complex set of perceptions, impressions, and feelings that consumers have for the

product compared with competing products.

Consumers position products with or without the help of marketers. But

marketers do not want to leave their products’ positions to chance. They must plan positions that will give their products the greatest advantage in selected target

markets, and they must design marketing mixes to create these planned positions.

Positioning Maps In planning their differentiation and positioning strategies, marketers often pre

pare perceptual positioning maps that show consumer perceptions of their brands versus competing products on important buying dimensions.

shows a positioning map for the U.S. large luxury sport utility vehicle (SUV) mar

ket.26 The position of each circle on the map indicates the brand’s perceived po

sitioning on two dimensions: price and orientation (luxury versus performance).

The size of each circle indicates the brand’s relative market share.

priced, large, luxury SUV with a balance of luxury and performance. The Esca

lade is positioned on urban luxury, and, in its case, “performance” probably means

Objective 4

Chapter 7 | 233

P ri

c e

The location of each circle shows where consumers position a brand on two

orientation. The size of each circle indicates the brand’s relative market share in the segment. Thus, Toyota's Land Cruiser is a niche brand that is perceived to be relatively affordable and more performance oriented.

FIGURE |

Source:

Competitive advantage

lade ad.

terrains and climates. In recent years, the Land Cruiser has retained this adventure and

dynamic suspension systems. “In some parts of the world, it’s an essential.” Despite its

ogy, DVD entertainment, and a sumptuous interior have softened its edges.”

Some fi rms fi nd it easy to choose a differentiation and positioning strategy. For example,

go after the same position. Then each will have to fi nd other ways to set itself apart. Each

substantial group within the segment.

Dunkin’ Donuts and Starbucks are coffee shops, they offer very different product assort

ments and store atmospheres. Yet each succeeds because it creates just the right value prop

The differentiation and positioning task consists of three steps: identifying a set of dif

ferentiating competitive advantages on which to build a position, choosing the right com

petitive advantages, and selecting an overall positioning strategy. The company must then

effectively communicate and deliver the chosen position to the market.

and Competitive Advantages To build profi table relationships with target customers, marketers must understand cus

tomer needs and deliver more customer value better than competitors do. To the extent

that a company can differentiate and position itself as providing superior customer value,

it gains competitive advantage.

But solid positions cannot be built on empty promises. If a company positions its product

as offering delivers

234 Part 3 | positions with slogans and taglines. They must fi rst live the slogan. For example, when Staples’ research revealed that it should differentiate itself on the basis of “an easier shopping experi

ence,” the offi ce supply retailer held back its “Staples: That was easy” marketing campaign for

more than a year. First, it remade its stores to actually deliver the promised positioning.27

tomer complaints to compliments was running a dreadful eight to one at Staples stores. Weeks

of focus groups produced an answer: Customers wanted an easier shopping experience. That

simple revelation has resulted in one of the most successful marketing campaigns in recent his

turnaround took a lot more than simply bombarding customers with a new slogan. Before it

could promise customers a simplifi ed shopping experience, Staples had to actually deliver one.

First, it had to live the slogan. So, for more than a year, Staples worked to revamp the customer experience. It remodeled

its stores, streamlined its inventory, retrained employees, and even simplifi ed customer com

communicating its new positioning to customers. The “Staples: That was easy” repositioning

campaign has met with striking success, helping to make Staples the runaway leader in offi ce

retail. No doubt about it, clever marketing helped. But marketing promises count for little if they

are not backed by the reality of the customer experience.

To fi nd points of differentiation, marketers must think through the customer’s entire

experience with the company’s product or service. An alert company can fi nd ways to dif

ferentiate itself at every customer contact point. In what specifi c ways can a company dif

ferentiate itself or its market offer? It can differentiate along

the lines of product, services, channels, people, or image. Through product differentiation, brands can be dif

ferentiated on features, performance, or style and design.

Thus, Bose positions its speakers on their striking design and

sound characteristics. By gaining the approval of the Ameri

can Heart Association as an approach to a healthy lifestyle,

And Seventh Generation, a maker of household cleaning and

laundry supplies, paper products, diapers, and wipes, differ

entiates itself not so much by how its products perform but

by the fact that its products are greener. Seventh Generation’s

mission: “Healthy Products. Healthy Environment. Healthy

Communities. Healthy Company.”

Beyond differentiating its physical product, a fi rm can

also differentiate the services that accompany the product.

Some companies gain services differentiation through speedy, convenient, or careful delivery. For example, First Conve

faction with airline service is in constant decline, Singapore Airlines sets itself apart through

extraordinary customer care and the grace of its fl ight attendants. “Everyone expects excel

lence from us,” says the international airline. “[So even] in the smallest details of fl ight, we rise

to each occasion and deliver the Singapore Airlines experience.”28

Firms that practice channel differentiation gain competitive advantage through the way

can also gain a strong competitive advantage through people differentiation—hiring and train

people are known to be friendly and upbeat. Disney trains its theme park people thoroughly

to the monorail drivers, to the ride attendants, to the people who sweep Main Street USA.

Each employee is carefully trained to understand customers and to “make people happy.”

Even when competing offers look the same, buyers may perceive a difference based

on company or brand image differentiation. A company or brand image should convey a product’s distinctive benefi ts and positioning. Developing a strong and distinctive image

Gilles ROLLE/REA/Redux

Chapter 7 | 235 calls for creativity and hard work. A company cannot develop an image in the public’s mind

ported by everything the company says and does.

Symbols, such as the McDonald’s golden arches, the colorful Google logo, the Nike

swoosh, or Apple’s “bite mark” logo, can provide strong company or brand recognition

and image differentiation. The company might build a brand around a famous person, as

Nike did with its Michael Jordan, Kobe Bryant, and LeBron James basketball shoe and ap

(red), IBM (blue), or UPS (brown). The chosen symbols, characters, and other image ele

ments must be communicated through advertising that conveys the company’s or brand’s

personality.

Choosing the Right Competitive Advantages Suppose a company is fortunate enough to discover several potential differentiations that

provide competitive advantages. It now must choose the ones on which it will build its po

sitioning strategy. It must decide how many differences to promote and which ones.

Many marketers think that companies should ag

unique selling proposition (USP) for each brand and stick to it. Each brand should pick an attribute and tout itself as “number

one” on that attribute. Buyers tend to remember num

ber one better, especially in this overcommunicated

society. Thus, Walmart promotes its unbeatable low

prices, and Burger King promotes personal choice—

“have it your way.”

sition themselves on more than one differentiator. This

may be necessary if two or more fi rms are claiming to

be best on the same attribute. Today, in a time when the

mass market is fragmenting into many small segments,

companies and brands are trying to broaden their po

sitioning strategies to appeal to more segments. For

example, whereas Gatorade originally offered a sports

drink positioned only on performance hydration, the

brand now offers an entire G Series of sports drinks

that provide at least three primary benefi ts. G Series

“fuels your body before, during, and after practice,

before exercise. Gatorade Thirst Quencher is for use “in the

moment of activity” during exercise. Finally, Gatorade

beverage that provides protein for recovery after ex ercise. Clearly, many buyers want these multiple ben

efi ts. The challenge is to convince them that one brand

can do it all.

Not all brand dif ferences are meaningful or worthwhile, and each dif

ference has the potential to create company costs as

well as customer benefi ts. A difference is worth establishing to the extent that it satisfi es the

following criteria:

Important: The difference delivers a highly valued benefi t to target buyers. Distinctive: Competitors do not offer the difference, or the company can offer it in a more distinctive way.

Superior: The difference is superior to other ways that customers might obtain the same benefi t.

Communicable: The difference is communicable and visible to buyers. Preemptive: Competitors cannot easily copy the difference.

236 Part 3 | Affordable: Buyers can afford to pay for the difference. Profitable: The company can introduce the difference profi tably.

Many companies have introduced differentiations that failed one or more of these tests.

When the Westin Stamford Hotel in Singapore once advertised that it is the world’s tallest

hotel, it was a distinction that was not important to most tourists; in fact, it turned many

off. Polaroid’s Polarvision, which produced instantly developed home movies, bombed too.

Although Polarvision was distinctive and even preemptive, it was inferior to another way

of capturing motion—namely, camcorders.

Thus, choosing competitive advantages on which to position a product or service can

be diffi cult, yet such choices may be crucial to success. Choosing the right differentiators can

help a brand stand out from the pack of competitors. For example, when carmaker Nissan

introduced its novel little Cube, it didn’t position the car only on attributes shared with

competing models, such as affordability and customization. It positioned it as a “mobile

device” that fi ts today’s digital lifestyles.

The full positioning of a brand is called the brand’s —the full mix of

benefi ts on which a brand is differentiated and positioned. It is the answer to the custom

proposition hinges on performance but also includes luxury and styling, all for a price that

is higher than average but seems fair for this mix of benefi ts.

shows possible value propositions on which a company might posi

tion its products. In the fi gure, the fi ve green cells represent winning value propositions—

differentiation and positioning that give the company a competitive advantage. The red cells,

however, represent losing value propositions. The center yellow cell represents at best a mar

ginal proposition. In the following sections, we discuss the fi ve winning value propositions:

more for more, more for the same, the same for less, less for much less, and more for less.

positioning involves providing the most upscale prod

Mercedes

ity, performance, or style and, therefore, charges a higher price. When

traditional mobile phone with a hefty price tag to match.

under magnifi cation from the bottom, a perfect ring of eight hearts appears;

from the top comes a perfectly formed Fireburst of light.

those who expect more and give more in return.” The brand commands 29

faces “gourmet” coffee competitors ranging from Dunkin’ Donuts to

McDonald’s. Also, luxury goods that sell well during good times may be

at risk during economic downturns when buyers become more cautious

in their spending. The recent gloomy economy hit premium brands, such

as Starbucks, the hardest.

price. For example, Toyota introduced its Lexus line with a

same value proposition versus Mercedes and BMW. Its fi rst headline read: “Perhaps the fi rst time in history that trading a $72,000 car for a $36,000

of its new Lexus through rave reviews in car magazines and a widely Used with permission of Hearts On Fire Company, LLC

Chapter 7 | 237

It published surveys showing that Lexus dealers were providing customers with better sales

and service experiences than were Mercedes dealerships. Many Mercedes owners switched to

the same for less can be a powerful value proposition—ev eryone likes a good deal. Discount stores such as Walmart and “category killers” such as

Best Buy, PetSmart, David’s Bridal, and DSW Shoes use this positioning. They don’t claim

to offer different or better products. Instead, they offer many of the same brands as depart

ment stores and specialty stores but at deep discounts based on superior purchasing power

an effort to lure customers away from the market leader. For example, Amazon.com offers

the Kindle Fire tablet computer, which sells for less than 40 percent of the price of the Apple

iPad or Samsung Galaxy.

A market almost always exists for products that offer less and there fore cost less. Few people need, want, or can afford “the very best” in everything they buy. In

many cases, consumers will gladly settle for less than optimal performance or give up some

of the bells and whistles in exchange for a lower price. For example, many travelers seeking

lodgings prefer not to pay for what they consider unnecessary extras, such as a pool, an at

Express, and Motel 6 suspend some of these amenities and charge less accordingly.

stores offer more affordable goods at very low prices. Costco warehouse stores offer less

merchandise selection and consistency and much lower levels of service; as a result, they

more for less. Many companies claim to do this. And, in the short run, some companies can actually

achieve such lofty positions. For example, when it fi rst opened for business, Home Depot

had arguably the best product selection, the best service, and the lowest prices compared to local hardware stores and other home improvement chains.

less” promise. Companies that try to deliver both may lose out to more focused competi

tors. For example, facing determined competition from Lowe’s stores, Home Depot must

now decide whether it wants to compete primarily on superior service or on lower prices.

All said, each brand must adopt a positioning strategy designed to serve the needs and

wants of its target markets. More for more will draw one target market, less for much less will draw another, and so on. Thus, in any market, there is usually room for many different com

panies, each successfully occupying different positions. The important thing is that each

company must develop its own winning positioning strategy, one that makes the company

special to its target consumers.

B e

n e

fi ts

Price

These are losing value propositions.

These are winning value propositions.

FIGURE |

238 Part 3 |

Company and brand positioning should be summed up in a positioning statement. The

statement should follow the form: To (target segment and need) our (brand) is (concept)

that (point of difference).30 Here is an example using the popular digital information

management application Evernote: “To busy multitaskers who need help remembering

things, Evernote is digital content management application that makes it easy to capture

and remember moments and ideas from your everyday life using your computer, phone,

tablet, and the Web.”

Note that the positioning statement

fi rst states the product’s membership in

a category (digital content management

application) and then shows its point of

difference from other members of the cat

egory (easily capture moments and ideas

and remember them later). Evernote helps

you “remember everything” by letting

do lists, and record voice reminders, and

then makes them easy to fi nd and access

using just about any device, anywhere—

at home, at work, or on the go.

Placing a brand in a specifi c cat

egory suggests similarities that it

might share with other products in the

category. But the case for the brand’s

superiority is made on its points of dif

ference. For example, the U.S. Postal

Service ships packages just like UPS

and FedEx, but it differentiates its

Priority Mail from competitors with

ping boxes and envelopes. “If it fi ts, it

the Chosen Position

nicate the desired position to its target consumers. All the company’s marketing mix efforts

must support the positioning strategy.

Positioning the company calls for concrete action, not just talk. If the company decides

deliver that position. Designing the marketing mix—product, price, place, and promotion—involves working out the tacti

vice people, fi nd retailers that have a good reputation for service, and develop sales and

advertising messages that broadcast its superior service. This is the only way to build a

Companies often fi nd it easier to come up with a good positioning strategy than

to implement it. Establishing a position or changing one usually takes a long time. In

has built the desired position, it must take care to maintain the position through consis

tent performance and communication. It must closely monitor and adapt the position

over time to match changes in consumer needs and competitors’ strategies. However,

the company should avoid abrupt changes that might confuse consumers. Instead, a

environment.

Evernote Corporation

Positioning statement

Chapter 7 | 239

target marketing

Defi ne the major steps in

(pp 214–215)

Market segmentation

market targeting

Differentiation

Positioning

right relationships right customers

Objective 2

(pp 214–224)

geographic segmentation

demo

graphic segmentation

psychographic segmentation

behavioral segmentation

demographics

operating characteristics purchasing approaches situational

factors personal characteristics

measurable accessible substantial differentiable

actionable

attractive market segments and

(pp 224–232)

undifferentiated

mass marketing

differentiated mar

keting

Concentrated marketing niche marketing

micromarketing

local marketing individual marketing

(pp 232–238)

differentiation and positioning strategy

Reviewing Objectives and Key Terms

Objective 1

Objective 3

Objective 4

240 Part 3 | Designing a Customer-Driven Strategy and Mix The brand’s full positioning is called its value proposition—the

full mix of benefits on which the brand is positioned. In general,

companies can choose from one of five winning value proposi-

tions on which to position their products: more for more, more for

the same, the same for less, less for much less, or more for less.

Company and brand positioning are summarized in positioning

statements that state the target segment and need, the position-

ing concept, and specific points of difference. The company must

then effectively communicate and deliver the chosen position to

the market.

Key Terms

Objective 1 Market segmentation (p 214)

Market targeting (targeting) (p 214)

Differentiation (p 214)

Positioning (p 214)

Objective 2 Geographic segmentation (p 215)

Demographic segmentation (p 216)

Age and life-cycle segmentation (p 216)

Gender segmentation (p 217)

Income segmentation (p 217)

Psychographic segmentation (p 218)

Behavioral segmentation (p 220)

Occasion segmentation (p 220)

Benefit segmentation (p 220)

Intermarket (cross-market)

segmentation (p 223)

Objective 3 Target market (p 225)

Undifferentiated (mass) marketing (p 225)

Differentiated (segmented) marketing

(p 225)

Concentrated (niche) marketing (p 226)

Micromarketing (p 227)

Local marketing (p 227)

Individual marketing (p 230)

Objective 4 Product position (p 232)

Competitive advantage (p 233)

Value proposition (p 236)

Positioning statement (p 238)

Discussion and Critical Thinking

Discussion Questions

1. How does market segmentation differ from market targeting? (AACSB: Communication)

2. Name and describe the four major sets of variables that might be used in segmenting consumer markets. Which segment-

ing variables does Starbucks use? (AACSB: Communication;

Reflective Thinking)

3. Name and describe the levels at which market targeting can be carried out. Give an example of a company using each.

(AACSB: Communication; Reflective Thinking)

4. Explain how companies segment international markets. (AACSB: Communication)

5. Explain how a company differentiates its products from com- petitors’ products. (AACSB: Communication)

6. In the context of marketing, what is a product’s “position”? How do marketers know what it is? (AACSB: Communication)

Critical Thinking Exercises

1. Advertisers use market segmentation when promoting prod- ucts to consumers. For each major consumer segmention

variable, find an example of a print ad that appears to be

based on that variable. For each ad, identify the target market

and explain why you think the advertiser is using the segmen-

tation variable you identified for that ad. (AACSB: Communica-

tion; Reflective Thinking)

2. When Nissan introduced its large Titan pickup truck in the United States and Toyota introduced the Tundra, each thought

it would sell around 200,000 vehicles per year and had planned

capacity for hundreds of thousands more because of the huge

U.S. market potential. After all, the “big three” American manu-

facturers averaged sales in this market of almost 2 million trucks

per year. But the two Japanese brands missed their sales goals

by a wide margin. In a small group, discuss possible reasons

for the dismal sales of the Titan and the Tundra in the U.S. mar-

ket. (AACSB: Communication; Reflective Thinking)

3. Form a small group and create an idea for a new business. Using the steps described in the chapter, develop a customer-

driven marketing strategy. Describe your strategy and con-

clude with a positioning statement for your business. (AACSB:

Communication; Reflective Thinking)

Chapter 7 | Customer-Driven Marketing Strategy 241

Applications and Cases

Marketing Technology Google’s Glasses Consumers enjoy having Google’s search power at their fingertips,

but if things go as planned, we’ll have that Google power right be-

fore our very eyes, no fingers necessary. “Augmented reality”—the

ability to project information in front of our eyes—is now being

used in commercial and military operations. For example, the U.S.

Air Force uses it to display weapons information in fighter pilot

helmets. However, it has yet to take off in the consumer market.

That’s because the required headgear has been uncomfortable,

unattractive, and expensive. But Google is peering into the future

and has tentative plans to sell its Google Glasses device to con-

sumers in 2013. The sleek wraparound glasses place a single lens

above a person’s right eye that displays digital information that

can be voice- and gesture-controlled. Connecting the device to

a smartphone opens up a world of possibilities. The only product

close to Google’s glasses currently on the consumer market is a

GPS device that skiers and snowboarders insert into goggles that

displays speed information.

1. How would you market the Google Glasses device in a 30-second commercial to consumers based on one of the

segmenting variables you identified in the previous question?

(AACSB: Communication; Reflective Thinking)

Marketing Ethics Targeting Young Consumers You would never know that consumers are more frugal these days

if you look at the new children’s lines from fashion houses such as

Fendi, Versace, and Gucci. Toddler high fashion is not new, but de-

signers are taking it to new levels and extending it beyond special-

occasion clothing to everyday wear. In the past, some of the little

girls marching down fashion runways carried dolls with matching

outfits. But now, many of the little children’s fashions are geared

around matching mom and dad clothing. Jennifer Lopez and her lit-

tle ones helped Gucci launch a line for babies and children aged 2 to

8 years old. A Gucci children’s outfit with a t-shirt, skinny jeans, a belt

with the trademark double-G, a raincoat, and boots will set mom

and dad back about $1,000. A Burberry children’s double-breasted

trench coat for a baby runs $335, a bargain compared to mom’s

matching $1,195 trench coat. The CEO of the Young Versace brand

sees growth in this market and anticipates this brand making up

10 percent of the company’s global sales in only a few years.

1. What segmentation variables are marketers using in this example? (AACSB: Communication; Reflective Thinking)

Marketing by the Numbers Kaplan University Recruits Veterans For-profit universities, such as Kaplan University, DeVry University,

and the University of Phoenix, actively target military veterans. In

fact, the University of Phoenix has more veterans enrolled than

any other college. These schools rely heavily on students receiv-

ing federal financial aid, and federal law limits the proportion of

for-profit university revenue that can be derived from federal aid

to 90 percent. But enrolling veterans helps them stay below this

threshold because the law does not count GI benefits as gov-

ernment assistance. With federal spending on veterans’ educa-

tion more than doubling to almost $10 billion between 2009 and

2010, this market is even more attractive. Kaplan University is

one of the most aggressive, with a team of 300 representatives

focused solely on recruiting military veterans, increasing its enroll-

ment of veterans by almost 30 percent in just one year.

1. Discuss the factors used to evaluate the usefulness of the military veteran segment. (AACSB: Communication; Reflective

Thinking)

2. Using the chain ratio method described in Appendix 2: Mar- keting by the Numbers, estimate the market potential for un-

dergraduate education in the veteran market. Be sure to state

any assumptions. (AACSB: Communication; Use of IT; Analyti-

cal Reasoning)

Video Case Boston Harbor Cruises Since 1926, Boston Harbor Cruises has been providing cus-

tomers with memorable experiences on ocean-going vessels in

and around the Boston area. But these days, the term “cruise”

has different meanings for the four-generation family business.

To thrive in good economic times and in bad, Boston Harbor

Cruises has progressively targeted various types of customers

242 Part 3 | Designing a Customer-Driven Strategy and Mix with its different boats and different services. Sight-seeing trips

around Boston Harbor, whale-watching tours, fast ferry service

to Cape Cod, dinner and wedding cruises, and a high-speed

thrill ride are among Boston Harbor Cruises offerings. It even

offers commuter services and off-shore construction support.

Targeting this diverse customer base has become even more

challenging as Boston Harbor Cruises has further differentiated

the market into local customers, domestic vacationers, and in-

ternational travelers.

After viewing the video featuring Boston Harbor Cruises, an-

swer the following questions:

1. On what main variables has Boston Harbor Cruises focused in segmenting its markets?

2. Which target marketing strategy best describes the efforts of Boston Harbor Cruises? Support your choice.

3. How does Boston Harbor Cruises use the concepts of differ- entiation and positioning to build relationships with the right

customers?

Company Case Bentley Motors: Differentiation and Positioning in International Markets

The mission of Bentley Motors, the definitive British luxury car

company, to produce best cars in their class, has remained un-

changed since it was expressed eloquently by its founder Walter

Owen Bentley in London in 1919. Located in Crewe, England,

since 1946 and owned since 1998 by Volkswagen AG, Bentley

Motors is an international company developing and crafting one

of the world’s most desirable luxury cars.

There are many unmistakable characteristics that define a

Bentley—distinctive design, handcrafted luxury, supreme com-

fort, ultimate performance, and a refined and exhilarating driving

experience. Yet it is the company’s brand imaging through dif-

ferentiation and positioning that makes the quintessentially Brit-

ish brand unique today. To many, owning a Bentley is not about

getting from A to B but about getting there with flair infused with

advanced technology and breathtaking power as well as time-

hallowed tradition and classic hand craftsmanship at the pinnacle

of British luxury motoring. Based around the concept of “British-

ness” in image and design,

Bentley has succeeded in differentiating its position in the

global luxury car market through a market-driven strategy based

on responsive cross-market segmentation.

Cross-Market Segmentation The traditional markets of Bentley Motors are the United States,

the United Kingdom, and Europe, which were identified by the

company using two of the traditional international market seg-

mentation variables: the level of a nation’s economic develop-

ment and per capita gross domestic product (GDP). Bentley had

enjoyed high sales in these economically developed markets,

especially in the boom of the 1980s. In the 1990s, it struggled

to reach similar level of sales, which led to a major investment in

the facility, new-product development, and brand re-positioning

in 1999. The brand reached the height of its heyday in the 1920s

and 1930s, and the Bentley Boys winning the 24-hour race in Le

Mans in 2003 seemed to emulate victories of the past. Its new

Arnage T luxury sports sedan won critical acclaim by the motor-

ing press worldwide soon after, and the Continental GT, launched

in 2004, was seen as one of the most successful launches of any

car in Bentley’s history.

However, sales in its traditional markets slumped in 2008 due

to the global financial crisis triggered by the collapse of Lehman

Brothers in September 2008. Some orders for its cars were can-

celled immediately, and sales dropped by 24 percent that year

compared to 2007. When the company was forced to stage a

seven-week production shutdown in the spring of 2009 due to

the slump, it started to search for new markets to increase sales.

It realized that the use of the more traditional market segmenta-

tion variables such as age, gender, education and level of eco-

nomic development does not seem to reflect the real aspect of

market behavior, especially the burgeoning purchasing power of

the well-to-do in the big emerging markets such as Brazil, Russia,

India, and China. The result of the search was the identification of

a thriving consumer segment that transcends the national bound-

aries of these nations. Despite being located in nations featuring

low per capita income, this segment of consumers has the great-

est global consumption growth and represents rapidly growing

buying power for luxury goods ranging from ultra-luxury cars to

designer handbags.

Targeting Operating in markets of both developed and emerging econo-

mies presents challenges for Bentley. It was clear from day one

that it targeted high-income groups who want to buy into the

symbolism and history of the Bentley brand, even though the

prospect customers would inherently know that they could pur-

chase a vehicle with similar performance and specification for less

than half the price. Bentley is aware that the needs and prefer-

ences of its target groups in the emerging economies may differ

from those of its prospects in developed economies, who are

typically older or retired males, highly educated, and high earners.

In comparison, Bentley’s target consumers in emerging markets

are often the young, less educated entrepreneurs who share a

number of important commonalties. They have a strong appe-

tite for Western-branded luxury goods, from which they expect

superior quality as a fundamental attribute associated with these

goods—quality may mean design, materials, technology, perfor-

mance, and craftsmanship, but also attributes such as the tradi-

tion and the heritage of country of origin, uniqueness traits, and

perceived superiority and exclusivity. Recognizing the differences

and the opportunity to be had from differentiating its targeting

efforts, Bentley launched its value proposition based on “British-

ness” in its newly found markets while refreshing its original value

proposition of luxury, performance, and exclusivity in its traditional

markets.

Differentiation and Positioning The Bentley brand concept is based on the premise that a con-

sumer who regards luxury car brand characteristics as impor-

tant or desirable, and is in the market for such a luxury product,

should be attracted to the brand. Bentley is aware that for its

brand to be unique, it must have imagery and symbolic meaning

Chapter 7 | Customer-Driven Marketing Strategy 243 to a consumer. In other words, it must stand for a lifestyle or

an attitude and communicate this to its cross-market consumer

bases.

Although owned by the German Volkswagen AG group, which

enjoys a perception of creditability and originality, Bentley brands

itself as a quintessentially distinctive luxury brand originating in

Crewe, England, with a fusion of heritage and cutting-edge tech-

nology. It defines its cars by the important attributes of tradition and

hand craftsmanship, relative to those of speed and performance

used by its competitors. It focuses on the emotional benefits of its

cars and has stayed true to this proposition through an integrated,

high-touch differentiation and positioning program tailored to the

carefully defined well-to-do groups in each of its markets.

Bentley offers an exclusive collection of limited non-motoring

products produced under license from its equally exclusive part-

ners. Ettinger for Bentley offers luxury leather travel products in

vibrant colors from the Bentley color palette, hand-stitched in

England from Bentley’s own hides. Through Estede, Bentley offers

a limited edition, high-end range of sunglasses and ophthalmic

frames featuring the famous winged B emblem and presented in

a Bentley leather presentation box. Through Zai, a Swiss maker

of luxury ski equipment known for its craft and exclusivity, Bentley

offers innovative ski products handmade in Switzerland with sup-

port from the Bentley Styling Studio in England.

Bentley has also teamed up with luxury hospitality brands to

reinforce its vale proposition through Bentley Places that embody

the values and the spirit of Bentley around the world. The Bent-

ley Room at London’s Mosimann’s is an inimitably British blend

of style and tradition with a dash of Bentley décor and detail-

ing. The dining room was designed by Caulder Moore, who also

designed the Bentley Living Room at the company’s headquar-

ters in Crewe. The Bentley Suite at the exclusive St. Regis Hotel

in New York—built by John Jacob Astor IV in 1904—provides

guests with the luxury, craftsmanship, and style associated with

the Bentley brand.

In its traditional markets of the United States, the United

Kingdom, and Europe, Bentley, through its dealerships, regularly

invites customers to take part in national golf tournaments that

culminate in a cross-national event held in differing worldwide

locations; the winner is crowned with the Bentley “Continental

Cup.” These events bring together golfers from different conti-

nents with a common interest in golf and Bentley and help to

refresh and reinforce its image of luxury and exclusivity.

In its newly found markets in the emerging economies, Bentley

increases publicity to raise awareness of its brand through motor

shows, exhibitions, openings of grand showrooms, and signing of

exclusive dealerships to highlight the craftsmanship, quality, and

luxury of a Bentley car and the authenticity of the Bentley name.

All these events take place in the most economically developed

and fashionable metropolitan areas, such as Sao Paulo in Brazil;

Shanghai, Shenzhen, and Beijing in China; and Mumbai in India.

Bentley stays true to its English heritage and makes sure that

the unique “Britishness” is steeped in its targeted marketing pro-

grammes. In the biggest Bentley brand exhibition ever held out-

side Crewe, the World of Bentley exhibition held in Shanghai in

2009 featured a myriad of exhibits devoted to telling the Bentley

story of craftsmanship, style, luxury, and heritage originated in

England. Bentley has long stood alone as the world’s premier

maker of handcrafted cars, and it did not disappoint in Shanghai.

The Bentley Design Studio gave the crowds a rare chance to

glance into its celebrated tradition of designing the “grand tour”

automobile: a Bentley stylist at work, sketching its future, inspired

by its past. Bentley woodwork and trim experts demonstrated

Bentley’s unrivalled craftsmanship in an interactive and fun-filled

display of how the company brought the English way of life into

dynamic designs of luxurious motor cars. In the words of Geoff

Dowding, Bentley’s Regional Manager for East Asia, “The Chi-

nese just love the Britishness.”

Bentley’s high-touch positioning through tailored marketing

programmes in its new markets played a key role in the com-

pany’s recovery since the sale slumps in 2008. China has now

replaced the United States as Bentley’s largest market. In 2011

the company delivered 1,664 cars to Chinese customers; during

the first quarter of 2012, sales in the region grew by 84 percent

compared with the same period in 2011. The prominent presence

of its dealerships, 35 by September 2012, is set to further expand

in the next 12 months as the latest high-performance coupe and

convertible Continental models are introduced to Chinese cus-

tomers. In Russia, Bentley’s sales increased by 45 percent in

2011, making it the best-selling luxury car brand in the country.

The Road Ahead In summary, Bentley targets high-income segments, and builds

its brand by serving a luxury segment of the car market. It pro-

duces superior-quality products distributed through exclusive

dealerships and is never shy about charging a typically high price.

It is strongly positioned as a quintessentially British brand steeped

with tradition and heritage, and it communicates this proposition

through consistent and believable associations with high-end

brands in the luxury consumer goods and hospitality sectors. In

doing so, it draws its existing and prospective customers to style,

luxury, prestige, heritage, and exclusivity.

Through these well-tuned competitive advantages, it had

sold well in its traditional markets until the economic downturn

in 2008, when buyers became more cautious in their spending. It

has since recovered following expansion into high-consumption-

growth segments in the emerging economies by carrying out ef-

fective cross-market segmentation, targeting, and positioning.

The pent-up demand for luxury cars in the emerging econ-

omies is remaining strong, with Bentley and other European

sports car brands all reporting strong sales and orders. However,

there are already signs of a slowdown in some of Bentley’s new

markets, such as China, which reported the slowest economic

growth in the past decade. Furthermore, increasing sales aggres-

sively in these new markets may imply less distinctiveness and

exclusivity for the Bentley brand.

However, as long as Bentley remains true to its pinnacle posi-

tioning of building the best car in its class with heritage, tradition,

and cutting-edge technology, it can look forward to ample op-

portunities in the years to come, especially in the existing emerg-

ing economies as well as those in the making, such as Vietnam,

Cambodia, Kazakhstan, and the Philippines, where the nouveau

rich have just started to appreciate the quintessentially British tra-

dition and heritage that is embroidered in Bentley.

244 Part 3 | Designing a Customer-Driven Strategy and Mix Questions for Discussion 1. What is international market segmentation? What challenges

does it pose to Bentley?

2. Using the full spectrum of segmentation variables, describe how Bentley segments and targets the international luxury car

market.

3. Has Bentley differentiated and positioned its brand effectively? Explain.

4. Given the economic downturn in developed economies and the slowdown in emerging economies such as China, will

Bentley continue to grow? Why or why not?

5. What recommendations would you make to help ensure Bent- ley’s future growth?

Sources: Based on information from Andrew Hopps, “A Study into As- piration and Brand Preference in the Luxury Car Market,” MSc in Busi-

ness Management thesis, 2003; Manchester Metropolitan University and

Louise Lucas, “Slowdown Reduces Thirst for Scotch,” Financial Times,

October 2, 2012, http://www.ft.com/cms/s/0/0266cbb4-0cae-11e2-

a73c-00144feabdc0.html#axzz2HJDcgl89 and www.bentleymotors

.com.

References 1. “How Air Asia founder Tony Fernandes’ dream came true”, BBC News,

November 1, 2010, www.bbc.co.uk/news/business-11647205;

“AirAsia Posts Third Straight Profit Gain on Budget Travel Demand”,

Bloomberg.com, November 21, 2012, www.bloomberg.com/

news/2012-11-21/airasia-posts-third-straight-profit-gain-on-budget-

travel-demand.html; and Dimitrious Buhalis, “eAirlines: Strategic and

Tactical Use of ICTs in the Airline Industry,” Airlinequality.com, http://

www.airlinequality.com/Forum/air_asia.htm.

2. See “Domino’s Pizza Continues Bringing Mobile Ordering to the Masses with New Android App and Free Smartphone Offer,” Sacra-

mento Bee, February 27, 2012.

3. See Cotton Timberlake, “With Stores Nationwide, Macy’s Goes Local,” Bloomberg BusinessWeek, October 4, 2010–October 10,

2010, pp. 21–22; Robert Klara, “For the New Macy’s, All Marketing

Is Local,” Adweek, June 7, 2010, pp. 25–26; and “Remarks by Terry

J. Lundgren, Chairman, President, and Chief Executive Officer,”

www.macysinc.com/investors/annualmeeting/, accessed May 20,

2011. For other localization examples, see Philip Kotler and Kevin

Lane Keller, Marketing Management, 14th ed. (Upper Saddle River,

NJ: Prentice Hall, 2012), pp. 234–235.

4. “Kia Motors America; Kia Motors America’s Music-Loving Hamsters Shuffle to LMFAO’s Smash Hit ‘Party Rock Anthem’ in New Adver-

tising Campaign for Funky Soul Urban Passenger Vehicle,” Energy

Weekly News, September 9, 2011, p. 67; David Kiefaber, “Millennials

Are Clueless Narcissists in Toyota’s Empty Nester Ads,” Adweek,

July 7, 2011, www.adweek.com/adfreak/millennials-are-clueless-

narcissists-toyotas-empty-nester-ads-133217; and www.youtube

.com/watch?v�4zJWA3Vo6TU, accessed November 2012.

5. Joel Stein, “The Men’s ‘Skin Care’ Product Boom,” Time, October 30, 2010, www.time.com/time/magazine/article/0,9171,2025576,00

.html; Joyce V. Harrison, “Men Invade Female Turf of Cosmet-

ics,” Associated Content from Yahoo!, November 2, 2010, www

.associatedcontent.com/article/5922774/men_invade_female_turf_

of_cosmetics_pg2.html?cat[equals]69; Ryan Doran, “Skin Is In,”

Fairfield County Business Journal, October 10, 2011, p. 1; and www

.menaji.com, accessed November 2012.

6. Noreen O’Leary, “Talk to Her,” Adweek, February 27, 2012, www .adweek.com/news/advertising-branding/talk-her-138529; Andrew

Adam Newman, “Axe Adds Fragrance for Women to Its Lineup,” New

York Times, January 8, 2012; and www.harley-davidson.com/wcm/

Content/Pages/women_riders/landing.jsp, accessed August 2012.

7. Example from Richard Baker, “Retail Trends—Luxury Marketing: The End of a Mega-Trend,” Retail, June/July 2009, pp. 8–12.

8. See www.vfc.com/brands, accessed October 2012. 9. See Philip Kotler and Kevin Lane Keller, Marketing Management,

14th ed. (Upper Saddle River, NJ: Prentice Hall, 2012), p. 98; and

Venus product descriptions from www.gillettevenus.com/en_US/

products/index.jsp, accessed November 2012.

10. See Carolyn Chapin, “Seafood Nets Loyal Consumers,” Refriger- ated & Frozen Foods, June 2009, p. 42; and “Tracking Consumer

Attitudes Toward Seafood Safety Resulting from the Gulf of Oil Spill,”

December 2010, accessed at http://louisianaseafood.com/pdf/

LSPMBSeafoodPhaseI-FinalVersion.pdf.

11. See this and other examples in Andreas B. Eisenerich and others, “Behold the Extreme Consumers . . .,” Harvard Business Review,

April 2010, pp. 30–31.

12. For more on the PRIZM Lifestyle Segmentation System, see www .MyBestSegments.com, accessed August 2012.

13. See www.starbucksfs.com and http://starbucksocs.com/, accessed November 2012.

14. “Coca-Cola Launches Global Music Effort to Connect with Teens,” Advertising Age, March 3, 2011, accessed at http://adage.com/

print/149204; and “Coca-Cola’s London 2012 Game Plan: Woo

Teens Through Music, Parents Through Sustainability,” Brand-

Channel, September 29, 2011, http://brandchannel.com/home/

post/2011/09/29/Coca-Cola-London-2012-Move-to-the-Beat

.aspx; and “Coca-Cola Launches Global Ads for London 2012 Olym-

pic Games Starring Mark Ronson,” Business Wire, February 15,

2012.

15. See Michael Porter, Competitive Advantage (New York: Free Press, 1985), pp. 4–8, 234–236. For more recent discussions, see Kenneth

Sawka and Bill Fiora, “The Four Analytical Techniques Every Analyst

Must Know: 2. Porter’s Five Forces Analysis,” Competitive Intelligence

Magazine, May–June 2003, p. 57; and Philip Kotler and Kevin Lane

Keller, Marketing Management, 14th ed. (Upper Saddle River, NJ:

Prentice Hall, 2012), p. 232.

16. Example adapted from Philip Kotler and Kevin Lane Keller, Market- ing Management, 14th ed., p. 235. Also see Brad van Auken, “Le-

veraging the Brand: Hallmark Case Study,” January 11, 2008, www

.brandstrategyinsider.com; “Hallmark Breaks Out of Special- Occasion

Mold,” Advertising Age, July 6, 2011, www.adage.com/print/228558;

and www.hallmark.com, accessed September 2012.

17. Store information found at www.walmartstores.com, www .wholefoodsmarket.com, and www.kroger.com, accessed September

2012.

18. “America’s Fastest-Growing Retailer,” Inc., September 1, 2010; David Moin, “Modcloth’s M.O.,” Women’s Wear Daily, June 15, 2011; Jordan

Speer, “Get Feedback. It Closes the Loop,” Apparel, November 2011,

p. 2; and www.modcloth.com, accessed August 2012.

19. Stephanie Clifford, “Drug Chain’s Beer Bar Serves a Neighbor- hood,” New York Times, January 14, 2011, p. B. 1; “Duane Reade

to Debut New Flagship Store at Iconic 40 Wall Street Building,” Mar-

keting Business Weekly, July 24, 2011, p. 23; and Robert Klara,

“New York’s Duane Reade Adds In-Store Yogurt Kiosks,” Adweek,

February 6–February 12, 2012, p. 16.

Chapter 7 | Customer-Driven Marketing Strategy 245 20. Based on information found in Samantha Murphy, “SoLoMo Rev-

olution Picks Up Where Hyperlocal Search Left Off,” Mashable,

January 12, 2012, http://mashable.com/2012/01/12/solomo-

hyperlocal-search/; and “Localeze/15miles Fifth Annual comScore

Local Search Usage Study Reveals SoLoMo Revolution Has Taken

Over,” Business Wire, February 29, 2012.

21. Based on information found in Gwendolyn Bounds, “The Rise of Holi- day Me-tailers,” Wall Street Journal, December 8, 2010, p. D1; Abbey

Klaassen, “Harley-Davidson Breaks Consumer-Created Work from

Victors & Spoils,” Advertising Age, February 14, 2012, http://adage

.com/print?article_id�148873; and www.harley-davidson.com/en_US/

Content/Pages/H-D1_Customization/h-d1_customization.html, ac-

cessed August 2012.

22. Julie Jargon, “McDonald’s under Pressure to Fire Ronald,” Wall Street Journal, May 18, 2011; Stephanie Strom, “McDonald’s Trims

Its Happy Meal,” New York Times, July 26, 2011; and “McDonald’s

Introduces New Automatic Offerings of Fruit in Every Happy Meal,”

PRNewswire, January 20, 2012.

23. For these and other examples, see Stacy Weiner, “Goodbye to Girl- hood,” Washington Post, February 20, 2007, p. HE01; India Knight,

“Relax: Girls Will Be Girls,” Sunday Times (London), February 21,

2010, p. 4; and “Abercrombie & Fitch Removes ‘Push-Up’ from

Girls’ Bikini Description Following Outcry,” Fox News, March 30,

2011, accessed at www.foxnews.com.

24. See “IC3 2011 Internet Crime Report Released,” May 10, 2012, www.ic3.gov/media/default.aspx.

25. SUV sales data furnished by www.WardsAuto.com, accessed March 2012. Price data from www.edmunds.com, accessed March

2012.

26. Based on information found in Michael Myser, “Marketing Made Easy,” Business 2.0, June 2006, pp. 43–44; Sandra Ward, “Nope,

That Wasn’t Easy,” Barron’s, December 5, 2011, p. 21; and www

.staples.com, accessed August 2012.

27. Quote from “Singapore Airlines: Company Information,” www.singa- poreair.com, accessed November 2012.

28. Based on information from Philip Kotler and Kevin Lane Keller, Marketing Management, 14th ed., p. 336; and www.heartson-

fire.com/Learn-About-Our-Diamonds.aspx, accessed November

2012.

29. See Bobby J. Calder and Steven J. Reagan, “Brand Design,” in Dawn Iacobucci, ed., Kellogg on Marketing (New York: John Wiley

& Sons, 2001), p. 61. For more discussion, see Kotler and Keller,

Marketing Management, 14th ed., Chapter 10.

brash young company slapped its familiar brand and swoosh

logo on everything from sunglasses and soccer balls to batting

gloves and golf clubs. It seemed that things couldn’t be going

any better.

In the late 1990s, however, Nike stumbled and its sales

slipped. As the company grew larger, its creative juices seemed

to run a bit dry and buyers seeking a new look switched to com-

peting brands. Looking back, Nike’s biggest obstacle may have

been its own incredible success. As sales grew, the swoosh may

have become too common to be cool. Instead of being anti es- tablishment, Nike was the establishment, and its hip, once-hot relationship with customers cooled. Nike needed to rekindle the

brand’s meaning to consumers.

Part 1: Defining Marketing and the Marketing Process (Chapters 1–2)

Part 2: Understanding the Marketplace and Consumers (Chapters 3–6)

Part 3: Designing a Customer-Driven Strategy and Mix (Chapters 7–17)

Part 4: Extending Marketing (Chapters 18–20)

Products, Services, and Brands8

Chapter Preview After examining customer-driven

marketing strategy, we now take

a deeper look at the marketing mix: the tactical tools that market-

ers use to implement their strategies and deliver superior customer

value. In this and the next chapter, we study how companies de-

velop and manage products and brands. Then, in the chapters that

follow, we look at pricing, distribution, and marketing communica-

tion tools. The product and brand are usually the first and most basic

marketing consideration. We start with a seemingly simple question:

What is a product? As it turns out, the answer is not so simple.

Before starting into the chapter, let’s look at a good brand

story. Marketing is all about creating brands that connect with cus-

tomers, and few marketers have done that as well as Nike. During

the past several decades, Nike has built the Nike swoosh into one

of the world’s best-known brand symbols. Nike’s outstanding suc-

cess results from much more than just making and selling good

sports gear. It’s based on a deep-down connection between the

iconic Nike brand and its customers.

Nike: Building Deep-Down Brand-Customer Relationships

T he Nike “swoosh”—it’s everywhere! Just for fun, try

counting the swooshes whenever you pick up the

sports pages or watch a pickup basketball game or

tune into a televised soccer match. Through innova-

tive marketing, Nike has built the ever-present swoosh into one

of the best-known brand symbols on the planet.

During the 1980s, Nike revolutionized sports marketing. To

build its brand image and market share, Nike lavishly outspent

its competitors on big-name endorsements, splashy promotional

events, and big-budget, in-your-face “Just Do It” ads. Nike gave

customers much more than just good athletic gear. Whereas com-

petitors stressed technical performance, Nike built relationships

between the brand and its customers. Beyond shoes, apparel,

and equipment, Nike marketed a way of life, a genuine pas-

sion for sports, a just-do-it attitude. Customers didn’t

just wear their Nikes, they experienced them.

As the company stated on its Web page,

“Nike has always known the truth—

it’s not so much the shoes but where

they take you.”

Nike powered its way through

the early 1990s, aggressively add-

ing products in a dozen new sports,

including baseball, golf, skateboarding,

wall climbing, bicycling, and hiking. The then

Nike’s outstanding success results

from much more than just good sports gear. It’s based on a deep-down connection between the iconic Nike brand and its customers. Nike is quietly

engineering a new brand marketing revolution.

Building Customer

Value

Chapter 8 | Products, Services, and Brands: Building Customer Value 247 To turn things around, Nike returned to its roots:

with

The Nike

one writer notes, “Nike is blurring the line between brand and

Nike’s deep connections

with customers give it

a powerful competitive

advantage. Nike blurs the

line between brand and

experience.

Image of Sport Photos/Newscom

248 Part 3 |

As the Nike

What is a product?

What Is a Product? product

products

product

Services

Objective Outline

Objective 1 Defi ne product and the major classifi cations of products and services.

What Is a Product? (pp 248–253)

Objective 2 Describe the decisions companies make regarding their individual products and services, product lines, and product mixes.

Product and Service Decisions (pp 253–259)

Objective 3 Identify the four characteristics that affect the marketing of services and the additional marketing considerations that services require.

Services Marketing (pp 259–266)

Objective 4 Discuss branding strategy—the decisions companies make in building and managing their brands.

Branding Strategy: Building Strong Brands (pp 267–275)

Objective 1 Defi ne product and the major

classifi cations of products and

services.

Product

attention, acquisition, use, or consumption

Service

Chapter 8 | Products, Services, and Brands: Building Customer Value 249 Products, Services, and Experiences

market offering

pure tangible good pure services

experiences

that

will do

Levels of Product and Services Fig

ure 8.1 core customer value What is the buyer really buying?

actual prod uct

Creating customer experiences: Starbucks doesn’t sell just coffee, it sells The

Starbucks Experience—what it calls a “third place”—away from home and away from work,

a place for conversation and a sense of community.

250 Part 3 |

build an augmented product around the

core customer value actual augment it to

Product and Service Classifi cations

consumer products and industrial products

Consumer Products Consumer products

convenience products, ping products, specialty products, and unsought products

Table 8.1

Core, actual, and augmented product: People who buy an iPad are buying much more

connectivity—a mobile and personal window to the world.

Betsie Van der Meer/Getty Images

Consumer product

Core customer

value

Actual product

Augmented product

At the most basic level, the company asks, “What is the customer really buying? For example, people who buy an Apple iPad are buying more than just a tablet computer. They are buying

productivity, and connectivity—a mobile and personal window to the world.

FIGURE | 8.1

Chapter 8 | Products, Services, and Brands: Building Customer Value 251

Convenience products

Shopping products

Specialty products

Unsought products

Industrial Products Industrial products

purpose

Table 8.1 | Marketing Considerations for Consumer Products

Type of Consumer Product

Marketing Considerations

Convenience

Shopping

Specialty

Unsought

planning, little comparison

customer involvement

little or even negative

interest)

Price Varies

convenient locations

Varies

Promotion

producer

Advertising and personal

producer and resellers producer and resellers

Aggressive advertising

producer and resellers

Convenience product

Shopping product

Specialty product

Unsought product

Industrial product

252 Part 3 |

Materials and parts

Capital items

supplies and services

Organizations, Persons, Places, and Ideas

Organization mar keting

corporate image mar keting

Person marketing

Place marketing

Organization marketing: IBM’s Smarter Planet

campaign markets IBM as a company that helps

improve the world’s IQ. This ad tells how IBM

technologies are helping to create safer food

supply chains.

Courtesy of International Business Machines Corporation, © International

Business Machines Corporation.

Chapter 8 | Products, Services, and Brands: Building Customer Value 253

Ideas

social ideas social marketing

www.adcouncil.org

Product and Service Decisions

Individual Product and Service Decisions Figure 8.2

product attributes, branding, packaging, labeling, and product support services

Product and Service Attributes

quality, features, and style and design

Product Quality. Product quality

quality as

Total quality management TQM

Don’t forget Figure 8.1. The focus of all of these decisions is to create core customer value.

FIGURE | 8.2

Individual Product Decisions

Social marketing

concepts and tools in programs designed

Objective 2 Describe the decisions

companies make regarding their

individual products and services,

product lines, and product mixes.

Product quality

254 Part 3 |

return on quality

quality level performance quality

conformance quality consistency

Product Features.

value cost

Product Style and Design. product style and design

Style

perform design

really

usable gadgets.

OXO International Inc.

Chapter 8 | Products, Services, and Brands: Building Customer Value 255 houseware designs have even been featured in museum exhibitions, and OXO has now ex-

tended its design touch to office supplies, medical devices, and baby products.

Much of OXO’s design inspiration comes directly from users. “Every product that we make

starts with . . . watching how people use things,” says Alex Lee, OXO’s president. “Those are the

gems—when you pull out a latent problem.” For example, after watching people struggle with the

traditional Pyrex measuring cup, OXO discovered a critical flaw: You can’t tell how full it is without

lifting it up to eye level. The resulting OXO measuring cups have markings down the inside that can be read from above, big enough to read without glasses. Thus, OXO begins with a desired end-user

experience and then translates pie-cutter-in-the-sky notions into eminently usable gadgets.

Branding Perhaps the most distinctive skill of professional marketers is their ability to build and man-

age brands. A brand is a name, term, sign, symbol, or design, or a combination of these,

that identifies the maker or seller of a product or service. Consumers view a brand as an im-

portant part of a product, and branding can add value to a consumer ’s purchase. Custom-

ers attach meanings to brands and develop brand relationships. As a result, brands have

meaning well beyond a product’s physical attributes. For example, consider Coca-Cola:9

In an interesting taste test of Coca-Cola versus Pepsi, 67 subjects were connected to brain-wave-

monitoring machines while they consumed both products. When the soft drinks were unmarked,

consumer preferences were split down the middle. But when the brands were identified, subjects

chose Coke over Pepsi by a margin of 75 percent to 25 percent. When drinking the identified

Coke brand, the brain areas that lit up most were those associated with cognitive control and

memory—a place where culture concepts are stored. That didn’t happen as much when drink-

ing Pepsi. Why? According to one brand strategist, it’s because of Coca-Cola’s long-established

brand imagery—the almost 100-year-old contour bottle, the bright red cans, the cursive font, and

its association with iconic images ranging from the Polar Bears to Santa Claus. Pepsi’s imagery

isn’t quite as deeply rooted. People apparently don’t link Pepsi to the strong and emotional

American icons associated with Coke. The conclusion? Plain and simple: Consumer preference

isn’t based on taste alone. Coke’s iconic brand name appears to make a difference.

Branding has become so strong that today hardly anything goes unbranded. Salt is

packaged in branded containers, common nuts and bolts are packaged with a distributor’s

label, and automobile parts—spark plugs, tires, filters—bear brand names that differ from

those of the automakers. Even fruits, vegetables, dairy products, and poultry are branded—

Sunkist oranges, Dole Classic iceberg salads, Horizon Organic milk, Perdue chickens, and

Eggland’s Best eggs.

Branding helps buyers in many ways. Brand names help consumers identify products that

might benefit them. Brands also say something about product quality and consistency—buyers

who always buy the same brand know that they will get the same features, benefits, and quality

each time they buy. Branding also gives the seller several advantages. The seller’s brand name

and trademark provide legal protection for unique product features that otherwise might be

copied by competitors. Branding helps the seller to segment markets. For example, rather than

offering just one general product to all consumers, Toyota can offer the different Lexus, Toyota,

and Scion brands, each with numerous sub-brands—such as Camry, Corolla, Prius, Matrix,

Yaris, Tundra, and Land Cruiser. Finally, a brand name becomes the basis on which a whole

story can be built about a product’s special qualities. For example, Eggland’s Best sets itself

apart from ordinary eggs by promising: “Better Taste. Better Nutrition. Better Eggs.”

Building and managing brands are perhaps the marketer’s most important tasks. We

will discuss branding strategy in more detail later in the chapter.

Packaging Packaging involves designing and producing the container or wrapper for a product. Tra-

ditionally, the primary function of the package was to hold and protect the product. In re-

cent times, however, packaging has become an important marketing tool as well. Increased

competition and clutter on retail store shelves means that packages must now perform

many sales tasks—from attracting buyers, to communicating brand positioning, to closing

the sale. As one packaging expert notes, “Not every consumer sees a brand’s advertising or

is exposed to the exciting social media that your brand is doing. But all of the consumers

who buy your product do interact with your humble package.”10

Companies are realizing the power of good packaging to create immediate consumer

recognition of a brand. For example, an average supermarket stocks about 38,700 items; the

average Walmart supercenter carries 142,000 items. The typical shopper makes 70 percent of

Brand

A name, term, sign, symbol, or design,

or a combination of these, that identifies

the products or services of one seller or

group of sellers and differentiates them

from those of competitors.

Packaging

The activities of designing and producing

the container or wrapper for a product.

256 Part 3 |

Labeling

identifies the

describe

promote

Box—is more than just friendly to the environment, it’s also very friendly to consumers’

sensibilities and the company’s bottom line. Pretty clever, huh?

PUMA

Chapter 8 | Products, Services, and Brands: Building Customer Value 257

unit pricing open dating nutritional

labeling

low fat, light, and high fiber

Product Support Services

after

Brand labels and logos: When Gap tried to modernize its

familiar old logo, customers went ballistic, highlighting the

powerful connection people have to the visual representations of

their beloved brands.

Jean Francois FREY/PHOTOPQR/L’ALSACE/Newscom

Customer service: Nordstrom knows that keeping customers happy after the sale is

the key to building lasting relationships. Nordstrom’s motto: “Take care of customers, no

matter what it takes.”

AP Photo

258 Part 3 | Designing a Customer-Driven Strategy and Mix account $1,000 in arrears. Not only did Nordstrom settle the account, but it also sent flowers

to the funeral. Such service heroics keep Nordstrom customers coming back again and again.

The first step in designing support services is to survey customers periodically to

assess the value of current services and obtain ideas for new ones. Once the company

has assessed the quality of various support services to customers, it can take steps to

fix problems and add new services that will both delight customers and yield profits

to the company.

Many companies now use a sophisticated mix of phone, e-mail, Internet, and interac-

tive voice and data technologies to provide support services that were not possible before.

For example, AT&T offers a complete set of after-sale services for all of its products, from

wireless to digital TV. Customers can access 24/7 tech support via an AT&T Live Agent,

either by phone or online. In addition, its online support pages offer troubleshooting,

virtual tours, and Ask Charlie, AT&T’s virtual expert feature.17

Product Line Decisions Beyond decisions about individual products and services, product strategy also calls for

building a product line. A product line is a group of products that are closely related be-

cause they function in a similar manner, are sold to the same customer groups, are marketed

through the same types of outlets, or fall within given price ranges. For example, Nike pro-

duces several lines of athletic shoes and apparel, and Marriott offers several lines of hotels.

The major product line decision involves product line length—the number of items in the product line. The line is too short if the manager can increase profits by adding items;

the line is too long if the manager can increase profits by dropping items. Managers need

to analyze their product lines periodically to assess each item’s sales and profits and under-

stand how each item contributes to the line’s overall performance.

A company can expand its product line in two ways: by line filling or line stretching. Product line filling involves adding more items within the present range of the line. There are several reasons for product line filling: reaching for extra profits, satisfying dealers, using

excess capacity, being the leading full-line company, and plugging holes to keep out com-

petitors. However, line filling is overdone if it results in cannibalization and customer confu-

sion. The company should ensure that new items are noticeably different from existing ones.

Product line stretching occurs when a company lengthens its product line beyond its cur- rent range. The company can stretch its line downward, upward, or both ways. Companies lo-

cated at the upper end of the market can stretch their lines downward. A company may stretch downward to plug a market hole that otherwise would attract a new competitor or respond to

a competitor’s attack on the upper end. Or it may add low-end products because it finds faster

growth taking place in the low-end segments. Companies can also stretch their product lines

upward. Sometimes, companies stretch upward to add prestige to their current products. Or they may be attracted by a faster growth rate or higher margins at the higher end.

To broaden its market appeal and boost growth, BMW has in recent years stretched its

line in both directions while at the same time filling the gaps in between.18

Over the past decade, BMW has morphed from a one-brand, five-model carmaker into a power-

house with three brands, 14 “Series,” and more than 30 distinct models. Not only has the carmaker

stretched its product line downward, with MINI Cooper and its compact 1-Series models, but it

has also stretched it upward with the addition of Rolls-Royce. The company has filled the gaps

in between with Z4 roadsters, 6-Series coupe, X-Series crossovers and sports activity vehicles;

and M-Series high-performance models. Next up: a growing selection of hybrids and all-electric

cars. As a result, BMW has boosted its appeal to the rich, the super-rich, and the wannabe-rich, all

without departing from its pure premium positioning.

Product Mix Decisions An organization with several product lines has a product mix. A product mix (or product

portfolio) consists of all the product lines and items that a particular seller offers for sale.

Campbell Soup Company’s product mix consists of three major product lines: healthy bev-

erages, baked snacks, and simple meals.19 Each product line consists of several sublines. For

example, the simple meals line consists of soups, sauces, and pastas. Each line and subline

has many individual items. Altogether, Campbell’s product mix includes hundreds of items.

Product line

A group of products that are closely

related because they function in a similar

manner, are sold to the same customer

groups, are marketed through the same

types of outlets, or fall within given price

ranges.

Product mix (or product portfolio)

The set of all product lines and items that

a particular seller offers for sale.

Chapter 8 | Products, Services, and Brands: Building Customer Value 259

width

length

depth

consistency

Services Marketing

Governments

The product mix: Campbell Soup Company has a nicely contained product line

consistent with its mission of “nourishing people’s lives everywhere, every day.”

Campbell Soup Company

Objective 3 Identify the four characteristics

that affect the marketing of

services and the additional

marketing considerations that

services require.

260 Part 3 |

business organizations

The Nature and Characteristics of a Service

Figure 8.3

Service intangibility

signals

Service inseparability

Service variability

By providing customers with organized, honest evidence of its

capabilities, the Mayo Clinic has built one of the most powerful

brands in health care. Its Sharing Mayo Clinic blog lets you hear

directly from those who have been to the clinic or who work there.

Mayo Clinic

Service intangibility

Service inseparability

Services are produced and consumed at

Service variability

Chapter 8 | Products, Services, and Brands: Building Customer Value 261

Service perishability

Marketing Strategies for Service Firms

The Service Profi t Chain interact

both the service profi t chain

Internal service quality:

Satisfied and productive service employees:

Greater service value:

Satisfied and loyal customers:

Healthy service profits and growth:

Variability Perishability

Intangibility Inseparability

Services Although services are “products” in a general sense, they have special characteristics and marketing needs. The biggest differences come from the fact that services are essentially intangible and that they are created through direct interactions with customers. Think about your experiences with an airline versus Nike or Apple.

FIGURE | 8.3

Service perishability

Service profi t chain

262 Part 3 |

Zappos’

and a career

tests, not to mention

Fortune

Real Zappos.com:

Zappos knows that happy customers begin with happy,

dedicated, and energetic employees. Zappos “is happy to

help, 24/7.”

Chapter 8 | Products, Services, and Brands: Building Customer Value 263

Sources: Advertis

ing Age,

Harvard Business Review,

Wall Street Journal,

Forbes

Fortune,

Figure 8.4 internal marketing and interactive marketing Internal marketing

team to

precede

Interactive marketing

Internal marketing

External marketing

Interactive marketing

rn et

Interactive k i

er ke

Exter marke

rnal eting

Then service firms must help employees master the art of interacting with customers. Every employee at Zappos.com, from the CEO down, goes through four weeks of

Service firms must sell the importance of delighting

employees. At Zappos.com, the No.1 core value is “Deliver WOW through service.”

FIGURE | 8.4

Interactive marketing

Internal marketing

264 Part 3 |

service differentiation, service quality, and service productivity

Managing Service Differentiation

The offer

delivery

ating their images

Managing Service Quality

service recovery

Service differentiation: Service companies can differentiate their

images using unique characters or symbols, such as the Afl ac Duck.

Aflac

Chapter 8 | Products, Services, and Brands: Building Customer Value 265

Managing Service Productivity

service

Managing service productivity: Companies should be careful not to take things too

far. For example, in their attempts to improve productivity, some airlines have mangled

customer service.

AP Photo/Rick Bowmer

266 Part 3 | Branding Strategy: Building Strong Brands

the

Brand Equity

means

brand equity Brand equity

differentiation relevance

needs), knowledge ers know about the brand), and esteem

Brand equity

Consumers sometimes bond very closely with specifi c brands. Perhaps the ultimate

expression of brand devotion: tattooing the brand on your body.

Kristoffer Tripplaar/Alamy

Objective 4 Discuss branding strategy—the

decisions companies make in

building and managing their

brands.

Chapter 8 | Products, Services, and Brands: Building Customer Value 267

very

Brand valuation

customer equity

Building Strong Brands Figure 8.5

brand positioning, brand name selection, brand sponsorship, and brand development

Brand Positioning

uct attributes

benefit

on strong beliefs and values,

Brand positioning Brand name selection Brand sponsorship Brand development

Brands are powerful assets that must be carefully developed and managed. As this figure suggests, building strong brands involves many challenging decisions.

FIGURE | 8.5

268 Part 3 |

ator and Economic Value Added models pro

Internet and

Top Ten Breakaway Brands

Samsung

Apple Reese’s

iTunes

Source BrandAsset

Real Breakaway Brands: Connecting

Breakaway brands: Whether it’s a contemporary new

brand like Facebook or an old classic like Reese’s, strong

brands are built around connecting with consumers and

improving their lives in some relevant way.

Chapter 8 | Products, Services, and Brands: Building Customer Value 269

and authenticity. “If there’s one [thing all these

brands] have in common, they are authenti-

cally what they present themselves to be,”

says the Landor executive. “I can immediately

picture what Facebook stands for, what Net-

flix stands for, what Apple stands for.” That

may sound easy, but authenticity requires that

business strategy be carefully intertwined with

brand values.

Still, it seems strange that so many

contemporary new brands in the list beat out

veteran brands on attributes such as com-

fort, simplicity, and authenticity. According

to the Landor executive, however, it makes

good sense. “What’s interesting about this

apparent paradox of old and new is that in

some ways the new brands have become

landmarks, comfort brands in and of them-

selves. Facebook is no longer a newbie; it’s

a leader in its category.” The same holds

true for the other contemporary brands.

Consumers young and old have a hard time

remembering life without Facebook, You-

Tube, or Skype, even though each is less

than a decade old.

Now, back to that original question: What

do these seemingly diverse Breakaway Brands

have in common? It all boils down to the brands

making meaningful connections with consum-

ers. All strong brands—whether it’s Facebook

or Reese’s—are built around an ideal of improv-

ing consumers’ lives in some relevant way. The

younger Breakaway Brands are mainly trendy

digital upstarts that are now maturing and

becoming essential to consumers’ modern

lives. However, the old familiar favorites on the

list still contribute meaningfully. According to

Landor, “While the world spins faster, brighter,

and bolder around us, we all still yearn for fa-

miliar comforts.” Compared with the high-tech

brands on the list, “the other Breakaway Brands

are decidedly old-school classics —tangible,

tried and true, comforting and familiar. But

most important, they are authentic, and they

are still relevant and distinctive even alongside

the shiny and new.” Thus, whether old or new,

it’s the meaningful customer value they add that

makes them all Breakaway Brands.

Sources: Quotes, extracts, and other information from Mich Bergesen and Josey Duncan Lee, “Facebook, Ap-

ple, Netflix Top 2011 Breakaway Brands List,” Forbes, September 8, 2011, www.forbes.com/sites/onmarketing/

2011/09/08/facebook-apple-netflix-top-2011-breakaway-brands-list/; Christine Birkner, “2011 Breakaway Brands

Are Classic, Contemporary, Authentic,” Marketing News, November 15, 2011, p. 11; “Breakaway Brands of 2011,”

Landor Associates, September 8, 2011, http://landor.com/#!/talk/articles-publications/ articles/breakaway-brands-

of-2011/; and Jack Neff, “Just How Well-Defined Is Your Brand’s Ideal?” Advertising Age, January 16, 2012, p. 4.

parents, Pampers mean much more than just containment and dryness. The “Pampers vil-

lage” Web site (www.pampers.com) positions Pampers as a “where we grow together” brand

that’s concerned about happy babies, parent-child relationships, and total baby care. Says a

former P&G executive, “Our baby care business didn’t start growing aggressively until we

changed Pampers from being about dryness to helping mom with her baby’s development.”34

Successful brands engage customers on a deep, emotional level. Advertising agency

Saatchi & Saatchi suggests that brands should strive to become lovemarks, products or ser- vices that “inspire loyalty beyond reason.” Brands ranging from Apple, Google, Disney, and

Coca-Cola to Nike, Trader Joe’s, Facebook, Wrangler, In-N-Out Burger, and even WD-40

have achieved this status with many of their customers. Lovemark brands pack an emo-

tional wallop. Customers don’t just like these brands, they have strong emotional connec-

tions with them and love them unconditionally.35

When positioning a brand, the marketer should establish a mission for the brand and a vi-

sion of what the brand must be and do. A brand is the company’s promise to deliver a specific set

of features, benefits, services, and experiences consistently to buyers. The brand promise must be

simple and honest. Motel 6, for example, offers clean rooms, low prices, and good service but does

not promise expensive furnishings or large bathrooms. In contrast, The Ritz-Carlton offers luxuri-

ous rooms and a truly memorable experience but does not promise low prices.

Brand Name Selection A good name can add greatly to a product’s success. However, finding the best brand name

is a difficult task. It begins with a careful review of the product and its benefits, the target

market, and proposed marketing strategies. After that, naming a brand becomes part sci-

ence, part art, and a measure of instinct.

Desirable qualities for a brand name include the following: (1) It should suggest some-

thing about the product’s benefits and qualities. Examples: Beautyrest, Lean Cuisine, Mop &

Glo. (2) It should be easy to pronounce, recognize, and remember: iPad, Tide, Jelly Belly,

Facebook, JetBlue. (3) The brand name should be distinctive: Panera, Flickr, Swiffer, Zappos.

(4) It should be extendable—Amazon.com began as an online bookseller but chose a name

that would allow expansion into other categories. (5) The name should translate easily into

foreign languages. Before changing its name to Exxon, Standard Oil of New Jersey rejected

the name Enco, which it learned meant a stalled engine when pronounced in Japanese. (6) It

270 Part 3 |

available

word brand and the registered trade ®

brand

Brand Sponsorship national

brand manufacturer’s brand

private brand store brand or distributor brand ket licensed brands

National Brands versus Store Brands.

store brands private brandsStore brand (or private brand)

Protecting a brand name: This ad asks people to use the Xerox name only as an

adjective to identify its products and services (such as “Xerox copiers”), not as a verb (“to

Xerox” something) or a noun (“I’ll make a Xerox”).

Associated Press

Chapter 8 | Products, Services, and Brands: Building Customer Value 271

battle of the brands

Licensing.

The popularity of store brands has soared recently. Walmart’s

store brands account for a whopping 40 percent of its sales, and

its Great Value brand is the nation’s largest single food brand.

Photo courtesy of Gary Armstrong

272 Part 3 |

Brand Development Figure 8.6

line extensions, brand extensions, multibrands, or new brands

Line Extensions. Line extensions

to create the Girl Scout cookie–fi lled Thin Mint Blizzard, which

sold more than 10 million in one month.

American Dairy Queen Corporation

Line extension

Chapter 8 | Products, Services, and Brands: Building Customer Value 273

Brand Extensions. brand extension

Existing

New

B ra

n d

n a

m e

NewExisting Product category

This is a very handy framework

ment opportunities. For example, what strategy did Toyota use when it introduced the Toyota Camry Hybrid? When it introduced the Toyota Prius? The Scion?

FIGURE | 8.6

Brand Development Strategies

Brand extensions: P&G has leveraged the strength of its Mr. Clean brand

to launch new lines, including Mr. Clean–branded car washes.

The Procter & Gamble Company

Brand extension

274 Part 3 | Multibranding

New Brands.

megabrand

Managing Brands

brand experiences

Managing brands requires managing “touchpoints.” Says a former

Disney executive: “A brand is a living entity, and it is enriched or

undermined cumulatively over time, the product of a thousand small

gestures.”

Joe Raedle/Getty Images

Chapter 8 | Products, Services, and Brands: Building Customer Value 275

core customer value

actual product

mented product

Defi ne product and the major

classifi cations of products and

services. (pp 248–253)

product

Services

Consumer products

Industrial products

Describe the decisions

companies make regarding their

individual products and services, product lines, and

product mixes. (pp 253–259)

Product

attribute

Branding

Packaging

labels

develop product support services

product line

product mix

Identify the four characteristics

that affect the marketing

of services and the additional marketing

considerations that services require. (pp 259–266)

Services

intangible, inseparable, variable, and perishable

both customers

service profit chain

internal marketing inter

active marketing

competitive

differentiation service quality

service productivity

Reviewing Objectives and Key Terms

Objective 1

Objective 2

Objective 3

276 Part 3 | Discuss branding strategy—the

decisions companies make in

building and managing their brands. (pp 267–275)

the

means to con

Brand equity

brand positioning

Brand name selection

brand sponsorship options: it can

national brand

private brand licensed brands

line extensions, brand extensions, multibrands, or new brands

brand experiences

Objective 4

Objective 1 Product (p 248)

Service (p 248)

Consumer product (p 250)

Convenience product (p 251)

Shopping product (p 251)

Specialty product (p 251)

Unsought product (p 251)

Industrial product (p 251)

Social marketing (p 253)

Objective 2 Product quality (p 253)

Brand (p 255)

Packaging (p 255)

Product line (p 258)

Product mix (product portfolio) (p 258)

Objective 3 Service intangibility (p 260)

Service inseparability (p 260)

Service variability (p 260)

Service perishability (p 261)

Service profit chain (p 261)

Internal marketing (p 263)

Interactive marketing (p 263)

Objective 4 Brand equity (p 266)

Store brand (private brand) (p 270)

Line extension (p 272)

Brand extension (p 273)

Discussion and Critical Thinking

Discussion Questions

2. Compare and contrast industrial products and consumer

Communication)

Chapter 8 | Products, Services, and Brands: Building Customer Value 277

Applications and Cases

Marketing Technology Mobile Hotspot You’ve heard of mobile Wi-Fi hotspots, but one is truly mobile—

your car. Automobile manufacturers Audi, Ford, Nissan, and Gen-

eral Motors are equipping cars with 10-inch screens and Internet

access. Cadillac’s new XTS includes an iPad-like touch screen

and voice commands so you can keep in touch with your friends

on Facebook. The government is concerned that Web access

will cause a spike in accidents due to increased driver distrac-

tion and wants the devices to only work when the car is in park.

Such guidelines are only suggestions, however, leaving car man-

ufacturers to include whatever they think customers want in their

vehicles. The industry’s argument is that these new gadgets are

safer than the handheld ones drivers are already using in their

cars. Automakers claim that there will be even fewer buttons than

currently found in cars, possibly resulting in greater safety for driv-

ers and passengers.

1. Describe the core, actual, and augmented levels of product associated with an automobile. What level does the mobile

Wi-Fi system represent? Explain. (AACSB: Communication;

Reflective Thinking)

2. Debate the pros and cons of including Wi-Fi Internet access in automobiles. Should the Internet access feature be included in

automobiles? (AACSB: Communication; Reflective Thinking)

Marketing Ethics Outsourced Instructors Have you taken an online course in high school or college? Many

students have, but some traditional brick-and-mortar universities

are venturing into uncharted territory by outsourcing the teaching

function to online providers. Missouri State University is offering

its introductory journalism class through Florida-based Poynter

Institute, a non-profit journalism training group. Instructional out-

sourcing is popping up on campuses throughout the country,

and most are serviced by for-profit companies such as Academic

Partnerships, StraighterLine, and Smarthinking. These partner-

ships translate into bigger profit margins for both the university

and the instructional partner.

1. What is the product offered by a university? Discuss the levels of product offered and how these might change in the next

10 to 20 years as result of changing technology. (AACSB:

Communication; Reflective Thinking)

2. From the point of view of both the school and the students, discuss the pros and cons of outsourcing instructors for

courses or even entire degrees. Should technology be used in

this way to deliver this type of product? (AACSB: Communica-

tion; Reflective Thinking; Ethical Reasoning)

Marketing by the Numbers What’s a Brand Worth? What is a brand worth? It’s not just about dollars and cents.

Interbrand, a leading brand valuation company, ranks the top

100 global brands annually and considers brand strength in addi-

tion to financial performance. The top global brand for years has

been Coca-Cola, valued at almost $72 billion in 2011, followed

by IBM, Microsoft, Google, GE, McDonald’s, Intel, Apple, and

Disney. In addition to financial data, Interbrand measures the role

the brand plays in that financial outcome by comparing demand

to that of an unbranded product in the same category. Nonfinan-

cial factors are examined to assess a brand’s strength. Internal

brand strength factors include clarity, commitment, protection,

and market responsiveness of the company regarding the brand.

External factors include authenticity, relevance, differentiation,

consistency, presence, and understanding of the brand among

consumers in the marketplace.

1. Access the most recent ranking of the Top 100 Brands at www.interbrand.com. Create a chart representing the num-

ber of brands from the countries listed. Which country has the

most brands in the top 100 ranking? What is the second lead-

ing country? (AACSB: Communication; Analytical Reasoning)

2. Click on the “Best Global Brands” dropdown menu at the In- terbrand Web site (www.interbrand.com) and select “Interac-

tive Charts.” Click on an industry sector on the chart labeled

“Brands by Sector.” What are the top brands in that sector?

Click on one of the brands and examine the change in its brand

value over time. What percentage change in value did that

brand experience in the last year for which data are available?

Research that brand and write a report explaining why that

brand’s value changed over time. (AACSB: Communication;

Reflective Thinking; Use of IT)

Video Case Life Is Good You’re probably familiar with Life Is Good. The company’s cheer-

ful logo is prominently featured on everything from t-shirts to

dog collars and seems to exude a positive vibe. Although this

company has found considerable success in selling its wares

based on a happy brand image, consumers aren’t getting the

complete image that Life Is Good founders intended. This video

278 Part 3 | Designing a Customer-Driven Strategy and Mix

Company Case Mavi Jeans: Jeans That Fit Founded in 1991 by Sait Akarlılar, Mavi Jeans designs and sells

a collection of denim and other apparel. Mavi apparel is sold in

specialty stores, department stores, and chains in 50 countries,

including the United States, Germany, Australia, and Russia. The

company was founded in 1991 by Sait Akarlılar, Mavi Jeans de-

signs and sells a full operates more than 280 retail stores in many

major cities; of these, six are flagship stores, including those in

New York, Vancouver, and Berlin. Mavi apparel is available at

more than 4,000 points of sale worldwide. Global sales reached

$ 300 million in 2012, and the company has been growing about

30 percent annually in recent years.

Mavi had been manufacturing private-label jeans since 1984

for brands such as Lee, Calvin Klein, Armani, and Tommy Hilfiger.

Building on this experience, Mavi, which means “blue” in Turkish,

quickly became a success in Turkey due to the high-quality denim

used and the fashionable designs. In 1994 the brand was intro-

duced in Europe, and 1996 was an important year for the com-

pany, as a customs union agreement between Turkey and the

European Union (EU) opened up a new era of increasing oppor-

tunities in EU countries. Although the customs agreement heated

up the competition in Turkey, Mavi became the number one brand

in Turkey, replacing Levi’s. That same year, the company built the

largest jeans production facility in Europe in Istanbul.

In 1996, Mavi entered the North American market, and not

in a way one would expect from an apparel manufacturer from

a developing country. Mavi was sold in high-end retailers such

as Bloomingdales and Nordstrom, targeting fashion-conscious

buyers. It was a challenging move; after all, jeans are as much a

part of American life as Coca Cola. Sait Akarlılar, being a young

Turk, knew that if Mavi succeeded in the United States, success

in other markets would be easier. Although Mavi apparel carried a

higher price than mainstream brands, quality and price attracted

teenagers and college students. The brand gained huge visibility

as the choice of Chelsea Clinton, Cher, and some MTV hosts.

The company opened its flagship store in New York City in Union

Square, near New York University.

In 2001, Mavi took on a move that was a first in the industry:

it transferred the menu concept to fashion. Customers could or-

der outfit combinations from menus hanging behind the checkout

counters. Customers could purchase already-paired jeans, shirt,

and shoes, for instance, and salespeople actually were dressed

similar to service providers in a fast-food restaurant. The com-

pany has not disclosed what percentage of sales comes from

menu-item sales, but the practice is still used in Turkey.

Mavi Jeans has become one of the most well-known jeans

brands globally, as foretold by its 1999 campaign motto “we’ve

gone too far.” In 2006, the Style & Design edition of Time maga-

zine reported Mavi as one of the “best 16 global jeans brands.”

Based on the number of “likes” in social media sites, it ranks

number 8 in global jeans brands. Celebrities known to like Mavi

include Avril Lavigne, Kate Winslet, Hillary Duff, Jason Biggs, An-

nie Lenox, Billy Zane, Lady Gaga, Fergie, Hayden Panetterie, Zac

Efron, and Carly Rae Jepsen, among others.

Keeping Up the Brand Image From the beginning, Mavi Jeans heavily emphasized the “fit,” as in

the slogan “Mavi fits.” Its jeans were designed to be comfortable,

and size availability for different styles was important. The state-of-

the art plant in Istanbul was designed to have flexibility in produc-

tion, as flexibility helps to cater to the different tastes and physical

characteristics of customers dispersed in many countries.

Mavi jeans are not just comfortable, but also fashionable; Mavi

is a brand for fashion-conscious young people. In addition to

styling and denim quality, many designer labels can be identified

by a worn-in appearance. This special style requires additional

processing and handling, which can actually cost more than the

fabric itself. Mavi has been successful in keeping its prices on the

lower side of the designer jean price continuum, so that the price–

quality combination is attractive for target buyers. For example,

Mavi’s Molly, a popular design for women, is priced at about twice

the cost of a pair of Levi’s 501 jeans.

The brand is built around the jeans culture and young cus-

tomers, and it emphasizes a Mediterranean feeling in fashion.

The company considers the brand as exotic and inspirational,

contemporary and accessible. Building on the Mediterranean

feel, in 2005 Mavi started to feature evil eye beads on its prod-

ucts. These are eye-shaped amulets of dark blue with a blue eye

at the center, which are believed to protect against “evil eye”;

such charms are a popular souvenir in Greece and Turkey. In

2007, the Anatolian yemeni (a headscarf of loose cotton) was

featured in the collection globally. The Mediterranean feel is also

reflected in the design of some stores, such as the flagship store

in New York.

“Mavi fits” is understood not just as fitting the bodies of cus-

tomers, but their lifestyles as well. This necessitates following the

ever-changing youth culture. It is a constant challenge to remain

fresh in the eyes of the target market. The company employs a

very young, multicultural design team. This helps the company

to not age with its customers, and keep up with the global pop

culture. In addition to the in-house design teams in Turkey, the

United States, Canada, Australia, and Italy, the company col-

laborates with designers and consultants from different parts of

the world. To name a few, Adriano Goldshmied (considered as

world’s best jeans designer by many experts), Venucia de Russi,

and Rıfat Özbek were among those who worked with Mavi Jeans.

Preparing a collection for a jeans brand was a first for Rıfat Özbek,

whose clientele list includes Madonna, Diana Ross, and the late

Princess Diana.

illustrates the challenges a company faces in balancing the role

of the customer and the role of the company in determining the

meaning of a brand.

After viewing the video featuring Life Is Good, answer the fol-

lowing questions:

1. What are people buying when they purchase a Life Is Good product?

2. What factors have contributed to the Life Is Good brand image?

3. What recommendations would you make to Life Is Good regarding brand development strategies?

Chapter 8 | Products, Services, and Brands: Building Customer Value 279 Mavi tries a similar approach in its advertising campaigns. Oli-

vero Toscani and Emir Kusturica took part in a recent ad cam-

paign; Toscani is an Italian photographer known for the Benetton

campaigns of the 1980s and 1990s, and Kusturica is Serbian

filmmaker, a two-time winner of the Palme D’Or award of the

Cannes film festival. Mavi also features celebrities carefully cho-

sen for different markets. For instance, Kıvanç Tatlıtuğ, a Turkish

model-actor, is featured in Middle East, where Turkish soap op-

eras are extremely popular. Other faces of Mavi include Francisco

Lachowski and Adriana Lima; Lima is featured on a global scale

for the fall/winter campaign of 2012.

Top management considers travel as very important for identi-

fying new trends worldwide. Ersin Akarlılar, son of the founder and

a manager in the company, once said he spent about two-thirds

of his time on the road, chasing new ideas across the globe. A

visit by Ersin’s sister Elif to Rio lead to the introduction of a Latin

line to the brand’s collection.

Mavi Jeans is an active company in public relations and con-

tributions to the society. For example, some stores are devel-

oped into more than a shopping place. The NYC flagship store

has a gallery for up-and-coming artists, and exhibit short films

by filmmakers twice a month. The company issues the Maviol-

ogy magazine, and sponsors the Mavi Cup collegiate basketball

championship in Turkey. When the company introduced its or-

ganic cotton jeans line in 2006, only a few companies had gone

before it.

What Is Ahead Having established operations in many major markets, Mavi is try-

ing to keep a balance between strengthening its position in certain

markets and further expansion. The company expects a 30 per-

cent annual increase in upcoming years, and hopes to hit the $500

million mark by 2016. The priority in terms of the collection is to

further expand the women’s line, which is becoming more colorful.

Questions for Discussion 1. What factors contributed to the success of Mavi Jeans?

2. How would you define the company’s target market? What is the current positioning strategy? Briefly explain Mavi’s 4Ps.

3. What are customers of Mavi actually buying?

4. How do you evaluate the “menu” approach?

5. What recommendations would you make to help Mavi keep up the brand image and enhance the connection to the target

market?

Sources: Based on information from Pelin Turget, “Making the Perfect Fit”, Time, February 23, 2003, www.time.com/time/magazine/ article/0,9171,

425833,00.html, and Ceyhan Konu, “Mavi, 2012’nin ilk çeyreğinde

yüzde 50 büyüdü”, Turkishtime, May 9, 2012, www.turkishtimedergi.

com/perakende/mavi-2012nin-ilk-ceyreginde-yuzde-50-buyudu/ and

http://tr.mavi.com/corporate and www.mavi-store.com, accessed

November 15, 2012.

9. Andy Goldsmith, “Coke vs. Pepsi: The Taste They Don’t Want You to Know About,” The 60-Second Marketer, www.60secondmarketer

.com/60SecondArticles/Branding/cokevs.pepsitast.html, accessed

September 2011.

10. James Black, “What Is Your Product Saying to Consumers? Advertising Age, January 18, 2011, http://adage.com/print?article_id�148283.

11. See Christine Birkner, “Packaging: Thinking Outside of the Box,” Mar- keting News, March 30, 2011, pp. 12–15; “FMI—Supermarket Facts,”

www.fmi.org/facts_figs/?fuseaction�superfact, accessed May 2012;

and “Walmart Facts,” www.walmartfacts com/StateByState/?id�2,

accessed August 2012.

12. See Collin Dunn, “Packaging Design at Its Worst,” Treehugger.com, July 6, 2009, www.treehugger.com/galleries/2009/07/packaging-

design-at-its-worst.php; and “The Sustainable and Green Packaging

Market: 2011–2021,” PR Newswire, December 1, 2011.

13. Based on information from “PUMA Clever Little Bag,” www.idsa .org/puma-clever-little-bag, accessed March 2012; and www.puma

.com/cleverlittlebag, accessed August 2012.

14. Natalie Zmuda, “What Went into the Updated Pepsi Logo,” Advertising Age, October 27, 2008, p. 6; “New Pepsi Logo Kicks off Campaign,”

McClatchy-Tribune Business News, January 15, 2010; and “Pepsi

Logo—Design and History,” February 4, 2011, www.logodesignsense

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15. “Leggo Your Logo,” Adweek, December 6, 2010, p. 12; “New Gap Logo a Neural Failure,” October 10, 2010, www.newscientist.com/

blogs/shortsharpscience/2010/10/-normal-0-false-false-2.html;

and “Marketer in the News,” Marketing, February 9, 2011, p. 8.

16. For these and other stories, see Bob Janet, “Customers Never Tire of Great Service,” Dealerscope, July 2008, p. 40; Greta Schulz,

“Nordstrom Makes Customer Service Look Easy,” December 11,

2009, http://amazingserviceguy.com/2370/2370/; and “Amazon

Tops in Customer Service; Nordstrom No. 10,” Business Journal,”

January 18, 2012, http://www.bizjournals.com/seattle/morning_

call/2012/01/amazon-tops-in-customer-service.html.

17. See the AT&T Support Web site, www.att.com/esupport/, accessed November 2012.

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2006); Philip Kotler and Nancy Lee, Social Marketing: Influencing

Behaviors for Good, 3rd ed. (Thousand Oaks, CA: Sage Publica-

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7. Quotes and definitions from Philip Kotler, Kotler on Marketing (New York: Free Press, 1999), p. 17; and www.asq.org/glossary/q.html,

accessed November 2012.

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keting Management, 14th ed. (Upper Saddle River, NJ: Prentice Hall,

2012), p. 343, with additional information from http://en.wikipedia

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88650&p�irol-reportsannual, accessed September 2012.

20. Paul Hochman, “Ford’s Big Reveal,” Fast Company, April 2010, pp. 90–95.

21. See “Table 1.2.5 Gross Domestic Product by Major Type of Prod- uct,” U.S. Bureau of Economic Analysis, January 27, 2012, www

.bea.gov/national/nipaweb/TableView.asp?SelectedTable�19&Freq�

Qtr&FirstYear�2009&LastYear�2011; and information from the Bu-

reau of Labor Statistics, www.bls.gov, accessed May 2011.

22. Based on information from Leonard Berry and Neeli Bendapudi, “Clueing in Customers,” Harvard Business Review, February 2003, pp.

100–106; Jeff Hansel, “Mayo Hits the Blogosphere,” McClatchy-Tribune

Business News, January 22, 2009; “Mayo Clinic Model of Care,” www

.mayo.edu/pmts/mc4200-mc4299/mc4270.pdf, accessed August

2012; and www.mayoclinic.org, accessed September 2012.

23. See James L. Heskett, W. Earl Sasser, Jr., and Leonard A. Schlesinger, The Service Profit Chain: How Leading Companies Link Profit and

Growth to Loyalty, Satisfaction, and Value (New York: Free Press,

1997); Heskett, Sasser, and Schlesinger, The Value Profit Chain:

Treat Employees Like Customers and Customers Like Employees

(New York: Free Press, 2003); and Rachael W. Y. Yee and others,

“The Service-Profit Chain: An Empirical Analysis in High-Contact Ser-

vice Industries,” International Journal of Production Economics, April

2011, p. 36.

24. Justin Fox, “What Is It That Only I Can Do?” Harvard Business Review, January–February 2011, pp. 119–123.

25. See annual reports and information accessed at http://phx.corporate- ir.net/phoenix.zhtml?c�132215&p�irol-irhome, August 2012.

26. See “United States: Prescription Drugs,” www.statehealthfacts.org/ profileind.jsp?sub�66&rgn�1&cat�5, accessed April 2012; and

“Postal Facts,” http://about.usps.com/who-we-are/postal-facts/

welcome.htm, accessed August 2012.

27. Adapted from Sarah Kessler, “The Future of the Hotel Industry and Social Media,” Mashable!, October 19 2010, http://mashable.

com/2010/10/18/hotel-industry-social-media/; and Jeff Williams,

“Marriott’s SM Team Gets It,” HD Leader, September 14, 2010, http://

hdleader.com/2010/09/14/marriotts-sm-team-gets-it/. Also see https://

twitter.com/#!/marriottintl, accessed August 2012.

28. For more discussion on the trade-offs between service productiv- ity and service quality, see Roland T. Rust and Ming-Hui Huang,

“Optimizing Service Productivity,” Journal of Marketing, March 2012,

pp. 47–66.

29. See “McAtlas Shrugged,” Foreign Policy, May–June 2001, pp. 26–37; and Philip Kotler and Kevin Lane Keller, Marketing Management,

14th ed. (Upper Saddle River, NJ: Prentice Hall, 2012), p. 256.

30. Quotes from Jack Trout, “‘Branding’ Simplified,” Forbes, April 19, 2007, www.forbes.com; and a presentation by Jason Kilar at the

Kenan-Flagler Business School, University of North Carolina at

Chapel Hill, Fall 2009.

31. For more on Young & Rubicam’s BrandAsset Valuator, see W. Ronald Lane, Karen Whitehill King, and Tom Reichert, Kleppner’s Advertising

Procedure, 18th ed. (Upper Saddle River, NJ: Pearson Prentice Hall,

2011), pp. 83–84; “Brand Asset Valuator,” ValueBasedManagement

.net, www.valuebasedmanagement.net/methods_brand_asset_valuator

.html, accessed May 2012; and www.brandassetconsulting.com,

accessed November 2012.

32. See MillwardBrown Optimor, “BrandZ Top 100 Most Valuable Global Brands 2011,” www.millwardbrown.com/brandz/.

33. See Scott Davis, Brand Asset Management, 2nd ed. (San Francisco: Jossey-Bass, 2002). For more on brand positioning, see Kotler and

Keller, Marketing Management, 14th ed., Chapter 10.

34. See “For P&G, Success Lies in More Than Merely a Dryer Diaper,” Advertising Age, October 15, 2007, p. 20; Jack Neff, “Stengel Dis-

cusses Transition at P&G,” Advertising Age, July 21, 2008, p. 17;

and Jack Neff, “Just How Well-Defined Is Your Brand’s Ideal?” Ad-

vertising Age, January 16, 2012, p. 4.

35. See www.saatchi.com/the_lovemarks_company and www.lovemarks .com, accessed September 2012; and Aaron Ahuvia Rajeev and

Richard P. Bagozzi, “Brand Love,” Journal of Marketing, March 2012,

pp. 1–16.

36. Susan Wong, “Foods OK, But Some Can’t Stomach More Ad Increases,” Brandweek, January 5, 2009, p. 7. Also see “Brand

Names Need to Reward Consumers to Keep Them Accord-

ing to Study,” PR Newswire, October 23, 2009; “IDDBA Study

Shows Store Brands Spiking,” Dairy Foods, January 2010, p. 38;

“Consumers Praise Store Brands,” Adweek, April 8, 2010, www

.adweek.com; and ““Hannah Karp, “Store Brands Step up Their

Game, and Prices,” Wall Street Journal (Online), January 31, 2012,

www.wsj.com.

37. See Todd Hale, “Store Brands Flex Muscle in Weak Economy,” NielsenWire, May 3, 2010, http://blog.nielsen.com/nielsenwire/

consumer/store-brands-flex-muscle-in-weak-economy/; Trefis,

“Private Label Surge Threatens Polo Ralph Lauren,” The Street, July

8, 2010, www.thestreet.com/story/10801997/private-label-surge-

threatens-polo-ralph-lauren.html; Hannah Karp, “Store Brands Step

up Their Game, and Prices,” Wall Street Journal (Online), January 31,

2012, www.wsj.com; and Lien Lamey, et al., “The Effect of Business-

Cycle Fluctuations on Private-Label Share: What Has Marketing Con-

duct to Do with It?” Journal of Marketing, January 2012, pp. 1–19.

38. See information from Ely Portillo, “In Weak Economy, Store Brands Prosper,” McClatchy-Tribune News Service, March 18, 2011; http://

walmartstores.com/Video/?id�1305 and http://walmartstores.com/

pressroom/Photos/Gallery.aspx?id�605, accessed April 2012; and

www.wholefoodsmarket.com/products/365-everyday-value.php,

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39. Daniel Frankel, “Report: Disney Raked in $26.9B from Licensed Merchandise in 2010,” Wrap Media, May 18, 2011, www.thewrap

.com/media/article/report-disney-made-286b-2010-licensed-

merchandise-27526; Adam Bluestein, “Unleash the Merch-inator,”

Fast Company, November 2010, pp. 44–48; “Nickelodeon and

Partners Unveil New Products at Toy Fair,” The Licensing Book On-

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40. For this and other examples, see “Tim Hortons and Cold Stone: Co-Branding Strategies,” Business Week, July 10, 2009, www

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pp. 21–27.

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from copycat to leading-edge. To out sell Sony, Samsung decided, it first had to out-innovate Sony.

Samsung’s dramatic shift began with a top-down mandate

for reform. Samsung set out to become a premier brand and a

trailblazing product leader. The company hired a crop of fresh,

young designers and managers, who unleashed a torrent of new

products—not humdrum, me-too products, but sleek, bold, and

beautiful products targeted to high-end users. Samsung called

them “lifestyle works of art.” Every new product had to pass the

“Wow!” test: If it didn’t get a “Wow!” reaction during market

testing, it went straight back to the design studio.

Part 1: Defining Marketing and the Marketing Process (Chapters 1–2)

Part 2: Understanding the Marketplace and Consumers (Chapters 3–6)

Part 3: Designing a Customer-Driven Strategy and Mix (Chapters 7–17)

Part 4: Extending Marketing (Chapters 18–20)

New-Product Development and Product Life-Cycle Strategies9

Chapter Preview In previous chapters, you’ve

learned how marketers manage

and develop products and brands. In this chapter, we examine two

additional product topics: developing new products and managing

products through their life cycles. New products are the lifeblood of

an organization. However, new-product development is risky, and

many new products fail. So, the first part of this chapter lays out a

process for finding and growing successful new products. Once

introduced, marketers then want their products to enjoy long and

happy lives. In the second part of this chapter, you’ll see that every

product passes through several life-cycle stages, and each stage

poses new challenges requiring different marketing strategies and

tactics. Finally, we wrap up our product discussion by looking at

two additional considerations: social responsibility in product deci-

sions and international product and services marketing.

For openers, consider Samsung, the world’s leading consumer

electronics maker and one of the world’s most innovative compa-

nies. Over the past two decades, Samsung has transformed itself

by creating a culture of customer-focused innovation and a seem-

ingly endless flow of inspired new products that feature stunning

design, innovative technology, life-enriching features, and a big

dose of “Wow!”

Samsung: Enriching Customers’ Lives Through New-Product Innovation

Y ou’re probably familiar with the Samsung brand.

Maybe you own one of Samsung’s hot new Galaxy

smartphones or a Samsung Series 7 Chronos note-

book, or maybe you’ve seen one of those dazzling

new Samsung slim bezel Smart TVs. You might even be reading

this story on a smart new Samsung Galaxy tablet. Samsung, the

world’s largest consumer electronics manufacturer, produces

“gotta-have” electronics in just about every category, from TVs

and Blu-ray players, tablets and mobile phones, and laptops

and laser printers to digital camcorders and even a full range

of home appliances. Chances are good that you or someone you

know owns a Samsung product.

But less than 20 years ago, Samsung was little known, and it

was anything but cutting-edge. Back then, Samsung was

a Korean copycat brand that you bought off a

shipping pallet at Costco if you couldn’t

afford a Sony, then the world’s most

coveted consumer electronics brand.

However, in 1993 Samsung made

an inspired decision. It turned its

back on cheap knock-offs and set

out to overtake rival Sony. To dethrone

the consumer electronics giant, however,

Samsung first had to change its entire culture,

Samsung has become the world’s

leading consumer electronics company through customer-focused innovation and new products that

enrich customers’ lives. At Samsung, every new product has to pass the consumer “Wow!” test.

Chapter 9 | 283

technology and stylish

design, Samsung puts the

customer at the core of

its innovation movement.

Its new products “bring

genuine change to

people’s lives.”

Sean Gallup/Getty Images

284 Part 3 |

As the Samsung

Objective Outline

Objective 1

(pp 284–285)

Objective 2 considerations in managing this process.

(pp 285–293)

(pp 293–295)

Objective 3 product’s life cycle.

(pp 295–301)

Objective 4

Additional Product and Service Considerations (pp 301–304)

Objective 1 Explain how companies fi nd and

Chapter 9 | 285

Objective 2 List and defi ne the steps in

considerations in managing this

process.

FIGURE | 9.1

Idea generation

Figure 9.1

Idea Generation idea generation

Internal Idea Sources

286 Part 3 |

External Idea Sources

Together” event, which actively promotes internal innovation through

experimentation around the company.

Chapter 9 | New-Product Development and Product Life-Cycle Strategies 287 then why wouldn’t we consider it?” asks a LEGO senior product-development executive. “And

if we can take something like that and turn it into a runaway success for the business, then that

will show the value of listening to our consumers.”

Crowdsourcing More broadly, many companies are now developing crowdsourcing or open-innovation new- product idea programs. Crowdsourcing throws the innovation doors wide open, inviting

broad communities of people—customers, employees, independent scientists and research-

ers, and even the public at large—into the new-product innovation process. Tapping into a

breadth of sources—both inside and outside the company—can produce unexpected and

powerful new ideas. For example, rather than relying only on its own R&D labs to pro-

duce all of the new-product innovations needed to support growth, Procter & Gamble de-

veloped its Connect + Develop crowdsourcing process. Through Connect + Develop, the

company uncovers promising innovations from entrepreneurs, scientists, engineers, and

other researchers—even consumers themselves—that will help it meet its goal of improving

consumers’ lives (see Real Marketing 9.1).

Rather than creating and managing their own crowdsourcing platforms, companies

can use third-party crowdsourcing networks, such as InnoCentive, TopCoder, Hypios,

and Jovoto. For example, organizations ranging from Facebook and PayPal to ESPN,

NASA, and the Salk Institute tap into TopCoder ’s network of nearly 400,000 mathema-

ticians, engineers, software developers, and designers for ideas and solutions, offering

prizes of $100 to $100,000. PayPal recently posted a challenge to the TopCoder community

seeking the development of an innovative Android or iPhone app that would successfully

and securely run its check-out process, awarding the winners $5,000 each. After only four

weeks of competition and two weeks of review, PayPal had its solutions. The Android

app came from a programmer in the United States; the iPhone app from a programmer in

Colombia.7

Crowdsourcing can produce a flood of innovative ideas. In fact, opening the flood-

gates to anyone and everyone can overwhelm the company with ideas—some good and

some bad. For example, when Cisco Systems sponsored an open-innovation effort called

I-Prize, soliciting ideas from external sources, it received more than 820 distinct ideas from

more than 2,900 innovators from 156 countries. “The evaluation process was far more labor-

intensive than we’d anticipated,” says Cisco’s chief technology officer. It required “signifi-

cant investments of time, energy, patience, and imagination . . . to discern the gems hidden

within rough stones.” In the end, a team of six Cisco people worked full-time for three

months to carve out 32 semifinalist ideas, as well as nine teams representing 14 countries in

six continents for the final phase of the competition.8

Truly innovative companies don’t rely only on one source or another for new-product

ideas. Instead, they develop extensive innovation networks that capture ideas and inspira-

tion from every possible source, from employees and customers to outside innovators and

multiple points beyond.

Idea Screening The purpose of idea generation is to create a large number of ideas. The purpose of the suc-

ceeding stages is to reduce that number. The first idea-reducing stage is idea screening, which helps spot good ideas and drop poor ones as soon as possible. Product development

costs rise greatly in later stages, so the company wants to go ahead only with those product

ideas that will turn into profitable products.

Many companies require their executives to write up new-product ideas in a standard

format that can be reviewed by a new-product committee. The write-up describes the prod-

uct or the service, the proposed customer value proposition, the target market, and the

competition. It makes some rough estimates of market size, product price, development

time and costs, manufacturing costs, and rate of return. The committee then evaluates the

idea against a set of general criteria.

One marketing expert proposes an R-W-W (“real, win, worth doing”) new-product

screening framework that asks three questions. First, Is it real? Is there a real need and desire for the product and will customers buy it? Is there a clear product concept and will

such a product satisfy the market? Second, Can we win? Does the product offer a sustainable competitive advantage? Does the company have the resources to make such a product a

Crowdsourcing

Inviting broad communities of people—

customers, employees, independent

scientists and researchers, and even the

public at large—into the new-product

innovation process.

Idea screening

Screening new-product ideas to spot

good ideas and drop poor ones as soon

as possible.

288 Part 3 |

Crowdsourcing:

outside innovation partners to help develop new technologies and products

that will delight customers.

The Procter & Gamble Company

Chapter 9 | 289

Sources: warc,

Harvard Business Review,

Technology Management,

PR Newswire,

Wall Street Journal,

Product concept

penny per mile to power.

AP Photo/Rick Bowmer

product concept

290 Part 3 |

Concept Testing Concept testing

Table 9.1

Concept testing

Table 9.1 |

Chapter 9 | 291

Business Analysis

Business analysis

product develop

ment

Business analysis

Product development

engages consumers to fi eld test new designs under real

world conditions.

New Balance Athletic Shoe, Inc.

292 Part 3 |

test mar

didn’t do it right.”

Mark Lennihan/ASSOCIATED PRESS

Chapter 9 | New-Product Development and Product Life-Cycle Strategies 293 Commercialization Test marketing gives management the information needed to make a final decision about

whether to launch the new product. If the company goes ahead with commercialization—

introducing the new product into the market—it will face high costs. For example, the com-

pany may need to build or rent a manufacturing facility. And, in the case of a major new

consumer product, it may spend hundreds of millions of dollars for advertising, sales promo-

tion, and other marketing efforts in the first year. For instance, to introduce its McCafé coffee

in the United States, McDonald’s spent $100 million on an advertising blitz that spanned TV,

print, radio, outdoor, the Internet, events, public relations, and sampling. Similarly, Nokia

spent $100 million on a campaign to launch its Ace smartphone in the highly competitive

U.S. mobile market.14

A company launching a new product must first decide on introduction timing. If the new product will eat into the sales of other company products, the introduction may be

delayed. If the product can be improved further, or if the economy is down, the com-

pany may wait until the following year to launch it. However, if competitors are ready

to introduce their own competing products, the company may push to introduce its new

product sooner.

Next, the company must decide where to launch the new product—in a single location, a region, the national market, or the international market. Some companies may quickly

introduce new models into the full national market. Companies with international distribu-

tion systems may introduce new products through swift global rollouts. General Motors

did this with its global car, the new Malibu, which will be sold in 100 countries on six conti-

nents. The global Malibu launch was backed by live, high-definition video run on Facebook

and various mobile media, timed to coincide with major auto shows in both Shanghai and

New York. The car’s designers and marketers were available in a live Web session to field

consumer questions posted on Twitter or Chevrolet’s Facebook page.15

Managing New-Product Development The new-product development process shown in Figure 9.1 highlights the important ac-

tivities needed to find, develop, and introduce new products. However, new-product de-

velopment involves more than just going through a set of steps. Companies must take a

holistic approach to managing this process. Successful new-product development requires

a customer-centered, team-based, and systematic effort.

Customer-Centered New-Product Development Above all else, new-product development must be customer centered. When looking for

and developing new products, companies often rely too heavily on technical research in

their R&D laboratories. But like everything else in marketing, successful new-product

development begins with a thorough understanding of what consumers need and value.

Customer-centered new-product development focuses on finding new ways to solve

customer problems and create more customer-satisfying experiences.

One study found that the most successful new products are ones that are differenti-

ated, solve major customer problems, and offer a compelling customer value proposition.

Another study showed that companies that directly engage their customers in the new-

product innovation process had twice the return on assets and triple the growth in operat-

ing income of firms that did not. Thus, customer involvement has a positive effect on the

new-product development process and product success.16

For example, whereas the consumer package goods industry’s new-product success

rate is only about 15 to 20 percent, P&G’s success rate is over 50 percent. According to

former P&G CEO A. G. Lafley, the most important factor in this success is understanding

what consumers want. In the past, says Lafley, P&G tried to push new products down to

consumers rather than first understanding their needs. But now, P&G employs an immer-

sion process it calls “Living It,” in which researchers go so far as to live with shoppers for

several days at a time to envision product ideas based directly on consumer needs. P&Gers

also hang out in stores for similar insights, a process they call “Working It.” No other com-

pany in the world has invested more in consumer research than P&G. Each year, the com-

pany interacts with more than 5 million customers in 100 countries. It conducts more than

Commercialization

Introducing a new product into the

market.

Customer-centered new-product development

New-product development that focuses

on finding new ways to solve customer

problems and create more customer-

satisfying experiences.

294 Part 3 | Designing a Customer-Driven Strategy and Mix 20,000 research studies every year and invests more than $400 million annually in what it

calls “consumer understanding.” “We figured out how to keep the consumer at the center

of all our decisions,” concludes Lafley. “As a result, we don’t go far wrong.”17

Thus, today’s innovative companies get out of the research lab and connect with cus-

tomers in search of fresh ways to meet customer needs. Customer-centered new-product

development begins and ends with understanding customers and involving them in the

process.

Team-Based New-Product Development Good new-product development also requires a total-company, cross-functional ef-

fort. Some companies organize their new-product development process into the orderly

sequence of steps shown in Figure 9.1, starting with idea generation and ending with

commercialization. Under this sequential product development approach, one company de- partment works individually to complete its stage of the process before passing the new

product along to the next department and stage. This orderly, step-by-step process can help

bring control to complex and risky projects. But it can also be dangerously slow. In fast-

changing, highly competitive markets, such slow-but-sure product development can result

in product failures, lost sales and profits, and crumbling market positions.

To get their new products to market more quickly, many companies use a team-

based new-product development approach. Under this approach, company depart-

ments work closely together in cross-functional teams, overlapping the steps in the product

development process to save time and increase effectiveness. Instead of passing the new

product from department to department, the company assembles a team of people from

various departments that stays with the new product from start to finish. Such teams usu-

ally include people from the marketing, finance, design, manufacturing, and legal depart-

ments and even supplier and customer companies. In the sequential process, a bottleneck

at one phase can seriously slow an entire project. In the team-based approach, however, if

one area hits snags, it works to resolve them while the team moves on.

The team-based approach does have some limitations, however. For example, it some-

times creates more organizational tension and confusion than the more orderly sequential

approach. However, in rapidly changing industries facing increasingly shorter product life

cycles, the rewards of fast and flexible product development far exceed the risks. Compa-

nies that combine a customer-centered approach with team-based new-product develop-

ment gain a big competitive edge by getting the right new products to market faster.

Systematic New-Product Development Finally, the new-product development process should be holistic and systematic rather than

compartmentalized and haphazard. Otherwise, few new ideas will surface, and many good

ideas will sputter and die. To avoid these problems, a company can install an innovation management system to collect, review, evaluate, and manage new-product ideas.

The company can appoint a respected senior person to be its innovation manager. It can

set up Web-based idea management software and encourage all company stakeholders—

employees, suppliers, distributors, dealers—to become involved in finding and developing

new products. It can assign a cross-functional innovation management committee to evaluate

proposed new-product ideas and help bring good ideas to market. It can also create recogni-

tion programs to reward those who contribute the best ideas.

The innovation management system approach yields two favorable outcomes. First, it

helps create an innovation-oriented company culture. It shows that top management sup-

ports, encourages, and rewards innovation. Second, it will yield a larger number of new-

product ideas, among which will be found some especially good ones. The good new ideas

will be more systematically developed, producing more new-product successes. No longer

will good ideas wither for the lack of a sounding board or a senior product advocate.

Thus, new-product success requires more than simply thinking up a few good ideas,

turning them into products, and finding customers for them. It requires a holistic approach

for finding new ways to create valued customer experiences, from generating and screening

new-product ideas to creating and rolling out want-satisfying products to customers.

More than this, successful new-product development requires a whole-company

commitment. At companies known for their new-product prowess, such as Google, Apple,

Team-based new-product development

New-product development in which

various company departments work

closely together, overlapping the steps in

the product development process to save

time and increase effectiveness.

Chapter 9 | 295

in Turbulent Times

Figure 9.2 product life cycle (PLC)

Google is spectacularly successful and wildly innovative. At Google,

place.”

Eric Carr/Alamy

Objective 3

product life cycle and how

during a product’s life cycle.

Product life cycle (PLC)

296 Part 3 |

Figure 9.3 style

fashion

Fads

Profi ts

Sales

Some products die quickly; others stay in the mature stage for a long, long time. For example, TABASCO sauce has been around for more than 140 years. Even then, to keep the product young, the company has added a full line of flavors (such as Sweet & Spicy and Chipotle) and a kitchen cabinet full of new TABASCO products (such as spicy beans, a chili mix, and jalapeno nacho slices).

FIGURE | 9.2

mature stage for a long, long time. Life Savers

your mouth fresh.”

The Wrigley Company

Chapter 9 | 297

Introduction Stage introduction stage

Style FadFashion Examples of fads: The Pet Rock fad broke out one October but had sunk like a stone by the next

diets followed a similar pattern.

Style

Fashion

Fad

Introduction stage

FIGURE | 9.3

298 Part 3 | Designing a Customer-Driven Strategy and Mix Growth Stage If the new product satisfies the market, it will enter a growth stage, in which sales will

start climbing quickly. The early adopters will continue to buy, and later buyers will start

following their lead, especially if they hear favorable word of mouth. Attracted by the

opportunities for profit, new competitors will enter the market. They will introduce new-

product features, and the market will expand. The increase in competitors leads to an in-

crease in the number of distribution outlets, and sales jump just to build reseller inventories.

Prices remain where they are or decrease only slightly. Companies keep their promotion

spending at the same or a slightly higher level. Educating the market remains a goal, but

now the company must also meet the competition.

Profits increase during the growth stage as promotion costs are spread over a large vol-

ume and as unit manufacturing costs decrease. The firm uses several strategies to sustain

rapid market growth as long as possible. It improves product quality and adds new product

features and models. It enters new market segments and new distribution channels. It shifts

some advertising from building product awareness to building product conviction and pur-

chase, and it lowers prices at the right time to attract more buyers.

In the growth stage, the firm faces a trade-off between high market share and high

current profit. By spending a lot of money on product improvement, promotion, and dis-

tribution, the company can capture a dominant position. In doing so, however, it gives up

maximum current profit, which it hopes to make up in the next stage.

Maturity Stage At some point, a product’s sales growth will slow down, and it will enter the maturity

stage. This maturity stage normally lasts longer than the previous stages, and it poses

strong challenges to marketing management. Most products are in the maturity stage of

the life cycle, and therefore most of marketing management deals with the mature product.

The slowdown in sales growth results in many producers with many products to sell.

In turn, this overcapacity leads to greater competition. Competitors begin marking down

prices, increasing their advertising and sales promotions, and upping their product devel-

opment budgets to find better versions of the product. These steps lead to a drop in profit.

Some of the weaker competitors start dropping out, and the industry eventually contains

only well-established competitors.

Although many products in the mature stage appear to remain unchanged for long pe-

riods, most successful ones are actually evolving to meet changing consumer needs. Product

managers should do more than simply ride along with or defend their mature products—

a good offense is the best defense. They should consider modifying the market, product

offering, and marketing mix.

In modifying the market, the company tries to increase consumption by finding new us- ers and new market segments for its brands. For example, brands such as Harley-Davidson

and Axe fragrances, which have typically targeted male buyers, are introducing products

and marketing programs aimed at women. P&G’s Swiffer household cleaning brand has

developed special promotions for pet owners.

The company may also look for ways to increase usage among present customers. For

example, the Glad Products Company helps customers find new uses for its Press’n Seal

wrap, the handy plastic wrap that creates a Tupperware-like seal. As more and more cus-

tomers contacted the company about alternative uses for the product, Glad set up a spe-

cial “1000s of Uses. What’s Yours?” Web site (www.1000uses.com) at which customers can

swap usage tips. Suggested uses for Press’n Seal range from protecting a computer keyboard

from dirt and spills and keeping garden seeds fresh, to use by soccer moms sitting on damp

benches while watching their tykes play. “We just roll out the Glad Press’n Seal over the long

benches,” says the mom who shared the tip, “and everyone’s bottom stays nice and dry.”22

The company might also try modifying the product—changing characteristics such as quality, features, style, packaging, or technology platforms to retain current users or at-

tract new ones. Thus, to freshen up their products for today’s technology-obsessed chil-

dren, many classic toy and game makers are creating new digital versions or add-ons

for old favorites. More than a third of children eight years old and younger now use

devices such as iPads and smartphones. So toy makers are souping up their products

to meet the tastes of the new generation. “Monopoly money can now be counted on a

Growth stage

The PLC stage in which a product’s sales

start climbing quickly.

Maturity stage

The PLC stage in which a product’s sales

growth slows or levels off.

Chapter 9 | 299

decline stage

across iPad screens.

APPTIVITY and associated trademarks and trade dress are owned by and used with permission from Mattel, Inc.

300 Part 3 |

the

Converse:

Converse brand has begun a new life

as a small but thriving lifestyle brand.

Consumers themselves are helping to

write the new Converse story.

Blend Images/Moxie Productions

Chapter 9 | 301

Table 9.2

Additional Product and Service Considerations

Sources:

Forbes

Mashable,

iMedia Connection,

Objective 4

product decisions and

international product and

302 Part 3 |

Table 9.2 |

Introduction Growth Maturity Decline

Characteristics

Few

Strategies

Source: Marketing Management,

Chapter 9 | 303

Gan jun—Imaginechina

304 Part 3 |

Explain how companies fi nd

internal sources

external sources

competitors’ distributors and

suppliers

crowdsourcing

List and defi ne the steps in

this process.

idea generation

idea screening,

product concept development,

concept testing,

marketing strategy

development,

analysis

product

development test marketing

commercialization

Reviewing Objectives and Key Terms

Objective 1

Objective 2

Chapter 9 | 305

product life cycle and how

cycle.

life cycle

product development

The introduction stage

growth stage,

maturity stage

decline stage

product decisions and international product and

social responsibility

Objective 3

Objective 4

Objective 1

Objective 2

Objective 3

Discussion and Critical Thinking

3. innovation management system

306 Part 3 | Designing a Customer-Driven Strategy and Mix

Applications and Cases

Marketing Technology Fiat Mio Companies use crowdsourcing to solve problems, generate new-

product ideas, and develop promotional campaigns. In August

2009, Brazil’s largest carmaker, Fiat, launched Project Mio to de-

velop the world’s first fully crowdsourced concept car. The proj-

ect Web site asked the question, "In the future we’re building,

what should a car have that makes it mine, while still working

for others?" The Web site’s 300,000 unique visitors from more

than 160 countries generated over 10,000 suggestions. The site

had 17,000 people officially registered as potential collabora-

tors. Thousands of comments were posted on Facebook and

Twitter. Fiat’s staff mulled over the suggestions and the concept

car was presented at the 2010 Sao Paulo auto show. Fiat was

transparent during the entire process and the car’s final specifica-

tions are open to anyone—even other car companies. Though

the new-product development process has not progressed to the

commercialization stage—and perhaps never will—Fiat and other

carmakers can use these ideas in future car models.

1. Form a small group and research the Fiat Mio. What are some of the suggestions offered by consumers that influenced the

design of the car? Ask your friends and family the same ques-

tion Fiat asked consumers and compile the responses from

your group members. Would the car developed from these

responses be similar to Fiat’s Mio? Explain. (AACSB: Com-

munication; Reflective Thinking; Use of IT)

2. Several crowdsourcing activities were described in the chapter. Describe an example of a different company using

crowdsourcing to develop or modify products. (AACSB: Com-

munication; Reflective Thinking; Use of IT)

Marketing Ethics I Can Find Out Who You Are Facial recognition technology is not new, but the way it is being

used is. If you have a criminal record, police can find that out just

by looking at you—through their iPhones, that is. Using a device

known as Moris, which stands for Mobile Offender Recognition

and Information System, a police officer can snap a picture of a

person’s face or scan a person’s iris and obtain immediate infor-

mation if there is a match in a criminal database. No more going

down to the station and getting inky fingertips—the gadget can

collect fingerprints right on the spot. Whereas an iris scan must

be conducted with the person’s knowledge because of the close-

range necessary, a picture can be snapped from several feet away

without the person knowing it. Facebook uses facial recognition to

allow users to identify friends in pictures, and several mobile phone

apps allow users to identify Facebook friends with a mere snap of

a picture. Google considered a project that would enable mobile

phone users to snap a picture of someone and then conduct an

image search but rejected the idea because of ethical concerns.

1. Discuss other commercial applications of facial recognition technology. Come up with two new-product concepts that

employ this technology. (AACSB: Communication; Reflective

Thinking)

2. Discuss the ethics of incorporating facial recognition technol- ogy in products. (AACSB: Communication; Ethical Reasoning)

Marketing by the Numbers Beauty Balm Cannibalization The newest product in the cosmetic beauty market is BB

cream, which combines multiple skin-care benefits into one

product. BB stands for “beauty balm,” and it is heralded as

a “world-wide phenomenon” and a “multitasking miracle” by

companies in the industry. But rather than creating new de-

mand, this all-in-one product could cannibalize sales of ex-

isting products such as moisturizers, sunscreens, anti-aging

creams, primers, and foundations offered by cosmetic man-

ufacturers. With BB cream sales reaching $9 million in the

United States in less than a year and promising to go much

higher, skin-care and cosmetic products maker Clinique does

not want to miss out on this opportunity. It is introducing a

new BB cream product under the Clinique brand name. Al-

though the new BB cream will garner a higher price for the

manufacturer ($10.00 per ounce for the BB cream versus

$8.00 per ounce for the moisturizer product), it also comes

with higher variable costs ($6.00 per ounce for the BB cream

versus $3.00 per ounce for the moisturizer product).

1. What brand development strategy is Clinique undertaking? (AACSB: Communication; Reflective Thinking)

2. Assume Clinique expects to sell 3 million ounces of BB cream within the first year after introduction but expects that half of

those sales will come from buyers who would otherwise pur-

chase Clinique’s moisturizer (that is, cannibalized sales). Assum-

ing that Clinique normally sells 10 million ounces of moisturizer

per year and that the company will incur an increase in fixed

costs of $2 million during the first year of production for the BB

cream, will the new product be profitable for the company? Re-

fer to the discussion of cannibalization in Appendix 2: Market-

ing by the Numbers for an explanation of how to conduct this

analysis. (AACSB: Communication; Analytical Reasoning)

Chapter 9 | New-Product Development and Product Life-Cycle Strategies 307

Company Case Google: New-Product Innovation at the Speed of Light

Google is wildly innovative. It recently topped Fast Company maga-

zine’s list of the world’s most innovative companies, and it regularly

ranks among everyone else’s top two or three most- innovative.

Google is also spectacularly successful. Despite formidable com-

petition from giants such as Microsoft and Yahoo!, Google’s share in

its core business—online search—stands at a decisive 84 percent,

more than five times the combined market shares of all other com-

petitors combined. The company also dominates when it comes to

paid search advertising, with 80 percent of that online ad segment.

And that doesn’t include paid search on mobile devices, where

Google has close to a monopoly with a 98 percent share.

But Google has grown to become much more than just an In-

ternet search and advertising company. Google’s mission is “to

organize the world’s information and make it universally accessible

and useful.” In Google’s view, information is a kind of natural re-

source—one to be mined, refined, and universally distributed. That

idea unifies what would otherwise appear to be a widely diverse

set of Google projects, such as mapping the world, searching the

Internet on a smartphone screen, or even providing for the early

detection of flu epidemics. If it has to do with harnessing and using

information, Google’s got it covered in some innovative way.

An Innovative Approach to Innovating Perhaps more than anything else, Google knows how to inno-

vate. At many companies, new-product development is a cau-

tious, step-by-step affair that might take a year or two to unfold.

In contrast, Google’s freewheeling new-product development

process moves at the speed of light. The nimble innovator imple-

ments major new services in less time than it takes competitors

to refine and approve an initial idea. For example, a Google senior

project manager describes the lightning-quick development of

iGoogle, Google’s customizable home page:

It was clear to Google that there were two groups [of Google us-

ers]: people who loved the site’s clean, classic look and people who

wanted tons of information there—e-mail, news, local weather. [For

those who wanted a fuller home page,] iGoogle started out with me

and three engineers. I was 22, and I thought, “This is awesome.”

Six weeks later, we launched the first version. The happiness met-

rics were good, there was healthy growth, and [a few months later],

we had [iGoogle fully operational with] a link on Google.com.

Such fast-paced innovation would boggle the minds of product

developers at most other companies, but at Google it is standard

operating procedure. “That’s what we do,” says Google’s vice presi-

dent for search products and user experience. “The hardest part

about indoctrinating people into our culture is when engineers show

me a prototype and I’m like, ‘Great, let’s go!’ They’ll say, ‘Oh, no,

it’s not ready.’ I tell them, ‘The Googly thing is to launch it early on

Google Labs [a site where users can try out experimental Google

applications] and then to iterate, learning what the market wants—

and making it great.’” Adds a Google engineering manager, “We set

an operational tempo: When in doubt, do something. If you have

two paths and you’re not sure which is right, take the fastest path.”

When it comes to new-product development at Google, there

are no two-year plans. The company’s new-product planning looks

ahead only four to five months. Google would rather see projects

fail quickly than see a carefully planned, long, drawn-out project fail.

Google’s famously chaotic innovation process has unleashed

a seemingly unending flurry of diverse products, most of which

are market leaders in their categories. These include everything

from an e-mail service (Gmail), a blog search engine (Google

Blog Search), an online payment service (Google Checkout), and

a photo-sharing service (Google Picasa) to a universal platform

for mobile-phone applications (Google Android), a cloud-friendly

Internet browser (Chrome), projects for mapping and exploring

the world (Google Maps and Google Earth), and even an early

warning system for flu outbreaks in your area (FluTrends). Google

claims that FluTrends has identified outbreaks two weeks before

the U.S. Centers for Disease Control and Prevention.

Competing Through Innovation Not only is Google innovative, but it uses this core competency as a

primary competitive weapon. Take two of its biggest product intro-

ductions to date, both of which have been launched in the last year.

First, there’s Google Play. Even though it created the number one

smartphone operating system in the world— Android—Google still

could not capture the purchases and activities of all those Android

users when it came to apps and entertainment media. Nor could it

come close to matching its operating-systems penetration in the

tablet market. So Google combined and redesigned everything it

had in that department and launched Google Play, an iTunes-esque

marketplace for apps, music, movies, and games. Although one

reviewer points out that this launch “lacks the polish of Apple,” he

goes on to say that “there should be little doubt . . . about Google’s

determination to change that.”

Google’s second recent major product introduction is Google+,

an all-purpose social network. With Google+, the search leader

fired a shot right over the bow of Facebook. In response, Facebook

founder and CEO Mark Zuckerberg put all Facebook employees on

“lockdown” alert, working around the clock to copy the best features

of Google+ and accelerate development of other Facebook features

Video Case Subaru When a company has a winning product, it has it made. Or

does it? Subaru is a winning company (one of the few automo-

tive companies to sustain growth and profits in hard economic

times) with various winning products, including the Impreza, Leg-

acy, Forester, and Outback. But what happens when any one

product starts to decline in popularity? This video demonstrates

how Subaru constantly engages in new-product development as

part of its efforts to manage the product life cycle for each of its

models. Subaru is focused on both developing the next version

of each existing model and developing possible new models to

boost its product portfolio.

After viewing the video featuring Subaru, answer the following

questions:

1. Discuss the product life cycle in relation to one Subaru product.

2. How do shifting consumer trends affect Subaru’s products?

3. Has Subaru remained customer oriented in its new-product efforts? Explain.

308 Part 3 | Designing a Customer-Driven Strategy and Mix already being developed. In only a year’s time, Google+ has acquired

250 million registered members, more than one-quarter of those who

now share their lives on Facebook. Like Google Play, Google+ is a

cutting-edge product. Such new products put Google in the dash for

riches in completely new competitive arenas. In addition, they give

Google a new edge against its toughest digital competitors—the

likes of Amazon, Facebook, Apple, and Microsoft—in what Nokia’s

CEO refers to as the “war of Internet ecosystems.”

Innovation Without Borders Google is open to new-product ideas from just about any source.

What ties it all together is the company’s passion for helping people

find and use information. Innovation is the responsibility of every

Google employee. Google engineers are encouraged to spend

20 percent of their time developing their own “cool and wacky”

new-product ideas. And all new Google ideas are quickly tested

in beta form by the ultimate judges—those who will use them.

According to one observer, “Anytime you cram some 20,000 of

the world’s smartest people into one company, you can expect to

grow a garden of unrelated ideas. Especially when you give some

of those geniuses one workday a week—Google’s famous ‘20 per-

cent time’—to work on whatever projects fan their passions.”

Such thinking sends Google beyond its own corporate bound-

aries in search of the next wave of big ideas. Recently, Google

hosted what it called the “Solve For X” conference. The company

invited about 50 of the smartest people in the world to tackle some

of the world’s biggest problems. The emphasis was on “radical.”

Just how radical were some of the ideas that emerged? How

about turning contact lenses into computer monitors with heads-

up displays, packed full of data. Or how about solving the world’s

clean water problems through existing desalinization technologies?

If that doesn’t go far enough for you, how about using MRI technol-

ogy to put images from the human mind onto a computer screen?

Just the fact that Google organized Solve For X indicates the

type of innovator Google is. For Google, innovation is more than

a process—it’s part of the company’s DNA. “Where does innova-

tion happen at Google? It happens everywhere,” says a Google

research scientist.

If you talk to Googlers at various levels and departments, one

powerful theme emerges: Whether they’re designing search en-

gines for the blind or preparing meals for their colleagues, these

people feel that their work can change the world. The marvel

of Google is its ability to continue to instill a sense of creative

fearlessness and ambition in its employees. Prospective hires

are often asked, “If you could change the world using Google’s

resources, what would you build?” But here, this isn’t a goofy

or even theoretical question: Google wants to know because

thinking—and building—on that scale is what Google does. This,

after all, is the company that wants to make available online every

page of every book ever published. Smaller-gauge ideas die of

disinterest. When it comes to innovation, Google is different. But

the difference isn’t tangible. It’s in the air—in the spirit of the place.

Questions for Discussion 1. Based on information in this chapter, identify major similarities

and differences between the new-product development pro-

cess at Google versus that found at most other companies.

2. Is Google’s product-development process customer cen- tered? Team based? Systematic?

3. Considering the product life cycle, what challenges does Google face in managing its product portfolio?

4. Is there a limit to how big Google’s product portfolio can grow? Explain.

5. Will Google be successful in markets where it does not domi- nate, such as social networks and app/entertainment stores?

Why or why not?

Sources: Matt Lynley, “Here Are the 17 Radical Ideas from Google’s Top Genius Conference That Could Change the World,” Business Insider,

February 11, 2012, www.businessinsider.com/here-are-the-17-radical-

ideas-from-googles-top-genius-conference-that-could-change-the-world-

2012-2?op=1#ixzz21TPojmMs; Matt Warman, “Google Play Review,” The

Telegraph, March 8, 2012, www.telegraph.co.uk/technology/mobile-app-

reviews/9130663/Google-Play-review.html; Chuck Salter, “Google: The

Faces and Voices of the World’s Most Innovative Company,” Fast Company,

March 2008, pp. 74–88; David Pogue, “Geniuses at Play, on the Job,” New

York Times, February 26, 2009, p. B1; “World’s Most Admired Companies,”

Fortune, March 2012, http://money.cnn.com/magazines/fortune/most-

admired/2012/snapshots/11207.html; “World’s 50 Most Innovative Compa-

nies,” Fast Company, March 2012, www.fastcompany.com/most-innovative-

companies/2012/full-list; and www.google.com, accessed August 2012.

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us-samsung-investment-idUSTRE80G00W20120117; Shinhye Kang,

“Samsung Aims to Double Its Smartphone Market Share,” Bloom-

berg Businessweek, June 21, 2010, www.businessweek.com; Laurie

Burkitt, “Samsung Courts Consumers, Marketers,” Forbes, June 7,

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ber 4, 2011, www.interbrand.com/en/best-global-brands/Best-Global-

Brands-2011/Samsung-SueShim.aspx; Levent Ozler, “Winners of the

2011 International Design Excellence Awards,” Dexigner, July 1, 2011,

www.dexigner.com/news/23309; “Gartner Says Worldwide Smart-

phone Sales Soared in Fourth Quarter of 2011 with 47 Percent Growth,”

February 15, 2012, www.gartner.com/it/page.jsp?id=1924314; and

information from www.samsung.com and www.sony.com, accessed

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2. Nick Wingfield, “Apple, Aided by an iPhone Frenzy, Doubles Its Quarterly Profit,” New York Times, January 25, 2012, p. B1.

3. Rob Adams, “Market Validation: Why Ready, Aim, Fire Beats Ready, Fire, Fire, Fire, Aim,” Inc., April 27, 2010, accessed at www.inc.com/

rob-adams/market-validation-new-book.html. Also see Joan

Schneider and Julie Hall, “Why Most Product Launches Fail,” Harvard

Business Review, April 20, 2011, pp. 21–24; and “Product Failures:

The Underlying Whys,” January 20, 2012, www.crossinnovation.net/

ci/blog/comments/product-failures-the-underlying-whys/.

4. See “Customers and In-house R&D Teams Are the Leading Sources of Innovation Say U.S. Businesses,” October 21, 2009, www

.grantthornton.com; and Paul Sloane, “Source of Innovative Ideas,”

Yahoo! Voices, June 16, 2010, http://voices.yahoo.com/sources-

innovative-ideas-6185898.html.

5. Based on information from “Hack Week @ Twitter,” January 25, 2012, blog.twitter.com/2012/01/hack-week-twitter.html; “Twitter’s ‘Hack

Week,’ 7 Days for New Ideas,” Mashable, January 26, 2012, http://

mashable.com/2012/01/26/twitter-hack-week/; and “Twitter’s ‘Hack

Week,’ 7 Days for New Ideas,” Mashable video, www.youtube.com/

watch?v=8dZZqDOu80o, accessed November 2012.

6. Based on information from Matthew Kronsberg, “How Lego’s Great Adventure in Geek-Sourcing Snapped into Place and Boosted

the Brand,” Fast Company, February 2, 2012, www.fastcompany

Chapter 9 | New-Product Development and Product Life-Cycle Strategies 309 .com/1812959/lego-cuusoo-minecraft-lord-of-rings-hayabusa;

“LEGO Minecraft Micro World Details Unveiled, Available for Pre-

Order,” February 16, 2012, http://aboutus.lego.com/en-us/news-

room/2012/february/lego-minecraft-micro-world/; and http://lego

.cuusoo.com/, accessed November 2012.

7. See Andrew Abbott, “Announcing the PayPal Mobile App Challenge Winners!” February 8, 2011, http://topcoder.com/home/x/2011/02/08/

announcing-the-paypal-mobile-app-challenges-winners/; and www

.topcoder.com and https://www.x.com, accessed August 2012.

8. Guido Jouret, “Inside Cisco’s Search for the Next Big Idea,” Harvard Business Review, September 2009, pp. 43–45; Geoff

Livingston, “Real Challenges to Crowdsourcing for Social Good,”

Mashable, October 12, 2010, http://mashable.com/2010/10/12/

social-good-crowdsourcing; and www.cisco.com/web/solutions/

iprize/index.html, accessed August 2012.

9. See George S. Day, “Is It Real? Can We Win? Is It Worth Doing?” Harvard Business Review, December 2007, pp. 110–120.

10. This example is based on Tesla Motors and information obtained from www.teslamotors.com, accessed June 2012. Also see, Jim

Motavalli, “Why the Tesla Model X Is a Home Run,” Forbes, February

13, 2012, www.forbes.com/sites/eco-nomics/2012/02/13/why-the-

tesla-model-x-is-a-home-run/.

11. Information from http://weartest.newbalance.com, accessed May 2012. 12. Susan Berfield, “Baristas, Patrons Steaming over Starbucks

VIA,” Bloomberg BusinessWeek, November 13, 2009; and Jodi

Westbury, “Starbucks VIA—A Success to Build On,” www.jodi-

westbury.com/2011/01/28/starbucks-via-a-success-to-build-on/,

accessed January 28, 2011; and “Starbucks Exceeds Goals with

More Than 100 Million Starbucks K-Pacs Packs Shipped,” Busi-

ness Wire, January 27, 2012.

13. For information on BehaviorScan Rx, see www.symphonyiri .com/SolutionsandServices/Detail.aspx?ProductID=186, accessed

May 2012.

14. See Emily Bryson York, “McD’s Serves up $100M McCafé Ad Blitz,” Crain’s Chicago Business, May 4, 2009, www.chicagobusiness

.com; and “Nokia Bets Big on Ace,” Mobiledia, January 4, 2012,

www.mobiledia.com/news/122642.html.

15. Karl Greenberg, “Brands Take to the Web for Global Reveals,” MediaPost News, April 15, 2011, www.mediapost.com/publications/

article/148705/.

16. See Robert G. Cooper, “Formula for Success,” Marketing Management, March–April 2006, pp. 19–23; Christoph Fuchs and Martin Schreier,

“Customer Empowerment in New Product Development,” Product In-

novation Management, January 2011, pp. 17–32; and Robert Safien,

“The Lessons of Innovation,” Fast Company, March 2012, p. 18.

17. Robert Berner, “How P&G Pampers New Thinking,” BusinessWeek, April 14, 2008, pp. 73–74; “How P&G Plans to Clean Up,” Business-

Week, April 13, 2009, pp. 44–45; “Procter & Gamble Company,”

www.wikinvest.com/stock/Procter_&_Gamble_Company_(PG),

accessed April 2012; and “P&G: Core Strengths,” www.pg.com/

en_US/company/core_strengths.shtml, accessed September 2012.

18. Based on information from or adapted from Peter Burrows, “Google’s Bid to Be Everything to Everyone,” Bloomberg Businesweek, February

20–February 26, 2012, pp. 37–38; Chuck Salter, “Google: The Faces

and Voices of the World’s Most Innovative Company,” Fast Company,

March 2008, pp. 74–88; David Pogue, “Geniuses at Play, On the

Job,” New York Times, February 26, 2009, p. B1; “World’s 50 Most

Innovative Companies,” Fast Company, March 2012, p. 70; and www

.google.com and www.googlelabs.com, accessed September 2012.

19. For more see Darrell K. Rigby, Karen Gruver, and James Allen, “In- novation in Turbulent Times,” Harvard Business Review, June 2009,

pp. 79–86. Also see John Hayes, “In a Tough Economy, Innovation

Is King,” Marketing News, April 15, 2009, pp. 14–17.

20. This definition is based on one found in Bryan Lilly and Tammy R. Nelson, “Fads: Segmenting the Fad-Buyer Market,” Journal of Con-

sumer Marketing, Vol. 20, No. 3, 2003, pp. 252–265.

21. See Katya Kazakina and Robert Johnson, “A Fad’s Father Seeks a Sequel,” New York Times, May 30, 2004, www.nytimes.com; John

Schwartz, “The Joy of Silly,” New York Times, January 20, 2008, p. 5;

and www.crazyfads.com, accessed November 2012.

22. See www.1000uses.com, accessed November 2011. 23. Stephanie Clifford, “Go Digitally, Directly to Jail? Classic Toys Learn

New Clicks,” New York Times, February 25, 2012.

24. Elaine Wong, “Kellogg Makes Special K a Way of Life,” Adweek, June 7, 2010, p. 18; and www.kellogg.com and www.specialk.com,

accessed November 2012.

25. For a more comprehensive discussion of marketing strategies over the course of the PLC, see Philip Kotler and Kevin Lane Keller,

Marketing Management, 14th ed. (Upper Saddle River, NJ: Prentice

Hall, 2012), pp. 310–317.

26. See “Year-by-Year Analysis Reveals an Overall Compensatory Award of $1,500,000 for Products Liability Cases,” Personal Injury Verdict

Reviews, July 3, 2006; Christy Tierney, “Toyota Recalls 2.2M More

Vehicles,” Detroit News, February 25, 2011, A10; United States

Courts, “Judicial Facts and Figures 2010,” Table 4.5, www.uscourts

.gov/Statistics/JudicialFactsAndFigures.aspx, accessed April 2012.

27. Based on information found in Celia Hatton, “KFC’s Finger-Lickin’ Success in China,” CBS News, March 6, 2011, www.cbsnews

.com/2100-3445_162-20039783.html; Maggie Starvish, “KFC’s Ex-

plosive Growth in China, HBS Working Knowledge, June 17, 2011,

http://hbswk.hbs.edu/cgi-bin/print/6704.html; and David E. Bell and

Mary L. Shelman, “KFC’s Radical Approach to China, Harvard Busi-

ness Review, November 2011, pp. 137–142.

28. Information from www.db.com, accessed November 2012. 29. Information from www.interpublic.com and www.mccann.com, ac-

cessed November 2012.

30. See “Global Powers of Retailing 2011,” www.deloitte.com; “Walmart Corporate International,” http://walmartstores.com/AboutUs/246

.aspx, accessed October 2012; and information from www.carrefour

.com, accessed October 2012.

money and safe, reliable operation. Through its value propo-

sition and commitment, “Be Smart, Pay less, Fly more,” Air

Arabia set itself apart from its competitors in the Middle East

as one of the world’s leading budget airlines in terms of profit

margin, innovation, reputation, and operational excellence.

Air Arabia’s customer interface is based on the pricing

structure presented on its main Web site. The primary focus is

to make air travel more convenient and frequent through Inter-

net booking (e-ticketing) and y offering the lowest fares in the

market without sacrificing service, safety standards, and agency

costs.

By selling its tickets electronically online or via telephone,

Air Arabia’s marketing costs become much lower, with no

travel agent commissions to pay or paper tickets to print and

Part 1: Defining Marketing and the Marketing Process (Chapters 1–2)

Part 2: Understanding the Marketplace and Consumers (Chapters 3–6)

Part 3: Designing a Customer-Driven Strategy and Mix (Chapters 7–17)

Part 4: Extending Marketing (Chapters 18–20)

Pricing Understanding and Capturing Customer Value10

Chapter Preview We now look at the second

major marketing mix tool—

pricing. If effective product development, promotion, and distri-

bution sow the seeds of business success, effective pricing is

the harvest. Firms successful at creating customer value with

the other marketing mix activities must still capture some of this

value in the prices they earn. In this chapter, we discuss the impor-

tance of pricing, dig into three major pricing strategies, and look at

internal and external considerations that affect pricing decisions.

In the next chapter, we examine some additional pricing consider-

ations and approaches.

For openers, let’s examine an interesting strategic pricing story.

Air Arabia introduced a new way of doing business to the airline in-

dustry in the Middle East when it was established in 2003. Keeping

costs down by cutting expensive overheads allowed fare prices to

be set much lower than competitors without sacrificing operational

excellence, and opened the possibility of air travel up to a whole new

market segment.

Air Arabia: Customer-Value-Based Pricing

B ack in October 2003, new airline Air Arabia started

its operations to introduce a new concept to the air

transportation industry in the Middle East and North

Africa region—“Pay Less, Fly More”—operating

with two leased A320 aircraft flying to only five destinations.

Air Arabia, as a budget airline, revolutionized the airline

industry in the Middle East and North Africa with its low fares

and by adopting a completely different way of doing business

compared to the traditional airlines. By ditching expensive

overhead costs such as free food and drinks; utilizing the same

type of airplanes but minimizing maintenance, training, and re-

pair costs; and flying to airports with cheaper landing fees, this

budget airline was able to pass huge savings on to its custom-

ers. Later on, this business philosophy led to the launch of other

new budget airlines in the Middle East.

As the first low-fare airline in the Middle East

and North Africa region, Air Arabia was

based in Sharjah International Airport

and was customized to meet local

preferences. Two characteristics of

Air Arabia’s core business strategy

are “The business mission” and

“Basis for differentiation.” Its busi-

ness mission aims to revolutionize air

travel in the region through an innovative

business approach of offering superb value for the

With its “Be Smart, Pay less, Fly

more” tagline, Air Arabia puts customer value at the forefront of its strategy—offering the lowest

fares in the market without sacrificing customer service.

Chapter 10 | Pricing: Understanding and Capturing Customer Value 311 post. Virtually all budget airlines use a system of dynamic pric

ing on their tickets, which means their prices change continually

based on demand. Usually, the further ahead a customer books

the less of a bargain it will be.

The foremost mission at Air Arabia is to deliver a smooth,

comfortable, and enjoyable journey with the best value for the

money to its customers. This budget airline is committed to

meeting the expectations of its valued customers by offering

distinctive services and competitive offers throughout the year.

When Air Arabia was launched back in 2003, the main

competitors in the airline industry in the region were Emirates

Airlines, Etihad Airways, and Gulf Air. Emirates Airlines had

the biggest share in the market, as it was already established and

competitor, but because it wasn’t an offi cial airline of the United

Arab Emirates, it did not pose as many threats as Emirates

Airlines. Finally, Etihad Airways had just started operations and

did not pose much competition. In terms of market segmenta

tion in the startup phase, two particular segments in the market

lines targeted at the niche market. Air Arabia decided to target

the former and came up with its strategy of “Pay less, Fly more.”

Air Arabia enabled customers to make the smart travel

choice; those who had been unable to afford air travel in the

past started travelling throughout the region, and those who al

airline benefi tted both business and leisure travelers. Air Arabia

could also target passengers who used to drive to nearby coun

Air Arabia tickets, passengers could save substantial time fl ying

to these countries rather than driving. The airline could also tar

get customers who did not fl y that often, as travelling by airline

was considered by many to be an expensive option. Other target

markets included passengers looking for a weekend break or

short trips that would not cost a lot.

The success of the launch of Air Arabia also meant that

there would be competing budget airlines starting up in the fu

ture, and that hence competition would soon be posed not only

riers, including not only those operating from the United Arab

Emirates, but also other budget airlines starting up in other

countries in the GCC. In addition, other international airlines

were operating in the region, including Air France, British Air

ways, KLM, Lufthansa, Cathay Pacifi c, Saudi Airlines, Air In

dia, and others.

During its fi rst period of operations from 2004 to 2008,

the number of Air Arabia’s passengers grew at a compounded

annual growth rate (CAGR) of 60 percent; the number of pas

million passengers compared to 2.7 million passengers in 2007,

and formed 68 percent of the total passenger traffi c at Sharjah

International Airport in 2008.

In 2012, Air Arabia reported

$61.5 million, a signifi cant increase

compared to roughly $27.2 mil

lion in the corresponding period

in 2011. This refl ects the airline’s

strong fi nancial position and out

standing performance. Sheikh

Abdullah Bin Mohammad Al

Thani, Chairman of Air Arabia, described the exceptional fi

nancial performance as resulting from the airline’s strong busi

strategy. He noted that Air Arabia looked to be on a strong

growth trajectory, given the company’s sustained growth mar

gins and steady profi ts. Additionally, their strategy to pursue

valid by the positive fi nancial reports and continuing growth of

customer base.

Though political instability and sustained high fuel costs

continue to challenge regional carriers, the appeal of air trans

in the region, remains strong. As these results make clear, Air

Arabia remains on a path of steady upward growth. Air Arabia

will continue to enter into new markets and to launch new ven

tures in 2012–2013, supporting the airline’s robust commercial

and operational performance, while providing customers with

an even wider choice of affordable air travel options.

As part of its commitment to enable more people to fl y

effi ciently and affordably, Air Arabia continues to enter into

Ukraine—expanded operations from its hubs in Morocco and

Egypt, and announced the launch of an additional four routes

in October 2012, bringing Air Arabia’s global network to a reach

of 81 destinations. This refl ects the airline’s continued focus on

neously strengthening services in existing routes1.

Air Arabia offers a

simple pricing plan to its

customers, and invites

them to “Be smart, pay

less, fl y more” in its

adverts.

.com

312 Part 3 |

Companies seeking customers have put increased pricing pressure on many companies. Thanks to eco

sponse, it seems that almost every company has been looking for ways to cut prices.

Yet, cutting prices is often not the best answer. Reducing prices unnecessarily can lead

to lost profi ts and damaging price wars. It can cheapen a brand by signaling to customers

that price is more important than the customer value a brand delivers. Instead, in both

good economic times and bad, companies should sell value, not price. In some cases, that

ing customers that paying a higher price for the company’s brand is justifi ed by the greater

value they gain.

What is a Price? In the narrowest sense, price is the amount of money charged for a product or a service.

More broadly, price is the sum of all the values that customers give up to gain the benefi ts of

having or using a product or service. Historically, price has been the major factor affecting

buyer choice. In recent decades, however, nonprice factors have gained increasing impor

tance. Even so, price remains one of the most important elements that determines a fi rm’s

market share and profi tability.

Price is the only element in the marketing mix that produces revenue; all other ele

ments represent costs. Price is also one of the most fl exible marketing mix elements. Unlike

time, pricing is the number one problem facing many marketing executives, and many

companies do not handle pricing well. Some managers view pricing as a big headache,

preferring instead to focus on other marketing mix elements. However, smart managers

Objective Outline

Objective 1 Answer the question “What is a price?” and discuss the importance of pricing in today’s

What Is a Price? (pp 312–313)

Objective 2 Identify the three major pricing strategies and discuss the importance of understanding

Major Pricing Strategies (pp 313–321)

Objective 3 Identify and defi ne the other important external and internal factors affecting a fi rm’s pricing decisions.

Other Internal and External Considerations Affecting Price Decisions (pp 321–328)

Pricing: No matter what the state

of the economy, companies should

sell value, not price.

magicoven/Shutterstock.com

Objective 1 Answer the question “What

is a price?” and discuss the

importance of pricing in today’s

Chapter 10 | Pricing: Understanding and Capturing Customer Value 313 treat pricing as a key strategic tool for creating and capturing customer value. Prices have a

direct impact on a fi rm’s bottom line. A small percentage improvement in price can generate

a large percentage increase in profi tability. More important, as part of a company’s overall

value proposition, price plays a key role in creating customer value and building customer

relationships. “Instead of running away from pricing,” says an expert, “savvy marketers

are embracing it.”2

Major Pricing Strategies The price the company charges will fall somewhere between one that is too low to produce

a profi t and one that is too high to produce any demand. Figure 10.1 summarizes the

major considerations in setting price. Customer perceptions of the product’s value set the

ceiling for prices. If customers perceive that the product’s price is greater than its value,

they will not buy the product. Likewise, product costs set the fl oor for prices. If the com

pany prices the product below its costs, the company’s profi ts will suffer. In setting its price

between these two extremes, the company must consider several external and internal fac

tors, including competitors’ strategies and prices, the overall marketing strategy and mix,

and the nature of the market and demand.

In the end, the customer will decide whether a product’s price is right. Pricing decisions,

like other marketing mix decisions, must start with customer value. When customers buy

a product, they exchange something of value (the price) to get something of value (the

understanding how much value consumers place on the benefi ts they receive from the

product and setting a price that captures that value.

uses buyers’ perceptions of value as the key to pric

program and then set the price. Price is considered along with all other marketing mix

variables before the marketing program is set. Figure 10.2

The company designs what it considers to be a good product, adds up the costs of making

the product, and sets a price that covers costs plus a target profi t. Marketing must then

convince buyers that the product’s value at that price justifi es its purchase. If the price turns

out to be too high, the company must settle for lower markups or lower sales, both resulting

in disappointing profi ts.

and value perceptions. It then sets its target price based on customer perceptions of value.

The targeted value and price drive decisions about what costs can be incurred and the

resulting product design. As a result, pricing begins with analyzing consumer needs and

value perceptions, and the price is set to match perceived value.

Price

No demand above this price

No profits below this price

If customers perceive that a product’s price is greater than its value, they won’t buy it. If the company prices the product below its costs, profits will suffer. Between the two extremes, the “right” pricing strategy is one that delivers both value to the customer and profits to the company.

FIGURE | 10.1

Objective 2 Identify the three major pricing

strategies and discuss the

importance of understanding

company costs, and competitor

strategies when setting prices.

314 Part 3 |

It’s important to remember that “good value” is not the same as “low price.” For ex

ample, a Steinway piano—any Steinway piano—costs a lot. But to those who own one, a

Steinway is a great value:3

A Steinway grand piano typically runs anywhere from

$55,000 to as high as several hundred thousand dollars.

The most popular model sells for around $87,000. But ask

anyone who owns a Steinway grand piano, and they’ll tell

you that, when it comes to Steinway, price is nothing; the

Steinway experience is everything. Steinway makes very

up to one full year. But, more importantly, owners get the

classical concert stages and the celebrities and performers

who’ve owned and played Steinway pianos across more

than 160 years.

buyers are amateurs who perform only in their dens.

To such customers, whatever a Steinway costs, it’s a small price to pay for the value of owning one. “A

Steinway takes you places you’ve never been,” says an

ad. As one Steinway owner puts it, “My friendship with

the Steinway piano is one of the most important and

beautiful things in my life.” Who can put a price on

such feelings?

A company will often fi nd it hard to measure the value customers attach to its product.

For example, calculating the cost of ingredients in a meal at a fancy restaurant is relatively

easy. But assigning value to other satisfactions such as taste, environment, relaxation, con

versation, and status is very hard. Such value is subjective; it varies both for different con

sumers and different situations.

Still, consumers will use these perceived values to evaluate a product’s price, so the

company must work to measure them. Sometimes, companies ask consumers how much

they would pay for a basic product and for each benefi t added to the offer. Or a company

might conduct experiments to test the perceived value of different product offers. Accord

ing to an old Russian proverb, there are two fools in every market—one who asks too much

and one who asks too little. If the seller charges more than the buyers’ perceived value, the

company’s sales will suffer. If the seller charges less, its products sell very well, but they

produce less revenue than they would if they were priced at the level of perceived value.

and

The Great Recession of 2008 to 2009 caused a fundamental and lasting shift in consumer at

approaches to bring them in line with changing economic conditions and consumer price

perceptions. More and more, marketers have adopted strategies—

VCosts play an important role in setting prices. But, like everything else in marketing, good pricing with the .starts customer

FIGURE | 10.2

Perceived value: A Steinway piano—any Steinway piano—costs a lot. But

to those who own one, price is nothing; the Steinway experience is everything.

ROBERT CAPLIN/The New York Times

Offering just the right combination of

Chapter 10 | Pricing: Understanding and Capturing Customer Value 315

ald’s offer value menu and dollar menu items. Every car company now offers small, inex

pensive models better suited to tighter consumer budgets and thriftier spending habits.

P&G has introduced “Basic” versions of its Bounty and Charmin brands that sell for less

years. The company has also reduced the size of some Tide laundry detergent packages

Walmart and other discount stores. “Today, when you ask the consumer, ‘What is value?’

the No. 1 answer is ‘brand names for less,’” says a pricing expert.4

European

airline Ryanair won’t get much in the way of free amenities, but they’ll like the airline’s un

believably low prices (see Real Marketing 10.1).

positioned to take advantage of either good or bad economic conditions:

Although some gym chains struggled during the re

cent recession—Bally’s Total Fitness fi led for bank

expanded

the number of its clubs and its revenues doubled. The

franchise chain did all this despite charging members

only $35 per month with easy cancellation fees. Its

“Fast, Convenient, Affordable.” The small gyms—only

stationary bikes, fi ve elliptical machines, and weight

bars. Few clubs have showers and most are staffed

only 25 to 40 hours a week. The sweet spot of their

who live nearby and are busy enough that they cannot

afford more than an hour a day to go to the gym.5

retail level is (EDLP). EDLP in volves charging a constant, everyday low price with

few or no temporary price discounts. Retailers such as

ever, the king of EDLP is Walmart, which practically

defi ned the concept. Except for a few sale items every month, Walmart promises everyday

low prices on everything it sells. In contrast, involves charging higher

holders.

low prices to meet competition. Instead, many companies adopt

tures and services to differentiate their offers and thus support their higher prices. For ex

are amenities and charging more rather than cutting services to maintain lower ad mission prices.

Some theater chains are turning their multiplexes into smaller, roomier luxury outposts. The

leather executive or rocking chairs with armrests and footrests, the latest in digital sound and

50 theaters with some kind of enhanced food and beverage amenities, including Fork & Screen

Snap Fitness is well positioned to take advantage of either good or bad

economic conditions.

Snap Fitness

316 Part 3 |

The major airlines are struggling with difficult

ing free

and other troubled times ahead for the airline

but

ports and offering unassigned passenger

with the benefit to customers in terms of lower

ers place their own bags in the

in charging passengers for

airline brags about being the

now standard procedure and

peddle croissants and cappuccino; digital

additional charges and the absence of crea

Ryanair: Really

CEO, Michael O’Leary, hopes one day to “make fl ying

free.”

Maciej Kulczynski/EPA/Newscom

Chapter 10 | Pricing: Understanding and Capturing Customer Value 317

extensive

menu including dinner offerings, beer, wine, and

cocktails) and Cinema Suites (additional upscale

food offerings in addition to premium cocktails and

reclining chairs, and eight to nine feet of spacing

between rows).

So at the Cinema Suites at the AMC Easton 30

with IMAX in Columbus, Ohio, bring on the mango

margaritas! For $9 to $15 a ticket (depending on the

time and day), moviegoers are treated to reserved seat

seats, and the opportunity to pay even more to have

dinner and drinks brought to their seats. Such theaters

are so successful that AMC plans to add more. “Once

people experience it,” says a company spokesperson,

“more often than not they don’t want to go anywhere

else.”6

ing, costs set the fl oor for the price that the company

can charge. involves setting

prices based on the costs of producing, distributing, and selling the product plus a fair rate

of return for its effort and risk. A company’s costs may be an important element in its pric

ing strategy.

Some companies, such as Walmart or Southwest Airlines, work to become the

in their industries. Companies with lower costs can set lower prices that result in

smaller margins but greater sales and profi ts. However, other companies—such as Apple,

BMW, and Steinway—intentionally pay higher costs so that they can add value and claim

higher prices and margins. For example, it costs more to make a “handcrafted” Steinway

prices—how much the company makes for the customer value it delivers. product plus a fair rate of return for effort

passengers seem to appreciate rather than

With

Sources:

Forbes

CNNTravel

week

Bloomberg Businessweek

admission prices, premium theaters such as AMC’s Cinema Suites are

adding amenities and charging more. “Once people experience it, . . . they

don’t want to go anywhere else.”

Courtesy of AMC Theaters

318 Part 3 | Types of Costs A company’s costs take two forms: fi xed and variable. Fixed costs (also known as over

head) are costs that do not vary with production or sales level. For example, a company

must pay each month’s bills for rent, heat, interest, and executive salaries regardless of the

company’s level of output. Variable costs vary directly with the level of production. Each

PC produced by HP involves a cost of computer chips, wires, plastic, packaging, and other

inputs. Although these costs tend to be the same for each unit produced, they are called

variable costs because the total varies with the number of units produced. Total costs

are the sum of the fi xed and variable costs for any given level of production. Management

wants to charge a price that will at least cover the total production costs at a given level of

production.

The company must watch its costs carefully. If it costs the company more than its com

petitors to produce and sell a similar product, the company will need to charge a higher

price or make less profi t, putting it at a competitive disadvantage.

Costs at Different Levels of Production To price wisely, management needs to know how its costs vary with different levels of

production. For example, suppose Texas Instruments (TI) built a plant to produce 1,000

calculators per day. Figure 10.3A

(SRAC). It shows that the cost per calculator is high if TI’s factory produces only a few

per day. But as production moves up to 1,000 calculators per day, the average cost per

unit decreases. This is because fi xed costs are spread over more units, with each one bear

ing a smaller share of the fi xed cost. TI can try to produce more than 1,000 calculators

per day, but average costs will increase because the plant becomes ineffi cient. Workers

have to wait for machines, the machines break down more often, and workers get in each

other ’s way.

If TI believed it could sell 2,000 calculators a day, it should consider building a larger

plant. The plant would use more effi cient machinery and work arrangements. Also,

the unit cost of producing 2,000 calculators per day would be lower than the unit cost

( Figure 10.3B

of increasing diseconomies of scale—too many workers to manage, paperwork slowing

best size to build if demand is strong enough to support this level of production.

Costs as a Function of Production Experience Suppose TI runs a plant that produces 3,000 calculators per day. As TI gains experience in

producing calculators, it learns how to do it better. Workers learn shortcuts and become

more effi cient and gains economies of scale. As a result, the average cost tends to decrease

with accumulated production experience. This is shown in Figure 10.4.7 Thus, the aver

age cost of producing the fi rst 100,000 calculators is $10 per calculator. When the company

has produced the fi rst 200,000 calculators, the average cost has fallen to $8.50. After its

Total costs

1 2

3 4

What’s the point of all the cost curves in this and the next few figures? Costs are an important factor in setting price, and companies must understand them well!

FIGURE | 10.3

of Production per Period

Fixed costs (overhead)

Variable costs

Chapter 10 | Pricing: Understanding and Capturing Customer Value 319 accumulated production experience doubles again to 400,000, the average cost is $7. This

drop in the average cost with accumulated production experience is called the experience

curve (or the learning curve).

pany. Not only will the company’s unit production cost fall, but it will fall faster if the com

pany makes and sells more during a given time period. But the market has to stand ready

to buy the higher output. And to take advantage of the experience curve, TI must get a large

market share early in the product’s life cycle. This suggests the following pricing strategy:

TI should price its calculators low; its sales will then increase, and its costs will decrease

through gaining more experience, and then it can lower its prices further.

Some companies have built successful strategies around the experience curve. However,

the product a cheap image. The strategy also assumes that competitors are weak and not

willing to fi ght it out by meeting the company’s price cuts. Finally, while the company is

lets it start at prices lower than those of the market leader, which still operates on the old

experience curve.

The simplest pricing method is (or markup pricing)—adding a stan

dard markup to the cost of the product. Construction companies, for example, submit job

bids by estimating the total project cost and adding a standard markup for profi t. Lawyers,

accountants, and other professionals typically price by adding a standard markup to their

costs. Some sellers tell their customers they will charge cost plus a specifi ed markup; for ex

ample, aerospace companies often price this way to the government.

To illustrate markup pricing, suppose a toaster manufacturer had the following costs

and expected sales:

Variable cost

Then the manufacturer’s cost per toaster is given by the following:

unit cost variable Cost fi xed costs

$10 $300,000

$16 unit sales 50,000

Now suppose the manufacturer wants to earn a 20 percent markup on sales. The manu

facturer’s markup price is given by the following:8

markup price unit cost $16

$20 (1 desired reture on sales) 1 0.2

The manufacturer would charge dealers $20 per toaster and make a profi t of $4 per

unit. The dealers, in turn, will mark up the toaster. If dealers want to earn 50 percent on the

lent to a of 100 percent ($20/$20).

Does using standard markups to set prices make sense? Generally, no. Any pricing

method that ignores demand and competitor prices is not likely to lead to the best price.

Still, markup pricing remains popular for many reasons. First, sellers are more certain about

costs than about demand. By tying the price to cost, sellers simplify pricing; they do not

dustry use this pricing method, prices tend to be similar, so price competition is minimized.

earn a fair return on their investment but do not take advantage of buyers when buyers’

demand becomes great.

(or a variation called tar

get return pricing). The fi rm tries to determine the price at which it will break even or

make the target return it is seeking.

Experience curve (learning curve)

production cost that comes with

pricing)

FIGURE | 10.4

of Accumulated Production:

320 Part 3 |

Target return pricing uses the concept of a , which shows the total cost

and total revenue expected at different sales volume levels. Figure 10.5

even chart for the toaster manufacturer discussed here. Fixed costs are $300,000 regardless

of sales volume. Variable costs are added to fi xed costs to form total costs, which rise with

volume. The total revenue curve starts at zero and rises with each unit sold. The slope of the

total revenue curve refl ects the price of $20 per unit.

The total revenue and total cost curves cross at 30,000 units. This is the

. At $20, the company must sell at least 30,000 units to break even, that is, for total rev

fi xed cost $300,000

30,000 price variable cost $20 $10

If the company wants to make a profi t, it must sell more than 30,000 units at $20 each.

Suppose the toaster manufacturer has invested $1,000,000 in the business and wants to set a

price to earn a 20 percent return, or $200,000. In that case, it must sell at least 50,000 units at

$20 each. If the company charges a higher price, it will not need to sell as many toasters to

achieve its target return. But the market may not buy even this lower volume at the higher

price. Much depends on price elasticity and competitors’ prices.

probable demand, and profi ts for each. This is done in Table 10.1. The table shows that as

for toasters also decreases (column 3). At the $14 price, because the manufacturer clears only

$4 per toaster ($14 less $10 in variable costs), it must sell a very high volume to break even.

Fixed cost

Total cost

FIGURE | 10.5

Volume

Table 10.1 |

(1) × (3)

(4) (5)

Chapter 10 | Pricing: Understanding and Capturing Customer Value 321 point, and the manufacturer loses money. At the other extreme, with a $22 price, the manu

facturer clears $12 per toaster and must sell only 25,000 units to break even. But at this high

price, consumers buy too few toasters, and profi ts are negative. The table shows that a price of

$18 yields the highest profi ts. Note that none of the prices produce the manufacturer’s target

return of $200,000. To achieve this return, the manufacturer will have to search for ways to

involves setting prices based on competitors’ strategies,

costs, prices, and market offerings. Consumers will base their judgments of a product’s

value on the prices that competitors charge for similar products.

tions. First, how does the company’s market offering compare with competitors’ offerings

in terms of customer value? If consumers perceive that the company’s product or service

provides greater value, the company can charge a higher price. If consumers perceive less

value relative to competing products, the company must either charge a lower price or

change customer perceptions to justify a higher price.

Next, how strong are current competitors and what are their current pricing strategies?

If the company faces a host of smaller competitors charging high prices relative to the value

they deliver, it might charge lower prices to drive weaker competitors from the market. If

For example, 9

With 30 locations and growing, Hot Mama isn’t likely to

win a price war against giants Macy’s or Kohl’s. Instead,

harried moms into loyal patrons, even if they have to pay

a little more. To give busy mothers freedom to shop, Hot

toys, coloring books, video games, and other attractions.

store employees lend a hand as babysitters. Hot Mama em

phasizes service, not prices. Sales employees (the store calls

them “stylists”) complete three demanding certifi cation pro

grams: denim, body type, and maternity. “Our stylists can

outfi t any woman, aged 25 to 65, based on her body the min

ute she walks through the door,” says Hot Mama president

Kimberly Ritzer. However, it’s the personal relationships

that stylists build with customers that make shopping at Hot

Mama really special. “It’s like shopping with a girlfriend.”

What principle should guide decisions about what

price to charge relative to those of competitors? The answer

is simple in concept but often diffi cult in practice: No matter

tain to give customers superior value for that price.

Other Internal and External Considerations Affecting Price Decisions Beyond customer value perceptions, costs, and competitor strategies, the company must

consider several additional internal and external factors. Internal factors affecting pricing

include the company’s overall marketing strategy, objectives, and marketing mix, as well as

other organizational considerations. External factors include the nature of the market and

demand and other environmental factors.

Overall Marketing Strategy, Objectives, and Mix Price is only one element of the company’s broader marketing strategy. So, before setting

price, the company must decide on its overall marketing strategy for the product or service.

clothing boutique Hot Mama isn’t likely to win a price war against

harried moms into loyal patrons. “It’s like shopping with a girlfriend.”

Hot Mama

Objective 3 Identify and defi ne the other

important external and internal

factors affecting a fi rm’s pricing

decisions.

322 Part 3 | Sometimes, a company’s overall strategy is built around its price and value story. For ex

not just from what products you offer customers or from the prices you charge. It comes from

offering the combination of products, prices, and store operations that produces the greatest

customer —what customers get for the prices they pay (see Real Marketing 10.2).

If the company has selected its target market and positioning carefully, then its market

ing mix strategy, including price, will be fairly straightforward. For example, Kohler’s Kal

lista subsidiary offers a line of bath and kitchen fi xtures is positioned for the luxury market.

It “combines passion with a profound sense of aesthetic and functional effi ciency,” with de

signer collections that invite you to “discover” Kallista. Each Kallista product features “ex

a higher price. In contrast, Kohler’s Sterling subsidiary offers more affordable fi xtures that are

“inspired by the realities of life.” Sterling fi xtures are positioned on simplicity, convenience,

positioning calls for charging lower prices.10 Thus, pricing strategy is largely determined by

decisions on market positioning.

Pricing may play an important role in helping to accomplish company objectives at many

levels. A fi rm can set prices to attract new customers or profi tably retain existing ones. It can

set prices low to prevent competition from entering the market or set prices at competitors’

levels to stabilize the market. It can price to keep the loyalty and support of resellers or avoid

government intervention. Prices can be reduced temporarily to create excitement for a brand.

Or one product may be priced to help the sales of other products in the company’s line.

Price decisions must be coordinated with product design, distribution, and promotion

decisions to form a consistent and effective integrated marketing mix program. Decisions

made for other marketing mix variables may affect pricing decisions. For example, a decision

a higher price to cover higher costs. And producers whose resellers are expected to support

and promote their products may have to build larger reseller margins into their prices.

Companies often position their products on price and then tailor other marketing mix

target costing. Target costing reverses the

usual process of fi rst designing a new product, determining its cost, and then asking, “Can

siderations and then targets costs that will ensure that the price is met. For example, when

Honda initially designed the Fit, it began with a $13,950 starting price point and highway

mileage of 33 miles per gallon fi rmly in mind. It then designed a stylish, peppy little car with

costs that allowed it to give target customers those values.

Other companies deemphasize price and use other

marketing mix tools to create positions. Of

ten, the best strategy is not to charge the lowest price

but rather differentiate the marketing offer to make

it worth a higher price. For example, Bang & Olufsen

model goes for almost $100,000. A complete B&O enter

tainment system? Well, you don’t really want to know

the price. But target customers recognize B&O’s very

Some marketers even position their products on

prices, featuring high prices as part of their prod

uct’s allure. For example, Grand Marnier offers a $225

marketed with the tagline “Hard to fi nd, impossible to

pronounce, and prohibitively expensive.” And Titus

Cycles, a premium bicycle manufacturer, features its

Target costing

Pricing that starts with an ideal selling

Positioning on high price: Titus features its lofty prices in its advertising—

“suggested retail price: $7,750.00.”

Titus Bicycles

Chapter 10 | Pricing: Understanding and Capturing Customer Value 323

following of devoted customers who love what they get for the prices they pay.

Michael Nagle/Getty Images USA, Inc.

including special concoctions of gourmet

one food

assortment result in reduced facilities and in

324 Part 3 | Designing a Customer-Driven Strategy and Mix

high prices in its advertising. One ad humorously shows a man giving his girlfriend a “cubic

zirconia” engagement ring so that he can purchase a Titus Vuelo for himself. Suggested retail

price: $7,750.00.

Thus, marketers must consider the total marketing strategy and mix when setting

prices. But again, even when featuring price, marketers need to remember that customers

rarely buy on price alone. Instead, they seek products that give them the best value in terms

of benefits received for the prices paid.

Organizational Considerations Management must decide who within the organization should set prices. Companies han-

dle pricing in a variety of ways. In small companies, prices are often set by top management

rather than by the marketing or sales departments. In large companies, pricing is typically

handled by divisional or product managers. In industrial markets, salespeople may be al-

lowed to negotiate with customers within certain price ranges. Even so, top management

sets the pricing objectives and policies, and it often approves the prices proposed by lower-

level management or salespeople.

In industries in which pricing is a key factor (airlines, aerospace, steel, railroads, oil

companies), companies often have pricing departments to set the best prices or help others

set them. These departments report to the marketing department or top management. Oth-

ers who have an influence on pricing include sales managers, production managers, finance

managers, and accountants.

The Market and Demand As noted earlier, good pricing starts with an understanding of how customers’ perceptions

of value affect the prices they are willing to pay. Both consumer and industrial buyers bal-

ance the price of a product or service against the benefits of owning it. Thus, before setting

prices, the marketer must understand the relationship between price and demand for the

company’s product. In this section, we take a deeper look at the price-demand relationship

Finally, the frugal retailer saves money by

spending almost nothing on advertising, and it

offers no coupons, discount cards, or special

promotions of any kind. Trader Joe’s unique

combination of quirky products and low prices

produces so much word-of-mouth promotion

and buying urgency that the company doesn’t

really need to advertise or price promote. The

closest thing to an official promotion is the com-

pany’s Web site or The Fearless Flyer, a news-

letter mailed out monthly to people who opt

in to receive it. Trader Joe’s most potent pro-

motional weapon is its army of faithful follow-

ers. Trader Joe’s customers have even started

their own fan Web site, www.traderjoesfan

.com, where they discuss new products and

stores, trade recipes, and swap their favorite

Trader Joe’s stories.

Thus, building the right price-value for-

mula has made Trader Joe’s one of the nation’s

fastest-growing and most popular food stores.

Its more than 375 stores in 32 states now reap

annual sales of an estimated $10 billion, more

than double its sales five years ago. Trader

Joe’s stores pull in an amazing $1,750 per

square foot, more than twice the supermarket

industry average. Consumer Reports recently

ranked Trader Joe’s, along with Wegmans, as

the best supermarket chain in the nation.

It’s all about value and price—what you get

for what you pay. Just ask Trader Joe’s regular

Chrissi Wright, found early one morning brows-

ing her local Trader Joe’s in Bend, Oregon.

Chrissi expects she’ll leave Trader Joe’s with

eight bottles of the popular Charles Shaw wine

priced at $2.99 each tucked under her arms.

“I love Trader Joe’s because they let me eat

like a yuppie without taking all my money,” says

Wright. “Their products are gourmet, often en-

vironmentally conscientious and beautiful . . .

and, of course, there’s Two-Buck Chuck—

possibly the greatest innovation of our time.”

Sources: Quotes, extracts, and other information from Glenn Llopis, “Why Trader Joe’s Stands Out from All the Rest

in the Grocery Business,” Forbes, September 5, 2011, http://www.forbes.com/sites/glennllopis/2011/09/05/why-

trader-joes-stands-out-from-all-the-rest-in-the-grocery-business/; Shan Li, “Trader Joe’s Tries to Keep Quirky Vibe as

It Expands Quickly,” Los Angeles Times, October 26, 2011; Alicia Wallace, “Crowded Boulder Grocery Field Awaits

Trader Joe’s,” McClatchy-Tribune Business News, January 30, 2012; Anna Sowa, “Trader Joe’s: Why the Hype?”

McClatchy-Tribune Business News, March 27, 2008; Beth Kowitt, “Inside the Secret World of Trader Joe’s,” Fortune,

August 23, 2010, pp. 86–96; “SN’s Top 75 Retailers & Wholesalers 2012,” Supermarket News, http://supermarket-

news.com/top-75-retailers-wholesalers-2012; and www.traderjoes.com, accessed September 2012.

Chapter 10 | Pricing: Understanding and Capturing Customer Value 325 and how it varies for different types of markets. We then discuss methods for analyzing the

Pricing in Different Types of Markets The seller’s pricing freedom varies with different types of markets. Economists recognize

four types of markets, each presenting a different pricing challenge.

Under , the market consists of many buyers and sellers trading in a uni

form commodity, such as wheat, copper, or fi nancial securities. No single buyer or seller has

much effect on the going market price. In a purely competitive market, marketing research,

product development, pricing, advertising, and sales promotion play little or no role. Thus,

sellers in these markets do not spend much time on marketing strategy.

Under , the market consists of many buyers and sellers who

trade over a range of prices rather than a single market price. A range of prices occurs be

cause sellers can differentiate their of

fers to buyers. Because there are many

competitors, each fi rm is less affected

by competitors’ pricing strategies than

in oligopolistic markets. Sellers try to

develop differentiated offers for differ

ent customer segments and, in addition

to price, freely use branding, advertis

ing, and personal selling to set their

offers apart. Thus, Honda sets its

Odyssey minivan apart through strong

branding and advertising, reducing the

“Van of Your Dreams” advertisements

tell parents “the new Odyssey has ev

erything one would dream about in a

van, if one had dreams about vans.”

Beyond the standard utility features

you’d expect in a van, Honda tells them,

you’ll also fi nd yourself surrounded by

a dazzling array of technology, a mar

vel of ingenuity. “Hook up your MP3

player and summon music like a rock

god. Call out a song name and it plays

through an audio system that can split

the heavens!”

Under , the market consists of only a few large sellers. For

80 percent of the U.S. wireless service provider market. Because there are few sellers, each

seller is alert and responsive to competitors’ pricing strategies and marketing moves. In

a , the market is dominated by one seller. The seller may be a government

monopoly (the U.S. Postal Service), a private regulated monopoly (a power company), or

a private unregulated monopoly (De Beers and diamonds). Pricing is handled differently

in each case.

Each price the company might charge will lead to a different level of demand. The re

lationship between the price charged and the resulting demand level is shown in the

demand curve in Figure 10.6. The demand curve shows the number of units the

market will buy in a given time period at different prices that might be charged. In

the normal case, demand and price are inversely related—that is, the higher the price,

the lower the demand. Thus, the company would sell less if it raised its price from P1 to P2. In short, consumers with limited budgets probably will buy less of something if its price is too high.

Pricing in monopolistic competition: Honda sets its Odyssey minivan apart through

Your Dreams” ads tell parents “the new Odyssey has everything one would dream about in

a van, if one had dreams about vans.”

Print advertisement provided courtesy of American Honda Motor Co., Inc.

Demand curve

326 Part 3 |

dinners from $1 to $1.25, consumers turned up their noses to the higher price. Sales dropped,

forcing ConAgra to sell off excess dinners at discount prices. It turns out that “the key compo

back to a buck a dinner. To make money at that price, ConAgra is doing a better job of manag

ing costs by shrinking portions and substituting less expensive ingredients for costlier ones.

Consumers are responding well to the brand’s efforts to keep prices down. After all, where else

can you fi nd dinner for $1?

Most companies try to measure their demand curves by estimating demand at differ

ent prices. The type of market makes a difference. In a monopoly, the demand curve shows

the total market demand resulting from different prices. If the company faces competition,

its demand at different prices will depend on whether competitors’ prices stay constant or

change with the company’s own prices.

Price Elasticity of Demand Consider the two demand curves in Figure 10.6. In Figure 10.6A, a price increase from P1 to P2 leads to a relatively small drop in demand from Q1 to Q2. In Figure 10.6B, however, the same price increase leads to a large drop in demand from Q'1 to Q'2. If demand hardly changes with a small change in price, we say the demand is . If demand changes greatly, we say the

demand is . The price elasticity of demand is given by the following formula:

price elasticity of demand

% change in price

Suppose demand falls by 10 percent when a seller raises its price by 2 percent. The price

elasticity of demand is therefore –5 (the minus sign confi rms the inverse relation between

price and demand), and demand is elastic. If demand falls by 2 percent with a 2 percent in

crease in price, then elasticity is –1. In this case, the seller’s total revenue stays the same: The

seller sells fewer items but at a higher price that preserves the same total revenue. If demand

falls by 1 percent when price is increased by 2 percent, then elasticity is—, and demand is

inelastic. The less elastic the demand, the more it pays for the seller to raise the price.

What determines the price elasticity of demand? Buyers are less price sensitive when

substitutes; and the total expenditure for a product is low relative to their income or when

the cost is shared by another party.12

If demand is elastic rather than inelastic, sellers will consider lowering their prices. A lower

price will produce more total revenue. This practice makes sense as long as the extra costs of

producing and selling more do not exceed the extra revenue. At the same time, most fi rms want

to avoid pricing that turns their products into commodities. In recent years, forces such as dips

in the economy, deregulation, and the instant price comparisons afforded by the Internet and

other technologies have increased consumer price sensitivity, turning products ranging from

phones and computers to new automobiles into commodities in some consumers’ eyes.

Marketers need to work harder than ever to differentiate their offerings when a dozen

competitors are selling virtually the same product at a comparable or lower price. More

Price elasticity

Price and demand are related—no big surprise there. Usually, higher prices result in lower demand. But in the case of some prestige goods, the relationship might be reversed. A higher price signals higher quality and status, resulting in more demand, not less.

FIGURE | 10.6

Chapter 10 | Pricing: Understanding and Capturing Customer Value 327 than ever, companies need to understand the price sensitivity of their customers and the

The Economy Economic conditions can have a strong impact on the fi rm’s pricing strategies. Economic

factors such as a boom or recession, infl ation, and interest rates affect pricing decisions

because they affect consumer spending, consumer perceptions of the product’s price and

value, and the company’s costs of producing and selling a product.

ers will likely continue their thriftier ways well beyond any economic recovery. As a result,

The most obvious response to the new economic realities is to cut prices and offer

discounts. Thousands of companies have done just that. Lower prices make products more

brand in consumers’ eyes. And once a company cuts prices, it’s diffi cult to raise them again

when the economy recovers.

Rather than cutting prices, many companies have instead shifted their marketing focus

Home Depot’s more recent advertising pushes items like potting soil and hand tools under

the tagline: “More saving. More doing. That’s the power of Home Depot.”

Other companies are holding prices but redefi ning the “value” in their value proposi

tions. Consider upscale grocery retailer Whole Foods Market:

items to upscale customers who were willing and able to pay more for

the extra value they got. Then came the Great Recession of 2008, and

even relatively affl uent customers began cutting back and spending less.

it hold the line on its premium price positioning, or should it cut prices

and reposition itself to fi t the leaner times? Whole Foods decided to stick

its value proposition. Rather than dropping everyday prices across the

board, Whole Foods lowered prices on selected basic items and offered

At the same time, however, Whole Foods Market launched a new

marketing program that did more than simply promote more afford

able merchandise. It convinced shoppers that, for what you get, Whole

Foods’s regular products and prices offer good value as well. When it

assigned workers to serve as “value tour guides” to escort shoppers

around stores and point out the value in both sale and regular items.

As one tour guide notes, “Value means getting a good exchange for

your money.” As a result of subtle shifts in its value strategy, Whole

meeting the challenges of more frugal times in a way that preserves all

the things that have made it special to customers through the years.13

Remember, even in tough economic times, consumers do not buy based on prices alone. They

balance the price they pay against the value they receive. For example, according to one survey,

despite selling its shoes for as much as $150 a pair, Nike commands the highest consumer loyalty

of any brand in the footwear segment.14 Customers perceive the value of Nike’s products and the

Nike ownership experience to be well worth the price. Thus, no matter what price they charge—

low or high—companies need to offer great .

Other External Factors Beyond the market and the economy, the company must consider several other factors

in its external environment when setting prices. It must know what impact its prices will

have on other parties in its environment. How will react to various prices? The

When the economy dipped, rather than cutting everyday

prices, Whole Foods set out to convince shoppers that it was,

in fact, an affordable place to shop. It even assigned workers to

serve as “value tour guides,” like the one shown here, to escort

shoppers around stores pointing out value items.

328 Part 3 |

Answer the question “What

is a price?” and discuss the

environment.

Price

Despite the increased role of nonprice factors in the modern

Identify the three major pricing

strategies and discuss the

perceptions, company costs, and competitor

strategies when setting prices.

Companies can choose from three major pricing strate

uses

and

must either charge a lower price or change customer perceptions

Reviewing Objectives and Key Terms

Objective 1

Objective 2

company should set prices that give resellers a fair profi t, encourage their support, and

help them to sell the product effectively. The is another important external in

fl uence on pricing decisions. Finally, may need to be taken into account. In

be tempered by broader societal considerations. We will examine public policy issues in

pricing in Chapter 11.

Chapter 10 | Pricing: Understanding and Capturing Customer Value 329 Identify and defi ne the other

important internal and external

factors affecting a fi rm’s pricing decisions.

Other internal

Other external pricing considerations include the nature of

Objective 3

Objective 1 Price (p 312)

Objective 2

Objective 3

Fixed costs (overhead) (p 318)

Variable costs (p 318)

Total costs (p 318)

Experience curve (learning curve) (p 319)

pricing) (p 319)

Target costing (p 322)

Price elasticity (p 326)

Discussion and Critical Thinking

Discussion Questions

2. Compare and contrast and

4. What is target costing and how is it different from the usual

330 Part 3 | Designing a Customer-Driven Strategy and Mix

Applications and Cases

Marketing Technology Cheap Gas It seems a day doesn’t go by without some talk about gas prices.

Consumers are more keenly aware of the price now that it costs

$40 to $100 to fill up the tank. And many consumers are using

technology to help find the lowest prices in their area. While there

have been Web sites available that map gas prices by zip code,

smartphone apps such as GasBuddy, Fuel Finder, and Cheap

Gas and in-car navigation systems such as Garmin and Waze put

price information at drivers’ fingertips while on the road. That’s

because these systems are based on a driver’s actual location

based on GPS positioning information. This is an example of

crowdsourcing information, because these apps and systems

rely on volunteers to update prices.

1. Discuss the pros and cons of gas finder apps from the con- sumer’s viewpoint and the gas retailer’s viewpoint. Do you

think they have any impact on gas prices? Explain. (AACSB:

Communication; Reflective Thinking)

Marketing Ethics You’ve Been Crammed!

Marketing by the Numbers Kei Cars

Have you ever tried to figure out what all those charges are on a

phone bill? Not all of them are from your phone service provider.

A study by a Congressional committee reported that $2 billion

a year in “mystery fees” appear on consumers’ landline phone

bills—a practice called “cramming.” It is illegal for a phone com-

pany or a third party to tack unauthorized fees onto landline

phone bills, but it is still happening. That prompted the Federal

Communications Commission to propose new rules requiring

companies to disclose charges more clearly so consumers can

spot them. The agency would like to see the fees listed in a sepa-

rate section of customers’ bills that will also include the FCC’s

contact information for filing complaints. The problem is creeping

into wireless phone bills as well, and the agency also proposed

that companies should provide alerts to wireless customers

when they are approaching their monthly voice and data limits.

Do you remember what happened the first time you exceeded

The U.S. government fuel-economy regulations require carmak-

ers to achieve a fleet average of 54.5 miles per gallon by 2025.

Smaller vehicles can help car companies meet those standards.

Tiny vehicles in Japan, known as kei cars (from “kei-jidosha” or

“light automobile”), achieve 55 mpg ratings. Kei cars are not new

in Japan. They began as a tax and insurance break to stimulate

the Japanese economy after World War II. However, the typical

kei buyer in Japan is close to 50 years old, causing concern for

Japanese automakers focusing only on the Japanese market.

The U.S. regulations provide an opportunity for these automo-

biles in America. However, profit margins are almost as tiny as the

cars themselves, causing carmakers to wonder if they can make

an adequate profit when exporting to the United States. Of the

big-three Japanese carmakers—Honda, Toyota, and Nissan—

Honda is the only one making kei cars. It is considering bringing

its new Honda NBox to the United States. Its closest competitor

your texting limit. If you don’t, and if your parents paid the bill,

they do remember!

1. Look at a phone bill for the same service over several months. How does the service provider price this service? Do you

see any suspicious charges, such as any of those listed by

the FCC at www.ftc.gov/bcp/edu/pubs/consumer/products/

pro18.shtm? Suggest ways to price this service that will make

it easier for customers to understand but also allow the com-

pany to make a reasonable profit. (AACSB: Communication;

Reflective Thinking)

2. How can a third-party vendor place a charge on a phone bill, authorized or unauthorized? Do phone companies benefit

from allowing third-party vendor billing? Research this issue

and discuss whether or not this should be allowed. (AACSB:

Communication; Reflective Thinking; Ethical Reasoning)

would be Daimler’s Smart car, which made a profit of $108.3 mil-

lion on sales of $10.7 billion in the United States last year. Smart

cars sell for around $13,000 but seat only two people. In com-

parison, Honda’s NBox holds four people and would be priced at

$16,000, making it an alternative for small-car-minded families.

To answer the following questions, refer to Appendix 2, Marketing

by the Numbers.

1. What is the profit margin for the Smart car? (AACSB: Com- munication; Analytical Reasoning)

2. If the unit variable cost for each NBox is $14,000 and the Honda has fixed costs totaling $20 million for this car, how

many NBox cars must Honda sell to break even? How many

must it sell to realize a profit margin similar to that of the Smart

car? (AACSB: Communication; Analytical Reasoning)

Chapter 10 | Pricing: Understanding and Capturing Customer Value 331

Video Case Smashburger Hamburgers are America’s favorite food. Consumers spend more

than $100 billion on the beef sandwiches every year. But despite

America’s infatuation with burgers, there is often considerable dis-

satisfaction among consumers based on hamburger quality and

value. Many customers just aren’t happy with what is served up

at market-leading fast-food outlets. They want a better burger,

and they won’t hesitate to pay a higher price to get one. Enter

Smashburger. Started just a few years ago in Denver, Colorado,

Smashburger is now a rapidly expanding nationwide chain. And

all this growth started during a severe economic downturn de-

spite Smashburger’s average lunch check of $8. Many customers

pay as much as $10 or $12 for a burger, fries, and shake. The

Smashburger video shows how this small startup employed pricing

strategy to pull off a seemingly impossible challenge. After viewing

the video featuring Smashburger, answer the following questions:

1. Discuss the three major pricing strategies in relation to Smash- burger. Which of these three do you think is the company’s

core strategic strategy?

2. What effect does Smashburger’s premium price have on con- sumer perceptions? How did a restaurant with a premium-

priced product and little track record take off during a recession?

3. Is Smashburger’s success based on novelty alone or will it continue to succeed?

Company Case This case study examines the pricing strategy of Cath Kidston,

one UK-based company that sells furnishings, home and per-

sonal accessories as well as clothes, operating mainly in the UK,

Europe and Asia regions.

How much are you willing to pay for a key ring? The market

price charges just a bit more than $1. But would you pay $2 for

a comparable product? How about $7? A low-price strategy is

often used by companies if their products are not well differenti-

ated. Although a low-price strategy might seem attractive, espe-

cially in an economic downturn, some companies are focusing

on creating value for customers and adopting customer-value-

added pricing strategy. Cath Kidston Ltd is one UK-based com-

pany that understands that sometimes it pays to charge more.

Cath Kidston’s key rings sells for roughly $7 to $9.50, whereas

the market price charges less than a third of that. To understand

how Cath Kidston has succeeded with this pricing strategy, let’s

look at what makes the brand so special.

The cheery colors and fun patterns Cath Kidston created al-

lows it not to focus on price-sensitive market segments but in-

stead lure customers with a value-added pricing strategy. It is

important for a brand to create something that people respond

to with their hearts, which is a sure-fire way to breed success for

a brand. Cath Kidston is one of the brands that is confident in its

design style and fun in its character.

From Humble Beginnings Cath Kidston Ltd was founded in 1993 when designer Cath

Kidston opened a tiny shop in London’s Holland Park with a

$23,800 investment in her business, selling towels, vintage

f abrics and wallpaper, and brightly painted “junk’ furniture she

remembered fondly from her childhood. Cath Kidston’s cleaver

re-working of traditional English country style made her tiny shop

soon become a cult success. Today, the brand carries a wide

product range, everything from furnishings, crockery, cutlery,

cloths, toys, china, bed linen, and bags, to women’s and chil-

dren’s wear and accessories, charging price premiums that fans

are gladly paying.

In 2012, Cath Kidston had 57 shops and concessions in

the UK, 2 in Ireland, 27 in Japan, 7 in South Korea, 3 in Thai-

land, and 1 in Taiwan. The business is also driven by successful

web, mail-order, and wholesale divisions, with UK, Euro, and US

transactional Web sites. Cath Kidston has become a powerhouse

of British design and retail, up there with the likes of Burberry and

Pringle.

Design is core part of Cath Kidston’s brand. However, it is more

than the vintage-inspired patterns and the stunning shop interiors.

Walk into any Cath Kidston shop and you are able to “experience”

the brand that other retail shops do not offer. And this “experi-

ence” permeates Cath Kidston’s Web sites and all of its printed

communications. If you are a fan, you can feel the essence of the

brand in every aspect. In color psychology terms, Cath Kidston is

pure spring—fun, creative, warm, inspiring, and young, adding a

splash of color and vintage charm to a routine day.

Cath Kidston not only offers a wide product range but is actu-

ally a lifestyle store. You can buy almost everything for your home,

children, or yourself. The broad product range maximizes the

brand’s appeal and means that it works for both gift and personal

purchases. Cath Kidston allows its brand personality (fun and

brightness) to shine through its brand identity (colors and typog-

raphy), hence becoming a brand consumers can fall in love with.

Value versus Price In certain respects, cross-comparing personal products such as

key rings can be problematic, because there is so much varia-

tion in both features and price. But consider some popular Cath

Kidston products. Its scarfs sell for roughly $76, whereas compa-

rable products from apparel retailers such as Marks & Spencer or

Monsoon range from roughly $20 to $55. Cath Kidston’s plastic-

coated fabric bags sell from roughly $47 to $119 whereas other

apparel retailers only charge similar prices for their leather bags.

The fantasy of the English country childhood that Cath Kidston

creates for customers enables the brand to charge price premi-

ums as compared to competitors, such as John Lewis, Marks &

Spencer, and Monsoon. For the fans of Cath Kidston, her prod-

ucts excite them in a way that IKEA and other competitors cannot

hope to grasp.

In terms of competition, in the product category of home ac-

cessories, Cath Kidston competes directly with UK retailers like

John Lewis and Marks & Spencer. In the clothing category, ap-

parel retailers such as Monsoon and Marks & Spencer are the

key competitors of Cath Kidston, while it competes with retailers

like IKEA in the furniture category. Compare to the above main

Cath Kidston: Nostalgic Fantasy That Creates Value for Consumers

332 Part 3 | Designing a Customer-Driven Strategy and Mix Spotting the brand’s potential to expand in all directions, Cath

Kidston embarked on a series of collaborations, including a range

of mobile phones for Nokia, eco-bags for the UK supermarket

chain Tesco, a flower-covered Sky TV box, tents for Millets, and

radios for the retro-styled Roberts range. To the fans of Cath

Kidston, the brand offers them a dream of a simpler and nicer

world that make them think of happy childhoods, homemade

cakes, picnics, and the seaside.

In 2010, Cath Kidston became the subject of a high-profile

buyout, when a $159 million deal saw the sale of Cath Kidston

Ltd to a newly incorporated company owned by the US private

equity firm TA Associates. Cath Kidston Ltd had an equality sale

valuing it at $119 million, while the funder and designer Cath

Kidston retained her remaining 30 percent share valued at $39.75

million, and continued her design role for the brand.

Pressing on with Price Premiums The core idea of Cath Kidston brand is a product-centric strat-

egy. The control and expansion of the brand to a wider product

range is still the focus after the shifting of company ownership.

The product-centric concept of a brand is a business model that

embodies perhaps the most essential brand ingredient for busi-

ness success: simplicity. Cath Kidston Ltd is far from resting and

is looking for further business expansion, with plans to open 50

shops in Japan and the Far East, including China, Hong Kong,

and South Korea. The brand is pressing on with its nostalgic de-

signs that create value for its customers, justifying the premium

price of its products.

Questions for Discussion 1. Does Cath Kidston’s pricing strategy truly differentiate it from

the competition?

2. Has Cath Kidston executed value-based pricing, cost-based pricing, or competition-based pricing? Explain.

3. Could Cath Kidston have been successful as a design-fo- cused product marketer had it employed a low-price strategy?

Explain.

4. Is Cath Kidston’s pricing strategy sustainable? Explain.

Sources: Beth Hale, “Cath Kidston to Pocket £50m from Sale of Brand 20 Years after Shop Assistant Created Famous Nostalgic Designs,” Daily

Mail, February 23, 2010, www.dailymail.co.uk/femail/article-1252954/

Cath-Kidston-pocket-30m-sale-brand-20-years-shop-assistant-

created-famous-nostalgic-designs.html; Kathryn Hopkins, “Designer

Cath Kidston in Deal to Sell off Her Retail Empire,” Guardian, March 7,

2010, www.guardian.co.uk/business/2010/mar/07/cath-kidston-private-

equity-buyout; Rachel Porter, “The REAL Domestic Goddess: How Cath

Kidston Is Conquering the World with Her Floral and Polka Dot Designs,”

Daily Mail, August 11, 2009, www.dailymail.co.uk/femail/article-1205665/

The-REAL-domestic-goddess-How-Cath-Kidston-conquering-world-

floral-polka-dot-designs.html; and other information from http://www

.cathkidston.co.uk/.

competitors, the weakness of Cath Kidston is its product offer-

ings are still relatively limited and narrow. However, Cath Kidston’s

unique strength is the product design offers its customers strong

personal statement and identify that other competitors found

hard to achieve. The biggest challenge of Cath Kidston brand is

to continue its success with the traditional English country style

and fun brand character, while satisfying its loyal customers with

innovative product design and product line extension.

Retro Brands in Hard Times Given the harsh economic climate, you might expect to see the

cheerful floral prints that made Cath Kidston a household name

withering a little. However, Cath Kidston has survived the reces-

sion very well, selling the retro-styling and a rose-tinted antidote

to an uncertain world in the uncertain economic climate. The

brand is now a seemingly recession-proof “global lifestyle brand.”

In 2009, while other brands were chalking up serious losses due

to the economic downturn, Cath Kidston saw profits leap by

60 percent, and sales rose from roughly $30 to $49 million. The

reason for this phenomenon is that in these uncertain times, con-

sumers, although cash-conscious, have an appetite for nostalgia.

The products of Cath Kidston fulfill consumer needs for value and

meaning, because they are inspired by a comforting and familiar

1950s aesthetic.

For Cath Kidston, its premium pricing strategy coincided with

a trend of consumer preference toward nostalgia, which seemed

to provide comfort in the time of recession. Thus, the value de-

rived from Cath Kidston products was enough to justify the high

prices for many of its products. In an economic downturn, con-

sumers want a bit of security and comfort, and this trend shows

in the recession of the 1990s and today. UK retailers such as

Asda reported a surge in sales of nostalgic brands, as people

seem to look back to their childhood in an attempt to cheer them-

selves up. Consumers want the comfort and security that retro

brands can give them, reminding them of their childhoods and

even their parents’ childhoods.

In times of economic downturn, people are worried about the

credit crunch and losing jobs, and thus brands that act as an

antidote to anxiety will do well. A lot of people didn’t see the most

recent economic crisis coming, and that makes them nervous

about looking forward. The reflex is to seek comfort in things that

reference the past. Also, as people stay at home more in a reces-

sion time to reduce consumption, stylish home comforts become

more important, which also helps explain why Cath Kidston has

done well in hard times.

Cath Kidston is conquering the world with her floral and polka

dot designs, and it is not surprising to see how such a power-

ful brand can divide people. Consumers either love it or hate it.

For those who hate it, the products of Cath Kidston look like the

junk from a late granny’s attic. However, as the key target audi-

ences of Cath Kidston are 30- to 40-year-old middle-class work-

ing women, their strong purchasing power sustains the growth

of the brand.

Chapter 10 | Pricing: Understanding and Capturing Customer Value 333 References 1. “The Air Arabia,” www.oxbridgewriters.com/essays/marketing/

the-air-arabia.php, accessed November 17, 2012; “News Details: Air

Arabia, 2012, www.airarabia.com/news-details?nid=149&ppage=,

accessed November 17, 2012; “Air Arabia,” 2012, http://up.m-e-

c.biz/up/Mohcine/Report/AirArabia-Update-052009.pdf, accessed

November 17, 2012;“Customer Relations: Air Arabia,” 2012, www

.airarabia.com/customer-relations, accessed November 17, 2012;

“First Air Arabia City Terminal Check-in Opens in Dubai,” Air Arabia,

AMEinfo.com, 2012, www.ameinfo.com/air-arabia-city-terminal-

check-in-dubai-310935, accessed November 17, 2012; “Air Arabia

First Quarter 2012 Net Profit Rises 11% to Dh49.2 Million,” GulfNews

.com, May 6, 2012, http://gulfnews.com/business/aviation/air-arabia-

first-quarter-2012-net-profit-rises-11-to-dh49-2- million-1.1019015;

“Air Arabia Profit Jump 126%,” Emirates 24/7, hwww.emirates247

.com/business/corporate/air-arabia-profit-jump-126-2012-11-12-1

.482798, accessed November 17, 2012; “Air Arabia Reports An-

other Six Months of Profit and Consistent Growth,” CAPA—Centre

for Aviation, 2012, http://centreforaviation.com/analysis/air-arabia-

reports-another-six-months-of-profit-and-consistent-growth-80768,

accessed November 17, 2012; and “Air Arabia Logs 126% Jump

in Net Profit in Q3,” Saudi Gazette, November 17, 2012, www

.saudigazette.com.sa/index.cfm?method=home.regcon&conten

tid=20121117143094.

2. For more on the importance of sound pricing strategy, see Thomas T. Nagle, John Hogan, and Joseph Zale, The Strategy and Tactics of

Pricing: A Guide to Growing More Profitably, 5th ed. (Upper Saddle

River, NJ: Prentice Hall, 2011), Chapter 1.

3. Based on information from Anne Marie Chaker, “For a Steinway, I Did It My Way,” Wall Street Journal, May 22, 2008, www.wsj.com;

Brett Arends, “Steinway & Sons: A Grand Investment?” Smart-

Money, March 20, 2012, www.smartmoney.com/invest/stocks/

steinway--sons-a-grand-investment-1332195987741/; and www

.steinway.com/steinway and www.steinway.com/steinway/quotes

.shtml, accessed November 2012.

4. See Christine Birkner, “Marketing in 2012: The End of the Middle?” Marketing News, January 31, 2012, pp. 22–23.

5. See Philip Kotler and Kevin Lane Keller, Marketing Management, 14th ed. (Upper Saddle River, NJ: Prentice Hall, 2012), p. 158.

6. Maria Puente, “Theaters Turn Up the Luxury,” USA Today, March 12, 2010, p. 1A; ““Expansion Ahead for iPic Entertainment: Two New Vi-

sionary Movie Theater Escapes Announced for Boca Raton and Hal-

landale, Florida,” Business Wire, February 16, 2012; and information

from www.amctheatres.com/dinein/cinemasuites/, accessed No-

vember 2012.

7. Accumulated production is drawn on a semilog scale so that equal distances represent the same percentage increase in output.

8. The arithmetic of markups and margins is discussed in Appendix 2, Marketing by the Numbers.

9. Stephanie Schomer, “How Retailer Hot Mama Is Rethinking Shop- ping for Moms,” Fast Company, February 2011, pp. 40–41; Joyce

Smith, “New to Leawood, Hot Mama Offers Designer Clothes for

Moms,” Kansas City Star, March 26, 2012; and www.shopmama

.com, accessed November 2012.

10. See www.kohler.com and www.sterlingplumbing.com, accessed November 2012.

11. Adapted from information found in Joseph Weber, “Over a Buck for Dinner? Outrageous,” BusinessWeek, March 9, 2009, p. 57; and

Tom Mulier and Matthew Boyle, “Dollar Dinners from ConAgra’s

Threatened by Costs,” Bloomberg BusinessWeek, August 19, 2010,

accessed at www.businessweek.com.

12. See Nagle, Hogan, and Zale, The Strategy and Tactics of Pricing, Chapter 7.

13. For more information, see Annie Gasparro, “Whole Foods Aims to Alter ‘Price Perception’ as It Expands,” Wall Street Journal, February

15, 2012; Ben Fox Rubin, “Whole Foods’ Profit Rises 33%,” Wall

Street Journal, February 8, 2012; and www.wholefoodsmarket.com,

accessed September 2012.

14. Kenneth Hein, “Study: Value Trumps Price among Shoppers,” Ad- week, July 1, 2010, www.adweek.com/news/advertising-branding/

study-value-trumps-price-among-shoppers-94611. See also Erik

Seimers, “Nike Sales Up 18% as Demand Trumps Higher Costs,”

Portland Business Journal, December 20, 2011, www.bizjournals

.com/portland/news/2011/12/20/nike-boosts-q2-sales-profits-as

.html.

Why is Panera Bread so successful? Unlike many competi-

tors in the post–Great Recession era, Panera isn’t about having

the lowest prices. Instead, it’s about the value you get for what

you pay, and what you get is a full-value dining experience.

At Panera, it all starts with the food, which centers around

fresh-baked bread. When customers walk through the door, the

first thing they see is massive displays of bread, all hand-formed

and baked on-site. Bakers pass out warm bread samples to cus-

tomers throughout the day. All new employees get “dough train-

ing,” and even employee meetings start with the staff breaking

bread together—literally. Bread is so central to Panera’s DNA

that the company’s research and development (R&D) team will

scrap new dishes if the bread feels like an afterthought.

Of course, the food at Panera goes well beyond bread. Fresh

bagels, pastries, egg soufflés, soups, salads, sandwiches, and

Part 1: Defining Marketing and the Marketing Process (Chapters 1–2)

Part 2: Understanding the Marketplace and Consumers (Chapters 3–6)

Part 3: Designing a Customer-Driven Strategy and Mix (Chapters 7–17)

Part 4: Extending Marketing (Chapters 18–20)

Pricing Strategies Additional Considerations11

Chapter Preview In the previous chapter, you

learned that price is an impor-

tant marketing mix tool for both creating and capturing customer

value. You explored the three main pricing strategies—customer

value-based, cost-based, and competition-based pricing—and

the many internal and external factors that affect a firm’s pricing

decisions. In this chapter, we’ll look at some additional pricing

considerations: new-product pricing, product mix pricing, price

adjustments, and initiating and reacting to price changes. We

close the chapter with a discussion of public policy and pricing.

For starters, we look at Panera Bread Company, the fast-casual

restaurant chain where value means a lot more than just low prices.

At Panera, value means wholesome food and fresh-baked bread,

served in a warm and inviting environment, even if you have to pay

a little more for it. Adding value and charging accordingly has paid

off handsomely for Panera, through bad economic times and good.

Panera Bread Company: Value Isn’t Just about Low Prices

I n the restaurant business these days, value typically

means one thing—cheap. Today’s casual restaurants are

offering a seemingly endless hodgepodge of value meals,

dollar items, budget sandwiches, and rapid-fire promo-

tional deals that scream “value, value, value.” But one everyday

eatery—Panera Bread—understands that, even when finances

are tight, low prices often aren’t the best value. Instead, at

Panera, value means wholesome food and fresh-baked bread,

served in a warm and inviting environment, even if you have

to pay a little more for it. Ronald Shaich, founder and execu-

tive chairman of Panera, sums up this value-added concept per-

fectly. “Give people something of value and they’ll happily pay

for it,” he says.

Shaich realized 30 years ago that people wanted something

between fast food and casual dining. He perfected the “fast-

casual” dining formula—fancier than fast-food but cheaper

than sit-down restaurants—and opened Panera (Span-

ish for “bread basket”). The fast-casual cate-

gory is the only segment of the restaurant

industry that grew during the past

five years; the bakery-café concept

(which Shaich practically created)

has grown fastest. And Panera

does bakery-café better than any-

one else. In fact, Panera’s $1.8 billion

in sales more than doubles the combined

sales of its next four competitors.

Panera Bread Company knows that

low prices often aren’t the best value. Instead, at Panera, value means wholesome food, served in a

warm and inviting environment, even if you have to pay a little more for it.

Chapter 11 | Pricing Strategies: Additional Considerations 335

Panera Bread understands

that low prices often

aren’t the best value.

Says Panera CEO Ronald

Shaich, “Give people

something of value and

they’ll happily pay for it.”

Associated Press

good. At a time when most chains,

including those that slashed their

prices, struggled and closed stores,

Panera fl ourished. Over the past

fi ve years, its sales have nearly

tripled; profi ts have more than

doubled. And according to one

restaurant analyst, “There’s no end

in sight to their growth. They’ve

delivered on consumers’ value

company is on a roll and has no plans to let up, boosting its pro

motional budget by 26 percent for the coming year.

Although everyone wants value, Shaich says, not every

one wants it in the form of a value meal. Anne Skrodzki, a

think it’s a pretty good value. The portions are generous. The

a recent ad campaign, Shaich claims that Panera is “a place with 1

paninis, as well as coffee drinks and

smoothies, give customers full meal

options at any time of day. Menu

items brim with upscale ingredients

such as Gorgonzola cheese, fresh

basil, tomato aioli, caramelized on

work than fast food. “We hit a chord

with people who understand and

chief concept offi cer. Our profi le

is “closer to what you’d fi nd in a

to all that good food, Panera adds

years running, Panera has rated

among BusinessWeek

outstanding service are only part of

Perhaps even more important is the

has become a kind of community gathering spot. At any given

moment, you’ll fi nd a diverse group of customers hanging out

together for a variety of reasons. One recent sample included a

nesspeople with laptops, a teacher grading papers, a church

group engaged in Bible study, and a baker’s dozen of couples

and families just enjoying each others’ company. Shaich knows

that, although the food’s important, what he’s really selling is

Even during the Great Recession, rather than cutting back

on value and lowering prices in diffi cult times, Panera boosted

mained a driving force. Shaich improved the freshness of lettuce

by cutting the time from fi eld to plate in half and using only

the hearts of romaine. Store ovens began producing warm bread

throughout the day, rather than just in the wee hours of the

morning. And the chain’s development labs tested a new grill

that churned out paninis in half the time. “This was the time to

increase the food experience, when the customer least expected

Panera’s strategy of adding value and charging accord

ingly has paid off handsomely, through bad economic times and

336 Part 3 |

As we learned in the previous chapter, pricing decisions are subject to a complex array of company, environmental, and competitive forces. To make things even more complex, a

company does not set a single price but rather a pricing structure that covers different items in its line. This pricing structure changes over time as products move through their life

cycles. The company adjusts its prices to refl ect changes in costs and demand and to ac

count for variations in buyers and situations. As the competitive environment changes, the

company considers when to initiate price changes and when to respond to them.

This chapter examines additional pricing approaches used in special pricing situations

and adjusting prices to meet changing situations. We then look at for

products in the introductory stage of the product life cycle, for related

products in the product mix, that account for customer differences

and changing situations, and strategies for initiating and responding to price changes.2

Pricing strategies usually change as the product passes through its life cycle. The intro

challenge of setting prices for the fi rst time. They can choose between two broad strategies:

and .

Many companies that invent new products set high initial prices to revenues layer by

layer from the market. Apple frequently uses this strategy, called

ing (or price skimming). When Apple fi rst introduced the iPhone, its initial price was as

Objective 1 Describe the major strategies for

pricing new products.

skimming)

Setting a high price for a new product to

Objective Outline

Objective 1 Describe the major strategies for pricing new products.

Objective 2 Explain how companies fi nd a set of prices that maximizes the profi ts from the total product mix.

Product Mix Pricing Strategies

Objective 3 Discuss how companies adjust their prices to take into account different types of customers and situations.

Objective 4 Discuss the key issues related to initiating and responding to price changes.

Price Changes

Objective 5 Overview the social and legal issues that affect pricing decisions.

Public Policy and Marketing

Chapter 11 | Pricing Strategies: Additional Considerations the sleek new gadget and could afford to pay a high price for it. Six months later, Apple

of revenue from the various segments of the market.

ity and image must support its higher price, and enough buyers must want the product

at that price. Second, the costs of producing a smaller volume cannot be so high that they

market easily and undercut the high price.

Rather than setting a high initial price to skim off small but profi table market segments,

some companies use

penetrate win a large market share. The high sales volume results in falling costs, allowing companies

in 2002, people crowded in but not to

stopped by to lounge around, enjoy the

free toilets and air conditioning, or even

just take a short snooze on a comfy chair

are famously frugal. When it came time

to actually buy, they shopped instead

at local stores just down the street that

a much lower price. So to turn fi nicky

on its showroom fl oors and then slashed

its prices. Prices on some merchandise

world. The penetration pricing strategy

home wares market alone, and the sales

20 percent last year. One store alone

in Beijing draws nearly six million visi

megaphones to keep shoppers under control.

must be highly price sensitive so that a low price produces more market growth. Second,

price position. Otherwise, the price advantage may be only temporary.

Product Mix Pricing Strategies The strategy for setting a product’s price often has to be changed when the product is

profi ts on the total product mix. Pricing is diffi cult because the various products have

related demand and costs and face different degrees of competition. We now take a closer

look at the fi ve product mix pricing situations summarized in Table 11.1:

line pricing, , , , and .

employees use megaphones to keep shoppers under control.

Setting a low price for a new product in

Objective 2 Explain how companies fi nd a

set of prices that maximizes

the profi ts from the total

product mix.

338 Part 3 |

Product Line Pricing

Rossignol offers seven different collections of alpine skis of all designs and sizes, at prices

product line pricing, management must deter

mine the price steps to set between the various products in a line.

The price steps should take into account cost differences between products in the line.

More importantly, they should account for differences in customer perceptions of the value

of different features.

shine, underbody rust inhibitor, surface protectant, and

even air freshener. The car wash’s task is to establish per

ceived value differences that support the price differences.

Optional Product Pricing Many companies use optional product pricing

to sell optional or accessory products along with the main

navigation system and premium entertainment system. Re

frigerators come with optional ice makers. And when you

order a new computer, you can select from a bewildering

array of processors, hard drives, docking systems, software

options, and service plans. Pricing these options is a sticky

the base price and which to offer as options.

Captive Product Pricing

with a main product are using captive product pricing.

Examples of captive products are razor blade cartridges,

ers, and tablet computers) often price them low and set

make up for the loss through sales of digital books, mu

sic, and movies to be viewed on the devices.

However, companies that use captive product pric

main product and captive product prices can be tricky.

Even more, consumers trapped into buying expensive

Product line pricing: Mr. Clean car washes offer a complete line of

The Procter & Gamble Company

Product line pricing

Table 11.1 | Product Mix Pricing

Pricing Situation Description

Product line pricing Setting prices across an entire product line

Optional product pricing

Chapter 11 | Pricing Strategies: Additional Considerations captive products may come to resent the brand that ensnared them. Just ask about any cus

to learn later how expensive the replacements cartridge are. The cartridges are so pricy that

over, Gillette’s captive pricing strategy has invited direct price challenges from competitors

. The price of

the service is broken into a plus a variable usage rate amusement parks, you pay a daily ticket or season pass charge plus additional fees for food

value and if getting rid of them is costly, this will affect pricing of the main product. Using

costs of disposing of them and help make the price of the main product more competitive.

ample, Seattle’s Woodland Park Zoo has learned that

excellent source of extra revenue.6

answer was that it had to be hauled away to the landfi ll

fully collects all that poo, turns it into compost, and sells

“the most exotic and highly prized compost in the Pacifi c

buy these coveted compost products by the bucket at

where lucky lottery winners can buy the processed poo

by the trash can or truck full. “There’s green money

Woodland Zoo’s enthusiastic compost and recycling co

ordinator (also known as the prince of poo, the emperor

Product Bundle Pricing Using product bundle pricing, sellers often combine several products and offer the bundle

at a low combined price. Price bundling can promote the sales of products consumers might

not otherwise buy, but the combined price must be low enough to get them to buy the bundle.

changing situations. Here we examine the seven price adjustment strategies summarized in

Table 11.2: , , ,

, , , and .

to make the main product’s price more

poop!” exclaims Dan Corum, the Woodland Zoo’s enthusiastic Compost

of Excrement, the GM of BM, or just plain Dr. Doo).

Biz Kid$ TV Series. www.bizkids.com

Product bundle pricing

Objective 3 Discuss how companies adjust

their prices to take into account

different types of customers and

situations.

Part 3 |

Most companies adjust their basic price to reward customers for certain responses, such

called and

One form of discount is a , a price reduction to buyers who pay their bills

quantity is a price reduction to buyers who buy large volumes. A seller offers a

(also called a

tions, such as selling, storing, and record keeping. A is a price reduction to

buyers who buy merchandise or services out of season.

are price reductions given for turning in an old item when buying a new one.

other durable goods. are payments or price reductions that reward

dealers for participating in advertising and sales support programs.

Segmented Pricing

segmented pricing, the company sells a product or service at two or more

prices, even though the difference in prices is not based on differences in costs.

Segmented pricing takes several forms. Under pricing, different cus

tomers pay different prices for the same product or service. Museums and movie theaters,

for example, may charge a lower admission for students and senior citizens. Under

, different versions of the product are priced differently but not according to

and higher quality food and service, the differences in costs to the airlines are much less

than the additional prices to passengers. However, to passengers who can afford it, the

additional comfort and services are worth the extra charge.

Using , a company charges different prices for different locations,

, a fi rm varies

charge matinee pricing during the daytime, and resorts give weekend and seasonal discounts.

Table 11.2 | Price Adjustments

Strategy Description

Discount and

allowance pricing

Segmented pricing

or locations

Promotional pricing

Geographical pricing Adjusting prices to account for the geographic location of customers

International pricing Adjusting prices for international markets

Discount

A straight reduction in price on purchases

during a stated period of time or in larger

to retailers in return for an agreement to

feature the manufacturer’s products in

Segmented pricing

Chapter 11 | Pricing Strategies: Additional Considerations

tive strategy, certain conditions must ex

ist. The market must be segmentable, and

segments must show different degrees

of demand. The costs of segmenting and

reaching the market cannot exceed the

extra revenue obtained from the price dif

ference. Of course, the segmented pricing

must also be legal.

Most important, segmented prices

should refl ect real differences in customers’

tiers must feel that they’re getting their extra

money’s worth for the higher prices paid. By

the same token, companies must be careful

not to treat customers in lower price tiers as

run, the practice will lead to customer re

years, the airlines have incurred the wrath

of frustrated customers at both ends of the

airplane. Passengers paying full fare for busi

ness or fi rst class seats often feel that they are

ignored or treated poorly.

Psychological Pricing

psychological pricing, sellers consider the psychology of prices, not simply

higher quality. When they can judge the quality of a product by examining it or by calling

on past experience with it, they use price less to judge quality. But when they cannot judge

quality because they lack the information or skill, price becomes an important quality sig

answer this question objectively; even then, you might not be able to judge accurately. Most

Another aspect of psychological pricing is reference prices

in their minds and refer to when looking at a given product. The reference price might be

formed by noting current prices, remembering past prices, or assessing the buying situ

ation. Sellers can infl uence or use these consumers’ reference prices when setting price.

expensive model fl opped but sales of the cheaper model doubled.

fi gure out whether they are paying a good price. They don’t have the time, ability, or incli

who can afford it, the extra comfort and service are worth the extra charge.

Psychological pricing

Reference prices

Part 3 |

Pricing cues provided by retailers, such

provide helpful price hints to consumers,

telling them whether a given price is

relatively high or low.

Bloomberg via Getty Images

local supermarket to pick up a few items for

are

ers asked supermarket shoppers the price of

Sale Signs. The most straightforward retail

suspicious when sale signs are used

Prices Ending in 9.

raising the price of a dress from

increased

practice is also common at major depart

Research suggests that customers use

has a good price on Coke or Pampers

creased store traffic and purchases of

Real

Chapter 11 | Pricing Strategies: Additional Considerations

as signifi cantly less, but the lower price also raised stronger concerns about quality and

risk.8 Some psychologists even argue that each digit has symbolic and visual qualities that

should be considered in pricing. Thus, eight (8) is round and even and creates a soothing

Promotional Pricing With promotional pricing, companies will temporarily price their products below

Promotional pricing takes several

forms. A seller may simply offer

from normal prices to increase

sales and reduce inventories. Sellers

also use in cer

tain seasons to draw more custom

electronics are promotionally priced

tract holiday shoppers into the stores.

, such as online

sales, can create buying urgency and make buyers feel lucky to have gotten

in on the deal.

Manufacturers sometimes offer cash re bates to consumers who buy the product from dealers within a specifi ed time; the

manufacturer sends the rebate directly

to the customer. Rebates have been pop

ular with automakers and producers of

mobile phones and small appliances,

but they are also used with consumer

packaged goods. Some manufacturers

offer ,

ranties, or to reduce the

become another favorite of the auto

industry.

The researchers conclude that retailers

Harvard

Promotional pricing

Promotional pricing: Companies offer promotional prices to create buying excitement

and urgency.

Bloomberg via Getty Images

344 Part 3 | Designing a Customer-Driven Strategy and Mix Promotional pricing, however, can have adverse effects. During most holiday seasons,

for example, it’s an all-out bargain war. Marketers carpet-bomb consumers with deals, caus-

ing buyer wear-out and pricing confusion. Used too frequently, price promotions can create

“deal-prone” customers who wait until brands go on sale before buying them. In addition,

constantly reduced prices can erode a brand’s value in the eyes of customers.

Marketers sometimes become addicted to promotional pricing, especially in difficult

economic times. They use price promotions as a quick fix instead of sweating through the

difficult process of developing effective longer-term strategies for building their brands.

For example, as we learned in the JCPenney story at the beginning of Chapter 10, before

announcing its turnaround pricing strategy, Penney’s developed an unhealthy reliance on

coupons, markdowns, and nonstop sales, which accounted for the vast majority of its rev-

enues. But companies must be careful to balance short-term sales incentives against long-

term brand building. Some promotional pricing can be an effective means of generating

sales in certain circumstances. But as JCPenney learned, a steady diet of promotional pric-

ing can be destructive to a brand’s image and profitability.9

Geographical Pricing A company also must decide how to price its products for customers located in different

parts of the United States or the world. Should the company risk losing the business of

more-distant customers by charging them higher prices to cover the higher shipping costs?

Or should the company charge all customers the same prices regardless of location? We

will look at five geographical pricing strategies for the following hypothetical situation:

The Peerless Paper Company is located in Atlanta, Georgia, and sells paper products to custom-

ers all over the United States. The cost of freight is high and affects the companies from whom

customers buy their paper. Peerless wants to establish a geographical pricing policy. It is trying

to determine how to price a $10,000 order to three specific customers: Customer A (Atlanta), Cus-

tomer B (Bloomington, Indiana), and Customer C (Compton, California).

One option is for Peerless to ask each customer to pay the shipping cost from the Atlanta

factory to the customer’s location. All three customers would pay the same factory price of

$10,000, with Customer A paying, say, $100 for shipping; Customer B, $150; and Customer C,

$250. Called FOB-origin pricing, this practice means that the goods are placed free on board (hence, FOB) a carrier. At that point the title and responsibility pass to the customer, who pays the freight from the factory to the destination. Because each customer picks up its own

cost, supporters of FOB pricing feel that this is the fairest way to assess freight charges. The

disadvantage, however, is that Peerless will be a high-cost firm to distant customers.

Uniform-delivered pricing is the opposite of FOB pricing. Here, the company

charges the same price plus freight to all customers, regardless of their location. The

freight charge is set at the average freight cost. Suppose this is $150. Uniform-delivered

pricing therefore results in a higher charge to the Atlanta customer (who pays $150 freight

instead of $100) and a lower charge to the Compton customer (who pays $150 instead of

$250). Although the Atlanta customer would prefer to buy paper from another local pa-

per company that uses FOB-origin pricing, Peerless has a better chance of capturing the

California customer.

Zone pricing falls between FOB-origin pricing and uniform-delivered pricing. The

company sets up two or more zones. All customers within a given zone pay a single total

price; the more distant the zone, the higher the price. For example, Peerless might set up an

East Zone and charge $100 freight to all customers in this zone, a Midwest Zone in which it

charges $150, and a West Zone in which it charges $250. In this way, the customers within a

given price zone receive no price advantage from the company. For example, customers in

Atlanta and Boston pay the same total price to Peerless. The complaint, however, is that the

Atlanta customer is paying part of the Boston customer’s freight cost.

Using basing-point pricing, the seller selects a given city as a “basing point” and

charges all customers the freight cost from that city to the customer location, regardless of

the city from which the goods are actually shipped. For example, Peerless might set Chi-

cago as the basing point and charge all customers $10,000 plus the freight from Chicago to

their locations. This means that an Atlanta customer pays the freight cost from Chicago to

Atlanta, even though the goods may be shipped from Atlanta. If all sellers used the same

basing-point city, delivered prices would be the same for all customers, and price competi-

tion would be eliminated.

Geographical pricing

Setting prices for customers located in

different parts of the country or world.

FOB-origin pricing

A geographical pricing strategy in which

goods are placed free on board a carrier;

the customer pays the freight from the

factory to the destination.

Uniform-delivered pricing

A geographical pricing strategy in which

the company charges the same price

plus freight to all customers, regardless of

their location.

Zone pricing

A geographical pricing strategy in which

the company sets up two or more zones.

All customers within a zone pay the same

total price; the more distant the zone, the

higher the price.

Basing-point pricing

A geographical pricing strategy in which

the seller designates some city as a

basing point and charges all customers

the freight cost from that city to the

customer.

Chapter 11 | Pricing Strategies: Additional Considerations

cal area might use . Using this strategy, the seller absorbs all

or part of the actual freight charges to get the desired business. The seller might reason that

if it can get more business, its average costs will decrease and more than compensate for its

to increasingly competitive markets.

Dynamic and Internet Pricing Throughout most of history, prices were set by negotiation between buyers and sellers.

most prices are set this way. However, some companies are now reversing the fi xed pricing

trend. They are using dynamic pricing

teristics and needs of individual customers and situations.

us back to a new age of fl uid pricing. Such pricing offers many advantages for marketers.

tabases to gauge a specifi c shopper’s desires, measure his or her means, instantaneously

tailor offers to fi t that shopper’s behavior, and price products accordingly. Services ranging

from airlines and hotels to sports teams change prices on the fl y according to changes in

any given moment and adjust prices instantly.

characteristics and behaviors of individual customers, mined from online browsing and

purchasing histories. These days, online offers and prices might well be based on what spe

cifi c customers search for and buy, how much they pay for other purchases, and whether

later get a higher quote on a new Bose Wave Radio. By comparison, a friend with a more

modest online search and purchase history might receive an offer of fi ve percent off and free

shipping on the same radio.10

pricing is legal as long as companies do not discriminate based on age, sex, location, or other

cording to market forces and consumer preferences. But marketers need to be careful not to

use dynamic pricing to take advantage of certain customer groups, thereby damaging impor

tant customer relationships.

The practice of online pricing, however, goes both ways, and consumers often benefi t

auction sites and exchanges. Want to sell that antique pickle jar that’s been collecting dust

for concert tickets.

Epinions.com, PriceGrabber.com, and PriceScan.com, or using mobile apps such as

to provide thousands of reviews and comparison prices, and even offers buying links for

immediate online purchasing. Armed with this information, consumers can often negoti

giving consumers much of an edge. Store retailers ranging from Target and Best Buy

charges in order to get the desired

Dynamic pricing

Part 3 | an item, compare prices online while

in the store, and then buy the item

online at a lower price. Such behav

ior is called because con

sumers use store retailers as de facto

shopping app that gave customers

discounts on qualifying items if they

checked the prices for those items at

Amazon.com while browsing at a

physical store. To counter showroom

ing, store retailers must either match

online prices or work with manufac

branded merchandise on which price

comparisons cannot be made.11

International Pricing

example, Boeing sells its jetliners at about the same price everywhere, whether the buyer

their prices to refl ect local market conditions and cost considerations.

The price that a company should charge in a specifi c country depends on many factors,

including economic conditions, competitive situations, laws and regulations, and the nature

vary from country to country, calling for different prices. Or the company may have different

marketing objectives in various world markets, which require changes in pricing strategy.

skimming pricing strategy. By contrast, it might enter sizable but less affl uent markets in

surprised to fi nd that goods that are relatively inexpensive at home may carry outrageously

such may result from differences in selling

it is simply a result of the higher costs of selling in another

fi cations, shipping and insurance, import tariffs and taxes,

Price has become a key element in the international

marketing strategies of companies attempting to enter

emerging markets. Typically, entering such markets has

meant targeting the exploding middle classes in developing

More recently, however, as the weakened global economy

has slowed growth in both domestic and emerging markets,

many companies are shifting their sights to include a new

Companies that market internationally must decide what prices to

charge in different countries.

Prentice Hall School Division

Dynamic and Internet pricing: Using mobile apps such as eBay’s RedLaser, consumers

can scan barcodes or QR codes while shopping in stores and receive product reviews,

availability information, and comparison prices for online and nearby stores.

Chapter 11 | Pricing Strategies: Additional Considerations

Unilever ’s pricing strategy for developing countries:12

of its shampoo, laundry detergent, and other products, Unilever can make a profi t while selling its

brands for just pennies a pack. As a result, today, more than 50 percent of Unilever’s revenues come

from emerging economies.

Although this strategy has been successful for Unilever, most companies are learning that

selling profi tably to the bottom of the pyramid requires more than just repackaging or stripping

aspirational. Thus, compa

nies today are innovating to create products that not only sell at very low prices but also give

Price Changes After developing their pricing structures and strategies, companies often face situations in

which they must initiate price changes or respond to price changes by competitors.

Initiating Price Changes

Initiating Price Cuts Several situations may lead a fi rm to consider cutting its price. One such circumstance is

excess capacity. Another is falling demand in the face of strong price competition or a weak

years, cutting prices in an industry loaded with excess capacity may lead to price wars as

competitors try to hold onto market share.

A company may also cut prices in a drive to dominate the

market through lower costs. Either the company starts with

lower costs than its competitors, or it cuts prices in the hope

of gaining market share that will further cut costs through

in developing countries.

Initiating Price Increases A successful price increase can greatly improve profi ts.

cent of sales, a 1 percent price increase will boost profi ts

price increases is cost infl ation. Rising costs squeeze profi t

margins and lead companies to pass cost increases along to

customers. Another factor leading to price increases is over

demand: When a company cannot supply all that its custom

ers need, it may raise its prices, ration products to customers,

When raising prices, the company must avoid being

perceived as a

prices rise rapidly, angry customers often accuse the major

Objective 4 Discuss the key issues related to

initiating and responding to price

changes.

Initiating price increases: When gasoline prices rise rapidly,

angry consumers often accuse the major oil companies of enriching

themselves by gouging customers.

Louis DeLuca/Dallas Morning News/Corbis

Part 3 |

To lower prices in developing countries, Unilever developed smaller, more affordable packages

Courtesy Godrej & Boyce Mfg. Co. Ltd.

domestic markets and slowed the growth of

price has got to

margin on products selling for pennies

it also has to do what other cheap diapers

message taps into a deep sentiment among

Godrej

refrigerators in India:

Real International Pricing: Targeting

Chapter 11 | Pricing Strategies: Additional Considerations 349

afford conventional refrigerators, these con-

sumers were making do with communal, usu-

ally second-hand ones. But even the shared

fridges usually contained only a few items.

Their users tended to shop daily and buy only

small quantities of vegetables and milk. More-

over, electricity was unreliable, putting even

the little food they wanted to keep cool at risk.

Godrej concluded that the low-end seg-

ment had little need for a conventional high-

end refrigerator; it needed a fundamentally

new product. So Godrej invented the Chotu-

Kool (“little cool”), a candy red, top-opening,

highly-portable, dorm-size unit that has room

for the few items users want to keep fresh

for a day or two. Rather than a compressor

and refrigerant, the miserly little unit uses a

chip that cools when current is applied, and

its top-opening design keeps cold air inside

when the lid is opened. In all, the ChotuKool

uses less than half the energy of a conven-

tional refrigerator and can run on a battery

during the power outages common in rural

villages. The best part: At only $69, “little cool”

does a better job of meeting the needs of low-

end consumers at half the price of even the

most basic traditional refrigerator.

Thus, the bottom of the pyramid offers

huge untapped opportunities to companies

that can develop the right products at the

right prices. And companies such as P&G

are moving aggressively to capture these op-

portunities. P&G CEO and Chairman Robert

McDonald has set a lofty goal of 1 billion new

customers by 2015, moving the company’s

emphasis from the developed West, where

it currently gets most of its revenue, to the

developing economies of Asia and Africa.

But successfully tapping these new de-

veloping markets will require more than just

shipping out cheaper versions of existing

products. “Our innovation strategy is not just

diluting the top-tier product for the lower-end

consumer,” says McDonald. “You have to dis-

cretely innovate for every one of those con-

sumers on that economic curve, and if you

don’t do that, you’ll fail.”

Sources: Quotes, extracts, and other information from or based on David Holthaus, “Pampers: P&G’s No. 1 Growth

Brand,” Cincinnati.com, April 17, 2011, http://news.cincinnati.com/article/20110417/BIZ01/104170337/Pampers-

P-G-s-No-1-growth-brand; Mya Frazier, “How P&G Brought the Diaper Revolution to China,” CBS News, Janu-

ary 7, 2010, www.cbsnews.com/8301-505125_162-51379838/how-pg-brought-the-diaper-revolution-to-china/;

David Holthaus, “Health Talk First, Then a Sales Pitch,” April 17, 2011, Cincinnati.com, http://news.cincinnati

.com/apps/pbcs.dll/article?AID=/20110417/BIZ01/104170344/&template=artiphone; Matthew J. Eyring, Mark W.

Johnson, and Hari Nair, “New Business Models in Emerging Markets,” Harvard Business Review, January–February

2011, pp. 89–95; and C. K. Prahalad, “Bottom of the Pyramid as a Source of Breakthrough Innovations,” Journal of

Product Innovation Management, January 2012, pp. 6–12.

oil companies of enriching themselves at the expense of consumers. Customers have long

memories, and they will eventually turn away from companies or even whole industries

that they perceive as charging excessive prices. In the extreme, claims of price gouging may

even bring about increased government regulation.

There are some techniques for avoiding these problems. One is to maintain a sense of

fairness surrounding any price increase. Price increases should be supported by company

communications telling customers why prices are being raised.

Wherever possible, the company should consider ways to meet higher costs or demand

without raising prices. For example, it might consider more cost-effective ways to produce

or distribute its products. It can shrink the product or substitute less-expensive ingredients

instead of raising the price, as ConAgra did in an effort to hold its Banquet frozen dinner

prices at $1. Or it can “unbundle” its market offering, removing features, packaging, or ser-

vices and separately pricing elements that were formerly part of the offer.

Buyer Reactions to Price Changes Customers do not always interpret price changes in a straightforward way. A price increase, which would normally lower sales, may have some positive meanings for buyers. For exam-

ple, what would you think if Rolex raised the price of its latest watch model? On the one hand, you might think that the watch is even more exclusive or better made. On the other hand, you

might think that Rolex is simply being greedy by charging what the traffic will bear.

Similarly, consumers may view a price cut in several ways. For example, what would you think if Rolex were to suddenly cut its prices? You might think that you are getting a better deal

on an exclusive product. More likely, however, you’d think that quality had been reduced, and

the brand’s luxury image might be tarnished. A brand’s price and image are often closely linked.

A price change, especially a drop in price, can adversely affect how consumers view the brand.

Competitor Reactions to Price Changes A firm considering a price change must worry about the reactions of its competitors as well

as those of its customers. Competitors are most likely to react when the number of firms

involved is small, when the product is uniform, and when the buyers are well informed

about products and prices.

Part 3 |

plex because, like the customer, the competitor can interpret a company price cut in many

poorly and trying to boost its sales. Or it might think that the company wants the whole

industry to cut prices to increase total demand.

separate analyses are necessary. However, if some competitors will match the price change,

there is good reason to expect that the rest will also match it.

Responding to Price Changes Here we reverse the question and ask how a fi rm should respond to a price change by a

competitor. The fi rm needs to consider several issues: Why did the competitor change the

Besides these issues, the company must also consider its own situation and strategy and

possible customer reactions to price changes.

Figure 11.1 shows the ways a company might assess and respond to a competitor’s

price cut. Suppose the company learns that a competitor has cut its price and decides that

price and profi t margin. The company might believe that it will not lose too much market

share, or that it would lose too much profi t if it reduced its own price. Or it might decide

that it should wait and respond when it has more information on the effects of the competi

tor’s price change. However, waiting too long to act might let the competitor get stronger

and more confi dent as its sales increase.

decide that the market is price sensitive and that it would lose too much market share to

in the short run. Some companies might also reduce their product quality, services, and

market share. The company should try to maintain its quality as it cuts prices.

Alternatively, the company might maintain its price but of its

money to improve its perceived value than to cut price and operate at a lower margin. Or,

the company might quality

value position. The higher quality creates greater customer value, which justifi es the higher

Has competitor cut price?

Yes

NoWill lower price negatively affect our

market share and profits? Reduce price

Raise perceived value

Improve quality and increase price

Launch lo ice “fighter brand”

Yes

Can/should effective action be taken?

NoNoN

Yes

Hold current price; continue to monitor competitor’s price

When a competitor cuts prices, a company’s first reaction may be to drop its prices as well. But that is often the wrong response. Instead, the firm may want to emphasize the

FIGURE | 11.1

Assessing and Responding

to Competitor Price Changes

Chapter 11 | Pricing Strategies: Additional Considerations 351

higher margins.

“

if the particular market segment being lost is price sensi

tive and will not respond to arguments of higher quality.

Starbucks did this when it acquired Seattle’s Best

brand. Seattle’s Best coffee is generally cheaper than the

parent Starbucks brand. As such, at retail, it competes

lets and through partnerships with Subway, Burger

lines, and others. On supermarket shelves, it competes

must use caution when introducing fi ghter brands, as such brands can tarnish the image of the

Public Policy and Pricing

usually are not free to charge whatever prices they wish. Many federal, state, and even local

needs of drug consumers.

The most important pieces of legislation affecting pricing are the Sherman Act, the

nopolies and regulate business practices that might unfairly restrain trade. Because these

federal statutes can be applied only to interstate commerce, some states have adopted simi

lar provisions for companies that operate locally.

Figure 11.2 shows the major public policy issues in pricing. These include po

Fighter brands: Starbucks has positioned its Seattle’s Best Coffee unit to

AP Images/Eric Risberg

Objective 5 Overview the social and legal

issues that affect pricing

decisions.

Deceptive pricing

Consumers

Retail price maintenance

Deceptive pricing

Producer A

Pr Predatory pricing

Producer B

Retailer 1

Pr Predatory pricing

Retailer 2

ice

rice maintenance pricing

Deceptive pricing

ducer B Retailer 2ducer B etailer 2

Discriminatory pricing

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

… and pricing practices across channel levels.

FIGURE | 11.2

352 Part 3 | predatory pricing) and across levels of the channel (retail price maintenance, discriminatory

pricing, and deceptive pricing).

Pricing within Channel Levels states that sellers must set prices without talking to

guilty of these practices can receive heavy fi nes. Recently, governments at the state and

European

claimed that offi cials from the four companies met regularly at hotels and restaurants in

Paris to agree to limits on the size of discounts and on prices differences between their

laundry detergent brands.15

Sellers are also prohibited from using

tors out of business. This protects small sellers from larger ones who might sell items below

cost temporarily or in a specifi c locale to drive them out of business. The biggest problem is

determining just what constitutes predatory pricing behavior. Selling below cost to unload

excess inventory is not considered predatory; selling below cost to drive out competitors is.

Thus, a given action may or may not be predatory depending on intent, and intent can be

very diffi cult to determine or prove.

tory pricing. However, turning an accusation into a lawsuit can be diffi cult.

ample, many publishers and booksellers have expressed concerns about Amazon.com’s

predatory practices, especially book pricing:16

Many booksellers and publishers com

plain that Amazon.com’s book pricing

policies are destroying their industry.

books as loss leaders at prices

prices in order

Such very low book prices have caused

considerable damage to competing book

sellers, many of whom view Amazon’s

pricing actions as predatory. Says one

observer, “The word ‘predator’ is pretty

Still, no predatory pricing charges have

be extremely diffi cult to prove that such

tory as opposed to just plain good com

petitive marketing.

Pricing across Channel Levels by ensuring that sell

retailer is entitled to the same price terms from a given manufacturer, whether the retailer

good competitive marketing?

Christopher Schall/Impact Photo

Chapter 11 | Pricing Strategies: Additional Considerations 353 costs less per unit to sell a large volume of bicycles to REI than to sell a few bicycles to the

local dealer.

The seller can also discriminate in its pricing if the seller manufactures different qualities

of the same product for different retailers. The seller has to prove that these differences are

proportional. Price differentials may also be used to “match competition” in “good faith,”

provided the price discrimination is temporary, localized, and defensive rather than offensive.

Laws also prohibit retail (or resale) price maintenance—a manufacturer cannot require dealers to charge a specified retail price for its product. Although the seller can propose a

manufacturer’s suggested retail price to dealers, it cannot refuse to sell to a dealer that takes independent pricing action nor can it punish the dealer by shipping late or denying adver-

tising allowances. For example, the Florida attorney general’s office investigated Nike for

allegedly fixing the retail price of its shoes and clothing. It was concerned that Nike might

be withholding items from retailers who were not selling its most expensive shoes at prices

the company considered suitable.

Deceptive pricing occurs when a seller states prices or price savings that mislead con- sumers or are not actually available to consumers. This might involve bogus reference or

comparison prices, as when a retailer sets artificially high “regular” prices and then an-

nounces “sale” prices close to its previous everyday prices. For example, Overstock.com

recently came under scrutiny for inaccurately listing manufacturer’s suggested retail prices,

often quoting them higher than the actual price. Such comparison pricing is widespread.

Although comparison pricing claims are legal if they are truthful, the FTC’s “Guides

against Deceptive Pricing” warn sellers not to advertise (1) a price reduction unless it is a

savings from the usual retail price, (2) “factory” or “wholesale” prices unless such prices are

what they are claimed to be, and (3) comparable value prices on imperfect goods.17

Other deceptive pricing issues include scanner fraud and price confusion. The wide- spread use of scanner-based computer checkouts has led to increasing complaints of retail-

ers overcharging their customers. Most of these overcharges result from poor management,

such as a failure to enter current or sale prices into the system. Other cases, however, in-

volve intentional overcharges.

Many federal and state statutes regulate against deceptive pricing practices. For ex-

ample, the Automobile Information Disclosure Act requires automakers to attach a state-

ment on new vehicle windows stating the manufacturer’s suggested retail price, the prices

of optional equipment, and the dealer’s transportation charges. However, reputable sellers

go beyond what is required by law. Treating customers fairly and making certain that they

fully understand prices and pricing terms is an important part of building strong and last-

ing customer relationships.

Reviewing the Concepts

In this chapter, we examined some additional pricing considerations—

new-product pricing, product mix pricing, price adjustments, initiat-

ing and reacting to prices changes, and pricing and public policy. A

company sets not a single price but rather a pricing structure that

covers its entire mix of products. This pricing structure changes over

time as products move through their life cycles. The company ad-

justs product prices to reflect changes in costs and demand and

account for variations in buyers and situations. As the competitive

environment changes, the company considers when to initiate price

changes and when to respond to them.

Reviewing Objectives and Key Terms

Objectives Review

MyMarketingLab™ Go to www.mymktlab.com to complete the problems marked with this icon .

Part 3 |

international pricing means

Discuss the key issues related to

initiating and responding to price

changes. (pp 347–351)

When a firm considers initiating a

cations to and initiating price increases

Overview the social and legal

issues that affect pricing

decisions. (pp 351–353)

pricing practices across

Describe the major strategies

for pricing new products.

(pp 336–337)

pricing

can use

Objective 2 Explain how companies fi nd a set of prices that maximizes the

profi ts from the total product mix. (pp 337–339)

set prices for

Discuss how companies adjust

their prices to take into account

different types of customers and situations.

(pp 339–347)

to ac

One is

segmented

promotional

Objective 1

Objective 3

Objective 4

Objective 5

Objective 1

Objective 2

Objective 3

Chapter 11 | Pricing Strategies: Additional Considerations 355

Discussion and Critical Thinking

Discussion Questions

1. Compare and contrast market-skimming and market-penetra- tion pricing strategies and discuss the conditions under which

each is appropriate. For each strategy, give an example of a

recently introduced product that used that pricing strategy.

(AACSB: Communication; Reflective Thinking)

2. Name and briefly describe the five product mix pricing deci- sions. (AACSB: Communication)

3. Name and describe the various forms of discounts companies use to reward customers. (AACSB: Communication; Reflec-

tive Thinking)

4. Compare and contrast the geographic pricing strategies companies use for customers located in different parts of the

country or world. Which strategy is best? (AACSB: Communi-

cation; Reflective Thinking)

5. What is dynamic pricing? Why is it especially prevalent online? Is it legal? (AACSB: Communication)

6. Under what circumstances would a company consider cutting its prices? Raising its prices? (AACSB: Communication)

Critical Thinking Exercises

1. What is the price of a Toyota Prius in the United States? Find the price of a Toyota Prius in five countries and convert that

price to U.S. dollars (USD). Are the prices the same or differ-

ent in other countries? Explain why that might be so. (AACSB:

Communication; Use of IT; Reflective Thinking)

2. One psychological pricing tactic is “just-below” pricing. It is also called “9-ending” pricing because prices usually end in

the number 9 (or 99). In a small group, have each member

select five different products and visit a store to learn the

price of those items. Is there a variation among the items and

stores with regard to 9-ending pricing? Why do marketers

use this pricing tactic? (AACSB: Communication; Reflective

Thinking)

Applications and Cases

Marketing Technology Talk Less, Pay More Wireless carriers are trying to get customers to pay more for

something they do less and less—making phone calls. It seems

consumers are doing everything but talking on their mobile

phones. Average voice-minute usage has fallen since Apple in-

troduced the iPhone in 2007 and consumers have turned to text

and voice-over-Internet calling options such as Skype. But voice

billings account for almost 70 percent of what carriers charge

mobile phone customers, and they don’t want this cash cow to

dry up. As a result, carriers are starting to drop plans that al-

low subscribers to buy only the minutes they need or want and

are replacing them with flat rates covering unlimited calling. Car-

riers say this would be less complicated for consumers, but the

real reason is that they do not want customers trading down to

cheaper plans when they realize they can save money by scaling

back their voice plans. So carriers are eliminating tiered-pricing

voice plans altogether.

1. Compare the prices of two mobile phone carriers, such as AT&T and Verizon. What types of pricing strategies are they

using? (AACSB: Communication; Reflective Thinking)

2. Visit www.myrateplan.com/wireless_plans/ to compare your mobile phone plan to other carriers’ plans. What tactics do

carriers use to keep subscribers from switching? Explain.

(AACSB: Communication; Use of IT; Reflective Thinking)

356 Part 3 | Designing a Customer-Driven Strategy and Mix

Marketing Ethics The Price of a Song Country music stars such as Taylor Swift, Rascal Flatts, and Tim

McGraw will be the first artists to be paid every time their songs are

played on the radio. In the United States, only songwriters and mu-

sic publishers receive royalties from radio airplay or when a song is

played in a movie, television program, commercial, or even as hold

music on telephones. This dates back to a 1917 Supreme Court

ruling that composers of copyrighted music are due a royalty every

time the music is played or performed through commercial means.

But performing artists or recording companies do not receive such

royalties. The rationale is that radio play promotes record sales,

where the artists earn royalties ranging from 8 to 25 percent of

the price of a CD. But thanks to the Internet and music down-

load sites such as iTunes, sales of traditional recorded music have

dropped almost 50 percent. In 2011, digital music sales surpassed

traditional CD sales. Listeners have also tuned in to Internet sites

such as Pandora, Spotify, and Rdio to listen to music. Recording

artists did get some relief through the Digital Performance Rights

in Sound Recording Act of 1995. The act gave performers their

first royalties when their songs are played in a digital format, such

as in a Webcast or on satellite radio, where listeners subscribe but

cannot select specific songs. Pandora, the online radio company,

claims that such royalty payments, equivalent to about 60 percent

of revenues, are the reason the company is unprofitable.

1. Research how music royalties work to learn more about the cost and pricing of music. Write a report of what you learned.

(AACSB: Communication; Reflective Thinking)

Marketing by the Numbers Is Netflix Crazy or Savvy? Price increases are always a thorny issue with consumers, and

Netflix, the video-streaming and DVD-by-mail giant, set off a fire-

storm by announcing a 60 percent price increase on its most

affordable rental plan. Previously, for $9.99 per month, customers

were able to rent one DVD at a time plus enjoy unlimited stream-

ing over the Internet. That same service now costs $15.98 per

month, a combination of an existing $7.99-a-month streaming-

only plan with a new $7.99-a-month DVD-only plan that allows

customers to receive one disc at a time via mail. So customers

either had to ante up to continue with the same level of service or

step down to one of the more limited services priced at $7.99 per

month. Most customers switched to the streaming-only option,

which reduced variable costs for Netflix due to postage savings.

Netflix had 23 million subscribers of the $9.99 per month DVD/

streaming hybrid plan prior to the price increase.

1. Refer to Appendix 2, Marketing by the Numbers and calculate the monthly contribution Netflix realizes from a subscriber at the price

of $9.99 per month and $15.98 per month, respectively. Assume

average variable costs per customer are $3.50 per month, which

do not change with the price increase. How many disgruntled

customers can Netflix lose before profitability is affected nega-

tively? (AACSB: Communications; Analytic Reasoning)

2. Is this a smart move by Netflix? Discuss the pros and cons of such a drastic price increase. (AACSB: Communication;

Reflective Thinking)

Video Case Hammerpress Printing paper goods may not sound like the best business to get

into these days. But Hammerpress is a company that is carving

out a niche in this old industry. And Hammerpress is doing it by

returning to old technology. Today’s printing firms use computer-

driven graphic design techniques and printing processes. But

Hammerpress creates greeting cards, calendars, and business

cards that are hand-crafted by professional artists and printed

using traditional letterpress technology.

When it comes to competing, this presents both opportunities

and challenges. While Hammerpress’s products certainly stand

out as works of art, the cost for producing such goods is con-

siderably higher than the industry average. This video illustrates

how Hammerpress employs dynamic pricing techniques in order

to meet the needs of various customer segments and thrive in a

competitive environment.

After viewing the video featuring Hammerpress, answer the

following questions:

1. How does Hammerpress employ the concept of dynamic pricing?

2. Discuss the three major pricing strategies in relation to Ham- merpress. Which of these three do you think is the company’s

core strategic strategy?

3. Does it make sense for Hammerpress to compete in product categories where the market dictates a price that is not profit-

able for the company? Explain.

Chapter 11 | Pricing Strategies: Additional Considerations 357

Company Case Amazon vs. Walmart: Fighting It Out Online on Price

Less than a decade ago, no one believed that Amazon posed a

credible threat to Walmart. After all, Walmart was the world’s biggest

retailer, selling everything under the sun. Amazon was just an online

upstart, known mostly as a seller of books and CDs. Back then,

Walmart’s revenues eclipsed Amazon’s by more than 120 times.

But what a difference a decade makes. Although Walmart still

dominates the physical retail sphere and remains the world’s big-

gest company to boot, Amazon’s growth has put it squarely in the

sights of the brick-and-mortar giant. These days, it seems, every-

one is comparing the two. Ali had Frazier. Coke has Pepsi. The

Yankees have the White Sox. And now these two heavyweight re-

tailers are waging a war online. The weapon of choice? Prices—not

surprising, given the two combatants’ long-held low-cost positions.

The price war between Walmart and Amazon began three

years ago, with skirmishes over online prices for new books and

DVDs. It then escalated quickly to video game consoles, mobile

phones, and even toys. At stake: not only the fortunes of the two

companies but also those of whole industries whose products

they sell, both online and in retail stores. Price can be a potent

strategic weapon, but it can also be a double-edged sword.

Amazon, it seems, wants to be the “Walmart of the Internet”—

our digital general store—and it’s well on its way to achieving that

goal. Although Walmart’s overall sales total was an incredible

$444 billion last year—nine times Amazon’s $48 billion—Amazon.

com’s online sales were nearly nine times greater than Walmart.

com’s online sales. Moreover, Amazon.com attracts more than

100 million unique U.S. visitors to its site monthly, more than dou-

ble Walmart.com’s number. One analyst estimates that more than

one-half of all U.S. consumers who look online for retail items

start their search at Amazon.com.

Why does this worry Walmart? After all, online sales account

for only 7 percent of total U.S. retail sales. Walmart captures most

of its business by offering affordable prices to middle Americans

in its more than 4,400 brick-and-mortar stores. By comparison,

according to one analyst, Amazon has made its name by sell-

ing mostly to “affluent urbanites who would rather click with their

mouse than push around a cart.”

But this battle isn’t about now—it’s about the future. Although still

a small market by Walmart’s standards, online sales will soar within

the next decade to an estimated 15 percent of total U.S. retail sales.

And, increasingly, Amazon.com owns the online space. Last year,

Amazon.com’s sales climbed 40 percent compared to the prior year.

Even more important, Amazon.com’s electronics and general mer-

chandise sales, which compete directly with much of the selection

found in Walmart stores, are growing even faster than its overall sales.

The Battle Begins Amazon has shown a relentless ambition to offer more of almost

everything on the Internet. It started by selling only books online,

but now it sells everything from books, movies, and music to con-

sumer electronics, home and garden products, clothing, jewelry,

toys, tools, and even groceries. Acquiring numerous online retailers

like Zappos.com and Diapers.com has helped this rapid expan-

sion. The online retailer is even beefing up its private-label selection,

adding new lines of Amazon-branded goods. If Amazon.com’s ex-

pansion continues and online sales grow as predicted, the online

seller will eat further and further into Walmart’s bread-and-butter

store sales. In fact, as lower-income consumers become more tech

savvy, Amazon.com is even pulling in Walmart’s traditional cus-

tomer—bargain hunters making less than $50,000 a year.

But Walmart isn’t giving up without a fight. Instead, it’s taking

the battle to Amazon’s home territory—the Internet. Through ag-

gressive pricing, it is now fighting for every dollar consumers spend

online. Walmart fired the first shot before the 2009 holiday shop-

ping season. It announced that it would take online preorders for

10 soon-to-be-released hardback books—all projected bestsellers

by authors such as John Grisham, Stephen King, Barbara King-

solver, and James Patterson—at an unprecedented low price of

just $9.99 each—the same price that Amazon.com was already

charging for e-book versions of bestsellers downloaded to its Kin-

dle or other readers. To take it a step further, Walmart.com also

cut prices by 50 percent on 200 other bestsellers, undercutting

Amazon.com’s prices. When Amazon quickly announced that it

would match Walmart’s price on the 10 bestsellers, the price war

was on. Walmart.com dropped its price to $9.00, Amazon.com did

likewise, and Walmart.com lowered its prices yet again, to $8.98.

These low book prices represented a 59 to 74 percent reduc-

tion off list price, much more than the 30 to 40 percent reduction

you might expect in traditional retail bookstores such as Barnes &

Noble. In fact, Walmart.com and Amazon.com discounted these

bestsellers below costs—as so-called loss leaders—to lure shop-

pers to their sites in hopes that they would buy other, more profit-

able items.

Today, the book price war continues. And it’s having an impact

beyond the two primary combatants, causing collateral damage

across the entire book industry. “When your product is treated as

a loss leader, it lowers its perceived value,” says one publishing

executive. In the long run, that’s not great for either the compa-

nies that publish the books or the retailers who sell them. Price

carries messages about customer value, notes another publisher.

Companies want to be careful about the messages they send.

The price war is not taking place over just books. If you com-

pare prices at Walmart.com and Amazon.com, you’ll find the

price battle raging across a broad range of product categories.

And although Walmart has a head start on low prices, it is appar-

ent that Amazon can match and even beat Walmart with its own

low-cost structure that has no overhead from stores.

Who will win the online battle for the hearts and dollars of on-

line buyers? Certainly, low prices will be an important factor. But

given the dramatically changing nature of how consumers shop

and buy, price alone may not be enough. Let’s look at how each

of these retailers is prepared to do battle.

Walmart: More Ways to Buy When it comes to low prices, Walmart has an advantage in terms

of years of experience, scale of operations, and negotiating

power with its suppliers. But Walmart is also focused on making

dramatic strides in online sales. Whereas Walmart’s overall sales

growth may be modest, plugging along in single digits, its online

sales are growing at a much more rapid pace. The chain’s online

sales more than doubled last year, and the number of unique visi-

tors to Walmart.com shot up by 26 percent to 42 million, while

Amazon.com’s monthly traffic remained relatively flat.

Walmart has a few advantages over Amazon. The fact that

it has both a huge network of physical stores in convenient

locations plus a well-established online presence allows it to of-

fer customers more ways to buy online. Customers can buy

online and have purchases shipped to their homes. Or they can

buy items online and pick them up at a Walmart store. For items

that a local store carries, customers can pick them up the same

358 Part 3 | Designing a Customer-Driven Strategy and Mix price cutting may do more damage than good to both Walmart

and Amazon. Price wars can turn whole product categories into

unattractive, low-margin commodities (think DVDs, for exam-

ple). And buying online is about much more than just getting the

best prices, even in today’s economy. In the end, winning online

consumers will require offering not only the lowest prices but

also the best customer value in terms of price and product se-

lection, speed, convenience, and overall shopping experience.

For now, the two retailers, especially Walmart, seem determined

to fight it out on price. Amazon’s CEO, Jeff Bezos, has long main-

tained that there’s plenty of room for all competitors in the big world

of retailing. However, Paul Vazquez, former president and CEO of

Walmart.com, says that it’s “only a matter of time” before Walmart

dominates Internet shopping. Pricing, he thinks, will be key. “Our

company is based on low prices,” says Vazquez, laying down the

challenge. “Even in books, we kept going until we were the low-

priced leader. And we will do that in every category we need to. Our

company is based on low prices.” Still, the question remains, will

low price be enough?

Questions for Discussion 1. Can consumers actually determine whether Amazon or

Walmart has lower overall prices? Explain.

2. For Amazon and Walmart, is it more important to have lower prices or to have the perception of lower prices?

3. Just how far should either Amazon or Walmart take the tactic of warring on price? Base your answer on Figure 11.1 in the text.

4. In the battle for online dominance, just how important is low price? How important are the other benefits that Amazon and

Walmart each deliver?

Sources: “Walmart Vs. Amazon: Can Brick-And-Mortar Stores Hang onto Shoppers?” The Week, April 12, 2012, http://theweek.com/article/

index/226736/walmart-vs-amazon-can-brick-and-mortar-stores-hang-

onto-shoppers; “Wal-Mart Reaches More Shoppers Online by Letting

Them Pay with Cash,” Forbes, June 25, 2012, www.forbes.com/sites/

greatspeculations/2012/06/25/wal-marts-reaches-more-shoppers-online-

by-letting-them-pay-with-cash/; David Welch, “Wal-Mart Gears Up Online

as Customers Defect to Amazon,” Businessweek, March 20, 2012, www

.businessweek.com/news/2012-03-20/wal-mart-gears-up-online-as-

customers-defect-to-amazon; Brad Stone and Stephanie Rosenbloom,

“The Gloves Come Off at Amazon and Walmart,” New York Times,

November 24, 2009, p. 1; Gayle Feldman, “Behind the US Price War,”

Bookseller, November 13, 2009, p. 16; and Jeffrey A. Trachtenberg and

Miguel Bustillo, “Amazon, Walmart Cut Deeper in Book Duel,” Wall Street

Journal, October 19, 2009, p. B1.

day. And Walmart recently started its “Pay With Cash” program,

aimed at the 20 percent of Walmart shoppers who can’t shop

online because they don’t have a bank account or a credit card.

The “cash” option supports Walmart’s new online slogan, “Any-

time, Anywhere.” Walmart wants its shoppers to know that it can

provide the most seamless combination of online and offline shop-

ping, unmatched by any retailer in any space. Walmart envisions

a day in the not-too-distant future when consumers will be able

to shop for anything that’s available online or in stores from their

home computers, while out about town on their digital devices,

or even from those same devices while browsing the aisles of its

stores. Walmart expects that having every one of its stores serve

as a pickup center will give it a huge advantage over online-only

retailers, especially Amazon. Walmart is even experimenting with

drive-through windows, where shoppers can pick up their Internet

orders. The pickup centers also double as easy return centers.

Amazon: Covering All the Bases Amazon also has advantages. For starters, Walmart’s online sales

may be growing rapidly, but Amazon’s momentum may make it

impossible for Walmart to ever catch up online. When Walmart

doubled its online revenue last year, that meant an increase of

only $2 billion to $3 billion. Amazon increased its sales by more

than $10 billion. If Amazon keeps growing as expected, it will ex-

ceed $100 billion in sales by 2015, achieving that milestone in just

21 years and becoming the fastest company in history to do so (it

took Walmart 36 years). At that point, it is possible that Amazon

will have pulled off the impossible—becoming the second-largest

U.S. retailer with only one more to pass.

Amazon also has diversification in its DNA. It recognizes that

online commerce is just one element of a comprehensive strategy.

From its beginnings, Amazon has invested heavily in acquiring and

developing technologies that are allowing it to branch into online

services that form an entire online ecosystem, capturing every as-

pect of a person’s life—from entertainment to social networking

to mobile communications—all with links to its online superstore.

In addition to its highly recognizable online brand, Amazon.

com sports a larger assortment than Walmart and an unparal-

leled online customer shopping experience. Its sophisticated

distribution network, built specifically for Internet shopping,

means shipping is always fast. And with Amazon Prime, it’s even

faster—and free.

The Double-Edged Sword For now, price remains a central competitive weapon as

Walmart and Amazon battle online. But in the long run, reckless

References 1. Quotes and other information from Annie Gasparro, “Panera Boosts

Ad Budget as ‘Fast Casual’ Heats Up,” Wall Street Journal, March 8,

2012, p. B7; Mark Brandau, “Bakery-Café Segment Expand-

ing,” Restaurant News, October 11, 2011, http://nrn.com/article/

study-bakery-caf%C3%A9-segment-expanding; Kate Rockwood,

“Rising Dough: Why Panera Bread Is on a Roll,” Fast Company,

October 2009, pp. 69–70; “Standouts in Customer Service,”

Bloomberg Businessweek, April 14, 2011, www.businessweek

.com/interactive_reports/customer_service_2010.html; Tiffany Hsu,

“Fast- Casual Restaurants Gobble Up Market Share,” Los Angeles

Times, December 22, 2011; and www.panerabread.com, accessed

November 2012.

2. For comprehensive discussions of pricing strategies, see Thomas T. Nagle, John E. Hogan, and Joseph Zale, The Strategy and Tactics

of Pricing, 5th ed. (Upper Saddle River, New Jersey: Prentice Hall,

2011).

3. Adapted from information found in Mei Fong, “IKEA Hits Home in China; The Swedish Design Giant, Unlike Other Retailers, Slashes Prices

for the Chinese,” Wall Street Journal, March 3, 2006, p. B1; “Beijing

Loves IKEA—But Not for Shopping,” Los Angeles Times, http://articles

.latimes.com/2009/aug/25/business/fi-china- ikea25; “China: Assem-

bling Ideas for IKEAs in China,” Asia News Monitor, February 17, 2012;

and www.ikea.com/ms/en_US/about_ikea/facts_and_figures/index.

html, accessed September 2012.

4. Danielle Kucera, “Amazon Profit Plunges after New Products In- crease Expenses; Shares Tumble,” Bloomberg, October 25, 2011,

www.bloomberg.com/news/2011-10-25/amazon-profit-plunges-

after-new-products-increase-expenses-shares-tumble.html.

Chapter 11 | Pricing Strategies: Additional Considerations 359 5. See Steve Henshaw, “Some Products No Longer a Steal,”

McClatchy-Tribune Business News, March 19, 2012; and “Gillette

Shaves Prices as It’s Nicked by Rivals Both New and Old,” Advertis-

ing Age, April 2, 2012, http://adage.com/print/234019.

6. Information from “What Happens to All That Poo at the Zoo . . .,” www .youtube.com/watch?v=kjfNVEvRI3w&feature=player_embedded#,

accessed /June 2012; “Zoo Doo® at Woodland Park Zoo,” www.zoo

.org/zoo-doo, accessed November 2012.

7. For this and other examples, see Peter Coy, “Why the Price Is Rarely Right,” Bloomberg Businessweek, February 1 & 8, 2010,

pp. 77–78.

8. Anthony Allred, E. K. Valentin, and Goutam Chakraborty, “Pricing Risky Services: Preference and Quality Considerations,” Journal of

Product and Brand Management, Vol. 19, No. 1, 2010, p. 54. Also

see Kenneth C. Manning and David E. Sprott, “Price Endings, Left-

Digit Effects, and Choice,” Journal of Consumer Research, August

2009, pp. 328–336; and Carl Bialik, Elizabeth Holmes, and Ray Smith,

“Many Discounts, Few Deals,” Wall Street Journal, December 15,

2010, p. D12.

9. See the Chapter 10 opening story on JCPenney and Rafi Mohammed, “J.C. Penney’s Risky New Pricing Strategy,” Harvard Business Review,

January 30, 2012, http://blogs.hbr.org/cs/2012/01/understanding_jc_

penneys_risky.html; and Margret Brennan, “J.C. Penney CEO Johnson

on Pricing, Store Overhaul,” Bloomberg video, January 25, 2012, www

.bloomberg.com/video/84891104/.

10. Adapted from Justin D. Martin, “Dynamic Pricing: Internet Retailers Are Treating Us Like Foreign Tourists in Egypt,” Christian Science Monitor,

January 7, 2011. See also Patrick Rishe, “Dynamic Pricing: The Fu-

ture of Ticket Pricing in Sports,” Forbes, January 6, 2012, www.forbes

.com/sites/prishe/2012/01/06/dynamic-pricing-the-future-of-ticket-

pricing-in-sports/; and Mike Southon, “Time to Ensure the Price Is

Right,” Financial Times, January 21, 2012, p. 30.

11. For more on showrooming, see Dana Matioli, “Retailers Try to Thwart Price Apps,” Wall Street Journal, December 23, 2011;

Miguel Bustillo, “Best Buy Forced to Rethink Big-Box,” Wall Street

Journal, March 29, 2012; and Ann Zimmerman, “Can Retailers Halt

‘Showrooming’?” Wall Street Journal, April 11, p. B1.

12. Based on information found in “The World’s Most Influential Com- panies: Unilever,” BusinessWeek, December 22, 2008, p. 47; and

www.unilever.com/sustainability/, accessed November 2009. Also

see Ashish Karamchandani, Mike Kubzansky, and Nishant Lalwani,

“Is the Bottom of the Pyramid Really for You?” Harvard Business

Review, March 2011, pp. 107–112; and C. K. Prahalad, “Bottom of

the Pyramid as a Source of Breakthrough Innovations,” Journal of

Product Innovation Management, January, 2012, pp. 6–12.

13. Information from Maureen Morrison, “Seattle’s Best Launches First Major Ad Campaign,” Advertising Age, January 10, 2011, http://adage

.com/article/news/seattle-s-coffee-launches-ad-campaign/148118/;

“Starbuck’s Kid Brother Grows Up Fast,” Bloomberg Businessweek,

April 25–May 1, 2011, pp. 26–27; “Seattle’s Best Coffee: Forget the

Flowers, Poems, and Chocolate,” Marketing Weekly News, February 25,

2012, p. 585; and www.starbucks.com, accessed September 2012.

14. For discussions of these issues, see Dhruv Grewel and Larry D. Compeau, “Pricing and Public Policy: A Research Agenda and Over-

view of the Special Issue,” Journal of Public Policy and Marketing,

Spring 1999, pp. 3–10; Michael V. Marn, Eric V. Roegner, and Craig

C. Zawada, The Price Advantage (Hoboken, New Jersey: John Wiley

& Sons, 2004), Appendix 2; and Thomas T. Nagle, John E. Hogan,

and Joseph Zale, The Strategy and Tactics of Pricing, 5th ed. (Upper

Saddle River, NJ: Prentice Hall, 2011).

15. See Foo Yun Chee, “Unilever, P&G Fined 315 Million Euros for Price Fix- ing,” Reuters, April 13, 2011, www.reuters.com/article/2011/04/13/

us-eu-cartel-idUSTRE73C1XV20110413; “France Fines P&G and

Colgate for Laundry Prices,” Bloomberg Businessweek, December 8,

2011, www.businessweek.com/ap/financialnews/D9RGGB3O0.htm; and

Joseph Vogel, “Laundry Detergent Cartel Members Fined Heav-

ily Following Leniency Procedure,” International Law Office, Feb-

ruary 23, 2012, www.internationallawoffice.com/newsletters/

detail.aspx?g=ad5133b6-98a3-4fe9-b344-bef35c531234.

16. Based on information found in Lynn Leary, “Publishers and Book- sellers See a ‘Predatory’ Amazon,” NPR Books, January 23, 2012,

www.npr.org/2012/01/23/145468105/publishers-and-booksellers-

see-a-predatory-amazon.

17. “FTC Guides against Deceptive Pricing,” www.ftc.gov/bcp/guides/ decptprc.htm, accessed November 2012.

video distribution business. In only the past few years, a growing

glut of video access options has materialized. At the same time that

Netflix ascended and Blockbuster plunged, Coinstar’s Redbox

came out of nowhere to build a novel national network of $1-a-day

DVD-rental kiosks. Then high-tech start-ups such as Hulu—with

its high-quality, ad-supported free access to movies and current

TV shows—began pushing digital streaming via the Internet.

All along the way, Netflix has acted boldly to stay ahead

of the competition. For example, in 2007 rather than sitting on

the success of its still-hot DVD-by-mail business, Netflix and its

CEO, Reed Hastings, set their sights on a then-revolutionary

new video distribution model: Deliver the Netflix service to

every Internet-connected screen, from laptops to Internet-ready

TVs to mobile phones and other Wi-Fi-enabled devices. Netflix

Part 1: Defining Marketing and the Marketing Process (Chapters 1–2)

Part 2: Understanding the Marketplace and Consumers (Chapters 3–6)

Part 3: Designing a Customer-Driven Strategy and Mix (Chapters 7–17)

Part 4: Extending Marketing (Chapters 18–20)

Marketing Channels Delivering Customer Value12

Chapter Preview We now arrive at the third

marketing mix tool—distribution.

Companies rarely work alone in creating value for customers and

building profitable customer relationships. Instead, most are only a

single link in a larger supply chain and marketing channel. As such,

a firm’s success depends not only on how well it performs but also

on how well its entire marketing channel competes with competi-

tors’ channels. The first part of this chapter explores the nature of

marketing channels and the marketer’s channel design and man-

agement decisions. We then examine physical distribution—or

logistics—an area that is growing dramatically in importance and

sophistication. In the next chapter, we’ll look more closely at two

major channel intermediaries: retailers and wholesalers.

We start by looking at Netflix. Though innovative distribution,

Netflix has become the world’s largest video subscription service.

But as baseball great Yogi Berra, known more for his mangled

phrasing than for his baseball prowess, once said, “The future

ain’t what it used to be.” To stay atop the churning video distribu-

tion industry, Netflix must continue to innovate at a break-neck

pace or risk being pushed aside.

Netflix’s Channel Innovation: Finding the Future by Abandoning the Past

T ime and again, Netflix has innovated its way to the top

in the distribution of video entertainment. In the early

2000s, Netflix’s revolutionary DVD-by-mail service

put all but the most powerful movie-rental stores out

of business. In 2007, Netflix’s then ground-breaking move into

digital streaming once again revolutionized how people accessed

movies and other video content. Now, with Netflix leading the

pack, video distribution has become a boiling, roiling pot of

emerging technologies and high-tech competitors, one that offers

both mind-bending opportunities and stomach-churning risks.

Just ask Blockbuster. Only a few years ago, the giant brick-

and-mortar movie-rental chain flat-out owned the industry. Then

along came Netflix, the fledgling DVD-by-mail service. First

thousands then millions of subscribers were drawn to Netflix’s

innovative distribution model—no more trips to the video

store, no more late fees, and a selection of more

than 100,000 titles that dwarfed anything

Blockbuster could offer. Even better,

Netflix’s $5-a-month subscription

rate cost little more than renting a

single video from Blockbuster. In

2010, as Netflix surged, once-mighty

Blockbuster fell into bankruptcy.

The Blockbuster riches-to-rags story

underscores the turmoil that typifies today’s

Time and again, Netflix has innovated its way to the top in the distribution

of video entertainment. But to stay atop its boiling, roiling industry, Netflix must keep the innovation

pedal to the metal.

Chapter 12 | Marketing Channels: Delivering Customer Value 361

Prime members at no additional

cost. Google recently moved be

yond its YouTube rental service

entertainment portal for movies,

has joined forces with Verizon to

launch Xfi nity Streampix, which

offers subscribers streaming ac

cess to older movies and television

programs via their TVs or mobile

devices. Apple and Samsung are creating smoother integration

with streaming content via smart TVs. And Hulu is considering

the launch of a virtual cable service, which would offer online

operators but at a lower price.

Moving ahead, as the industry settles into streaming as the

fl ix remains well ahead in the content race. Amazon and Hulu

Plus currently have only a fraction of Netfl ix’s offerings, and

Netfl ix captures 10 times the total viewing hours of either com

studios become harder to get, in yet another innovative video

distribution twist, Netfl ix and its competitors are now starting to

develop their own original programming. For example, Netfl ix

for exclusive rights to air House of Cards, a brand new series pro duced by Hollywood bigwigs David Fincher and Kevin Spacey.

Thus, from DVDs by mail, to Watch Instantly, to video

streaming on almost any device, to developing original content,

does best—innovate and revolutionize distribution. What’s next?

grow old in a hurry. To stay ahead, as one headline suggests,

Netfl ix must “fi nd its future by abandoning its past.”1

Netfl ix’s innovative

distribution strategy:

Netfl ix and its CEO,

Reed Hastings, are bent

on speeding up the

company’s leap from

success in DVD rentals

to success in digital

streaming. What’s next?

REUTERS/Mike Cassese

began by launching its Watch In

stantly service, which let Netfl ix

members stream movies instantly

to their computers as part of their

monthly membership fee, even if it

booming DVD business.

Although Netfl ix didn’t pio

neer digital streaming, it poured

resources into improving the tech

nology and building the largest

streaming library. It built a customer

base of nearly 25 million subscrib

ers, and sales and profi ts soared.

With its massive physical DVD li

brary and a streaming library of

movies accessible via 200 different

that nothing could stop Netfl ix.

But Netfl ix’s stunning success

drew a slew of resourceful competitors. In 2010, video giants such

as Google’s YouTube and Apple’s iTunes began renting movie

vation pedal to the metal. So in the summer of 2011, in an ambi

rate subscriptions for DVD rentals and streaming (at a startling

60 percent price increase for customers using both). The Netfl ix

name would now stand for nothing but digital streaming, which

would be the primary focus of the company’s future growth.

Although perhaps visionary, Netfl ix’s abrupt changes

admitted its blunder and reversed its decision to set up a sepa

moving too fast, which is what we did in this case,” Hastings

separate, higher pricing for DVDs by mail.

replaced almost all of its lost subscribers. What’s more, with a

60 percent higher price on roughly the same number of custom

ers, revenues jumped a whopping 47 percent year over year.

Given Netfl ix’s fast recovery, now more than ever, Hastings

seems bent on speeding up the company’s leap from success

in DVDs to success in streaming. “I’m moving ahead step by

step, despite the foot with the bullet hole,” he says. Although

the company’s promotions and Web site barely mention that op

tion. The focus is now squarely on streaming video.

at a blurring rate. For example, Amazon has begun its own

362 Part 3 |

As the Netfl ix story shows, good distribution strategies can contribute strongly to customer value and create competitive advantage for a fi rm. But fi rms cannot bring value

Supply Chains and the Value Delivery Network

pany’s supply chain. This supply chain consists of upstream and downstream partners. Upstream from the company is the set of fi rms that supply the raw materials, components,

ers, however, have traditionally focused on the downstream side of the supply chain—the

marketing channels (or distribution channels

the fi rm and its customers.

Objective 1 Explain why companies use

marketing channels and discuss

the functions these channels

perform.

Objective Outline

Objective 1 Explain why companies use marketing channels and discuss the functions these channels perform.

Supply Chains and the Value Delivery Network (pp 362–363)

The Nature and Importance of Marketing Channels (pp 363–366)

Objective 2 Discuss how channel members interact and how they organize to perform the work of the channel.

Channel Behavior and Organization (pp 366–371)

Objective 3 Identify the major channel alternatives open to a company.

Channel Design Decisions (pp 371–375)

Objective 4 Explain how companies select, motivate, and evaluate channel members.

Channel Management Decisions (pp 375–376)

Public Policy and Distribution Decisions (pp 376–379)

Objective 5 Discuss the nature and importance of marketing logistics and integrated supply chain management.

Marketing Logistics and Supply Chain Management (pp 379–387)

Chapter 12 | Marketing Channels: Delivering Customer Value 363 The term supply chain

a view of the business. It suggests that

raw materials, productive inputs, and factory capacity

A better term would be demand chain because it suggests a

planning starts by identifying the needs of target cus

tomers, to which the company responds by organizing a

chain of resources and activities with the goal of creating

customer value.

Yet, even a demand chain view of a business may be

large companies today are engaged in building and man

aging a complex, continuously evolving value delivery net

value delivery network

is made up of the company, suppliers, distributors, and,

ultimately, customers who “partner” with each other to im

prove the performance of the entire system. For example,

sands of suppliers and dealers outside the company who

tant? How do channel fi rms interact and organize to do the

designing and managing their channels? What role do physi

cal distribution and supply chain management play in attract

and wholesalers.

The Nature and Importance of Marketing Channels Few producers sell their goods directly to fi nal users. Instead, most use intermediaries to

marketing channel (or distribution

channel

able for use or consumption by the consumer or business user.

specialty stores, or sells directly to consumers online. The fi rm’s sales force and communi

cations decisions depend on how much persuasion, training, motivation, and support its

channel partners need. Whether a company develops or acquires certain new products may

depend on how well those products fi t the capabilities of its channel members.

damaging results. In contrast, many companies have used imaginative distribution systems

changed the face of retailing and became the Walmart of the Internet by selling anything

and everything without using physical stores.

Value delivery network: In making and marketing just one of its

many models—say, the Honda Insight hybrid—Honda manages a

huge network of people within Honda plus thousands of suppliers and

dealers outside the company who work together to give fi nal custom

ers an innovative car “from Honda. for Everyone.”

Print advertisement provided courtesy of American Honda Motor Co., Inc.

Value delivery network

customers who partner with each other

Marketing channel (or distribution channel)

364 Part 3 |

For example, companies such as Ford, McDonald’s, or HP can easily change their advertis

ing, pricing, or promotion programs. They can scrap old products and introduce new ones

with franchisees, independent dealers, or large retailers, they cannot readily replace these

environment and tomorrow’s as well.

How Channel Members Add Value Why do producers give some of the selling job to channel partners? After all, doing so

means giving up some control over how and to whom they sell their products. Producers

diaries usually offer the fi rm more than it can achieve on its own.

Figure 12.1 shows how using intermediaries can provide economies. Figure 12.1A

through one distributor, which contacts the three customers. This system requires only six

producers and consumers.

transform the assortments of products made by producers into the assortments wanted

quantities and broader assortments desired by consumers.

along with a shopping cart full of small quantities of toothpaste, shampoo, and other re

lated products, as you need them. Thus, intermediaries play an important role in matching

supply and demand.

by bridging the major time, place, and possession gaps that separate goods and services

Information: Gathering and distributing information about consumers, producers, and

exchange.

Promotion: Developing and spreading persuasive communications about an offer. Contact: Finding and communicating with prospective buyers.

A. Number of contacts without a distributor B. Number of contacts with a distributor

DistributorMarketing channel intermediaries make buying a lot easier for consumers. Again, think about life without grocery retailers. How would you go about

or any of the hundreds of other items that you now

FIGURE | 12.1

Channel Transactions

Chapter 12 | Marketing Channels: Delivering Customer Value 365 Matching: Shaping offers to meet the buyer’s needs, including activities such as manu

Negotiation: session can be transferred.

Physical distribution: Transporting and storing goods. Financing: Risk taking:

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

to intermediaries, the producer’s costs and prices may be lower, but the intermediaries must

functions should be assigned to the channel members who can add the most value for the cost.

Number of Channel Levels

channel level.

every channel.

The number of intermediary levels indicates the length of a channel. Figure 12.2 shows both consumer and business channels of different lengths. Figure 12.2A shows several com

direct marketing channel, has

no intermediary levels—the company sells directly to consumers. For example, Mary Kay

rectly to customers via the Internet and telephone. The remaining channels in Figure 12.2A

are indirect marketing channels, containing one or more intermediaries.

Figure 12.2B shows some common business distribution channels. The business mar

A. Consumer marketing channels

Channel 3Channel 2Channel 1

B. Business marketing channels

Channel 3Channel 2Channel 1

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

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

FIGURE | 12.2

Marketing Channels

Channel level

Direct marketing channel

A marketing channel that has no

Indirect marketing channel

A marketing channel containing one or

366 Part 3 | various types of intermediaries, who in turn sell to these customers. Although consumer

are less common. From the producer’s point of view, a greater number of levels means

less control and greater channel complexity. Moreover, all the institutions in the channel

are connected by several types of flows. These include the physical flow of products, the flow of ownership, the payment flow, the information flow, and the promotion flow. These fl ows can

Channel Behavior and Organization Distribution channels are more than simple collections of fi rms tied together by various

fl ows. They are complex behavioral systems in which people and companies interact to

accomplish individual, company, and channel goals. Some channel systems consist of only

guided by strong organizational structures. Moreover, channel systems do not stand still—

Channel Behavior

channel member depends on the others. For example, a Ford dealer depends on Ford

to design cars that meet customer needs. In turn, Ford depends on the dealer to attract

dealer also depends on other dealers to provide good sales and service that will uphold the

brand’s reputation. In fact, the success of individual Ford dealers depends on how well the

through national advertising. Best Buy’s role is to display these Samsung products in

convenient locations, answer buyers’ questions, and complete sales. The channel will be

Ideally, because the success of individual channel members depends on the overall

stand and accept their roles, coordinate their activities, and cooperate to attain overall

erating to achieve overall channel goals sometimes means giving up individual company

goals. Although channel members depend on one another, they often act alone in their

what and for what rewards. Such disagreements over goals, roles,

and rewards generate channel confl ict.

Horizontal conflict occurs among fi rms at the same level of the

plain that other dealers in the city steal sales from them by pricing

Inn franchisees might complain about other Holiday Inn operators

overcharging guests or giving poor service, hurting the overall Hol

iday Inn image.

Vertical conflict, confl ict between different levels of the same channel, is even more common.

chisees came into confl ict over the company’s decision to empha

than 4,000 U.S. franchisees have cried “foul” when the chain intro

abandoning the brand’s Southern fried legacy would confuse

Objective 2 Discuss how channel members

interact and how they organize to

perform the work of the channel.

Channel confl ict: KFC came into confl ict with its franchisees

over the brand’s “Unthink KFC” repositioning, which

emphasized grilled chicken over its traditional Kentucky

fried. “We ought to be shooting the competition,” says one

franchisee. “Instead, we’re shooting one another.”

Joshua Lutz/Redux

Channel confl ict

Disagreements among marketing

Chapter 12 | Marketing Channels: Delivering Customer Value 367

campaign began

fi gure out a way out of [the current] sales decline. We ought to be shooting the competition,” says

one franchisee. “Instead, we’re shooting one another.”

can be good for the channel; without it, the channel could become passive and noninnova

over the respective rights of the channel partners. However, severe or prolonged confl ict

Vertical Marketing Systems For the channel as a whole to perform well, each channel member’s role must be specifi ed,

and channel confl ict must be managed. The channel will perform better if it includes a fi rm,

agency, or mechanism that provides leadership and has the power to assign roles and man

age confl ict.

Historically, conventional distribution channels

velopments over the years has been the emergence of vertical marketing systems that provide channel leadership. Figure 12.3 contrasts the two types of channel arrangements.

A conventional distribution channel consists of one or more independent produc

profi ts, perhaps even at the expense of the system as a whole. No channel member has

much control over the other members, and no formal means exists for assigning roles and

resolving channel confl ict.

In contrast, a vertical marketing system (VMS) consists of producers, wholesalers,

with them, or wields so much power that they must all cooperate. The VMS can be domi

nated by the producer, the wholesaler, or the retailer.

Wholesaler Retailer

Conventional marketing channel

Producer

Wholesaler

Retailer

Vertical marketing

system

Producer

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

FIGURE | 12.3

Channel with Vertical

Conventional distribution channel

Vertical marketing system (VMS)

368 Part 3 | corporate, contractual, and administered

uses a different means for setting up leadership and power in the channel.

Corporate VMS A corporate VMS integrates successive stages of production and distribution under single

tional channels. For example, the grocery giant Kroger owns and operates 40 manufacturing

label items found on its shelves.3 And integrating the entire distribution chain—from its own

design and manufacturing operations to distribution through its own managed stores—has 4

moderate prices. However, Zara’s amazing success comes not just from what it sells, but from how fast delivers what it sells. Zara delivers fast fashion—really

Speedy design and distribution allows Zara to introduce a copious supply of new fashions—

at three times the rate of competitor introductions. Then, Zara’s distribution system supplies its

competing chains’ outlets, which get large shipments seasonally, usually just four to six times

per year. The combination of a large number of timely new fashions delivered in frequent small

more often. Fast turnover also results in less outdated and discounted merchandise. “Instead

Contractual VMS A contractual VMS consists of independent fi rms at different levels of production and

distribution who join together through contracts to obtain more economies or sales impact

confl ict through contractual agreements.

The franchise organization is

the most common type of contractual

relationship. In this system, a channel

member called a franchisor

process. In the United States alone, some

lion of economic output. Industry ana

lysts estimate that a new franchise outlet

opens somewhere in the United States

every eight minutes and that about one

out of every 12 retail business outlets

is a franchised business.5 Almost every

dental centers and dating services, from

wedding consultants and handyman

services to fi tness centers and funeral

homes.

There are three types of franchises.

The fi rst type is the

sponsored retailer franchise system—for

dependent franchised dealers. The

Corporate VMS

Franchising systems: Almost every kind of business has been franchised—from motels

Mr. Handyman International

Contractual VMS

Franchise organization

Chapter 12 | Marketing Channels: Delivering Customer Value 369 second type is the —

and then bottle and sell the fi nished product to retailers locally. The third type is the

—for example, Burger King and its nearly

found in everything from auto rentals (Hertz, Avis), apparel retailers (The Athlete’s Foot,

Mr. Handyman).

The fact that most consumers cannot tell the difference between contractual and corpo

rate VMSs shows how successfully the contractual organizations compete with corporate

chains. The next chapter presents a fuller discussion of the various contractual VMSs.

Administered VMS In an administered VMS, leadership is assumed not through common ownership or con

tractual ties but through the size and power of one or a few dominant channel members.

Manufacturers of a top brand can obtain strong trade cooperation and support from resell

ers regarding displays, shelf space, promotions, and price policies. In turn, large retailers

manufacturers that supply the products they sell.

For example, with commodity prices increasing, many consumer goods manufacturers

want to pass these costs along to Walmart and other retailers in the form of higher prices.

However, Walmart wants to hold the line on its own costs and prices in order to maintain

tween Walmart and its suppliers, a tussle in which Walmart—the biggest grocery seller

the company’s strong consumer brand preference gives it signifi cant negotiating power,

so maintaining a strong relationship with the giant retailer is crucial.6

Horizontal Marketing Systems Another channel development is the horizontal marketing system, in which two or

more than any one company could alone.

a temporary or permanent basis, or they may create

a separate company. For example, Walmart—famous

for squeezing costs out of its supply chain—wants to

jointly for a lower price than either company could

get alone. That would help both companies to earn

more on the spuds and chips they sell in Walmart’s

stores. Walmart also partners with McDonald’s

to place “express” versions of McDonald’s restau

rants in Walmart stores. McDonald’s benefi ts from

hungry shoppers from needing to go elsewhere

to eat.7

forces to create a horizontal Internet search alli

advertising services for both companies. The collabo

ration, dubbed Bingahoo by industry insiders, has

proven benefi cial. Because one advertising purchase

Administered VMS

Horizontal marketing system

A channel arrangement in which two or

Horizontal marketing channels: McDonald’s places “express” versions

of its restaurants in Walmart stores. McDonald’s benefi ts from Walmart’s

heavy store traffi c and Walmart keeps hungry shoppers from needing to go

elsewhere to eat.

Photo courtesy of Gary Armstrong

370 Part 3 |

companies together a stronger challenger to industry leader Google.

Multichannel Distribution Systems

ment. Today, with the proliferation of customer segments and channel possibilities, more

and more companies have adopted multichannel distribution systems. Such multi

reach one or more customer segments.

Figure 12.4

reaches consumer segment 2 through retailers. It sells indirectly to business segment 1

through distributors and dealers and to business segment 2 through its own sales force.

These days, almost every large company and many small ones distribute through

multiple channels. For example, John Deere sells its familiar green and yellow lawn and

garden tractors, mowers, and outdoor power products to consumers and commercial us

stores, and online. It sells and services its tractors, combines, planters, and other agricul

and their sales forces.

Multichannel distribution systems offer many advantages to companies facing large

coverage and gains opportunities to tailor its products and services to the specifi c needs of

diverse customer segments. But such multichannel systems are harder to control, and they

generate confl ict as more channels compete for customers and sales. For example, when

ing channels, the company routes all of its Web site sales to John Deere dealers.

Changing Channel Organization

toward disintermediation—a big term with a clear message and important consequences.

Disintermediation occurs when product or service producers cut out intermediaries and

go directly to fi nal buyers or when radically new types of channel intermediaries displace

traditional ones.

Business segment 1

Consumer segment 1

Business segment 2

Most large companies distribute through multiple channels. For example, you could buy a familiar green and yellow John Deere lawn tractor from a neighborhood John Deere dealer or from Lowe’s. A large farm or forestry business would buy larger John Deere equipment

dealer and its sales force.

Consumer segment 2

FIGURE | 12.4

Multichannel distribution system

firm sets up two or more marketing

channels to reach one or more customer

Disintermediation

Chapter 12 | Marketing Channels: Delivering Customer Value 371 Thus, in many industries, tradi

tional intermediaries are dropping by

the wayside. For example, Southwest,

directly to fi nal buyers, cutting travel

altogether. In other cases, new forms

of resellers are displacing traditional

intermediaries, as is the case with on

For example, online music download

services such as iTunes and Amazon

MP3 have pretty much put traditional

years, and it has recently forced highly

successful store retailers such as Best

operating models. In fact, many retail

ing experts question whether stores

run against online rivals.9

Disintermediation presents both opportunities and problems for producers and re

traditional resellers and reap the rewards. In turn, traditional intermediaries must continue

survival.10

channel opportunities, such as the Internet and other direct channels. However, developing

these new channels often brings them into direct competition with their established chan

that many customers would prefer to buy its guitars, amps, and accessories online. But

selling directly through its Web site would create confl icts with retail partners, from large

Amman, Jordan. So Fender’s Web site provides detailed information about the company’s

products, but you can’t buy a new Fender Stratocaster or Acoustasonic guitar there. Instead,

the Fender Web site refers you to its resellers’ Web sites and stores. Thus, Fender’s direct

Channel Design Decisions

ing channels, manufacturers struggle between what is ideal and what is practical. A new

convince one or a few good intermediaries to handle the line.

Disintermediation: Resellers must innovate or risk being swept aside. For example, Barnes &

Noble, the giant that helped put so many independent booksellers out of business, now faces

Bloomberg via Getty Images

Objective 3 Identify the major channel

alternatives open to a company.

372 Part 3 |

sell through distributors. In one part of the country, it might grant exclusive franchises; in

another, it might sell through all available outlets. Then it might add an Internet store that

be more purposeful. Marketing channel design calls for analyzing consumer needs,

setting channel objectives, identifying major channel alternatives, and evaluating those

alternatives.

Analyzing Consumer Needs

work

Do consumers want to buy from nearby locations or are they willing to travel to more dis

tant and centralized locations? Would customers rather buy in person, by phone, or online?

Do they value breadth of assortment or do they prefer specialization? Do consumers want

or will they obtain these services elsewhere? The faster

the delivery, the greater the assortment provided, and

channel’s service level.

Providing the fastest delivery, the greatest as

sortment, and the most services may not be possible

or practical, however. The company and its channel

to provide all the desired services. Also, providing

higher levels of service results in higher costs for

the channel and higher prices for consumers. For

example, your local independent hardware store

probably provides more personalized service, a more

convenient location, and less shopping hassle than

it may also charge higher prices. The company must

balance consumer needs not only against the feasibil

ity and costs of meeting these needs but also against

customer price preferences. The success of discount

retailing shows that consumers will often accept

lower service levels in exchange for lower prices.

Setting Channel Objectives

customer service. Usually, a company can identify several segments wanting different lev

els of service. The company should decide which segments to serve and the best channels

to use in each case. In each segment, the company wants to minimize the total channel cost

of meeting customer service requirements.

The company’s channel objectives are also infl uenced by the nature of the company,

handling.

In some cases, a company may want to compete in or near the same outlets that carry

competitors’ products. For example, Maytag wants its appliances displayed alongside com

peting brands to facilitate comparison shopping. In other cases, companies may avoid the

ers through its corps of more than two million independent beauty consultants in more than

Marketing channel design

Meeting customers’ channel service needs: Your local hardware store

probably provides more personalized service, a more convenient location,

and less shopping hassle than a huge Home Depot or Lowe’s store. But it

may also charge higher prices.

DAVID WALTER BANKS/The New York Times/Redux Pictures

Chapter 12 | Marketing Channels: Delivering Customer Value 373

scarce positions in retail stores.11

ance directly to consumers via the telephone and the Internet rather than through agents.

Finally, environmental factors such as economic conditions and legal constraints may

affect channel objectives and design. For example, in a depressed economy, producers will

want to distribute their goods in the most economical way, using shorter channels and

dropping unneeded services that add to the fi nal price of the goods.

Identifying Major Alternatives When the company has defi ned its channel objectives, it should next identify its major chan

nel alternatives in terms of the types of intermediaries, the number of intermediaries, and the responsibilities of each channel member.

Types of Intermediaries A fi rm should identify the types of channel members available to carry out its channel

Dell sold directly to fi nal consumers and business buyers only through its sophisticated

and government buyers using its direct sales force. However, to reach more consumers and

match competitors such as HP and Apple, Dell now sells indirectly through retailers such as

pendent distributors and dealers who develop computer systems and applications tailored

will be more diffi cult to manage and control. In addition, the direct and indirect channels

will compete with each other for many of the same customers, causing potential confl ict.

direct sales reps are undercutting their business.

Number of Marketing Intermediaries

intensive distribution

as possible. These products must be available where and when consumers want them. For

example, toothpaste, candy, and other similar items are sold in millions of outlets to pro

By contrast, some producers purposely limit the number of intermediaries handling

their products. The extreme form of this practice is exclusive distribution, in which the

producer gives only a limited number of dealers the exclusive right to distribute its prod

brands. For example, exclusive Bentley automobiles are typically sold by only a handful

ers also practice exclusive distribution.

select

corps of independent hardware and lawn and garden dealers. By granting exclusive distri

added dealer service.

Between intensive and exclusive distribution lies selective distribution—the use

of more than one but fewer than all of the intermediaries who are willing to carry a

company’s products. Most television, furniture, and home appliance brands are dis

Intensive distribution

Exclusive distribution

Selective distribution

374 Part 3 |

By using selective distribution, they can develop good

age with more control and less cost than does intensive

distribution.

Responsibilities of Channel Members The producer and the intermediaries need to agree on the

terms and responsibilities of each channel member. They

should agree on price policies, conditions of sale, territory

rights, and the specifi c services to be performed by each

party. The producer should establish a list price and a fair

set of discounts for the intermediaries. It must defi ne each

channel member’s territory, and it should be careful about

where it places new resellers.

Mutual services and duties need to be spelled out

carefully, especially in franchise and exclusive distri

bution channels. For example, McDonald’s provides

system, training at Hamburger University, and gen

eral management assistance. In turn, franchisees must

meet company standards for physical facilities and

food quality, cooperate with new promotion programs,

provide requested information, and buy specifi ed food

products.

Evaluating the Major Alternatives Suppose a company has identifi ed several chan

nel alternatives and wants to select the one that will

should be evaluated against economic, control, and

adaptability criteria.

Using economic criteria of different channel alternatives. What will be the investment required by each channel

alternative, and what returns will result? The company must also consider control issues.

ply adaptability criteria

economic and control grounds.

Designing International Distribution Channels

changes very slowly. These channel systems can vary widely from country to country.

tures within each country.

ing of many layers and large numbers of intermediaries. For example, many Western

companies fi nd Japan’s distribution system diffi cult to navigate. It’s steeped in tradition

Exclusive distribution: STIHL sells its chain saws, blowers, hedge

trimmers, and other products through a select corps of independent

hardware and lawn and garden retailers. “We count on them every day

and so can you.”

Courtesy of STIHL, Inc.

Chapter 12 | Marketing Channels: Delivering Customer Value 375 and very complex, with many distributors touching the product before it arrives on the

store shelf.

At the other extreme, distribution systems in developing countries may be scattered,

with a population well over one billion people. However, because of inadequate distribu

tion systems, most companies can profi tably access only a small portion of the population

distribution system is so fragmented that logistics costs to wrap, bundle, load, unload,

sort, reload, and transport goods amount to more than 17 percent of the nation’s GDP, far

higher than in most other countries. (U.S. logistics costs account for just under 9 percent

of the nation’s GDP.) After years of effort, even Walmart executives admit that they have 12

Sometimes local conditions can greatly infl uence how a company distributes prod

South Korea, where crowded streets and high

cal, delivery is becoming an important part of

livery drivers in colorful uniforms to dispense Big

now offer delivery. “We’ve used the slogan, ‘If

you can’t come to us, we’ll come to you,’” says

the division’s president. More than 30 percent of

its Singapore sales come from delivery. Similarly,

range of channel alternatives. Designing effi

cient and effective channel systems between and

challenge. We discuss international distribution

Channel Management Decisions

nel design, it must implement and manage the chosen channel. Marketing channel

management calls for selecting, managing, and motivating individual channel members

and evaluating their performance over time.

Selecting Channel Members

ers have no trouble signing up channel members. For example, when Toyota fi rst intro

The McDonald’s delivery guy: In cities like Beijing, Seoul, and Cairo, armies

of motorbike delivery drivers outfi tted in colorful uniforms and bearing food

in specially designed boxes strapped to their backs make their way through

bustling traffi c to deliver Big Macs.

Objective 4 Explain how companies select,

motivate, and evaluate channel

members.

Marketing channel management

376 Part 3 | Designing a Customer-Driven Strategy and Mix At the other extreme are producers who have to work hard to line up enough qualified

intermediaries. For example, when Timex first tried to sell its inexpensive watches through

regular jewelry stores, most jewelry stores refused to carry them. The company then man-

aged to get its watches into mass-merchandise outlets. This turned out to be a wise decision

because of the rapid growth of mass merchandising.

Even established brands may have difficulty gaining and keeping their desired dis-

tribution, especially when dealing with powerful resellers. For example, you won’t find

P&G’s Pampers diapers in a Costco store. After P&G declined to manufacture Costco’s

Kirkland store brand diapers a few years ago, Costco gave Pampers the boot and now only

carries Huggies and its own Kirkland brand (manufactured by Huggies maker Kimberly-

Clark). The removal by Costco, the number two diaper retailer after Walmart, has cost P&G

an estimated $150 million to $200 million in annual sales.14

When selecting intermediaries, the company should determine what characteris-

tics distinguish the better ones. It will want to evaluate each channel member ’s years

in business, other lines carried, location, growth and profit record, cooperativeness, and

reputation.

Managing and Motivating Channel Members Once selected, channel members must be continuously managed and motivated to do their

best. The company must sell not only through the intermediaries but also to and with them. Most companies see their intermediaries as first-line customers and partners. They practice

strong partner relationship management to forge long-term partnerships with channel mem- bers. This creates a value delivery system that meets the needs of both the company and its marketing partners.

In managing its channels, a company must convince suppliers and distributors that

they can succeed better by working together as a part of a cohesive value delivery sys-

tem. Thus, P&G works closely with Target to create superior value for final consumers. The

two jointly plan merchandising goals and strategies, inventory levels, and advertising and

promotion programs. Similarly, Toyota works to create supplier satisfaction, which in turn

helps to create greater customer satisfaction. Whether it’s heavy-equipment manufacturer

Caterpillar partnering with its network of large dealers or cosmetics maker L’Oréal building

mutually beneficial relationships with its large network of suppliers, companies must work

in close harmony with others in the channel to find better ways to bring value to customers

(see Real Marketing 12.1).

Many companies are now installing integrated high-tech partnership relationship

management (PRM) systems to coordinate their whole-channel marketing efforts. Just

as they use CRM software systems to help manage relationships with important cus-

tomers, companies can now use PRM and supply chain management (SCM) software to

help recruit, train, organize, manage, motivate, and evaluate relationships with channel

partners.

Evaluating Channel Members The company must regularly check channel member performance against standards such

as sales quotas, average inventory levels, customer delivery time, treatment of damaged

and lost goods, cooperation in company promotion and training programs, and services to

the customer. The company should recognize and reward intermediaries who are perform-

ing well and adding good value for consumers. Those who are performing poorly should

be assisted or, as a last resort, replaced.

Finally, companies need to be sensitive to the needs of their channel partners. Those

who treat their partners poorly risk not only losing their support but also causing some le-

gal problems. The next section describes various rights and duties pertaining to companies

and other channel members.

Public Policy and Distribution Decisions For the most part, companies are legally free to develop whatever channel arrangements

suit them. In fact, the laws affecting channels seek to prevent the exclusionary tactics of

some companies that might keep another company from using a desired channel. Most

Chapter 12 | Marketing Channels: Delivering Customer Value 377

Caterpillar partners closely with its worldwide network of independent dealers to bring

value to customers. When a big piece of Caterpillar equipment breaks down, customers

know that they can count on both Caterpillar and its outstanding dealer network for

support.

Caterpillar

Toyota

Real Marketing

378 Part 3 | Designing a Customer-Driven Strategy and Mix

channel law deals with the mutual rights and duties of channel members once they have

formed a relationship.

Many producers and wholesalers like to develop exclusive channels for their prod-

ucts. When the seller allows only certain outlets to carry its products, this strategy is called

exclusive distribution. When the seller requires that these dealers not handle competitors’ products, its strategy is called exclusive dealing. Both parties can benefit from exclusive ar- rangements: The seller obtains more loyal and dependable outlets, and the dealers obtain

a steady source of supply and stronger seller support. But exclusive arrangements also ex-

clude other producers from selling to these dealers. This situation brings exclusive dealing

contracts under the scope of the Clayton Act of 1914. They are legal as long as they do not

substantially lessen competition or tend to create a monopoly and as long as both parties

enter into the agreement voluntarily.

Exclusive dealing often includes exclusive territorial agreements. The producer may agree not to sell to other dealers in a given area, or the buyer may agree to sell only in its own

territory. The first practice is normal under franchise systems as a way to increase dealer

enthusiasm and commitment. It is also perfectly legal—a seller has no legal obligation to

sell through more outlets than it wishes. The second practice, whereby the producer tries to

keep a dealer from selling outside its territory, has become a major legal issue.

Producers of a strong brand sometimes sell it to dealers only if the dealers will take

some or all of the rest of its line. This is called full-line forcing. Such tying agreements are not necessarily illegal, but they violate the Clayton Act if they tend to lessen competition

substantially. The practice may prevent consumers from freely choosing among competing

suppliers of these other brands.

In a recent annual survey of auto parts

makers—which measured items such as

trust, open and honest communication, help

given to reduce costs, and opportunities to

make a profit—Toyota scored higher than

any other automaker. The survey showed that

Toyota suppliers consider themselves true

partners with the automotive giant.

Such high supplier satisfaction means

that Toyota can rely on suppliers to help it

improve its own quality, reduce costs, and

develop new products quickly. For example,

when Toyota recently launched a program to

reduce prices by 30 percent on 170 parts that

it would buy for its next generation of cars, sup-

pliers didn’t complain. Instead, they pitched in,

trusting that Toyota would help them achieve

the targeted reductions, in turn making them

more competitive and profitable in the future.

In all, creating satisfied suppliers helps Toyota

produce lower-cost, higher-quality cars, which

in turn results in more satisfied customers.

L’Oréal

L’Oréal is the world’s largest cosmetics maker,

with 23 global brands ranging from Maybelline

and Kiehl’s to Lancôme and Redken. What

does a cosmetics maker have in common with

down-and-dirty industrial giants like Caterpil-

lar and Toyota? Like both of those companies,

L’Oréal’s extensive supplier network—which

supplies everything from polymers and fats

to spray cans and packaging to production

equipment and office supplies—is crucial to

its success.

As a result, L’Oréal treats suppliers as re-

spected partners. On the one hand, it expects

a lot from suppliers in terms of design innova-

tion, quality, and socially responsible actions.

The company carefully screens new suppliers

and regularly assesses the performance of

current suppliers. On the other hand, L’Oréal

works closely with suppliers to help them meet

its exacting standards. Whereas some compa-

nies make unreasonable demands of their sup-

pliers and “squeeze” them for short-term gains,

L’Oréal builds long-term supplier relationships

based on mutual benefit and growth.

According to the company’s supplier

Web site, it treats suppliers with “fundamental

respect for their business, their culture, their

growth, and the individuals who work there.”

Each relationship is based on “dialogue and

joint efforts. L’Oréal seeks not only to help its

suppliers meet its expectations but also to

contribute to their growth, through opportuni-

ties for innovation and competitiveness.” As a

result, more than 75 percent of L’Oréal’s sup-

plier partners have been working with the com-

pany for 10 years or more and the majority of

them for several decades. Says the company’s

head of purchasing, “The CEO wants to make

L’Oréal a top performer and one of the world’s

most respected companies. Being respected

also means being respected by our suppliers.”

Sources: Geoff Colvin, “Caterpillar Is Absolutely Crushing It,” Fortune, May 12, 2011, pp. 136–144; Jeffery K.

Liker and Thomas Y. Choi, “Building Deep Supplier Relationships,” Harvard Business Review, 2004, pp. 104–113;

“What the World Needs: 2011 Year in Review,” Caterpillar Annual Report, February 2012, www.caterpillar.com/cda/

files/2674611/7/cat_yir_1.pdf, p. 37; Paul Eisensten, “Toyota Tops in Supplier Relations—Just Barely,” The Detroit Bu-

reau, May 23, 2011, www.thedetroitbureau.com/2011/05/toyota-tops-in-supplier-relations-but-just-barely/; and www

.caterpillar.com, www.toyotasupplier.com, and www.loreal.com/_en/_ww/html/suppliers/, accessed November, 2012.

Chapter 12 | Marketing Channels: Delivering Customer Value 379 Finally, producers are free to select their dealers, but their right to terminate dealers is

somewhat restricted. In general, sellers can drop dealers “for cause.” However, they cannot

drop dealers if, for example, the dealers refuse to cooperate in a doubtful legal arrangement,

such as exclusive dealing or tying agreements.

Marketing Logistics and Supply Chain Management

and services so that they are available to customers in the right assortments, at the right

satisfaction and company costs. Here we consider the nature and importance of logistics

management in the supply chain, the goals of the logistics system, major logistics functions,

and the need for integrated supply chain management.

Nature and Importance of Marketing Logistics

gistics is much more than this. Marketing logistics—also called physical distribution—

involves planning, implementing, and controlling the physical fl ow of goods, services, and

related information from points of origin to points of consumption to meet customer re

quirements at a profi t. In short, it involves getting the right product to the right customer

in the right place at the right time.

In the past, physical distribution planners typically started with products at the

day’s

outbound lo gistics (moving products from the factory to resellers and ultimately to customers) but also inbound logistics (moving products and materials from suppliers to the factory) and reverse logistics excess products returned by consumers or resellers). That is, it involves entire supply

chain management

terials, fi nal goods, and related information among suppliers, the company, resellers,

and fi nal consumers, as shown in Figure 12.5.

information systems, purchasing, production planning, order processing, inventory, ware

housing, and transportation planning.

First, companies can gain a powerful competitive advantage by using improved lo

gistics to give customers better service or lower prices. Second, improved logistics can

yield tremendous cost savings to both a company and its customers. As much as 20

percent of an average product’s price is accounted for by shipping and transport alone.

Objective 5 Discuss the nature and

importance of marketing

logistics and integrated supply

chain management.

Customers

Reverse logistics

Outbound logistics

Inbound logistics

Managing the supply chain calls for

FIGURE | 12.5

Marketing logistics (or physical distribution)

Supply chain management

380 Part 3 |

costs.

percent of GDP—to wrap, bundle, load, unload, sort, reload, and trans

port goods. That’s more than the national GDPs of all but 13 countries

worldwide.15

Shaving off even a small fraction of logistics costs can mean sub

logistics improvements through more effi cient sourcing, better inventory

management, and greater supply chain productivity that will reduce

supply chain costs by 5 to 15 percent over the next fi ve years—that’s a 16

Third, the explosion in product variety has created a need for im

proved logistics management. For example, in 1916 the typical Piggly

Wiggly grocery store carried only 605 items. Today, a Piggly Wiggly car

ing on store size. A Walmart Supercenter store carries more than 100,000

products, 30,000 of which are grocery products.17

logistics challenge.

Improvements in information technology have also created oppor

tunities for major gains in distribution effi ciency. Today’s companies are

and electronic transfer of order and payment data. Such technology lets

fi nances through the supply chain.

ronment and a fi rm’s environmental sustainability efforts. Transportation, warehousing,

utors to the company’s environmental footprint. At the same time, they also provide

one of the most fertile areas for cost savings. In other words, developing a green supply chain is not only environmentally responsible but can also be profi table. Here’s a simple

Windex glass cleaner hit the maximum weight before the trailer was full. By strategically mix

ting a trailer ’s maximum weight provided a huge opportunity to reduce our energy consump

tion, cut our greenhouse gas emissions, and save money [in the bargain.]” Green supply chains

“Sustainability

shouldn’t be about Washington jamming green stuff down your throat,” concludes one supply

chain expert. “This is a lot about money, about reducing costs.”

Goals of the Logistics System Some companies state their logistics objective as providing maximum customer service

at the least cost. Unfortunately, as nice as this sounds, no logistics system can both maxi mize customer service and minimize distribution costs. Maximum customer service implies rapid delivery, large inventories, fl exible assortments, liberal returns policies, and other

services—all of which raise distribution costs. In contrast, minimum distribution costs im

ply slower delivery, smaller inventories, and larger shipping lots—which represent a lower

level of overall customer service.

targeted level of customer ser vice at the least cost. A company must fi rst research the importance of various distribution

services to customers and then set desired service levels for each segment. The objective is

to maximize , not sales. Therefore, the company must weigh the benefi ts of providing

Logistics: As this huge stockpile of shipping

containers suggests, American companies spent $1.1

trillion last year—7.7 percent of U.S. GDP—to bundle,

load, unload, sort, reload, and transport goods.

E.G. Pors/Shutterstock.com

Chapter 12 | Marketing Channels: Delivering Customer Value 381 higher levels of service against the costs. Some companies offer less service than their com

prices to cover higher costs.

Major Logistics Functions Given a set of logistics objectives, the company designs a logistics system that will minimize

the cost of attaining these objectives. The major logistics functions are warehousing, inventory management, transportation, and logistics information management.

Warehousing Production and consumption cycles rarely match, so most companies must store their goods

while they wait to be sold. For example, Snapper, Toro, and other lawn mower manufactur

ers run their factories all year long and store up products for the heavy spring and summer

buying seasons. The storage function overcomes differences in needed quantities and tim

ing, ensuring that products are available when customers are ready to buy them.

A company must decide on how many and what types of warehouses it needs and where they will be located. The company might use either storage warehouses or distribu tion centers. Storage warehouses store goods for moderate to long periods. In contrast, distribution centers are designed to move goods rather than just store them. They are

large and highly automated warehouses designed to receive goods from various plants

as possible.

huge, highly mechanized distribution centers that supply almost all of the daily needs of

ers 657,000 square feet under a single roof (13 football fi elds) and serves some 115 Home

livery, individual Home Depot stores can improve merchandise

availability to customers while at the same time carrying less 19

For example, offi ce sup

robots in its warehouses around the country. The

terminals,” notes one observer, “or, as warehouse person

150 robots have helped improve average daily output by

60 percent. 20

Inventory Management Inventory management also affects customer satisfaction. Here, managers must maintain

the delicate balance between carrying too little inventory and carrying too much. With too

humming.

Brent Humphreys/Redux Pictures

Distribution center

382 Part 3 |

Thus, in managing inventory, fi rms must balance the costs of carrying larger inventories

against resulting sales and profi ts.

Many companies have greatly reduced their inventories and related costs through

logistics systems. With such systems, producers and retailers carry only small

inventories of parts or merchandise, often enough for only a few days of operations. New

livery so that new supplies will be available when needed. However, these systems result

which

tire supply chain—which accounts for nearly 75 percent of a product’s cost—intelligent

and automated.

cally within the supply chain. “Smart shelves” would not only tell them when it’s time to

reorder but also place the order automatically with their suppliers. Such exciting new infor

Transportation The choice of transportation carriers affects the pricing of prod

ucts, delivery performance, and the condition of goods when they

arrive—all of which will affect customer satisfaction. In shipping

goods to its warehouses, dealers, and customers, the company

water, pipeline, and air, along with an alternative mode for digital

products—the Internet.

Trucks have increased their share of transportation steadily

miles a year—more than double the distance traveled 25 years

ago—carrying 9.2 billion tons of freight. According to the

are highly fl exible in their routing and time schedules, and they

can usually offer faster service than railroads. They are effi cient

shipping operations.22

Railroads

and forest products—over long distances. In recent years, railroads

have increased their customer services by designing new equip

ment to handle special categories of goods, providing fl atcars for

services such as the diversion of shipped goods to other destina

tions en route and the processing of goods en route.

Water carriers, which account for less than 5 percent of the

Truck transportation: More than 80 percent of American

communities depend solely on the trucking industry for the

delivery of their goods. “Good stuff. Trucks bring it.”

American Trucking Association

Chapter 12 | Marketing Channels: Delivering Customer Value 383 barges on U.S. coastal and inland waterways. Although the cost of water transportation is

very low for shipping bulky, low-value, nonperishable products such as sand, coal, grain,

oil, and metallic ores, water transportation is the slowest mode and may be affected by

the weather. Pipelines, which account for less than 1 percent of the cargo ton-miles, are a specialized means of shipping petroleum, natural gas, and chemicals from sources to mar-

kets. Most pipelines are used by their owners to ship their own products.

Although air carriers transport less than 1 percent of the cargo ton-miles of the nation’s goods, they are an important transportation mode. Airfreight rates are much higher than

rail or truck rates, but airfreight is ideal when speed is needed or distant markets have to

be reached. Among the most frequently airfreighted products are perishables (such as fresh

fish, cut flowers) and high-value, low-bulk items (technical instruments, jewelry). Compa-

nies find that airfreight also reduces inventory levels, packaging costs, and the number of

warehouses needed.

The Internet carries digital products from producer to customer via satellite, cable, phone wire, or wireless signal. Software firms, the media, music and video companies, and

education all make use of the Internet to transport digital products. The Internet holds

the potential for lower product distribution costs. Whereas planes, trucks, and trains move

freight and packages, digital technology moves information bits.

Shippers also use intermodal transportation—combining two or more modes of

transportation. Twelve percent of the total cargo ton-miles are moved via multiple modes.

Piggyback describes the use of rail and trucks; fishyback, water and trucks; trainship, wa- ter and rail; and airtruck, air and trucks. Combining modes provides advantages that no single mode can deliver. Each combination offers advantages to the shipper. For example,

not only is piggyback cheaper than trucking alone, but it also provides flexibility and

convenience.

In choosing a transportation mode for a product, shippers must balance many con-

siderations: speed, dependability, availability, capacity, cost, and others. Thus, if a shipper

needs speed, air and truck are the prime choices. If the goal is low cost, then water or rail

might be best.

Logistics Information Management Companies manage their supply chains through information. Channel partners often link

up to share information and make better joint logistics decisions. From a logistics perspec-

tive, flows of information, such as customer transactions, billing, shipment and inventory

levels, and even customer data, are closely linked to channel performance. Companies need

simple, accessible, fast, and accurate processes for capturing, processing, and sharing chan-

nel information.

Information can be shared and managed in many ways, but most sharing takes place

through electronic data interchange (EDI), the digital exchange of data between organizations, which primarily is transmitted via the Internet. Walmart, for example, requires EDI links

with its more than 100,000 suppliers through its Retail Link sales data system. If new sup-

pliers don’t have EDI capability, Walmart will work with them to find and implement the

needed tools.23

In some cases, suppliers might actually be asked to generate orders and arrange deliv-

eries for their customers. Many large retailers—such as Walmart and Home Depot—work

closely with major suppliers such as P&G or Moen to set up vendor-managed inventory (VMI) systems or continuous inventory replenishment systems. Using VMI, the customer shares real- time data on sales and current inventory levels with the supplier. The supplier then takes

full responsibility for managing inventories and deliveries. Some retailers even go so far as

to shift inventory and delivery costs to the supplier. Such systems require close cooperation

between the buyer and seller.

Integrated Logistics Management Today, more and more companies are adopting the concept of integrated logistics

management. This concept recognizes that providing better customer service and trim-

ming distribution costs require teamwork, both inside the company and among all the marketing channel organizations. Inside, the company’s various departments must work

closely together to maximize its own logistics performance. Outside, the company must

Integrated logistics management

The logistics concept that emphasizes

teamwork—both inside the company

and among all the marketing channel

organizations—to maximize the

performance of the entire distribution

system.

Intermodal transportation

Combining two or more modes of

transportation.

384 Part 3 | integrate its logistics system with those of its suppliers and customers to maximize the per

Most companies assign responsibility for various logistics activities to many different

tion tries to optimize its own logistics performance without regard for the activities of

the other functions. However, transportation, inventory, warehousing, and information

be coordinated to achieve better overall logistics performance.

The goal of integrated supply chain management is to harmonize all of the compa

in several ways. Some companies have created permanent logistics committees composed

activities for each product category. Many companies have a vice president of logistics with

ment software, now available from a wide range of software enterprises large and small,

reasonable cost.

Building Logistics Partnerships

each channel member depends on the performance of the entire supply chain. For example,

wide supply chain management software, available from companies such as Logility.

Logility, Inc.

Chapter 12 | Marketing Channels: Delivering Customer Value 385 IKEA can create its stylish but affordable furniture and deliver the “IKEA lifestyle” only if

its entire supply chain—consisting of thousands of merchandise designers and suppliers,

transport companies, warehouses, and service providers—operates at maximum efficiency

and customer-focused effectiveness.

Smart companies coordinate their logistics strategies and forge strong partner-

ships with suppliers and customers to improve customer service and reduce channel

costs. Many companies have created cross-functional, cross-company teams. For example, Nestlé’s Purina pet food unit has a team of dozens of people working in Bentonville,

Arkansas, the home base of Walmart. The Purina Walmart team members work jointly

with their counterparts at Walmart to find ways to squeeze costs out of their distribution

system. Working together benefits not only Purina and Walmart but also their shared,

final consumers.

Other companies partner through shared projects. For example, many large retail- ers conduct joint in-store programs with suppliers. Home Depot allows key suppliers to

use its stores as a testing ground for new merchandising programs. The suppliers spend

time at Home Depot stores watching how their product sells and how customers relate

to it. They then create programs specially tailored to Home Depot and its customers.

Clearly, both the supplier and the customer benefit from such partnerships. The point is

that all supply chain members must work together in the cause of bringing value to final

consumers.

Third-Party Logistics Although most big companies love to make and sell their products, many loathe the associ-

ated logistics “grunt work.” They detest the bundling, loading, unloading, sorting, storing,

reloading, transporting, customs clearing, and tracking required to supply their factories

and get products to their customers. They hate it so much that a growing number of firms

now outsource some or all of their logistics to third-party logistics (3PL) providers such

as Ryder, Penske Logistics, BAX Global, DHL Logistics, FedEx Logistics, and UPS Business

Solutions. Outsourced logistics providers can help companies improve their own logistics

systems or even take over and manage part or all of their logistics operations (see Real

Marketing 12.2). Here’s an example:24

Stonyfield Farm, the world’s largest yogurt maker, had a distribution problem. As the com-

pany grew, inefficiencies had crept into its distribution system. To help fix the problem, Stony-

field turned to 3PL provider Ryder Supply Chain Solutions. Together, Ryder and Stonyfield

designed a new transportation system that cut processing and distribution costs and improved

service levels, while at the same time dramatically reducing the company’s carbon footprint.

After evaluating the Stonyfield network, Ryder identified optimal transportation solutions,

including the use of fuel-efficient RydeGreen vehicles. It helped Stonyfield set up a small,

dedicated truck fleet to make regional deliveries in New England and replaced Stonyfield’s

national less-than-truckload distribution network with a regional multistop truckload system.

As a result, Stonyfield now moves more product in fewer trucks, cutting in half the number of

miles traveled. In all, the changes produced a 40 percent reduction in transportation-related

carbon dioxide emissions and knocked an eye-popping 13 percent off Stonyfield’s transporta-

tion costs.

Ryder, UPS, and other 3PL providers help clients tighten up sluggish, overstuffed

supply chains; slash inventories; and get products to customers more quickly and re-

liably. According to a survey of chief logistics executives at Fortune 500 companies, 82 percent of these companies use 3PL (also called outsourced logistics or contract logistics) services. In all, North American shippers spend 47 percent of their logistics budget on

outsourced logistics.25

Companies use third-party logistics providers for several reasons. First, since getting

the product to market is their main focus, using these providers makes the most sense, as

they can often do it more efficiently and at lower cost. Outsourcing typically results in a 15

to 30 percent cost savings. Second, outsourcing logistics frees a company to focus more in-

tensely on its core business. Finally, integrated logistics companies understand increasingly

complex logistics environments.

Third-party logistics (3PL) provider

An independent logistics provider that

performs any or all of the functions

required to get a client’s product

to market.

386 Part 3 |

logistics process that involves purchase or

billion

on how to improve their own overall logis

answer to

Real Marketing UPS:

Whereas many customers hate dealing with the logistics process, UPS proclaims

“We logistics.” “It makes running your business easier. It helps you create better

customer experiences. It’s a whole new way of thinking.”

Jarrod Weaton/Weaton Digital, Inc.

Chapter 12 | Marketing Channels: Delivering Customer Value 387

Reviewing the Concepts

Sources:

Inc.,

USA Today

stories?page_

Explain why companies use

marketing channels and

discuss the functions these channels perform.

(pp 362–366)

marketing channel (or distribution

channel

complete transactions information

ing persuasive communications contact

match

ing

into negotiation

help to fulfill physical distri

bution financing

risk taking

Discuss how channel members

interact and how they organize to

perform the work of the channel. (pp 366–371)

Reviewing Objectives and Key Terms

Objective 1

Objective 2

process that once took two to three weeks

388 Part 3 |

Identify the major channel

alternatives open to a

company. (pp 371–375)

channel levels

vertical horizontal

multichannel marketing systems

Channel design

types number chan

nel responsibilities

Channel

management

Explain how companies select,

motivate, and evaluate channel

members. (pp 375–379)

through

with

and the

Discuss the nature and

importance of marketing

logistics and integrated supply chain management.

(pp 379–387)

Marketing logistics (or physical distribution

outbound logistics

also inbound logistics reverse logistics

the entire supply chain management

targeted

warehousing in

ventory management transportation logistics information

management

The integrated supply chain management concept

Objective 3

Objective 4

Objective 5

Objective 1 Value delivery network (p 363)

Marketing channel (or distribution

channel) (p 363)

Channel level (p 365)

Direct marketing channel (p 365)

Indirect marketing channel (p 365)

Objective 2 Channel conflict (p 366)

Conventional distribution channel

(p 367)

Vertical marketing system (VMS) (p 367)

Corporate VMS (p 368)

Contractual VMS (p 368)

Franchise organization (p 368)

Administered VMS (p 369)

Horizontal marketing system (p 369)

Multichannel distribution system (p 370)

Disintermediation (p 370)

Objective 3 Marketing channel design (p 372)

Intensive distribution (p 373)

Exclusive distribution (p 373)

Selective distribution (p 373)

Objective 4 Marketing channel management (p 375)

Objective 5 Marketing logistics (physical

distribution) (p 379)

Supply chain management (p 379)

Distribution center (p 381)

Intermodal transportation (p 383)

Integrated logistics management

(p 383)

(p 385)

Chapter 12 | Marketing Channels: Delivering Customer Value 389

Discussion and Critical Thinking

Discussion Questions

1. Describe the key functions performed by marketing channel members. (AACSB: Communication)

2. Describe multichannel distribution systems and the advan- tages and disadvantages of using them. (AACSB: Communi-

cation; Reflective Thinking)

3. Compare and contrast intensive, selective, and exclusive dis- tribution. Which channel design decision does this involve?

(AACSB: Communication; Reflective Thinking)

4. Discuss the complexities international marketers face when de- signing channels in other countries. (AACSB: Communication)

5. Explain how information is managed in the distribution chan- nel. What types of information are managed? (AACSB:

Communication)

6. Describe intermodal transportation and list the different com- binations used to distribute products and the benefits of using

this mode of transportation. (AACSB: Communication)

Critical Thinking Exercises

1. In a small group, debate whether or not the Internet will re- sult in disintermediation of the following retail stores: (1) video

rental stores, (2) music stores, (3) grocery stores, (4) book

stores, and (3) clothing stores. (AACSB: Communication; Re-

flective Thinking)

2. The most common type of contractual vertical marketing sys- tem is the franchise organization. Visit the International Fran-

chise Association at www.franchise.org/ and find a franchise

that interests you. Write a report describing the franchise.

Identify what type of franchise it represents and research the

market opportunities for that product or service. (AACSB:

Communication; Use of IT; Reflective Thinking)

3. Visit www.youtube.com/watch?v=eob532iEpqk and watch “The Future Market” video. What impact will radio frequency

identification (RFID) tags have on each of the major logistical

functions? What are the biggest current obstacles to adopting

this technology? (AACSB: Communication; Use of IT; Reflec-

tive Thinking)

Applications and Cases

Marketing Technology Omnichannels A key to satisfying retail customers is to carry products they want.

However, Macy’s used to find that although an item was out of

stock online, it had plenty of stock in the physical stores and

ended up marking it down to clear the item out. Not anymore.

Macy’s is now turning almost 300 of its 800-plus stores into com-

bination retail outlets and online warehouses to combat competi-

tors such as Amazon.com, which has an extensive network of

warehouses located near high-population areas. New technology

dynamically updates the status of all items in every store, so if an

online shopper wants an item, and it exists in any Macy’s store,

the store will ship the item to the consumer. In-store shoppers

can also have an item shipped to them from another store if it’s

out of stock where they are shopping. Items not selling well in

stores are shifted to the online site, where they can be sold at full

price rather than marked down. Integrated Internet and physical

stores are called “omnichannels.” Nordstrom and Toys R Us have

used omnichannels for a few years and realize fewer markdowns,

improved margins, and faster inventory turnover.

1. What are the disadvantages of also treating retail stores as warehouses? Is this a good solution for competing with

Amazon.com? (AACSB: Communication; Reflective Thinking)

390 Part 3 | Designing a Customer-Driven Strategy and Mix

Video Case Gaviña Gourmet Coffee These days, there seems to be plenty of coffee to go around. So

how does a small-time coffee roaster like Gaviña make it in an

industry dominated by big players? By carefully crafting a distribu-

tion strategy that moves its products into the hands of consumers.

Without a big advertising budget, Gaviña has creatively pur-

sued channel partners in the grocery, restaurant, and hospitality

industries. Now, major chains like McDonald’s and Publix make

Gaviña’s coffees available to the public. This video also illustrates

the impact of distribution strategy on supply chain and product

development issues.

After viewing the video featuring Gaviña, answer the following

questions:

1. Apply the concept of the supply chain to Gaviña.

2. Sketch out as many consumer and business channels for Gaviña as you can. How does each of these channels meet

distinct customer needs?

3. How has Gaviña’s distribution strategy affected its product mix?

Company Case Pandora: Disintermediator or Disintermediated?

For Pandora, one of the biggest players in Internet radio, figuring

out the future is both challenging and intimidating. If the regular

challenges of growing a new company aren’t enough, Pandora

also faces a market that is reeling in turmoil. In the new digital

world, the way people listen to music continues to change dra-

matically. It seems likely that Pandora will either lead the changes

or fall victim to them.

Pandora was founded just over a decade ago. At that time, a

vast majority of music listeners were still getting their groove on in

one of two ways: They either popped a CD into their home, car,

or personal CD player or they turned on the old AM/FM radio.

But the advent of digital formats such as MP3s drove the first nail

into the CD’s coffin and drew many people away from traditional

or “terrestrial” radio. Moreover, like the music business, the radio

Marketing by the Numbers Expanding Distribution Lightco, Inc., manufactures decorative lighting fixtures sold pri-

marily in the eastern United States. Lightco wants to expand to

the Midwest and southern United States and intends to hire 10

new sales representatives to secure distribution for its products.

Sales reps will acquire new retail accounts and manage those ac-

counts after acquisition. Each sales rep earns a salary of $50,000

plus 2 percent commission. Each retailer generates an average

$50,000 in revenue for Lightco. Refer to Appendix 2: Marketing

by the Numbers to answer the following questions.

1. If Lightco’s contribution margin is 40 percent, what increase in sales will it need to break even on the increase in fixed costs to

hire the new sales reps? (AACSB: Communication; Analytical

Reasoning)

2. How many new retail accounts must the company acquire to break even on this tactic? What average number of accounts

must each new rep acquire? (AACSB: Communication; Ana-

lytical Reasoning)

Marketing Ethics Slow-Motion Video Movie and television program distribution technology is chang-

ing fast. Consumers can now watch movies and TV shows on

demand on TVs, computers, tablets, and smartphones. This has

caused a surge in demand for online video-streaming services

such as Netflix and Hulu. However, it’s causing problems for

subscription-TV services such as Comcast Cable, which offer

scheduled programming and are facing increased competition

from the video- streaming services. Interestingly, however, as

one of the country’s largest Internet service providers, Comcast

is also the distribution channel for competitors such as Netflix

and Hulu. The fact that Comcast has control over its competi-

tors’ distribution channel causes some uncomfortable conflicts.

It has invested billions building its scheduled programming net-

work, and it doesn’t want to become a mere conduit as its sub-

scribers drop cable in favor of streamed programming from one

of the competing services. And because it controls the Internet

channel, it can cause problems for those competitors. For ex-

ample, the U.S. Justice Department is investigating whether

cable companies such as Comcast are attempting to squash

competition from video-streaming providers such as Netflix by

limiting the amount of data their Internet service subscribers

can download. Comcast has also countered with its own on-

line video-streaming app called Xfinity, by which subscribers can

stream programming using Xbox game consoles. Video content

streamed through Xfinity is not counted against Comcast’s data

limits the way that videos streamed through other services such

as Netflix are.

1. What types of channel conflict are present in this channel of distribution? Explain. (AACSB: Communication; Reflective

Thinking)

Chapter 12 | Marketing Channels: Delivering Customer Value 391 business has faced major changes of its own. The Telecommuni-

cations Act of 1996 reduced limitations on the number of stations

that one owner could hold. This led to huge ownership groups

that consolidated and standardized listening formats. The result

is less diversity on the radio, with shorter playlists and fewer art-

ists represented. From one city to the next, all across the United

States, radio stations have become a homogenous lot.

Both of these trends—combined with the explosion of Internet

usage and changes in online technologies—have led to a deluge

of companies trying to capitalize on the future of music distribu-

tion. This includes download services such as iTunes, subscrip-

tion services such as Rhapsody and eMusic, cloud music players

from Google and Amazon, an endless number of Internet radio

stations, and even satellite radio network SiriusXM. Today, with an

ever-growing list of listening devices and music service models,

listening trends continue to evolve. But one thing about the future

is certain: The business of listening to music is full of disruption

and confusion. Things are changing fast and the winning products

and services—indeed, the survivors—are yet to be determined.

The Power of People Amid the chaos, Pandora has carved out its own niche, setting

itself apart as an automated music recommendation service.

It isn’t a play-on-demand service, where members can simply

choose the exact song and artist they want. Rather, listeners en-

ter an artist or song suggestion. The playlist starts with a track

by the requested artist and inserts additional songs by that artist

every once in a while. But in between, Pandora cues up songs by

other artists similar in nature to the requested material. If an un-

liked or unwanted song plays, the listener can click the “thumbs

down” icon or just skip the song and it will be removed from the

list. Users can also create stations by browsing artists alphabeti-

cally, or they can tune in to pre-made genre stations or to other

users’ stations. Listeners can create as many stations as they

wish, each oriented around the initial input.

Lots of online services employ similar recommendation fea-

tures (consider Netflix and Amazon). But Pandora has set a prec-

edent by the predictive power of its recommendation software.

The Pandora software is amazingly precise in choosing material

that fits with what the user wants. According to Tim Westergren,

founder and chief strategy officer for Pandora, the secret sauce is

the people behind the software. Behind this digitized, automated,

software-driven machine, Westergren says, “You need a human

ear to discern. It’s true that the algorithms mathematically match

songs, but the math, all it’s doing is translating what a human be-

ing is actually measuring.”

Each of the approximately 1 million songs in Pandora’s library

has been analyzed and coded by a professional musician. Each

song is rated on as many as 400 different musical attributes or

“genes.” Each gene corresponds to a music characteristic, such

as gender of the lead vocalist, level of distortion on the electric

guitar, syncopation, and vocal harmonies, to name just a few. Pan-

dora’s music analysts must pass application tests. As junior ana-

lysts, they are required to sit in the same room with other analysts

so they can regularly peel back their headphones and engage the

others about the music they’re coding. Senior analysts can take

their work on the road—often dissecting songs between gigs as

they play on tour. “That is the magic bullet for us,” Westergren says

of the company’s human element. “I can’t overstate it. It’s been the

most important part of Pandora. It defines us in so many ways.”

Pandora takes this unmatched competency for coding music

and adds features and options that further differentiate its service.

For starters, listeners can choose from two subscription plans. On

the free plan, listeners hear an advertisement every now and then,

but far fewer ads than are heard on terrestrial radio. This plan

also sets certain user limits, such as a 40-hour-per-month listen-

ing maximum and 12 total skips every 24 hours. For $36 a year,

the subscription-based plan provides members with unlimited lis-

tening hours, higher-quality audio, a desktop player, and no ads.

Once a user selects a plan, Pandora’s brain takes in all the

listener’s inputs and marks them as unique to that person’s musi-

cal tastes. With each indication of “likes” and “dislikes,” Pandora

gets smarter. Listeners can further empower Pandora’s guru-like

prowess with such responses as “I’m tired of this song,” “Why

was this song selected?”, “Move song to another station,” “New

station,” and “Bookmark.” No rewinding or repeating is available

(just like terrestrial radio). But further customization occurs when

users modify their preference settings for additions such as not

allowing explicit lyrics. And blurring the line between radio service

and music ownership, a “buy” button is located at the top of each

song that takes listeners directly to iTunes or Amazon.com.

From Net Radio to Everywhere Radio At first, the only way you could listen to Pandora was via Pan-

dora’s Web page on a computer. But Pandora’s “Anytime, any-

where,” mantra has guided its distribution strategy. As music

enthusiasts have become more mobile, Pandora has followed.

By forging strategic partnerships, Pandora has pushed the music

service into a variety of channels, including apps for smartphones

and tablets as well as through home entertainment systems such

as video game players, DVD players, and Internet radios. Pandora

has also pioneered one of the hottest trends—providing alterna-

tives to terrestrial radio in new vehicles. “Half of radio listening

happens in cars,” Westergren points out. “It’s an important place

for us to be.” Systems in new automobiles allow people to access

Pandora on the car’s sound system via Internet-connected smart-

phone apps. Similar integrations with Alpine and Pioneer after-

market systems make access available in virtually any vehicle.

All this access and the allure of cool features have allowed

Pandora to dominate Internet radio. Its 54 million active users

(over one in every seven Americans) dwarf SiriusXM’s 23 mil-

lion subscribers. And Pandora’s base is growing at a much more

rapid rate than that of its satellite competitor, progressively erod-

ing the listenership of terrestrial radio. And Pandora members—

especially young ones—listen longer on average than listeners of

terrestrial radio or satellite radio. Despite all the competition, its

current market share of 69 percent of the digital listening market

is expected to continue to climb steadily and could reach 80

percent by next year. Pandora also now claims 6 percent of the

total radio market.

Not Out of the Woods Although a large and growing member base is encouraging, Pan-

dora is far from declaring financial success. True, its revenues of

$274 million for 2012 were 99 percent higher than those of the

previous year. During the same year, its active user base grew by

51 percent and total listening hours grew by 77 percent. Only one

number is not growing for Pandora—profits. To date, Pandora

has seen profits during only one quarter, and the company is not

expected to be basking in the black any time soon. In fact, Pan-

dora’s own projections don’t forecast an annual profit. And other

substantial threats have some investors worried. To name a few:

Thus, as it increases its membership and listening hours, roy-

alty expenses increase at a linear rate, unlike the decreasing

392 Part 3 | Designing a Customer-Driven Strategy and Mix rate for most producers of goods and services. Because Inter-

net radio is new, royalty rates have been volatile as the music

industry tries to arrive at a fair value. Only a few short years

ago, Pandora was on the verge of collapse because royalties

doubled. But Pandora was successful in renegotiating lower

royalty rates. Further, any given music label could decide to end

its contract with Pandora, thus reducing the volume of content.

The future on this matter is uncertain, especially as international

options are considered. (Pandora is currently available only in

the United States because of royalty issues.)

its revenues from advertising dollars. It must convince adver-

tisers of the benefits of advertising on Pandora or it will not be

able to create sustainable profits. This issue is complicated

by Pandora’s growth on mobile devices, as the value for mo-

bile advertising is even less certain than that of standard Web

advertising.

entirely on its ability to establish and maintain relationships with

makers of connected devices, especially mobile devices. Such

manufacturers may have reasons to contract with other ser-

vices under exclusive conditions. This also puts a burden on

Pandora to make and keep its technologies compatible with

the many platforms used in the device field.

In addition to these threats, competition continues to loom.

Whereas Pandora continues to grow rapidly despite efforts by

others to cause Pandora to blow a sour note, the shifting nature

of technology and consumer preference in the music industry

makes competitive threats even more dangerous. Just look at

all the competitive services noted earlier. Then, consider that

changes in the marketing environment could lead to competitive

threats not yet considered that could potentially upend the entire

market.

Currently, Pandora is most often compared to Spotify, the

Swedish-based music service that offers pretty much every-

thing Pandora does with some notable differences. For starters,

Spotify’s library has 16 times the number of songs available

through Pandora. Its tight integration with Facebook makes

the social networking aspect of Spotify’s listening experience

seamless. And in addition to a Pandora-like custom radio sta-

tion generator, Spotify allows users to choose exactly what they

want to hear, including single songs, full albums, and playlists

of their own making. Spotify has only a fraction of Pandora’s

active user base, yet its revenues are more than three times

those of Pandora. However, Spotify is losing even more money

than Pandora.

The digital world is full of failed dreams. Pets.com shipped a

lot of 50-pound bags of dog food before realizing that its busi-

ness model simply wasn’t cost effective. Myspace signed up over

200 million members before crashing to its current membership

of less than 20 million, leading News Corp to sell it for pennies on

the dollar after just six short years. And a host of other dot-coms

have achieved high levels of Internet traffic and huge stock valu-

ations, only to fall because of threats similar to those just noted.

Will that be Pandora’s fate? Or will the Internet radio giant ulti-

mately declare, “Let the music play?”

Questions for Discussion 1. As completely as possible, sketch the value chain for Pandora

from the production of content to the listener.

2. How do horizontal and vertical conflict impact Pandora?

3. How does Pandora add value for customers through its distri- bution functions?

4. Will Pandora be successful in the long term? Why or why not?

Sources: Matthew Bryan Beck, “Pandora Vs. Spotify: Who Will Win the Battle for Streaming Music?, Mashable, February 12, 2012, http://

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Back the Curtain on Its Magic Music Machine,” Fast Company, January 21,

2011, www.fastcompany.com; Steven Bertoni, “Spotify Launches An-

other Torpedo at Pandora,” Forbes, June 19, 2012, www.forbes.com/

sites/stevenbertoni/2012/06/19/spotify-launches-another-torpedo-

at-pandora/; and other information from www.pandora.com/about,

accessed August 2012.

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the Balance Right,” Supply Chain Management Review, July/August

2011, p. 4; and Evan Armstrong, “2011/2012 Annual Review & Out-

look: 3PLs Weathering the Storm,” Journal of Commerce, January 6,

2012, www.joc.com/logistics-economy/3pls-weathering-storm.

cleaners and air conditioning units as well as consumer electron-

ics, encompassing more than 3,500 active product models. BEKO

is currently spread out over 100 countries and develops various

smart solutions to cater for the needs of different people, differ-

ent cultures, and different ways of life. To serve this wide market,

8 production facilities are located in Turkey but factories can

also be found in Russia, Romania, and China.

BEKO’s ambition is to prove that Turkish engineering can

provide quality as well as quantity. Innovation and develop-

ment are important, too, as shown by the more than 850 employ-

ees in its R&D center. BEKO adheres to the highest standards in

the industry. This strategy is in line with BEKO’s philosophy,

which aims to make people’s lives easier and to demonstrate

Part 1: Defining Marketing and the Marketing Process (Chapters 1–2)

Part 2: Understanding the Marketplace and Consumers (Chapters 3–6)

Part 3: Designing a Customer-Driven Strategy and Mix (Chapters 7–17)

Part 4: Extending Marketing (Chapters 18–20)

Retailing and Wholesaling13

Chapter Preview We now look more deeply into

the two major intermediary mar-

keting channel functions: retailing and wholesaling. You already know

something about retailing—retailers of all shapes and sizes serve you

every day. However, you probably know much less about the hoard

of wholesalers working behind the scenes. In this chapter, we exam-

ine the characteristics of different kinds of retailers and wholesalers,

the marketing decisions they make, and trends for the future.

When it comes to white goods wholesalers in Europe, you

have to start with BEKO. This mega supplier from Turkey has

re-shaped the meaning of modern domestic appliances. BEKO’s

focus on customer value through innovative design, strong sup-

ply chain management, and investment in a portfolio of recog-

nized brands has helped the company become a global player in

the home appliance and electronics market.

T urkey is better known for the exotic bazaars and an-

cient monuments of old Istanbul than for its factories.

Yet, over the last 20 years the reality has changed

dramatically. Turkey now produces more than half of

the televisions sold in Europe and has also become a significant

production base for household appliances. Founded in 1955,

Arçelik Group is the leader of the Turkish consumer durables

sector and a key player in the international arena. Arçelik Group

possesses 10 brands and generates more than 50 percent of its

revenues from international operations. It belongs to the larg-

est conglomerate in Turkey, Koç Group, which is active in four

core industries internationally: Energy, automotive, financial

services and durable goods and is ranked as the world’s 273rd

largest company by Fortune Magazine in 2009.

BEKO is the international brand of Arçelik Group and is one

of the top ten home appliance brands in the world. The BEKO

brand continues its steady growth in global markets, especially

in Western and Eastern Europe. It is the leading oven/

cooker, cooling and freezer brand in the UK

and one of the fastest-growing washing

machine and dishwasher brands.

BEKO’s rich product range

covers a wide variety of white

goods, including refrigerators,

freezers, washing machines, tumble

dryers, dishwashers, cookers, vacuum

BEKO’s continuous innovation and improvements, coupled with long term relationships

with suppliers are laying the foundation for global success in the 21st century.

BEKO: The Leading Wholesaler from Turkey

Chapter 13 | Retailing and Wholesaling 395

Suppliers want to share BEKO’s

philosophy, business rules, and eth

ics (including a list of prohibited

materials) to collectively and mutu

ally benefi t from the BEKO organi

zation. Suppliers are also expected

to comply with a code of conduct

that complies with the European

Committee of Domestic Equipment

Manufacturer. BEKO and its suppliers mutually sign “purchasing

contracts” to defi ne working conditions.

Despite BEKO’s incredible success over the past two de

cades, it faces some large challenges ahead as many markets

other than developed economies in the West are opening up

rapidly.

Arçelik’s position in the global marketplace had been sig

nifi cantly strengthened through a wave of acquisitions. In 2002,

the Group purchased the 127 yearold German brand— Blomberg

of Germany, 117 year old Austrian brand Elektra Bregenz of

Austria and cooker brands of the UK and Ireland— Leisure and

Flavel as well as Arctic—Romania’s largest household appli

ances manufacturer. In 2007, the Group incorporated Grundig,

the leading consumer electronics brand of Germany. BEKO also

emphasizes its presence in promising areas such as Azerbaijan,

Lebanon, Lithuania, Georgia, Poland, the Russian Federation,

Romania, Ukraine, Algeria and Libya.

Turkey’s unique geographical position between Asia and

Europe and its long trading heritage are creating good condi

tions for growth in many areas where traditional brands lack

cultural affi nities.

Still, even as BEKO improves its image, the Turkish inter

nal market is very much cared for. BEKO is a source of cultural

itants, many under the age of 24. Contrary to its European com

petitors, BEKO can also rely on strong internal demand1.

the importance of the emotional value

attached to the brand.

BEKO stands to be a consumer

focused brand delivering technology

and effi cient solutions with functional

design. Supporting this approach BEKO

has received many international awards

acknowledging both their fl are for in

novation and energy effi ciency. Some

of the awards include the Energy Sav

ing Trust award, Plus X award, iF and

RedDot Design awards.

What is behind this spectacu

lar success? First, contrary to many

global fi rms, BEKO puts its human

resources at the center of its strategy.

To accomplish this, specifi c facilities

and training opportunities are avail

able to employees to make sure that

latest developments. Trustworthiness,

continuity, and responsibility for all its

working partners and work environ

ment in general, symbolize BEKO’s commitment to sustainabil

ity. Health and retirement benefi ts, social and cultural activities,

sports recreational facilities, and food and transport services are

available to employees. Remuneration is based on performance

and capability, including generous bonus schemes.

Second, BEKO is very respectful of its customers. This is

developed in many areas, including BEKO’s Web site, salesper

son training, and product innovation. It is also evident in the

company’s sponsorship activities, which aim to give back to

communities. The company regularly publishes a sustainability

report to ensure that it aligns itself with the best socially respon

sible corporations in the world. To support the environment

and future generations, BEKO has set a new vision: “Respect

the Globe Respected Globally.”

In addition, the success of BEKO relies heavily on inno

vation and the possibilities for distinguishing BEKO from the

lasting product range offers and its products’ distinctive fea

tures, which rely on innovative technical features and an elegant

look. Designers around the world compete for their product to

be crowned the BEKO design. The strongest designs are then

tested by a range of consumers. It has become a leader, champi

consumer ideas in the design process.

So, how does BEKO make a profi t with such an inclusive

strategy that focuses heavily on social responsibility in such a

competitive environment? As in many modern retail organiza

duction and distribution facilities. Technology and innovation

in both management and production are developed, and con

tinuous improvement is built into all systems and processes. The

approach is made possible through Total Quality Management,

Total Productive Management, and Six Sigma methodologies for

cost reduction, quality control, process improvement, and fl exible

structures. Purchasing has a great infl uence on the whole process.

BEKO produces a wide

range of electronic

goods from washing

machines to plasma

TVs, demonstrating that

Turkish engineering can

offer quantity and quality.

396 Part 3 |

The BEKO retailers. This chapter looks at retailing and wholesaling. In the fi rst section, we look at the nature and importance of retailing, the major types of store and nonstore retailers, the deci

sions retailers make, and the future of retailing. In the second section, we discuss these same

topics as they apply to wholesalers.

Retailing What is retailing? We all know that Costco, Home Depot, Macy’s, Best Buy, and Target are

retailers, but so are Amazon.com, the local Hampton Inn, and a doctor seeing patients.

Retailing includes all the activities involved in selling products or services directly to fi nal

consumers for their personal, nonbusiness use. Many institutions—manufacturers, whole

salers, and retailers—do retailing. But most retailing is done by retailers, businesses whose

sales come primarily from retailing. Retailing plays a very important role in most marketing channels. Last year, retailers

accounted for more than $4.6 trillion of sales to fi nal consumers. They play an important

role in connecting brands to consumers in what marketing agency OgilvyAction calls “the

last mile”—the fi nal stop in the consumer ’s path to purchase. It’s the “distance a consumer

travels between an attitude and an action,” explains OgilvyAction’s CEO. Some 40 percent

of all consumer decisions are made in or near the store. Thus, retailers “reach consumers

at key moments of truth, ultimately [infl uencing] their actions at the point of purchase.”2

In fact, many marketers are now embracing the concept of shopper marketing, using

entire marketing process—from product and brand development to logistics, promotion,

and merchandising—toward turning shoppers into buyers at the point of sale.

ior. What differentiates the concept of shopper marketing is the suggestion that these ef

forts should be coordinated around the shopping process itself. For example, P&G follows a

and work back from there. The strategy builds around what P&G calls the “First Moment

Objective Outline

Objective 1 Explain the role of retailers in the distribution channel and describe the major types of retailers.

Retailing (pp 396–402)

Objective 2 Describe the major retailer marketing decisions.

Retailer Marketing Decisions (pp 402–408)

Objective 3 Discuss the major trends and developments in retailing.

Retailing Trends and Developments (pp 408–414)

Objective 4 Explain the major types of wholesalers and their marketing decisions.

Wholesaling (pp 414–419)

Objective 1 Explain the role of retailers in the

distribution channel and describe

the major types of retailers.

Retailing

their personal, nonbusiness use.

Retailer

A business whose sales come primarily

Shopper marketing

purchase decisions.

Chapter 13 | Retailing and Wholesaling 397 of Truth”—the critical 3 to 7 seconds that a shopper con

building from the eyes of the consumer toward us,” says

a P&G executive.3

The dramatic growth of digital shopping, or combined

to shopper marketing. The “last mile” or “fi rst moment

of truth” no longer takes place only in stores. Most con

sumers now make at least some of their purchases online,

without even setting foot into a retail store. Alternatively,

they may research a purchase on the Internet before—or

even during—a store visit. For example, it’s not uncom

mon to see a consumer looking at new TVs in a Best Buy

while at the same time using a mobile app to check product

reviews and prices at Amazon.com. Thus, shopper market

consumers’ buying decisions as they shop involves efforts 4

Although most retailing is still done in retail stores, in

recent years direct and online retailing have been growing

much faster than store retailing. We discuss direct and online retailing in detail later in this

chapter and in Chapter 17. For now, we will focus on store retailing.

Types of Retailers

megadiscounters such as Costco or Walmart. The most important types of retail stores are

described in Table 13.1 and discussed in the following sections. They can be classifi ed

in terms of several characteristics, including the amount of service they offer, the breadth and depth of their product lines, the relative prices they charge, and how they are organized.

Amount of Service Different types of customers and products require different amounts of service. To meet

ited service, and full service.

serve customers who are willing to perform their own

select typically used by retailers selling convenience goods (such as supermarkets) and nationally

, such

as Sears or JCPenney, provide more sales assistance because they carry more shopping goods

about which customers need information. Their increased operating costs result in higher prices.

specialty goods for which customers need or want assistance or advice. They provide more

services, which results in much higher operating costs. These higher costs are passed along

to customers as higher prices.

Product Line Retailers can also be classifi ed by the length and breadth of their product assortments. Some

retailers, such as specialty stores, carry narrow product lines with deep assortments

within those lines. Today, specialty stores are fl ourishing. The increasing use of market seg

mentation, market targeting, and product specialization has resulted in a greater need for

stores that focus on specifi c products and segments.

By contrast, department stores carry a wide variety of product lines. In recent years,

department stores have been squeezed between more focused and fl exible specialty stores

have added promotional pricing to meet the discount threat. Others have stepped up the use

designer shops to compete with specialty stores. Still oth ers are trying catalog, telephone, and online selling. Service remains the key differentiating

Specialty store

A retail store that carries a narrow

product line with a deep assortment

within that line.

Department store

Shopper marketing: The dramatic growth of digital shopping has

added a new dimension to “point of purchase.” Infl uencing consumers’

and mobile shopping.

398 Part 3 |

Table 13.1 | Major Store Retailer Types Type Description Examples

A store that carries a narrow product line with a deep assortment, such

bookstores.

Department store

household products.

Discount store A store that carries standard merchandise sold at lower prices with

prices and sold at less than retail. These include factory outlets owned

owned

and warehouse (or wholesale) clubs

(warehouse clubs)

supercenters,

combined supermarket and discount stores, and category killers, which

Publix supermarket chain has succeeded by lowering

prices and helping customers get the most out of today’s

tighter food budgets.

Supermarkets are the most frequently visited type of retail store. Today, however, they

are facing slow sales growth because of slower population growth and an increase in competi

tion from discounters (Walmart, Costco, and Dollar General) on the one

hand and specialty food stores (Whole Foods Market, Trader Joe’s, Sprouts)

on the other. Supermarkets also have been hit hard by the rapid growth of

of the groceries and food market plunged from 66 percent in 2002 to less

than 62 percent in 2009. Meanwhile, during the same time period, super

centers boosted their market share from 15.6 percent to 20.6 percent.5

In the battle for “share of stomachs,” some supermarkets have

ters, natural foods, and fresh seafood departments. Others, however, are

and lowering prices.

supermarket chain, has done this successfully:6

chains have struggled, Publix has grown steadily and profi tably. The $27

billion chain has opened and acquired more new stores than any other su

nualized sales per square foot in the industry, behind only Whole Foods.

Chapter 13 | Retailing and Wholesaling 399 Publix’s success comes from its focus on helping customers get the most out of today’s tighter food

budgets. Despite its own rapidly rising purchasing and transportation costs, the chain introduced

Publix Essentials, a consumer program that reduced its prices for basics such as bread, milk, and

laundry detergent by as much as 20 percent. In addition, Publix began a Savings Made Easy pro

gram that offers Meal Deal and Thrifty Tips advice to customers trying to stretch their shopping

dollars. “In today’s economy, Publix is working hard to help,” says the chain. “In addition to low

ering prices on groceries you need most, we’re giving you simple strategies for saving.” Says one

retail consultant, “Publix is always at its best when the economy is at its worst.” Customers seem

to agree. According to the American Customer Satisfaction Index (ACSI), for the 18th consecutive

Convenience stores

venience goods. After several years of stagnant sales, these stores are now experiencing

growth. Many convenience store chains have tried to expand beyond their primary market

shedding the image of a “truck stop” where men go to buy gas, beer, cigarettes, or shriveled

hotdogs on a roller grill and are instead offering freshly prepared foods and cleaner, safer,

For example, consider Sheetz, widely recognized as one of the nation’s top conve

nience store chains. Driven by its Total Customer Focus mission and the motto “Feel the

Love,” Sheetz aims to provide “convenience without compromise while being more than

just a convenience store. It’s our devotion to your satisfaction that makes the difference.”7

Supermarket

Convenience store

A small store, located near a residential

Convenience stores: Sheetz positions itself as more than just a

convenience store. Driven by its Total Customer Focus mission and the

motto—“Feel the Love”—Sheetz aims to provide “convenience without

compromise.”

Superstore

A store much larger than a regular

Category killer

Service retailer

Whether it’s for road warriors, construction workers, or soc

cer moms, Sheetz offers “a mecca for people on the go”—fast,

friendly service and quality products in clean and convenient

locations. “We really care about our customers,” says the com

pany. “If you need to refuel your car or refresh your body, . . .

Sheetz has what you need, when you need it. And, we’re here

venience store operation. The average Sheetz store is nearly

salads, along with hot fries, onion rings, chicken fi ngers, and

staffed by a trained barista. Frozen fruit smoothies round out

the menu.

parfaits that make it even more convenient for customers

on the move to grab a quick bite. This food and a full line of

Shweetz bakery items are made fresh daily at the company’s

own kitchen/bakery, Sheetz Bros. Kitchen. To help make pay

ing easier, Sheetz was the fi rst chain in the nation to install

quickly tap their credit cards and go. Sheetz also partnered

with M&T Bank to offer ATM services at Sheetz locations without a surcharge. Some analysts say

that Sheetz aims to become the Walmart of convenience stores, and it just might get there.

Superstores are much larger than regular supermarkets and offer a large assortment

of routinely purchased food products, nonfood items, and services. Walmart, Target, Meijer,

and other discount retailers offer supercenters, very large combination food and discount stores. Whereas a traditional grocery store brings in about $466,000 a week in sales, a super

center brings in about $1.5 million a week. Walmart, which opened its fi rst supercenter in

a rate of about 140 per year.8

Recent years have also seen the rapid growth of superstores that are actually giant

category killers (for example, Best Buy, Home Depot, and

PetSmart). They feature stores the size of airplane hangars that carry a very deep assort

ment of a particular line. Category killers are found in a wide range of categories, including

goods, sporting goods, and even pet supplies.

Finally, for many retailers, the product line is actually a service. Service retailers

include hotels and motels, banks, airlines, restaurants, colleges, hospitals, movie theaters,

400 Part 3 |

Discount store

A retail operation that sells standard

lower margins and selling at higher

tennis clubs, bowling alleys, repair services, hair salons, and dry cleaners. Service retailers

in the United States are growing faster than product retailers.

Relative Prices Retailers can also be classifi ed according to the prices they charge (see Table 13.1). Most

Discount Stores. A discount store (for example, Target, Kmart, or Walmart) sells stan dard merchandise at lower prices by accepting lower margins and selling higher volume.

their store environments and increased their services, while at the same time keeping prices

low through lean, effi cient operations.

ise for the times: “Save time. Save money. Every day”:

Dollar General’s slogan isn’t just for show. It’s a careful statement of the

store’s value promise. The retailer’s goal is to keep things simple by offer

ing only a selected assortment of popular brands at everyday low prices in

line and smaller stores (you could fi t more than 25 Dollar General stores

inside the average Walmart supercenter) add up to a quick trip—the aver

age customer is in and out of the store in less than 10 minutes. And its

40 percent lower than grocery store prices. Put it all together, and things are

well positioned for the future. We “see signs of a new consumerism,” says

cost brands, and stay generally more frugal.” Convenience and low prices,

it seems, never go out of style.9

As the major discount stores traded up, a new wave of

volume gap. Ordinary discounters buy at regular wholesale prices

brokerages.

independents, factory outlets, and warehouse clubs. either are independently owned and run or are di

Examples include store retailers such as TJ Maxx and Marshalls, which are owned by TJX

Companies, and online sellers such as Overstock.com.

Factory outlets

Gap, Levi Strauss, and others—sometimes group together in factory outlet malls and retail centers. At these centers, dozens of outlet stores offer prices as much as 50 percent be low retail on a wide range of mostly surplus, discounted, or irregular goods. Whereas outlet

The malls in general are now moving upscale—and even dropping factory from their descriptions. A growing number of outlet malls now feature luxury brands such as Coach,

Polo Ralph Lauren, Dolce&Gabbana, Giorgio Armani, Burberry, and Versace. As consumers

box discount retailer, makes a powerful value promise for

the times: “Save time. Save money. Every day.”

wholesale prices and sells at less than

retail.

Factory outlet

surplus, discontinued, or irregular goods.

Chapter 13 | Retailing and Wholesaling 401

Call, Bloomingdale’s Outlets, and Saks Off 5th. Many companies now regard outlets not

simply as a way of disposing of problem merchandise but as an additional way of gaining

business for fresh merchandise. The combination of highbrow brands and lowbrow prices

found at outlets provides powerful shopper appeal, especially in thriftier times.

Warehouse clubs (also known as wholesale clubs or membership warehouses), such as

frills. However, they offer ultralow prices and surprise deals on selected branded merchan

dise. Warehouse clubs have grown rapidly in recent years. These retailers appeal not only

customers shopping for a wide range of goods, from necessities to extravagances.

Kroger. Low price is an important part of Costco’s equation, but what really sets Costco

apart is the products it carries and the sense of urgency that it builds into the Costco shop

per’s store experience.10

Warehouse club

appliances, clothing, and other goods

Warehouse clubs: Costco is a retail treasure hunt, where one’s

shopping cart could contain a $50,000 diamond ring resting on top of

a vat of mayonnaise.

Corporate chains

owned and controlled.

Franchise

A contractual association between a

Costco brings fl air to an otherwise dreary setting. Alongside

quality products—even luxuries—all at tantalizingly low

margins. As one industry analyst puts it, “Costco is a retail

treasure hunt, where one’s shopping cart could contain a

$50,000 diamond ring resting on top of a vat of mayonnaise.”

prices. Last year, Costco sold more than 69 million hot dog

and soda combinations (still only $1.50 as they have been

for more than 25 years). At the same time, it sold more than

100,000 carats of diamonds at up to $100,000 per item. It is the

nation’s biggest baster of poultry (more than 70,000 rotisserie

chickens a day at $4.99) but also the country’s biggest seller

of fi ne wines (including the likes of a Chateau Cheval Blanc

Premier Grand Cru Classe at $1,750 a bottle).

Each Costco store is a theater of retail that creates buy

ing urgency and excitement. Mixed in with its regular stock of

staples, Costco features a glittering, constantly shifting array

golf clubs, or Kenneth Cole bags—deals you just won’t fi nd

anywhere else. In fact, of the 4,000 items that Costco carries, 1,000 are designated as “treasure

items” (Costco’s words). The changing assortment and great prices keep people coming back,

wallets in hand. Costco stores average $1,000 of sales per square foot of selling space, compared

with Sam’s at $586 per square foot and BJs Wholesale at $500. There was a time when only the

even people who don’t have to pinch pennies shop there.

Organizational Approach Although many retail stores are independently owned, others band together under some form

of corporate or contractual organization. Table 13.2 describes four major types of retail

organizations—corporate chains, voluntary chains, retailer cooperatives, and franchise organizations. Corporate chains are two or more outlets that are commonly owned and controlled.

They have many advantages over independents. Their size allows them to buy in large quan

tities at lower prices and gain promotional economies. They can hire specialists to deal with

areas such as pricing, promotion, merchandising, inventory control, and sales forecasting.

The great success of corporate chains caused many independents to band together in one

of two forms of contractual associations. One is the voluntary chain sponsored group of independent retailers that engages in group buying and common merchandising.

hardwares. The other type of contractual association is the retailer cooperative—a group of independent retailers that bands together to set up a jointly owned, central wholesale opera

tion and conduct joint merchandising and promotion efforts. Examples are Associated Gro

cers and Ace Hardware. These organizations give independents the buying and promotion

economies they need to meet the prices of corporate chains.

Another form of contractual retail organization is a franchise. The main difference

between franchise organizations and other contractual systems (voluntary chains and

402 Part 3 |

Table 13.2 | Major Types of Retail Organizations Type Description Examples

Corporate chain

Hardware (hardware)

retail cooperatives) is that franchise systems are normally based on some

unique product or service; a method of doing business; or the trade

name, goodwill, or patent that the franchisor has developed. Franchising

centers, auto sales and service dealerships, and real estate agencies.

However, franchising covers a lot more than just burger joints and

fi tness centers. Franchises have sprung up to meet just about any need.

For example, Mad Science Group franchisees put on science programs for

schools, scout troops, and birthday parties. And Mr. Handyman provides

repair services for homeowners while Merry Maids tidies up their houses.

Franchises now command 40 percent of all retail sales in the United

States. These days, it’s nearly impossible to stroll down a city block or

drive on a city street without seeing a McDonald’s, Subway, Jiffy Lube,

McDonald’s, now has more than 33,000 stores in 119 countries, including

almost 14,000 in the United States. It serves 68 million customers a day

than 80 percent of McDonald’s restaurants worldwide are owned and op

99 countries, including nearly 25,000 in the United States.11

Retailer Marketing Decisions Retailers are always searching for new marketing strategies to attract and hold customers.

In the past, retailers attracted customers with unique product assortments and more or bet

ter services. Today, the assortments and services of various retailers are looking more and

more alike. You can fi nd most consumer brands not only in department stores but also in

it’s now more diffi cult for any one retailer to offer exclusive merchandise.

Service differentiation among retailers has also eroded. Many department stores have

trimmed their services, whereas discounters have increased theirs. In addition, customers

have become smarter and more price sensitive. They see no reason to pay more for identical

brands, especially when service differences are shrinking. For all these reasons, many retail

ers today are rethinking their marketing strategies.

As shown in Figure 13.1, retailers face major marketing decisions about

tion and targeting, store differentiation and positioning, and the retail marketing mix.

Franchising: These days, it’s nearly impossible to

stroll down a city block or drive on a suburban street

without seeing an abundance of franchise businesses.

Objective 2 Describe the major retailer

marketing decisions.

Chapter 13 | Retailing and Wholesaling 403

Segmentation, Targeting, Differentiation, and Positioning Decisions Retailers must fi rst segment and defi ne their target markets and then decide how they will

differentiate and position themselves in these markets. Should the store focus on upscale,

midscale, or downscale shoppers? Do target shoppers want variety, depth of assortment,

convenience, or low prices? Until they defi ne and profi le their markets, retailers cannot

make consistent decisions about product assortment, services, pricing, advertising, store

décor, or any of the other decisions that must support their positions.

Too many retailers, even big ones, fail to clearly defi ne their target markets and posi

tions. For example, what market does Sears target? For what is the department store known?

on the other? If you’re having trouble answering those questions, you’re not alone—so is

Sears’s management (see Real Marketing 13.1).

By contrast, successful retailers defi ne their target markets well and position themselves

strongly. For example, Trader Joe’s positions itself strongly with its “cheap gourmet” value

proposition. Walmart is strongly positioned on low prices and what those always low prices

mean to its customers. And highly successful outdoor products retailer Bass Pro Shops posi

tions itself powerfully as being “as close to the Great Outdoors as you can get indoors!”

With solid targeting and positioning, a retailer can compete

effectively against even the largest and strongest competitors.

For example, compare little Five Guys Burger and Fries to giant

McDonald’s. Five Guys has less than 1,000 stores and $1 billion in

sales; McDonald’s has more than 33,000 stores worldwide and sales

of $85 billion. How does this smaller burger chain compete with Big

Mac? It doesn’t—at least not directly. Five Guys succeeds by care

fully positioning itself away from McDonald’s:12

Retail marketing mixRetail strategy

Create value for targeted retail customers

As with other types of marketers, the name of the game for retailers

marketing strategy and mix that

return. Remember Target’s “Expect

here, you’re family.”

FIGURE | 13.1

Retail targeting and positioning: Five Guys Burger and Fries

succeeds by positioning itself strongly away from McDonald’s

but what you can get at Five Guys you simply can’t get at

McDonald’s.

Five Guys’ menu is limited—really limited. Aside from hamburgers, the

chain has only hot dogs and grilled cheese or veggie sandwiches (which

hardly anyone buys). You won’t fi nd salads or breakfasts or Chicken

McBites at Five Guys, or even a chocolate milk shake. But what you can get at Five Guys you simply can’t get at McDonald’s—such as a mouth watering Five Guys cheeseburger consisting of two patties and 840

gluttonous calories, piled high with cheese, lettuce, tomatoes, pickles,

jalapenos, grilled mushrooms, or any of 11 free toppings, made to order

250,000 ways to order a Five Guys burger, recently crowned Zagat’s

“Best Burger.” What’s more it’s all very fresh—there are no freezers in

any Five Guys locations, just coolers. The small burger joint’s unique

offerings and generous portions set it apart, allowing it to charge more

404 Part 3 |

ances and tools.

one hand, and trendier, more targeted up

marketplace.

tials stores, which it later

ies. It has also dabbled

than as a retail chain. Indeed, Lampert has

Real Positioning Sears:

To once again position Sears as the place “Where America

Shops,” the retailer must fi rst answer the question, “Why

should people shop at Sears?”

Chapter 13 | Retailing and Wholesaling 405

appliances still lead their categories, and the

merchandise built around these core brands.

work apparel, Kenmore kitchenware, and Die

ness and renting out its store brands will not

Sources:

Businessweek

The Business Insider

Reuters,

Wall Street Journal

Fortune,

Five Guys can’t match McDonald’s massive economies of scale, incredible volume

purchasing power, ultraeffi cient logistics, diverse menu, and low prices. But then again, it

doesn’t even try. By positioning itself away from McDonald’s and other large competitors,

Product Assortment and Services Decision Retailers must decide on three major product variables: product assortment, services mix,

and store atmosphere.

The retailer’s product assortment should differentiate it while matching target shop

pers’ expectations. One strategy is to offer merchandise that no other competitor carries,

such as store brands or national brands on which it holds exclusive rights. For example, Saks

label lines—the Saks Fifth Avenue Signature, Classic, and Sport collections. Alternatively, a

retailer can differentiate itself by offering a highly targeted product assortment: Lane Bryant

BatteryDepot.com offers about every imaginable kind of replacement battery.

The services mix can also help set one retailer apart from another. For example, some retailers invite customers to ask questions or consult service representatives in person or

The store’s atmosphere is another important element in the reseller’s product arsenal. Re tailers want to create a unique store experience, one that suits the target market and moves

customers to buy. Many retailers practice experiential retailing. For example, outdoor goods retailer Cabela’s stores are as much natural history museums for outdoor enthusiasts as they

are retail outlets.13

Despite Cabela’s often remote locations, customers fl ock to its 34 superstores to buy hunting,

fi shing, and outdoor gear. A typical Cabela’s store draws 4.4 million customers a year; half of

Cabela’s customers drive 100 miles or more to get there. What is it that attracts these hordes of

shoppers to Cabela’s stores? Part of the answer lies in all the stuff the stores sell. Cabela’s huge

superstores house a vast assortment of quality merchandise at reasonable prices. But Cabela’s

real magic lies in the experiences it creates for those who visit. “This is more than a place to go get fi shhooks,” says a Cabela’s spokesperson. “We want to create a sense of wonder” for those

who visit.

406 Part 3 | Mission accomplished! Each Cabela’s store creates

what amounts to a natural history theme park. Take the

store near Fort Worth, Texas, for example. Dominat

ing the center of the store is Conservation Mountain,

cascading streams. The mountain is divided into four

ecosystems and fi ve bioregions: a Texas prairie, an Alas

kan habitat, an Arctic icecap, an American woodland,

and an Alpine mountaintop. Each bioregion is popu

in action poses—everything from prairie dogs, deer,

elk, and caribou to brown bears, polar bears, musk

oxen, and mountain goats. Getting hungry? Drop by

the Mesquite Grill café for an elk, ostrich, or wild boar

sandwich—no Big Macs here! The nearby General

together and Cabela’s is creating total experiences that

delight the senses as well as the wallets of its carefully

targeted customers.

Today’s successful retailers carefully orches

trate virtually every aspect of the consumer store

experience. The next time you step into a retail store—

whether it sells consumer electronics, hardware, or

high fashion—stop and carefully consider your sur

roundings. Think about the store’s layout and displays. Listen to the background sounds.

Smell the smells. Chances are good that everything in the store, from the layout and lighting

to the music and even the smells, has been carefully orchestrated to help shape the custom

ers’ shopping experiences—and open their wallets. For example, most large retailers have

developed signature scents that you smell only in their stores:14

Luxury shirtmaker Thomas Pink pipes the smell of clean, pressed shirts into its stores—its signa

and freesia; whereas Westin Hotel & Resorts disperses White Tea, which attempts to provide the

ments: the soft scent of baby powder in the baby store, coconut in the swimsuit area, lilacs in inti

mate apparel, and sugar cookies and evergreen scent during the holiday season. At Abercrombie

and Fitch, it’s a “woody” aroma—a combination of orange, fi r resin, and Brazilian rosewood,

among others. Theme park operators send popcorn aromas wafting down the midway—they

don’t pop the corn there, but the aroma puts visitors in a snacking mood. Such scents can in

crease customer “dwell times” and, in turn, buying. Says the founder of ScentAir, a company that

produces such scents, “Developing a signature fragrance is much like [developing] a message in

print or radio: What do you want to communicate to consumers and how often?”

Such experiential retailing confi rms that retail stores are much more than simply assort ments of goods. They are environments to be experienced by the people who shop in them.

In fact, retail establishments sometimes become small communities in themselves—places

women’s active apparel shop and part women’s gathering spot. Beyond selling apparel for

gethers, and an online community for women on the move—called timeout with Title Nine—

Price Decision A retailer’s price policy must fi t its target market and positioning, product and service as

sortment, the competition, and economic factors. All retailers would like to charge high

markups and achieve high volume, but the two seldom go together. Most retailers seek

either high markups on lower volume (most specialty stores) or low markups on higher volume (mass merchandisers and discount stores).

shoes, and jewelry created by designers such as Chanel, Prada, and Hermes.

showings of the upcoming season’s trends with cocktails and hors d’oeuvres. By contrast,

Store atmosphere: Cabela’s real magic lies in the experiences it creates

for those who visit. “This is more than a place to go get fi shhooks . . . we

wanted to create a sense of wonder.”

Chapter 13 | Retailing and Wholesaling 407 stocks new products each week, the discounter provides a

treasure hunt for bargain shoppers.

Retailers must also decide on the extent to which they

will use sales and other price promotions. Some retailers use

no price promotions at all, competing instead on product and

service quality rather than on price. For example, it’s diffi cult

one sale on Chanel handbags, even in a tight economy. Other

retailers—such as Walmart, Costco, and Family Dollar—

practice everyday low pricing (EDLP), charging constant, everyday low prices with few sales or discounts.

Still other retailers practice —charging

higher prices on an everyday basis, coupled with frequent

sales and other price promotions, to increase store traffi c,

other goods at full prices. The recent economic downturn

ers into their stores. Which pricing strategy is best depends

on the retailer’s overall marketing strategy, the pricing approaches of its competitors, and

the economic environment.

Promotion Decision Retailers use any or all of the fi ve promotion tools—advertising, personal selling, sales pro

motion, public relations (PR), and direct marketing—to reach consumers. They advertise in

newspapers and magazines and on radio, television, and the Internet. Advertising may be

supported by newspaper inserts and catalogs. Store salespeople greet customers, meet their

newsletters and blogs, store magazines, and public service activities, are also available to

retailers. Most retailers have also created Web sites and mobile apps that offer customers

information and other features while selling merchandise directly.

Place Decision Retailers often point to three critical factors in retailing success: location, location, and tion! It’s very important that retailers select locations that are accessible to the target market in areas that are consistent with the retailer’s positioning. For example, Apple locates its

to keep costs down and support its “cheap gourmet” positioning. Small retailers may have

to settle for whatever locations they can fi nd or afford. Large retailers, however, usually

employ specialists who use advanced methods to select store locations.

Most stores today cluster together to increase their customer pulling power and give

Central business districts were the main form of retail cluster until the 1950s. Every large city and town had a central business district

with department stores, specialty stores, banks, and movie theaters. When people began

moving to the suburbs, however, these central business districts, with their traffi c, parking,

and crime problems, began to lose business. In recent years, many cities have joined with

merchants to revive downtown shopping areas, generally with only mixed success.

A shopping center is a group of retail businesses built on a site that is planned, devel

oped, owned, and managed as a unit. A regional shopping center, or regional shopping mall, the largest and most dramatic shopping center, has from 50 to more than 100 stores, including two

from a wide area. A community shopping center contains between 15 and 50 retail stores. It nor mally contains a branch of a department store or variety store, a supermarket, specialty stores,

professional offi ces, and sometimes a bank. Most shopping centers are neighborhood shopping cen ters or strip malls that generally contain between 5 and 15 stores. These centers, which are close and convenient for consumers, usually contain a supermarket, perhaps a discount store, and

several service stores—dry cleaner, drugstore, hardware store, local restaurant, or other stores.16

A retailer’s price policy must fi t its targeting and positioning.

Bergdorf Goodman caters to the upper crust with prices to match.

Shopping center

managed as a unit.

408 Part 3 | Power centers are huge

unenclosed shopping centers consisting of a long strip of retail stores, including large, free

standing anchors such as Walmart, Home Depot, Costco, Best Buy, Michaels, PetSmart, and

Offi ceMax. Each store has its own entrance with parking directly in front for shoppers who

wish to visit only one store.

In contrast, lifestyle centers locations, and nonretail activities, such as a playground, skating rink, hotel, dining estab

lishments, and a movie theater. “Think of lifestyle centers as part Main Street and part Fifth

Avenue,” comments an industry observer. In fact, the original power center and lifestyle

centers that combine the convenience and community feel of a neighborhood center with

the brute force of a power center. In all, today’s centers are more places to hang out than

just places to shop.17

The past few years have brought hard times for shopping centers. With more than

100,000 centers in the United States, many experts suggest that the country has been “over

spending cutbacks forced many retailers—small and large—out of business, increasing

suffered during the downturn. Some of the pizzazz has also gone out of lifestyle centers,

“We’ve learned that lifestyle centers have to adapt to a changing environment to survive,”

says one mall developer.18

Retailing Trends and Developments

as opportunities. Consumer demographics, lifestyles, and spending patterns are chang

ing rapidly, as are retailing technologies. To be successful, retailers need to choose target

segments carefully and position themselves strongly. They need to take the follow

ing retailing developments into account as they plan and execute their competitive

strategies.

Tighter Consumer Spending Following many years of good economic times for retailers, the Great Recession turned

many retailers’ fortunes from boom to bust. Even as the economy has recovered, retail

ers will feel the effects of changed consumer spending patterns well into the future.

Some retailers actually benefi t from a down economy. For example, as consumers

cut back and looked for ways to spend less on what they bought, big discounters such

competitors.

For most retailers, however, tighter consumer spending has meant tough times.

During and following the recent recession, several large and familiar retailers declared

bankruptcy or closed their doors completely—including household names such as

Linens ‘n Things, Circuit City, KB Toys, Borders Books, and Sharper Image, to name

a few. Other retailers, from Macy’s and Home Depot to Starbucks, laid off employees,

strapped customers back into their stores.

pitches to their positioning. For example, Home Depot replaced its older “You can

do it. We can help.” theme with a thriftier one: “More saving. More doing.” Similarly,

wallets were harmed in the buying of our 365 Everyday Value products.” And fol

fi rst time in its history, introduced TV ads featuring price messages. “Our [tagline] is

‘Expect more. Pay less.’” a Target marketer said. “We’re putting more emphasis on the

pay less promise.” And in the more frugal postrecession economy, Target’s marketing

Objective 3 Discuss the major trends and

developments in retailing.

Value positioning: Facing tighter

consumer spending, Home Depot adopted a

thriftier theme: “More saving. More doing.”

Chapter 13 | Retailing and Wholesaling 409 continues to feature more practical price and savings appeals. In fact, in its now famous

tagline, the “Pay less.” part is now often underlined.19

counting can increase immediate sales but damage brand loyalty. Instead of relying on

to boost the “Pay less” part of Target’s positioning, Target has not abandoned the quality

and design that differentiate it from Walmart and other discounters. As the economy has re

covered, although it has shifted the balance a bit toward lower prices, Target still asserts its

New Retail Forms, Shortening Retail Life Cycles, and Retail Convergence

life cycle of new retail forms is getting shorter. Department stores took about 100 years

to reach the mature stage of the life cycle; more recent forms, such as warehouse stores,

reached maturity in about 10 years. In such an environment, seemingly solid retail positions

can crumble quickly. Of the top 10 discount retailers in 1962 (the year that Walmart and

Kmart began), not one exists today. Even the most successful retailers can’t sit back with a

winning formula. To remain successful, they must keep adapting.

Many retailing innovations are partially explained by the

concept

become “fat” by letting their costs and margins increase. The new retailers’ success leads

them to upgrade their facilities and offer more services. In turn, their costs increase, forcing

them to increase their prices. Eventually, the new retailers become like the conventional re

tailers they replaced. The cycle begins again when still newer types of retailers evolve with

and later troubles of department stores, supermarkets, and discount stores and the recent

that let them promote their brands to seasonal

shoppers and create buzz in busy areas. During the last

holiday season, for instance, Toys“R”Us set up approximately

that formerly housed recently bankrupt KB Toys stores. Target

online and mobile equivalent is flash sales sites such as Sak’s

limited sales events on top fashion and lifestyle brands.20

Today’s retail forms appear to be converging. Increas

ingly, different types of retailers now sell the same products

at the same prices to the same consumers. For example, you

electronics superstores, and a slew of online sites that all com

pete for the same customers. If you can’t fi nd the microwave

oven you want at Sears, you can step across the street and fi nd

one for a better price at Lowe’s or Best Buy—or just order one online from Amazon.com or

even RitzCamera.com. This merging of consumers, products, prices, and retailers is called

retail convergence. Such convergence means greater competition for retailers and greater dif fi culty in differentiating the product assortments of different types of retailers.

The Rise of Megaretailers The rise of huge mass merchandisers and specialty superstores, the formation of verti

cal marketing systems, and a rash of retail mergers and acquisitions have created a core of

New retail forms: Many retailers—such as Toys“R”Us—are

brands to seasonal shoppers and create buzz in busy areas.

410 Part 3 | Designing a Customer-Driven Strategy and Mix superpower megaretailers. With their size and buying power, these giant retailers can offer

better merchandise selections, good service, and strong price savings to consumers. As a re-

sult, they grow even larger by squeezing out their smaller, weaker competitors.

The megaretailers have shifted the balance of power between retailers and producers.

A small handful of retailers now control access to enormous numbers of consumers, giving

them the upper hand in their dealings with manufacturers. For example, you may never

have heard of specialty coatings and sealants manufacturer RPM International, but you’ve

probably used one or more of its many familiar do-it-yourself brands—such as Rust-Oleum

paints, Plastic Wood and Dap fillers, Mohawk and Watco finishes, and Testors hobby ce-

ments and paints—all of which you can buy at your local Home Depot store. Home Depot is

a very important customer to RPM, accounting for a significant share of its consumer sales.

However, Home Depot’s sales of $70 billion are 20 times RPM’s sales of $3.3 billion. As a

result, the giant retailer can, and often does, use this power to wring concessions from RPM

and thousands of other smaller suppliers.21

Growth of Direct and Online Retailing Most consumers still make a majority of their purchases the old-fashioned way: They go

to the store, find what they want, wait patiently in line to plunk down their cash or credit

cards, and bring home the goods. However, consumers now have a broad array of nonstore

alternatives, including direct and online shopping. As we’ll discuss in Chapter 17, direct

and online marketing are currently the fastest-growing forms of marketing.

Today, thanks to advanced technologies, easier-to-use and enticing online sites

and mobile apps, improved online services, and the increasing sophistication of search

technologies, online retailing is thriving. In fact, although it currently accounts for only

about 8 percent of total U.S. retail sales, online buying is growing at a much brisker

pace than retail buying as a whole. Last year ’s U.S. online retail sales reached an esti-

mated $194.3 billion, up 16 percent over the previous year, and will reach an estimated

$279 billion by 2015.22

Retailer online sites and mobile apps also influence a large amount of in-store buying.

One recent survey revealed that more than 60 percent of shoppers say they look for deals

online before at least half of all shopping trips. What’s more, to the dismay of store retailers,

many shoppers now check out merchandise at brick-and-mortar store showrooms before

buying it online—a process called showrooming. Today, half of shoppers who buy prod- ucts online first check them out at a traditional store. Many retailers have been hit hard by

showrooming, but Istanbul Cevahir Shopping and Entertainment Centre is embracing such

behavior, and using it to their advantage (see Real Marketing 13.2).23

Thus, it’s no longer a matter of customers deciding whether to shop in the store or shop online. Increasingly, customers are merging store, online, and mobile outlets into a single

shopping process. The Internet and digital devices have spawned a whole new breed of

shopper and way of shopping. Whether shopping for cars, homes, electronics, consumer

products, or medical care, many people just can’t buy anything unless they first look it

up online and get the lowdown. And they’ve gotten used to buying anywhere, anytime—

whether it’s in the store, online, or even online while in the store.

All types of retailers now employ direct and online channels. The Web and mobile on-

line sales of large brick-and-mortar retailers, such as Walmart, Target, Staples, and Best Buy,

are increasing rapidly. Many large online-only retailers—Amazon.com, Zappos.com, online

travel companies such as Travelocity.com and Expedia.com, and others—have made it big

on the Internet. At the other extreme, hordes of niche marketers have used the Internet to

reach new markets and expand their sales.

Still, much of the anticipated growth in online sales will go to multichannel retailers—

the click-and-brick marketers who can successfully merge the virtual and physical worlds.

In a recent ranking of the top-20 online retail sites, 70 percent were owned by store-based

retail chains.24 For example, thanks largely to rapid growth in online sales, upscale home

products retailer Williams-Sonoma now captures more than 40 percent of its total revenues

from its direct-to-consumer channel. Like many retailers, Williams-Sonoma has discovered

that many of its best customers visit and shop both online and offline. Beyond just offering

online shopping, the retailer engages customers through online communities, social media,

mobile apps, a blog, and special online programs. “The Internet has changed the way our

customers shop,” says Williams-Sonoma CEO Laura Alber, “and the online brand experi-

ence has to be inspiring and seamless.”25

Chapter 13 | Retailing and Wholesaling 411

them online has concerned some store retailers, but Istanbul Cevahir is embracing it.

long ago, catalogue showrooms were con

comparison while still in the shop, a practice

showrooming

to larger

to learn about new products during the week,

end while shopping at the mall, using price

comparison apps such as barcode scan

whom own a smartphone), their mobile is now

largest shopping malls, put showrooming

shops in groups, and all tastes need to be

able in most stores, allowing the emerging ad

then place an order at the register or online,

their smartphones to scan a product or an

technologies (bridal registries) or new tech

Real Showrooming 2.0:

412 Part 3 |

Growing Importance of Retail Technology Retail technologies have become critically important as competitive tools. Progressive re

tailers are using advanced IT and software systems to produce better forecasts, control in

ventory costs, interact electronically with suppliers, send information between stores, and

even sell to customers within stores. They have adopted sophisticated systems for checkout

scanning, RFID inventory tracking, merchandise handling, information sharing, and cus

tomer interactions.

Perhaps the most startling advances in retail technology concern the ways in which

retailers are connecting with consumers. Today’s customers have gotten used to the speed

and convenience of buying online and to the control that the Internet gives them over the

buying process. The Internet lets consumers shop

when they like and where they like, with instant

access to gobs of information about competing

all that.

Increasingly, however, retailers are attempt

ing to meet these new consumer expectations

stores. Many retailers now routinely use technol

rors and virtual sales associates. For example,

Eastern Mountain Sports uses an iPad app to as

sist in outfi tting shoppers for their next adven

ture with items available both in the store and

constrained by square footage as to what we can

sell,” says an EMS marketer.26

The future of technology in retailing lies in

merging the online and offl ine shopping experi

ences. It’s not a matter of online retailing grow

ing while physical retailing declines. Instead,

both will be important, and the two must be inte

grated. For example, you’ve probably had many

and online technologies into a seamless shopping experience. Here, an Eastern

Mountain Sports associate uses an iPad app to help outfi t a shopper for his next

adventure.

pers shop with a directional list, not detailed

hard to compare prices on all.

online and pick up items in the stores, and,

with consistent, transparent pricing, as well as

can be used as an engagement tool linked

opportunities. It allows browsing customers

clude. From there, customers are able to add

modern shopping mall, hence, rests more in

technologies and showrooming rather than re

production

Sources:

Journal of Consumer Research

Journal of Consumer Behaviour

Chapter 13 | Retailing and Wholesaling 413 shopping experiences in which you began by browsing a retailer’s Internet site or interac

tive catalog app, then visited the store, interacted with store sales personnel, and tried out

the product. While shopping in the store, you might well have used your smartphone to

comparison shop other retailers before making a purchase in the store or online later. The

seamless shopping experience.27

This functional scenario is neither as futuristic nor as fanciful as it might seem. All the

technology is already available and will soon be found everywhere. The future belongs to

experience.

Green Retailing Today’s retailers are increasingly adopting environmentally sustainable practices. They

are greening up their stores and operations, promoting more environmentally responsible

products, launching programs to help customers be more responsible, and working with

channel partners to reduce their environmental impact.

At the most basic level, most large retailers are making their stores more environmentally

friendly through sustainable building design, construction, and operations. For example, all

new Kohl’s stores are constructed with recycled and regionally sourced building materials,

duce energy usage. Inside, new stores use occupancy sensor lighting for stockrooms, dress

ing rooms, and offi ces; energy management systems to control heating and cooling; and a

recycling program for cardboard boxes, packaging, and hangers. “Kohl’s cares,” says the

everyday practices like recycling hangers, we’re taking big steps to

ensure we leave a smaller footprint.”28

Retailers are also greening up their product assortments.

For example, Safeway offers its own Bright Green line of home

care products, featuring cleaning and laundry soaps made with bio

bulbs, and paper products made from a minimum of 60 percent

recycled content. Such products can both boost sales and lift the

retailer’s image as a responsible company.

Many retailers have also launched programs that help con

sumers make more environmentally responsible decisions. Staples’

EcoEasy program “makes it easier to make a difference” by helping

customers to identify green products sold in its stores and to recycle

printer cartridges, mobile phones, computers, and other offi ce tech

nology products. Staples recycles some 30 million printer cartridges

and 10 million pounds of old technology each year. 29

Finally, many large retailers are joining forces with suppliers

and distributors to create more sustainable products, packaging,

and distribution systems. For example, Amazon.com works closely

with the producers of many of the products it sells to reduce and

simplify their packaging. And beyond its own substantial sustain

ability initiatives, Walmart wields its huge buying power to urge its army of suppliers to

improve their environmental impact and practices. The retailer has even developed a world

wide Sustainable Product Index, by which it rates suppliers. It plans to translate the index

into a simple rating for consumers to help them make more sustainable buying choices.

retailer’s top line by attracting consumers looking to support environmentally friendly sell

ers and products. They also help the bottom line by reducing costs. For example, Amazon.

friendly buildings not only appeal to customers and helps save the planet but also cost less

to operate.

Global Expansion of Major Retailers Retailers with unique formats and strong brand positions are increasingly moving into other

countries. Many are expanding internationally to escape saturated home markets. Over the

Green retailing: Safeway offers its own Bright Green line of

home care products, including cleaning and laundry products

made from biodegradable and naturally derived ingredients.

414 Part 3 | years, some giant U.S. retailers, such as McDonald’s, have become globally prominent as a

result of their marketing prowess. Others, such as Walmart, are rapidly establishing a global

exciting global potential. Its international division alone last year racked up sales of more

than $126 billion, 80 percent more than rival Target’s total sales of $69.8 billion.30

However, most U.S. retailers are still signifi cantly behind Europe and Asia when it

comes to global expansion. Although nine of the world’s top 20 retailers are U.S. compa

stores in at least 10 countries. Foreign retailers that have gone global include France’s Car

refour and Auchan chains, Germany’s Metro and Aldi chains, Britain’s Tesco, and Japan’s

Seven & I.31

International retailing presents challenges as well as opportunities. Retailers can face

dramatically different retail environments when crossing countries, continents, and cul

tures. Simply adapting the operations that work well in the home country is usually not

enough to create success abroad. Instead, when going global, retailers must understand and

meet the needs of local markets.

Wholesaling Wholesaling includes all the activities involved in selling goods and services to those buy

ing them for resale or business use. Firms engaged primarily in wholesaling activities are called wholesalers.

Wholesalers buy mostly from producers and sell mostly to retailers, industrial consum

ers, and other wholesalers. As a result, many of the nation’s largest and most important

wholesalers are largely unknown to fi nal consumers. For example, you may never have

heard of Grainger, even though it’s very well known and much valued by its more than

2 million business and institutional customers in 157 countries. 32

Grainger may be the biggest market leader you’ve never heard of. It’s an $8.1 billion

business that offers more than 1 million maintenance, repair, and operating (MRO) prod

ucts from 3,500 manufacturers in 30 countries to 2 million active customers.

Through its branch network, service centers, sales reps, catalog, and online

sites, Grainger links customers with the supplies they need to keep their fa

cilities running smoothly—everything from light bulbs, cleaners, and display

cases to nuts and bolts, motors, valves, power tools, test equipment, and safety

supplies. Grainger’s 711 branches, 28 strategically located distribution centers,

nearly 21,500 employees, and innovative Web sites handle more than 115,000

transactions a day. Grainger’s customers include organizations ranging from

factories, garages, and grocers to schools and military bases. Grainger operates

on a simple value proposition: to make it easier and less costly for customers to

needed to maintain facilities. On a broader level, it builds lasting relationships

with customers by helping them fi nd solutions to their overall MRO problems. Acting as consultants, Grainger sales reps help buyers with everything from

improving their supply chain management to reducing inventories and stream

lining warehousing operations. So, how come you’ve never heard of Grainger?

MRO supplies, which are important to every business but not so important to

consumers. More likely, it’s because Grainger is a wholesaler. And like most

wholesalers, it operates behind the scenes, selling mostly to other businesses.

Why are wholesalers important to sellers? For example, why would a pro

ducer use wholesalers rather than selling directly to retailers or consumers?

Simply put, wholesalers add value by performing one or more of the following

channel functions:

Objective 4 Explain the major types of

wholesalers and their marketing

decisions.

Wholesaling

business use.

Wholesaler

primarily in wholesaling

Wholesaling: Many of the nation’s largest and

most important wholesalers—like Grainger—are

largely unknown to fi nal consumers. But they are

very well known and much valued by the business

customers they serve.

Selling and promoting: Wholesalers’ sales forces help manufacturers reach many small customers at a low cost. The wholesaler has more contacts and

is often more trusted by the buyer than the distant manufacturer.

assortments needed by their customers, thereby saving much work.

Chapter 13 | Retailing and Wholesaling 415 Bulk breaking: Wholesalers save their customers money by buying in carload lots and breaking bulk (breaking large lots into small quantities).

Warehousing: Wholesalers hold inventories, thereby reducing the inventory costs and risks of suppliers and customers.

Transportation: Wholesalers can provide quicker delivery to buyers because they are closer to buyers than are producers.

Financing: Wholesalers fi nance their customers by giving credit, and they fi nance their suppliers by ordering early and paying bills on time.

Risk bearing: Wholesalers absorb risk by taking title and bearing the cost of theft, dam age, spoilage, and obsolescence.

Market information: Wholesalers give information to suppliers and customers about competitors, new products, and price developments.

Management services and advice: Wholesalers often help retailers train their salesclerks, im prove store layouts and displays, and set up accounting and inventory control systems.

Types of Wholesalers Wholesalers fall into three major groups (see Table 13.3): merchant wholesalers, brokers and agents, and manufacturers’ and retailers’ branches and offices. Merchant wholesalers are the largest single group of wholesalers, accounting for roughly 50 percent of all wholesaling.

wholesalers. provide a full set of services, whereas the various

service wholesalers offer fewer services to their suppliers and customers. The different types of

Brokers and agents differ from merchant wholesalers in two ways: They do not take title to goods, and they perform only a few functions. Like merchant wholesalers, they generally

specialize by product line or customer type. A broker brings buyers and sellers together

and assists in negotiation. Agents represent buyers or sellers on a more permanent basis.

Manufacturers’ agents (also called manufacturers’ representatives) are the most common type of agent wholesaler. The third major type of wholesaling is that done in manufacturers’

sales branches and offi ces by sellers or buyers themselves rather than through inde

pendent wholesalers.

Wholesaler Marketing Decisions

and retail buyers. As a result, they have taken a fresh look at their marketing strategies.

As with retailers, their marketing decisions include choices of segmentation and targeting,

differentiation and positioning, and the marketing mix—product and service assortments,

price, promotion, and distribution (see Figure 13.2).

Merchant wholesaler

business that takes title to the

merchandise it handles.

Broker

A wholesaler who does not take title to

negotiation.

Agent

not take title to goods.

Manufacturers’ sales branches and offi ces

independent wholesalers.

Wholesale marketing mix

Wholesale strategy

Create value for targeted wholesale customers

Why does this figure look so much like Figure 11.1? You guessed it. Like retailers, wholesalers must

right products to keep their

FIGURE | 13.2

416 Part 3 |

Table 13.3 | Major Types of Wholesalers

Type Description

Merchant wholesalers

wholesale merchants and industrial distributors.

Wholesale merchants

Industrial distributors

wholesalers

Truck wholesalers

(or truck jobbers)

hotels.

Drop shippers

Rack jobbers

Producers’ cooperatives

Web wholesalers

Brokers and agents

brokers.

Agents

Manufacturers agents

Chapter 13 | Retailing and Wholesaling 417 Type Description

Selling agents Have contractual authority to sell a manufacturer’s entire output. The selling agent serves

as a sales department and has significant influence over prices, terms, and conditions of

sale. Found in product areas such as textiles, industrial machinery and equipment, coal

and coke, chemicals, and metals.

Purchasing agents Generally have a long-term relationship with buyers and make purchases for them, often

receiving, inspecting, warehousing, and shipping the merchandise to buyers. Purchasing

agents help clients obtain the best goods and prices available.

Commission merchants Take physical possession of products and negotiate sales. Used most often in agricultural

marketing by farmers who do not want to sell their own output. Take a truckload of

commodities to a central market, sell it for the best price, deduct a commission and

expenses, and remit the balance to the producers.

Manufacturers’ and retailers’

branches and offices

Wholesaling operations conducted by sellers or buyers themselves rather than operating

through independent wholesalers. Separate branches and offices can be dedicated to

either sales or purchasing.

Sales branches and offices Set up by manufacturers to improve inventory control, selling, and promotion. Sales

branches carry inventory and are found in industries such as lumber and automotive

equipment and parts. Sales offices do not carry inventory and are most prominent in the

dry goods and notions industries.

Purchasing officers Perform a role similar to that of brokers or agents but are part of the buyer’s organization.

Many retailers set up purchasing offices in major market centers, such as New York and

Chicago.

Segmentation, Targeting, Differentiation, and Positioning Decisions Like retailers, wholesalers must segment and define their target markets and differentiate

and position themselves effectively—they cannot serve everyone. They can choose a target

group by size of customer (for example, large retailers only), type of customer (convenience

stores only), the need for service (customers who need credit), or other factors. Within the

target group, they can identify the more profitable customers, design stronger offers, and

build better relationships with them. They can propose automatic reordering systems, es-

tablish management-training and advisory systems, or even sponsor a voluntary chain.

They can discourage less-profitable customers by requiring larger orders or adding service

charges to smaller ones.

Marketing Mix Decisions Like retailers, wholesalers must decide on product and service assortments, prices, promo-

tion, and place. Wholesalers add customer value though the products and services they offer. They are often under great pressure to carry a full line and stock enough for immediate

delivery. But this practice can damage profits. Wholesalers today are cutting down on the

number of lines they carry, choosing to carry only the more-profitable ones. They are also

rethinking which services count most in building strong customer relationships and which

should be dropped or paid for by the customer. The key for companies is to find the mix of

services most valued by their target customers.

Price is also an important wholesaler decision. Wholesalers usually mark up the cost of goods by a standard percentage—say, 20 percent. Expenses may run 17 percent of the gross

margin, leaving a profit margin of 3 percent. In grocery wholesaling, the average profit mar-

gin is often less than 2 percent. The recent recession put heavy pressure on wholesalers to cut

their costs and prices. As their retail and industrial customers face sales and margin declines,

these customers turn to wholesalers looking for lower prices. Wholesalers may, in turn, cut

their margins on some lines to keep important customers. They may also ask suppliers for

special price breaks in cases when they can turn them into an increase in the supplier’s sales.

Although promotion can be critical to wholesaler success, most wholesalers are not promotion minded. They use largely scattered and unplanned trade advertising, sales

418 Part 3 | promotion, personal selling, and public relations. Many are behind the times in personal

selling; they still see selling as a single salesperson talking to a single customer instead of as

a team effort to sell, build, and service major accounts. Wholesalers also need to adopt some

of the nonpersonal promotion techniques used by retailers. They need to develop an overall

promotion strategy and make greater use of supplier promotion materials and programs.

Finally, distribution (location) is important. Wholesalers must choose their locations, facilities, and Web locations carefully. There was a time when wholesalers could locate in

Today, however, as technology zooms forward, such behavior results in outdated systems

for material handling, order processing, and delivery.

Instead, today’s large and progressive wholesalers have reacted to rising costs by in

vesting in automated warehouses and IT systems. Orders are fed from the retailer’s infor

mation system directly into the wholesaler’s, and the items are picked up by mechanical

devices and automatically taken to a shipping platform where they are assembled. Most

large wholesalers use technology to carry out accounting, billing, inventory control, and

forecasting. Modern wholesalers are adapting their services to the needs of target custom

business online. For example, e commerce is Grainger’s fastest growing sales channel, mak

now accounts for more than 27 percent of the wholesaler’s total sales.

Trends in Wholesaling Today’s wholesalers face considerable challenges. The industry remains vulnerable to one

tions have led to demands for even lower prices and the winnowing out of suppliers who

are not adding value based on cost and quality. Progressive wholesalers constantly watch

for better ways to meet the changing needs of their suppliers and target customers. They

recognize that their only reason for existence comes from adding value, which occurs by

increasing the effi ciency and effectiveness of the entire marketing channel.

pany is a diversifi ed health care services provider and the nation’s leading wholesaler of

pharmaceuticals, health and beauty care, home health care, and medical supply and equip

ment products. To survive, especially in a tight economic environment, McKesson has to be

more cost effective than manufacturers’ sales branches. Thus, the company has built effi cient

automated warehouses, established direct computer links with drug manufacturers, and cre

ated extensive online supply management and accounts receivable systems for customers.

management

macists by reducing costs and improving accuracy. Retailers can

even use the McKesson systems to maintain prescription histories

and medical profi les on their customers.

tomers receive a rich assortment of online solutions and supply

management tools, including an online order management sys

tory availability, and order status. According to McKesson, it

adds value in the channel by providing “supply, information,

and health care management products and services designed to

reduce costs and improve quality across healthcare.”33

The distinction between large retailers and large wholesal

ers continues to blur. Many retailers now operate formats such

as wholesale clubs and supercenters that perform many whole

sale functions. In return, some large wholesalers are setting

up their own retailing operations. For example, until recently,

SuperValu was classifi ed as a food wholesaler, with a major

ity of its business derived from supplying grocery products to

Pharmaceuticals wholesaler McKesson helps its retail

pharmacist customers be more effi cient by offering a wide

range of online resources. Retail pharmacists can even use the

McKesson system to maintain medical profi les on their customers.

Chapter 13 | Retailing and Wholesaling 419 independent grocery retailers. However, over the past dozen years, SuperValu has started

(behind Walmart and Kroger). Thus, even though it remains the country’s largest food

wholesaler, SuperValu is now classifi ed as a retailer because nearly 78 percent of its $40

billion in sales comes from retailing. In fact, SuperValu now bills itself as “America’s

neighborhood grocer.”34

Wholesalers will continue to increase the services they provide to retailers—retail pric

ing, cooperative advertising, marketing and management information services, accounting

services, online transactions, and others. However, both the recently tight economy and

the demand for increased services have put the squeeze on wholesaler profi ts. Wholesalers

who do not fi nd effi cient ways to deliver value to their customers will soon drop by the

systems will help wholesalers contain the costs of ordering, shipping, and inventory hold

ing, thus boosting their productivity.

Explain the role of retailers in the

distribution channel and describe

the major types of retailers. (pp 396–402)

Retailing

Shopper

marketing

online, or mobile shopping.

amount of

service

product line sold

and relative prices

retail organizations

Describe the major retailer

marketing decisions.

(pp 402–408)

price, promotion, and place. Retail stores are much more than

positioning.

Reviewing Objectives and Key Terms

Objective 1

Objective 2

420 Part 3 | Discuss the major trends

and developments in retailing. (pp 408–414)

Explain the major types of

wholesalers and their marketing

decisions. (pp 414–419)

Wholesaling

merchant

wholesalers service

wholesalers (wholesale merchants and industrial distributors) and

brokers and agents

manufacturers’

sales branches and offices are wholesaling operations conducted

customer relationships.

Objective 3

Objective 4

Objective 1 Retailing (p 374)

Retailer (p 374)

Shopper marketing (p 374)

Specialty store (p 375)

Department store (p 375)

Supermarket (p 376)

Convenience store (p 377)

Superstore (p 377)

Category killer (p 377)

Service retailer (p 377)

Discount store (p 378)

Factory outlet (p 378)

Warehouse club (p 379)

Corporate chains (p 379)

Franchise (p 379)

Objective 2 Shopping center (p 385)

Objective 3

Objective 4 Wholesaling (p 392)

Wholesaler (p 392)

Merchant wholesaler (p 393)

Broker (p 393)

Agent (p 393)

Manufacturers’ sales branches

and offices (p 393)

Discussion and Critical Thinking

Discussion Questions

Communication)

Chapter 13 | Retailing and Wholesaling 421

Critical Thinking Exercises

1. Visit a local mall and evaluate five stores. What type of retailer is each of these stores? What is the target market for each?

How is each store positioned? Do the retail atmospherics of

each store enhance this positioning effectively to attract and

satisfy the target market? (AACSB: Communication; Reflective

Thinking)

2. Retailers that accept credit cards pay a “swipe fee” to credit card issuers such as Visa and Mastercard ranging from 1 to

3 percent of the purchase. The credit card companies pro-

hibited retailers from passing that fee on to consumers, but a

recent lawsuit settlement proposal lifted that restriction. Under

the settlement, retailers can charge 2.5 to 3 percent on each

transaction. Research this issue and develop a report on the

pros and cons of retailers adding a surcharge to credit pur-

chases. (AACSB: Communication; Reflective Thinking)

3. As discussed at the start of Chapter 10, in 2012, JCPenney changed its pricing strategy from one in which it charged rela-

tively high prices and aggressively discounted them to one in

which it charges lower but constant everyday “fair and square

prices.” Evaluate the effectiveness of this pricing strategy

change. (AACSB: Communication; Reflective Thinking)

Applications and Cases

Marketing Technology Tracking Customers According to Nielsen, more than 50 percent of mobile phone con-

sumers own smartphones. Many of them use free Wi-Fi when

available for faster connections and to reduce data usage charges.

But even when they don’t log on to the Wi-Fi, the device continues

to search, giving information on users’ locations. By using the sig-

nals emitted by shoppers’ smartphones, retailers can keep tabs

on shoppers, knowing where they are and what they are searching

for on their phones’ browsers. Retailers can learn in which aisles

shoppers are most likely to check online prices at retailers such

as Amazon.com and can send an alert to a sales representative.

“Heat mapping” identifies traffic patterns and locations attracting

the greatest number of shoppers checking the Internet. This gives

retailers an idea of the products most vulnerable to “showroom-

ing”—the practice of shoppers visiting stores to learn about and

try products and later purchasing them for less online.

1. What is shopper marketing, and how might retailers use Wi-Fi technology to implement it? (AACSB: Communication; Use of

IT; Reflective Thinking)

2. What will be the likely response as more shoppers learn that retailers gather information without their knowledge? (AACSB:

Communication; Reflective Thinking)

Marketing Ethics Roll-Your-Own Shops In 2009, federal taxes on a carton of cigarettes increased $6.16

to $10.06. The tax on a pound of loose pipe tobacco increased

$1.73, resulting in a total tax per pound of only $2.83. The tax

on loose cigarette tobacco increased the most—from $1.09 to

$24.78 per pound. Small tobacco shops have purchased ma-

chines that allow shoppers to make 20 cigarettes per minute.

The loose tobacco is labeled “pipe tobacco,” allowing smok-

ers to make their cigarettes for almost half the price of ready-

made cigarettes because of the much lower taxes. The U.S.

Government Accountability Office claims federal tobacco tax

revenue decreased almost $500 million between April 2009

and September 2011 as a result of the booming roll-your-own

shops sales. The Alcohol and Tobacco Tax and Trade Bureau

declared that retailers using these machines are manufactur-

ers. Makers of the machines got a court injunction, giving

temporary reprieve for retailers. However, in 2012 Congress

approved an amendment tucked into a highway bill expand-

ing the definition of a manufacturer to include these retailers,

which would subject them to federal excise taxes. Lawmakers

felt these retailers were taking advantage of an unintended tax

loophole.

1. Is it fair that Congress defined retailers operating roll-your-own machines as manufacturers? (AACSB: Communication; Ethi-

cal Reasoning; Reflective Thinking)

2. Are the tobacco retailers being ethical by labeling the loose tobacco as pipe tobacco so that smokers can avoid the high

tax and by providing roll-your-own machines for consum-

ers? (AACSB: Communication; Ethical Reasoning; Reflective

Thinking)

422 Part 3 | Designing a Customer-Driven Strategy and Mix

Marketing by the Numbers Mark Up

Company Case Leader Price: Good Quality, Low Price

Video Case Home Shopping Network

Consumers typically buy products such as toiletries, food, and

clothing from retailers rather than directly from the manufacturer.

Likewise, retailers buy from wholesalers. Resellers perform func-

tions for the manufacturer and the consumer and mark up the

price to reflect that value. Refer to Appendix 2: Marketing by the

Numbers to answer the following questions.

1. If a manufacturer sells its laundry detergent to a wholesaler for $2.50, for how much will the wholesaler sell it to a retailer if the

Leader Price has emerged as one of France’s leading discount

stores. It presents itself as “the smart choice for living well.” In

a society known for seeking value-oriented items and practicing

responsible spending, Leader Price has reached a well-earned

spot among the major players in the country. Leader Price Hold-

ing was founded in 1998 as a subsidiary of Groupe Casino, which

ranks as the fifth biggest food retailer in France. It came in to

complete the group’s already existing brands, which are the Giant

Casino hypermarkets; Casino supermarkets; Monoprix, which is

targeted at an urban clientele and emphasizes high quality; Petit

Casino markets, which are small convenience stores; and finally

Naturalia, which carries only organic products and caters to the

health conscious.

In food retailing in France, hypermarkets are dominating the

sector. The turn over of Carrefour, the market leader, in 2011

was 35,179 million euros, whereas Groupe Casino’s turnover

amounted to 18,748 million euros, but it is worth noting that

the number of stores owned by Carrefour is 4,631, while those

owned by Groupe Casino total 9,461. Of course, as most of Car-

refour’s stores are of large square footage and are usually located

on the outskirts of urban areas, even with fewer stores than its

competitors it is able to exceed their numbers. In terms of dis-

count stores, the German Lidl and Aldi have the largest market

shares of hard discount stores in France. With the hype of dis-

count retailing in France, even the largest chains have been trying

to develop their versions of discount stores. French names such

Shopping on television has been around almost as long as tele-

vision itself. But the Home Shopping Network (HSN) made it

a full-time endeavor in 1982, giving birth to a new retail outlet.

Since then, HSN has been a pioneer in products, presentation,

and order taking. The company has sold millions of products and

has been known for giving an outlet to legitimate products that

otherwise would not reach customers.

But what does a company do when the very retail channel

that it depends upon starts to fizzle out? This video illustrates

wholesaler wants a 15 percent margin based on the selling

price? (AACSB: Communication; Analytical Reasoning)

2. If a retailer wants a 20 percent margin based on the selling price, at what price will the retailer sell the product to the con-

sumers? (AACSB: Communication; Analytical Reasoning)

as Carrefour, Casino, and Leclerc have launched a new arm of

discount stores.

Leader Price is unique in the way it portrays itself as commit-

ted to providing French families with their entire daily needs with

simplicity. Its unique selling proposition is offering low prices while

maintaining quality. The array of products is carefully selected

so that the consumer doesn’t need to look elsewhere for better

value for the money. This also makes the shopping experience

a simple and pleasant one, as the number of products is limited

in each category. Besides regular fast-moving consumer goods,

Leader Price sells a variety of seasonal fresh fruits, vegetables,

and meats supplied every day to guarantee quality.

Most Leader Price stores are located in places where parking

is easy; in urban areas, they are usually located right outside of

the underground exit, making them difficult to miss. In 2010, after

a drop in sales early in the year, the chain took two major steps to

control the situation. A new design for the store’s logo and interior

was developed, and it started selling products of national brands

from outside the Leader Price branded range. The new design

was a successful attempt to make its stores more visually pleas-

ing and to enhance the shopping experience. At the beginning, its

stores looked somewhat dull, like many typical discount stores,

but with the renewal, they were transformed: well organized,

well lit, and inviting. The introduction of the national brands also

allowed Leader Price to compete not only with other discount

stores but also with small convenience stores such as Carrefour

how HSN has met the challenges of a changing marketplace to

continue its innovative methods for reaching its customer base.

After viewing the video featuring HSN, answer the following

questions:

1. How has HSN differentiated itself from other retailers through each element of the retail marketing mix?

2. Discuss the concept of the retail life cycle as it relates to HSN.

3. Do you think HSN has a bright future? Why or why not?

Chapter 13 | Retailing and Wholesaling 423 City, a subsidiary of Carrefour aimed at urbanites. Currently,

Leader Price has 600 stores in France and has also extended to

other European countries, such as Belgium. Now, Groupe Casino

intends to open 1,000 new stores in the coming five years, which

is a major sign for the promise of the existing business model and

the growing needs of the market.

Range of Products The way Leader Price works is by carrying a small number of

products compared to other retail stores. It currently sells 4,000

products, 3,000 of which are branded Leader Price and pro-

duced by the chain itself. These range from toilet paper to choco-

lates to shampoo. They usually are similar to existing products

in terms of packaging and slight alterations in the names. The

prices are cut compared to the original product. An example of

this is Leader Price’s Pralina, which competes with Nutella. Of

the 4,000 products, 300 are from large brands such as Coca

Cola, Lipton, Mars, and Evian, to name a few. These products are

usually discounted and are cheaper than if purchased anywhere

else. The reason Leader Price chose to sell products from various

other brands was to attract customers who are loyal to certain

brands; this way there would be no reason for them to choose

another regular supermarket or convenience store over Leader

Price, as they are now able to find the products for which they

prefer a certain brand as well as discounted versions of the prod-

ucts for which they have no particular brand loyalty. The final 700

products come from several product lines also created by Leader

Price. These 700 products are differentiated form the 3,000 prod-

ucts labeled Leader Price in order to render them more noticeable

to customers who are likely to have the need or the desire to buy

them. These lines include Leader Price Baby, Leader Price Kids,

Leader Price Bio, Leader Price Fine Ligne, L’avenir En Vert, and

Selection de nos Region.

This array of product lines gives Leader Price the ability to

reach and cater to a very wide audience. For example, the babies

and kids categories can attract families with babies and children,

who in fact represent 22 percent of French households. They may

have a tight budget and find it convenient to go to one store

where they can fill their shopping carts with all their daily needs.

The Bio selection offers packaged organic food, which is becom-

ing more and more sought after. The market size of these prod-

ucts in France reached $1.635 billion in 2010 and is forecasted

to exceed $2.3 billion in 2014; thus by including it on its shelves,

Leader Price is guaranteed a share of the booming market. The

disadvantage of packaged organic foods is that they are generally

more expensive than their nonorganic counterparts. A hard dis-

count store overcomes the problem because the prices are cut,

so customers can buy the products at a more reasonable price

than at a regular supermarket. Leader Price also caters to the

health conscious with the Fine Ligne selection, which provides

low-fat and low-calorie versions of products such as yogurt and

cereal.

Eco-Friendly and Fair Trade Leader Price does not miss out on the chance to offer ecologi-

cally friendly products. For the French consumer market, it is

important that shops show their engagement and responsibility

toward the planet. The opportunity to make a positive contribu-

tion to the preservation of the environment is welcomed by most

consumers, but unfortunately it comes at a high price. Again,

Leader Price overcomes this problem. Finally, the French are

known to have high esteem for their culture; accordingly, they

take pride in their local produce and have a taste for fine cheese

and wine. The idea of a discount store may give the impression

that the products sold are of low quality, processed, and far from

natural. Leader Price breaks this stereotype by making available

a line of products that offers delicacies such as cheeses and nuts

from different regions of France.

In 2009, Leader Price began to include fair-trade-certified

products under its name. These appeared in categories such as

tea, rice, chocolate, and fruit juice. The packages have the label

of the Max Havelaar Foundation, a fair-trade movement present in

France. In general, fair-trade products are found to be from 10 to

30 percent more expensive than their regular counterparts. The

French National Commission of Fair Trade carried out research in

2010 aiming to find out the level of awareness and consumption

of fair-trade products among the population; 62 percent of the

people surveyed responded as having bought a fair-trade prod-

uct at least once in the past year. Among the people surveyed,

only 22 percent, however, said they bought these products at

least once a month. What Leader Price does differently is that it

gives those who wish to contribute to protecting local producers

from exploitation the chance to do so at a more attainable price,

usually 3 to 4 percent cheaper than other stores.

Leader Price’s promotional strategy includes discount vouch-

ers and catalogues with further price cuts on designated prod-

ucts as well as momentary offers.

The strategy does not stop here. The chain has enlisted Jean

Pierre Coffe, a TV and radio presenter as well as cook and food

critic, to endorse its products and write recipes for its Web site.

A regular supermarket would not have to do that, but a discount

store in a country where food plays a lead role in the quotidian life

has to prove that it is capable of offering people the exact same

culinary experience at a lower price. The idea is to show that buy-

ing discounted products does not mean that one cannot prepare

sophisticated meals.

At Leader Price there is something for everyone, including

those looking for staples and those looking to consume respon-

sibly. Despite the fact that the stores only carry 4,000 products,

they manage to reach a large segment of the market and sat-

isfy the various needs of their customers. This is the result of

a careful choice of products, a clear brand identity, and agile

responsiveness to the ever-changing trends of the French retail

market.

Questions for Discussion 1. Describe Leader Price according to the different types of retail-

ers discussed in the chapter.

2. As a retail brand, assess the Leader Price strategy with respect to segmentation, targeting, differentiation, and positioning.

3. List all the reasons why Leader Price has been able to com- pete with regular convenience stores.

4. Would the Leader Price model be successful in your country? What would have to be changed to adapt to your culture?

Support your answer.

5. How can Leader Price expand its selection of products in a way that will cater to more customers?

424 Part 3 | Designing a Customer-Driven Strategy and Mix Sources: Fiona Briggs, “Retail Chinn-wag: Leader Price Launches New Concept and Broadens Offer to Revitalise Flagging Sales,” Retail Times,

October 23, 2010, http://retailtimes.co.uk/retail-chinn-wag-leader-price-

launches-new-concept-and-broadens-offer-to-revitalise-flagging-sales;

Agri-Food Trade Services, “France—How to Cope with a Traditional

Marketplace,” Agriculture and Agri-Food Canada, 2011, www.ats-sea

.agr.gc.ca/eur/5722-eng.htm; Institut National de la Statistique des

etudes economiques, “Tableaux de l’Économie Française,” 2012, www

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agriculture/statistics/agrifood/france_organic_packaged_food_en.pdf;

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New Store in McGee’s Crossroads, North Carolina and Welcomes

New Customers with Contests and Prizes,” PR Newswire, January 25,

2012; and www.sheetz.com/main/about/definition.cfm, accessed

November 2012.

8. Statistics based on information from “SN Top 75 2012,” http://super- marketnews.com/top-75-retailers-wholesalers-2012, accessed June

2012; “Walmart’s 50 Years: From Rogers, Ark., to Global Behemoth,”

Supermarket News, February 20, 2012, http://supermarketnews.com/

wal-mart-stores/wal-mart-s-50-years-rogers-ark-global-behemoth; and

“Supermarket Facts,” www.fmi.org/facts_figs/?fuseaction=superfact,

accessed June 2012.

9. See John Jannarone, “Will Dollar General Be Leading Retailers into Battle?” Wall Street Journal, June 6, 2011, p. C10; Gary Stern, “Are

All Dollar Stores Alike? Not If They Want to Win,” Investor’s Business

Daily, September 6, 2011; “Dollar General to Open 625 New Stores

and Create More Than 6000 New Jobs in 2012,” January 3, 2012,

http://newscenter.dollargeneral.com/article_display.cfm?article_

id=1787; and information from www.dollargeneral.com, accessed

October 2012.

10. Quotes and other information from “Retail Quick Facts: 10 Things about Costco You Probably Don’t Know,” RetailSails, April 27, 2011, http://

retailsails.com/2011/04/27/retail-quick-facts-10-things-about-

costco-you-probably-dont-know/; Matthew Boyle, “Why Costco

Is So Addictive,” Fortune, October 25, 2006, pp. 126–132; “2011

Top 100 Retailers,” NRF Stores, July 2011, www.stores.org/2011/

Top-100-Retailers; and www.costco.com and http://shop.costco

.com/Membership/Welcome/Amazing-Facts.aspx, accessed October

2012.

11. Company information from http://en.oboulo.com/subway-operations- 82799.html, www.aboutmcdonalds.com/mcd, and www.subway.com/

subwayroot/About_Us/default.aspx, accessed November 2012.

12. Based on information found in Maureen Morrison, “Fast-Casual Burger Joints Snag a Seat at the Table,” Advertising Age, Septem-

ber 26, 2011, http://adage.com/article/news/burger-joints-guys-

smashburger-drive-growth/230005/; Karen Weise, “Behind Five

Guys’ Beloved Burgers,” Bloomberg Businessweek, August 11,

2011, www.businessweek.com/printer/magazine/behind-five-guys-

beloved-burgers-08112011.html; and www.aboutmcdonalds.com/

mcd and www.fiveguys.com, accessed November 2012.

13. Based on information from “Cabela’s Has Lived Up to Its Hype,” McClatchy-Tribune Business News, March 31, 2010; Jan Fals-

tad, “Outdoor Retailer Adds New Dynamic to Local Marketplace,”

McClatchy-Tribune Business News, May 10, 2009; “Sporting Goods

Retail Companies: Cabela’s Announces Opening Date for Tulalip,

Wash. Store,” Entertainment Weekly, March 23, 1012, p. 50; and

information from www.cabelas.com, accessed November 2012.

14. See Sandy Smith, “Scents and Sellability,” Stores, July 2009, www.stores.org/stores-magazine-july-2009/scents-and-sellabil-

ity; Spencer Morgan, “The Sweet Smell of Excess,” Bloomberg

Businessweek, June 21–June 27, 2010, pp. 85–87; Jane Sutton,

“Scent Makers Sweeten the Smell of Success,” Reuters, December

19, 2011, www.reuters.com/article/2011/12/19/us-usa-scented-

idUSTRE7BI1PF20111219; and www.scentair.com, accessed

November 2012.

15. See www.titlenine.com and https://www.facebook.com/pages/ Title-Nine-Portland/62987646947, accessed October 2012.

Chapter 13 | Retailing and Wholesaling 425 16. For definitions of these and other types of shopping centers, see

“Dictionary,” American Marketing Association, www.marketingpower

.com/_layouts/Dictionary.aspx, accessed November 2012.

17. Courtenay Edelhart, “Malls Can’t Take Customers for Granted as New Outdoor Centers Pop Up,” McClatchy-Tribune Business News,

January 16, 2010; and Eric Schwartzberg, “Lifestyle Centers Draw

Retailers, Shoppers,” The Oxford Press, November 21, 2011, www

.oxfordpress.com/news/oxford-news/lifestyle-centers-draw-

retailers-shoppers--1287539.html.

18. See H. Lee Murphy, “Life Ebbs Out of Many Lifestyle Centers,” Na- tional Real Estate Investor, May 1, 2011, p. 31; Elaine Misonzhnik,

“Borders Bankruptcy Shines Light on Continued Weakness of Power

Centers” Retail Traffic, February 16, 2011; and Jon Chavez, “Ma-

jor Retail Expansion Called Unlikely,” McClatchy-Tribune Business

News, March 18, 2012.

19. Kenneth Hein, “Target Tries First Price Point Driven TV Ads,” Brand- week, January 14, 2009, accessed at www.brandweek.com; Sharon

Edelson, “Target Eying $100 Billion in Sales,” WWD, February 25,

2011, p. 2; and “Target Corporation; Target Reports Fourth Quar-

ter and Fiscal 2011 Earnings,” Investment Weekly News, March 10,

2012.

20. See David Kaplan, “A Permanent Trend of Pop-Up Shops,” McClatchy-Tribune Business News, December 21, 2011; Carolyn

King, “Target Brings Jason Wu to Canada,” Wall Street Journal, Feb-

ruary 23, 2012; and Judith Lamont, “Tuning in to Customers: Optimiz-

ing the Online Experience,” KM World, February 2012, pp. 8–9.

21. See www.rpminc.com/consumer.asp, accessed October 2012. 22. U.S. Census Bureau News, “Quarterly Retail E-Commerce Sales,

4th Quarter 2011,” February 16, 2012, www.census.gov/retail/

mrts/www/data/pdf/ec_current.pdf; and Robin Wauters, “For-

rester: Online Retail Industry in the US Will Be Worth $279 Bil-

lion in 2015,” TechCrunch, February 28, 2011, http://techcrunch.

com/2011/02/28/forrester-online-retail-industry-in-the-us-will-be-

worth-279-billion-in-2015/.

23. Ann Zimmerman, “Can Retailers Halt ‘Showrooming’?” Wall Street Journal, April 11, 2012, p. B1.

24. “Top 500 Guide,” Internet Retailer, www.internetretailer.com/top500/ list/, accessed November 2012.

25. Adam Blair, “Williams-Sonoma Invests $75M in Fast-Growing, Prof- itable E-Commerce,” RIS, March 22, 2011, http://risnews.edgl.

com/retail-best-practices/Williams-Sonoma-Invests-$75M-in-Fast-

Growing,-Profitable-E-Commerce71523; and “Williams-Sonoma,

Inc. Announces Fourth Quarter and Fiscal Year 2011 Results and

Provides Financial Guidance for Fiscal Year 2012,” March 8, 2012,

www.williams-sonomainc.com/investors/financial-releases.html.

26. See “Eastern Mountain Sports Blazes New Trails with VeriFone iPad Retailing Solution,” January 12, 2012, www.verifone.com/2012/

eastern-mountain-sports-blazes-new-trails-with-verifone-ipad-

retailing-solution.aspx.

27. The quote is from “Retail Isn’t Broken. Stores Are,” Harvard Busi- ness Review, December 2011, pp. 79-82. The futuristic scenario

is adapted from information found in Darrell Rigby, “The Future of

Shopping,” Harvard Business Review, December 2011, pp. 65-76.

28. “Kohl’s Opens Eight New Stores Creating Approximately 1,000 Jobs,” Business Wire, March 8, 2012; and www.kohlsgreenscene.

com/, accessed November 2012.

29. See www.staples.com/sbd/cre/marketing/ecoeasy/recycling.html, accessed November 2012.

30. See “Walmart Stores, Inc. Data Sheet—Worldwide Unit Details: January 2012,” February 22, 2012, www.walmartstores.com/

pressroom/news/10821.aspx; and “Walmart Corporate and Fi-

nancial Facts,” accessed at www.walmartstores.com/pressroom/

FactSheets/, November 2012.

31. See “Switching Channels: Global Powers of Retailing 2012,” Stores, January 2012, accessed at www.deloitte.com/view/en_GX/global/

f9f6b21f1d464310VgnVCM1000001a56f00aRCRD.htm.

32. Grainger facts and other information are from the Grainger: Beyond the Box 2012 Fact Book accessed at http://invest.grainger.com/

phoenix.zhtml?c=76754&p=irol-irFactBook and www.grainger.com,

accessed October 2012.

33. Information from “About Us,” www.mckesson.com; and “Sup- ply Management Online,” www.mckesson.com/en_us/McKesson.

com/For+Pharmacies/Retail+National+Chains/Ordering+and+Inve

ntory+Management/Supply+Management+Online.html, accessed

June 2012.

34. Facts from www.supervalu.com, accessed November 2012.

is clearly evident in Tesco’s use of advertising, sales promo-

tion, personal selling, public relations, direct marketing, and

other marketing communications tools. Meanwhile, a key factor

in its marketing communications that cannot be ignored is its

strapline “Every Little Helps,” which was introduced in 1992 to

communicate the firm’s brand and the associated unique prop-

osition. The introduction of this strapline became necessary as

Tesco acknowledged that consumers are bombarded with many

marketing communications messages from different sources,

and a clear-cut message on how the firm is positioned to help

Part 1: Defining Marketing and the Marketing Process (Chapters 1–2)

Part 2: Understanding the Marketplace and Consumers (Chapters 3–6)

Part 3: Designing a Customer-Driven Strategy and Mix (Chapters 7–17)

Part 4: Extending Marketing (Chapters 18–20)

Communicating Customer Value Integrated Marketing Communications Strategy14

Chapter Preview In this and the next four

chapters, we’ll examine the

last of the marketing mix tools—promotion. Companies must do

more than just create customer value; they must also use promo-

tion to clearly and persuasively communicate that value. Promo-

tion is not a single tool but, rather, a mix of several tools. Under

the concept of integrated marketing communications, the com-

pany must carefully coordinate these promotion tools to deliver a

clear, consistent, and compelling message about its organization

and its brands.

We begin by introducing the various promotion mix tools. Next,

we examine the rapidly changing communications environment

and the need for integrated marketing communications. Finally,

we discuss the steps in developing marketing communications

and the promotion budgeting process. In the next three chapters,

we’ll present the specific marketing communications tools.

Let’s start by looking at a good integrated marketing com-

munications approach. Tesco’s strapline, “Every Little Helps” has

consistently been a key focus in its marketing communications

campaigns and endured for over 20 years. It has successfully

worked within its marketing communication mix to communicate

the brand’s unique proposition and made it the leading supermar-

ket in the UK.

Tesco: “Every Little Helps” - A Beautifully Integrated Marketing Communications Campaign

A part from being the UK’s number one supermarket,

Tesco is also recognized for its wide-ranging market-

ing activities that encompass several product lines

in the mix as communicated through various media.

Many wonder how it consistently tops the list among competi-

tors, including ASDA, Morrison and Sainsbury. The answer is

not farfetched: a brilliantly packaged marketing communica-

tions strategy. Although the success of the organization could be

linked to its entire package of marketing strategy, including an

effective blend of all its marketing mix elements, the contribu-

tion of its marketing communications strategy in this regard is

considerable. There are a number of reasons why

TESCO’s marketing communications strat-

egy works so well. One of these is that

the organization embraces integrated

marketing communications (IMC)

by carefully integrating and coordi-

nating its communication channels

to deliver a clear, consistent, compre-

hensive, and compelling message about

the organization and its various offerings. This

Tesco has unified all aspects of its integrated marketing campaign under the strapline of

“Every Little Helps” for over 20 years. The campaign has become more than just advertising, but part of the

company’s heritage.

Chapter 14 | Communicating Customer Value: Integrated Marketing Communications Strategy 427

as circumstances demand. It care

fully designs the message in such

a way that ensures consistency

between all the marketing com

munication tools used, selects the

message source, collects feedback,

and selects the marketing commu

nication budget in relation to the

appropriate mix of the marketing

communication tools. As an ex

ample, in a move to strengthen its

IMC system, in 2012 TESCO launched a advertising campaign

introduced to communicate the improved quality of its recently

launched Everyday own label range to replace Tesco’s value

range. The new range is reportedly healthier and features more

stylish packaging. The press advertising designed for this pur

pose, which was handled by the RED Brick Road Agency, fea

tures images of this range of products, focusing on products for

breakfast and dinner. According to the marketing director, this

strategic move was adopted because feedback from customers

indicated that they wanted products with a good level of taste,

and health and visual appeals—but they wanted this at low

prices. But something that is strikingly important here and note

worthy is that its marketing communications for this new range

of products still emphasize the “Every Little Helps” strapline.

It is clear that as the economic environment becomes in

creasingly challenging, fi rms are also challenged to review their

marketing strategies to see whether they can succeed in the com

plex environment. Against this backdrop, Tesco has also begun

a critical look into its marketing activities, with marketing com

munications being one of the key areas of focus. It put its adver

tising account up for grabs, which propelled many agencies to

pitch for the fi rm’s investment in marketing communications.

After the process, Wieden and Kennedy London emerged as the

favorite to handle the fi rm’s $174.3 million advertising account.

It has been reported that it is also reviewing its brand communi

cations, including the “Every Little Helps” slogan. However, the

reactions of most commentators have been very positive on the

impacts of the slogan in the fi rm’s IMC package. In fact, it has

been stated that although the new agency is poised to exhibit

its creativity in creating clear and compelling messages, it will

still maintain the use of “Every Little Helps,” which has been

running for over 20 years. Overall, the choice of this slogan is

a small step that has worked hugely well for Tesco and epito

mizes the concept of integrated marketing communications1.

customers solve their problems is fundamentally needed. The

organization has taken this slogan as a philosophy that drives

everything it has done over the past two decades, as well as

into the future. For example, as detailed in the company’s Web

site, the slogan communicates that customers can get what they

want, it informs them that the prices are competitive, it indicates

improved customer service because the time the customer has

to wait has been reduced, and it signals that the employees are

helpful and courteous. It is therefore not surprising that it has

been named the top UK retailer by Climate Change. Clearly, this

strapline is a key part of the fi rm’s heritage and has remained

over the years.

The consistency with which this message spreads across

all of the marketing communications media that TESCO uses

is noteworthy. Evidence shows that the company uses the tra

ditional marketing communications tools effectively, and it has

been spending more than the sector average on every one of

the media it uses since 2005. For instance, its direct mail cost,

which was $22.7 million in 2005, was more than four times the

sector average, while the $209.3 million spent on advertising

in 2010 was $90.95 million more than the sector average; to be

more specifi c, $95.6 million was spent on press, which was al

most double of the sector average in 2010. It is crystal clear that

the elements of the marketing environment keep changing, and

so are customers’ modes of communication. This is emphasized

by the fact that we are now in the digital age; hence it is logi

cal that the relevant tools associated with these developments

be integrated with the traditional media toward making a com

pelling case about the brand of the organization. This is exactly

what TESCO does. It has a presence in various social media,

including Facebook, Twitter, and YouTube, which is managed

by a dedicated team of experts through which it offers personal

ized local service to the biggest fan base in the UK. A signifi cant

step taken by Tesco in this direction was the November 2012

to head its social media unit from 2013 on. Meanwhile, despite

the increase in the number of means of communications avail

able to Tesco, its focus on the key emphasis in the messages still

media advertisements effectively deliver the same message as

with what is shown on its Web site and also corroborates what

is communicated through the company’s various social media

links. Simply put, the marketing information about Tesco and

its offerings as shown on Youtube, Facebook, Twitter, and other

social media are coherently integrated with other traditional

media to echo the same message.

As expected in an effective marketing communications pro

cess, Tesco often begins by identifying its target audience. This

helps the organization to decide on the content of its message,

as well as how it will be delivered, when will it be delivered,

who will deliver it, and where it will be delivered. It also deter

mines the communication objectives early enough in the process

for successful outcomes. Although some would argue that the

key objective of marketing communication campaigns is to get

consumers to buy the offerings, Tesco’s view extends this under

standing. Essentially, it emphasizes that customers pass through

erence, conviction, and purchase. Accordingly, it sets its market

ing communications objectives to be consistent with this model

For over two decades,

Tesco has stuck

steadfastly to its simple

but effective “Every Little

Helps” message, which

advertisements, direct

marketing efforts, and

social media presence.

JuliusKielaitis/Shutterstock.com

428 Part 3 |

Building good customer relationships calls for more than just developing a good product, pricing it attractively, and making it available to target customers. Compa

nies must also communicate their value propositions to customers, and what they commu nicate should not be left to chance. All communications must be planned and blended into

maintaining any other kind of relationship, it is a crucial element in a company’s efforts to

build profi table customer relationships.

The Promotion Mix A company’s total promotion mix—also called its marketing communications

mix—consists of the specifi c blend of advertising, public relations, personal selling, sales

Objective 1 Defi ne the fi ve promotion

mix tools for communicating

customer value.

Objective Outline

Objective 1 Defi ne the fi ve promotion mix tools for communicating customer value.

The Promotion Mix (pp 428–429)

Objective 2 Discuss the changing communications landscape and the need for integrated marketing communications.

Integrated Marketing Communications (pp 429–434)

Objective 3 Outline the communication process and the steps in developing effective marketing communications.

A View of the Communication Process (pp 434–435)

Steps in Developing Effective Marketing Communication (pp 435–440)

Objective 4 Explain the methods for setting the promotion budget and factors that affect the design of the promotion mix.

Setting the Total Promotion Budget and Mix (pp 440–446)

Socially Responsible Marketing Communication (pp 446–447)

Chapter 14 | Communicating Customer Value: Integrated Marketing Communications Strategy 429 promotion, and direct marketing tools that the company uses to persuasively communicate

customer value and build customer relationships. The five major promotion tools are de-

fined as follows:2

Advertising: Any paid form of nonpersonal presentation and promotion of ideas,

goods, or services by an identified sponsor.

Sales promotion: Short-term incentives to encourage the purchase or sale of a prod-

uct or service.

Personal selling: Personal presentation by the firm’s sales force for the purpose of

making sales and building customer relationships.

Public relations: Building good relations with the company’s various publics by ob-

taining favorable publicity, building up a good corporate image, and handling or head-

ing off unfavorable rumors, stories, and events.

Direct marketing: Direct connections with carefully targeted individual consumers to

both obtain an immediate response and cultivate lasting customer relationships.

Each category involves specific promotional tools that are used to communicate with

customers. For example, advertising includes broadcast, print, Internet, mobile, outdoor, and other forms. Sales promotion includes discounts, coupons, displays, and demonstrations. Per- sonal selling includes sales presentations, trade shows, and incentive programs. Public rela- tions (PR) includes press releases, sponsorships, events, and Web pages. And direct marketing includes catalogs, direct-response TV, kiosks, the Internet, mobile marketing, and more.

At the same time, marketing communication goes beyond these specific promotion

tools. The product’s design, its price, the shape and color of its package, and the stores that

sell it—all communicate something to buyers. Thus, although the promotion mix is the company’s primary communications activity, the entire marketing mix—promotion, as well as product, price, and place—must be coordinated for greatest impact.

Integrated Marketing Communications In past decades, marketers perfected the art of mass marketing: selling highly standardized

products to masses of customers. In the process, they developed effective mass-media com-

munications techniques to support these strategies. Large companies now routinely invest

millions or even billions of dollars in television, magazine, or other mass-media advertis-

ing, reaching tens of millions of customers with a single ad. Today, however, marketing

managers face some new marketing communications realities. Perhaps no other area of

marketing is changing so profoundly as marketing communications, creating both exciting

and anxious times for marketing communicators.

The New Marketing Communications Model Several major factors are changing the face of today’s marketing communications. First,

consumers are changing. In this digital, wireless age, they are better informed and more com- munications empowered. Rather than relying on marketer-supplied information, they can

use the Internet and other technologies to find information on their own. They can connect

more easily with other consumers to exchange brand-related information or even create

their own marketing messages.

Second, marketing strategies are changing. As mass markets have fragmented, market- ers are shifting away from mass marketing. More and more, they are developing focused

marketing programs designed to build closer relationships with customers in more nar-

rowly defined micromarkets.

Finally, sweeping advances in communications technology are causing remarkable changes in the ways in which companies and customers communicate with each other.

The digital age has spawned a host of new information and communication tools—from

smartphones and iPads to satellite and cable television systems to the many faces of the

Internet (e-mail, brand Web sites, online social networks, blogs, and so much more). These

explosive developments have had a dramatic impact on marketing communications. Just

as mass marketing once gave rise to a new generation of mass-media communications, the

new digital media have given birth to a new marketing communications model.

Although network television, magazines, newspapers, and other traditional mass me-

dia remain very important, their dominance is declining. In their place, advertisers are now

Promotion mix (or marketing communications mix)

The specific blend of promotion tools

that the company uses to persuasively

communicate customer value and build

customer relationships.

Objective 2 Discuss the changing

communications landscape and

the need for integrated marketing

communications.

Advertising

Any paid form of nonpersonal presentation

and promotion of ideas, goods, or services

by an identified sponsor.

Sales promotion

Short-term incentives to encourage the

purchase or sale of a product or service.

Personal selling

Personal presentation by the firm’s sales

force for the purpose of making sales and

building customer relationships.

Public relations (PR)

Building good relations with the company’s

various publics by obtaining favorable

publicity, building up a good corporate

image, and handling or heading off

unfavorable rumors, stories, and events.

Direct marketing

Direct connections with carefully targeted

individual consumers to both obtain an

immediate response and cultivate lasting

customer relationships.

430 Part 3 |

less broadcasting and more narrowcasting.

ad clutter is increasing, and viewers are gaining control of message exposure through technolo

gies such as video streaming or DVRs that let them skip disruptive television commercials. As

cent years, although TV still dominates as an advertising medium, ad spending on the major

TV networks has stagnated as ad spending on the Internet and other digital media has surged.

Ad spending in magazines, newspapers, and radio, in contrast, has lost considerable ground.3

In some cases, marketers are skipping traditional media altogether.

Ketchup with Balsamic Vinegar fl avor, customers were able to learn

about and buy the product only through the brand’s Facebook page,

until it appeared on store shelves six weeks later. Heinz used no TV

or print advertising for the introduction, instead relying on its 825,000

Facebook followers to spread the word. Customers responded strongly,

and six months later Heinz added the product to its standard lineup, the

fi rst new fl avor from Heinz Ketchup in nearly a decade.4

Method is known for offbeat campaigns using slogans like “People against

dirty” and “For the love of clean.” But the most notable thing about the

“Clean happy” campaign is that, unlike previous Method campaigns, it uses

zero ads in traditional media like TV or magazines. Instead, the centerpiece

on YouTube and on the Method Facebook page. That video is followed at

monthly intervals by four other clips that focus on individual Method prod

ucts. The campaign also employs online media ads, as well as a major pres

ence in social media that includes, in addition to YouTube and Facebook, the

Method Twitter feed and blogs.

The “Clean happy” campaign fi ts both Method’s personality and its bud

“the moms in mom groups telling each other about it,” says an ad agency

executive associated with the campaign. Moreover, “Clean happy” ran a

$150 million or so that rival P&G might spend to bring out a new product, such as its new tablet

executive. “When you don’t have $150 million bucks, that’s what you have to do.”

In the new marketing communications world, rather than using old approaches that inter

smaller groups of consumers in more interactive, engaging ways. For example, think about

television viewing these days. Consumers can now watch their favorite programs on just about

anything with a screen—on televisions but also laptops, mobile phones, or tablets. And they

can choose to watch programs whenever and wherever they wish, often without commercials.

Increasingly, some programs, ads, and videos are being produced only for Internet viewing.

Despite the shift toward new digital media, however, traditional mass media still cap

ture a lion’s share of the promotion budgets of most major marketing fi rms, a fact that

probably won’t change quickly. For example, P&G, a leading proponent of digital media,

still spends the majority of its huge advertising budget on mass media. Although P&G’s

digital outlay more than doubled last year to $169 million, digital still accounts for less than

5 percent of the company’s annual global advertising budget.6

At a broader level, although some may question the future role of TV advertising, it’s

still very much in use today. Last year, television captured more than 40 percent of global

advertising spending compared to the 21 percent captured by all online advertising media.

Still, online advertising remains the fastest growing medium. It is now the second largest

medium behind television, well ahead of newspapers and magazines.7

The new marketing communication model: Heinz

using no traditional media, relying instead on its 825,000

Facebook followers to spread the word.

©H. J. Heinz Co., L. P. 2011. Facebook is a trademark

of Facebook, Inc.

Chapter 14 | Communicating Customer Value: Integrated Marketing Communications Strategy 431

more gradual blending of new and traditional media. The new marketing communications

model will consist of a shifting mix of both traditional mass media and a wide array of ex

Many advertisers and ad agencies are now grappling with this transition. In the end,

however, regardless of the communications channel, the key is to integrate all of these media

in a way that best communicates the brand message and enhances the customer’s brand

experience. As the marketing communications environment shifts, so will the role of market

ing communicators. Rather than just creating and placing “TV ads” or “print ads” or “Face

book display ads,” many marketers now view themselves more broadly as brand content managers who manage brand conversations with and among customers across a fl uid mix of channels, both traditional and new, controlled and not controlled (see Real Marketing 14.1).

The Need for Integrated Marketing Communications The shift toward a richer mix of media and communication approaches poses a problem for

marketers. Consumers today are bombarded by commercial messages from a broad range of

sources. But consumers don’t distinguish between message sources the way marketers do.

In the consumer’s mind, messages from different media and promotional approaches all be

come part of a single message about the company. Confl icting messages from these different

sources can result in confused company images, brand positions, and customer relationships.

All too often, companies fail to integrate their various communications channels. The

different. The problem is that these communications often come from different parts of the

company. Advertising messages are planned and implemented by the advertising depart

ment or an ad agency. Other company departments are responsible for PR, sales promo

tion events, and Internet or social network efforts. However, whereas companies may have

separated their communications tools, customers don’t. Mixed communications from these

sources result in blurred brand perceptions by consumers.

The new world of digital and social marketing, tablet computers, smartphones, and

apps presents tremendous opportunities but also big challenges. It can “give companies

increased access to their customers, fresh insights into their preferences, and a broader cre

ative palette to work with,” says one marketing executive. But “the biggest issue is com

plexity and fragmentation ... the amount of choice out there,” says another. The challenge is

to “make it come together in an organized way.”8

To that end, more companies today are adopting the concept of integrated market

ing communications (IMC). Under this concept, as illustrated in Figure 14.1, the

Integrated marketing communications (IMC)

Carefully integrating and coordinating

the company’s many communications

and compelling message about the

organization and its products.

Carefully blended mix of promotion tools

Today’s customers are bombarded by company messages from all directions. For example, think about all the ways you interact with companies such as Nike, Apple,

marketing communications means that companies must carefully coordinate all of these customer touchpoints to ensure clear brand messages.

FIGURE | 14.1

Integrated Marketing

Communications

432 Part 3 |

and maybe issue a press release to stir up

Video content about the brand may be pre

online.

pictures no longer appear only in carefully

dependent bloggers. In the hands of today’s

design or control of the brand’s marketers.

Paid media—includes promotional chan

Owned media—includes promotional

Earned media—

not directly paid for or controlled by the

marketer.

Shared media—includes media shared

piece used to be an end

channels can produce striking communica

football player Isaiah Mustafa. The campaign

by the millions buzzed about the ads through

hundreds of millions of times across dozens

brand message.

in recipes that called for ground beef. To

Marketing 14.1 New Communications Thinking:

its imaginative “Make the Switch” campaign across paid,

owned, earned, and shared media.

Chapter 14 | Communicating Customer Value: Integrated Marketing Communications Strategy 433

company carefully integrates its many communications channels to deliver a clear, consis

tent, and compelling message about the organization and its brands.

Integrated marketing communications calls for recognizing all

touchpoints where the customer may encounter the company and its

brands. Each contact with the brand will deliver a message—whether

good, bad, or indifferent. The company’s goal should be to deliver a

consistent and positive message at each contact. Integrated market

ing communications ties together all of the company’s messages and

images. Its television and print ads have the same message, look, and

terials project the same image as its Web site, online social networks,

or mobile marketing efforts. Often, different media play unique roles

in attracting, informing, and persuading consumers; these roles must

be carefully coordinated under the overall marketing communica

tions plan.

on an issue important to both the brand and its customers—a mys

Dazs ice cream, making the “HD loves HB” message a natural for

the brand. But perhaps even more important than the “help the

beautifully integrated marketing communications campaign, using

a wide range of media that worked harmoniously for the cause. It

started with broadcast and print ads that drove traffi c to the cam

paign’s helpthehoneybees.com Web site, a kind of honey bee central

where customers could learn about the problem and how to help. At

the site, visitors could tap into a news feed called The Buzz, turn on

nations to support honey bee research. To create even more bee buzz,

500 free gourmet turkey burgers at lunch. The

and locations. People lined up for thousands

ronment calls for more than simply creating

an integrated effort to create and inspire the

Source: Advertising Age

Advertising Age

® and “Make

communicators must be more than just ad

The “HD loves HB” integrated marketing communications

message.

434 Part 3 |

and school groups. The campaign also incorporated social networks such as Twitter and

and a soul,” says the brand’s director. “We not only raised brand awareness,” she says, “but

made a difference in the world.”

In the past, no one person or department was responsible for thinking through the

communication roles of the various promotion tools and coordinating the promotion

mix. To help implement integrated marketing communications, some companies have

appointed a marketing communications director who has overall responsibility for the

company’s communications efforts. This helps to produce better communications consis

tency and greater sales impact. It places the responsibility in someone’s hands—where

none existed before—to unify the company’s image as it is shaped by thousands of com

pany activities.

A View of the Communication Process Integrated marketing communications involves identifying the target audience and shap

often, marketing communications focus on immediate awareness, image, or preference

goals in the target market. But this approach to communication is too shortsighted. Today,

marketers are moving toward viewing communications as managing the customer relationship over time.

Because customers differ, communications programs need to be developed for specifi c

segments, niches, and even individuals. And, given the new interactive communications

technologies, companies must ask not only “How can we reach our customers?” but also

“How can we let our customers reach us?”

Thus, the communications process should start with an audit of all the potential

touchpoints that target customers may have with the company and its brands. For ex

ample, someone purchasing a new phone plan may talk to others, see television or maga

zine ads, visit various Web sites for prices and reviews, and check out plans at Best Buy,

Walmart, or a wireless provider ’s kiosk or store. The marketer needs to assess what infl u

ence each communication experience will have at different stages of the buying process.

This understanding helps marketers allocate their communication dollars more effi ciently

and effectively.

To communicate effectively, marketers need to understand how communication works.

Communication involves the nine elements shown in Figure 14.2. Two of these ele

ments are the major parties in a communication—the sender and the receiver. Another two are the major communication tools—the message and the media. Four more are major com munication functions—encoding, decoding, response, and feedback. The last element is noise in the system. Defi nitions of these elements follow and are applied to a McDonald’s “I’m

lovin’ it” television commercial.

Sender: The party sending the message to another party—here, McDonald’s. Encoding: The process of putting thought into symbolic form—for example, McDonald’s ad agency assembles words, sounds, and illustrations into a TV advertisement that will

convey the intended message.

Message: The set of symbols that the sender transmits—the actual McDonald’s ad. Media: The communication channels through which the message moves from the sender to the receiver—in this case, television and the specifi c television programs that

McDonald’s selects.

Decoding: The process by which the receiver assigns meaning to the symbols encoded by the sender—a consumer watches the McDonald’s commercial and interprets the words

and images it contains.

Receiver: The party receiving the message sent by another party—the customer who watches the McDonald’s ad.

Response: The reactions of the receiver after being exposed to the message—any of hundreds of possible responses, such as the consumer likes McDonald’s better, is

Objective 3 Outline the communication

process and the steps in

developing effective marketing

communications.

Chapter 14 | Communicating Customer Value: Integrated Marketing Communications Strategy 435

more likely to eat at McDonald’s next time, hums the “I’m lovin’ it” jingle, or does

nothing.

Feedback: The part of the receiver’s response communicated back to the sender—McDonald’s research shows that consumers are either struck by and remember the ad or they write

or call McDonald’s, praising or criticizing the ad or its products.

Noise: The unplanned static or distortion during the communication process, which re sults in the receiver getting a different message than the one the sender sent—the con

sumer is distracted while watching the commercial and misses its key points.

For a message to be effective, the sender’s encoding process must mesh with the re

ceiver’s decoding process. The best messages consist of words and other symbols that are

familiar to the receiver. The more the sender’s fi eld of experience overlaps with that of the

receiver, the more effective the message is likely to be. Marketing communicators may not

always share the customer’s fi eld of experience. For example, an advertising copywriter from one socioeconomic level might create ads for customers from another level—say,

wealthy business owners. However, to communicate effectively, the marketing communi

cator must understand the customer’s fi eld of experience. This model points out several key factors in good communication. Senders need to

know what audiences they wish to reach and what responses they want. They must be

good at encoding messages that take into account how the target audience decodes them.

They must send messages through media that reach target audiences, and they must de

velop feedback channels so that they can assess an audience’s response to the message.

Also, in today’s interactive media environment, companies must be prepared to “fl ip” the

communications process—to become good receivers of and responders to messages sent by

consumers.

Steps in Developing Effective Marketing Communication We now examine the steps in developing an effective integrated communications and pro

the communication objectives, design a message, choose the media through which to send

the message, select the message source, and collect feedback.

There is a lot going on in this figure! For example, apply this model to McDonald’s.

must thoroughly understand its customers and how communication works.

FIGURE | 14.2

Process

436 Part 3 |

Identifying the Target Audience A marketing communicator starts with a clear target audience in mind. The audience may

be current users or potential buyers, those who make the buying decision or those who in

fl uence it. The audience may be individuals, groups, special publics, or the general public.

The target audience will heavily affect the communicator’s decisions on what will be said, how it will be said, when it will be said, where it will be said, and who will say it.

Determining the Communication Objectives Once the target audience has been defi ned, marketers must determine the desired response.

Of course, in many cases, they will seek a purchase response. But purchase may result only

to know where the target audience now stands and to what stage it needs to be moved.

The target audience may be in any of six , the stages consum

ers normally pass through on their way to making a purchase. These stages are awareness, knowledge, liking, preference, conviction, and purchase (see Figure 14.3).

The marketing communicator’s target market may be totally unaware of the product,

know only its name, or know only a few things about it. Thus, the communicator must fi rst

build awareness and knowledge. For example, Procter & Gamble used a massive $150 mil lion marketing campaign to introduce consumers to its innovative new laundry product,

brightener. The introductory campaign, themed “Pop in. Stand out,” showed consumers

how simply popping a Tide Pod into the washing machine could clean and freshen clothes

while also making colors pop. The extensive introductory campaign used a broad range

knowledge across the entire market.10

Assuming that target consumers know about a product, how do they feel about it? Once potential buy ers knew about Tide Pods, marketers wanted to move

them through successively stronger stages of feelings

toward the new model. These stages include liking (feeling favorable about Tide Pods), preference (prefer ring Tide Pods to regular detergents and competing

pod products), and conviction (believing that Tide Pods are the best laundry product for them).

Tide marketers used a combination of the promo

tion mix tools to create positive feelings and conviction.

The initial commercials helped build anticipation and

an emotional brand connection. Video clips on You

Tube and the Tide Facebook fan page demonstrated the

product’s use and features. Press releases and other PR

activities helped keep the buzz going about the prod

uct. A packed microsite (tidepods.com) provided ad

ditional information.

Finally, some members of the target market

might be convinced about the product but not quite

get around to making the purchase. The communica tor must lead these consumers to take the final step.

To help reluctant consumers over such hurdles, Tide

A goal of marketing in general, and of marketing communications in particular, is to move target customers through the buying process. Once again, it all starts with understanding customer needs and wants.

FIGURE | 14.3

The stages consumers normally pass

actual purchase.

G used

an extensive $150 million marketing campaign to create awareness and

knowledge for its innovative new laundry product, Tide Pods.

Chapter 14 | Communicating Customer Value: Integrated Marketing Communications Strategy 437 offered buyers special promotional prices, samples, and supporting comments from

customers at its Web site, Facebook page, and elsewhere.

Of course, marketing communications alone could not create positive feelings and

purchases for the new Tide Pods. The product itself must provide superior value for the

customer. In fact, outstanding marketing communications can actually speed the demise

of a poor product. The more quickly potential buyers learn about a poor product, the more

quickly they become aware of its faults. Thus, good marketing communications call for

“good deeds followed by good words.”

Designing a Message Having defined the desired audience response, the communicator then turns to developing

an effective message. Ideally, the message should get attention, hold interest, arouse desire, and obtain action (a framework known as the AIDA model). In practice, few messages take the consumer all the way from awareness to purchase, but the AIDA framework suggests

the desirable qualities of a good message.

When putting a message together, the marketing communicator must decide what to

say (message content) and how to say it (message structure and format).

Message Content The marketer has to figure out an appeal or theme that will produce the desired response.

There are three types of appeals: rational, emotional, and moral. Rational appeals relate to the audience’s self-interest. They show that the product will produce the desired benefits.

Examples are messages showing a product’s quality, economy, value, or performance. Thus,

an ad for Aleve makes this matter-of-fact claim: “More pills doesn’t mean more pain relief.

Aleve has the strength to keep back, body, and arthritis pain away all day with fewer pills

than Tylenol.” And a Weight Watchers’ ad states this simple fact: “The diet secret to end all

diet secrets is that there is no diet secret.”

Emotional appeals attempt to stir up either negative or positive emotions that can mo- tivate purchase. Communicators may use emotional appeals ranging from love, joy, and

humor to fear and guilt. Advocates of emotional messages claim that they attract more

attention and create more belief in the sponsor and the brand. The idea is that consumers

often feel before they think, and persuasion is emotional in nature. Good storytelling in a

commercial often strikes an emotional chord. For example, to promote its Chrome browser,

Google ran a heart-warming 90-second “Dear Sophie” commercial that shows a father us-

ing Google products to catalog his daughter Sophie’s life events, from birth and important

birthdays to loss of baby teeth and learning how to ski. He writes her notes using Gmail

and posts videos of her on YouTube. The ad closes with “The web is what you make of it.”

To date, the ad has captured nearly 6 million YouTube views.

These days, it seems as if every company is using humor in its advertising, from con-

sumer product firms such as Anheuser-Busch to old-line insurance companies such as All-

state. For example, 9 of the top 10 most popular ads in USA Today’s ad meter consumer rankings of last year’s Super Bowl ads used humor. Properly used, humor can capture

attention, make people feel good, and give a brand personality. However, advertisers must

be careful when using humor. Used poorly, it can detract from comprehension, wear out its

welcome fast, overshadow the product, and even irritate consumers.

Moral appeals are directed to an audience’s sense of what is “right” and “proper.” They are often used to urge people to support social causes, such as a cleaner environ-

ment or aid to the disadvantaged. For example, the United Way’s Live United campaign

urges people to give back to their communities—to “Live United. Make a difference. Help

create opportunities for everyone in your community.” An EarthShare ad urges environ-

mental involvement by reminding people that “We live in the house we all build. Every

decision we make has consequences. . . . We choose the world we live in, so make the right

choices. . . .”

Message Structure Marketers must also decide how to handle three message structure issues. The first is whether

to draw a conclusion or leave it to the audience. Research suggests that, in many cases, rather

than drawing a conclusion, the advertiser is better off asking questions and letting buyers

come to their own conclusions.

438 Part 3 | The second message structure issue is whether to present

the strongest arguments fi rst or last. Presenting them fi rst gets

strong attention but may lead to an anticlimactic ending.

The third message structure issue is whether to present a

ment is more effective in sales presentations—except when au

diences are highly educated or likely to hear opposing claims

or when the communicator has a negative association to over

come. In this spirit, Heinz ran the message “Heinz Ketchup is

slow good,” and Listerine ran the message “Listerine tastes bad

an advertiser’s credibility and make buyers more resistant to

competitor attacks.

Message Format The marketing communicator also needs a strong format for the message. In a print ad, the communicator has to decide on the

headline, copy, illustration, and colors. To attract attention,

and headlines; distinctive formats; message size and position;

and color, shape, and movement. If the message is to be com

municated by television or video, the communicator must in

corporate motion, pace, and sound. Presenters plan every detail

carefully, from start to fi nish.

If the message is carried on the product or its package, the

communicator must watch texture, scent, color, size, and shape.

For example, color alone can enhance message recognition for a

brand. One study suggests that color increases brand recogni

tion by up to 80 percent—think about Target (red), McDonald’s

UPS (brown). Thus, in designing effective marketing commu

nications, marketers must consider color and other seemingly

unimportant details carefully.

Choosing Media The communicator must now select the channels of communication. There are two broad

personal and nonpersonal.

Personal Communication Channels In personal communication channels, two or more people communicate directly with

through texting or an Internet chat. Personal communication channels are effective because

they allow for personal addressing and feedback.

Some personal communication channels are controlled directly by the company. For

example, company salespeople contact business buyers. But other personal communica

tions about the product may reach buyers through channels not directly controlled by the

company. These channels might include independent experts—consumer advocates, online

buying guides, bloggers, and others—making statements to buyers. Or they might be neigh

bors, friends, family members, associates, or other consumers talking to target buyers. This

last channel, , has considerable effect in many product areas.

Personal infl uence carries great weight, especially for products that are expensive,

risky, or highly visible. One recent survey found that recommendations from friends

More than 50 percent of consumers said friends and family are the number one infl uence

on their awareness and purchase. Another study found that 90 percent of customers

trust recommendations from people they know and 70 percent trust consumer opinions

Message format: To attract attention, advertisers can use

distinctive formats, as in this Snickers ad.

Snickers®

Personal communication channels

Personal communications about a

Chapter 14 | Communicating Customer Value: Integrated Marketing Communications Strategy 439 posted online, whereas trust in ads runs from a high of about 62 percent to less than 24

percent, depending on the medium.11 Is it any wonder, then, that few consumers buy a

a site such as Amazon.com? Who hasn’t made an Amazon purchase based on another

customer ’s review or the “Customers who bought this also bought . . .” section?

Companies can take steps to put personal communication channels to work for them.

For example, as we discussed in Chapter 5, they can create opinion leaders for their brands— people whose opinions are sought by others—by supply

ing infl uencers with the product on attractive terms or

by educating them so that they can inform others. Buzz

marketing involves cultivating opinion leaders and get

ting them to spread information about a product or a ser

vice to others in their communities.

ing arm—Vocalpoint—consisting of 500,000 moms.

Vocalpoint recruits

buzzers with vast networks of friends and a gift for

gab. They create buzz not only for P&G brands but also

for those of other client companies as well—half its

uses the Vocalpoint network in the launch of new prod

ucts such as the Bounce Dryer Bar and Tide Pods. P&G

doesn’t pay the moms or coach them on what to say.

It simply educates Vocalpointers about a new product,

arms them with free samples and coupons for friends,

and then asks them to share their “honest opinions

with us and with other real women.” In turn, the Vocal

point moms create hundreds of thousands of personal

recommendations for the new products.12

Nonpersonal Communication Channels Nonpersonal communication channels are media that carry messages without per

sonal contact or feedback. They include major media, atmospheres, and events. Major

dia include print media (newspapers, magazines, direct mail), broadcast media (television,

sites, and online social and sharing networks). Atmospheres are designed environments that create or reinforce the buyer’s leanings toward buying a product. Thus, lawyers’ offi ces and

banks are designed to communicate confi dence and other qualities that might be valued by

clients. Events are staged occurrences that communicate messages to target audiences. For example, public relations departments arrange grand openings, shows and exhibits, public

tours, and other events.

Nonpersonal communication affects buyers directly. In addition, using mass media of

ten affects buyers indirectly by causing more personal communication. For example, com

munications might fi rst fl ow from television, magazines, and other mass media to opinion

leaders and then from these opinion leaders to others. Thus, opinion leaders step between

the mass media and their audiences and carry messages to people who are less exposed to

media. Interestingly, marketers often use nonpersonal communications channels to replace

mouth testimonials in their ads and other promotions.

Selecting the Message Source In either personal or nonpersonal communication, the message’s impact also depends on

how the target audience views the communicator. Messages delivered by highly credible

sources are more persuasive. Thus, many food companies promote to doctors, dentists,

actors, musicians, and even cartoon characters—to deliver their messages. A host of

Buzz marketing

them to spread information about a

communities.

G and other brands.

Nonpersonal communication channels

440 Part 3 | Colombian actress Sofi a Vergara from Modern Family endorsees Pepsi and CoverGirl, and celebrities rang

Beckham and Aerosmith’s Steven Tyler helped draw

attention to Burger King’s new menu.13

But companies must be careful when selecting ce

lebrities to represent their brands. Picking the wrong

spokesperson can result in embarrassment and a tar

nished image. For example, the Kellogg Company dis

missed Olympic swimmer Michael Phelps after he was

caught on video smoking marijuana. More than a dozen

Terry’s personal problems were publically exposed,

tarnishing his previously pristine image—Svenska Spel

soon disclosed that he would be not be used again in

their advertising campaigns and it is uncertain if he will have any more business with the com

pany. “Arranged marriages between brands and celebrities are inherently risky,” notes one ex

“and 1 percent goes off the rails.”14 (See Real Marketing 14.2).

Collecting Feedback After sending the message, the communicator must research its effect on the target audi

ence. This involves asking target audience members whether they remember the message,

how many times they saw it, what points they recall, how they felt about the message,

and their past and present attitudes toward the product and company. The communica

tor would also like to measure behavior resulting from the message—how many people

bought the product, talked to others about it, or visited the store.

Feedback on marketing communications may suggest changes in the promotion pro

gram or in the product offer itself. For example, Macy’s uses television and newspaper

advertising to inform area consumers about its stores, services, and merchandising events.

Suppose feedback research shows that 80 percent of all shoppers in an area recall seeing the

store’s ads and are aware of its merchandise and sales. Sixty percent of these aware shop

pers have visited a Macy’s store in the past month, but only 20 percent of those who visited

were satisfi ed with the shopping experience.

These results suggest that although promotion is creating awareness, Macy’s stores aren’t giving consumers the satisfaction they expect. Therefore, Macy’s needs to improve the shop ping experience while staying with the successful communications program. In contrast,

suppose research shows that only 40 percent of area consumers are aware of the store’s mer

chandise and events, only 30 percent of those aware have shopped recently, but 80 percent of

those who have shopped return soon to shop again. In this case, Macy’s needs to strengthen its

promotion program to take advantage of its power to create customer satisfaction in the store.

Setting the Total Promotion Budget and Mix We have looked at the steps in planning and sending communications to a target audience.

But how does the company determine its total promotion budget and the division among the major promotional tools to create the promotion mix? By what process does it blend the tools to create integrated marketing communications? We now look at these questions.

Setting the Total Promotion Budget One of the hardest marketing decisions facing a company is how much to spend on promo

tion.

advertising is wasted, but I don’t know which half. I spent $2 million for advertising, and I

don’t know if that is half enough or twice too much.” Thus, it is not surprising that indus

tries and companies vary widely in how much they spend on promotion. Promotion spend

ing may be 10–12 percent of sales for consumer packaged goods, 20 percent for cosmetics,

and only 1.9 percent for household appliances. Within a given industry, both low and high

spenders can be found.15

Celebrity endorsers: LeBron James, Kobe Bryant, and a host of other

NBA superstars lend their images to Nike brands.

Objective 4 Explain the methods for setting

the promotion budget and

factors that affect the design of

the promotion mix.

Chapter 14 | Communicating Customer Value: Integrated Marketing Communications Strategy 441

A range of clothing endorsed by model Kate Moss has been a huge selling

point for retailer Topshop but allegations in her personal life could be

damaging for their reputation and affect their sales.

lebrity endorsement of their brands as a form

of marketing communications. In the United

dollars. The practice increases daily. This is not

that using this method of marketing commu

to approach for endorsement deals is person

ality. The personality of the celebrity must be a

should be a role model for society.

side of celebrity endorsements.

brands they are endorsing. Many celebrities

on their personality and endorsement deals.

longer get the usual support of his fans dur

that he may be dropped by the big brands that

The Inde

pendent

Scandal is not only possible in football.

a fashion retailer that initially maintained she

Marketing Celebrity Endorsements:

442 Part 3 |

How does a company determine its promotion budget? Here, we look at four common

affordable method, the sales method, the , and the .16

Affordable Method Some companies use the affordable method

they think the company can afford. Small businesses often use this method, reasoning that

the company cannot spend more on advertising than it has. They start with total revenues,

deduct operating expenses and capital outlays, and then devote some portion of the re

maining funds to advertising.

Unfortunately, this method of setting budgets completely ignores the effects of pro

motion on sales. It tends to place promotion last among spending priorities, even in

situations in which advertising is critical to the fi rm’s success. It leads to an uncertain

the affordable method can result in overspending on advertising, it more often results in

underspending.

Other companies use the

method, setting their promotion budget at a certain

percentage of current or forecasted sales. Or they

budget a percentage of the unit sales price. The per

management think about the relationships between

promotion spending, selling price, and profi t per unit.

Despite these claimed advantages, however, the

wrongly views sales as the cause of promotion rather than as the result. Although studies have found a posi tive correlation between promotional spending and

brand strength, this relationship often turns out to be

effect and cause, not cause and effect. Stronger brands

with higher sales can afford the biggest ad budgets.

the availability of funds rather than on opportunities. It

may prevent the increased spending sometimes needed

to turn around falling sales. Because the budget varies

Setting the promotion budget is one of the hardest decisions facing a

that “half enough or twice too much”?

As these organizations produce their offer

pected to be seen as practising social marketing

that the fear of becoming embroiled in sleaze

approach for their endorsement deals in order to

to stop celebrity endorsements.

Source: Breaking New English

The Independent

Daily Mail

The Sun, July 4, 2007, www.thesun.co.uk/sol/homepage/news/191301;

The Observer

Times Online,

More About Advertising

Stop Press News

Affordable method

management thinks the company can

afford.

Setting the promotion budget at a certain

percentage of current or forecasted sales

or as a percentage of the unit sales price.

Chapter 14 | Communicating Customer Value: Integrated Marketing Communications Strategy 443 with year-to-year sales, long-range planning is difficult. Finally, the method does not pro-

vide any basis for choosing a specific percentage, except what has been done in the past or what competitors are doing.

Competitive-Parity Method Still other companies use the competitive-parity method, setting their promotion bud-

gets to match competitors’ outlays. They monitor competitors’ advertising or get industry

promotion spending estimates from publications or trade associations and then set their

budgets based on the industry average.

Two arguments support this method. First, competitors’ budgets represent the collec-

tive wisdom of the industry. Second, spending what competitors spend helps prevent pro-

motion wars. Unfortunately, neither argument is valid. There are no grounds for believing

that the competition has a better idea of what a company should be spending on promotion

than does the company itself. Companies differ greatly, and each has its own special promo-

tion needs. Finally, there is no evidence that budgets based on competitive parity prevent

promotion wars.

Objective-and-Task Method The most logical budget-setting method is the objective-and-task method, whereby the

company sets its promotion budget based on what it wants to accomplish with promotion.

This budgeting method entails (1) defining specific promotion objectives, (2) determining

the tasks needed to achieve these objectives, and (3) estimating the costs of performing

these tasks. The sum of these costs is the proposed promotion budget.

The advantage of the objective-and-task method is that it forces management to spell

out its assumptions about the relationship between dollars spent and promotion results.

But it is also the most difficult method to use. Often, it is hard to figure out which specific

tasks will achieve the stated objectives. For example, suppose Samsung wants a 95-percent-

awareness level for its latest camcorder model during the six-month introductory period.

What specific advertising messages and media schedules should Samsung use to attain this

objective? How much would these messages and media schedules cost? Samsung manage-

ment must consider such questions, even though they are hard to answer.

Shaping the Overall Promotion Mix The concept of integrated marketing communications suggests that the company must

blend the promotion tools carefully into a coordinated promotion mix. But how does it de- termine what mix of promotion tools to use? Companies within the same industry differ

greatly in the design of their promotion mixes. For example, cosmetics maker Mary Kay

spends most of its promotion funds on personal selling and direct marketing, whereas com-

petitor CoverGirl spends heavily on consumer advertising. We now look at factors that

influence the marketer’s choice of promotion tools.

The Nature of Each Promotion Tool Each promotion tool has unique characteristics and costs. Marketers must understand these

characteristics in shaping the promotion mix.

Advertising. Advertising can reach masses of geographically dispersed buyers at a low cost per exposure, and it enables the seller to repeat a message many times. For example,

television advertising can reach huge audiences. Nearly 111 million Americans watched the

most recent Super Bowl, more than 39 million people watched at least part of the last Acad-

emy Awards broadcast, and more than 26 million fans tuned in for the kick-off of the 11th

season of American Idol. And consumers viewing the ads again on YouTube and company Web sites extended their reach by millions more. For companies that want to reach a mass

audience, TV is the place to be.17

Beyond its reach, large-scale advertising says something positive about the seller’s size,

popularity, and success. Because of advertising’s public nature, consumers tend to view

advertised products as more legitimate. Advertising is also very expressive; it allows the

company to dramatize its products through the artful use of visuals, print, sound, and color.

On the one hand, advertising can be used to build up a long-term image for a product (such

Competitive-parity method

Setting the promotion budget to match

competitors’ outlays.

Objective-and-task method

Developing the promotion budget

by (1) defining specific promotion

objectives, (2) determining the tasks

needed to achieve these objectives, and

(3) estimating the costs of performing

these tasks. The sum of these costs is

the proposed promotion budget.

444 Part 3 |

quick sales (as when Kohl’s advertises weekend specials).

Advertising also has some shortcomings. Although it

reaches many people quickly, advertising is impersonal and

lacks the direct persuasiveness of company salespeople. For the

tion with an audience, and the audience does not feel that it has

to pay attention or respond. In addition, advertising can be very

costly. Although some advertising forms, such as newspaper and

radio advertising, can be done on smaller budgets, other forms,

such as network TV advertising, require very large budgets.

Personal Selling. Personal selling is the most effective tool at certain stages of the buying process, particularly in building up

buyers’ preferences, convictions, and actions. It involves per

sonal interaction between two or more people, so each person

can observe the other’s needs and characteristics and make quick

adjustments. Personal selling also allows all kinds of customer

relationships to personal friendships. An effective salesperson

tionship by solving a customer’s problems. Finally, with personal selling, the buyer usu

commitment than does advertising—although advertising can be turned up or down, the

size of a sales force is harder to change. Personal selling is also the company’s most expen

sive promotion tool, costing companies on average $350 or more per sales call, depending

on the industry.18 U.S. fi rms spend up to three times as much on personal selling as they do

on advertising.

Sales Promotion. Sales promotion includes a wide assortment of tools—coupons, con tests, discounts, premiums, and others—all of which have many unique qualities. They at

tract consumer attention, offer strong incentives to purchase, and can be used to dramatize

product offers and boost sagging sales. Sales promotions invite and reward quick response.

Whereas advertising says, “Buy our product,” sales promotion says, “Buy it now.” Sales

promotion effects are often short lived, however, and often are not as effective as advertis

Public Relations. Public relations is very believable—news stories, features, sponsor ships, and events seem more real and believable to readers than ads do. PR can also reach

many prospects who avoid salespeople and advertisements—the message gets to buyers

relations can dramatize a company or product. Marketers tend to underuse public relations

other promotion mix elements can be very effective and economical.

Direct Marketing. Although there are many forms of direct marketing—direct mail and catalogs, online marketing, mobile marketing, and others—they all share four distinctive

very quickly and can be tailored to appeal to specifi c consumers. Finally, direct marketing

sages can be altered depending on the consumer’s response. Thus, direct marketing is well

Promotion Mix Strategies push promotion or pull pro

motion. Figure 14.4 contrasts the two strategies. The relative emphasis given to the

specifi c promotion tools differs for push and pull strategies. A push strategy involves

“pushing” the product through marketing channels to fi nal consumers. The producer

directs its marketing activities (primarily personal selling and trade promotion) toward

With personal selling, the customer feels a greater need to listen

and respond, even if the response is a polite "No thank you."

SelectStock

Push strategy

A promotion strategy that calls for using

the sales force and trade promotion to

push the product through channels.

The producer promotes the product to

Chapter 14 | Communicating Customer Value: Integrated Marketing Communications Strategy 445

channel members to induce them to carry the product and promote it to final consumers.

For example, John Deere does very little promoting of its lawn mowers, garden tractors,

and other residential consumer products to final consumers. Instead, John Deere’s sales

force works with Lowe’s, Home Depot, independent dealers, and other channel members,

who in turn push John Deere products to final consumers.

Using a pull strategy, the producer directs its marketing activities (primarily advertis-

ing and consumer promotion) toward final consumers to induce them to buy the product.

For example, Unilever promotes its Axe grooming products directly to its young male tar-

get market using TV and print ads, a brand Web site, its YouTube channel and Facebook

page, and other channels. If the pull strategy is effective, consumers will then demand the

brand from retailers, such as CVS, Walgreens, or Walmart, which will in turn demand it

from Unilever. Thus, under a pull strategy, consumer demand “pulls” the product through

the channels.

Some industrial-goods companies use only push strategies; likewise, some direct mar-

keting companies use only pull strategies. However, most large companies use some combi-

nation of both. For example, Unilever spends more than $8 billion worldwide each year on

consumer marketing and sales promotions to create brand preference and pull customers

into stores that carry its products.19 At the same time, it uses its own and distributors’ sales

forces and trade promotions to push its brands through the channels, so that they will be

available on store shelves when consumers come calling.

Companies consider many factors when designing their promotion mix strategies,

including the type of product and market. For example, the importance of different pro-

motion tools varies between consumer and business markets. Business-to-consumer com-

panies usually pull more, putting more of their funds into advertising, followed by sales

promotion, personal selling, and then public relations. In contrast, business-to-business

marketers tend to push more, putting more of their funds into personal selling, followed by

sales promotion, advertising, and public relations.

Now that we’ve examined the concept of integrated marketing communications and

the factors that firms consider when shaping their promotion mixes, let’s look more closely

at the specific marketing communications tools.

Integrating the Promotion Mix Having set the promotion budget and mix, the company must now take steps to see that

each promotion mix element is smoothly integrated. Guided by the company’s overall com-

munications strategy, the various promotion elements should work together to carry the

firm’s unique brand messages and selling points. Integrating the promotion mix starts with

customers. Whether it’s advertising, personal selling, sales promotion, public relations, or

direct marketing, communications at each customer touchpoint must deliver consistent

messages and positioning. An integrated promotion mix ensures that communications ef-

forts occur when, where, and how customers need them.

Producer Retailers and wholesalers

Push strategy

Consumers

Producer Retailers and wholesalers

Reseller marketing activities (personal selling, advertising,

sales promotion, other)

Demand

Producer marketing activities (personal selling, trade

promotion, other)

Producer marketing activities (consumer advertising, sales promotion, other)

Demand Consumers

promotion, other) sales promotion, other)

DemandDemand

Producer marketing activities (consumer advertising, sales promotion, other)

Pull strategy

In a push strategy, the company “pushes” the product to resellers, who in turn “push” it to consumers.

In a pull strategy, the company promotes directly to final consumers, creating a demand vacuum that “pulls” the product through the channel. Most companies use some combination of push and pull.

Pull strategy

A promotion strategy that calls for

spending a lot on consumer advertising

and promotion to induce final consumers

to buy the product, creating a demand

vacuum that “pulls” the product through

the channel.

FIGURE | 14.4

Push versus Pull Promotion Strategy

446 Part 3 | To achieve an integrated promotion mix, all of the fi rm’s functions must cooperate

to jointly plan communications efforts. Many companies even include customers, suppli

ers, and other stakeholders at various stages of communications planning. Scattered or

disjointed promotional activities across the company can result in diluted marketing com

munications impact and confused positioning. By contrast, an integrated promotion mix

maximizes the combined effects of all a fi rm’s promotional efforts.

Socially Responsible Marketing Communication In shaping its promotion mix, a company must be aware of the many legal and ethical

issues surrounding marketing communications. Most marketers work hard to communi

cate openly and honestly with consumers and resellers. Still, abuses may occur, and public

policy makers have developed a substantial body of laws and regulations to govern adver

tising, sales promotion, personal selling, and direct marketing. In this section, we discuss

issues regarding advertising, sales promotion, and personal selling. We discuss direct mar

keting issues in Chapter 17.

Advertising and Sales Promotion By law, companies must avoid false or deceptive advertising. Advertisers must not make

false claims, such as suggesting that a product cures something when it does not. They must

avoid ads that have the capacity to deceive, even though no one actually may be deceived.

An automobile cannot be advertised as getting 32 miles per gallon unless it does so under

typical conditions, and a diet bread cannot be advertised as having fewer calories simply

because its slices are thinner.

tenses. For example, a large retailer advertised a sewing machine at $179. However, when

consumers tried to buy the advertised machine, the seller downplayed its features, placed

faulty machines on showroom fl oors, understated the machine’s performance, and took

other actions in an attempt to switch buyers to a more expensive machine. Such actions are

both unethical and illegal.

A company’s trade promotion activities also are closely regulated. For example, under

promotions. They must make promotional allowances and ser

vices available to all resellers on proportionately equal terms.

Beyond simply avoiding legal pitfalls, such as deceptive

ing and other forms of promotion to encourage and promote

socially responsible programs and actions. For example, fol

lowing the explosion and oil spill at the Deepwater Horizon

oil rig in the Gulf of Mexico in 2010, BP has spent billions of

dollars on Gulf Coast restoration efforts. The efforts include a

to help restore tourism along the Gulf Coast. The integrated

television, online, and social media campaign features spokes

people from the Gulf Coast states discussing their states’ great

beaches, fi shing, and seafood and extending an invitation to

vacation along the coast. In addition to the tourism series,

BP has also been running an online MyGulf campaign featur

ing videos of people who live and work in the Gulf. Thanks

Personal Selling A company’s salespeople must follow the rules of “fair competition.” Most states have en

acted deceptive sales acts that spell out what is not allowed. For example, salespeople may

Promoting socially responsible programs and actions: To help

restore tourism along the Gulf Coast, BP’s MyGulf campaign

features local spokespeople discussing their state’s great beaches,

fi shing, and seafood and extending an invitation to vacation along

the coast.

Chapter 14 | Communicating Customer Value: Integrated Marketing Communications Strategy 447 not lie to consumers or mislead them about the advantages of buying a particular product.

Different rules apply to consumers who are called on at home or who buy at a loca

tion that is not the seller’s permanent place of business versus those who go to a store in

search of a product. Because people who are called on may be taken by surprise and may

sion (FTC) has adopted a to give special protection to customers

who are not seeking products. Under this rule, customers who agree in their own homes,

workplace, dormitory, or facilities rented by the seller on a temporary basis—such as hotel

rooms, convention centers, and restaurants—to buy something costing more than $25 have

72 hours in which to cancel a contract or return merchandise and get their money back—no

questions asked.

salespeople may not offer bribes to purchasing agents or others who can infl uence a sale.

They may not obtain or use technical or trade secrets of competitors through bribery or

industrial espionage. Finally, salespeople must not disparage competitors or competing

products by suggesting things that are not true.

Modern marketing calls for more than just creating customer

communicate

strategy.

Objective 1 Defi ne the fi ve promotion mix tools for communicating

customer value. (pp 428–429)

A company’s total promotion mix marketing

communications mix advertis

ing, personal selling, sales promotion, public relations, and direct

marketing

Adver

tising includes any paid form of nonpersonal presentation and

public relations focuses on building good relations

Personal selling is personal

sales

promotion

direct

marketing

Objective 2 Discuss the changing communications landscape and

the need for integrated marketing communications.

(pp 429–434)

changes in marketer and customer communication strategies

risk creating a communications hodgepodge for consumers. To

integrated

marketing communications (IMC)

Reviewing Objectives and Key Terms

448 Part 3 | Objective 3 Outline the communication

process and the steps in

developing effective marketing communications.

(pp 434–440)

identify the target audience and its characteristics.

communication

objectives

ness knowledge liking preference conviction purchase.

Then a message

and structure. Media

must collect feedback

Objective 4 Explain the methods for setting the promotion budget and

factors that affect the design of the promotion mix.

(pp 440–447)

the promotion budget among the major tools to create the

motion mix. Companies can pursue a push or a pull promotional

issues surrounding marketing communications. Companies must

Key Terms

Objective 1 Promotion mix (marketing

communications mix) (p 428)

Advertising (p 429)

Sales promotion (p 429)

Personal selling (p 429)

Public relations (PR) (p 429)

Direct marketing (p 429)

Objective 2 Integrated marketing communications

(IMC) (p 431)

Objective 3

Personal communication channels

(p 438)

Buzz marketing (p 439)

Nonpersonal communication channels

(p 439)

Objective 4

Push strategy (p 444)

Pull strategy (p 445)

Discussion and Critical Thinking

Discussion Questions

4. Name and describe the four promotion budgeting methods

5. Compare and contrast personal and nonpersonal communi

Chapter 14 | Communicating Customer Value: Integrated Marketing Communications Strategy 449

Critical Thinking Exercises

1. In a small group, develop an integrated marketing commu- nications plan for a local business or nonprofit organization.

Does your plan employ a push or pull promotion strategy?

Explain. (AACSB: Communication; Reflective Thinking)

2. Find three examples of advertisements that incorporate so- cially responsible marketing in the message. Some companies

are criticized for exploiting social issues or organizations by

promoting them for their own gain. Do the examples you found

do that? Explain. (AACSB: Communication; Ethical Reason-

ing; Reflective Thinking)

Applications and Cases

Marketing Technology Online-Advertising Auctions Have you ever wondered how ads for relevant brands and busi-

nesses pop up around Google search results or appear on just

about every site you visit on the Internet? Advertisers pay to have

these ads placed based on your keyword searches, your Web-

surfing behavior, and even what you post on Facebook or write

in Gmail messages. While concerns over privacy mount, the on-

line tracking industry just keeps ramping up. Krux Digital reports

that the average visit to a Web page generated 56 instances of

data collection, representing a five-fold increase from the previ-

ous year. A 2010 investigation by the Wall Street Journal found

that the 50 most popular U.S. Web sites installed more than

3,000 tracking files on the computer used in the study. The total

was even higher—4,123 tracking files—for the top 50 sites that

are popular with children and teens. Many sites installed more

than 100 tracking tools each during the tests. Tracking tools in-

clude files placed on users’ computers and on Web sites. Market-

ers use this information to target online advertisements. But this

wouldn’t be possible without online-ad auctions. When a user visits

a Web page, that information is auctioned among computers to

the highest bidder. Bids are based on the user’s Internet brows-

ing behavior. The bidder in such an auction is a technology bro-

ker acting on behalf of the advertiser. Real-time bidding makes up

18 percent of the online display ad market, and bids sell for less

than $1 per thousand viewers. Web-tracking provides the user

data to sell in the auction, and more than 300 companies are gath-

ering this data. Data collectors often share information with each

other, called “piggybacking,” so they have more information about

a Web site’s user than the owner—the ad seller—of a Web site has.

1. Write a report explaining how online-ad auctions work and the impact they have on Internet advertising. (AACSB: Communi-

cation; Reflective Thinking)

2. Critics claim that Internet tracking infringes consumer privacy rights and that the industry is out of control. Should market-

ers have access to such information? Discuss the advantages

and disadvantages of this activity for both marketers and con-

sumers. (AACSB Communication; Ethical Reasoning; Reflec-

tive Thinking)

Marketing Ethics Advertising Claims Several well-known companies are making headlines after pay-

ing huge fines to settle deceptive advertising complaints with

the Federal Trade Commission (FTC). Skechers, the leading ton-

ing shoe company, agreed to pay $40 million to settle charges

of unsubstantiated claims. Skechers made billions claiming its

shoes were more effective in toning posture and buttock mus-

cles compared to regular walking and running shoes. Celebrities

such as Kim Kardashian and Joe Montana endorsed the prod-

ucts. The FTC said the study on which the claims were based

did not even conclude what was claimed in the ads. Not help-

ing Skechers’ case was the fact that the study was conducted

by the husband of a Skechers marketing executive. Reebok,

after making similar claims, settled with the FTC for $25 mil-

lion. Other well-known companies recently settling with the FTC

over deceptive advertising claims are POM, Dannon, Oreck, and

Nivea. Dannon settled for $45 million after featuring Jamie Lee

Curtis touting the digestive regularity benefits of Activia yogurt.

Oreck and Nivea got off relatively cheap. Oreck had to pay only

$750,000 to settle the complaint against its claim that its vac-

uum’s ultraviolet light and filter killed and trapped flu and other

germs, and Nivea had to pay only $900,000 to settle the com-

plaint against claims that its My Silhouette! skin cream reduced

a user’s body size.

1. Research the FTC’s deceptive advertising policy and report on another case involving substantiation of specific claims.

(AACSB: Communication; Reflective Thinking)

2. The advertising industry has established the National Advertis- ing Division (www.NAD.org), which oversees a self-regulatory

process administered by the Council of Better Business Bu-

reaus. Compare and contrast how this body resolves decep-

tive advertising cases with how the FTC handles cases, and

then report on a case handled by this process. (AACSB: Com-

munication; Reflective Thinking)

450 Part 3 | Designing a Customer-Driven Strategy and Mix

Marketing by the Numbers Advertising-to-Sales Ratios Using the percent of sales method, an advertiser sets its budget

at a certain percentage of current or forecasted sales. However,

determining what percentage to use is not always clear. Many

marketers look at industry averages and competitor spending for

comparisons, and companies such as Schonfeld & Associates

provide annual reports on advertising-to-sales ratios by industry.

While this information is published in proprietary reports, many

Web sites and trade publications, such as Advertising Age, pub-

lish summary data regarding industry averages as well as adver-

tising-to-sales ratios for top advertisers.

1. Find advertising-to-sales ratios for four different industries for the past 10 years or more. Try to find as much data as pos-

sible for this period, but be sure to find enough data to indi-

cate the trend in advertising-to-sales ratios for each industry.

Develop a chart illustrating these trends and offer reasons for

the trends. (AACSB: Communication; Use of IT)

2. Explain why there is variation in the percentage of sales spent on advertising among the four industries. (AACSB: Communi-

cation; Reflective Thinking)

Company Case Red Bull: A Different Kind of Integrated Campaign

It’s a calm day in the desert town of Roswell, New Mexico. Thir-

teen miles above the ground, a giant helium balloon ascends with

a space capsule tethered beneath it. The capsule door slides

open, revealing the Earth as a sphere—the curve of the horizon

bending dramatically around the planet, the sky above almost

black. A man in a full space suit steps out onto a small platform

and secures his footing. Then, with a quick salute to the camera,

he jumps.

A NASA test? No. It’s the latest promotional effort from Red

Bull—another extreme stunt designed to evoke reactions of

shock and awe while driving home the now famous slogan,

“Red Bull Gives You Wings.” Today, through a bevy of other such

events, Red Bull’s message is broadcast far and wide via an army

of celebrity endorsers as well as sports, music, and entertain-

ment event sponsorships. Red Bull is not the most conventional

marketer. It spreads its brand message across an eclectic mix of

promotional efforts while largely shunning traditional media. But

the manner in which Red Bull has integrated its diverse messages

is a model of success that cuts straight to the heart of building

deep emotional connections with customers.

An Unlikely Start It all started about 30 years ago when Austrian toothpaste sales-

man Dietrich Mateschitz traveled to Thailand. While there, he tried

a “tonic” called Krating Daeng—Thai for “water buffalo.” It tasted

terrible but instantly cured his jet lag. One thing led to another,

and within a few years Mateschitz and a partner had acquired the

rights to sell the formula throughout the rest of the world. They

named it Red Bull.

From the beginning, nothing about Red Bull was conventional.

The slim blue-and-silver can, emblazoned with two muscular red

bulls about to smash heads in front of a yellow sun, was unlike any-

thing on the market. At 8.3 ounces, so was its size. With mystical

ingredients such as taurine and glucuronolactone, and a sicken-

ingly sweet taste often described as “liquid Sweet Tarts” or “cough

medicine in a can,” the drink didn’t fit any established beverage

category. And with a $2 price tag, Red Bull was by far the most

expensive carbonated beverage on any shelf. But with that unlikely

combination, Red Bull gave birth to the energy drink category.

Mateschitz launched Red Bull in native Austria under the

only slogan to ever accompany the brand, “Red Bull Gives You

Wings.” The moment he heard it, Mateschitz knew that this slo-

gan would be the core of Red Bull’s brand image. He didn’t care

about the product’s taste. “It’s not just another flavored sugar

water differentiated by color or taste or flavor,” he says. “It’s an

efficiency product. I’m talking about improving endurance, con-

centration, reaction time, speed, vigilance, and emotional status.

Taste is of no importance whatsoever.” Despite negative initial

product reviews, Red Bull’s young male target market agreed.

Sales in Europe were positively bullish.

Video Case OXO For over 20 years, OXO has put its well-known kitchen gadgets

into almost every home in the United States through word-of-

mouth, product placement, and other forms of nontraditional pro-

motional techniques. But OXO has decided to enter the world of

broadcast advertising as it attempts to meet the challenges of a

more competitive environment.

This video demonstrates how a successful company can

remain on top through modifying its promotional mix. With its

Good Grips, SteeL, Candela, Tot, and Staples/OXO brands,

OXO has expanded its advertising efforts with a major new

campaign and, in the process, is proving that good-old adver-

tising is still a good bet.

After viewing the video featuring OXO, answer the following

questions:

1. Why has OXO chosen to change its promotional strategy at this time?

2. Describe OXO’s overall advertising strategy.

3. Is OXO abandoning its old promotional methods? How is OXO blending a new advertising strategy with the promotional tech-

niques that have made it a success?

Chapter 14 | Communicating Customer Value: Integrated Marketing Communications Strategy 451 An Unlikely Promotional Program As head of a young company without much of an advertising bud-

get, Mateschitz continued in his unorthodox ways when launch-

ing Red Bull in the United States in 1997. He bucked the trend

of aggressive and excessive promotional campaigns flaunted by

other start-ups in the 1990s. Instead, his young, attractive army

of marketers tossed out free cans of Red Bull from a fleet of shiny

logo-bearing off-roaders with giant cans attached to the trunk.

Word of mouth took care of the rest. In this manner, Mateschitz

introduced Red Bull to the masses and built a brand image for

next to nothing.

As a product that thrived on grassroots marketing, Red Bull

depended on word of mouth. As word about Red Bull spread

throughout Europe’s all-night-party circuit, so did rumors. Tales

circulated that taurine was a derivative of bull testicles or even

bull semen. Even worse, there were rumors that young people

had died while partying too hard and drinking too much Red Bull.

Although none of these rumors was ever substantiated, Mate-

schitz is convinced that one of the most important promotional

techniques the company ever employed was to let the rumors

fly and say nothing. “In the beginning, the high-school teachers

who were against the product were at least as important as the

students who were for it,” said Mateschitz. “Newspapers asked,

‘Is it a drug? Is it harmless? Is it dangerous?’ That ambivalence is

so important. The most dangerous thing for a branded product

is low interest.”

Bit by bit, Red Bull’s portfolio of promotional weapons grew. At

times, the company dabbled in TV and print advertising. But Red

Bull’s primary tactics have steered clear of such mainstream tech-

niques. Instead, it was Mateschitz’s plan to promote the brand in

a way that would go way beyond reach and frequency of cover-

age. He wanted the brand to hit young people right in the face in

a way that they experienced Red Bull to the fullest. He wanted to

engage customers through activities so meaningful to them that

deep relationships would form quickly.

With that philosophy, Red Bull’s promotional mix evolved into

what it is today. The following descriptions are just a sample of

Red Bull’s promotional techniques.

Athletes and Teams. With the claim that Red Bull improves athletic performance at the center of its promotional message,

the brand took a page right out of the book used by Nike and Ga-

torade and began signing up athlete endorsers early on. Today,

Red Bull sponsors more than 500 athletes—100 in the United

States—in 97 sports, mostly “extreme” sports. And sticking with

its unconventional ways, Red Bull brings these athletes into the

“family” with nothing more than a verbal agreement to “support”

them in achieving their dreams. Today, Red Bull’s family includes

such top-tier athletes as Shaun White and Travis Pastrana as well

as niche athletes such as courier-style bike racer Austin Horse

and wind surfer Levi Siver. Whenever these athletes make official

public appearances, the Red Bull name or logo is visible some-

where on their person.

But Red Bull’s endorsement strategy goes beyond propping

individual athletes. Red Bull owns four soccer teams: New York’s

Red Bulls, Red Bull Salzburg, Red Bull Brazil, and RB Leipzig.

The brand also owns a NASCAR team and two Formula 1 rac-

ing teams. Many have asserted that team ownership is merely

a hobby for Mateschitz, noting that none of these teams makes

money. But Mateschitz says that misses the point. “In literal finan-

cial terms, our sports teams are not yet profitable, but in value

terms, they are,” he says. “The total editorial media value plus

the media assets created around the teams are superior to pure

advertising expenditures.”

Sports Events. As Red Bull built relationships through ath- letes and teams, it wasn’t long before it began sponsoring

events. Today, Red Bull has its name on dozens of major annual

events, including the Red Bull U.S. Grand Prix (MotoGP), Red

Bull Wake Open (wake boarding), Red Bull Rampage (moun-

tain biking), and Red Bull Sharpshooters (basketball). With such

event sponsorships, Red Bull has more than once invented an

entirely new sport.

Consider Red Bull Crashed Ice, a world tour winter extreme

sport. It’s similar to ski cross or snowboard cross—only with

skates, on ice. In this sport, some of the toughest ice hockey

players in the world jockey for position at speeds of up to 40

miles per hour. But the real catch is that the race takes place in a

500-meter ice canal filled with bumps, jumps, berms, and other

obstacles. The cameras capture all the action as competitors

race past screaming fans and Red Bull banners.

Music and Entertainment. Recognizing that its target cus- tomers weren’t “all sports all the time,” Red Bull extended its

strategy for endorsements and events to the world of music and

entertainment. With its penchant for sniffing out the unique, Red

Bull sponsors artists, teams, and events in dance, music, film,

video games, and other creative media. Red Bull Flying Bach is a

performance troupe that wraps breakdancing around the music

of Bach. The Red Bull Canvas Cooler is a nationwide invitational

competition for top artists to redesign the iconic Red Bull cooler.

And Red Bull Common Thread is a new concept on the concert

circuit—back-to-back performances by bands that shared mem-

bers at different points in their evolution.

Programming. As the producer of such TV programs as No Limits on ESPN and such films as That’s It, That’s All, Red Bull is

not new to media production. But in perhaps its most ambitious

undertaking yet, Red Bull has created Red Bull Media House—

“the centre of the global Red Bull media network” and “your gate-

way into the World of Red Bull.” The network spans TV, print,

mobile, digital, and music. With this move, Red Bull has defined

itself as a major multimedia content provider.

As just one example of how extensive this network is, consider

the music arm of Red Bull Media House. Nothing short of a com-

plete music division, it includes Red Bull Publishing (a hub for all

music and audio generated in the Red Bull Media House), Red

Bull Records (its own music label), and Red Bull Radio Services

(an Internet-based radio network and original shows). Through

this music media network, Red Bull puts its brand at the center

of a cooperative of companies, brands, and artists, encouraging

them to take part in Red Bull’s resources.

Multiplying this across the other major media in the Red Bull

Media House network, it’s clear that Mateschitz sees Red Bull not

as a beverage brand, but as a global lifestyle brand with boundar-

ies that have not yet been reached. He calls the recent multimedia

assault “our most important line extension so far,” with the goal

to “communicate and distribute the ‘World of Red Bull’ in all ma-

jor media segments.” As with all the other promotional ventures,

Mateschitz hopes Red Bull Media House will turn a profit. But as

with his sport teams, he’s willing to be patient and bank on the

promotional value of these activities.

452 Part 3 | Designing a Customer-Driven Strategy and Mix Doing It All for Customers Felix Baumgartner’s successful jump from 17 miles up was only

a dry run. When he made the real jump later in the year, it was

from the stratosphere, 23 miles above sea level. In the process,

he broke four world records: the highest manned balloon flight,

the highest skydive, the longest freefall, and the first parachutist

to break the sound barrier. He also tested the next-generation

space suit to be worn by astronauts. And the Red Bull brand

was plastered all over the entire event. But more than promotional

coverage, this feat served the same purpose that all other Red

Bull promotions serve—to forge deep relationships with custom-

ers through emotional experiences.

From its unlikely origins, Red Bull has grown into a massive en-

terprise. Last year, the company sold 4.2 billion cans of the drink

with revenues of more than $5 billion, a 16 percent increase over the

year before. As Red Bull’s growth continues, Mateschitz has no in-

tention of slowing down. In fact, he confesses, he has always been

attracted to the idea of creating an independent nation state—the

country of Red Bull. “The rules would be simple. Nobody tells you

what you have to do—only what you don’t have to do.”

Questions for Discussion 1. List all the ways that Red Bull’s promotional efforts are unique

from those of the mainstream.

2. Which promotional mix elements does Red Bull use? What grade would you give Red Bull on integrating these elements

into a core marketing communications campaign?

3. Will Red Bull eventually need to embrace more traditional me- dia marketing techniques in order to keep growing? Why or

why not?

4. Describe Red Bull’s target audience. Are Red Bull’s promo- tional techniques consistent with that audience?

5. At some point, will Red Bull have to branch out beyond its target market? Will it need to alter its promotional strategy in

order to do so?

Source: “Felix Baumgartner Prepares for Daredevil Freefall from 17 Miles,” Fox News, July 24, 2012, www.foxnews.com/scitech/2012/07/24/

final-test-jump-from-edge-space-set-for-tuesday/; “Red Bull’s Adrenaline

Marketing Mastermind Pushes into Media,” Business Week, May 19,

2011, www.bloomberg.com/news/print/2011-05-19/red-bull-s-adrena-

line-marketing-billionaire-mastermind.html; and other information found

at www.redbullusa.com and www.redbullmediahouse.com, accessed

August 2012.

References 1. “Tesco Spends a Whopping £132.1m in 2010, Its Highest Ever

Spend and £57.4m above the average,” the UK Top 100 Ad-

vertisers 2011, Brad Insight, www.bradtop100.co.uk/01-retail/

01-tesco-stores-ltd, accessed November 14, 2012; S. Kimberly,

“Tesco Appoints W & K to £110m Ad Account,” Campaign, July 20,

2012, www.campaignlive.co.uk/news/1142068/; Z. Wood, “Tesco

Advertising up for Grabs,” Guardian, April 11, 2012, www.guardian

.co.uk/business/2012/apr/11/tesco-advertising-up-for-grabs;

R. Baker, “Tesco Rolls out Ads for Everyday Value,” Marketing Week,

April 30, 2012, www.marketingweek.co.uk/news/tesco-rolls-out-

ads-for-everyday-value/4001402.article; “Wieden & Kennedy to Use

Tesco’s ‘Every little helps’ strapline,” Campaign, July 26, 2012, www

.campaignlive.co.uk/news/1142982/; L. Gibbons, “Tesco Appoints

Coca-Cola Boss as Social Media Manager,” November 13, 2012, www

.foodmanufacture.co.uk/People/Tesco-appoints-Coca-Cola-boss-

as-social-media-manager; and “Tesco Named Top UK Retailer on

Climate Change,” Tesco PLC News Release, October, 12, 2012,

www.tescoplc.com/index.asp?pageid=17&newsid=690, accessed

November 14, 2012.

2. For other definitions, see www.marketingpower.com/_layouts/ Dictionary.aspx, accessed November 2012.

3. See Martin Peers, “Television’s Fuzzy Ad Picture,” Wall Street Journal, May 10, 2011, p. C22; Lisa Waananen, “How Agencies Are Spending

Online Media Budgets,” Mashable.com, June 9, 2011, http://mashable

.com/2011/06/09/media-agency-budgets/; and “U.S. Online Ad

Spend to Close in on $40 Billion,” eMarketer, January 19, 2012,

www.emarketer.com/Article.aspx?id=1008783&R=1008783.

4. See Andrew Adam Newman, “Ketchup Moves Upmarket, with a Balsamic Tinge,” New York Times, October 25, 2011, p. B3; and

“Heinz Tomato Ketchup Blended with Balsamic Vinegar Satisfies

Fan Hunger as Newest Member of Heinz Ketchup’s Standard Line

Up,” Business Wire, May 1, 2012.

5. This example is based on information from Stuart Elliott, “Ad for Method Celebrate the Madness,” New York Times, March 12, 2012, p. B1.

6. “100 Leading National Advertisers,” Advertising Age, June 20, 2012, p. 10.

7. David Gelles, “Advertisers Rush to Master Fresh Set of Skills,” Fi- nancial Times, March 7, 2012, www.ft.com/intl/cms/s/0/8383bbae-

5e20-11e1-b1e9-00144feabdc0.html#axzz1xUrmM3KK; “Online

Ad Spend to Overtake TV by 2016,” Forbes, August 26, 2011,

www.forbes.com/sites/roberthof/2011/08/26/online-ad-spend-

to-overtake-tv/; and “U.S. Online Ad Spend to Close in on $40 Bil-

lion,” eMarketer, January 19, 2012, www.emarketer.com/Article

.aspx?id=1008783&R=1008783.

8. See Jon Lafayette, “4A’s Conference: Agencies Urged to Embrace New Technologies,” Broadcasting & Cable, March 8, 2011, www

.broadcastingcable.com/article/464951-4A_s_Conference_

Agencies_Urged_To_Embrace_New_Technologies.php; and Gelles,

“Advertisers Rush to Master Fresh Set of Skills,” Financial Times,

March 7, 2012, www.ft.com/intl/cms/s/0/8383bbae-5e20-11e1-

b1e9-00144feabdc0.html#axzz1xUrmM3KK.

9. See “Integrated Campaigns: Häagen-Dazs,” Communication Arts Advertising Annual 2009, pp. 158–159; Tiffany Meyers, “Marketing

50: Häagen-Dazs, Katty Pien,” Advertising Age, November 17, 2008,

p. S15; “Häagen-Dazs Loves Honey Bees,” April 28, 2010, a sum-

mary video accessed at http://limeshot.com/2010/haagen-dazs-

loves-honey-bees-titanium-silver-lion-cannes-2009; Alan Bjerga,

“U.S. Queen Bees Work Overtime to Save Hives,” Bloomberg Busi-

nessweek, April 3, 2011, pp. 27–28; and information from www

.helpthehoneybees.com, accessed October 2012.

10. See Stuart Elliott, “A Product to Add Sparkle and Pop to Laundry Day,” New York Times, February 15, 2012, p. B3.

11. Jonah Bloom, “The Truth Is: Consumers Trust Fellow Buyers Be- fore Marketers,” Advertising Age, February 13, 2006, p. 25; and

“Jack Morton Publishes New Realities 2012 Research,” press

release, January 26, 2012, www.jackmorton.com/news/article.

aspx?itemID=106.

12. See Jack Neff, “P&G’s Buzz-Building Networks Thrive in Age of So- cial Networks,” Advertising Age, October 10, 2011, p. 19; and www

.vocalpoint.com//index.html and www.tremor.com/Revealing-Case-

Studies/Bounce-Dryer-Bar/, accessed November 2012.

13. See Lacey Rose, “The 10 Most Trusted Celebrities,” Forbes, Feb- ruary 8, 2011, accessed at www.forbes.com/2011/02/07/most-

trustworthy-celebrities-business-entertainment.html; and Noreen

O’Leary “Ad of the Day: Burger King,” Adweek, April 3, 2012, www

.adweek.com/print/139384.

14. T. L. Stanley, “Dancing with the Stars,” Brandweek, March 8, 2010, pp. 10–12. Also see Pam Garfield, “The Very Public Risks of Celebrity

Chapter 14 | Communicating Customer Value: Integrated Marketing Communications Strategy 453 Endorsements,” Medial Marketing & Media, March 1, 2012, www

.mmm-online.com/the-very-public-risks-of-celebrity-endorsements/

article/229009/; and Mo Moumenine, “Using Celebrity Endorsement

in Social Media, IncresaseRSS, February 17, 2012, http://increas-

erss.com/using-celebrity-endorsement-in-social-media/.

15. For more on advertising spending by company and industry, see “Datacenter: Advertising Sepnding,” Advertising Age, June 28,

2012, http://adage.com/article/ 106575/.

16. For more on setting promotion budgets, see W. Ronald Lane, Karen Whitehill King, and J. Thomas Russell, Kleppner’s Advertising Proce-

dure, 18th ed. (Upper Saddle River, NJ: Prentice Hall, 2011), chapter 6.

17. See Christopher S. Stewart, “Super Bowl Viewers Set Record,” Wall Street Journal, February 6, 2012; Lisa de Moraes, “Oscar 2012

Ratings: About 39 Million Viewers,” Washington Post, February

27, 2012; and Verne Gray, “American Idol: 21.6 Million Viewers,”

Newsday, January 19, 2012, www.newsday.com/entertainment/tv/

tv-zone-1.811968/american-idol-21-6-million-viewers-1.3464121.

18. See discussions at “The Costs of Personal Selling,” April 13, 2011, www.seekarticle.com/business-sales/personal-selling.html; and

“What Is the Real Cost of a B2B Sales Call?” www.marketing-

playbook.com/sales-marketing-strategy/what-is-the-real-cost-of-a-

b2b-sales-call, October 2012.

19. Jack Neff, “Unilever Cuts Agency, Production Spending as Ad Costs Rise,” Advertising Age, February 2, 2012, http://adage.com/

article//232485/.

20. See “New Ads Promote Tourism along the Gulf Coast,” http://www .bp.com/sectiongenericarticle.do?categoryId=9039335&conten

tId=7072076; “Restoring the Economy: Promoting Tourism along

the Gulf Coast,” Gulf of Mexico Restoration, p. 7, http://bp.com/

gulfofmexico, accessed November 2012.1

Not long ago, big auto insurance companies spent modestly

on sleepy ad campaigns featuring touchy-feely, reassuring mes-

sages such as Allstate’s “You’re in good hands,” or State Farm’s

“like a good neighbor.” In an industry characterized by low

budgets and even lower-key ads, no brand’s marketing stood

out. However, the serenity ended with the first appearance of

the now-iconic GEICO Gecko in 2000, backed by a big budget

and pitching direct sales and low prices. Since then, insurance

industry ad spending and creativity have escalated into a full-

scale advertising war. In just the past decade, the amount spent

on auto insurance advertising has more than doubled. And the

once-conservative car insurance ads have now become creative

showstoppers, as edgy and creative as those you’d find in any

industry. Here are a few highlights:

Part 1: Defining Marketing and the Marketing Process (Chapters 1–2)

Part 2: Understanding the Marketplace and Consumers (Chapters 3–6)

Part 3: Designing a Customer-Driven Strategy and Mix (Chapters 7–17)

Part 4: Extending Marketing (Chapters 18–20)

Advertising and Public Relations15

Chapter Preview After an analysis of overall IMC

planning, we dig more deeply

into the specific marketing communications tools. In this chapter,

we explore advertising and public relations (PR). Advertising in-

volves communicating the company’s or brand’s value proposition

by using paid media to inform, persuade, and remind consumers.

PR involves building good relations with various company publics—

from consumers and the general public to the media, investor, do-

nor, and government publics. As with all the promotion mix tools,

advertising and PR must be blended into the overall IMC program.

In Chapters 16 and 17, we will discuss the remaining promotion

mix tools: personal selling, sales promotion, and direct marketing.

Let’s start with the question: Does advertising really make

a difference? Auto insurance companies certainly must think

so. Market leader State Farm spends more than $800 million a

year on advertising and number two Allstate spends more than

$500 million a year; number three GEICO runs up a whop-

ping $1 billion annual advertising bill. Combined, auto insur-

ers now spend more than $4 billion every year getting their

messages out. All that spending—plus ever-more-creative ad

campaigns—has created an auto insurance advertising war. To

stay in the fight, Allstate has created its own brand of advertis-

ing mayhem.

Allstate: Bringing Mayhem to the Auto Insurance Advertising Wars

I n its current advertising campaign, Allstate Insurance

brings mayhem to life—literally. Played by actor Dean

Winters, the creepy Mayhem character portrays all of the

unlikely events that can lead to a major auto insurance

claim. As a deer, he jumps into the path of a moving car at night,

“because that’s what we deer do.” As a torrential downpour, he

loves leaky sunroofs. As a malfunctioning GPS, he sends a driver

swerving into another car. As snow, he weighs down the roof of

a garage until it collapses, smashing the car within. Each quirky

ad ends with the statement and question, “If you have cut-rate

insurance, you could be paying for this yourself. Are you in good

hands?”

Through clever ads like these, Allstate’s creative and

award-winning “Mayhem. It’s Everywhere.” campaign has

put a contemporary, attention-grabbing twist on the company’s

long-standing “You’re in good hands with Allstate” slogan,

helping to position the brand as a superior al-

ternative to price-oriented competitors.

But why was this unconventional

campaign necessary? As it turns

out, mayhem doesn’t just describe

the Allstate campaign—it charac-

terizes the entire world of auto insur-

ance advertising over the past decade.

When Allstate’s competitors boosted both their advertising budgets and creative splash, the

company needed its own over-the-top advertising campaign and spokesperson. So it created mayhem—literally.

Chapter 15 | Advertising and Public Relations 455

running. The brand needed its

ing

“Mayhem. It’s Everywhere.”

Allstate Insurance Company

GEICO:

Progressive:

State Farm:

budget.

456 Part 3 |

As we

advertising and public relations.

Objective Outline

Objective 1

(pp 456–457)

Objective 2

(pp 457–458)

(p 459)

(pp 459–469)

(p 469)

(pp 470–471)

Objective 3

(p 472)

(pp 472–473)

Objective 4

(pp 473–475)

Objective 1

Chapter 15 | Advertising and Public Relations 457

setting advertising objectives, setting the advertising budget, developing advertising strategy (message decisions and media decisions), and evaluating advertising campaigns.

advertising objectives

task target time

inform persuade remind.

Informative advertising

uct. Persuasive advertising

its

comparative advertising attack advertis ing

Objective 2

task to be

target

time

Don’t forget—advertising is only part of a broader set of marketing and company decisions. Its job is to help communicate the brand’s value proposition to target customers. Advertising must blend well with other promotion and marketing mix decisions.

FIGU | 15.1

458 Part 3 |

Reminder advertising

the short run.

brand.

Table 15.1 | Possible Advertising Objectives

Informative Advertising

Communicating customer value

Persuasive Advertising

Persuading customers to receive a sales call

Reminder Advertising

Associated Press/Charlie Neibergall

Chapter 15 | Advertising and Public Relations 459

when setting the advertising budget.

stage in the product life cycle.

Market share

advertising messages mediaUsed with permission of Audi of America

460 Part 3 |

Breaking Through the Clutter.

American Idol Sunday Night Football Modern Family

are choosing not

advertising messages and selecting

Chapter 15 | Advertising and Public Relations 461 Merging Advertising and Entertainment.

“

advertainment want

improve good

For

views on YouTube.

Branded entertainment brand integrations

on Grey’s Anatomy Morning Joe

Big Bang Theory

The Middle Modern Family

Transformers: Dark of the Moon

Call of Duty: Modern Warfare 3

Always Open

462 Part 3 | Designing a Customer-Driven Strategy and Mix diner is always open” positioning theme), now in its second season. Designed to appeal to

18- to 25-year-olds, the edgy Web series features comedian David Koechner, who engages

guest celebrities in unscripted, anything-goes conversations filmed at a working Denny’s

restaurant. While the show’s content is not blatantly commercial, the host and guest eat

Denny’s food during each three-minute video episode, and Denny’s name appears promi-

nently in the credits. Shown on outlets such as CollegeHumor.com and Denny’s Facebook

page, the first season drew more than 6 million views.13

So, Madison & Vine is now the meeting place for the advertising and entertainment

industries. The goal is for brand messages to become a part of the entertainment rather than

interrupting it. As advertising agency JWT puts it, “We believe advertising needs to stop

interrupting what people are interested in and be what people are interested in.” However, advertisers must be careful that the new intersection itself doesn’t become too congested.

With all the new ad formats and product placements, Madison & Vine threatens to create

even more of the very clutter that it was designed to break through. At that point, consum-

ers might decide to take yet a different route.

Message Strategy. The first step in creating effective advertising messages is to plan a message strategy —the general message that will be communicated to consumers. The pur- pose of advertising is to get consumers to think about or react to the product or company

in a certain way. People will react only if they believe they will benefit from doing so. Thus,

developing an effective message strategy begins with identifying customer benefits that can be used as advertising appeals. Ideally, the message strategy will follow directly from the

company’s broader positioning and customer value creation strategies.

Message strategy statements tend to be plain, straightforward outlines of benefits

and positioning points that the advertiser wants to stress. The advertiser must next de-

velop a compelling creative concept—or big idea—that will bring the message strategy to life in a distinctive and memorable way. At this stage, simple message ideas become

great ad campaigns. Usually, a copywriter and an art director will team up to generate

many creative concepts, hoping that one of these concepts will turn out to be the big idea.

The creative concept may emerge as a visualization, a phrase, or a combination of the two.

The creative concept will guide the choice of specific appeals to be used in an advertis-

ing campaign. Advertising appeals should have three characteristics. First, they should be meaningful, pointing out benefits that make the product more desirable or interesting to consumers. Second, appeals must be believable. Consumers must believe that the product or service will deliver the promised benefits.

However, the most meaningful and believable benefits may not be the best ones to

feature. Appeals should also be distinctive. They should tell how the product is better than competing brands. For example, the most meaningful benefit of owning a wristwatch is

that it keeps accurate time, yet few watch ads feature this benefit. Instead, based on the

distinctive benefits they offer, watch advertisers might select any of a number of advertis-

ing themes. For years, Timex has been the affordable watch that “takes a licking and keeps

on ticking.” Similarly, Rolex ads never talk about keeping time. Instead, they talk about the

brand’s “obsession with perfection” and the fact that “Rolex has been the preeminent sym-

bol of performance and prestige for more than a century.”

Message Execution. The advertiser now must turn the big idea into an actual ad execu- tion that will capture the target market’s attention and interest. The creative team must find

the best approach, style, tone, words, and format for executing the message. The message

can be presented in various execution styles, such as the following:

Slice of life: This style shows one or more “typical” people using the product in a normal setting. For example, a Silk Soymilk “Rise and Shine” ad shows a young professional

starting the day with a healthier breakfast and high hopes.

Lifestyle: This style shows how a product fits in with a particular lifestyle. For example, an ad for Athleta active wear shows a woman in a complex yoga pose and states: “If

your body is your temple, build it one piece at a time.”

Fantasy: This style creates a fantasy around the product or its use. For example, recent IKEA ads show consumers creating fanciful room designs with IKEA furniture, such as

“a bedroom for a queen made by Bree and her sister, designed by IKEA.”

Mood or image: This style builds a mood or image around the product or service, such as beauty, love, intrigue, or serenity. Few claims are made about the product or service

Creative concept

The compelling “big idea” that will bring

an advertising message strategy to life in

a distinctive and memorable way.

Execution style

The approach, style, tone, words, and

format used for executing an advertising

message.

Chapter 15 | Advertising and Public Relations 463

Musical:

Glee

Personality symbol:

Technical expertise:

Scientific evidence:

Testimonial evidence or endorsement:

tone

words

format

illustration headline

the copy together

Taking advantage

464 Part 3 |

generated

Real Chipsy Egypt: Advertising

Chapter 15 | Advertising and Public Relations 465

community Etsy.com—“Your best place to buy and sell all things handmade”—ran a contest

inviting consumers to tell the Etsy.com story in 30-second videos. The results were what one

well-known former advertising critic called “positively remarkable”:14

The 10 semifinalists ads are better conceived and developed than any 10 randomly selected com-

mercials that you’ll find anywhere in the world, says the critic. The best user-created Etsy ad

features a simple, sad, animated robot, consigned to a life of soul-crushing assembly-line produc-

tion. “See, there’s a lot of robots out there,” says the voice of the unseen Etsy craftswomen who

crafted him. “A lot of these robots are sad because they’re stuck making these boring, mass-pro-

duced things. Me, I really can believe all that great stuff about how it helps the environment and

microeconomics and feeling special about getting something handmade by someone else. But the

real reason I make handmade goods is because every time somebody buys something handmade,

a robot gets its wings.” The user-made ad received rave reviews. It “is simply magnificent,” con-

cludes the ad critic, “in a way that the agency business had better take note of.”

Not all consumer-generated advertising efforts, however, are so successful. As many big

companies have learned, ads made by amateurs can be . . . well, pretty amateurish. If done

well, however, consumer-generated advertising efforts can produce new creative ideas and

fresh perspectives on the brand from consumers who actually experience it. Such campaigns

can boost consumer involvement and get consumers talking and thinking about a brand and

its value to them. “For those willing to give up control and trust the wisdom of the crowd,”

says one analyst, “collaboration on . . . marketing campaigns can bear amazing results.”15

Selecting Advertising Media The major steps in advertising media selection are (1) determining reach, frequency, and impact; (2) choosing among major media types; (3) selecting specific media vehicles; and (4) choosing media timing.

Determining Reach, Frequency, and Impact. To select media, the advertiser must deter- mine the reach and frequency needed to achieve the advertising objectives. Reach is a measure of the percentage of people in the target market who are exposed to the ad campaign during

Advertising media

The vehicles through which advertising

messages are delivered to their intended

audiences.

guaranteed mass exposure for the new chip

flavor. The “Do Us A Flavor” campaign proved

to be a huge success for Chipsy. The new

shrimp flavor is now available across Egypt in

supermarkets and grocery stores. The cam-

paign allowed Chipsy to open a new dialogue

with its consumers and has been incredibly

successful at engaging consumers and giving

them an ownership stake in the brand. How-

ever, it is worth noting that Chipsy decided to

use larger packaging when launching the new

shrimp flavor, which perhaps reflects the fact

that it appears to be more popular amongst

higher earning consumers. There are down-

sides to consumer-generated ads, of course.

Although it might seem “free,” the process

of wading through hundreds or even thou-

sands of entries can be difficult, costly, and

time consuming. In dealing with user-created

content, copyright issues, poor production

quality, offensive themes, and even attacks

on the brand are all par for the course. And

in the end, you never know what you’re go-

ing to get. Many advertising experts write off

consumer-generated efforts as mostly ama-

teurish, crudely produced, and ineffective. But

when it’s done well, it can be very good. It can

complement the efforts made by marketing

professionals to engage and involve consum-

ers. Consumer-generated content really can

work, and in Chipsy’s case it did!

Sources: Based on information from Haddad, F., The Future of Marketing Communications, 1st Edition, 2010, Brit-

ish University in Egypt: The Future Series Publications 2010; “Our mission and Vision,” PepsiCo.com Web site, www

.pepsico.com/Company/Our-Mission-and-Vision.html, accessed December 27, 2009; Roic, K., “New Chip off the Block,”

www.businesstodayegypt.com/article.aspx?ArticleID_6396, accessed December 27, 2009; “Tasty Chipsy Merger Takes

Place,” Middle East Economic Digest, January 19, 2001, www.highbeam.com/doc/1G1-71768618.html.

466 Part 3 |

Frequency times

media impact tive value

Newsweek National Enquirer

and

engage

media engagement

consumer impressions

tracks the consumer expressions

Choosing among Major Media Types.

Dirty Jobs

Chapter 15 | Advertising and Public Relations 467

nar rowcasting

alternative media

Table 15.2 | Profi les of Major Media Types

Medium Advantages Limitations

Television

audience

Direct mail

Radio

468 Part 3 |

media multi taskers

Selecting Specific Media Vehicles.

30 Rock and ABC World News Tonight Newsweek Real Simple ESPN The Magazine and YouTube.

Newsweek Newsweek’s

Bloomberg BusinessWeek’s

BusinessWeek

Parents Maxim

Vogue Newsweek

Caribou Coffee

Chapter 15 | Advertising and Public Relations 469 should assess the vehicle’s editorial quality. Time and the Wall Street Journal are more believ- able and prestigious than Star or the National Enquirer.

Deciding on Media Timing. An advertiser must also decide how to schedule the adver- tising over the course of a year. Suppose sales of a product peak in December and drop in

March (for winter outdoor gear, for instance). The firm can vary its advertising to follow the

seasonal pattern, oppose the seasonal pattern, or be the same all year. Most firms do some

seasonal advertising. For example, Mars currently runs M&M’s special ads for almost every

holiday and “season,” from Easter, Fourth of July, and Halloween to the Super Bowl season

and the Oscar season. The Picture People, the national chain of portrait studios, advertises

more heavily before major holidays, such as Christmas, Easter, Valentine’s Day, and Hal-

loween. Some marketers do only seasonal advertising: For instance, P&G advertises its Vicks NyQuil only during the cold and flu season.

Finally, the advertiser must choose the pattern of the ads. Continuity means scheduling ads evenly within a given period. Pulsing means scheduling ads unevenly over a given time period. Thus, 52 ads could either be scheduled at one per week during the year or pulsed

in several bursts. The idea behind pulsing is to advertise heavily for a short period to build

awareness that carries over to the next advertising period. Those who favor pulsing feel

that it can be used to achieve the same impact as a steady schedule but at a much lower cost.

However, some media planners believe that although pulsing achieves minimal awareness,

it sacrifices depth of advertising communications.

Evaluating Advertising Effectiveness and the Return on Advertising Investment Measuring advertising effectiveness and the return on advertising investment has be-

come a hot issue for most companies, especially in a challenging economic environment.

Even in a recovering economy with marketing budgets again on the rise, like consumers,

advertisers are still pinching their pennies and spending conservatively.22 That leaves top

management at many companies asking their marketing managers, “How do we know

that we’re spending the right amount on advertising?” and “What return are we getting

on our advertising investment?”

Advertisers should regularly evaluate two types of advertising results: the commu-

nication effects and the sales and profit effects. Measuring the communication effects of an ad or ad campaign tells whether the ads and media are communicating the ad message

well. Individual ads can be tested before or after they are run. Before an ad is placed, the

advertiser can show it to consumers, ask how they like it, and measure message recall or

attitude changes resulting from it. After an ad is run, the advertiser can measure how the

ad affected consumer recall or product awareness, knowledge, and preference. Pre- and

postevaluations of communication effects can be made for entire advertising campaigns

as well.

Advertisers have gotten pretty good at measuring the communication effects of their

ads and ad campaigns. However, sales and profit effects of advertising are often much harder to measure. For example, what sales and profits are produced by an ad campaign that in-

creases brand awareness by 20 percent and brand preference by 10 percent? Sales and profits

are affected by many factors other than advertising—such as product features, price, and

availability.

One way to measure the sales and profit effects of advertising is to compare past

sales and profits with past advertising expenditures. Another way is through experi-

ments. For example, to test the effects of different advertising spending levels, Coca-

Cola could vary the amount it spends on advertising in different market areas and

measure the differences in the resulting sales and profit levels. More complex experi-

ments could be designed to include other variables, such as differences in the ads or

media used.

However, because so many factors affect advertising effectiveness, some controllable

and others not, measuring the results of advertising spending remains an inexact science.

Managers often must rely on large doses of judgment along with quantitative analysis

when assessing advertising performance.

Return on advertising investment

The net return on advertising investment

divided by the costs of the advertising

investment.

470 Part 3 |

use advertising agencies.

Chapter 15 | Advertising and Public Relations 471

strategies programs

the words the best

472 Part 3 |

Press relations or press agency:

Product publicity: Public affairs: Lobbying:

Investor relations:

Development:

Objective 3

Chapter 15 | Advertising and Public Relations 473 media and have the same effect as advertising that would cost millions of dollars. What’s

more, public relations has the power to engage consumers and make them a part of the

brand story and its telling (see Real Marketing 15.2).

PR results can sometimes be spectacular. Consider the launches of Apple’s iPad and

iPad 2:26

Apple’s iPad was one of the most successful new-product launches in history. The funny thing:

Whereas most big product launches are accompanied by huge prelaunch advertising cam-

paigns, Apple pulled this one off with no advertising. None at all. Instead, it simply fed the PR

fire. It built buzz months in advance by distributing iPads for early reviews, feeding the offline

and online press with tempting tidbits, and offering fans an early online peek at thousands of

new iPad apps that would be available. At launch time, it fanned the flames with a cameo on

the TV sitcom Modern Family, a flurry of launch-day appearances on TV talk shows, and other launch-day events. In the process, through PR alone, the iPad launch generated unbounded

consumer excitement, a media frenzy, and long lines outside retail stores on launch day. Apple

sold more than 300,000 of the sleek gadgets on the first day alone and more than two million

in the first two months—even as demand outstripped supply. Apple repeated the feat a year

later with the equally successful launch of iPad 2, which sold close to one million devices the

weekend of its launch.

Despite its potential strengths, public relations is occasionally described as a marketing

stepchild because of its sometimes limited and scattered use. The PR department is often

located at corporate headquarters or handled by a third-party agency. Its staff is so busy

dealing with various publics—stockholders, employees, legislators, and the press—that PR

programs to support product marketing objectives may be ignored. Moreover, marketing

managers and PR practitioners do not always speak the same language. Whereas many PR

practitioners see their jobs as simply communicating, marketing managers tend to be much

more interested in how advertising and PR affect brand building, sales and profits, and

customer involvement and relationships.

This situation is changing, however. Although public relations still captures only a

small portion of the overall marketing budgets of most firms, PR can be a powerful brand-

building tool. And in this digital age, the lines between advertising and PR are becoming

more and more blurred. For example, are brand Web sites, blogs, online social networks,

and viral brand videos advertising efforts or PR efforts? All are both. The point is that PR

should work hand in hand with advertising within an integrated marketing communica-

tions program to help build brands and customer relationships.

Major Public Relations Tools Public relations uses several tools. One of the major tools is news. PR professionals find or create favorable news about the company and its products or people. Sometimes news sto-

ries occur naturally; sometimes the PR person can suggest events or activities that would

create news. Another common PR tool is special events, ranging from news conferences and speeches, press tours, grand openings, and fireworks displays to laser light shows, hot air

balloon releases, multimedia presentations, or educational programs designed to reach and

interest target publics.

Public relations people also prepare written materials to reach and influence their target markets. These materials include annual reports, brochures, articles, and company news-

letters and magazines. Audiovisual materials, such as DVDs and online videos, are being used increasingly as communication tools. Corporate identity materials can also help create a corporate identity that the public immediately recognizes. Logos, stationery, brochures,

signs, business forms, business cards, buildings, uniforms, and company cars and trucks

all become marketing tools when they are attractive, distinctive, and memorable. Finally,

companies can improve public goodwill by contributing money and time to public service activities.

As previously discussed, the Web is also an important PR channel. Web sites, blogs,

and social networks such as YouTube, Facebook, Pinterest, and Twitter are providing new

ways to reach and engage people. “The core strengths of public relations—the ability to tell

a story and spark conversation—play well into the nature of such social media,” says a PR

expert. Consider the recent Wrangler NextBlue PR campaign:28

Wrangler wanted to reach out beyond its core consumers—to a young, metropolitan mindset. But

rather than using ads or standard PR approaches, it created NextBlue, an online project giving

Objective 4 Explain how companies use

PR to communicate with their

publics.

474 Part 3 |

To the Arctic 3D

Real

Chapter 15 | Advertising and Public Relations 475

Sources: Adweek

vertising Age

Advertising Age

Forbes

advertising and PR

(pp 456–457)

Advertising—

PR—

—

Reviewing Objectives and Key Terms

Objective 1

476 Part 3 |

Objective 2

Objective 3

Objective 4

Objective 1 Advertising (p 456)

Objective 2 Advertising objective (p 457)

Advertising budget (p 459)

Advertising strategy (p 459)

Madison & Vine (p 461)

Creative concept (p 462)

Execution style (p 462)

Advertising media (p 465)

Return on advertising investment (p 469)

Advertising agency (p 470)

Objective 3 Public relations (PR) (p 472)

Discussion and Critical Thinking

Discussion Questions

(pp 457–471)

Advertising decision making

objectives

budget

advertising messages and selecting advertising media mes

sage decision

Madison & Vine

media decision

evaluation

organizing

(pp 472–473)

PR—

—

(pp 473–475)

news speeches

special events. written audiovisual corpo

rate identity materials public ser

vice activities

Chapter 15 | Advertising and Public Relations 477

Critical Thinking Exercise

1. The Public Relations Society of America (PRSA) awards the best public relations campaigns with Silver Anvil Awards. Visit

www.prsa.org/Awards/Search and review several case reports

of previous winners. What does the field of public relations

seem to encompass? Write a report on one of the award win-

ners focusing on marketing-related activities. (AACSB: Com-

munication; Use of IT; Reflective Thinking)

Applications and Cases

Marketing Technology Twitter—Media Friend or Foe? Visit any media outlet’s Internet site and you’ll see the familiar

Facebook and Twitter icons. Traditional news media have mi-

grated to online versions and beyond through social media. But

social media have become a major source of news for many

people. Sixty percent of respondents in one study indicated

Facebook as a source of news, and 20 percent used Twitter

to learn what’s happening in the world. Twitter might have a

growing advantage because of the nature of short tweets and

how quickly they spread. Most news outlets have a presence

on Twitter, promoting their content and directing audiences to

their online sites. But Twitter has found a way to make money

through advertising and is hiring editorial personnel to produce

and manage content. It appears that Twitter is moving away

from being just a media platform to becoming a media entity,

which concerns traditional media outlets. Twitter has been a

partner with traditional media, but now it appears to be moving

in the direction of being a competitor. Twitter’s NASCAR and

Olympics Hub editorial offerings were just the beginning. Part

of Twitter’s success is due to the relationships it has fostered

with these outlets, but now Twitter is building a digital-media

business on content provided by its media partners as well

as eye-witness input from people located where the news is

happening.

1. Explain how Twitter makes money through advertising. Find examples of companies using Twitter as a promotional tool.

(AACSB: Communication; Reflective Thinking)

2. How does social media advertising spending compare to traditional mass-media advertising spending? How likely is it

that Twitter can become a media entity rather than just a me-

dia platform, and what are the implications for advertisers?

(AACSB: Communication; Reflective Thinking)

Marketing Ethics Don’t Say That! If you like a restaurant . . . Yelp about it! If you don’t . . . Yelp

about it! Yelp is an online guide that posts customers’ reviews of

local businesses such as restaurants, spas, and even doctors.

Businesses are rated based on the reviews posted about them,

with 5 stars being the best. Although almost 60 percent are 4- or

5-star reviews, the remaining reviews are less positive. Bad re-

views can be the kiss-of-death for a small business. Businesses

do not put this information on the Yelp site—others do. This is

creating a problem for many businesses. Some customers de-

mand something in return for posting a positive review, or worse,

for not posting a negative review. One restaurant owner claimed

a customer threatened to post a “scathing” review after allegedly

getting food poisoning from eating at the restaurant unless he re-

ceived a $100 gift card. This is not much different than the unethi-

cal customers who put glass shards or a dead cockroach on their

plates and demand their meal for free (conveniently when they’ve

almost finished the dish). Most restaurants capitulate to avoid a

scene. But a negative Yelp or other online review is more omi-

nous, with “word-of-mouse” having such far-reaching and lasting

consequences. Some medical professionals have gone so far as

to require new patients to sign anti-defamation contracts called

“medical gag-orders” before receiving treatment. These waivers

attempt to prevent patients from posting negative reviews online

and often include signing over copyrights of any reviews posted

in an attempt to gain leverage in removing any negative content

from rating sites. Some sites, such as Angie’s List, flag physi-

cians requiring such waivers, and one state—Michigan—has in-

troduced a bill deeming such waivers illegal.

1. Visit Yelp and other sites such as Angie’s List, RateMDs.com, and Rate My Professor. Are reviewers limited in any way re-

garding what they can say on such sites? Should they be lim-

ited? (AACSB: Communication; Ethical Reasoning; Reflective

Thinking)

2. Discuss the arguments for and against doctors’ rights to re- quire medical gag-orders. Recommend how doctors should

handle this situation. (AACSB: Communication; Ethical Rea-

soning; Reflective Thinking)

478 Part 3 | Designing a Customer-Driven Strategy and Mix

Marketing by the Numbers C3, CPM, and CPP Nielsen ratings are very important to both advertisers and televi-

sion programmers because the cost of television advertising time

is based on these ratings. A show’s rating is the number of house-

holds in Nielsen’s sample that are tuned to that show divided by

the number of television-owning households—115 million in the

United States. One rating point represents 1 percent of the TV

market, so one point equals 1.15 million households. Nielsen’s

TV ratings are referred to as C3 and measure viewers who watch

commercials live or watch recorded commercials up to three days

later. A common measure of advertising efficiency is cost per thou-

sand (CPM), which is the ad cost per thousand potential audience

contacts. Advertisers also assess the cost per rating point by di-

viding the ad cost by the rating. These numbers are used to as-

sess the efficiency of a media buy. Use the following average price

and rating information, which was used to pre-sell advertising for

the 2012–2013 television season, to answer the questions.

Program Cost per 0:30 spot C3 Rating

Sunday Night Football $425,000 11.8

American Idol $475,000 9.0

Grey’s Anatomy $225,000 5.3

Two and a Half Men $215,000 6.0

The Vampire Diaries $ 75,000 1.2

1. How many households are expected to watch each program? (AACSB: Communication; Analytical Reasoning)

2. Calculate the cost per thousand (CPM) and cost per point (CPP) for each program. How should advertisers use these

measures when planning a television media buy? (AACSB:

Communication; Analytical Reasoning; Reflective Thinking)

Company Case The Super Bowl: More Than a Single Advertising Event

Every year around Super Bowl season, a debate heats up among

advertising professionals and media pundits. At the core is the

big question: Is Super Bowl Advertising worth the cost? Last year,

major advertisers plunked down an average of $3.5 million per

30-second spot—that’s $117,000 per second! And that’s just for

the airtime. Throw in ad production costs—which average $2 to

$3 million per showcase commercial—and running even a single

Super Bowl ad becomes a super-expensive proposition. Among

other points, the naysayers assert that with a cost so high there

is no reasonable hope for a return on the advertising investment.

But supporters of Super Bowl advertising have plenty of evi-

dence on their side. For starters, the big game is always the most-

watched television event of the year. Last year’s Super Bowl drew

more than 111.3 million viewers, breaking the previous Super

Bowl’s record for the most-watched program in history. In addi-

tion to sheer numbers of viewers, the Super Bowl stands alone

as the TV program during which the ads draw as much or more

viewership than the program itself. With that consideration, one

recent study asserted that for consumer packaged-goods firms,

the return on investment (ROI) for one Super Bowl ad is equivalent

to that of 250 regular TV ads.

Although there’s no easy answer to the question of the Super

Bowl’s value as an advertising venue, the debates of the past miss

a key issue that has evolved in the last few years. These days, the

Super Bowl is merely a gateway to something much bigger. Before

the game begins and long after it’s over, ad critics, media pun-

dits, and consumers are previewing and reviewing, speculating,

and rating the commercials. With this perspective, no longer do

advertisers create an ad that will run for one 30-second time slot.

They create a broader campaign that revolves around the Super

Bowl ad with strategies that include before-, during-, and after-

game tactics.

Before the Game For many years, advertisers have recognized the potential for water

cooler buzz about ads following the Super Bowl. As Internet video

became prevalent, the focus turned to creating an ad with the po-

tential to go viral. But in the last couple of years, social media and

mobile communications have changed the game once again. The

previous rule of thumb was to build anticipation for ads by keeping

them secret and unveiling them during the Super Bowl. Now, how-

ever, many advertisers try to generate excitement before the game

Video Case E*trade Super Bowl XXXIV, the first of the new millennium, was known

as the Dot-com Bowl because of the glut of Internet companies

that plopped down an average of $2.2 million per 30-second

spot ad. Today, most of the companies that defined the dot-com

glory days are gone. But one darling of the dot-com era, E*trade,

remains among the few survivors. Although E*trade has experi-

enced challenges since the turn of the century, it has also turned

profits. Advertising on the big game hasn’t worked out well for ev-

eryone. But for E*trade, Super Bowl ads have been part of a larger

advertising effort that played a role in its survival. Although E*trade

has altered its marketing mix strategies to adapt to changes in the

marketing environment, it has continued to invest in the Super

Bowl as an advertising medium. In this video segment, E*trade

reports on its advertising strategy as well as the advantages and

disadvantages of Super Bowl advertising.

After viewing the video featuring E*trade, answer the following

questions:

1. What has been the role of advertising at E*trade?

2. What factors have played a role in E*trade’s decision to adver- tise on the Super Bowl?

3. Analyze E*trade’s most recent Super Bowl ads. Is E*trade still getting its money’s worth from Super Bowl advertising?

Explain.

Chapter 15 | Advertising and Public Relations 479 airs by seeding information about the ad, releasing teaser ads, or

even making the ad available for viewing online—essentially start-

ing the water cooler conversation before the game.

Referring to this trend just prior to the 2012 Super Bowl, one

media buyer said, “This is the first Super Bowl where social media

has been an integral part of marketers’ plans,” suggesting that this

is happening because marketers realize “you can get more bang

for your buck.” This is no small trend. Almost half of the 55 ads

that aired during this year’s Super Bowl were viewable online in

one form or another prior to the date of the big game. “So many

people are launching commercials early to feed the beast,” says a

media analyst.

While ad previews were available for ads from all different types

of companies, this technique was especially popular with car

brands looking to stand out amid the clutter of the 11 Super Bowl

spots for automotive brands. This year, Chevrolet started months

before the Super Bowl in an effort to grab a piece of Doritos’ peren-

nial consumer-generated ad buzz. Much like Doritos’ annual “Crash

the Super Bowl” event, Chevy’s “Route 66” contest enticed entrants

with a cash prize and a spot for their ad during the Super Bowl. The

winning ad for the Chevy Camaro called “Happy Grad” was the first

to go online, 17 days before the game aired.

Kia Motors rolled out a preview that was also clearly strategic.

First, the company issued a press release describing its 60-second

Super Bowl ad called “Drive the Dream.” Then, nine days before the

game, Kia showed a 15-second teaser ad featuring super model

Adriana Lima waving a checkered flag in slow motion and the tag

line “See you Sunday” in 18,000 theaters nationwide. Six days later,

the full ad was shown in the same theaters, jam-packed with all the

over-the-top elements sure to please any Super Bowl viewer: “a

woman sprinkled with fairy dust, a man sprinkled with even more

fairy dust, a Fabio-like hunk, Mötley Crüe, Adriana Lima, UFC fighter

Chuck Liddell, champion bull rider Judd Leffew [on a giant rhino],

an ‘extreme dream sequence,’ thousands of bikini-clad fans, bursts

of flames and fireworks, a pair of lumberjacks sawing a massive

sandwich, and a Snow White Pearl Optima Limited.”

Did such pre-game buzz efforts pay off? Social media analyt-

ics company General Sentiment seems to think so. It has cre-

ated a metric it calls Impact Media Value—basically, a measure

of consumer impact and awareness that identifies which Super

Bowl advertisers are getting the most bang for their buck prior to

the game. According to General Sentiment, numerous advertis-

ers saw a powerful return on their investment in terms of both

increased social media mentions and real revenue dollars gener-

ated before the game even aired. Top performers included Kia,

Volkswagen, Honda, Coca-Cola, Doritos, Samsung, and first-

time Super Bowl advertiser Dannon.

During the Game In addition to pre-game festivities, companies are recognizing the

potential to increase the effectiveness of their Super Bowl ads by

engaging viewers during the game. The trend of “second-screen

viewing”—using a laptop or mobile device while watching TV—is

exploding. One recent Nielsen survey revealed that 88 percent of

tablet owners and 86 percent of smartphone owners had used

their mobile devices while watching television in a 30-day period,

numbers supported by Twitter activity during the 2012 Super Bowl.

Throughout the game, Twitter activity registered thousands of

tweets per second (TPS). The highest moments occurred at the

end of the Giants–Patriots game (12,223 TPS) and during Madon-

na’s half-time show (10,245 TPS)—rates that captured the number

two and number three spots on Twitter’s all-time highest activity list.

In addition to its pre-game efforts, Chevrolet set out to maxi-

mize engagement for the five ads it ran during the Super Bowl

with a first-of-its-kind app designed to be used during the game.

The app allowed viewers to play Super Bowl trivia, interact with

each other via Twitter, participate in polls, and possibly win one

of 20 Chevrolets or thousands of other prizes from the likes of

Bridgestone, Motorola, NFLShop.com, Papa Johns, and Sirius

XM Radio. “This is the first time any company has attempted such

a large-scale app, which will enhance the game watching expe-

rience and help them engage in the online conversation about

the Super Bowl,” said Joel Ewanick, global chief marketing officer

for General Motors. “This app takes that interactivity to a whole

new level on one of the biggest days for television viewing.” Some

725,000 people had downloaded the app by game time. This was

all part of GM’s overall goal: 1.5 billion brand impressions before,

during, and after the game.

But Chevrolet wasn’t the only marketer trying new techniques

to turn people’s attention toward their brand during the game.

Estimating that 60 percent of Super Bowl viewers would have a

mobile device during the broadcast, Coca-Cola ran a live, ani-

mated simulcast featuring the brand’s Polar Bears as hosts of

their own Super Bowl party. Dubbed the “Polar Bowl,” it featured

the bears and their arctic visitors reacting in real time to the game,

ads, Tweets, and Facebook messages.

Representatives from Coca-Cola reported that the response

dramatically exceeded its expectations. By game time, the num-

ber of fans who had RSVP’d to the event on Facebook reached

15 times Coca-Cola’s goal. This led the king of cola to ramp up

server capacity to accommodate up to 300,000 concurrent view-

ers, estimating viewers would watch for an average of 2.5 minutes

each. As a backup, Coca-Cola had plenty of excess server capac-

ity waiting in the wings.

By the third quarter, the peak number of viewers had hit 600,000.

In all, more than 9 million people watched the Polar Bowl for an aver-

age of 28 minutes each. On top of this, Coca-Cola saw its number of

Twitter followers grow by a whopping 38 percent during the four-hour

game period. Referring to the Polar Bowl, Jennifer Healan, director

of integrated marketing content for Coca-Cola, said the experiment

is redefining marketing at the company. “It’s a conversation, not a

monologue” that Coca-Cola is striving to have with its consumers.

The After Party For Super Bowl advertisers, when the game is over, the advertis-

ing event is still in full swing. The traditional buzz factor results

from the numerous “best and worst” lists generated by journalists

and bloggers. And although “winners” and “losers” vary from list

to list, it is clear that all ads that air on the Super Bowl achieve

post-game buzz from all the online viewing and discussion. A few

examples illustrate the tremendous impact such buzz can have.

Chrysler kicked off its “Imported from Detroit” campaign dur-

ing the 2011 Super Bowl with a two-minute epic featuring rap-

per Eminem and a resurgent Detroit as the backdrop. For 2012,

Chrysler produced the two-minute sequel “It’s Half-Time in

America,” a patriotic tribute to the soul of America starring Clint

Eastwood. Both ads came out at the top of the heap in terms of

pre-game buzz and post-game ratings, discussion, and views.

The ads also served as anchors for a series of ads as part of an

ongoing campaign. Sixteen months after the launch of the cam-

paign, Chrysler won the Grand Effie—the top award granted at

the advertising industry’s Oscars. According to one jury member,

“Imported from Detroit was the Grand Effie winner because they

sold the product, the category, and the city.”

480 Part 3 | Designing a Customer-Driven Strategy and Mix Volkswagen also had a stellar showing during the 2011 Super

Bowl with its ad “The Force”—a 60-second spot featuring a pint-

sized Darth Vader who surprises himself when he brings a Passat

to life. Volkswagen approached the 2012 game with the intention

to extend its success. A pre-game online teaser entitled “The Bark

Side” featured a chorus of dogs barking out the “Imperial March.”

Continuing the Star Wars theme, Volkswagen’s 2012 Super Bowl

ad “The Dog Strikes Back” was a viewer favorite and a top finisher

on most lists. But in perhaps the biggest indicator of the post-game

value of Super Bowl ads, “The Force” not only finished out 2011 as

the most viral auto video with over 63 million views, it was also one

of the most buzzed about ads during the 2012 Super Bowl season.

For January 2012, Volkswagen reported a 48 percent increase in

U.S. sales, its best performance since 1974. Although it’s impos-

sible to say just how much the Super Bowl ads have contributed to

Volkswagen’s success, VW is confident that its Super Bowl invest-

ment has more than paid for itself.

The efforts and successes by the most recent Super Bowl

sponsors are far too numerous to mention here. And whether

every tactic employed by every advertiser worked perfectly is

not the point. The point is that now more than ever, advertising

during the Super Bowl isn’t about gaining huge exposure by run-

ning a single ad or group of ads in a television event with a huge

audience. This year more than ever before, viewers watched,

buzzed, shared, clicked, streamed, and responded to Super

Bowl advertisers before, during, and after the game. To get the

most out of their investments, marketers must have a compre-

hensive program that takes advantage of the broad Super Bowl

season.

Questions for Discussion 1. What factors have played the biggest role in changing the dy-

namics of Super Bowl advertising in recent years?

2. Discuss the concepts of reach, frequency, and impact as they relate to Super Bowl advertising. How does consideration and

planning for these concepts differ between the Super Bowl

and other television events?

3. When assessing return on investment, what objectives must Super Bowl advertisers consider?

4. Choose a brand that has not recently run a Super Bowl ad. Design an effective campaign with before-, during-, and after-

game promotional tactics.

Sources: Bruce Horovitz, Laura Petrecca, and Gary Strauss, “Super Bowl Ad Meter Winner: Score One for the Doritos Baby,” USA Today, Feb-

ruary 8, 2012, www.usatoday.com/money/advertising/story/2012-02-07/

usa-today-facebook-super-bowl-ad-meter-winner/53004032/1; “Play

to Win with Interactive Chevy App for Super Bowl XLVI,” January 19,

2012, www.media.gm.com; Todd Cunningham, “Super Bowl Ads: Which

Ones Generated the Most Pre-Game Buzz?” Reuters, February 5, 2012,

www.reuters.com/article/2012/02/05/idUS138752904220120205;

Jonathan Welch, “Volkswagen Super Bowl Sequel: ‘Dog Strikes Back,’”

Wall Street Journal, February 1, 2012, http://blogs.wsj.com/drivers-

seat/2012/02/01/volkswagen-super-bowl-sequel-dog-strikes-back-

video/; Paul A. Eisenstein, “Chrysler Wins Big for ‘Imported from Detroit’

Campaign,” Detroit Bureau, May 25, 2012, www.thedetroitbureau.

com/2012/05/chrysler-wins-big-for-imported-from-detroit-campaign/;

and Natalie Zmuda, “Coca-Cola Polar Bowl Engaged 9 Million People,”

Advertising Age, May 9, 2012, http://adage.com/print/234645/.

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me/; Judann Pollack, “In the Insurance Ad War, Consumers Ask:

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p. C1.

12. See Brian Steinberg, “Why So Many Brands Want to Be on Modern Family . . . and So Few Will,” Advertising Age, January 23, 2012, pp. 2+.

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New York Times, April 11, 2012, p. B13.

14. Based on information found in Bob Garfield, “How Etsy Made Us Re- think Consumer-Generated Ads,” Advertising Age, September 21,

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of Consumer-Generated Ads,” Boston University School of Manage-

ment Research Paper Series, May 8, 2012, http://papers.ssrn.com/

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15. Michael Bourne, “Sailing the 14 Social C’s,” Mullen, February 12, 2012, www.mullen.com/sailing-the-14-social-cs.

16. See David Kiley, “Paying for Viewers Who Pay Attention,” Business- Week, May 18, 2009, p. 56.

17. Brian Steinberg, “Viewer-Engagement Rankings Signal Change for TV Industry,” Advertising Age, May 10, 2010, p. 12.

18. Tavis Coburn, “Mayhem on Madison Avenue,” Fast Company, January 2011, pp. 110–115.

19. Joe Tripoti, “Coca-Cola Marketing Shifts from Impressions to Ex- pressions,” April 27, 2011, http://blogs.hbr.org/cs/2011/04/coca-

colas_marketing_shift_fro.html; and Tim Nudd, “Coca-Cola Joins

the Revolution in a World Where the Mod Rules,” Adweek, June 19,

2012, www.adweek.com/print/141217.

20. See Jon Swartz, “Multitasking at Home: Internet and TV Viewing,” USA Today, July 6, 2010, www.usatoday.com; Dan Zigmond and Horst

Stipp, “Vision Statement: Multitaskers May Be Advertisers’ Best Audi-

ence,” Harvard Business Review, January–February 2011, http://hbr

.org/2011/01/vision-statement-multitaskers-may-be-advertisers-

best-audience/ar/1; Kunar Patel, “When’s Prime Time in Mobile?

Same as TV,” Advertising Age, July 5, 2011, www.adage.com/

print/228536; and Mike Chapman, “Fighting for Attention,” Adweek,

June 6, 2011, p. 14.

21. Newsweek and BusinessWeek cost and circulation data online at http://bloombergmedia.com/pdfs/bbw_2012_rates.pdf and http://

mediakit.newsweekdailybeast.com/pdf/2012_NW_RateCard.pdf,

accessed September 2012.

22. See Stuart Elliott, “Marketing Budgets Rise for Some Giants,” New York Times, February 21, 2012, p. B1; and “ANA 2012 Recession

Survey Shows Steadfast, Conservative Outlook,” Association of

National Advertisers, April 2, 2012, www.ana.net/content/show/

id/23198.

23. Information on advertising agency revenues from “Agency Report,” Advertising Age, April 30, 2012, pp. 14–34.

24. Adapted from Scott Cutlip, Allen Center, and Glen Broom, Effective Public Relations, 10th ed. (Upper Saddle River, NJ: Prentice Hall,

2009), Chapter 1.

25. Information from “The Heart Truth: Making Healthy Hearts Fashion- able,” Ogilvy Public Relations Worldwide, www.ogilvypr.com/en/

case-study/heart-truth ?page=0, www.goredforwomen.org/; www

.nhlbi.nih.gov/educational/hearttruth/; and www.nhlbi.nih.gov/

educational/hearttruth/about/index.htm, accessed November 2012.

26. See Geoffrey Fowler and Ben Worthen, “Buzz Powers iPad Launch,” Wall Street Journal, April 2, 2010; “Apple iPad Sales Top 2 Million

Since Launch,” Tribune-Review (Pittsburgh), June 2, 2010; “PR Pros

Must Be Apple’s iPad as a True Game-Changer,” PRweek, May

2010, p. 23; Yukari Iwatani Kane, “Apple’s iPad 2 Chalks up Strong

Sales in Weekend Debut,” Wall Street Journal, March 14, 2011,

http://online.wsj.com/article/SB100014240527487040275045761

98832667732862.html; and “Apple Launches New iPad,” March 7,

2012, www.apple.com/pr/library/2012/03/07Apple-Launches-New-

iPad.html.

27. Michael Bush, “P&G’s Marc Pritchard Touts Value of PR,” Ad- vertising Age, October 27, 2010, http://adage.com/article/news/

p-g-s-marc-pritchard-touts-pr/146749/.

28. Adapted from information in Julie Liesse, “The Big Idea,” Advertising Age, November 28, 2011, pp. C4–C6.

advice became the foundation of what the company later came to

call “solutions selling.” By the time Watson handed over the reins

of IBM to his son in the 1950s, his forward-looking sales principles

were firmly engrained in the company’s culture, and IBM had be-

come the model for modern customer-centered selling.

Now a $107 billion company, IBM has survived and pros-

pered for nearly 100 years—something no other Fortune top- 25 company can claim. During that time, what IBM sells has changed dramatically, from cash registers to typewriters to

mainframe computers and PCs to its current complex mix of

information technology hardware, software, and services. What

hasn’t changed is how IBM sells. IBM salespeople have always been customer relationship developers and solutions providers.

Part 1: Defining Marketing and the Marketing Process (Chapters 1–2)

Part 2: Understanding the Marketplace and Consumers (Chapters 3–6)

Part 3: Designing a Customer-Driven Strategy and Mix (Chapters 7–17)

Part 4: Extending Marketing (Chapters 18–20)

Personal Selling and Sales Promotion16

Chapter Preview In the previous two chap- ters, you learned about

communicating customer value through integrated marketing

communications (IMC) and two elements of the promotion mix:

advertising and public relations. In this chapter, we examine

two more IMC elements: personal selling and sales promotion.

Personal selling is the interpersonal arm of marketing commu-

nications, in which the sales force interacts with customers and

prospects to build relationships and make sales. Sales promo-

tion consists of short-term incentives to encourage the pur-

chase or sale of a product or service. As you read, remember

that although this chapter presents personal selling and sales

promotion as separate tools, they must be carefully integrated

with the other elements of the promotion mix.

To start, what is your first reaction when you think of a sales-

person or a sales force? Perhaps you think of pushy retail sales

clerks, “yell-and-sell” TV pitchmen, or the stereotypical glad-

handing “used-car salesman.” In reality, such stereotypes sim-

ply don’t fit most of today’s salespeople. Instead, today’s sales

professionals succeed not by taking advantage of customers but

by listening to their needs and helping them to forge solutions.

Consider IBM, whose customer-focused sales force has been the

model for modern personal selling for nearly a century.

IBM: A Classic Model for Modern Customer-Focused Selling

W hen Thomas J. Watson Sr. became president of

the young Computing Tabulating Recording

Corporation—as IBM was known in 1915—sales

was considered by many to be a barely reputable

profession. Back then, in the minds of most folks, salespeople

were slick, fast-talking men who employed hard-sell tactics and

fast-and-loose claims to peddle whatever they thought would

make them a buck. Watson was a salesman at heart—he’d cut

his teeth selling pianos off the back of a horse-drawn wagon to

farmers in upstate New York. But he had a different vision for

selling. By the time his company was renamed IBM in 1924, he

had already put in place a sales force template that would for-

ever change the face of professional sales.

At IBM, Watson hired only top-performing graduates from

Ivy League universities, and he insisted that they

wear conservative suits and white dress

shirts. He demanded the highest ethical

standards. IBM provided intensive

sales training that focused on de-

veloping a deep knowledge of the

company and its customers. Above

all, Watson stressed, “be a good listener,

observe, study through observation.” This

Over the past 100 years, what IBM sells has changed dramatically. What hasn’t

changed is how IBM sells. IBM’s customer-focused salespeople have always been customer relationship

developers and solutions providers.

Chapter 16 | Personal Selling and Sales Promotion 483

Vivek Gupta became

IBM’s top salesperson

484 Part 3 |

In this personal selling sales promotion

Salesman

Objective Outline

Objective 1

(pp 484–486)

Objective 2

(pp 486–497)

Objective 3

(pp 497–501)

Objective 4

Sales Promotion (pp 501–506)

Objective 1 Discuss the role of a company’s

Chapter 16 | Personal Selling and Sales Promotion 485 The Of

fice

salesperson

order taker order getters creative sell

ing relationship building

Salesperson

Boeing

486 Part 3 |

represent the com pany to customers

represent customers to the company

owned loyalty

Digital Vision

Objective 2

Chapter 16 | Personal Selling and Sales Promotion 487

territorial sales force structure

uct sales force structure customer sales force structure territorial sales force structure

structure

customer market sales force structure

complex sales force structure,

and

Territorial sales force structure

Customer (or market) sales force structure

The goal of this process? You guessed it! The company wants to build a skilled and motivated sales team that will help to create customer value and build strong customer relationships.

488 Part 3 |

sales force size

workload ap proach

workload

Outside and Inside Sales Forces.

cal sales support people Sales assistants

Telemarketers Inter net sellers

Paul Sancya/Associated Press

Chapter 16 | Personal Selling and Sales Promotion 489

Team Selling.

Helen King/Corbis Images

490 Part 3 |

their

Chapter 16 | Personal Selling and Sales Promotion 491

Concentric Pharma Advertising

492 Part 3 |

mix

supervision motivation

call plan

Chapter 16 | Personal Selling and Sales Promotion 493

sales force automation systems

Source:

This is far too little. Companies need to free up salespeople to

time with customers and prospects. For example, GE wants its salespeople to “spend four days a week in front of the customer and one day a week for all the admin stuff.”

494 Part 3 |

SellingPower

Real

Chapter 16 | Personal Selling and Sales Promotion 495

Sources: SellingPower,

SellingPower

Slate

BtoB,

SellingPower,

Courtesy of Cisco

496 Part 3 | Designing a Customer-Driven Strategy and Mix ranging from how to get the most out of your machine tools to how metal-cutting processes are

done. Webinar content is tailored to specific industries, such as aerospace or medical, and is pro-

moted through carefully targeted banner ads and e-mail invitations. The webinars help to build

Makino’s customer database, generate leads, build customer relationships, and prepare the way

for salespeople by serving up relevant information and educating customers online. Makino also

uses Twitter, Facebook, and YouTube to inform customers and prospects about the latest Makino

innovations and events and dramatically demonstrate the company’s machines in action. “We’ve

shifted dramatically into the electronic marketing area,” says Makino’s marketing manager. “It

speeds up the sales cycle and makes it more efficient—for both the company and the customer.

The results have been ‘outstanding.’”

Ultimately, digital technologies are “delivering instant information that builds rela-

tionships and enables sales to be more efficient and cost-effective and more productive,”

says one sales technology analyst. “Think of it as . . . doing what the best reps always did

but doing it better, faster, and cheaper,” says another.18

However, the technologies also have some drawbacks. For starters, they’re not cheap.

In addition, such systems can intimidate low-tech salespeople or clients. Even more, there

are some things you just can’t present or teach via the Internet—things that require personal

interactions. For these reasons, some high-tech experts recommend that sales executives use

Internet technologies to supplement training, sales meetings, and preliminary client sales

presentations but resort to old-fashioned, face-to-face meetings when the time draws near

to close the deal.

Motivating Salespeople Beyond directing salespeople, sales managers must also motivate them. Some salespeople

will do their best without any special urging from management. To them, selling may be the

most fascinating job in the world. But selling can also be frustrating. Salespeople often work

alone, and they must sometimes travel away from home. They may also face aggressive

competing salespeople and difficult customers. Therefore, salespeople often need special

encouragement to do their best.

Management can boost sales force morale and performance through its organizational

climate, sales quotas, and positive incentives. Organizational climate describes the feeling that salespeople have about their opportunities, value, and rewards for a good performance.

Some companies treat salespeople as if they are not very important, so performance suffers

accordingly. Other companies treat their salespeople as valued contributors and allow vir-

tually unlimited opportunity for income and promotion. Not surprisingly, these companies

enjoy higher sales force performance and less turnover.

Many companies motivate their salespeople by setting sales quotas—standards stat-

ing the amount they should sell and how sales should be divided among the company’s

products. Compensation is often related to how well salespeople meet their quotas. Com-

panies also use various positive incentives to increase the sales force effort. Sales meetings provide social occasions, breaks from the routine, chances to meet and talk with “company

brass,” and opportunities to air feelings and identify with a larger group. Companies also

sponsor sales contests to spur the sales force to make a selling effort above and beyond what is normally expected. Other incentives include honors, merchandise and cash awards, trips,

and profit-sharing plans.

Evaluating Salespeople and Sales Force Performance We have thus far described how management communicates what salespeople should be

doing and how it motivates them to do it. This process requires good feedback, which

means getting regular information about salespeople to evaluate their performance.

Management gets information about its salespeople in several ways. The most impor-

tant source is sales reports, including weekly or monthly work plans and longer-term ter- ritory marketing plans. Salespeople also write up their completed activities on call reports and turn in expense reports for which they are partly or wholly reimbursed. The company can also monitor the sales and profit performance data in the salesperson’s territory. Ad-

ditional information comes from personal observation, customer surveys, and talks with

other salespeople.

Sales quota

A standard that states the amount a

salesperson should sell and how sales

should be divided among the company’s

products.

Chapter 16 | Personal Selling and Sales Promotion 497

return on sales investment

relationships

cold calling qualify

Objective 3

As shown here, these steps

Process

498 Part 3 | Preapproach

preapproach

call objectives

approach

presentation

cus

present develop

dislike most

value most

Preapproach

Presentation

Tony Garcia/Getty Images

Chapter 16 | Personal Selling and Sales Promotion 499 Thus, today’s salespeople are employing advanced presentation technologies that al-

low for full multimedia presentations to only one or a few people. The venerable old sales

presentation flip chart has been replaced with sophisticated presentation software, online

presentation technologies, interactive whiteboards, digital projectors, and tablet computers.

Handling Objections Customers almost always have objections during the presentation or when asked to place

an order. The objections can be either logical or psychological, and are often unspoken. In

handling objections, the salesperson should use a positive approach, seek out hidden ob-

jections, ask the buyer to clarify any objections, take objections as opportunities to provide

more information, and turn the objections into reasons for buying. Every salesperson needs

training in the skills of handling objections.

Closing After handling the prospect’s objections, the salesperson next tries to close the sale. How-

ever, some salespeople do not get around to closing or handle it well. They may lack

confidence, feel guilty about asking for the order, or fail to recognize the right moment to

close the sale. Salespeople should know how to recognize closing signals from the buyer,

including physical actions, comments, and questions. For example, the customer might sit

forward and nod approvingly or ask about prices and credit terms.

Salespeople can use any of several closing techniques. They can ask for the order, re-

view points of agreement, offer to help write up the order, ask whether the buyer wants

this model or that one, or note that the buyer will lose out if the order is not placed now.

The salesperson may offer the buyer special reasons to close, such as a lower price, an extra

quantity at no charge, or additional services.

Follow-Up The last step in the selling process—follow-up—is necessary if the salesperson wants to en-

sure customer satisfaction and repeat business. Right after closing, the salesperson should

complete any details on delivery time, purchase terms, and other matters. The salesperson

then should schedule a follow-up call after the buyer receives the initial order to make sure

proper installation, instruction, and servicing occur. This visit would reveal any problems,

assure the buyer of the salesperson’s interest, and reduce any buyer concerns that might

have arisen since the sale.

Personal Selling and Managing Customer Relationships The steps in the just-described selling process are transaction oriented—their aim is to help salespeople close a specific sale with a customer. But in most cases, the company

is not simply seeking a sale. Rather, it wants to serve the customer over the long haul

in a mutually profitable relationship. The sales force usually plays an important role in customer relationship building. Thus, as shown in Figure 16.3, the selling process

must be understood in the context of building and maintaining profitable customer

relationships.

Successful sales organizations recognize that winning and keeping accounts re-

quires more than making good products and directing the sales force to close lots of

sales. If the company wishes only to close sales and capture short-term business, it can

do this by simply slashing its prices to meet or beat those of competitors. Instead, most

companies want their salespeople to practice value selling—demonstrating and deliver- ing superior customer value and capturing a return on that value that is fair for both the

customer and the company. For example, companies like Procter & Gamble understand

that they aren’t just selling products to and through their retailer customers. They are

partnering with these retail accounts to create more value for final consumers to their

mutual benefit. P&G knows that it can succeed only if its retail partners succeed (see

Real Marketing 16.2).

Unfortunately, in the heat of closing sales—especially in a tight economy—salespeople

too often take the easy way out by cutting prices rather than selling value. Sales manage-

ment’s challenge is to transform salespeople from customer advocates for price cuts into

Handling objections

The sales step in which a salesperson

seeks out, clarifies, and overcomes any

customer objections to buying.

Closing

The sales step in which a salesperson

asks the customer for an order.

Follow-up

The sales step in which a salesperson

follows up after the sale to ensure

customer satisfaction and repeat

business.

500 Part 3 |

Jin Lee/Getty Images USA, Inc.

Real

Chapter 16 | Personal Selling and Sales Promotion 501

competing brand? Believe it or not, it happens

all the time. The CBD team’s primary goal is

to help the customer win in each product cat-

egory. Sometimes, analysis shows that the

best solution for the customer is “more of the

other guy’s product.” For P&G, that’s okay. It

knows that creating the best situation for the

retailer ultimately pulls in more customer traf-

fic, which in turn will likely lead to increased

sales for other P&G products in the same

category. Because most of P&G’s brands

are market share leaders, it stands to benefit

more from the increased traffic than competi-

tors do. Again, what’s good for the customer

is good for P&G—it’s a win-win situation.

Honest and open dealings also help to

build long-term customer relationships. P&G

salespeople become trusted advisors to their

retailer-partners, a status they work hard to

maintain. “It took me four years to build the

trust I now have with my buyer,” says a vet-

eran CBD account executive. “If I talk her into

buying P&G products that she can’t sell or

out of stocking competing brands that she

should be selling, I could lose that trust in a

heartbeat.”

Finally, collaboration is usually a two-

way street—P&G gives and customers give

back in return. “We’ll help customers run a

set of commercials or do some merchandis-

ing events, but there’s usually a return-on-

investment,” explains another CBD manager.

“Maybe it’s helping us with distribution of a

new product or increasing space for fabric

care. We’re very willing if the effort creates

value for us as well as for the customer and

the final consumer.”

According to P&G, “Customer Busi-

ness Development is selling and a whole lot

more. It’s a P&G-specific approach [that lets

us] grow business by working as a ‘strategic

partner’ with our accounts, focusing on mutu-

ally beneficial business building opportunities.

All customers want to improve their business;

it’s [our] role to help them identify the biggest

opportunities.”

Thus, P&G salespeople aren’t the stereo-

typical glad-handers that some people have

come to expect when they think of selling.

P&G’s “salespeople”—its CBD managers—

are talented, well-educated, well-trained sales

professionals who do all they can to help cus-

tomers succeed. They know that good selling

involves working with customers to solve their

problems for mutual gain. They know that if

customers succeed, they succeed.

Sources: Based on information from numerous P&G managers; with information from “500 Largest Sales Forces

in America,” Selling Power, September/October 2011, pp. 33–50; and www.experiencepg.com/jobs/customer-

business-development-sales.aspx, accessed October 2012.

company advocates for value. Here’s how Rockwell Automation sells value and relation-

ships rather than price:20

Under pressure from Walmart to lower its prices, a condiment producer asked several competing

supplier representatives—including Rockwell Automation sales rep Jeff Policicchio—to help it

find ways to reduce its operating costs. After spending a day in the customer’s plant, Policicchio

quickly put his finger on the major problem: Production was suffering because of down time

due to poorly performing pumps on the customer’s 32 large condiment tanks. Quickly gathering

cost and usage data, Policicchio used his Rockwell Automation laptop value-assessment tool to

develop an effective solution for the customer’s pump problem.

The next day, as he and competing reps presented their cost-reduction proposals to plant

management, Policicchio offered the following value proposition: “With this Rockwell Automa-

tion pump solution, through less downtime, reduced administrative costs in procurement, and

lower spending on repair parts, your company will save at least $16,268 per pump—on up to

32 pumps—relative to our best competitor’s solution.” Compared with competitors’ proposals,

Policicchio’s solution carried a higher initial price. However, no competing rep offered more than

fuzzy promises about possible cost savings. Most simply lowered their prices.

Impressed by Policicchio’s value proposition—despite its higher initial price—the plant

managers opted to buy and try one Rockwell Automation pump. When the pump performed

even better than predicted, the customer ordered all of the remaining pumps. By demonstrating

tangible value rather than simply selling price, Policicchio not only landed the initial sale but also

earned a loyal future customer.

Value selling requires listening to customers, understanding their needs, and carefully

coordinating the whole company’s efforts to create lasting relationships based on customer

value. “If you’re not selling value, you’re not selling smart,” concludes one sales consultant.21

Sales Promotion Personal selling and advertising often work closely with another promotion tool, sales pro-

motion. Sales promotion consists of short-term incentives to encourage the purchase or

sales of a product or service. Whereas advertising offers reasons to buy a product or service,

sales promotion offers reasons to buy now.

Objective 4 Explain how sales promotion

campaigns are developed and

implemented.

Sales promotion

Short-term incentives to encourage

the purchase or sales of a product or a

service.

502 Part 3 |

Promotion

consumer promotions trade promotions

business promotions sales force promotions

promotion clutter

consumer promotions trade promotions

Business promotions

Bed Bath & Beyond Inc.

Chapter 16 | Personal Selling and Sales Promotion 503

frequency marketing programs

Consumer Promotions Consumer promotions

Samples

Coupons

Photo courtesy of Gary Armstrong

Consumer promotions

Sales promotion tools used to boost

504 Part 3 |

Rebates cash refunds

Price packs

Premiums

Madagascar Pokémon

Advertising specialties promotional products

(POP) promotions

Contests sweepstakes games contest

sweepstakes game

event

sponsorships

Walgreens Digital Marketing & Emerging Media Team.

Rich Lesperance, Director.

or event sponsorships)

Chapter 16 | Personal Selling and Sales Promotion 505

discount

allowance

free goods push

money specialty advertising items

Business Promotions

Business promotions

conventions and trade shows

REUTERS/Max Rossi

Sales promotion tools used to persuade

Business promotions

Sales promotion tools used to generate

506 Part 3 |

sales contest

size of the incentive

conditions for participation

promote and distribute the promotion

length of the promotion

Evaluation

Consumer Electronics Association (CEA)

Chapter 16 | Personal Selling and Sales Promotion 507

one

Discuss the role of a company’s

484–486)

486–497)

497 –501)

Reviewing Objectives and Key Terms

Objective 1

Objective 2

Objective 3

508 Part 3 |

501–506)

Sales promotion campaigns call for setting sales promotions ob

consumer relation

ship building

consumer promotion

tools

trade pro

motion tools

business promotion tools

Objective 4

Discussion and Critical Thinking

Discussion Questions

sales promotion

Objective 1 Personal selling (p 484)

Salesperson (p 485)

Objective 2 Sales force management (p 486)

Territorial sales force structure (p 487)

Product sales force structure (p 487)

Customer (or market) sales force

structure (p 487)

Outside sales force (or field sales

force) (p 488)

Inside sales force (p 488)

Team selling (p 489)

Objective 3 Sales quota (p 496)

Selling process (p 497)

Prospecting (p 497)

Preapproach (p 498)

Approach (p 498)

Presentation (p 498)

Handling objections (p 499)

Closing (p 499)

Objective 4 Sales promotion (p 501)

Consumer promotions (p 503)

Event marketing (or event

sponsorships) (p 504)

Trade promotions (p 505)

Business promotions (p 505)

Chapter 16 | Personal Selling and Sales Promotion 509

Applications and Cases

Marketing Technology Another Day, Another Deal The humble coupon has gotten a boost from social media. Grou-

pon, the group deal-of-the-day coupon service that started in

late 2008, is exceeding even Google’s and Facebook’s phenom-

enal early growth rates. It now offers about 1,000 deals every

day to more than 70 million subscribers in almost 50 countries.

The business model is simple. A business sets up a deal through

Groupon, such as offering $50 worth of merchandise for $25, but

the deal is only honored if enough people sign up for it. Groupon

typically takes a 50 percent cut of all the revenue generated on

the deal (that is, $12.50 of the $25 the consumer pays for the

groupon). In return, the business gets a lot of store traffic from

the deal. Because the business model is so simple and the entry

barriers so small, there are now more than 600 of these digital

daily-deal online sites.

1. Debate the pros and cons of offering coupons through digital deal-of-the-day Internet sites such as Groupon from the per-

spective of the businesses offering the deals. (AACSB: Com-

munication; Use of IT; Reflective Thinking)

2. Create an idea for a local group-buying promotional service based on Groupon’s model as a class project or as a fund-

raiser for a student organization at your school. Students will

be the target market of this digital-deal online site. Develop

a sales plan to recruit local businesses to offer deals as well

as the promotion plan to attract students to the site. Present

your plans to the class. (AACSB: Communication; Reflective

Thinking)

Marketing Ethics Off-Label Marketing Johnson & Johnson agreed to a $2.2-billion settlement over the

marketing of its antipsychotic drug Risperdal. Pfizer agreed to

a $2.3-billion settlement and Eli Lilly paid $1.4 billion to settle

disputes with the U.S. government. Glaxo recently agreed to a

$3-million settlement—its fourth settlement with the government

over the marketing of its products. By law, pharmaceutical com-

panies are allowed to market their drugs only for uses approved

by the Food and Drug Administration (FDA), but doctors may

prescribe any approved drug as they see fit. Drug manufactur-

ers have been training their sales forces to educate doctors on

nonapproved uses and dosages, called “off-label” marketing. Al-

most 75 percent of the largest pharmaceutical settlements with

the government are for off-label marketing. Glaxo even went so

far as to have a questionable article ghost-written by a company

and later published in a medical journal under the names of aca-

demic authors to convince doctors that Paxil was proven effec-

tive in treating depression in children, a use that the FDA has

not approved. The reported clinical trial was later criticized by the

medical community, but doctors probably are not aware of that

because a majority of them rely on pharmaceutical companies for

information on drugs. Most unlawful practices by the pharmaceu-

tical industry come to light only because an insider—someone

in management or a sales rep—blows the whistle. Fortunately,

the Federal False Claim Act provides protection and even incen-

tive for employees to come forward. Pharmaceutical companies

settle these types of investigations because, even if they plead

guilty to criminal charges, which J&J and Glaxo did, they don’t

lose the ability to sell drugs to the government as they would if

found guilty after a trial.

1. What would you do if you were a pharmaceutical sales rep and were told to promote a drug for off-label use? What pro-

tections and incentives are available under the Federal False

Claim Act to encourage employees to report illegal behav-

ior? (AACSB: Communication; Ethical Reasoning; Reflective

Thinking)

2. What traits and behaviors should an ethical salesperson pos- sess? What role does the sales manager play in ethical selling

behavior? (AACSB: Communication; Ethical Reasoning; Re-

flective Thinking)

Marketing by the Numbers Sales Force Analysis Brown, Inc. is a manufacturer of furniture sold through retail fur-

niture outlets in the southeastern United States. The company

has two salespeople who do more than just sell the products—

they manage relationships with retail customers to enable them

to better meet consumers’ needs. The company’s sales reps

visit retail customers several times per year, often for hours at

a time. Brown is considering expanding to other regions of the

country and would like to have distribution through 1,000 retail

customer accounts. To do so, however, the company would have

to hire more salespeople. Each salesperson earns $50,000 plus

2 percent commission on all sales. Another alternative is to use

the services of sales agents instead of its own sales force. Sales

agents would be paid 10 percent of sales.

1. Refer to Appendix 2 to answer this question. Determine the number of salespeople Brown needs if it has 1,000 retail cus-

tomer accounts that need to be called on five times per year.

Each sales call lasts approximately 2.5 hours, and each sales

rep has approximately 1,250 hours per year to devote to cus-

tomers. (AACSB: Communication; Analytical Reasoning)

2. At what level of sales would it be more cost efficient for Brown to use its own sales force as compared to sales agents? To

determine this, consider the fixed and variable costs for each

alternative. What are the pros and cons of using a company’s

own sales force over independent sales agents? (AACSB:

Communication; Analytical Reasoning; Reflective Thinking)

510 Part 3 | Designing a Customer-Driven Strategy and Mix

Video Case MedTronic Many companies sell products that most customers can literally

live without. But the devices that MedTronic sells are a matter of

life and death. Patient well-being depends upon the insulin de-

livery devices, implantable defibrillators, and cardiac pacemak-

ers designed and manufactured by MedTronic. In some markets,

seven out of eight medical devices in use are MedTronic devices.

But what happens when you know you have a product that

will help a given customer in terms of cost, time, and end-user

well-being, but you can’t get a foot in the door to communicate

that information? This video demonstrates how MedTronic sales

representatives maintain a customer-centered approach to the

personal selling process as a means for effectively communicat-

ing MedTronic’s product benefits.

After viewing the video featuring MedTronic, answer the fol-

lowing questions:

1. How is the sales force at MedTronic structured?

2. Identify the selling process for MedTronic. Give an example of each step.

3. Is MedTronic effective at building long-term customer relation- ships through its sales force? If so, how? If not, what could be

improved?

Company Case Salesforce.com: Helping Companies Super-Charge the Selling Process

As Internet, social, and mobile media have proliferated, the na-

ture of business-to-business (B-to-B) selling has changed. In fact,

some have predicted the death of the professional salesperson,

claiming that today’s interactive technologies make it possible to

sell products and services to the business customer with little to

no human interaction.

But that perspective overlooks one very important charac-

teristic of successful selling: The objective of making a sale and

getting customers to purchase again and again is to build solid,

enduring customer relationships. And to do that, salespeople are

more important than ever. But these days, for salespeople to be

effective at everything from prospecting to staying connected to

customers between purchases, they must stay abreast of tech-

nologies that facilitate the management of customer relationships.

A New Era for Sales Support Enter Salesforce.com. Marc Benioff started the online company

in 1999 to compete in a crowded marketplace of companies that

provide support to sales forces of companies large and small. At

first glance, not much differentiated Salesforce.com’s system as

only one of many that enabled corporate sales representatives to

gather and manage information about existing and prospective

customers, leading to greater selling productivity.

But Salesforce.com’s mission was nothing less than vision-

ary. What made the company different was communicated in the

Salesforce.com logo—the word “software” with a red circle around

it and a line drawn through it. The company’s call-in number was

(and still is) “800-NOSOFTWARE.” With Salesforce.com, Benioff

was declaring the death of expensive packaged customer rela-

tionship management (CRM) software—the type peddled by then-

industry leaders Siebel and SAP. With its stock symbol, “CRM,”

Benioff declared early on that Salesforce.com would be the force

for helping business sales forces manage customer relationships.

Salesforce.com’s products were subscription based and ac-

cessed through the Web. With nothing to install and no owned

software, customers could get up and running quickly and inex-

pensively. Although that “cloud” model is standard practice for

many companies today, it was a radical idea in 1999. But more

than just introducing an innovative method for selling software,

Benioff was establishing Salesforce.com as an innovative com-

pany that would consistently seek new ways to help compa-

nies achieve greater sales force efficiency. Since its introduction,

Salesforce.com has remained one step ahead of the competition

by augmenting its products and services in ways that seem to

foreshadow trends in B-to-B selling.

During the last 10 years, the company has expanded from

its core sales management services to a complete portfolio of

Internet-based services that put every aspect of selling and sales

management in the cloud. This includes Data.com (B-to-B sales

and marketing account and contact data), Database.com (a

cloud database), Site.com (cloud-based Internet content man-

agement), Desk.com (a social help desk for small business), and

Sales Cloud (the world’s number one sales app). A few years ago,

Salesforce.com recognized that social media would play a huge

role in B-to-B sales. To remain on the cutting edge, Salesforce

.com acquired Radian6 (the social media monitoring firm used by

more than half of Fortune 500 companies) and launched Chatter

(a sort of Facebook for the business world).

The Salesforce.com product portfolio is carefully integrated

so that each tool works with every other tool. And whereas each

Salesforce.com product has broadened the company’s offer-

ings beyond sales force support functions, each also facilitates

the sales process. As Salesforce.com puts it, these tools allow

companies to “supercharge their sales.” Consider how Salesforce

.com has helped the following companies achieve better-than-ever

customer relationships through selling.

NBCUniversal NBCUniversal (NBCU) is home to 20 popular media and enter-

tainment brands, including NBC, CNBC, Bravo, Universal, and

Telemundo. In the topsy-turvey media world, NBCUniversal has

been challenged in recent years by the dramatic changes that

have hit the industry, including the growing number of media out-

lets competing for viewer attention, the increased popularity of

online media, and shifts in the nature and type of advertising.

Because of NBCU’s huge scope, it has perhaps been hit harder

by the changes than any media organization.

NBCU’s media empire is so vast that it represents a combined

total of more than 2 million ads every year. Managing that many ads

across various channels for thousands of advertiser-customers was

a daunting task. In fact, at one point, NBCU had more than 250 dif-

ferent portals for viewing information and interactions between the

company and the advertisers who purchase its ad space. Manag-

ing that kind of interaction was fraught with lost opportunities for

providing advertisers with the best way to reach the right customers

with the right message.

Chapter 16 | Personal Selling and Sales Promotion 511 Salesforce.com, however, has helped NBCU integrate its

sales force across its customers. In fact, the portal for managing

relationships is now simplified to only one view, allowing all sales

reps in every NBCU property to see what all advertisers are doing

across all properties. “As business moves into the 21st century,

you need social collaboration tools to pull everything together,”

says Eric Johnson, vice president for Sales Force Effectiveness

at NBCU. “Salesforce.com helps capture the collaboration that’s

happening across the company—to mobilize and grow the busi-

ness.” With the Salesforce.com portfolio of products, NBCU is

able to distribute the right social information to account execu-

tives at the right time, dramatically improving customer relation-

ships with advertisers. As a result, NBCU has seen big increases

in cross-selling.

Salesforce.com tools enable sales reps to manage customer

relationships better through more open internal collaboration as

well. For example, when the NBCU product team comes up with

new advertising and product placement opportunities, it uses

Salesforce.com social tools to quickly provide the sales team with

everything it needs to sell the new inventory. In this manner, sales

reps are more connected than ever. And a better-equipped sales

force is a happier sales force. “The collaboration with marketing

in the first six months was meteoric,” says Dan Sztorc, CNBC ac-

count executive. With Salesforce.com, he and his colleagues are

continuously connected with each other and with the customers.

“We’re free to venture out and try different things and take some

three-point shots.”

NBCU gave all its account executives iPads equipped with a

Salesforce.com app that allows them to access all of their Sales-

force.com tools and other marketing and client information from any

place, any time. Just how successful has NBCU been with Sales-

force.com’s tools? “The first week we launched this application, we

had a 300 percent return on investment,” says Johnson. “Social

collaboration, social networking—it’s here to stay.”

GE Capital In the modern, more social world of business, GE Capital was

beginning to realize the importance of building connections with

its customers. “The power of the social enterprise in the B-to-B

space is that you can really connect with your customers and

bring them value in ways that everyday interactions don’t typi-

cally allow,” says Sigal Zarmi, chief information officer (CIO) of GE

Capital. For this reason, GE Capital tapped into Salesforce.com’s

portfolio of tools.

One tactic that the company employed was building what it calls

Access GE, a new collaborative community based on Salesforce

.com’s Force.com platform. After only five weeks of development,

Access GE was launched, providing a thriving community where

mid-market CEOs and CFOs could tap into the expertise of their

peers as well as that of GE Capital employees. This allows ex-

ecutives at customer organizations to connect with GE and other

customers based on similar needs and shared experiences, partici-

pating in discussions on topics of mutual interest.

As Access GE allows customers to receive better information

more quickly, the power of Salesforce.com’s social technologies

is boosting collaboration among GE Capital’s employees as well.

The company’s commercial sales team of more than 3,100 em-

ployees also connects on Chatter to share sales strategies, find

internal experts, and uncover opportunities to cross-sell.

How does all this help to sell GE Capital’s products and ser-

vices? Access GE accelerates the time it takes for customers to get

the answers and information they seek in order to make purchase

decisions. “We’re connecting customers to GE Capital—and to

each other—quickly, efficiently, and socially, building deeper re-

lationships with important clients,” explains Zarmi. “That’s the

power of the social network.” All this has helped GE Capital bet-

ter fulfill its mission to provide financing and expertise that helps

its customers’ capital go farther. With Salesforce.com’s help, the

company is also developing stronger and deeper connections to

its customers, encouraging greater employee engagement and

collaboration, and achieving growth in ways that it had never be-

fore experienced.

Moving Forward with New Products Based on the success of the customized social tool Access GE,

Salesforce.com is expanding its product line. After all, Chatter is

a one-to-many communication tool. With Access GE, Salesforce

.com recognized the value that its clients could gain by having a

many-to-many forum such as that provided by Access GE. For

this reason, Salesforce.com has introduced Salesforce.com Com-

munities as a branch of Chatter, providing an organized free-for-

all for managers and client organizations to meet and collaborate

online with each other as well as with company representatives.

Salesforce.com is quick to note that there are risks associ-

ated with giving customers an open forum. In addition to sharing

valuable positive information, they can also air complaints and

negative comments to thousands of customers at a time. But

the innovative Salesforce.com has embraced that kind of risk

from the beginning. With every new technology that it unveils, it

focuses on the same trump card to convince reluctant users—

productivity enhancements. With Chatter, customer users see

an average of 12.5 percent gains in productivity over companies

that do not use the B-to-B social network. And Salesforce.com

expects that there will be similar productivity gains with Com-

munities as well.

Salesforce.com has remained innovative from the start, keep-

ing ahead of the trends and technologies that are shaping mod-

ern B-to-B interactions. Its tools are state-of-the-art, providing

sales reps with a more accurate and timely infusion of customer

information and insight into the sales process than ever before.

As Salesforce.com puts it, “With sales for the social enterprise,

reps, managers, and execs have everything they need to win

deals.” Salesforce.com continues to deliver on its promise to su-

percharge sales.

Questions for Discussion 1. When Salesforce.com launched as an Internet-based service,

how did that innovation help sales reps to interact better with

customers?

2. Describe the differences that Salesforce.com has made for customers NBCU and GE Capital.

3. Consider the selling process. How might any of the Sales- force.com tools described in this case facilitate each step?

4. Looking forward, what products will Salesforce.com have to develop in order to remain on the cutting edge of supporting

sales staffs with information and collaboration?

Sources: Based on information from www.salesforce.com, accessed August 2012. Also see Erika Morphy, “Are Enterprises Really Ready

for True Social Collaboration?” Forbes, August, 14, 2012, www.forbes

.com/sites/erikamorphy/2012/08/14/are-enterprises-really-ready-for-

true-social-collaboration-salesforce-coms-betting-they-cant-resist-the-

productivity-gains/; and Shel Israel, “Does Salesforce.com Own the

Social Enterprise?” Forbes, March 20, 2012, www.forbes.com/sites/

shelisrael/2012/03/20/does-salesforce-own-the-social-enterprise/.

512 Part 3 | Designing a Customer-Driven Strategy and Mix References 1. Portions adapted from information found in Jesi Hempel, “IBM’s All-

Star Salesman,” Fortune, September 26, 2008, http://money.cnn

.com/2008/09/23/technology/hempel_IBM.fortune/index.htm; and

www-03.ibm.com/employment/jobs/softwaresales/ and www-03

.ibm.com/ibm/history/ibm100/us/en/icons/ibmsales/, accessed

November 2012.

2. See Philip Kotler, Neil Rackham, and Suj Krishnaswamy, “Ending the War Between Sales and Marketing,” Harvard Business Review,

July–August 2006, pp. 68–78; Elizabeth A. Sullivan, “The Ties That

Bind,” Marketing News, May 15, 2010; Allan Mayer, “Improving the

Relationships Between Sales and Marketing,” OneAccord, May 30,

2012, www.oneaccordpartners.com/blog/bid/132539/; Philip Kotler

and Kevin Lane Keller, Marketing Management, 14th ed. (Upper

Saddle River, NJ: Prentice Hall, 2012), p. 554.

3. See Henry Canaday, “Give It a Whirl,” Selling Power, May/June 2010, pp. 22–24; and Canaday, “How One Enterprise Sales Force

Works with Channel Partners to Maintain and Build Sales,” Selling

Power, June 27, 2012, www.sellingpower.com/enterprise-sales/.

4. “Selling Power 500: The Largest Sales Force in America,” Selling Power, September/October 2011, pp. 33–49.

5. See discussions at “The Costs of Personal Selling,” April 13, 2011, www.seekarticle.com/business-sales/personal-selling.html; and

“What Is the Real Cost of a B2B Sales Call?” accessed at www

.marketing-playbook.com/sales-marketing-strategy/what-is-the-

real-cost-of-a-b2b-sales-call, October 2012.

6. Quote and facts from Jim Domanski, “Special Report: The 2012 B@B Tele-Sales Trend Report,” www.salesopedia.com/downloads/

2012%20B2B%20Tele-Sales%20Trend%20Special%20Reportl.pdf;

accessed July 2012.

7. See “Case Study: Climax Portable Machine Tools,” www.selltis.com/ selltis-sales/Case-Studies/Climax-Portable-Machine-Tools and www

.climaxportable.com, accessed November 2012.

8. “Customer Business Development,” www.experiencepg.com/jobs/ customer-business-development-sales.aspx, accessed October 2012.

9. For this and more information and discussion, see www.gallupaus- tralia.com.au/consulting/118729/sales-force-effectiveness.aspx,

accessed July 2012; Lynette Ryals and Iain Davies, “Do You Really

Know Who Your Best Salespeople Are?” Harvard Business Review,

December 2010, pp. 34–35; “The 10 Skills of Super’ Salespeople,”

www.businesspartnerships.ca/articles/the_10_skills_of_super_

salespeople.phtml, accessed July 2012; and “Salesperson Recruit-

ing Expert Steve Suggs Shows How to Hire the Best Salespeople,”

PRNewswire, April 19, 2012.

10. Barbara Hendricks, “Strengths-Based Selling,” February 8, 2011, www.gallup.com/press/146246/Strengths-Based-Selling.aspx.

11. “ADP Case Study,” Corporate Visions, Inc., http://win.corporatevisions .com/caseStudy_ADP.html, accessed July 2011; and Henry Canaday,

“Higher Expectations,” Selling Power, November/December 2011,

pp. 50–51.

12. Based on information found in Sara Donnelly, “Staying in the Game,” Pharmaceutical Executive, May 2008, pp. 158–159; “Improving

Sales Force Effectiveness: Bayer’s Experiment with New Technol-

ogy,” Bayer Healthcare Pharmaceuticals, Inc., 2008, www.icmrindia

.org/casestudies/catalogue/Marketing/MKTG200.htm; Tanya Lewis,

“Concentric,” Medical Marketing and Media, July 2008, p. 59; www

.hydraframe.com/mobile/project_reprace.htm, accessed July 2012;

and Andrew Tolve, “Pharma Sales: How Simulation Can Help Reps

Sell,” Eye for Pharma, March 28, 2012, http://social.eyeforpharma

.com/sales/pharma-sales-how-simulation-can-help-reps-sell. For

more on e-learning, see Sarah Boehle, “Global Sales Training’s Bal-

ancing Act,” Training, January 2010, p. 29; and Henry Canaday, “The

Personal Virtual Classroom,” Selling Power, May/June 2011, p. 55.

13. For this and more discussion, see Joseph Kornak, “07 Compensa- tion Survey: What’s It All Worth?” Sales & Marketing Management,

May 2007, pp. 28–39; William L. Cron and Thomas E. DeCarlo,

Dalrymple’s Sales Management, 10th ed. (New York: John Wiley &

Sons Inc., 2009), p. 303; Ken Sundheim, “How Sales Professionals

Are Paid,” Salesopedia, www.salesopedia.com/compensation-

compensationdesign, accessed July 2012; and Alexander Group,

“2012 Sales Compensation Trends Survey Results,” January 6,

2012, www.alexandergroup.com/resources/survey-findings.

14. Susan Greco, “How to Reduce Your Cost of Sales,” Inc., March 5, 2010, www.inc.com/guide/reducing-cost-of-sales.html. Also see

Robert McGarvey, “Pay for Performance,” Selling Power, February

2011, p. 54.

15. See Charles Fifield, “Necessary Condition #3The Right Day-to-Day Operational Focus,” December 2010, www.baylor.edu/content/

services/document.php/127101.pdf. For another summary, see Gerhard

Gschwandtner, “How Much Time Do Your Salespeople Spend Selling?”

Selling Power, March/April 2011, p. 8.

16. Quote above from Lain Chroust Ehmann, “Sales Up!” Selling Power, January/February 2011, p. 40. Extract adapted from informa-

tion found in Pelin Wood Thorogood, “Sales 2.0: How Soon Will

It Improve Your Business?” Selling Power, November/December

2008, pp. 58–61; Gerhard Gschwandtner, “What Is Sales 2.0, and

Why Should You Care?” Selling Power, March/April 2010, p. 9.

Also see Michael Brenner, “The State of the Union in B2B Market-

ing,” January 25, 2011, www.b2bmarketinginsider.com/strategy/

the-state-of-the-union-in-b2b-marketing.

17. Adapted from information in Elizabeth A. Sullivan, “B-to-B Mar- keters: One-to-One Marketing,” Marketing News, May 15, 2009,

pp. 11–13. Also see Robert McGarvey, “All about Us: How the

Social-Community Phenomenon Has Affected B2B Sales,” Selling

Power, November/December 2010, p. 48; and Kim Wright Wiley,

“The Electronic Click,” Selling Power, January/February/March 2012,

pp. 14–16. For more on Makino’s social networking efforts, see www

.facebook.com/MakinoMachine, www.youtube.com/user/Makino

MachineTools, and http://twitter.com/#!/makinomachine, accessed

November 2012.

18. Quotes from David Thompson, “Embracing the Future: A Step by Step Overview of Sales 2.0,” Sales and Marketing Management,

July/August 2008, p. 21; and “Ahead of the Curve: How Sales 2.0

Will Affect Your Sales Process For the Better,” Selling Power, March/

April 2010, pp. 14–17. Also see Robert McGarvey, “All About Us,”

Selling Power, March 7, 2011, p. 48; Lain Chroust Ehmann, “Sales

Up!” Selling Power, January/February 2011, p. 40; and Kim Wright

Wiley, “The Electronic Click,” Selling Power, January/February/

March 2012, pp. 14–16.

19. John Graham, “Salespeople under Siege: The Profession Rede- fined,” Agency Sales, January 2010, pp. 20–25; Rick Phillips, “Don’t

Pressure, Persuade,” Selling Power, January/February 2010, p. 22;

and Bill Farquharson and T. J. Tedesco, “How to Build’ a Sales Rep,”

Printing Impressions, April 2011, p. 38.

20. Example based on information from James C. Anderson, Nirmalya Kumar, and James A. Narus, “Become a Value Merchant,” Sales &

Marketing Management, May 6, 2008, pp. 20–23; and “Business

Market Value Merchants,” Marketing Management, March/April

2008, pp. 31+. For more discussion and examples, see Heather

Baldwin, “Deeper Value Delivery,” Selling Power, September/

October 2010, p. 16.

21. Thomas P. Reilly, “Value-Added Selling Is Smart,” Selling Power, June 27, 2012, www.sellingpower.com/content/article.php?a=8917.

22. Making Connections: Trade Promotion Integration Across the Mar- keting Spectrum, Kantar Retail (Wilton, CT: Kantar Retail, July 2010),

p. 10.

23. “High Level of Promotions Pushes Down Grocery Spend,” Retail Week, September 13, 2011.

24. “Kroger Doubles Fuel Discount Opportunities for Summer,” May 25, 2012, http://www.csnews.com/top-story-kroger_doubles_fuel_

discount_opportunities_for_summer-61195.html; and www.kroger

.com/in_store/fuel/Pages/B1.aspx, accessed July 2012.

25. Shannon Bryant, “Consumers Saved $4.6 Billion Dollars in 2011 with Coupons,” Marketing Forecast, March 2, 2012, www.marketingforecast

.com/archives/17156.

Chapter 16 | Personal Selling and Sales Promotion 513 26. “Research and Market Adds Report: Mobile Coupons: Market Anal-

ysis and Forecasts,” Entertainment Close-Up, January 23, 2012;

and “New Research Reveals Shopping Behavior of Digital Coupon

Users,” Business Wire, April 2, 2012.

27. Based on information from “Walgreens Brings Mobile Couponing and Exclusive Offers to Smartphone Users Beginning Black Friday,”

November 17, 2011, http://news.walgreens.com/article_display

.cfm?article_id=5504; and Kunar Patel, “At Walgreens, a Mobile

Check-In Acts Like a Circular,” Advertising Age, February 8, 2012,

http://adage.com/print/232584/.

28. See www.happymeal.com/en_US/, accessed October 2012. 29. See “2011 Estimate of Promotional Products Distributor Sales,” www

.ppai.org/inside-ppai/research/Documents/2011%20SalesVolume%

20Sheet.pdf, accessed July 2011.

30. Adapted from information found in Patrick Hanlon, “Face Slams: Event Marketing Takes Off,” Forbes, May 9, 2012, www.forbes.com/sites/

patrickhanlon/2012/05/09/face-slams-event-marketing-takes-off/;

and www.redbull.com/cs/Satellite/en_INT/Events/001242745950157

and www.redbull.com/cs/Satellite/en_INT/Red-Bull.com/HolyShit/

011242745950125, accessed July 2012. The referenced wing suit

flying video can be found at http://player.vimeo.com/video/31481531?

autoplay=1.

31. Making Connections: Trade Promotion Integration Across the Mar- keting Spectrum, Kantar Retail, p. 10.

32. See “About CES: Attendee Profile,” accessed at www.cesweb.org/ aboutces.asp, May 2012; and “Bauma 2010 Closing Report,” www

.bauma.de/en/Press/Closingreport, accessed October 2012.

the power to share.” It’s a place where friends and family meet,

share their stories, display their photos, and chronicle their lives.

Hordes of people have made Facebook their digital home.

By wielding all of that influence, Facebook has the poten-

tial to become one of the world’s most powerful and profitable

online marketers. Yet the burgeoning social network is only now

beginning to realize that potential. Although Facebook’s mem-

bership exploded from the very start, CEO Mark Zuckerberg

and the network’s other idealistic young co-founders gave lit-

tle thought to making money. They actually opposed running

ads or other forms of marketing, worried that marketing might

damage Facebook’s free (and commercial-free) sharing culture.

So instead they focused on simply trying to manage the online

revolution they’d begun.

In fact, without any help from Facebook, companies them-

selves were first to discover the network’s commercial value.

Most brands—small and large—have now built their own

Part 1: Defining Marketing and the Marketing Process (Chapters 1–2)

Part 2: Understanding the Marketplace and Consumers (Chapters 3–6)

Part 3: Designing a Customer-Driven Strategy and Mix (Chapters 7–17)

Part 4: Extending Marketing (Chapters 18–20)

Direct and Online Marketing Building Direct Customer

Relationships 17

Chapter Preview In the previous three chap-

ters, you learned about

communicating customer value through integrated market-

ing communication and about four elements of the marketing

communications mix: advertising, publicity, personal selling,

and sales promotion. In this chapter, we examine direct mar-

keting and its fastest-growing form, online marketing. Actually,

direct marketing can be viewed as more than just a communi-

cations tool. In many ways it constitutes an overall marketing

approach—a blend of communication and distribution chan-

nels all rolled into one. As you read this chapter, remember

that although direct marketing is presented as a separate tool,

it must be carefully integrated with the other elements of the

promotion mix.

Let’s start by looking at Facebook, a company that exists only

online. The giant online social network promises to become one of

the world’s most powerful and profitable online marketers. Yet, as

a marketing company, Facebook is just getting started.

Facebook: “We Are One Percent Done With Our Mission”

T he world is rapidly going social and online. And no

company is more social or more online than Facebook.

The huge online social network has a deep and daily

impact on the lives of hundreds of millions of mem-

bers around the world. Yet Facebook is now grappling with a

crucial question: How can it profitably tap the marketing poten-

tial of its massive community to make money without driving

off its legions of loyal users?

Facebook is humongous. In little more than eight years,

it has signed up more than 850 million members—one-eighth

of the world’s population. Every 60 seconds, Facebook users

share 700,000 messages, update 95,000 statuses, write 80,000

wall posts, tag 65,000 photos, share 50,000 links, and write a

half-million comments affirming or disparaging all that activity.

Facebook’s U.S. members alone log a combined equivalent of

more than 100,000 person-years on the site every month.

With that many eyeballs glued to one virtual space for that

much time, Facebook has tremendous impact and influence, not

just as a sharing community but also as an Internet

gateway. It is the default home page for many

users, and some users have it on their

screens 24/7. But Facebook’s power

comes not just from its size and om-

nipresence. Rather, it lies in the deep

social connections between users.

Facebook’s mission is “Giving people

Online social network Facebook is grappling with a crucial question: How can

it profitably tap into its massive marketing potential to make money without driving off its legions

of loyal users?

Chapter 17 | Direct and Online Marketing: Building Direct Customer Relationships 515

Miramax to make streamed mov

ies available within the Facebook

community.

In line with its goal to keep

everything within the commu

nity, Facebook has even entered

the banking business. That’s right,

banking. Facebook Payments—an

offi cial Facebook subsidiary—lets

businesses and customers make

purchase transactions by exchanging various world currencies

for Facebook Credits. Facebook’s banking activities over the

past few years amount to a declaration of war on payment pro

viders such as PayPal and Google Wallet. In only three years,

Facebook Payments revenues have grown to $557 million.

That’s only a fraction of PayPal’s $4.4 billion revenues, but with

presence, it could quickly pass PayPal as the online payments

leader. Perhaps more impressive, Facebook Credits could be

come a powerful global currency all by itself.

Will increased marketing on Facebook alienate loyal Face

book fans? Not if it’s done right. Research shows that online

vertising and marketing. Tasteful and appropriately targeted

offers can enhance rather than detract from the Facebook user

experience. “We’ve found, frankly, that users are getting more

value [because of our marketing efforts],” says a Facebook mar

keting executive, so that companies are “getting value by put

ting more [marketing] in.”

It’s too soon to say whether Facebook will eventually chal

lenge the likes of Google in online advertising or whether its

ability to sell entertainment to users will ever expand into sell

ing other types of products on a large scale. But its immense,

closely knit social network gives Facebook staggering poten

tial. As a marketing company, Facebook is just getting started.

Carolyn Everson, Facebook’s vice president of global sales,

sums up Facebook’s growth potential this way: “I’m not sure

the marketing community understands our story yet. We evolve

so quickly. We have a saying here: ‘We are one percent done

with our mission.’”1

Facebook pages, gaining free and relatively easy

potential. Today, people “like” a Facebook brand

page 50 million times every day. At one extreme,

The Runcible Spoon Bakery in Nyack, New York,

has 227 Facebook fans. At other extremes, the

Facebook—has 43.4 million.

As the company has matured, however, Face

book has come to realize it must make its own mar

keting and moneymaking moves. If it doesn’t make

money, it can’t continue to serve its members. So

Facebook has changed its philosophy on advertis

ing. Today, companies can place display or video

ads on users’ home, profi le, or photo pages. The ads

are carefully targeted based on user profi le data. But

taking advantage of the core characteristics of its

site, Facebook offers “engagement ads” designed to

blend in with regular user activities. Users can inter

act with the ads by leaving comments, making recom

mendations, clicking the “like” button, or following a link to a

One version of engagement advertising is “sponsored sto

ries,” by which one member’s interactions with a brand appear

in the news feeds on their friends’ Facebook pages. For example,

if you see an item that says “Harry Gold: Second time today at

Starbucks with Jenny Novak,” followed by a Starbucks logo and

link, Starbucks paid a fee for the placement. The organic feel of

these sponsored stories increases user involvement by making

the ad feel like just another part of the Facebook experience.

Advertising is proving to be a real moneymaker for Face

book. Its ad revenues increased 69 percent last year, helping to

boost Facebook’s overall revenue by 88 percent to $3.71 billion.

Facebook charges companies nothing to create and maintain fan

pages, but the fan pages and advertising interact as a part of

a brand’s integrated Facebook presence. Brands advertise on

Facebook to spark consumer conversations and draw attention

to the experiences created on the brand’s fan pages.

But advertising is only the tip of the marketing iceberg for

Facebook. Other moneymaking ventures are growing even faster

than advertising. As a global gathering place where people spend

time with friends, Facebook is also a natural for selling entertain

ment. For instance, take social gaming, one of the most popular

activities on Facebook. Millions of people log on each month to

play games from developers such as Playmonk, Geewa, wooga,

and Zynga. Users play the games for free, but the developers

make money by selling virtual goods that enhance the playing

experience. And Facebook gets 30 percent of every dollar spent.

Zynga—which offers the six most popular games on Facebook—

by itself contributed 12 percent of Facebook’s revenues last year.

Facebook now hopes to duplicate its gaming successes with

other forms of entertainment. For example, recognizing that

members often exit the Facebook environment to listen to music

or watch movies, the social network is now providing more of

these services to keep people at the site. For instance, Facebook

that’s giving Pandora a run for its money. Similarly, Facebook

has moved into the movie rental business, partnering with con

tent providers such as Warner Bros., Paramount, Universal, and

The burgeoning young

Facebook online social

network is only now

beginning to realize its

staggering marketing

potential. It “helps you

connect and share with

the people in your life.”

Justin Sullivan /Getty Images

516 Part 3 |

Objective Outline

Objective 1 Defi ne direct marketing and discuss its benefi ts to customers and companies.

The New Direct Marketing Model (pp 516–517)

Growth and Benefi ts of Direct Marketing (pp 517–518)

Customer Databases and Direct Marketing (pp 518–521)

Objective 2 Identify and discuss the major forms of direct marketing.

Forms of Direct Marketing (pp 521–524)

Objective 3 Explain how companies have responded to the Internet and other powerful new technologies with online marketing strategies.

Online Marketing (pp 524–528)

Objective 4 Discuss how companies go about conducting online marketing to profi tably deliver more value to customers.

Setting Up an Online Marketing Presence (pp 528–535)

Objective 5 Overview the public policy and ethical issues presented by direct marketing.

Public Policy Issues in Direct Marketing (pp 536–538)

Many of the marketing and promotion tools that we’ve examined in previous chap ters were developed in the context of mass marketing: targeting broad markets with stan dardized messages and offers distributed through intermediaries. Today, however, with

the trend toward narrower targeting and the surge in digital technologies, many companies

are adopting direct marketing, either as a primary marketing approach or as a supplement to other approaches. In this section, we explore the exploding world of direct marketing.

Direct marketing consists of connecting directly with carefully targeted consumers, often

offers and communications to the needs of narrowly defi ned segments or individual buyers.

Beyond brand and relationship building, direct marketers usually seek a direct, imme

diate, and measurable consumer response. For example, Amazon.com interacts directly with

customers via its Web site or mobile app to help them discover and buy almost anything and

everything on the Internet. Similarly, GEICO interacts directly with customers—by telephone,

through its Web site or phone app, or on its Facebook, Twitter, and YouTube pages—to build in

dividual brand relationships, give insurance quotes, sell policies, or service customer accounts.

The New Direct Marketing Model Early direct marketers—catalog companies, direct mailers, and telemarketers—gathered

customer names and sold goods mainly by mail and telephone. Today, however, spurred

Direct marketing

Objective 1 Defi ne direct marketing and

discuss its benefi ts to customers

and companies.

Chapter 17 | Direct and Online Marketing: Building Direct Customer Relationships 517 by rapid advances in database technologies and new interactive media—

especially the Internet—direct marketing has undergone a dramatic

transformation.

In previous chapters, we discussed direct marketing as direct

distribution—as marketing channels that contain no intermediaries. We

also included direct marketing as one element of the promotion mix—

as an approach for communicating directly with consumers. In actual

ity, direct marketing is both of these things and more.

Most companies still use direct marketing as a supplementary chan

nel or medium. Thus, most department stores, such as Sears or Macy’s,

sell the majority of their merchandise off their store shelves, but they

also sell through direct mail and online catalogs. Lexus markets mostly

However, it also supplements these channels with direct marketing, such

to prospective buyers. Its brand Web site provides prospective custom

ers with information about various models, competitive comparisons,

fi nancing, and dealer locations. And its Lexus Drivers Web site, YouTube

channel, and Facebook page assist and build community among current

and future Lexus owners.

However, for many companies today, direct marketing is more than

just a supplementary channel or advertising medium—it constitutes a

complete model for doing business. Firms employing this direct model use it as the only approach. Companies such as Amazon, eBay, Priceline, Netfl ix, and GEICO have built their entire approach to the marketplace

around direct marketing. Many, like Amazon.com, have employed this

model with tremendous success.

Growth and Benefi ts of Direct Marketing

rect Marketing Association (DMA), U.S. companies spent almost $163 billion on direct and

$2 trillion, accounting for 8.7 percent of the U.S. economy. The DMA estimates that direct

marketing sales will grow 4.9 percent annually through 2016, compared with a projected

4.1 percent annual growth for total U.S. sales. 2

ers spent an estimated $31 billion on online advertising last year, a whopping 22 percent

increase over the previous year. These efforts generated more than $202 billion in online

consumer spending. The DMA predicts that over the next fi ve years, Internet marketing 3

Benefi ts to Buyers For buyers, direct marketing is convenient, easy, and private. Direct marketers never close

their doors, and customers don’t have to trek to and through stores to fi nd products. From

almost any location, customers can shop online at any time of the day or night. Likewise, busi

ness buyers can learn about products and services without tying up time with salespeople.

Direct marketing gives buyers ready access to a wealth of products. Direct market

ers can offer an almost unlimited selection to customers almost anywhere in the world.

Just compare the huge selections offered by many online merchants to the more meager

ternet’s number one light bulb superstore, and you’ll have instant access to every imagin

able kind of light bulb or lamp—incandescent bulbs, fl uorescent bulbs, projection bulbs,

surgical bulbs, automotive bulbs—you name it. Similarly, direct retailer Zappos.com stocks

millions of shoes, handbags, clothing items, accessories, and housewares from more than

1,000 brands. No physical store could offer handy access to such vast selections.

Direct marketing channels also give buyers access to a wealth of comparative infor

mation about companies, products, and competitors. Good catalogs or online sites often

The new direct marketing model: Companies such

as GEICO have built their entire approach to the

marketplace around direct marketing—just visit

All text and images are copy written with permission

from GEICO

518 Part 3 | provide more information in more useful forms than even the most helpful retail salesper

son can provide. For example, Amazon.com offers more information than most of us can

user product reviews to recommendations based on customers’ previous purchases.

Finally, direct marketing is immediate and interactive: Buyers can interact with sellers

by phone or on the seller’s Web site to create exactly the confi guration of information, prod

ucts, or services they desire and then order them on the spot. Moreover, direct marketing

gives consumers a greater measure of control. Consumers decide which catalogs they will

browse and which online sites they will visit.

Benefi ts to Sellers For sellers, direct marketing is a powerful tool for building customer relationships.

Today’s direct marketers can target small groups or individual customers. Because of the

or online, learn more about their needs, and personalize products and services to specifi c

customer tastes. In turn, customers can ask questions and vol

unteer feedback.

speedy alternative for reaching their markets. Direct marketing has

sales force. When personal sales calls cost an average of $350 or

more per contact, they should be made only when necessary and to 4

Internet sites—often prove more cost effective.

Similarly, online direct marketing results in lower costs, im

proved effi ciencies, and speedier handling of channel and logis

tics functions, such as order processing, inventory handling, and

delivery. Direct marketers such as Amazon.com and Netfl ix also

avoid the expense of maintaining stores and the related costs of

rent, insurance, and utilities, passing the savings along to custom

ers. Direct marketing can also offer greater fl exibility. It allows

marketers to make ongoing adjustments to prices and programs or

make immediate, timely, and personal announcements and offers.

Especially in today’s digital environment, new direct

marketing tools provide rich opportunities for building close,

personalized, interactive customer relationships. For example,

Nam Kee knew that their target market was notoriously hard

to reach using traditional marketing channels, so they devised

a strategy utilise social media, email, and mobile marketing to

promote their new restaurant (see Real Marketing 17.1).

Finally, direct marketing gives sellers access to buyers that

they could not reach through other channels. Smaller fi rms can

mail catalogs to customers outside their local markets and post

medium that allows buyers and sellers to click from one country to another in seconds. A Inter

net user from Paris or Istanbul can access an L.L.Bean online catalog as easily as someone living

in Freeport, Maine, the direct retailer’s hometown. Even small marketers fi nd that they have

ready access to global markets.

Customer Databases and Direct Marketing Effective direct marketing begins with a good customer database. A customer database

is an organized collection of comprehensive data about individual customers or prospects.

better than what it knows about its customers.

Customer database

Internet marketing is a truly global medium. Using L.L.Bean’s

online catalog, an Internet user from Paris or Istanbul can access

an L.L.Bean catalog as easily as someone living in Freeport,

Maine, the direct retailer’s hometown.

L.L.Bean Inc.

Chapter 17 | Direct and Online Marketing: Building Direct Customer Relationships

To ensure that the targeted Younger

Real Marketing Nam Kee Noodle Shop: Using Direct Marketing

Digital direct marketing: Nam Kee’s direct marketing strategy employs a wide range

Part 3 |

In consumer marketing, the customer database might contain a customer ’s geo

graphic data (address, region), demographic data (age, income, family members, birth

days), psychographic data (activities, interests, and opinions), and buying behavior

(buying preferences and the recency, frequency, and monetary value [RFM] of past pur

the customer has bought, past volumes and prices, key contacts, competing suppliers,

the status of current contracts, estimated future spending, and competitive strengths and

weaknesses in selling and servicing the account.

Some of these databases are huge. For example, Walmart captures data from more than

1 million customer transactions every hour, resulting in a database containing more than 2.5

petabytes of data—that’s equivalent to some 1,200 billion pages of standard printed text. As

maintains a customer database on more than 60 mil

lion U.S. households, including transaction data and

home value, and many other factors. It uses the data

tailored to the needs of individual customers.5

Companies use their databases in many ways.

They use databases to locate good potential custom

ers and generate sales leads. They also mine their da

tabases to learn about customers in detail and then

to the special preferences and behaviors of target seg

ments or individuals. In all, a company’s database can

customer relationships.

For example, retailer Best Buy mines its huge

customer database to glean actionable insights, which

it uses to personalize promotional messages and offers:6

tains seven years of data on more than 75 million

customer households. The retail chain captures every

scrap of store and online interaction data—from pur

chase transactions to phone calls and mouse clicks to

delivery and rebate check addresses—and merges it

Customer databases: Best Buy mines its huge database to glean

actionable insights on customer interests, lifestyles, passions, and likely

triggered promotional messages and offers.

Sources: Hong Kong Eco

nomic Times,

The Sun,

Ming Pao,

Next Media,

Chapter 17 | Direct and Online Marketing: Building Direct Customer Relationships 521

lifestyles, and passions, and use this information to identify their likely next purchases. Based on

and offers. So if your previous interactions suggest that you are a young tech enthusiast assem

bling a home entertainment system, and you recently used Best Buy’s smartphone app to look up

mobile coupon offering discounts on that and related products.

Forms of Direct Marketing The major forms of direct marketing—as shown in Figure 17.1

vision (DRTV) marketing, kiosk marketing, and online marketing. We examined personal

selling in depth in Chapter 16. Here, we look into the other forms of direct marketing.

involves sending an offer, announcement, reminder, or other item

to a person at a particular address. Using highly selective mailing lists, direct marketers

send out millions of mail pieces each year—letters, catalogs, ads, brochures, samples, vid

eos, and other “salespeople with wings.” Direct mail is by far the largest direct marketing

medium. The DMA reports that U.S. marketers spent more than $50 billion on direct mail

last year (including both catalog and noncatalog mail), which accounted for 30 percent of all

direct marketing spending and generated 31 percent of all direct marketing sales. Accord

ing to the DMA, every dollar spent on direct mail generates $12.57 in sales.7

market selectivity, can be personalized, is fl exible, and allows the easy measurement of

results. Although direct mail costs more per thousand people reached than mass media

such as television or magazines, the people it reaches are much better prospects. Direct mail

has proved successful in promoting all kinds of products, from books, insurance, travel,

gift items, gourmet foods, clothing, and other consumer goods to industrial products of all

kinds. Charities also use direct mail heavily to raise billions of dollars each year.

Objective 2 Identify and discuss the major

forms of direct marketing.

FIGURE | 17.1

What these many diverse marketing tools have in common is that they reach selected customers directly, and often interactively, building

522 Part 3 | Some analysts predict a decline in the use of traditional forms of direct mail in coming

speeds and lower costs compared to the U.S. Post Offi ce’s “snail mail” pace. We will discuss

However, even though the new digital forms of direct marketing are gaining popular

ity, traditional direct mail is still by far the most widely used method. Mail marketing offers

some distinct advantages over digital forms. It provides something tangible for people to

hold and keep and it can be used to send samples. “Mail makes it real,” says one analyst. It

“creates an emotional connection with customers that digital cannot. They hold it, view it,

and engage with it in a manner entirely different from their online experiences.” In contrast,

saging away from consumers’ inboxes,” says a direct marketer, “sometimes you have to lick

a few stamps.”8

Traditional direct mail can be an effective component of a broader integrated market

ing campaign. For example, most large insurance companies rely heavily on TV advertising

to establish broad customer awareness and positioning. However, the insurance companies

also use lots of good old direct mail to break through the glut of insurance advertising on

TV. Whereas TV advertising talks to broad audiences, direct mail communicates in a more

direct and personal way. “Mail is a channel that allows all of us to fi nd the consumer with

a very targeted, very specifi c message that you can’t do in broadcast,” says John Ingersoll,

vice president of marketing communications for Farmers Insurance. And “most people are

still amenable to getting marketing communications in their mailbox, which is why I think

direct mail will grow.”9

Direct mail may be resented as junk mail or spam if sent to people who have no interest in it. For this reason, smart marketers are targeting their direct mail carefully so as not to

that send direct mail only to those who want to receive it.

Catalog Marketing

ing, have resulted in exciting changes in catalog marketing. Catalog Age magazine used to defi ne a catalog as “a printed, bound piece of at least eight pages, selling multiple products, and offering a direct ordering mechanism.” Today, this defi nition is sadly out

of date.

With the stampede to the Internet, more and more catalogs are

smartphone catalog shopping apps to their marketing mixes. For

example, apps such as Catalog Spree put a mall full of classic cata

logs from retailers such as Neiman Marcus, Merrell, Hammacher

Schlemmer, Coldwater Creek, or Sephora only a swipe of the fi n

ger away on a smartphone or tablet. And days before the latest

Lands’ End catalog arrives in the mail, customers can access it digi

tally at landsend.com, at social media outlets such as Facebook, or

via the Lands’ End mobile app. With Lands’ End Mobile, says the

company, “You’re carrying every item we carry.”10

Digital catalogs eliminate printing and mailing costs. And

whereas space is limited in a print catalog, online catalogs can of

fer an almost unlimited amount of merchandise. They also offer

a broader assortment of presentation formats, including search

products and features can be added or removed as needed, and

prices can be adjusted instantly to match demand.

However, despite the advantages of digital catalogs, as your

overstuffed mailbox may suggest, printed catalogs are still thriv

ing. U.S. direct marketers mailed out some 12.5 billion catalogs

last year—more than 100 per American household. Why aren’t

Catalog marketing

digital catalogs that are mailed to select

More and more catalogs are going digital: Days before

the latest Lands’ End catalog arrives in the mail, customers

can access it digitally at landsend.com, at Facebook, or via

the Lands’ End mobile app. With Lands’ End Mobile, “You’re

carrying every item we carry.”

Photo courtesy of Gary Armstrong

Chapter 17 | Direct and Online Marketing: Building Direct Customer Relationships 523

paper catalogs create emotional connections with customers that digital sales spaces simply

can’t. “Glossy catalog pages still entice buyers in a way that computer images don’t,” says

an analyst.11

In addition, printed catalogs are one of the best ways to drive online sales, making them

more important than ever in the digital era. According to a recent study, 70 percent of online

purchases are driven by catalogs. Another study found that consumers who received catalogs

from the retailer spent 28 percent more on that retailer’s Web site than those who didn’t get a

ing catalogs with the hopes of driving online sales.12

Telemarketing Telemarketing involves using the telephone to sell directly to consumers and business cus

driven sales. We’re all familiar with telephone marketing directed toward consumers, but

telephone marketing sales.13 Marketers use outbound telephone marketing to sell directly to consumers and businesses. They also use inbound receive orders from television and print ads, direct mail, or catalogs.

Properly designed and targeted telemarketing provides many ben

efi ts, including purchasing convenience and increased product and service

information. However, the explosion in unsolicited outbound telephone

marketing over the years annoyed many consumers, who objected to the

almost daily “junk phone calls.” In 2003, U.S. lawmakers responded with

the National Do Not Call Registry, which is managed by the Federal Trade

Commission (FTC). The legislation bans most telemarketing calls to reg

istered phone numbers (although people can still receive calls from non

profi t groups, politicians, and companies with which they have recently

done business). Consumers responded enthusiastically. To date, more than

209 million home and mobile phone numbers have been registered at www

laws can be fi ned up to $16,000 per violation. As a result, reports an FTC

spokesperson, the program “has been exceptionally successful.”14

ing industry. However, two major forms of telemarketing—inbound

tions appear to be helping some direct marketers more than it’s hurting

them. Rather than making unwanted calls, many of these marketers are

mation and offers to customers who have invited the company to contact

marketers than the formerly invasive one.

response television advertising and interactive TV (iTV) advertising. Using

television advertising, direct marketers air television spots, often 60 or 120 seconds in length,

cials, for a single product.

treatment and other “transformational” products into power brands that pull in $1.8 billion

in sales annually to 5 million active customers (compare that to only about $150 million in

annual drugstore sales of acne products in the United States).15

receive orders from television and print ads, direct mail,

or catalogs. Here, the Carolina Cookie Company urges,

“Don’t wait another day. Call now to place an order or

request a catalog.”

Carolina Cookie Company

Telemarketing

524 Part 3 | DRTV ads are often associated with somewhat loud or questionable pitches for clean

ers, stain removers, kitchen gadgets, and nifty ways to stay in shape without working very

Sullivan (Swivel Sweeper, Awesome Auger) and Vince Offer (ShamWow, SlapChop) have

racked up billions of dollars in sales of “As Seen on TV” products. Brands like OxiClean,

ShamWow, and the Snuggie (a blanket with sleeves) have become DRTV cult classics. And

infomercial viral sensation PajamaJeans (“Pajamas you live in, Jeans you sleep in”) created

buzz on everything from YouTube to The Tonight Show, selling more than 2 million pairs at $39.95 each, plus $7.95 shipping and handling.16

In recent years, however, a number of large companies—from P&G, Disney, Revlon,

begun using infomercials to sell their wares, refer customers to retailers, recruit members,

or attract buyers to their online sites.

interactive TV (iTV), which lets viewers interact with television programming and advertising. Thanks to tech

tablets, consumers can now use their TV remotes, phones, or other devices to obtain more

information or make purchases directly from TV ads. Also, increasingly, as the lines con

tinue to blur between TV screens and other video screens, interactive ads and infomercials

are appearing not just on TV, but also on mobile, online, and social media platforms, adding

Kiosk Marketing

nologies, many companies are placing information and ordering machines—called ki osks hotels, college campuses, and other locations. Kiosks are everywhere these days, from

in the store. “Vending machines, which not long ago had mechanical levers and coin

trays, now possess brains,” says one analyst. Many modern “smart kiosks” are now

them guess gender and age and make product recommendations based on that data.17

in grocery, drug, and mass merchandise stores

grind and brew fresh coffee beans and serve

ers around the clock. Redbox operates more

than 30,000 DVD rental kiosks in McDonald’s,

Walmart, Walgreens, CVS, Family Dollar, and

other retail outlets— customers make their selec

tions on a touch screen, then swipe a credit or

debit card to rent DVDs at $1 a day.

osks called ZoomShops for retailers ranging from

Apple, Sephora, and The Body Shop to Macy’s

and Best Buy. For example, 100 Best Buy Ex

press ZoomShop kiosks across the country—

conveniently located in airports, busy malls,

military bases, and resorts—automatically dis

pense an assortment of portable media players,

digital cameras, gaming consoles, headphones,

phone chargers, travel gadgets, and other popu

lar products. According to ZoomSystems, today’s

automated retailing “offers [consumers] the con

venience of online shopping with the immediate

gratifi cation of traditional retail.”18

Kiosk marketing: ZoomShop kiosks across the country automatically

dispense an assortment of popular consumer electronics products. This

ZoomShop is located in a Macy’s store and features Apple products among

others.

ZoomSystems

Chapter 17 | Direct and Online Marketing: Building Direct Customer Relationships 525

Online Marketing As noted earlier, online marketing

spread use of the Internet is having a dramatic impact on both buyers and the market

ers who serve them. In this section, we examine how marketing strategy and practice are

changing to take advantage of today’s Internet technologies.

Marketing and the Internet Much of the world’s business today is carried out over digital networks that connect people

and companies. The Internet, a vast public web of computer networks, connects users of

all types all around the world to each other and an amazingly large information repository.

These days, people connect with the Internet at almost any time and from almost anywhere

using their computers, smartphones, tablets, or even TVs and gaming devices. The Internet

has fundamentally changed customers’ notions of convenience, speed, price, product infor

mation, and service. As a result, it has given marketers a whole new way to create value for

customers and build relationships with them.

Internet usage and impact continues to grow steadily. More than 80 percent of all U.S.

households now use the Internet, and the average U.S. Internet user spends some 32 hours

a month online. Moreover, more than 63 million people in the United States access the

Internet via their smartphones. Worldwide, more than 2 billion people now have Internet

access. And 1 billion people around the globe access the mobile Internet, a number that’s

to get online.19

To reach this burgeoning market, all kinds of companies now market online.

only companies operate on the Internet only. They include a wide array of fi rms, from

such as Amazon.com and Expedia.com that sell products and services directly to

fi nal buyers via the Internet to search engines and portals (such as Yahoo!, Google, and MSN), transaction sites (eBay, Craigslist), content sites (the New York Times on the Web, ESPN.com,

and Encyclopædia Britannica), and online social networks (Facebook, YouTube, Pinter est, Twitter, and Flickr).

manufactur

ers and retailers to reexamine how they serve their markets. Now, almost all of

these traditional companies have created their own online sales and communica

tions channels, becoming . It’s hard to fi nd a com

pany today that doesn’t have a substantial online presence.

was ranked number one). All the others were multichannel retailers.20 For

example, number two on the list was Staples, the $25 billion offi ce supply re

tailer. Staples operates more than 2,295 superstores worldwide. But you might

be surprised to learn that more than 42 percent of Staples’ sales come from its

online marketing operations.21

Selling on the Internet lets Staples build deeper, more personalized relationships with

customers large and small. A large customer, such as GE or P&G, can create lists of ap

proved offi ce products at discount prices and then let company departments or even

individuals do their own online purchasing. This reduces ordering costs, cuts through

the red tape, and speeds up the ordering process for customers. At the same time, it en

courages companies to use Staples as a sole source for offi ce supplies. Even the smallest

or Staples mobile app easier and more effi cient.

In addition, Staples’ online operations complement store sales. The Staples.com

site and mobile app build store traffi c by offering hot deals and by helping customers

fi nd a local store and check stock and prices. In return, the local store promotes online

they can quickly order it via the kiosk. Thus, Staples backs its “that was easy” posi

tioning by offering a full range of contact points and delivery modes—online, mobile,

of call, click, or visit convenience and support.

Objective 3 Explain how companies have

responded to the Internet and

other powerful new technologies

with online marketing strategies.

Online marketing

Internet

its “that was easy” positioning by offering a full

range of contact points and delivery modes.

Courtesy of Staples the Office Superstore, LLC & Staples, Inc.

526 Part 3 |

Online Marketing Domains The four major online marketing domains are shown in Figure 17.2

The popular press has paid the most attention to

online marketing—businesses selling goods and services online to fi nal consumers.

Today’s consumers can buy almost anything online. More than half of all U.S. households

now regularly shop online, and online consumer buying continues to grow at a healthy

expected to grow 62 percent to $327 billion by 2016 as consumers shift their spending from

physical to online stores.22

Perhaps even more important, although online shopping currently captures 7 percent

of total U.S. retail sales, by one estimate, the Internet infl uences a staggering 48 percent of

total sales—including sales transacted online plus those made in stores but encouraged by

online research.23 And a growing number of consumers armed with smartphones use them

ers are employing integrated multichannel strategies that use the Internet to drive sales to

other marketing channels.

Online shopping differs from traditional offl ine shopping in both consumer approaches

to buying and consumer responses to marketing. In the online exchange process, custom

ers initiate and control the contact. Buyers actively select which online sites and shopping

apps they will use and what marketing information they will receive about which products.

Thus, online marketing requires new marketing approaches.

reach new business customers, sell to current customers, and serve customers more effi

ciently and effectively. Beyond simply selling their products and services online, companies

can use the Internet to build stronger relationships with important business customers.

ing equipment and software maker Cisco Systems’ Internet site (www.cisco.com), select

detailed descriptions of Cisco’s products and service solutions, request sales and service

information, attend events and training seminars, view videos on a wide range of topics,

have live chats with Cisco staff, and place orders. They can visit Cisco’s Facebook page and

YouTube channel to hook into the Cisco network, view informational and instructional vid

eos, and much more. Some major companies conduct almost all of their business online. For

example, Cisco Systems takes more than 80 percent of its orders over the Internet.

Considerable and communica

tion occurs online between interested parties over a wide range of products and subjects.

In some cases, the Internet provides an excellent means by which consumers can buy or

exchange goods or information directly with one another. For example, eBay, Overstock

online marketing

Businesses using online marketing to

online marketing

to businesses

to consumers

by consumer

by businessOnline marketing can be classified by who

initiates it and to whom it is targeted. As consumers, we’re most familiar with

flourishing.

FIGURE | 17.2

Online Marketing Domains

Chapter 17 | Direct and Online Marketing: Building Direct Customer Relationships 527 .com Auctions, Craigslist.com, and other auction sites offer popular market spaces for

displaying and selling almost anything, from art and antiques, coins and stamps, and

of more than 99 million active users worldwide (that’s more than the total populations

of Great Britain, Egypt, or Turkey) transacted some $60 billion in trades last year—more

than $1,900 every second.24

mercial or noncommercial purposes. Web logs, or blogs, are online journals where people

post their thoughts, usually on a narrow topic. Blogs can be about anything, from politics

or baseball to haiku, car repair, or the latest television series. According to one study, there

are now more than 164 million blogs. Many bloggers use social networks such as Twitter

and Facebook to promote their blogs, giving them huge reach. Such numbers give blogs—

especially those with large and devoted followings—substantial infl uence.25

Many marketers are now tapping into the blogosphere as a medium for reaching

carefully targeted consumers. For example, most large companies have set up their own

blogs. Sony has a PlayStation Blog, where fans can exchange views and submit and vote

on ideas for improving PlayStation products. The Disney Parks Blog is a place to learn

about and discuss all things Disney, including a Behind the Scenes area with posts about

dance rehearsals, sneak peeks at new construction sites, interviews with employees,

and more.

Dell has a dozen or more blogs that facilitate “a direct exchange with Dell custom

ers about the technology that connects us all.” The blogs include Direct2Dell (the offi cial

Dell corporate blog), Dell TechCenter (IT brought into focus), DellShares (insights for

investor relations), Health Care (about health care technology that connects us all), and

Education (insights on using technology to enhance teaching, learning, and educational

administration). Dell also has a very active and successful YouTube presence that it calls

DellVlog, with 1,700 videos and more than 13 million video views. Dell bloggers often

embed these YouTube videos into blog posts.26

Companies can also advertise on existing blogs or infl uence content there. They might

even encourage “sponsored conversations” by infl uential bloggers. One recent survey

out.27 For example, McDonald’s systematically reaches out to key “mommy bloggers,”

out choices:28

Illinois. The bloggers toured the facilities (including

the companies test kitchens), met McDonald’s USA

president Jan Fields, and had their pictures taken

with Ronald at a nearby Ronald McDonald House.

McDonald’s knows how important such influencers

can be. “Bloggers, and specifically mom bloggers,

talk a lot about McDonald’s,” says the company’s di

rector of social media. “They’re customers. They’re

going to restaurants. And even more important, these

women have loyal followings.” So McDonald’s is

turning the bloggers into believers by giving them a

McDonald’s doesn’t try to tell the bloggers what

to say in their posts about the visit. It simply asks them

to write one honest recap of their trip. As you might ex

pect, however, the resulting posts (each acknowledging

the blogger ’s connection with McDonald’s) were mostly

very positive. Thanks to this and many other such ef

forts, mommy bloggers around the country are now

more informed about and connected with McDonald’s.

“I know they have smoothies and they have yogurt and

they have other things that my kids would want,” says

one prominent blogger. “I really couldn’t tell you what

Burger King’s doing right now,” she adds. “I have no

idea.”

Blogs

Using the blogosphere to reach carefully targeted consumers:

McDonald’s reaches out to inform key “mommy bloggers,” those who in

turn infl uence the nation’s homemakers.

Courtesy of Grace Biskie, www.gabbingwithgrace.com

528 Part 3 | As a marketing tool, blogs offer some advantages. They can offer a fresh, original, per

sonal, and cheap way to enter into consumer online conversations. However, the blogo

companies can sometimes leverage blogs to engage in meaningful customer relationships,

consumers remain largely in control.

just consume product information—increasingly, they create it. Marketers should use in

sights from consumer online conversations to improve their marketing programs.

Consumer to Business The fi nal online marketing domain is

marketing. Thanks to the Internet, today’s consumers are fi nding it easier to communicate

with companies. Most companies now invite prospects and customers to submit sugges

tions and questions via company Web and mobile sites. Beyond this, rather than waiting

for an invitation, consumers can search out sellers online, learn about their offers, initiate

purchases, and give feedback. Consumers can even drive online transactions with busi

can bid for airline tickets, hotel rooms, rental cars, cruises, and vacation packages, leaving

the sellers to decide whether to accept their offers.

Consumers can also use Web sites such as GetSatisfaction.com, Complaints.com,

and PlanetFeedback.com to ask questions, offer suggestions, lodge complaints, or deliver

where customers ask questions, share ideas, give praise, or report problems they’re hav

ing with the products and services of 65,000 companies—from Microsoft and P&G to

Google and Zappos.com—whether the company participates or not. GetSatisfaction.com

also provides tools by which companies can adopt GetSatisfaction.com as an offi cial cus

tomer service resource.29

Setting Up an Online Marketing Presence In one way or another, most companies have now moved online. Companies conduct on

line marketing in any or all of the fi ve ways shown in Figure 17.3: creating Web sites,

placing ads and promotions online, setting up or participating in online social networks,

Creating Web Sites For most companies, the fi rst step in conducting online marketing is to create a Web site.

However, beyond simply creating a Web site, marketers must design an attractive site and

fi nd ways to get consumers to visit the site, stay around, and come back often.

Web sites vary greatly in purpose and content. The most basic type is a corporate (or

brand) Web site. This type of site is designed to build customer goodwill, collect customer

feedback, and supplement other sales channels rather than to sell the company’s products

directly. It typically offers a rich variety of information and other features in an effort to

online marketing

Objective 4 Discuss how companies

go about conducting online

marketing to profi tably deliver

more value to customers.

FIGURE | 17.3

Corporate (or brand) Web site

supplement other sales channels rather

It’s hard to find a company today that doesn't have a substantial Web presence. The first step is one or more Web sites. But most large companies use all of these approaches. Don’t forget, they all need to be integrated—with each other and with the rest of the promotion mix.

Chapter 17 | Direct and Online Marketing: Building Direct Customer Relationships answer customer questions, build closer customer relationships, and generate excitement

about the company or brand.

For example, you can’t buy anything at Nestlé’s colorful Wonka.com site, but you can

learn about different Nestlé candy products, enter the latest contest, or hang around a while

inspired digital art. Similarly, you can’t buy anything at GE’s corporate Web site. Instead,

the site serves as a global public face for the huge company. It presents a massive amount of

product, service, and company information to a diverse audience of customers, investors,

friendly locomotives, or a German investor looking for shareholder information.

Other companies create a marketing Web site.

These sites interact with consumers to move them

closer to a direct purchase or other marketing out

come. For example, Samsung operates a market

ing Web site at www.samsung.com. Once potential

customers click in, the consumer electronics maker

wastes no time trying to turn the visit into a sale, and

ers are looking for a TV, camera, computer, mobile

site quickly directs them to the specifi c products and

detailed information they need to make a buying de

cision. The site also offers unedited user product re

views, along with product prices, locations, and links

for online and local store retailers in a customer ’s

the Samsung marketing site offers comprehensive

customer support. It also invites customers to join the

Samsung Nation, the brand’s social loyalty program.

Samsung Nation members can earn badges, move up

in the ranks, and connect with other Samsung users

by visiting Samsung’s Web and social media sites, re

viewing products, watching videos, and participating

visit the site is another. To attract visi tors, companies aggressively promote their Web sites in offl ine print and broadcast adver

tising and through ads and links on other sites. But today’s Web users are quick to abandon

any Web site that doesn’t measure up. The key is to create enough value and excitement to

get consumers who come to the site to stick around and come back again.

At the very least, a Web site should be easy to use, professional looking, and physically

attractive. Ultimately, however, Web sites must also be useful. When it comes to Web brows ing and shopping, most people prefer substance over style and function over fl ash. For

example, Samsung’s site isn’t all that fl ashy, but it gets customers quickly and effectively

to all the product information they are seeking. Thus, effective Web sites contain deep and

useful information, interactive tools that help buyers fi nd and evaluate products of interest,

links to other related sites, changing promotional offers, and entertaining features that lend

relevant excitement.

Placing Ads and Promotions Online As consumers spend more and more time on the Internet, companies are shifting more of

their marketing dollars to online advertising to build their brands or attract visitors to

their Internet, mobile, and social media sites. Online advertising has become a major me

dium. Total U.S. Internet advertising spending reached $31 billion last year and is expected

to surpass print advertising this year, making it the second largest medium behind TV—

ahead of even newspapers and magazines.30

classifi eds. Online display ads might appear anywhere on an Internet user’s screen and

are often related to the information being viewed. For instance, while browsing vacation

packages on Travelocity.com, you might encounter a display ad offering a free upgrade on

Marketing Web sites: Samsung’s Web site isn’t all that fl ashy. But once

potential customers click in, the site wastes no time turning the visit into a

Photo courtesy of Gary Armstrong

Marketing Web site

Online advertising

Part 3 |

open a new account. Internet display ads have come a long way in recent years in terms of

attracting and holding consumer attention. New rich media ads now incorporate animation, video, sound, and interactivity.

The largest form of online advertising is (or contextual advertising), which accounted for 46.5 percent of all online advertising spending last year. In search ad

Google, Yahoo!, and Bing. For example, search Google for “LCD TVs.” At the top and side

of the resulting search list, you’ll see inconspicuous ads for 10 or more advertisers, ranging

from Samsung and Dell to Best Buy, Sears, Amazon.com, Walmart.com, and Nextag.com.

Nearly all of Google’s $37 billion in revenues last year came from ad sales. Search is an 31

A search advertiser buys search terms from the search site and pays only if consumers

or “rewards” into your Google, Bing, or Yahoo! search engine and almost without fail “My

Coke Rewards” comes up as one of the top options, perhaps along with a display ad and

popular online loyalty program largely through search buys. The soft drink giant started

fi rst with traditional TV and print advertising but quickly learned that search was the most

effective way to bring consumers to its www.mycokerewards.com Web site to register. Now,

any of dozens of purchased search terms will return MyCokeRewards.com at or near the

top of the search list.

Other forms of online promotions include content sponsorships and viral advertising.

Using content sponsorships, companies gain name exposure on the Internet by sponsoring special content on various Web sites, such as news or fi nancial information or special inter

est topics. For example, Alamo sponsors the “Vacation and Travel Planner and Guides” on

Weather.com. And Marriott sponsors a “Summer to the Rescue!” microsite at Travelocity

.com. Sponsorships are best placed in carefully targeted sites where they can offer relevant

information or service to the audience.

Finally, online marketers use viral marketing

advertisement, or other marketing event that is so infectious that customers will seek it out

or pass it along to their friends. Because customers fi nd and pass along the message or pro

motion, viral marketing can be very inexpensive. And when the information comes from a

friend, the recipient is much more likely to view or read it.

“Smell like a man, man” campaign featuring Isaiah Mustafa. The campaign consisted

and other social media. The initial campaign garnered tens of millions of viral views.

A second campaign, which consisted of nearly 200 vid

eos in which Mustafa responded personally to digi

tal inquiries from users, including Ellen DeGeneres

and Alyssa Milano, scored 21 million views in only

its fi rst week. It increased the brand’s Facebook in

teraction by 800 percent and OldSpice.com traffi c by

300 percent. After the introduction of these videos,

viewed channel on the site.32

with the help of targeted “seeding.” For example,

Volkswagen’s clever “The Force” Super Bowl ad, fea

start a VW Passat, turned viral after a team at VW’s

ad agency seeded it to selected auto, pop culture, and

Star Wars sites the week before the sporting event. By

the time the ad aired during the Super Bowl, it had

received more than 18 million hits online. By the end

of the year, “The Force” had received more than 80 mil

lion online views. Volkswagen repeated the feat in the Associated Press

Chapter 17 | Direct and Online Marketing: Building Direct Customer Relationships 531 following year’s Super Bowl with an ad called “Matthew’s day off.” The ad, which paid

homage to the classic 1980s fi lm Ferris Bueller’s Day Off, drew 18.4 million views by the morning following the big game.33

However, marketers usually have little control over where their viral messages end up.

They can seed messages online, but that does little good unless the message itself strikes

a chord with consumers. For example, why did the seeded VW Darth Vader ad explode

virally? Because the sentimental ad appealed to parents—the car’s target demographic—

who want a responsible suburban family ride. And it appealed to the child inside the par

ent, who may have once been wowed by Star Wars and now wanted a car with a little bit of magic. Says one creative director, “you hope that the creative is at a high enough mark

where the seeds grow into mighty oaks. If they don’t like it, it ain’t gonna move. If they like

the Hollywood hills.”34

Creating or Participating in Online Social Networks As we discussed in Chapters 1 and 5, the popularity of the Internet has resulted in a rash of

online social networks or online communities. Countless independent and commercial

sites have arisen that give consumers online places to congregate, socialize, and exchange

views and information. These days, it seems, almost everyone is buddying up on Facebook,

checking in with Twitter, tuning into the day’s hottest videos at YouTube, pinning interesting

things on Pinterest, or checking out photos on Flickr. And, of course, wherever consumers

congregate, marketers will surely follow. Most marketers are now riding the huge social

networking wave.

Marketers can engage in online communities in two ways: They can participate in

existing communities or they can set up their own. Joining existing networks seems the

Nissan

and Victoria’s Secret—have created YouTube channels. GM and other companies have

43 million fans.

Some of the major social networks are huge. More than 50 percent of Internet users in

the United States and Canada use Facebook. That rivals the 55 percent who watch any TV

channel and trounces the percentage listening to radio (37 percent) and reading newspa

pers (22 percent) daily. Facebook now reaches more than 835 million members worldwide,

almost 2.5 times the combined populations of the United States and Canada.35

Although large online social networks such

as Facebook, YouTube, Pinterest, and Twitter

have grabbed most of the headlines, a new breed

of more focused niche networks has emerged.

These networks cater to the needs of smaller com

ideal vehicles for marketers who want to target

special interest groups. There’s at least one social

network for just about every interest or hobby.36

Yub.com and Kaboodle.com are for shopa

holics, whereas moms advise and commiser

ate at CafeMom.com. GoFISHn, a community

of 4,000 anglers, features maps that pinpoint

where fi sh are biting and a photo gallery

where members can show off their catches.

At Dogster, 700,000 members set up pro

diaries, or just give a dog a bone. On Ravelry.

com, 1.4 million registered knitters, crochet

ers, designers, spinners, and dyers share

information about yarn, patterns, methods,

and tools.

Some niche sites cater to the obscure.

Passions Network is an “online dating niche

social network” with 600,000 members and

more than 200 groups for specifi c interests,

Online social networks

Thousands of social networking sites have popped up to cater to specifi c

bone.

Dogster.com

532 Part 3 | including Star Trek fans, truckers, atheists, and people who are shy. FarmersOnly.com

ing free and at peace in wide open spaces, raising animals, and appreciating nature”—

“because city folks just don’t get it.” Others niche networks reach more technical

communities: More than a million scientists use ResearchGATE to coordinate research

in areas such as artifi cial intelligence and cancer biology. And at myTransponder

than 2,000 people who love aviation. The myTransponder community aims to “make avia

tion more social.”

But participating successfully in existing online social networks presents challenges.

First, most companies are still experimenting with how to use them effectively, and results

are hard to measure. Second, such online networks are largely user controlled. The compa

ny’s goal is to make the brand a part of consumers’ conversations and their lives. However,

marketers can’t simply muscle their way into consumers’ online interactions—they need to

earn the right to be there. Rather than intruding, marketers must learn to become a valued

part of the online experience.

To avoid the mysteries and challenges of building a presence on existing online so

cial networks, many companies have created their own targeted online communities. For

lion miles logged in 243 countries join together online to upload, track, and compare their

training, each with its own unique site and corresponding products.37

Similarly, Men’s Health magazine created an online community in conjunction with

running program helps readers develop a solid plan for exercise and diet over a set

all, the Belly Off! site serves a community of nearly 145,000 members who share similar

nearly 2 million pounds.38

worldwide. Not surprisingly, then, a recent study by the DMA found that 78 percent of

keting still brings one of the highest marketing returns on investment. According to the

two for each of the 30 teams, tai

lored to fans in the United States

and Canada, respectively, and two

mail campaign promoting the start

versions.40

But there’s a dark side to the

ing. The explosion of spam—

unsolicited, unwanted commercial

sumer irritation and frustration.

Spam

Chapter 17 | Direct and Online Marketing: Building Direct Customer Relationships 533 41

To address these concerns, most legitimate marketers now practice

to know” messages based on their expressed preferences and previous purchases. Few

customers object, and many actually welcome such promotional messages. Amazon.com

they don’t want.

investment of all direct marketing media.42

Using Mobile Marketing Mobile marketing

consumers through their mobile devices. Marketers use mobile marketing to reach and

processes. The widespread adoption of mobile devices and the surge in mobile Web traffi c

have made mobile marketing a must for most brands.

With the recent proliferation of mobile phones, smartphone devices, and tablets, more

and instead depend on mobile devices to make and receive all calls. Furthermore, nearly

85 million people in the United States own a smartphone device, and about 35 percent of

smartphone users use it to access the mobile Internet. They not only browse the mobile In

ternet but are also avid mobile app users. The mobile apps market has exploded: The Apple

App Store offers more than 500,000 iPhone apps plus another 200,000 iPad apps. Android

Market offers more than 150,000 apps.43

A recent study estimates that mobile advertising spending in the United

States will surge from $1.45 billion in 2011 to $2.55 billion by 2014. Almost every

major marketer—from Pepsi and Nordstrom to nonprofi ts such as the ASPCA to

the local bank or supermarket—are now integrating mobile platforms into their

at least once a week.44

A mobile marketing campaign might involve placing search ads, display

ads, or videos on relevant mobile Internet sites and online communities such as

Facebook or YouTube. Mobile search ads account for almost half of all mobile

spending. Mobile marketing gives brands an opportunity to engage consumers

by providing immediate information, incentives, and choices at the moment they

are expressing an interest or when they are in a position to make a buying choice.

one expert, whether it’s at the time of a mobile search or in a store during the

purchase decision.45

Today’s rich media mobile ads can create substantial impact and involvement.

For example, HBO ran engaging mobile ads for the season premiere of its True Blood series. As consumers browsed their Flixter apps looking for good movies or their Variety apps seeking the latest entertainment news, touches on their screens

turned into bloody fi ngerprints. Blood quickly fi lled their screens, followed by a

True Blood mobile ad campaign helped draw 5.1 million viewers to the show’s season premier and increased view

ership 38 percent.46

A mobile marketing effort might also involve texting promotions to

consumers—anything from retailer announcements of discounts, brand coupons,

and gift suggestions to mobile games and contests. Many marketers have also

created their own mobile online sites, optimized for specifi c phones and mobile

service providers. Others have created useful or entertaining mobile apps to en

gage customers with their brands and help them shop (see Real Marketing 17.2).

For example, Clorox offers a myStain app that targets young moms with useful

Mobile marketing

Mobile marketing: Many brands have

created mobile apps to engage customers

and help them shop. Clorox’s myStain app

stain removal solutions.

CLOROX® and myStain® are registered trademarks of The Clorox

Company. Used with permission.

534 Part 3 |

Mobile marketing: Zipcar’s iPhone app lets members fi nd and book a Zipcar,

honk the horn (so they can fi nd it in a crowd), and even lock and unlock the

doors—all from their iPhones.

Zipcar

Marketers are responding to this mas

Real Marketing Mobile Marketing: Customers Come Calling

Chapter 17 | Direct and Online Marketing: Building Direct Customer Relationships 535

Beyond helping customers buy, mobile

apps provide other helpful services. For ex-

ample, Target sends out scannable mobile

coupons for groceries and other merchan-

dise: Just hold up your mobile phone at the

checkout, and the cashier will scan the bar-

code off the screen. Zipcar’s app lets mem-

bers find and reserve a Zipcar, honk the horn

(so they can find it in a crowd), and even lock

and unlock the doors—all from their phones.

And with MasterCard’s PayPass app, card-

holders can pay instantly and securely with

their phones at any participating retailer.

One of the most effective mobile mar-

keting apps is Kraft’s iFood Assistant, which

provides easy-to-prepare recipes for food

shoppers on the go, how-to videos, a recipe

box, and a built-in shopping list. The iFood

Assistant app supplies advice on how to

prepare thousands of simple but satisfying

meals—literally decades worth of recipes.

The app will even give you directions to lo-

cal stores. Of course, most of the meals call

for ingredients that just happen to be Kraft

brands. The iFood Assistant app cost Kraft

less than $100,000 to create but has en-

gaged millions of shoppers, providing great

marketing opportunities for Kraft and its

brands.

As the Amazon example suggests, con-

sumers are increasingly using their phones

as in-store shopping aids, and retailers are

responding accordingly. For example, Wal-

greens has created the mobile equivalent of

the local newspaper circular. Using a new

technology, Walgreens knows when partici-

pating customers check in to one of its 8,000

stores via Foursquare, Yelp, Twitter, Face-

book, and a host of other location-based

services. The retailer then tweets or texts the

customers, sending mobile coupons or di-

recting them to in-store deals with a message

such as “Check out the specials on Halls new

cough drops in the cold aisle.” It’s like tak-

ing shoppers by the hand and guiding them

through the store.

According to one mobile marketing ex-

pert, the real advantage to targeting shoppers

while they are out and about is the ability to

reach consumers when they are closest to

buying. “Ask yourself,” he says, “are your

customers more likely to leave their homes

and their pantries . . . to go out and get a sub

sandwich . . . or [is it more likely] when they’ve

been out running errands all day, missed

lunch, and you sent them a text with an offer

for a half-price sub [at a nearby] shop?”

Many consumers are initially skepti-

cal about mobile marketing. But they often

change their minds if mobile marketers deliver

value in the form of useful brand and shop-

ping information, entertaining content, or dis-

counted prices and coupons for their favorite

products and services. Most mobile marketing

efforts target only consumers who voluntarily

opt in or who download apps. In the increas-

ingly cluttered mobile marketing space, cus-

tomers just won’t do that unless they see real

value in it. The challenge for marketers: De-

velop useful and engaging mobile marketing

apps that make customers come calling.

Sources: Josh Constine, “Americans Now Spend More Time on Facebook Mobile Than Its Website,” TechCrunch,

May 11, 2012, http://techcrunch.com/2012/05/11/time-spent-on-facebook-mobile/; “Current Mobile Marketing

Trends,” Retail Touch Points, January 24, 2012, www.retailtouchpoints.com/datapoints-of-the-week/1310-current-

mobile-marketing-trends-infographic; Paul Davidson, “Ad Campaigns for Your Tiny Cellphone Screen Get Bigger,”

USA Today, August 9, 2006, www.usatoday.com/money/advertising/2006-08-08-mobile-ads_x.htm; Alice Z. Cuneo,

“Scramble for Content Drives Mobile,” Advertising Age , October 24, 2005, p. S6; Jichél Stewart, “8 Mobile Market-

ing Trends You Should Track in 2012,” Business 2 Community, December 18, 2011, www.business2community

.com/mobile-apps/8-mobile-marketing-trends-you-should-track-in-2012-0108821; and Kunur Patel, “At Wal-

greens, a Mobile Check-In Acts Like Circular,” Advertising Age, February 8, 2012, http://adage.com/print/232584/.

on-the-go stain removal solutions. Schwab offers “Schwab to Go,” a mobile app that lets

customers get up-to-the-minute investment news, monitor their accounts, and make trades

at any time from any location. Starbucks’ mobile app lets customers use their phones as a

Starbucks card to make fast and easy purchases. And Nike gained unprecedented direct

access to runners with a Nike+ GPS mobile app for real-time tracking of runs and bike

rides.

As with other forms of direct marketing, however, companies must use mobile mar-

keting responsibly or risk angering already ad-weary consumers. “If you were interrupted

every two minutes by advertising, not many people want that,” says a mobile marketing ex-

pert. “The industry needs to work out smart and clever ways to engage people on mobiles.”

The key is to provide genuinely useful information and offers that will make consumers

want to opt in or call in.

In all, online marketing continues to offer both great promise and many challenges

for the future. Its most ardent apostles still envision a time when the Internet and online

marketing will replace magazines, newspapers, and even stores as sources for information

and buying. Most marketers, however, hold a more realistic view. To be sure, online market-

ing has become a successful business model for some companies—Internet firms such as

Amazon.com, Facebook, and Google, as well as direct marketing companies such as GEICO

and Netflix. However, for most companies, online marketing will remain just one important

approach to the marketplace that works alongside other approaches in a fully integrated

marketing mix.

536 Part 3 | Public Policy Issues in Direct Marketing Direct marketers and their customers usually enjoy mutually rewarding relationships.

Occasionally, however, a darker side emerges. The aggressive and sometimes shady tac

tics of a few direct marketers can bother or harm consumers, giving the entire industry

a black eye. Abuses range from simple excesses that irritate consumers to instances of

unfair practices or even outright deception and fraud. The direct marketing industry

has also faced growing privacy concerns, and online marketers must deal with Internet

security issues.

Irritation, Unfairness, Deception, and Fraud Direct marketing excesses sometimes annoy or offend consumers. For example, most of us

Beyond irritating consumers, some direct marketers have been accused of taking

tions, claims of drastic price reductions, “while they last” time limitations, and un

equaled ease of purchase to inflame buyers who have low sales resistance. Worse yet,

mislead buyers.

Fraudulent schemes, such as investment scams or phony collec

tions for charity, have also multiplied in recent years. Internet fraud, including identity theft and fi nancial scams, has become a serious prob

lem. Last year alone, the FBI’s Internet Crime Complaint Center

(IC3) received more than 314,000 complaints related to Internet fraud

involving monetary loss.47

One common form of Internet fraud is phishing, a type of iden

fool users into divulging their personal data. For example, consum

company, saying that their account’s security has been compromised.

The sender asks them to log onto a provided Web address and confi rm

their account number, password, and perhaps even their social security

number. If they follow the instructions, users are actually turning this

sensitive information over to scam artists. Although many consumers

are now aware of such schemes, phishing can be extremely costly to

those caught in the net. It also damages the brand identities of legiti

mate online marketers who have worked to build user confi dence in

Many consumers also worry about online security. They fear that unscrupulous snoopers will eavesdrop on their online transactions,

picking up personal information or intercepting credit and debit card

numbers. Although online shopping has grown rapidly, one study

showed that 59 percent of participants were still concerned about iden

tity theft.48 Consumers are also concerned about contracting annoying

or harmful viruses, spyware, and other malware (malicious software)

while shopping on the Internet.

Another Internet marketing concern is that of access by vulnerable or unauthorized groups and sites have found it diffi cult to restrict access by minors. A survey

by Consumer Reports found 5 million U.S. children under age 10 on Facebook, which sup

onto social networks such as Formspring, tweeting their location to the Web, and making

friends out of strangers on Disney and other games sites. Concerned state and national

Objective 5 Overview the public policy and

ethical issues presented by direct

marketing.

Internet fraud has multiplied in recent years.

The FBI’s Internet Crime Complaint Center provides

consumers with a convenient way to alert authorities

to suspected violations.

Chapter 17 | Direct and Online Marketing: Building Direct Customer Relationships 537 lawmakers are currently debating bills that would help better protect children online. Un-

fortunately, this requires the development of technology solutions, and as Facebook puts

it, “That’s not so easy.”49

Consumer Privacy Invasion of privacy is perhaps the toughest public policy issue now confronting the direct

marketing industry. Consumers often benefit from database marketing; they receive more

offers that are closely matched to their interests. However, many critics worry that market-

ers may know too much about consumers’ lives and that they may use this knowledge to take unfair advantage of consumers. At some point, they claim, the extensive use of data-

bases intrudes on consumer privacy.

These days, it seems that almost every time consumers enter a sweepstakes; apply for

a credit card; visit a Web site; or order products by mail, phone, or the Internet, their names

are entered into some company’s already bulging database. Using sophisticated computer

technologies, direct marketers can mine these databases to “microtarget” their selling ef-

forts. Most marketers have become highly skilled at collecting and analyzing detailed con-

sumer information. Even the experts are sometimes surprised by how much marketers can

learn. Consider this account by one Advertising Age reporter:50

I’m no neophyte when it comes to targeting—not only do I work at Ad Age, but I cover direct marketing. Yet even I was taken aback when, as an experiment, we asked the database-marketing

company to come up with a demographic and psychographic profile of me. Was it ever spot-on.

Using only publicly available information, it concluded my date of birth, home phone number,

and political-party affiliation. It gleamed that I was a college graduate, that I was married, and

that one of my parents had passed away. It found that I have several bank, credit, and retail cards

at “low-end” department stores. It knew not just how long I’ve lived at my house but how much

it costs, how much it was worth, the type of mortgage that’s on it, and—within a really close

ballpark guess—how much is left to pay on it. It estimated my household income—again nearly

perfectly—and determined that I am of British descent.

But that was just the beginning. The company also nailed my psychographic profile. It cor-

rectly placed me into various groupings such as: someone who relies more on their own opinions

than the recommendations of others when making a purchase; someone who is turned off by

loud and aggressive advertising; someone who is family-oriented and has an interest in music,

running, sports, computers, and is an avid concert-goer; someone who is never far from an In-

ternet connection, generally used to peruse sports and general news updates; and someone who

sees health as a core value. Scary? Certainly.

Some consumers and policy makers worry that the ready availability of informa-

tion may leave consumers open to abuse. For example, they ask, should online sellers

be allowed to plant cookies in the browsers of consumers who visit their sites and use

tracking information to target ads and other marketing efforts? Should credit card

companies be allowed to make data on their millions of cardholders worldwide avail-

able to merchants who accept their cards? Or is it right for states to sell the names and

addresses of driver ’s license holders, along with height, weight, and gender informa-

tion, allowing apparel retailers to target tall or overweight people with special cloth-

ing offers?

A Need for Action To curb direct marketing excesses, various government agencies are investigating not only

do-not-call lists but also do-not-mail lists, do-not-track online lists, and Can Spam legisla-

tion. In response to online privacy and security concerns, the federal government has con-

sidered numerous legislative actions to regulate how Internet and mobile operators obtain

and use consumer information. For example, Congress is drafting legislation that would

give consumers more control over how online information is used. In addition, the FTC is

taking a more active role in policing online privacy.

All of these concerns call for strong actions by marketers to monitor and prevent pri-

vacy abuses before legislators step in to do it for them. For example, to head off increased

government regulation, four advertiser groups—the American Association of Advertis-

ing Agencies, the Association of National Advertisers, the DMA, and the Interactive Ad-

vertising Bureau—recently issued new guidelines for sites. Among other measures, the

538 Part 3 | guidelines call for Web marketers to alert consumers if their activities are being tracked.

The ad industry has agreed on an advertising option icon—a little “i” inside a triangle— that it will add to most behaviorally targeted online ads to tell consumers why they are

seeing a particular ad and allowing them to opt out.51

Of special concern are the privacy rights of children. In 2000, Congress passed the Chil

dren’s Online Privacy Protection Act (COPPA), which requires online operators targeting

children to post privacy policies on their sites. They must also notify parents about any

information they’re gathering and obtain parental consent before collecting personal infor

mation from children under age 13. With the subsequent advent of online social networks,

mobile phones, and other new technologies, privacy groups are now urging the U.S. Senate

to extend COPPA to include both the new technologies and teenagers. The main concern

is the amount of data mined by third parties from social networks as well as the social net

works’ own hazy privacy policies.52

Many companies have responded to consumer privacy and security concerns with ac

cluding Microsoft, Yahoo!, AT&T, Facebook, Disney, and Apple, to audit privacy and secu

rity measures and help consumers navigate the Internet safely. According to the company’s

Web site, “TRUSTe believes that an environment of mutual trust and openness will help

make and keep the Internet a free, comfortable, and richly diverse community for every

one.” To reassure consumers, the company lends its TRUSTe privacy seal to Web sites, mo

standards.53

The direct marketing industry as a whole is also addressing public policy issues. For

example, in an effort to build consumer confi dence in shopping direct, the DMA—the larg

est association for businesses practicing direct, database, and interactive marketing, includ

ing nearly half of the Fortune 100 companies—launched a “Privacy Promise to American

Consumers.” The Privacy Promise requires that all DMA members adhere to a carefully

developed set of consumer privacy rules. Members must agree to notify customers when

any personal information is rented, sold, or exchanged with others. They must also honor

consumer requests to opt out of receiving further solicitations or having their contact infor

mation transferred to other marketers. Finally, they must abide by the DMA’s Preference

Service by removing the names of consumers who do not wish to receive mail, phone, or 54

Direct marketers know that, if left untended, such direct marketing abuses will lead to

increasingly negative consumer attitudes, lower response rates, and calls for more restric

will appreciate and respond to them. Direct marketing is just too expensive to waste on

consumers who don’t want it.

Consumer privacy: By clicking

on the little AdChoices advertising

option icon in the upper right of

this online ad, consumers can learn

why they are seeing the ad and opt

out if they wish.

Reproduced with permission of Yahoo! Inc.

logo are registered trademarks of Yahoo! Inc.

Chapter 17 | Direct and Online Marketing: Building Direct Customer Relationships

Defi ne direct marketing and

discuss its benefi ts to customers

and companies. (pp 516–521)

Direct marketing

Identify and discuss the major

forms of direct marketing.

(pp 521–524)

selling catalog marketing telemarketing

DRTV marketing kiosk marketing online marketing

Explain how companies have

responded to the Internet

and other powerful new technologies with online

marketing strategies. (pp 524–528)

Internet

Discuss how companies

go about conducting online

marketing to profi tably deliver more value to

customers. (pp 528–535)

that operate

setting up or participating in online communities and social net

Reviewing Objectives and Key Terms

Objective 1

Objective 2

Objective 3

Objective 4

Part 3 |

and

Overview the public policy and

ethical issues presented by direct

marketing. (pp 536–538)

Objective 5

Discussion and Critical Thinking

Discussion Questions

1. direct marketing

6. phishing,

Objective 1 Direct marketing (p 516)

Customer database (p 518)

Objective 2

Objective 3 Objective 4

1. 2.

Chapter 17 | Direct and Online Marketing: Building Direct Customer Relationships 541 marketers can effectively use sponsored conversations

within the FTC’s guidelines. (AACSB: Communication; Re-

flective Thinking)

3. Find news articles about two data security breaches. How did the breaches occur, and who was potentially affected by

them? (AACSB: Communication; Reflective Thinking)

Applications and Cases

Marketing Technology Marketing to Those on the Go Your smartphone might be the only thing you’ll need for lock-

ing your door, starting a car, paying for purchases, or even just

paying your friend the $20 you owe him. Mobile technologies

allow users to do almost anything remotely and allow marketers

to target services and promotions directly to consumers based

on where they are. You may have noticed that some Starbucks

customers just wave their phones in front of a scanner—no

wallet, cash, or card required. Those customers may have got-

ten discount offers that lured them to Starbucks because their

phone tipped the marketer off that they were nearby.

1. What are the barriers to adoption of mobile applications? (AACSB: Communication; Reflective Thinking)

Marketing Ethics Online Tax Battle Online retailing is experiencing phenomenal growth, but strug-

gling states are not reaping the spoils—in taxes, that is. One

study estimates that lost state and local revenue equals up-

wards of $10 billion a year on nontaxed e-commerce. Amazon

is the biggest beneficiary. States are battling back by introduc-

ing, and sometimes successfully passing, laws informally dubbed

“ Amazon laws” that require online retailers to collect state sales

taxes. The efforts have the support of rivals such as Walmart and

Target. Amazon strategically sought to minimize sales tax collec-

tion across the country by using legal loopholes and even limit-

ing employees’ activities when traveling to certain states deemed

“bad states” because of efforts to enact tax laws to grab a piece

of Amazon’s profits. Credit Suisse estimated Amazon would lose

$653 million in sales if it had to collect sales taxes in all states, but

surprisingly, Amazon has done an about-face on this issue and is

currently supporting states’ initiatives to collect sales taxes. This

is because Amazon wants to institute same-day delivery, and to

do that, it must have more distribution centers. Distribution cen-

ters constitute a “physical presence” in a state, and therefore the

online reseller must collect state sales taxes. Other online resell-

ers such as Overstock.com are opposed to the initiatives, claim-

ing that collection of taxes is based on where customers live and

that brick-and-mortar resellers don’t ask where customers live to

collect the proper sales tax. Given that there are already nearly

10,000 state, local, and municipal tax jurisdictions, the task of

collecting and distributing the correct tax is untenable for most

online resellers.

1. Research online tax rules. Look specifically at the 1992 Su- preme Court ruling in Quill Corp. v. North Dakota, on which the

current rules are based. Is the rule in the 1992 Supreme Court

case still relevant? Are Amazon and other online retailers being

ethical by using this rule to their advantage? (AACSB: Com-

munication; Reflective Thinking; Ethical Reasoning)

Marketing by the Numbers The Power of “Like” Marketers know that Facebook is a force to be reckoned with,

but until now they have not been able to measure that force

and compare it to traditional media. Whereas traditional media

have established ratings and other metrics to measure what

marketers are getting for their money, an entirely new set of

metrics—such as “click-through rates” and “impressions”—has

evolved for online media. Unfortunately, the two metrics are not

comparable. ComScore and Nielsen are two companies at-

tempting to rectify that situation by developing a rating system

based on “gross rating points” to show the power of Facebook

as a marketing tool.

1. Research marketing expenditure trends in social media mar- keting as well as other forms of online advertising. Compare

these trends with traditional advertising media expenditures.

Develop a presentation illustrating those trends. (AACSB:

Communication; Analytical Reasoning; Reflective Thinking)

2. Visit www.comScore.com and www.Nielsen.com to learn more about the metrics these companies have developed for

measuring the marketing exposure of brands on Facebook.

How do these metrics differ from those that have been used

with regard to measuring online advertising impact? (AACSB:

Communication; Use of IT; Reflective Thinking)

542 Part 3 | Designing a Customer-Driven Strategy and Mix

Video Case Home Shopping Network Long ago, television shopping was associated with low-quality

commercials broadcast in the wee hours of the morning selling

obscure merchandise. But Home Shopping Network (HSN) has

played an instrumental role in making television shopping a legiti-

mate outlet. Around-the-clock top-quality programming featuring

name-brand merchandise is now the norm.

But just like any retailer, HSN has had it share of challenges.

This video illustrates how HSN has focused on the principles of

direct marketing in order to overcome challenges and form strong

customer relationships. As market conditions continue to shift,

HSN explores new ways to form and strengthen direct relation-

ships with customers.

After viewing the video featuring HSN, answer the following

questions:

1. Explain the different ways that HSN engages in direct marketing.

2. What advantages does HSN have, specifically over brick-and- mortar retailers?

3. Make recommendations for how HSN could make better use of its role as a direct marketer.

Company Case EBay: Fixing an Online Marketing Pioneer Pop quiz: Name the high-tech company that got its start in some-

one’s living room, grew from zero revenue to a multibillion-dollar

corporation in less than a decade, and pioneered the model for

an entire industry to follow. If you’re thinking that the list of com-

panies that fit this description is a mile long, you’re right. But in

this case, we’re talking about eBay.

EBay is one of the biggest Internet success stories in the his-

tory of, well, the Internet. But sooner or later, every high-growth

company hits a speed bump and experiences growing pains.

After amazing growth in its first 15 years, eBay hit that speed

bump. When John Donahoe took over as CEO in 2008, he faced

the difficult challenge of putting eBay back on the superhighway

to prosperity. And with a comprehensive strategic plan now years

under way, eBay vital signs are once again showing some life.

EBay started in 1995 as an auction house. Unlike most dot-

coms, eBay was based on a model that produced profits, not

just revenue. Whenever a user posted an item for auction, eBay

collected a fee. The more products that went up for auction, the

more money eBay made. EBay has tinkered with its fee structure

over the years. But the basic idea has remained the same. The

online auction formula took off like wildfire and eBay dominated

the industry. Ebay’s revenue, stock price, profits, and number of

employees soared. By the year 2000, eBay was the number one

e-commerce site in the world by sales revenue.

The Changing Face of a Growing Company With explosive growth, change is inevitable. As the new century

dawned, eBay embraced that change in two ways. First, eBay

expanded the scope of its business. Its list of categories and

subcategories grew into the hundreds. The e-commerce giant

also added international sites for different countries. And it began

to launch sub-sites (such as eBay Motors) and to acquire other

dot.coms relevant to its business. Such acquisitions ultimately

included Half.com, PayPal, StubHub, Shopping.com, and Skype.

But eBay also recognized that the novelty of buying and selling

based on its auction format would not last. Trends indicated that

people didn’t want to wait for an auction to end in order to make a

purchase. So eBay added fixed-price selling with its “Buy It Now”

option. Two years later, it took that concept much further with

the introduction of eBay Stores. With eBay stores, a seller could

create an online “storefront” within eBay. The feature allowed sell-

ers to post items more quickly, making it easier for high-volume

sellers to do business. It also gave fixed-price options with no

bidding whatsoever and virtually eliminated the sales period for

an item.

Both of these dynamics continued to fuel eBay’s steady,

strong growth for years. In 2006, eBay achieved revenue of $5.97

billion with a profit of $1.12 billion—tremendous numbers for a

dot.com that had only been doing business for a single decade.

But in 2007, eBay began to show signs of slowing down. When

Donahoe took over as CEO, he acknowledged that eBay faced

issues, including the fact that it had been resting on its laurels and

had stopped innovating. Consumer behavior was also shifting.

Online shopping using the tried-and-true method of finding the

best price on a new piece of merchandise and buying it from a

reputable retailer moved Amazon into the top e-commerce posi-

tion as its growth took off while eBay’s stagnated.

Shortly after taking over, Donahoe said at a public event, “We

need to redo our playbook, we need to redo it fast, and we need

to take bold actions.” He unveiled the details of a three-year re-

vival plan for eBay’s turnaround. This included stripping out layers

of bureaucracy, opening up PayPal to outside developers, investing

in new e-commerce technologies, and divesting businesses such

as Skype that had little to do with eBay’s core marketplace. But

Donahoe’s strategy also focused on changing the identity of the

eBay marketplace by moving further away from auctions. Donahoe

specified that the new strategy would focus on building the site’s

business in the secondary market, the $500-billion-a-year slice of

retail that includes out-of-season and overstock items as well as the

used and antique items for which eBay had always been known.

Core to Donahoe’s strategy, eBay changed its fee structure,

search-engine algorithm, and feedback rating system in ways

that favored highly rated sellers, fixed-price listings, and sellers

offering free shipping. Donahoe claimed that all these tactics

helped align eBay’s interests with those of its best sellers. But the

strategy to focus on gaining new business came at the expense

of losing the portion of its customer base that still came to eBay

for used goods and auctions.

Traditional eBay sellers cried foul, asserting that the company’s

new strategy made it harder for them to do business profitably while

favoring the high-volume sellers. Donahoe responded that the man-

agers at eBay knew there would be growing pains, but that the trans-

formation was essential. He strongly believed that buyers wanted

a fixed price, quick service, and free shipping. Donahoe made the

case to investors, vendors, and customers that for eBay to not focus

on market demands would ultimately be bad for everyone.

Chapter 17 | Direct and Online Marketing: Building Direct Customer Relationships 543 From Bad to Worse As with many great plans, things sometimes have to get worse

before they get better. Instead of immediate evidence of the fruits

of the turnaround plan, eBay’s financials slid badly. In the final

quarter of 2008, typically eBay’s strongest period with holiday

shopping, eBay experienced its first ever quarterly decline. For its

core marketplace, revenue was down 16 percent from the previ-

ous year, while net income dropped a whopping 31 percent. It

would have been very easy for Donahoe and his team to blame

the company’s woes on the economic downturn. But even as

eBay experienced a drop in traffic, competitors Amazon.com and

Walmart enjoyed increases.

Still, Donahoe moved forward with even greater resolve. “The

‘buyer beware’ experience has run its course,” he said. He reit-

erated eBay’s plans to focus on the secondary market. “We’re

going to focus where we can win,” Donahoe said, indicating that

the shift away from new merchandise where its biggest competi-

tors dominated would give eBay a strong point of differentiation.

“We have begun significant change. The eBay you knew is not

the eBay we are, or the eBay we will become.” As these changes

began to take root, eBay’s financials began to stabilize. But with

total e-commerce growth in the low double digits and the likes of

Amazon growing considerably faster, it was clear the eBay would

continue to lag behind for the foreseeable future.

A New Point of Differentiation As the turnaround strategy moved into its final year, Donahoe be-

gan unrolling a new layer. Just as eBay was starting to adapt, mar-

ket trends were again starting to shift as shoppers began spending

more time and money shopping through mobile devices. Deter-

mined not to be behind the curve again, Donahoe began express-

ing his vision of eBay as the innovative pioneer that it was during

its first decade. “In the next three to five years, we’re about to see

more change in how consumers shop and pay than in the last

decade,” says Donahoe. “So our challenge as a company, our op-

portunity, is to help shape and be part of that next period.”

With that goal in mind, eBay started buying up technology

companies that would help it become a leader in the emerging

mobile shopping trend. This led to the creation of an eBay shop-

ping app as well as various category apps for eBay Motors and

eBay Fashion. The idea is to engage consumers even when they

aren’t thinking about buying something. For example, the eBay

Fashion app emphasizes browsing over buying, featuring a style

guide and a shared virtual closet where users can mix, match,

and model different outfits with friends. But even though the fo-

cus is on browsing, eBay knows that browsers will buy. Users

spend an average of 10 minutes browsing on the eBay Fashion

app—40 percent longer than they spend on the main eBay app.

In the Fashion app’s first year, eBay mobile fashion sales tripled.

But if eBay is to return to e-commerce stardom, the strong

growth that it seeks will have to break open the boundaries of the

core eBay marketplace. Donahoe imagines certain possibilities:

Imagine you meet your girlfriend for brunch, and you are sweating her

new taupe Marc Jacobs Kitty Clutch. Then imagine that you snap a

picture of her purse with your iPhone, which uses an eBay app to re-

veal the three boutiques within a 3-mile radius that have the same bag

in the same color in stock right this minute, with prices to boot. You

decide which store has the best combination of price and location,

and order via your phone. After brunch, you swing by and bypass the

line because you show the salesperson your digital receipt. Voilà! Your

new Marc Jacobs clutch—and all the pleasure of instant gratification.

Not only does Donahoe believe this scenario will become shop-

ping reality, he is confident that eBay will lead the charge. To that

end, the once online-only auction house is moving fast to capitalize

on the disintegrating boundary between shopping online and shop-

ping offline. As more and more shoppers use their mobile devices for

“showrooming”—looking up information, comparing prices, and even

purchasing online while in a brick-and-mortar store—eBay expects to

be there. Known as “cross-channel retail,” purchases blending online

and offline shopping accounted for $1 trillion last year—about 33 per-

cent of retail sales—and that number is rising rapidly.

With the acquisition of RedLaser—a scanning tool that recog-

nizes just about any product on a shelf—shoppers can immediately

cross-shop through online sources. And although RedLaser can’t

recognize photo images (yet), it does recognize bar codes, VINs, gift

cards, and QR codes. It also suggests nearby stores that have the

product in stock. But for Donahoe, there isn’t nearly enough store

inventory accessible electronically. That’s why eBay is working on an

initiative to “bring every product on every shelf in every store in the

physical world onto the Internet.” More acquisitions that can make

that data available are bringing eBay closer to Donahoe’s vision.

And as eBay’s mobile network takes off, every transaction will

end with PayPal. From “inventory where you are” to “paying where

you are,” the shopping experience will be much more seamless.

As the market leader in online payments, PayPal is up to the task.

PayPal would earn a transaction fee for every item purchased

as well as a referral fee for driving store traffic to other retailers.

Although many pieces still need to fall into place and Donahoe

doesn’t expect it to happen overnight, eBay is well on its way.

Last year, eBay sold $5 billion worth of goods via smartphones

and tablets, more than double its total from the year before. Pay-

Pal processed $4 billion worth of mobile payments, up from only

$750 million. And although Amazon is still way ahead in terms of

total sales and sales growth, eBay now has the jump in mobile

commerce. Amazon had only $2 billion in mobile sales in the most

recent year, including Kindle e-books.

With the developments in eBay’s marketplace, mobile com-

merce, and online payments, Donahoe’s confidence is becoming

more credible. “We have gone from turnaround to offensive,” the

CEO states. “Our purpose is to bring consumers the best experi-

ence to find what they want, how they want, and when they want

it, whether it’s on eBay or otherwise.” As e-commerce and mobile

shopping continue to evolve at a blistering pace, only time will tell

if Donahoe’s strategy will pay off.

Questions for Discussion 1. Analyze the marketing environment and the forces shaping

eBay’s business over the years.

2. How has the change in the nature of eBay sellers affected the creation of value for buyers?

3. Do you agree or disagree with CEO Donahoe that eBay’s turn- around strategy is the best way to go?

4. Based on eBay’s current developments with PayPal and mo- bile apps, predict the outcome for the company in five years.

Sources: Danielle Sacks, “How Jack Abraham Is Reinventing EBay,” Fast Company, July 22, 2011, www.fastcompany.com/magazine/157/jack-

abraham-ebay-milo; Kevin Kelleher, “EBay Has Yet to Sell Turnaround to In-

vestors” Fortune, January 17, 2012, http://tech.fortune.cnn.com/2012/01/17/

ebay-has-yet-to-sell-its-turnaround-to-investors/; Geoffrey Fowler, “Auctions

Fade in eBay’s Bid for Growth,” Wall Street Journal, May 26, 2009, p. A1; Pe-

ter Burrows, “EBay Outlines Three-Year Revival Plan,” BusinessWeek, March

12, 2009, www.businessweek.com; and Max Colchester and Ruth Bender,

“EBay CEO Continues to Seek Acquisitions,” Wall Street Journal, May 23,

2011, www.wsj.com.

544 Part 3 | Designing a Customer-Driven Strategy and Mix References 1. Based on information from Cotton Delo, “Facebook Files for IPO,”

Advertising Age, February 1, 2012, http://adage.com/article/digital/

facebook-files-ipo-reveals-1-billion-2011-profit/232484/; Tomio Geron,

“Zynga Makes Up 12 Percent of Facebook’s 2011 Revenue,” Forbes,

February 1, 2012, www.forbes.com/sites/tomiogeron/2012/02/01/

zynga-makes-up-12-of-facebooks-2011-revenue/; Leah Fabel, “The

Business of Facebook,” Fast Company, April 1, 2011, www.fastcompany

.com/node/1740204/; Venessa Miemis, “The Bank of Facebook:

Currency, Identify, Reputation,” Forbes, April 4, 2011, http://blogs.

forbes.com/venessamiemis/2011/04/04/the-bank-of-facebook-

currencyidentity-reputation/; “Facebook’s Sales Chief: Madison

Avenue Doesn’t Understand Us Yet,” Advertising Age, April 29, 2011,

http://adage.com/print/227314/; and information from www.facebook

.com, accessed November 2012.

2. For these and other direct marketing statistics in this section, see Direct Marketing Association, The DMA 2012 Statistical Fact Book,

34th ed., February 2012; Direct Marketing Association, The Power of

Direct Marketing: 2011–2012 Edition, August 2011; “DMA Releases

New ‘Power of Direct’ Report,” October 2, 2011, www.the-dma.org/

cgi/dispannouncements?article=1590; and a wealth of other infor-

mation at www.the-dma.org, accessed November 2012.

3. “U.S. Internet Ad Revenue Hits Record $31 Billion in 2011,” USA Today, April 18, 2012, www.usatoday.com/tech/news/

story/2012-04-18/internet-ad-revenue-record/54386820/1; “U.S.

Online Advertising Spending to Surpass Print in 2012,” eMar-

keter, January 19, 2012, www.emarketer.com/PressRelease

.aspx?R=1008788; Thad Rueter, “E-retail Spending to Increase 62%

by 2016,” Internet Retailer, February 27, 2012, www.internetretailer

.com/2012/02/27/e-retail-spending-increase-45-2016; and The

Power of Direct Marketing: 2011–2012 Edition.

4. See discussions at “The Costs of Personal Selling,” April 13, 2011, www.seekarticle.com/business-sales/personal-selling.html; and

“What Is the Real Cost of a B2B Sales Call?” www.marketing-

playbook.com/sales-marketing-strategy/what-is-the-real-cost-of-a-

b2b-sales-call, accessed November 2012.

5. See “Big Security Data to Big Security Intelligence,” Infosec Profes- sional, April 22, 2012, www.infosecprofessional.com/2012/04/big-

security-data-to-big-security.html; and Ian Greenleigh, “Will Consum-

ers Ever Wish Companies Had More of Their Data?” Bizaarvoice: blog,

June 6, 2012, www.bazaarvoice.com/blog/2012/06/06/5-reasons-

to-wish-companies-had-more-of-your-data/.

6. See Philip Kotler and Kevin Lane Keller, Marketing Management, 14th ed. (Upper Saddle River, NJ: Prentice Hall, 2012), p. 71.

7. See DMA, The Power of Direct Marketing, 2011–2012 Edition; “It’s Never Been Easier to Send Direct Mail,” PRNewswire, June 8, 2011.

8. Julie Liesse, “When Times Are Hard, Mail Works,” Advertising Age, March 30, 2009, p. 14; and Paul Vogel, “Marketers Are Rediscovering

the Value of Mail,” Deliver Magazine, January 11, 2011, www.deliver-

magazine.com/2011/01/marketers-are-rediscovering-the-value-of-

mail/; and “The Resurrection of Direct Mail in 2012,” PRWeb, www

.prweb.com/releases/Direct-mail/Resurection/prweb9301877.htm,

accessed July 2012.

9. Bruce Britt, “Marketing Leaders Discuss the Resurgence of Direct Mail,” Deliver Magazine, January 18, 2011, www.delivermagazine

.com/2011/01/marketing-leaders-discuss-resurgence-of-direct-mail/.

10. See “Catalog Spree Survey Shows 89.8 Percent of Shoppers Prefer Digital Catalogs,” April 19, 2012, http://catalogspree.com/catalog-

spree-survey-shows-89-8-percent-of-shoppers-prefer-digital-

catalogs; and www.landsend.com/mobile/index.html and http://

catalogspree.com/, accessed November 2012.

11. Jeffrey Ball, “Power Shift: In Digital Era, Marketers Still Prefer a Paper Trail,” Wall Street Journal, October 16, 2009, p. A3; Jennifer Valentino-

DeVries, “With Catalogs, Opt-Out Policies Vary,” Wall Street Journal,

April 13, 2011, p. B7; and The DMA 2012 Statistical Fact Book.

12. Ball, “Power Shift: In Digital Era, Marketers Still Prefer a Paper Trail”; and “Report: Catalogs Increasingly Drive Online Sales,” RetailCustomer-

Experience.com, March 17, 2010, www.retailcustomerexperience

.com/article/21521/Report-Catalogs-increasingly-drive-online-sales.

13. DMA, The Power of Direct Marketing, 2011–2012 Edition. 14. Melissa Hoffmann, “Report: Telecommunications Advances Affect-

ing Do Not Call Registry,” Direct Marketing News, December 30,

2011, www.dmnews.com/report-telecommunications-advances-

affecting-do-not-call-registry/article/221264/; and www.donotcall

.gov, accessed November 2012.

15. See Rachel Brown, “Perry, Fischer, Lavigne Tapped for Proactiv,” WWD, January 13, 2010, p. 3; Rahul Parikh, “Proactiv’s Celebrity Shell

Game,” Salon.com, February 28, 2011, www.salon.com/2011/02/28/

proactiv_celebrity_sham; www.proactiv.com, accessed August 2012.

16. Mercedes Cardona, “Hampton’s PajamaJeans Go Viral with DRTV Campaign,” Direct Marketing News, December 2011, p. 17.

17. Stephanie Rosenbloom, “The New Touch-Face of Vending Ma- chines,” New York Times, May 25, 2010, accessed at www.nytimes

.com/2010/05/26/business/26vending.html; and “Automating Retail

Success,” www.businessweek.com/adsections/2011/pdf/111114_

Verizon3.pdf; accessed July 2012.

18. “Best Buy: Consumer Electronics Retailing on the Go,” www.zoom- systems.com/our-partners/partner-portfolio/; and www.zoomsystems

.com/about-us/company-overview/; accessed November 2012.

19. See “Household Internet Usage In and Outside the Home,” U.S. Census Bureau, www.census.gov/compendia/statab/2012/tables/

12s1155.pdf, accessed July 2012; “How People Spend Their Time

Online,” February 2, 2012, www.go-gulf.com/blog/online-time;

“Global Mobile Statistics,” MobiThinking, June 2011, http://mobi-

thinking.com/stats-corner/global-mobile-statistics-2011-all-quality-

mobile-marketing-research-mobile-web-stats-su; and Greg Sterling,

“Google: 1 Billion People Will Use Mobile as Primary Internet Access

Point in 2012,” February 27, 2012, http://searchengineland.com/

google-95-percent-of-us-smartphone-owners-use-search-113017.

20. See “Internet Retailer: Top 500 Guide,” www.internetretailer.com/ top500/list, accessed November 2012.

21. See “How Staples Generates More than $10 Billion in Online Sales,” March 7, 2012, http://electronicbankingoptions.com/2012/03/07/

how-staples-generates-more-than-10-billion-in-online-sales/; and

Staples data from annual reports and other information found at

www.staples.com, accessed October 2012.

22. See Thad Rueter, “E-retail Spending to Increase 62% by 2016,” Internet Retailer, February 27, 2012, www.internetretailer

.com/2012/02/27/e-retail-spending-increase-45-2016.

23. Rueter, “E-retail Spending to Increase 62% by 2016”; and Jack Loechner, “Web Influences Trillion Dollar Retail Sales,” Media-

Post, October 27, 2011, www.mediapost.com/publications/

article/160988/web-influences-trillion-dollar-retail-sales.html.

24. See facts from eBay annual reports and other information at www .ebayinc.com, accessed August 2012.

25. “State of the Blogosphere 2011,” Technorati, November 2011, ac- cessed at http://technorati.com/social-media/feature/state-of-the-

blogosphere-2011.

26. See http://en.community.dell.com/dell-blogs/default.aspx and www.youtube.com/user/DellVlog, accessed November 2012.

27. “Marketers Up the Ante on Social Media Sponsorships,” eMarketer, July 13, 2012, www.emarketer.com/Articles/Print.aspx?R=1009188.

28. Adapted from information found in Keith O’Brien, “How McDonald’s Came Back Bigger Than Ever,” New York Times, May 6, 2012, p. MM44.

29. See David F. Carr, “Get Satisfaction Embeds Customer Feedback on Client Websites,” Informationweek, May 1, 2012; and www

.getsatisfaction.com, accessed November 2012.

30. “U.S. Internet Ad Revenue Hits Record $31 Billion in 2011,” USA Today, April 18, 2012, www.usatoday.com/tech/news/story/2012-04-18/

internet-ad-revenue-record/54386820/1; and “US Online Advertising

Spending to Surpass Print in 2012,” eMarketer, January 19, 2012,

www.emarketer.com/PressRelease.aspx?R=1008788.

31. Internet Advertising Bureau, IAB Internet Advertising Revenue Re- port, April 18, 2012; www.iab.net/about_the_iab/recent_press_re-

leases/press_release_archive/press_release/pr-041812; and

Google annual reports, http://investor.google.com/proxy.html, ac-

cessed August 2012.

Chapter 17 | Direct and Online Marketing: Building Direct Customer Relationships 545 32. See “Campaigns Creativity Liked,” Advertising Age, December 13,

2010, p. 18; Dan Sewell, “Old Spice Teases Its Sexy New Ad Cam-

paign,” USA Today, January 26, 2011, www.usatoday.com/money/

advertising/2011-01-26-old-spice-mustafa-ad_N.htm; and Dave

Parrack, “10 of the Best Viral Video Ad Campaigns,” February 16,

2012, www.makeuseof.com/tag/10-viral-video-ad-campaigns/.

33. Michael Learmonth, “Fresh Numbers: Honda Won Super Bowl Before It Even Began,” Advertising Age, February 6, 2012, http://

adage.com/print/ 232543/.

34. David Gelles, “The Public Image: Volkswagen’s ‘The Force’ Cam- paign,” Financial Times, February 22, 2011, p. 14; and Troy Dreier,

“The Force Was Strong with This One,” Streaming Media Magazine,

April/May 2011, pp. 66–68. Also see Thales Teixeira, “The New Sci-

ence of Viral Ads,” Harvard Business Review, March 2012, pp. 25–28.

35. Mark Hachman, “Facebook Used by Half of the World’s Internet Us- ers, Save Asia,” PC Magazine, February 2, 2012, www.pcmag.com/

article2/0,2817,2399732,00.asp; and List of Countries by Popula-

tion,” http://en.wikipedia.org/wiki/List_of_countries_by_population,

accessed October 2012.

36. For these and other examples, see Douglas MacMillan, “With Friends Like This, Who Needs Facebook?” Bloomberg Businessweek, September

13–September 19, 2010, pp. 35–37; and www.yub.com, www.kaboodle

.com, www.farmersonly.com, www.gofishn.com/, www.ravelry.com,

www.dogster.com, www.researchgate.net, www.passionsnetwork

.com, and www.cafemom.com, all accessed November 2012.

37. “Happy Birthday to Nike+,” Run247, May 23, 2011, “Happy Birth- day to Nike+,” May 23, 2011, www.run247.com/articles/article-

1337-happy-birthday-to-nike%2B.html; and “Nike Shows Us How

to Adapt to a Digital Era,” AD60, February 27, 2012, www.ad60

.com/2012/02/27/nike-shows-adapt-digital-era/.

38. See http://my.menshealth.com/bellyoff/, accessed October 2012. 39. See “Internet 2011 in Numbers,” Pingdom, January 17, 2012, http://

royal.pingdom.com/2012/01/17/internet-2011-in-numbers; Ken

Magill, “Email Remains ROI King; Net Marketing Set to Overtake DM,

Says DMA,” The Magill Report, October 4, 2011, www.magillreport

.com/Email-Remains-ROI-King-Net-Marketing-Set-to-Overtake-

DM/; and “Marketers Use Growing Number of Tools to Spur Website

Engagement,” eMarketer, May 11, 2012, www.emarketer.com/

Article.aspx?R=1009040.

40. Elizabeth A. Sullivan, “Targeting to the Extreme,” Marketing News, June 15, 2010, pp. 17–19.

41. Symantec, The State of Spam and Phishing: Home of the Monthly Report—February 2012, accessed at http://go.symantec.com/

spam_report/.

42. Mark Brownlow, “Why Do Email Marketing?” Email Marketing Re- ports, November 2011, www.email-marketing-reports.com/basics/

why.htm; and Carroll Trosclair, “Direct Marketing, Advertising and

ROI: Commercial E-Mail Delivers Highest DM Return on Invest-

ment,” Suite101.com, April 2, 2010, http://advertising.suite101.com/

article.cfm/direct-marketing-advertising-and-roi. For examples of

outstanding e-mail marketing campaigns, see “MarketingSherpa Email

Awards 2012,” MarketingSherpa, www.marketingsherpa.com/data/

members/special-reports/OPEN-SR-10-Email-Awards-2012.pdf.

43. Facts in this paragraph are from Joe McKendrick, “One-Third of U.S. Households Chuck Landlines; Now Use Mobile Only,” SmartPlanet,

December 21, 2011, www.smartplanet.com/blog/business-brains/one-

third-of-us-households-chuck-landlines-now-use-mobile-only/20746;

Kunur Patel, “When Placing Advertising, Don’t Underrate the Value

of Mobile,” Advertising Age, November 7, 2011, p. 38; and www

.apple.com/ipad/from-the-app-store/, www.apple.com/iphone/apps-

for-iphone/, and https://play.google.com/store/apps/details?id=com

.google.android.finsky&hl=en, accessed October 2012.

44. “New Forecast: US Mobile Ad Spending Soars Past Expecta- tions,” January 25, 2012, http://www.emarketer.com/PressRelease

.aspx?R=1008798; “Global Mobile Statistics 2012,” mobiThinking,

February 2012, http://mobithinking.com/mobile-marketing-tools/

latest-mobile-stats.

45. See “Location, Location, Location,” Adweek, February 13, 2012, pp. M9–M11.

46. Adapted from Giselle Tsirulnik, “Most Impressive Mobile Advertis- ing Campaigns in 2010,” December 29, 2010, www.mobilemarketer

.com/cms/news/advertising/8617.html.

47. See Internet Crime Complaint Center, “IC3 2011 Annual Report on Internet Crime Released,” May10, 2012, http://www.ic3.gov/

media/2012/120511.aspx.

48. See Molly Bernhart Walker, “America’s Less Concerned about Internet Security,” FierceGovernmentIT, May 10, 2012, www

.fiercegovernmentit.com/story/americans-less-concerned-about-

internet-security/2012-05-10.

49. See Cecilia Kang, “Underage and on Facebook,” Washington Post, June 13, 2011, www.washingtonpost.com/blogs/post-tech/

post/underage-and-on-facebook/2011/06/12/AGHKHySH_blog.

html; and Susan Dominus, “Underage on Facebook,” MSN Liv-

ing, March 15, 2012; http://living.msn.com/family-parenting/

underage-on-facebook-5.

50. Adapted from information in Michael Bush, “My Life, Seen Through the Eyes of Marketers,” Advertising Age, April 26, 2010, http://

adage.com/print/143479.

51. See “Digital Advertising Alliance Announces First 100 Companies Participating in Self-Regulatory Program for Online Behavioral Ad-

vertising,” June 7, 2011, www.the-dma.org/cgi/dispannouncemen

ts?article=1558; and www.aboutads.info/, accessed August 2012.

52. See Wendy Davis, “Rockefeller Urges FTC to Move Faster on COPPA Rules,” Daily Online Examiner, May 19, 2011, www.mediapost.com/

publications/?fa=Articles.showArticle&art_aid=150867; and http://

epic.org/privacy/kids/ and http://business.ftc.gov/privacy-and-

security/children%E2%80%99s-privacy, accessed October 2012.

53. Information on TRUSTe at www.truste.com, accessed October 2012. 54. Information on the DMA Privacy Promise at www.the-dma.org/cgi/

dispissue?article=129 and www.dmaconsumers.org/privacy.html,

accessed November 2012.

“the heart and soul of what makes this company succeed,” says

Four Seasons founder and CEO Isadore Sharp. “When we say

people are our most important asset—it’s not just talk.” Just as

it does for customers, Four Seasons respects and pampers its

employees. It knows that happy, satisfied employees make for

happy, satisfied customers.

The Four Seasons customer-service legacy is deeply rooted

in the company’s culture, which in turn is grounded in the

Golden Rule. In all of its dealings with both guests and staff, the

luxury resort chain seeks to treat others as it wishes to be treated.

“How you treat your employees is a reflection of how you expect

Part 1: Defining Marketing and the Marketing Process (Chapters 1–2)

Part 2: Understanding the Marketplace and Consumers (Chapters 3–6)

Part 3: Designing a Customer-Driven Strategy and Mix (Chapters 7–17)

Part 4: Extending Marketing (Chapters 18–20)

Creating Competitive Advantage18

Chapter Preview In previous chapters, you

explored the basics of mar-

keting. You learned that the aim of marketing is to create value

for customers in order to capture value from them in return.

Good marketing companies win, keep, and grow customers

by understanding customer needs, designing customer-driven

marketing strategies, constructing value-delivering marketing

programs, and building customer and marketing partner re-

lationships. In the final three chapters, we’ll extend this con-

cept to three special areas: creating competitive advantage,

global marketing, and social and environmental marketing

sustainability.

To start, let’s look at the competitive marketing strategy of Four

Seasons, a hotel and resort company renown for creating unparal-

leled customer experiences. To its core, Four Seasons practices

a “customer intimacy” strategy—pampering customers to keep

them coming back (more on this strategy later in the chapter). The

luxury chain enlists everyone—from the CEO to the doorman—in

its mission to create superior customer value and keep customers

coming back.

Four Seasons: Inspiring Everyone to Create Customer Satisfaction and Value

A t a Four Seasons hotel, every guest is a somebody.

Other exclusive resorts pamper their guests, but

Four Seasons has perfected the art of high-touch,

carefully crafted service. Guests paying $1,000 or

more a night expect to have their minds read, and this luxury

hotel doesn’t disappoint. Its mission is to perfect the travel ex-

perience through the highest standards of hospitality. “From

elegant surroundings of the finest quality, to caring, highly

personalized 24-hour service,” says the company, “Four Sea-

sons embodies a true home away from home for those who

know and appreciate the best.”

As a result of its “customer intimacy” strategy, Four

Seasons has a cult-like customer clientele. As one Four

Seasons Maui guest recently told a manager,

“If there’s a heaven, I hope it’s run by

Four Seasons.” But what’s the se-

cret to bringing the Four Seasons

customer intimacy strategy to life?

It’s really no secret. Just ask any-

one who works there. From the CEO

to the doorman, they’ll tell you—it’s the

quality of the Four Seasons staff. Its people are

At Four Seasons, competitive

marketing strategy isn’t something that’s just handed down from the top. The company enlists

everyone—from the CEO to the doorman—in its mission to create unparalleled customer value.

Chapter 18 | Creating Competitive Advantage 547

Four Seasons and

its employees create

unparalleled customer

experiences. Says one

customer, “If there’s a

heaven, I hope it’s run by

Four Seasons.”

Kanoe Braun, a pool attendant at

the Four Seasons Maui, has visited

several other Four Seasons resorts

in his ten years with the company.

“I’ve been to the one in Bali. That

was by far my favorite,” he pro

claims. “You walk in, and they say,

‘How are you, Mr. Braun?’ and

you say, `Yeah, I’m somebody!’”

Adds another Four Season staffer,

“You’re never treated like just an employee. You’re a guest. You

come back from those trips on fi re. You want to do so much for

the guests.”

As a result, the Four Seasons staff loves the hotel just as

much as customers do. Although guests can check out anytime

they like, employees never want to leave. The annual turnover for

Fortune

faction and value involves more than just crafting a lofty com

petitive marketing strategy and handing it down from the top. At

company affair.

them to treat customers,” says

Sharp.

Four Seasons brings this

customer service culture to life

by hiring the best people, ori

enting them carefully, instilling

in them a sense of pride, and

motivating them by recogniz

ing and rewarding outstanding

service deeds. It all starts with

hiring the right people—those

who fi t the Four Seasons cul

ture. Every applicant—whether

it’s a potential receptionist,

a hopeful pool manager, or a

manager—undergoes mul

for employees who share that

Golden Rule—people who, by

nature, believe in treating oth

ers as they would have them

treat us,” says Sharp.

Once on board, all new employees receive three months

of training, including improvisation exercises that help them

to fully understand customer needs and behavior. At Four Sea

sons, the training never stops. But even more important is the

people themselves and the culture under which they work. The

most important cultural guideline: the good old Golden Rule.

“That’s not a gimmick,” Sharp insists. As a result, Four Seasons

employees know what good service is and are highly motivated

to give it.

Most important, once it has the right people in place,

Four Seasons treats them as it would its most important

ment and profit sharing plans. All employees—from the

maids who make up the rooms to the general manager—dine

together (free of charge) in the hotel cafeteria. Perhaps best

of all, every employee receives free stays at other Four Sea

sons resorts, starting at three free nights per year after six

months with the company, then six free nights or more after

one year.

The room stays make employees feel as important and

pampered as the guests they serve, and they motivate employ

ees to achieve even higher levels of service in their own jobs.

Today’s companies face their toughest competition ever. In previous chapters, we argued that to succeed in today’s fi ercely competitive marketplace, companies must move

This chapter spells out in more detail how companies can go about outperforming com

petitors to win, keep, and grow customers. To win in today’s marketplace, companies must

become adept not only in managing products but also in managing customer relationships

in the face of determined competition and a diffi cult economic environment. Understand

ing customers is crucial, but it’s not enough. Building profi table customer relationships and

gaining competitive advantage requires delivering more value and satisfaction to target

Competitive advantage

An advantage over competitors gained by

offering consumers greater value.

548 Part 4 | Extending Marketing

Objective Outline

Objective 1 Discuss the need to understand competitors as well as customers through competitor analysis.

Competitor Analysis (pp 548–555)

Objective 2 Explain the fundamentals of competitive marketing strategies based on creating value for customers.

Competitive Strategies (pp 555–565)

Objective 3 Illustrate the need for balancing customer and competitor orientations in becoming a truly

Balancing Customer and Competitor Orientations (pp 565–566)

Competitive marketing strategies

Strategies that strongly position the

company against competitors and give

the company the strongest possible

strategic advantage.

Objective 1 Discuss the need to understand

competitors as well as

customers through competitor

analysis.

Identifying competitors isn’t as easy as it seems. For example, Kodak saw other camera film makers as its major competitors. But its real competitors turned out to be the makers of digital cameras that used no film at all. Kodak fell behind in digital technologies and ended up declaring bankruptcy.

FIGURE | 18.1

Steps in Analyzing Competitors

customer ad vantages, giving the company an edge over its competitors.

In this chapter, we examine competitive marketing strategies—how companies ana

and maintaining profi table customer relationships. The fi rst step is competitor analysis,

the process of identifying, assessing, and selecting key competitors. The second step is de

veloping competitive marketing strategies that strongly position the company against

competitors and give it the greatest possible competitive advantage.

Competitor Analysis To plan effective marketing strategies, a company needs to fi nd out all it can about its com

petitors. It must constantly compare its marketing strategies, products, prices, channels,

and promotions with those of close competitors. In this way, the company can fi nd areas of

potential competitive advantage and disadvantage. As shown in Figure 18.1,

tor analysis involves fi rst identifying and assessing competitors and then selecting which

competitors to attack or avoid.

Chapter 18 | Creating Competitive Advantage 549 Identifying Competitors Normally, identifying competitors would seem to be a simple task. At the narrowest level,

a company can defi ne its competitors as other companies offering similar products and ser

vices to the same customers at similar prices. Thus, Abercrombie & Fitch might see the Gap

Seasons hotels as a major competitor, but not Holiday Inn, the Hampton Inn, or any of the

However, companies actually face a much wider range of competitors. The company

might defi ne its competitors as all fi rms with the same product or class of products. Thus,

competitors might include all companies making products that supply the same service.

against anyone who supplies rooms for weary travelers. Finally, and still more broadly,

competitors might include all companies that compete for the same consumer dollars. Here

from cruises and summer homes to vacations abroad.

ied” by its latent competitors than its current ones. For example, it wasn’t direct competi

phones and the Internet. Music superstore Tower Records didn’t go bankrupt at the hands

vices.

example of

competitor myopia is the U.S. Postal Service (USPS):2

But it’s not direct competitors such as FedEx or UPS that are the problem. Instead, it’s a

competitor that the USPS could hardly have even imagined two decades ago—the soar

calls “electronic diversion.” As Internet usage has surged, personal and business letter mail

billion! The USPS’s response: Proposed increases in postage stamp prices, employee layoffs, and a reduction

industry point of view. They might see themselves as being in the oil industry, the

pharmaceutical industry, or the beverage industry. A company must

understand the competitive patterns in its industry if it hopes to be

petitors from a market point of view. Here they defi ne competitors as companies that are trying to satisfy the same customer need or build

relationships with the same customer group.

From an industry point of view, Pepsi might see its competition as

customer really wants “thirst quenching”—a need that can be satisfi ed

by bottled water, energy drinks, fruit juice, iced tea, and many other

fl uids.

other fresh fruit producers. But based on research showing that ba

nanas provide the same energy boost as sports drinks but with more

fi ned its competitive point of view and began positioning its bananas

as “Nature’s Original Energy Bar.”3 In general, the market concept of

competition opens the company’s eyes to a broader set of actual and

potential competitors.

Competitor analysis

Identifying key competitors; assessing

their objectives, strategies, strengths and

weaknesses, and reaction patterns; and

selecting which competitors to attack or

avoid.

Identifying competitors: In its “Nature’s Original Energy

Bar” campaign, Dole positions its bananas not as a fruit,

but as a nutritious, affordable energy booster.

Dole Fresh Fruit Company

550 Part 4 | Extending Marketing

Kodak. That venerable brand name has been

a household word for generations world

wide. For more than a century, people relied

on Kodak for products to help them capture

“Kodak moments”—important personal and

family events to be shared and recorded

for posterity. The Hollywood movie industry

evolved around Kodak technology. In 1972,

Paul Simon even had a number two hit single

called “Kodachrome,” a song that put into

words the emotional role that Kodak prod

ucts played in people’s lives.

Today, however, Kodak is bankrupt, a

company working its way through Chapter 11

reorganization. Once ranked among the bluest

of blue chips, Kodak’s shares are now penny

stocks. The brand that once monopolized its in

dustry, capturing 85 percent of all camera sales

and 90 percent of a huge film market, now

struggles to compete in any market at all. Once

rolling in cash, for the last four years Kodak has

been losing $43 million a month. And once em

ploying more than 100,000 people worldwide,

the company’s mostly U.S. workforce has now

dwindled to less than 10,000 workers.

How could such a storied brand fall so

far so fast? Kodak fell victim to marketing

and competitor myopia—focusing on a nar

row set of current products and competitors

rather than on underlying customer needs

and emerging market dynamics. It wasn’t

competing film makers that brought Kodak

down. It was the competitor Kodak didn’t

see soon enough—digital photography and

cameras that used no film at all. All along,

Kodak continued to make the very best film.

But in an increasingly digital world, customers

no longer needed film. Clinging to its legacy

products, Kodak lagged competitors in mak

ing the shift to digital.

In 1880, George Eastman founded

tography. In 1888, he introduced the Kodak

camera, which used glass plates for captur

ing images. Looking to expand the market,

Eastman next developed film and the in

novative little Kodak Brownie film camera.

He sold the camera for only $1 but reaped

massive profits from the sale of film, along

with the chemicals and paper required to

produce photographs. Although Kodak also

developed innovative imaging technologies

for industries ranging from health care to

publishing, throughout the twentieth century,

cameras and film remained the company’s

massive cash cow.

Interestingly, way back in 1975, Kodak

engineers invented the first digital camera—

rough hues of black and white. However, fail

of digital photography, and fearing that digital

technology would cannibalize its precious film

business, Kodak shelved the digital project.

Company managers simply could not envision

a filmless world. So Kodak held fast to film and

focused its innovation and competitive energies

film producers. When the company later real

ized its mistake, it was too late.

Blinded by its film fixation, Kodak failed

to see emerging competitive trends associ

ated with capturing and sharing images.

Kodak’s culture became bound up in its his

tory and the nostalgia that accompanied it.

“They were a company stuck in time,” says

one analyst. “Their history was so important

they made a lot of amazing things and a lot

of money along the way. [Then,] their history

[became] a liability.”

By the time Kodak finally introduced a

late 1990s, the market was already crowded

with digital products from Sony, Canon, and

a dozen other camera makers. That was

soon followed by a completely new category

of competitors, as more and more people

and other mobile devices and sharing pho

game, Kodak became a relic of the past and

petitors that hadn’t even existed a decade or

two earlier.

Somewhere along the way, swelled with

founder George Eastman’s visionary knack

for defining customer needs and competi

tor dynamics. According to one biographer,

Eastman’s legacy was not film; it was inno

vation. “George Eastman never looked back.

He always looked forward to doing something

better than what he had done, even if he had

the best on the market at the time.” If it had

retained Eastman’s philosophy, Kodak might

well have been the market leader in digital

technologies. We might all still be capturing

“Kodak moments” on Kodak digital cam

eras and smartphones and sharing them on

18.1Real Marketing Kodak: The Competitor It Didn’t See Soon Enough—No Film

Competitor myopia: It wasn’t competing fi lm makers that brought Kodak

down. It was the competitor Kodak didn’t see soon enough—digital

photography and cameras that use no fi lm at all.

Chapter 18 | Creating Competitive Advantage 551

social networks.

As Kodak emerges from bankruptcy,

given the strength of the Kodak brand name,

those things could still happen. But it’s not

likely. As a part of its bankruptcy plan, Kodak

announced that it will stop making digital

cameras (it has also discontinued its famous

Kodachrome color film). Instead, it plans

to license its name to other manufacturers

that will make cameras under the Kodak

Sources: Sam Gustin, “In Kodak Bankruptcy, Another Casualty of the Digital Revolution,” Time, January 20, 2012, http://

“Focus on Past Glory Kept Kodak from Digital Win,” Reuters, January 19, 2012, www.reuters.com/article/2012/01/19/

Era Spells End to Film,” Bloomberg Businessweek

Los Angeles Times, December 4, 2011; and “Kodak to Stop Making Digital Cameras,” Digital Photography Review,

February 9, 2012, www.dpreview.com/news/2012/02/09/Kodak_exits_camera_business.

Assessing Competitors

react to actions the company might take?

Determining Competitors’ Objectives Each competitor has a mix of objectives. The company wants to know the relative impor

tance that a competitor places on current profi tability, market share growth, cash fl ow,

technological leadership, service leadership, and other goals. Knowing a competitor ’s mix

of objectives reveals whether the competitor is satisfi ed with

its current situation and how it might react to different com

leadership will react much more strongly to a competitor ’s

competitor ’s increase in advertising.

A company also must monitor its competitors’ objectives for

various segments. If the company fi nds that a competitor has dis

covered a new segment, this might be an opportunity. If it fi nds

that competitors plan new moves into segments now served by

the company, it will be forewarned and, hopefully, forearmed.

Identifying Competitors’ Strategies The more that one fi rm’s strategy resembles another fi rm’s

strategy, the more the two fi rms compete. In most industries,

the competitors can be sorted into groups that pursue different

strategies. A strategic group is a group of fi rms in an indus

try following the same or a similar strategy in a given target

market. For example, in the major appliance industry, GE and

pliances, offer a higher level of service, and charge a premium

materials to create the most powerful products available. At

Some important insights emerge from identifying strategic

groups. For example, if a company enters a strategic group, the

Strategic group

A group of firms in an industry following

the same or a similar strategy.

Strategic groups: Viking belongs to the appliance industry

strategic group offering a narrow line of very high quality

products. “Every one of us is committed to every Viking that

comes off the line,” says this ad. At Viking, it’s more than just

steel on the line. It’s our pride.”

Viking Range Corporation

revenues will now come from business seg

ments, such as commercial digital print

ing and entertainment films. So, along with

the company’s fortunes, it looks as though

the famed “Kodak moment” may have now

passed into history.

552 Part 4 | Extending Marketing members of that group become its key competitors. Thus, if the company enters a group

these two companies.

Although competition is most intense within a strategic group, there is also rivalry

among groups. First, some strategic groups may appeal to overlapping customer seg

ments. For example, no matter what their strategy, all major appliance manufacturers will

go after the apartment and homebuilders segment. Second, customers may not see much

strategy segments. Thus, GE’s Monogram and Profi le lines of appliances compete in the

The company needs to look at all the dimensions that identify strategic groups within

the industry. It must understand how each competitor delivers value to its customers. It

online and social media programs. And it must study the details of each competitor’s re

Assessing Competitors’ Strengths and Weaknesses Marketers need to carefully assess each competitor’s strengths and weaknesses to answer a

can our competitors do? As a fi rst step, companies can gather data on each competitor’s goals, strategies, and performance over the past few years. Admittedly,

marketers fi nd it hard to estimate competitors’ market shares because they do not have the

secondary data, personal experience, and word of mouth. They can also conduct primary mar

keting research with customers, suppliers, and dealers. They can check competitors’ online and

social networking sites. Or they can benchmark themselves against other fi rms, comparing

the company’s products and processes to those of competitors or leading fi rms in other indus

tries to identify best practices and fi nd ways to improve quality and performance. Benchmark

ing has become a powerful tool for increasing a company’s competitiveness.

Estimating Competitors’ Reactions will our competitors do? A competi

tor’s objectives, strategies, and strengths and weaknesses go a long way toward

explaining its likely actions. They also suggest its likely reactions to company

In addition, each competitor has a certain philosophy of doing business, a cer

tain internal culture and guiding beliefs. Marketing managers need a deep

understanding of a competitor’s mentality if they want to anticipate how that

competitor will act or react.

Each competitor reacts differently. Some do not react quickly or strongly to

a competitor’s move. They may feel their customers are loyal, they may be slow

in noticing the move, or they may lack the funds to react. Some competitors

react only to certain types of moves and not to others. Other competitors react

swiftly and strongly to any action. Thus, P&G does not allow a competitor’s

new product to come easily into the market. Many fi rms avoid direct competi

tion with P&G and look for easier prey, knowing that P&G will react fi ercely if

it is challenged.

fi ght constantly. For example, competitors in the U.S. wireless industry

AT&T’s rumored spotty service. AT&T retaliated by showing that its custom

ers could talk on the phone and surf the Internet at the same time, a feature

enabled iPad, an advertising battle has been raging over which company has

Benchmarking

Comparing the company’s products and

processes to those of competitors or

leading firms in other industries to identify

best practices and find ways to improve

quality and performance.

Competitor reactions: In some industries,

competitors live in relative harmony; in others, they

fi ght constantly. For example, in the U.S. wireless

each other ruthlessly in comparison ads for years.

Chapter 18 | Creating Competitive Advantage 553 Knowing how major competitors react gives the company clues

on how best to attack competitors or how best to defend its current positions.

Selecting Competitors to Attack and Avoid A company has already largely selected its major competitors through prior decisions on

customer targets, positioning, and its marketing mix strategy. Management now must de

cide which competitors to compete against most vigorously.

Strong or Weak Competitors A company can focus on one of several classes of competitors. Most companies prefer to

compete against weak competitors. This requires fewer resources and less time. But in the

process, the fi rm may gain little. You could argue that a fi rm also should compete with

strong competitors to sharpen its abilities. And sometimes, a company can’t avoid its larg

weaknesses, and succeeding against them often provides greater returns.

A useful tool for assessing competitor strengths and weaknesses is customer value

analysis. The aim of customer value analysis is to determine the benefi ts that target

customers value and how customers rate the relative value of various competitors’ offers.

In conducting a customer value analysis, the company fi rst identifi es the major attributes

that customers value and the importance customers place on these attributes. Next, it as

sesses its performance against competitors on those valued attributes.

The key to gaining competitive advantage is to examine how a company’s offer com

pares to that of its major competitors in each customer segment. The company wants to

fi nd the place in the market where it meets customers’ needs in a way rivals can’t. If the

company’s offer delivers greater value than the competitor’s offer on important attributes,

it can charge a higher price and earn higher profi ts, or it can charge the same price and gain

more market share. But if the company is seen as performing at a lower level than its major

competitors on some important attributes, it must invest in strengthening those attributes

or fi nding other important attributes where it can build a lead.

Close or Distant Competitors Most companies will compete with close competitors—those that resemble them most—rather

than distant competitors. Thus, Nike competes more against Adidas than against Timberland

At the same time, the company may want to avoid trying to “destroy” a close competitor.

other soft contact lens manufacturers with great success. However, this forced weak competi

tors to sell out to larger fi rms such as Johnson & Johnson (J&J). As a result, Bausch & Lomb

market share. In this case, success in hurting a close rival brought in tougher competitors.

Good or Bad Competitors A company really needs and benefi ts from competitors. The existence of competitors results

lead to more product differentiation. Finally, competitors may help increase total demand.

For example, you might think that Apple’s introduction of the stylish and trendy iPad tab

been on the market for three years prior to the iPad’s debut. Many analysts thought that

Apple had created the “Kindle killer.” However, as it turns out, the competing iPad cre

ated a stunning surge in tablet demand that benefi ted both companies. Kindle sales have in

creased sharply since the iPad introduction. And whereas Apple now enjoys a major share

Customer value analysis

An analysis conducted to determine what

benefits target customers value and how

they rate the relative value of various

competitors’ offers.

554 Part 4 | Extending Marketing other digital content, which can be read on the iPad using a

free Kindle for iPad app.7

However, a company may not view all its competitors as

benefi cial. An industry often contains good competitors and bad competitors. Good competitors play by the rules of the indus try. Bad competitors, in contrast, break the rules. They try to

buy share rather than earn it, take large risks, and play by their

own rules.

For example, the nation’s traditional newspapers face a lot

traditional newspaper content are bad competitors because they

the online community that lets local users post largely free

margins, and that’s about as bad as the competitor can get.

Another example is the Huffington Post, the Pulitzer

Huffi ngton as an outlet for liberal commentary. The publica

tion has since expanded and is now owned by AOL. The site

offers news, blogs, and original content, and covers politics,

business, entertainment, technology, popular media, lifestyle, culture, comedy, healthy liv

subscription rates charged by traditional newspapers. Last year the publication attracted

have helped to drive many traditional newspapers into bankruptcy in recent years.

Finding Uncontested Market Spaces Rather than competing head to head with established competitors, many companies seek

out unoccupied positions in uncontested market spaces. They try to create products and

is to make competition irrelevant:

have fought for competitive advantage, battled over market share, and struggled for differentia

“red ocean” of rivals fi ghting over a shrinking profi t pool. In their book Blue Ocean Strategy, two strategy professors contend that although most companies compete within such red oceans, the

strategy isn’t likely to create profi table growth in the fu

ture. Tomorrow’s leading companies will succeed not by

battling competitors but by creating “blue oceans” of un

contested market space. Such strategic moves—termed

value innovation—create powerful leaps in value for both

the fi rm and its buyers, creating all new demand and

rendering rivals obsolete. By creating and capturing blue

oceans, companies can largely take rivals out of the picture.

Apple has long practiced this strategy, introducing

product fi rsts such as the iPod, iPhone, and iPad that

created whole new categories. Another example

higher form of modern entertainment. At a time when

ments such as animal acts and instead focused on the

with then market leader Ringling Bros. and Barnum &

preceded it. Instead, it created an uncontested new mar

ket space that made existing competitors irrelevant. The uncontested new market space that made existing competitors irrelevant.

Good or bad competitors: Rather than spelling trouble for

a surge in tablet demand that benefi ted both companies.

Kyodo

Chapter 18 | Creating Competitive Advantage 555 strategy, in only its first 20 years, Cirque du Soleil achieved more revenues than Ringling

Brothers and Barnum & Bailey achieved in its first 100 years.

Designing a Competitive Intelligence System We have described the main types of information that companies need about their com-

petitors. This information must be collected, interpreted, distributed, and used. Gathering

competitive intelligence can cost much money and time, so the company must design a

cost-effective competitive intelligence system.

The competitive intelligence system first identifies the vital types of competitive in-

formation needed and the best sources of this information. Then, the system continuously

collects information from the field (sales force, channels, suppliers, market research firms,

Internet sites, online monitoring, and trade associations) and published data (government

publications, speeches, and online databases). Next the system checks the information for

validity and reliability, interprets it, and organizes it in an appropriate way. Finally, it sends

relevant information to decision makers and responds to inquiries from managers about

competitors.

With this system, company managers receive timely intelligence about competitors in

the form of reports, phone calls, e-mails alerts, bulletins, and newsletters. Managers can

also connect with the system when they need to interpret a competitor’s sudden move,

know a competitor’s weaknesses and strengths, or assess how a competitor will respond to

a planned company move.

Smaller companies that cannot afford to set up formal competitive intelligence offices

can assign specific executives to watch particular competitors. Thus, a manager who used

to work for a competitor might follow that competitor closely, becoming the “in-house

expert” on that competitor. A manager needing to know the thinking of a given competitor

could contact the assigned in-house expert.

Competitive Strategies Having identified and evaluated its major competitors, a company now must design broad

marketing strategies by which it can gain competitive advantage. But what broad com-

petitive marketing strategies might the company use? Which ones are best for a particular

company or for the company’s different divisions and products?

Approaches to Marketing Strategy No one strategy is best for all companies. Each company must determine what makes the

most sense given its position in the industry and its objectives, opportunities, and resources.

Even within a company, different strategies may be required for different businesses or

products. Johnson & Johnson uses one marketing strategy for its leading brands in stable

consumer markets, such as BAND-AID, Tylenol, Listerine, or J&J’s baby products, and a

different marketing strategy for its high-tech health-care businesses and products, such as

Monocryl surgical sutures or NeuFlex finger joint implants.

Companies also differ in how they approach the strategy-planning process. Many

large firms develop formal competitive marketing strategies and implement them reli-

giously. However, other companies develop strategy in a less formal and orderly fash-

ion. Some companies, such as Harley-Davidson, Red Bull, Virgin Atlantic Airways, and

BMW’s MINI Cooper unit, succeed by breaking many of the rules of marketing strategy.

Such companies don’t operate large marketing departments, conduct expensive market-

ing research, spell out elaborate competitive strategies, and spend huge sums on ad-

vertising. Instead, they sketch out strategies on the fly, stretch their limited resources,

live close to their customers, and create more satisfying solutions to customer needs.

They form buyer ’s clubs, use buzz marketing, and focus on winning customer loyalty.

It seems that not all marketing must follow in the footsteps of marketing giants such as

Nike and P&G.

In fact, approaches to marketing strategy and practice often pass through three stages—

entrepreneurial marketing, formulated marketing, and intrepreneurial marketing:

Entrepreneurial marketing: Most companies are started by individuals who live by their wits. For example, in the beginning, Robert Ehrlich, founder and CEO of Pirate

Objective 2 Explain the fundamentals of

competitive marketing strategies

based on creating value for

customers.

556 Part 4 | Extending Marketing Brands, a snack food company, didn’t believe in formal marketing—or formal anything

But until only a few years ago, Ehrlich did that with virtually no formal marketing.

advertising slogans—just whatever came to him at the time. Ehrlich’s cartoonist friend

from Mad Magazine helped him design packaging and labels. Promotion consisted of

Formulated marketing: As small companies achieve success, they inevitably move to

adhere to them closely. For example, as Pirate Brands has grown, it now takes a more

formal approach to product development and its public relations and distributor

relations strategies. It has also developed more formal customer outreach efforts,

Newsletter, which features product updates, coupons, special offers, and event list

ings. Although Pirate Brands will no doubt remain less formal in its marketing than

marketing tools.

Intrepreneurial marketing: Many large and mature companies get stuck in formulated mar keting. They pore over the latest Nielsen numbers, scan market research reports, and try

the marketing creativity and passion they had at the start. They now need to reestablish

within their companies the entrepreneurial spirit and actions that made them successful

in the fi rst place. They need to encourage more marketing initiative and “intrepreneur

ship” at the local level.

online).

for a steady stream of intrepreneurs who found and developed new opportunities,

often leading efforts that went against the grain,” he

says. According to Branson, intrepreneurship starts

at the top. The key is to give key employees the free

dom and support that enables them to pursue their

visions and develop new products, services, and sys

who seeks out people with an intrapreneurial bent,

supports them, and then steps back and lets them op

perience, so we looked for our rivals’ best managers,

hired them away, took off their ties, and gave them

the freedom to set up their own ventures within the

mersed in running the new business that they didn’t

really feel like employees. They felt more like owners

in an entrepreneurial venture.

The bottom line is that there are many approaches

to developing effective competitive marketing strat

egies. There will be a constant tension between the

formulated side of marketing and the creative side.

It is easier to learn the formulated side of market

ing, which has occupied most of our attention in this

Intrepreneurial marketing: According to founder Richard Branson (above),

intrepreneurial thinking has helped the Virgin Group grow successfully into

a collection of more 200 companies, from established giants such as Virgin

AP Photo/Bridget Jones

Chapter 18 | Creating Competitive Advantage 557 book. But we have also seen how marketing creativity and passion in the strategies of

many of the companies studied—whether small or large, new or mature—have helped

broad competitive marketing strategies companies can use.

Basic Competitive Strategies Three decades ago, Michael Porter suggested four basic competitive positioning strate

gies that companies can follow—three winning strategies and one losing one. The three

winning strategies are as follows:

Overall cost leadership: Here the company works hard to achieve the lowest produc tion and distribution costs. Low costs let it price lower than its competitors and win

practitioners of this strategy.

Differentiation: Here the company concentrates on creating a highly differentiated product line and marketing program so that it comes across as the class leader in

the industry. Most customers would prefer to own this brand if its price is not too

heavy construction equipment, respectively.

Focus: Here the company focuses its effort on serving a few market segments well

tropical fi sh food—it’s “the leader in underwater wonder.” Similarly, Hohner owns a

The fi rm that carries out that strategy best will make the most profi ts. But fi rms that do

not pursue a clear strategy— —do the worst. Sears and Holiday Inn en

countered diffi cult times because they did not stand out as the lowest in cost, highest in

good on all strategic counts but end up being not very good at anything.

centered classifi cation of competitive marketing strategies. They suggest that companies

sue any of three strategies—called value disciplines—for delivering superior customer value:

Operational excellence: The company provides superior value by leading its industry in price and convenience. It works to reduce costs and create a lean and effi cient value delivery

Customer intimacy: The company provides superior value by precisely segmenting its markets and tailor

ing its products or services to exactly match the needs

of targeted customers. It specializes in satisfying unique

customer needs through a close relationship with and

intimate knowledge of the customer. It empowers its

intimate companies serve customers who are willing to

pay a premium to get precisely what they want. They will

and to capture customer lifetime value.

Year

hospitality industry in terms of customer satisfaction.

Its passion for satisfying customers is summed up in

the company’s credo, which promises that its luxury

hotels will deliver a truly memorable experience—

even the unexpressed wishes and needs of our guests.”

be amazed by the company’s fervent dedication to anticipat

they seem to know that you’re allergic to peanuts and want a

company’s luxury hotels will deliver a truly memorable experience—

the unexpressed wishes and needs of our guests.”

AFP/Getty Images

558 Part 4 | Extending Marketing

feinated coffee in your room. Each day, hotel staffers—from those at the front desk to those in

maintenance and housekeeping—discreetly observe and record even the smallest guest prefer

ences. Then, every morning, each hotel reviews the files of all new arrivals who have previously

guest.

chef in Bali located special eggs and milk in a small grocery store in another country and had

them delivered to the hotel. In another case, when the hotel’s laundry service failed to remove a

stain on a guest’s suit before the guest departed, the hotel manager traveled to the guest’s house

customers return.

Product leadership: The company provides superior value by offering a continuous

products obsolete. Product leaders are open to new ideas, relentlessly pursue new so

lutions, and work to get new products to market quickly. They serve customers who

Some companies successfully pursue more than one value discipline at the same time.

For example, FedEx excels at both operational excellence and customer intimacy. However,

By trying to be good at all value disciplines, a company usually ends up being best at none. Thus, most excellent companies focus on and excel at a single value discipline, while

meeting industry standards on the other two. Such companies design their entire value

discounters, it offers very good customer service and an excellent product assortment. Still,

it purposely offers less customer service and less product depth than does Nordstrom or

to make it convenient for customers to buy just the right products at the lowest prices.

nologies. But what really sets the luxury hotel chain apart is its customer intimacy. The

Each value discipline defi nes a specifi c way to build lasting customer relationships.

Competitive Positions Firms competing in a given target market, at any point in time, differ in their objectives and

competitive positions in the target market.

Each market position calls for a different competitive strategy. For example, the market leader wants to expand total demand and protect or expand its share. Market nichers seek market segments that are big enough to be profitable but small enough to be of little interest to major competitors.

FIGURE | 18.2

Competitive Market Positions

and Roles

Chapter 18 | Creating Competitive Advantage 559

another, often creating whole new product categories. Apple’s diehard fans

have anointed the brand “the keeper of all things cool.”

XVIII in 1984, Apple introduced the world to a

new personal computer called the Macintosh,

the first computer ever to feature a graphic

user interface and mouse. The innovative Mac

changed the computer industry forever. It

gained an immediate and enthusiastic throng

of fans, and it set in motion a chain of events

that would establish Apple as one of the

world’s most innovative product leaders.

Today, nearly three decades later, few

brands engender such intense loyalty as that

found in the hearts of core Apple buyers. At

one end are the quietly satisfied Mac, iPod,

iPhone, and iPad users, folks who own an

browsing, and social networking. At the other

extreme, however, are the Mac zealots—the

least a little MacHead in every Apple customer.

Apple enthusiasts see late Apple founder

Steve Jobs as the Walt Disney of technology.

and they’ll go into rhapsodies about the supe

riority of the brand. Buy an Apple product and

you join a whole community of fervent fellow

believers.

What is it that makes Apple buyers so

loyal? Why do they buy a MacBook instead

of an HP or a Dell, or an iPhone instead of a

Samsung, LG, or Motorola? Ask the true be

lievers, and they’ll tell you simply that Apple’s

products work better and are simpler to use.

From the beginning, Apple has been a product

after another. But those products aren’t just the

creations of engineers and designers sealed off

from the world behind the closed doors of Apple

laboratories. Apple’s product leader prowess

results from putting top priority on understand

ing its customers and what makes them tick,

then creating products that put customers at

the front of the crowd.

Apple has shown “a marketing and creative

genius with a rare ability to get inside the imagi

nations of consumers and understand what will

captivate them,” says one analyst. Apple has

been “obsessed with the Apple user’s experi

ence.” Apple’s obsession with understanding

customers and deepening their Apple experi

ence shows in everything the company does.

Many tech companies make products that just

occupy space and do work. By contrast, Apple

Making products customers want—

usually before consumers themselves even

know what they want—has resulted in one

decade alone, the iPod, iTunes, iPhone, and

iPad have all created whole new product

categories where none previously existed.

In each case, Apple not only pioneered the

category but remains the dominant market

leader. For example, the iPod still holds

more than 78 percent of the MP3 market.

And despite an onslaught of competing

products and predictions of declining mar

ket share for iPad in a maturing market,

Apple’s share of the tablet market rose to

68 percent last year.

Apple’s innovative product leadership ex

tends well beyond its products. Just peek in

experiences abound. The store design is clean,

simple, and just oozing with style—much like an

Apple iPad or a featherweight MacBook Air. The

bustling stores feel more like community cen

ters than retail outlets. Apple stores encourage

a lot of purchasing, to be sure. But they also

encourage lingering, with tables full of fully func

tioning Macs, iPods, iPads, and iPhones sitting

Apple employees close at hand to answer ques

tions and cater to every whim. You don’t just visit

an Apple store—you experience it. Apple com

bines product leadership with enough customer

intimacy thrown in to create an experience that

no other consumer electronics company can

match.

According to one industry expert,

“some of the most amazing companies of

the coming few years will be businesses that

understand how to wrap technology beau

tifully around human needs so that it mat

ters to people.” That’s an apt description of

Apple and its core segment of enthusiastic

disciples. Fast Company seems to agree. It

recently crowned Apple “The world’s most

innovative company” for the second year in

a row. In the consumer electronics industry,

Apple has dominated the American Con

sumer Satisfaction Index for the past eight

years, leading this year’s field with another

above its nearest industry competitor.

Product leadership and the consumer

love affair with Apple have produced stun

ning sales and profit results. In the past five

years, despite the worst economic conditions

since the Great Depression, Apple sales have

more than quadrupled to nearly $110 billion,

including a whopping 200 percent increase in

the previous two years alone. Profits have sky

rocketed sevenfold to $26 billion—an incred

ible 24 percent net margin. During that time,

18.2Real Marketing Product Leader Apple: The Keeper of All Things Cool

560 Part 4 | Extending Marketing

market—leader, challenger, follower, or nicher. Suppose that an industry contains the fi rms

shown in Figure 18.2. Forty percent of the market is in the hands of the market leader,

market chal

lengers

market followers

market

nichers, fi rms that serve small segments not being pursued by other fi rms.

shows specifi c marketing strategies that are available to market leaders,

challengers, followers, and nichers. Remember, however, that these classifi cations often

do not apply to a whole company but only to its position in a specifi c industry. Large com

in others. For example, P&G leads in many segments, such as laundry detergents and sham

companies often use different strategies for different business units or products, depending

on the competitive situations of each.

Market Leader Strategies Most industries contain an acknowledged market leader. The leader has the largest mar

distribution coverage, and promotion spending. The leader may or may not be admired or

networking), and Google (Internet search services).

Apple’s stock price has increased more than

300 percent.

The recent passing of founder and CEO

Steve Jobs has cast a small shadow of doubt

on the future of the company. Perhaps no large

corporation in history has been so strongly tied

to the creative genius of its leader. But Jobs left

a legacy that many believe will carry on. And for

now, product leader Apple continues to soar.

“To say Apple is hot just doesn’t do the com

pany justice,” concludes one Apple watcher.

“Apple is smoking, searing, blisteringly hot,

not to mention hip, with a side order of funky.

Gadget geeks around the world have crowned

Apple the keeper of all things cool.” Just ask

your Macolyte friends. In fact, don’t bother—

they’ve probably already brought it up.

Sources: “For Walking the Talk,” Fast Company

2012/apple; Steve Maich, “Nowhere to Go But Down,” Maclean’s, May 9, 2005, p. 32; Jim Joseph, “How Do I Love

Thee, Apple? Let Me Count the Ways,” Brandweek, May 24, 2010, p. 30; Henrik Werdelin, “Three Things Google

Can Learn from Apple,” Fast Company,

.cnbc.com/id/46103211/Apple_Crushes_Profit_Estimates_as_iPhone_iPod_Sales_Soar; and information found at

www.fortune.com and www.apple.com, accessed October 2012.

Table 18.1 | Strategies for Market Leaders, Challengers, Followers, and Nichers

Market Leader Strategies

Market Challenger Strategies

Market Follower Strategies

Market Nicher Strategies

Expand total market

Protect market share

Expand market share

Full frontal attack

Indirect attack

Follow closely

Follow at a distance

By customer,

price, service

Multiple niching

Market leader

The firm in an industry with the largest

market share.

Market challenger

increase its market share in an industry.

Market follower

share in an industry without rocking

the boat.

Market nicher

A firm that serves small segments that

the other firms in an industry overlook or

ignore.

Chapter 18 | Creating Competitive Advantage 561 A leader’s life is not easy. It must maintain a constant watch. Other fi rms keep challeng

ing its strengths or trying to take advantage of its weaknesses. The market leader can easily

miss a turn in the market and plunge into second or third place. A product innovation may

come along and hurt the leader (as when Apple developed the iPod and took the market

ground to stylish niche brands such as 7 for All Mankind and American Apparel and mall

To remain number one, leading fi rms can take any of three actions. First, they can fi nd

ways to expand total demand. Second, they can protect their current market share through

good defensive and offensive actions. Third, they can try to expand their market share fur

ther, even if market size remains constant.

The leading fi rm normally gains the most when the total market expands. If Americans eat

will benefi t more than its competitors.

Market leaders can expand the market by developing new users, new uses, and more

usage of its products. They usually can fi nd new users or untapped market segments in

toward women. Recently, however, it stepped up its efforts to attract male customers, with

body can possibly get, who’s actually eating fruits and vegetables for the fi rst time in his

Marketers can expand markets by discovering and promoting new uses for the product.

ing the market by fi nding new uses has made this popular sub

stance one of the truly essential survival items in most American

homes:

gested simple and practical uses, such as cleaning crayon marks from

just about anywhere or freeing stuck LEGO bricks. One teacher uses

boards started coming to life again,” she reported. “Not only were

they restored, but years of masking and Scotch tape residue came

off as well.” Others, however, reported some pretty unusual applica

remove a prosthetic leg. And did you hear about the nude burglary

gry bear? Then there’s the college student who wrote to say that a

friend’s nightly amorous activities in the next room were causing ev

eryone in his dorm to lose sleep—he solved the problem by treating

can is useful for far more than loosening rusty parts or lubricating

your bike chain,” says the company.

Finally, market leaders can encourage more usage by con vincing people to use the product more often or use more per

new uses has made this popular substance one of the truly

essential survival items in most American homes.

562 Part 4 | Extending Marketing (www.campbellskitchen.com), visitors can search for or exchange recipes, create their

own personal recipe box, learn ways to eat healthier, and sign up for a daily or weekly

Protecting Market Share

nesses that provide opportunities for competitors. It must always fulfi ll its value promise

and work tirelessly to keep strong relationships with valued customers. Its prices must re

main consistent with the value that customers see in the brand. The leader should “plug

holes” so that competitors do not jump in.

But the best defense is a good offense, and the best response is continuous innovation. The market leader refuses to be content with the way things are and leads the industry in new

products, customer services, distribution effectiveness, promotion, and cost cutting. It keeps

increasing its competitive effectiveness and value to customers. And when attacked by chal

lengers, the market leader reacts decisively. For example, in the laundry products category,

market leader P&G has been relentless in its offense against challengers such as Unilever.

In one of the classic marketing battles of the past cen

tury, an aggressive P&G simply overpowered challenger

Unilever in the U.S. laundry market. A decade ago, de

detergent market share, P&G continued to hammer Uni

uct introductions backed by heavy marketing spending.

Tide Simple Pleasures had boosted P&G to an incred

brand). In the face of P&G’s relentless assault, in

its North American detergents business. Although

Unilever successfully sells laundry brands such as Surf,

Expanding Market Share Market leaders also can grow by increasing their market shares further. In many markets,

small market share increases mean very large sales increases. For example, in the U.S. sham

Studies have shown that, on average, profi tability rises with increasing market share.

Because of these fi ndings, many companies have sought expanded market shares to improve

profi tability. GE, for example, declared that it wants to be at least number one or two in each

However, some studies have found that many industries contain one or a few highly

profi table large fi rms, several profi table and more focused fi rms, and a large number of

as a business gains share relative to competitors in its served market. For example, Lexus holds only a small share of the total car market, but it earns a high profi t because it is the

assault in the laundry war, Unilever threw in the towel by putting its U.S.

detergents business up for sale.

Amanda Kamen

Chapter 18 | Creating Competitive Advantage 563

ucts, creating outstanding service experiences, and building close customer relationships.

tomatically improve profi tability. Much depends on their strategy for gaining increased

companies with high profi tability. The cost of buying higher market share may far exceed

the returns. Higher shares tend to produce higher profi ts only when unit costs fall with

a premium price that more than covers the cost of offering higher quality.

Market Challenger Strategies Firms that are second, third, or lower in an industry are sometimes quite large, such as

competitive strategies: They can challenge the market leader and other competitors in an

aggressive bid for more market share (market challengers), or they can play along with

competitors and not rock the boat (market followers).

A market challenger must fi rst defi ne which competitors to challenge and its strategic

strategy. Its goal might be to take over market leadership. Or the challenger’s objective may

simply be to wrest more market share.

Although it might seem that the market leader has the most going for it, challengers

cess, number two Lowe’s, with its brighter stores, wider aisles, and arguably more helpful

salespeople, has positioned itself as the friendly alternative to Big Bad Orange. Over the past

In fact, challengers often become market leaders by imitating and improving on the ideas

today’s dominant retailer.

Alternatively, the challenger can avoid the leader and instead challenge fi rms its own size

or smaller local and regional fi rms. These smaller fi rms may be underfi nanced and not serv

ing their customers well. Several of the major beer companies grew to their present size not by

challenging large competitors but by gobbling up small local or regional competitors. For ex

ample, SABMiller became the world’s number two brewer by acquiring brands such as Miller,

objective may be to put that company out of business. The important point remains: The chal

lenger must choose its opponents carefully and have a clearly defi ned and attainable objective.

How can the market challenger best attack the chosen competitor and achieve its strategic

objectives? It may launch a full frontal attack, matching the competitor’s product, advertising, price, and distribution efforts. It attacks the competitor’s strengths rather than its weaknesses.

If the market challenger has fewer resources than the competitor, however, a frontal at

tack makes little sense. Thus, many new market entrants avoid frontal attacks, knowing that

market leaders can head them off with ad blitzes, price wars, and other retaliations. Rather

indirect attack on the competitor’s weaknesses or on gaps in the competitor’s market coverage. It can carve out toeholds using

tactics that established leaders have trouble responding to or choose to ignore.

For example, consider how European challenger Red Bull entered the U.S. soft drink

Red Bull tack

tion points. “It started by selling Red Bull through unconventional outlets not dominated

564 Part 4 | Extending Marketing built a core customer base, the brand expanded into more traditional

outlets. “Red Bull used the pull of high margins to elbow its way

into the corner store, where it now sits in refrigerated bins within

intensifying competition in the United States, Red Bull captures a

Market Follower Strategies

The leader never takes challenges lightly. If the challenger’s lure is

lower prices, improved service, or additional product features, the

market leader can quickly match these to defuse the attack. The

tomers. For example, a few years ago, when Kmart launched its re

ing Kmart worse off for the attempt. Thus, many fi rms prefer to fol

low rather than challenge the market leader.

A follower can gain many advantages. The market leader often bears the huge expenses of

developing new products and markets, expanding distribution, and educating the market. By

contrast, as with challengers, the market follower can learn from the market leader’s experience.

It can copy or improve on the leader’s products and programs, usually with much less invest

ment. Although the follower will probably not overtake the leader, it often can be as profi table.

Following is not the same as being passive or a carbon copy of the market leader. A follower

must know how to hold current customers and win a fair share of new ones. It must fi nd the right

balance between following closely enough to win customers from the market leader and follow

ing at enough of a distance to avoid retaliation. Each follower tries to bring distinctive advantages

to its target market—location, services, fi nancing. A follower is often a major target of attack by

challengers. Therefore, the market follower must keep its manufacturing costs and prices low or

its product quality and services high. It must also enter new markets as they open up.

Market Nicher Strategies Almost every industry includes fi rms that specialize in serving market niches. Instead of

pursuing the whole market or even large segments, these fi rms target subsegments. Nichers

are often smaller fi rms with limited resources. But smaller divisions of larger fi rms also may

pursue niching strategies. Firms with low shares of the total market can be highly success

ful and profi table through smart niching.

target customer group so well that it meets their needs better than other fi rms that casually sell to

that niche. As a result, the nicher can charge a substantial markup over costs because of the added

Nichers try to fi nd one or more market niches that are safe and profi table. An ideal

market niche is big enough to be profi table and has growth potential. It is one that the fi rm

can serve effectively. Perhaps most important, the niche is of little interest to major com

petitors. And the fi rm can build the skills and customer goodwill to defend itself against a

it doesn’t try to be. Instead, it zeros in on narrowly defi ned lifestyle segments, people who live

in a densely populated urban area is diffi cult and costly.

month on car payments, insurance, gas, maintenance, and other car ownership expenses.

When it entered the U.S. market, rather than attacking

indirect, unconventional marketing approaches.

Chapter 18 | Creating Competitive Advantage 565

hoods, and a fanatically loyal fan base that the corporate giants will

is part of their hectic urban lives.22

The key idea in niching is specialization. A market nicher can

specialize along any of several market, customer, product, or mar

keting mix lines. For example, it can specialize in serving one type

of end user, as when a law fi rm specializes in the criminal, civil, or business law markets. The nicher can specialize in serving a given

group. Many nichers specialize in serving small and

midsize customers who are neglected by the majors.

Some nichers focus on one or a few specific customers, selling

Still other nichers specialize by geographic market, selling only in a certain locality, region, or area of the world. nich

ers operate at the low or high end of the market. For example,

calculator market. Finally, service nichers offer services not avail able from other fi rms. For example, LendingTree provides online

lending and realty services, connecting homebuyers and sellers

with national networks of mortgage lenders and realtors who

it proclaims, “you win.”

Niching carries some major risks. For example, the mar

ket niche may dry up, or it might grow to the point that it attracts larger competitors.

That is why many companies practice multiple niching. By developing two or more niches, a company increases its chances for survival. Even some large fi rms prefer a multiple

ing from jeanswear, sportswear, and contemporary styles to outdoor gear and imagewear

Red Kap,

protective apparel for businesses and public agencies, whether it’s outfi tting a police force

apparel powerhouse.23

Balancing Customer and Competitor Orientations

itors closely and fi nd the competitive marketing strategy that positions it most effectively. And it

too much time and energy tracking competitors, damaging its customer orientation? The answer is yes. A company can become so competitor centered that

it loses its even more important focus on maintaining profi table customer relationships.

A is one that spends most of its time tracking com

petitors’ moves and market shares and trying to fi nd strategies to counter them. This ap

proach has some pluses and minuses. On the positive side, the company develops a fi ghter

orientation, watches for weaknesses in its own position, and searches out competitors’

weaknesses. On the negative side, the company becomes too reactive. Rather than carrying

out its own customer relationship strategy, it bases its own moves on competitors’ moves.

As a result, it may end up simply matching or extending industry practices rather than

seeking innovative new ways to create more value for customers.

A , by contrast, focuses more on customer developments in

urban customers “wheels when you want them” without the

costs and hassles of car ownership.

Zipcar

Objective 3 Illustrate the need for balancing

customer and competitor

orientations in becoming a truly

A company whose moves are mainly

based on competitors’ actions and

reactions.

A company that focuses on customer

developments in designing its marketing

strategies and delivering superior value to

its target customers.

566 Part 4 | Extending Marketing

evolve, it can decide what customer groups and what emerging needs are the most important

to serve. Then it can concentrate its resources on delivering superior value to target customers.

In practice, today’s companies must be , watching

both their customers and their competitors. But they must not let competitor watching

blind them to customer focusing.

Figure 18.3 shows that companies might have any of four orientations. First, they

might be product oriented, paying little attention to either customers or competitors. Next,

they might be customer oriented, paying attention to customers. In the third orientation, when

a company starts to pay attention to competitors, it becomes competitor oriented. Today, how

ever, companies need to be market oriented, paying balanced attention to both customers and

competitors. Rather than simply watching competitors and trying to beat them on current

ways of doing business, they need to watch customers and fi nd innovative ways to build

profi table customer relationships by delivering more customer value than competitors do.

FIGURE | 18.3

Evolving Company

Orientations

Reviewing the Concepts

Today’s companies face their toughest competition ever. Under

standing customers is an important first step in developing strong

customer relationships, but it’s not enough. To gain competitive ad

vantage, companies must use this understanding to design market

offers that deliver more value than the offers of competitors seeking

to win over the same customers. This chapter examines how firms

analyze their competitors and design effective competitive market

ing strategies.

Discuss the need to understand

competitors as well as customers

through competitor analysis. (pp 548–555)

To prepare an effective marketing strategy, a company must

consider its competitors as well as its customers. Building

profitable customer relationships requires satisfying target con

sumer needs better than competitors do. A company must

continuously analyze competitors and develop competitive

marketing strategies that position it effectively against competi

tors and give it the strongest possible competitive advantage.

Competitor analysis first involves identifying the compa

tion on competitors’ objectives, strategies, strengths and

weaknesses, and reaction patterns. With this information in

hand, it can select competitors to attack or avoid. Competi

tive intelligence must be collected, interpreted, and distributed

continuously. Company marketing managers should be able to

obtain full and reliable information about any competitor affect

ing their decisions.

Explain the fundamentals of

competitive marketing strategies

based on creating value for customers. (pp 555–565)

Which competitive marketing strategy makes the most sense de

pends on the company’s industry and on whether it is the mar

ket leader, challenger, follower, or nicher. The market leader has to

mount strategies to expand the total market, protect market share,

and expand market share. A market challenger is a firm that tries

Reviewing Objectives and Key Terms

Objectives Review

Objective 2

Objective 1

A company that pays balanced attention

to both customers and competitors in

designing its marketing strategies.

Chapter 18 | Creating Competitive Advantage 567

Objective 3

Key Terms

Objective 1 Competitive advantage (p 547)

Competitor analysis (p 548)

Competitive marketing strategies (p 548)

Strategic group (p 551)

Benchmarking (p 552)

Customer value analysis (p 553)

Objective 2 Market leader (p 560)

Market challenger (p 560)

Market follower (p 560)

Market nicher (p 560)

Objective 3

Discussion and Critical Thinking

Discussion Questions

1. Which point of view is best for identifying competitors—industry or market? (AACSB: Communication)

2. Explain the difference between a good and a bad competitor. (AACSB: Communication; Reflective Thinking)

3. Name and describe the three stages that marketing strategy and practice often pass through. (AACSB: Communication)

4. Describe the three value disciplines for delivering superior cus tomer value and explain why classifying competitive strategies

in this way is appealing. (AACSB: Communication)

5. Describe market leaders and the actions they can take to maintain that position. (AACSB: Communication)

(AACSB: Communication; Reflective Thinking)

Critical Thinking Exercises

1. Form a small group and discuss the differences between in creasing market share and increasing share of customer. What

factors should a company consider when deciding upon which

one to focus? (AACSB: Communication; Reflective Thinking)

2. Form a small group and conduct a customer value analysis for five local restaurants. Who are the strong and weak competi

tors? For the strong competitors, what are their vulnerabilities?

(AACSB: Communication; Reflective Thinking)

3. One source of competitive information is product teardowns. Information such as a bill of materials (BOM)—a listing of all

the elements of a product and their costs—can be very useful.

Find an example of a product teardown with cost informa

tion, and discuss the value of that information for competitors.

(AACSB: Communication; Reflective Thinking)

aggressively to expand its market share by attacking the leader, other

can select from a variety of direct or indirect attack strategies.

A market follower

the boat, usually from fear that it stands to lose more than it might

gain. But the follower is not without a strategy and seeks to use its

particular skills to gain market growth. Some followers enjoy a higher

rate of return than the leaders in their industry. A market nicher is

a smaller firm that is unlikely to attract the attention of larger firms.

Market nichers often become specialists in some end use, customer

size category, specific customer group, geographic area, or service.

Illustrate the need for balancing

customer and competitor

(pp 565–566)

A competitive orientation is important in today’s markets, but com

panies should not overdo their focus on competitors. Companies

are more likely to be hurt by emerging consumer needs and new

competitors than by existing competitors.

panies that balance customer and competitor considerations are

practicing a true market orientation.

568 Part 4 | Extending Marketing

Marketing Ethics Right to Repair

Marketing by the Numbers Market Share

Automobiles have become so complicated that mechanics need

computers to diagnose problems. Independent car mechanics

may have the computers, but they don’t have the codes or tools

necessary to diagnose and fix problems on newer-model cars.

Those are reserved for car makers’ dealerships. Some critics

claim that creates an unfair advantage for auto dealerships over

independent mechanics and auto-parts retailers and keeps repair

prices higher for consumers. The Massachusetts Right to Repair

Coalition put a stop to that by first getting a right-to-repair initiative

on the November 2012 ballot, but it then got the state’s legislature

and governor to sign it into law before the vote even took place.

In that state, car makers must make the diagnostic information

available. On a national level, the Motor Vehicle Owner’s Right

Consumers will always need to purchase groceries, making

this a $700 billion industry. But where they shop for grocer-

ies has changed with the entry of big-box discounters such as

Walmart and Target. Almost 25 years ago, executives at Walmart

made a strategic decision to expand into the grocery industry.

Now more than half of Walmart’s sales are from this category.

Walmart has more than 3,000 Supercenters with full grocery

stores and another 200 smaller “Neighborhood Markets” that of-

fer primarily groceries. Walmart captures more than $145 billion

of the $700 billion U.S. consumers spend on groceries annu-

ally. Walmart’s Sam’s Club grabs another $30 billion of annual

to Repair Act was introduced in the House of Representatives

in 2011. Of course, automakers and dealerships oppose these

initiatives. Opponents claim that right-to-repair initiatives will allow

auto-parts makers access to manufacturers’ proprietary informa-

tion as well as endanger the safety of consumers due to possibly

faulty repairs. Supporters of the initiatives say manufacturers are

just looking to keep their unfair advantage and protect their repair

businesses.

1. What is the status of the Motor Vehicle Owner’s Right to Re- pair Act? If it has not become law, explain why. If it has, what

are the implications of the law? (AACSB: Communication;

Reflective Thinking)

grocery sales. As a result, the share of grocery sales captured by

traditional supermarkets fell to 51 percent in 2011, a 23 percent

drop from 2000.

1. Calculate Walmart’s market share in the grocery industry. How much sales revenue is each share point worth in this industry?

(AACSB: Communication; Analytical Reasoning)

2. How have traditional supermarkets responded to the threat posed by Walmart’s entry into this industry? Suggest strategies to help

stem the loss of market share to superstores such as Walmart

and Target. (AACSB: Communication; Reflective Thinking)

Video Case Umpqua Bank The retail banking industry has become very competitive. And

with a few powerhouses that dominate the market, how is a small

bank to thrive? By differentiating itself through a competitive ad-

vantage that the big guys can’t touch.

That’s exactly what Umpqua has done. One step inside a

branch of this Oregon-based community bank and it is immediately

apparent that this is not your typical Christmas club savings ac-

count/free toaster bank. Umpqua has created a business model

that has transformed banking from retail drudgery to a holistic ex-

perience. Umpqua has created an environment where people just

love to hang out. It not only has its own music download service

featuring local artists, it even has its own blend of coffee.

Applications and Cases

Marketing Technology Gene Patents Can a company patent a human gene? According to a federal ap-

peals court, it can. In fact, 80 percent of our genes are patented and

“owned” by companies. The latest battle has been with biotechnol-

ogy company Myriad Genetics. Myriad has been fighting for several

years over its patents for two genes—BRCA1 and BRCA2—that

the company has isolated and found to signal a woman’s risk of

developing breast and ovarian cancers. The process of isolating

genes is complex and very costly, and patenting the isolated genes

allows Myriad exclusivity in providing genetic screenings for these

diseases. The American Civil Liberties Union filed a lawsuit claiming

that Myriad is trying to patent “products of nature,” and that many

women will not be able to afford potentially life-saving screening.

Legal experts predicted that a loss for Myriad in this case would

have severely threatened DNA-related research in the agricultural,

biopharmaceutical, and cosmetics industries. Dissenters argue

that patents limit genetic research because only the patent owners

are allowed to conduct research on those genes.

1. Debate the pros and cons of allowing companies to patent genes. (AACSB: Communication; Ethical Reasoning; Reflective Thinking)

2. The U.S. Patent and Trademark Office has granted several patents for DNA sequences in the past. Discuss one example

and explain how a patent gives a company a competitive ad-

vantage. (AACSB: Communication; Reflective Thinking)

Chapter 18 | Creating Competitive Advantage 569

Company Case Ford: Resurrecting an Iconic Company

The old phrase, “The bigger they are, the harder they fall,” de-

scribes perfectly what happened to the U.S. auto industry dur-

ing the first 10 years of this century. Consider Ford. In 1998, the

iconic company accounted for 25 percent of all cars and trucks

sold. Its F-series pickup was the best-selling vehicle on the planet,

with more than 800,000 units rolling off assembly lines. The Ford

Explorer held the top slot in the hot SUV market. And the Ford

Taurus had been a perennial contender for the top-selling sedan.

Ford was #2 on the Fortune 500 (GM was #1), with $153 billion

in revenues. A strong stock price gave Ford a market value of

$73 billion. According to Interbrand, the Ford brand alone was

the sixth most valuable brand in the world, worth $36 billion.

But in only 10 years, Ford’s position at the top crumbled. In 2008,

Ford’s market share sat at just 14 percent. Revenues had dropped

to $146 billion and the company lost $14.7 billion, the biggest loss

in its history. Its stock price had plummeted to only $2 a share, eras-

ing 93 percent of Ford’s market value. And Ford was no longer a

top-10 brand. It had dropped to the 49th position on the Interbrand

top-100 list, worth only $7 billion. Ford was on the verge of collapse.

Ford could have blamed its misfortunes on the fact that the en-

tire auto industry was reeling by 2008. High gas prices and the

weakest global economy in over 70 years had made a mess of

automobile sales. But that wouldn’t explain Ford’s drastic drop in

market share or the magnitude of its losses relative to the rest of the

industry. Ford was in far worse shape than most car companies.

Looking back, it’s clear that Ford had taken its eye off the mar-

ket. It had become too dependent on gas-guzzling trucks and

SUVs and could not shift quickly enough to more fuel-efficient

vehicles. Its vehicle quality had suffered and its operations were

bloated with excessive costs. In a quest to serve every cus-

tomer segment— acquiring Land Rover, Volvo, Aston Martin, and

Jaguar—Ford had lost touch with the needs of any specific cus-

tomer segment. All those luxury brands were sapping valuable

company resources as well. Finally, the company’s innovation was

at an all-time low. Mark Fields, Ford’s president for the Americas,

adds, “We used to have a saying in the company that we were a

fast follower. Which meant we were slow.”

A New Direction Even as Ford’s financials looked their worst in years, a strategy

was already under way to resurrect the company. In 2006, Ford

had brought in an industry outsider—Alan Mulally—to perform

CPR on the ailing giant. As he took the reins as Ford’s new CEO,

a cheerful and fresh-faced Mulally exuded optimism. “I am here to

save an American and global icon,” he declared.

Mulally got to work right away. He cut labor costs by almost

22 percent, bringing the company more in line with new industry

leader Toyota. He shuttered unprofitable factories and cut out as

much operational fat as possible. In 2008, as GM and Chrysler

held out their hats for a government bailout, Ford managed to raise

cash the old-fashioned way—by borrowing from a bank to the

tune of $23.5 billion. By remaining financially independent, Ford

avoided giving Uncle Sam a say in how the company was run. It

also avoided bankruptcy, a fate that befell its two Detroit siblings.

But the move that put Ford back on the highway was the craft-

ing of a good-old-fashioned mission statement. Mulally ordered

up small plastic cards that Ford’s 200,000 employees could carry

in their wallets featuring what he called “Expected Behaviors.”

Those expectations were really four goals that Mulally fully be-

lieved would make the company competitive again. To Mulally,

this was sacred text. “This is me,” he said. “I wrote it. It’s what I

believe in. You can’t make this [stuff] up.”

Focus on the Ford Brand. According to Mulally, “Nobody buys a house of brands.” It was the Ford name and the legacy of

the Ford family that had propelled the company to greatness. Mu-

lally considered the conglomeration of automotive companies a

failed experiment and immediately set out to divest the company

of Jaguar, Volvo, Aston Martin, and Land Rover. He even went

one step further. Ford’s storied Mercury division had always had

the mission of providing Ford with a mid-priced car that fit be-

tween inexpensive Ford models and its more luxurious Lincolns.

But Mercury was a dying brand, so Mulally gave it the axe.

Compete in Every Market Segment with Carefully Defined Products. Even with only the Ford and Lincoln divi- sions left, Mulally was convinced that Ford could compete in all

major industry segments: cars, SUVs, and small, medium, and

large trucks. Mulally loves to tell the story of how he started re-

vamping Ford’s product line:

I arrive here, and the first day I say, “Let’s go look at the product

lineup.” And they lay it out, and I said, “Where’s the Taurus?”

They said, “Well, we killed it.” I said, “What do you mean, you

killed it?” “Well, we made a couple that looked like a football.

They didn’t sell very well, so we stopped it.” “You stopped the

Taurus?” I said. “How many billions of dollars does it cost to

build brand loyalty around a name?” “Well, we thought it was

so damaged that we named it the Five Hundred.” I said, “Well,

you’ve got until tomorrow to find a vehicle to put the Taurus

name on because that’s why I’m here. Then you have two

years to make the coolest vehicle that you can possibly make.”

Mulally had good reason to insist on the Taurus. It was the

fourth-best-selling vehicle in the history of the company, behind

the Model T, F-Series, and Mustang. But Mulally’s biggest news

in the product department was a shift to small “world cars” that

could be sold in every country with little change. Ford had tried the

world car idea various times in the past and failed. But that was

largely because the regional divisions of the company couldn’t

agree on what kinds of cars to build. Mulally has now reorganized

the company around the world car concept. If it works, the ben-

efits of reduced costs based on economies of scale are obvious.

The “small” part of Mulally’s product strategy is a bit foreign to

Ford’s truck-heavy culture. “Everybody says you can’t make money

But under all these bells and whistles lies the core of what

makes Umpqua so different: a rigorous service culture where

every branch and each employee gets measured on how well

they serve customers. That’s why every customer feels like they

get the help and attention they need from employees.

After viewing the video featuring Umpqua Bank, answer the

following questions about creating competitive advantage:

1. With what companies does Umpqua compete?

2. What is Umpqua’s competitive advantage?

3. Do you think that Umpqua will be able to maintain this advan- tage in the long run? Why or why not?

570 Part 4 | Extending Marketing off small cars,” he says. “Well, you’d better damn well figure out how

to make money, because that’s where the world is going.” Mulally’s

plan isn’t just to make more small cars, but to make nicer small cars.

The current Fiesta and Focus models were designed in Europe and

are the first vehicles that are part of Mulally’s “One Ford” program.

More fuel-efficient vehicles (including electrics) will also help position

Ford to meet stricter government fuel-economy standards.

Market Fewer Nameplates. According to Mulally, the “more-is-better” rule is not a good branding strategy. When he ar-

rived at Ford, the company sold 97 nameplates around the world.

To him, that was just an indication of how unfocused and uncool

the Ford brand had become. “I mean, we had 97 of these, for

God’s sake! How you gonna make ‘em all cool? You gonna come

in at 8 a.m. and say, ‘From 8 until noon, I’m gonna make No. 64

cool? And then I’ll make No. 17 cool after lunch?’ It was ridicu-

lous!” Mulally’s goal was to bring the number of nameplates down

to 40 by 2013. Instead, Ford now has just 20. This thrills Mulally.

Become Best in Class in Quality, Fuel Efficiency, Safety, and Value. The smaller cars are certainly achieving the fuel-efficiency goal. But Mulally has the Ford culture once

again thinking along the lines of its old slogan, “Quality Is Job

One.” This focus has paid off. Ford’s ratings in Consumer Reports

are higher than they’ve ever been, rivaling those of Toyota and

other Asian brands in the magazine’s reliability survey. “Our prod-

uct lineup is stronger than ever, and our leadership in quality, fuel,

safety, smart design, and value is resonating with consumers,”

Mulally says, as if reciting his own mission statement.

A New Competitive Advantage In his quest to redefine Ford’s image, thrill young customers, and

even revolutionize the car itself, Mulally may very well have stum-

bled upon a competitive advantage that will carry Ford into the

future. He wants to connect his autos to the Internet and to the

souls of the people who surf it. “Look, it’s cool to connect. But it’s

past cool. It’s a reason to buy. Tech is why people are going to

buy Ford! We’re going to be the coolest, most useful app you’ve

ever had, seamlessly keeping you connected.”

Mulally is talking about Ford’s Sync option. In short, a Sync-

equipped vehicle connects the driver to the smartphone in her

pocket through the vehicle’s systems. Unlike GM’s OnStar and

other similar systems, Sync is an interface, not a system that is

hardwired to the car. Other systems are obsolete by the time they

hit the showroom and they are not upgradable. With Sync, the

connection is to whatever technology drivers carry with them.

But Sync takes existing technologies and makes them even

better. With two LCD panels on either side of the speedometer,

the user interface is bigger, in the driver’s field of vision, and cus-

tomizable. If you don’t need to know about the car’s climate but

you’re lost, the climate-control readout can be replaced with navi-

gation. If you’re on a long stretch of highway and don’t need navi-

gation help, the display can connect the driver to phone controls

or music (including satellite radio and even Pandora). Drivers can

even watch video on these screens, but only when the car is in

park.

The latest Sync system also brings voice recognition to the

cockpit, transforming the car into 2001: A Space Odyssey’s HAL

9000 (only without the evil desire to take over the universe). All the

driver has to do is speak normally to the car instead of fumbling

with buttons or navigating through screen-based menus. Simple

commands like “I’m hungry” produce spoken restaurant advice

matched to the GPS location. If the driver is in the mood for some

Dave Brubeck, “I’d like to hear some jazz,” brings up every piece

of jazz attached to the car, whether it’s on a smartphone, tablet,

or iPod.

All this is not only cool, “it makes you a better driver,” claims

Mulally. His first commandment is, “We won’t do it unless it lets

you keep your eyes on the road and your hands on the wheel.”

This will actually make people less likely to fumble with their tech

gadgets or even look down to adjust the radio.

Sync was already in development when Mulally took over. But

he surprised everyone when he announced that Sync would be

the future of the company. And he insisted that it be available in

all Ford vehicles, not just the high-end luxury products. In this

respect, Mulally sees Sync as a way to do what Henry Ford did

in the beginning. “Democratize a brand new technology. Make it

available to the masses.”

Signs of Life Today, Ford’s sales and market share are back on the rise. In

fact, Ford has picked up unit sales and at least one point of mar-

ket share for each of the last three years in a row—a feat it has

not achieved since 1970. Ford’s mid-sized Fusion had a record

sales year and topped off a four-year streak up 66 percent—a

feat even more amazing considering sales for Toyota’s Camry

and Honda’s Accord fell 31 percent and 28 percent, respectively,

for the same period. But perhaps most thrilling for Mulally, Ford’s

small car sales shot up by 25 percent last year alone, supporting

his strategy to sell more in that segment. On top of big unit sales

numbers, customers are paying more for Fords without the huge

discount incentives that the company ran for many years. And all

of this means net income is back in black. Ford has turned a profit

in each of the last three years, the most recent hitting $20 billion.

Ford is back on track but far from out of the woods. Because

it didn’t take the government’s bailout, it has a long way to go

before paying off its heavy debt burden. GM and Chrysler are

emerging from bankruptcy with clean balance sheets and are on

the warpath. Yet while Mulally worries about this and about global

economic conditions, he is relentlessly optimistic. “To serve is to

live and I am so honored to serve Ford customers, employees,

dealers, investors, suppliers, and communities,” he said recently

in an interview. “We have the very best cars and trucks in the

world: quality, fuel-efficient, safe, smart, fun, and a great value!”

Questions for Discussion 1. Where would you put Ford in terms of its competitive position?

Why?

2. Is Ford a market-centered company? How can it improve in this area?

3. How does Ford’s Sync contribute to its competitive advan- tage? Is this a sustainable advantage?

4. Can Mulally succeed with small world cars?

5. What other recommendations would you make for Mulally and Ford?

Sources: Carmine Gallo, “Alan Mulally, Optimism, and the Power of Vision,” Forbes, April 25, 2012, www.forbes.com/sites/carminegallo/2012/04/25/

alan-mulully-optimism-and-the-power-of-vision/; Doron Levin, “Alan Mulally:

Worth Every Penny,” Fortune, March 9, 2012, http://features.blogs.fortune

.cnn.com/2012/03/09/alan-mulally-worth-every-penny/; Paul Hochman,

“Ford’s Big Reveal,” Fast Company, April 2010, pp. 90–97; Alex Taylor, “Fixing

Up Ford,” Fortune, May 25, 2009, p. 44; Joann Muller, “Ford’s Rebound Is for

Real,” Forbes, April 27, 2010, www.forbes.com/2010/04/27/ford-alan-mulally-

business-autos-ford.html; and “2011 Ford Brand Sales Up 17 Percent for the

Year in U.S.,” http://media.ford.com/article_display.cfm?article_id=35785.

Chapter 18 | Creating Competitive Advantage 571 References 1. Extract adapted from Jeffrey M. O’Brien, “A Perfect Season,” For-

tune, January 22, 2008, pp. 62–66. Other quotes and information

from Michael B. Baker, “Four Seasons Tops Ritz-Carlton in Deluxe

Photo-Finish,” Business Travel News, March 23, 2009, p. 10; Sean

Drakes, “Keeping the Brand Sacred,” Black Enterprise, April 2009,

p. 47; “100 Best Companies to Work For,” Fortune, February 6,

2012, p. 117; and http://jobs.fourseasons.com/Pages/Home.aspx

and www.fourseasons.com/about_us/, accessed October 2012.

2. Example based on information found in Frank James, “Postal Ser- vice Quarterly Losses Surge; Internet Gets Blamed,” August 5, 2009,

www.npr.org/blogs/thetwo-way/2009/08/postal_service_quarterly_

losse.html; “Post Office Makeover,” Fortune, December 12, 2011,

p. 17; and “Postal Facts 2012” and other information from www

.usps.com, accessed October 2012.

3. “Dole Positions Banana as ‘Nature’s Original Energy Bar,’” Progres- sive Grocer, July 9, 2012, www.progressivegrocer.com.

4. See www.vikingrange.com/consumer/category/products/3-year- signature-warranty, accessed October 2012.

5. Garett Sloane, “War of 4G Networks Pits Verizon vs. AT&T,” New York Post, March 12, 2012.

6. See “Contact Lenses 2011,” Contact Lens Spectrum, January 1, 2012, www.clspectrum.com/articleviewer.aspx?articleid=106550;

and “Bausch & Lomb,” www.wikinvest.com/wiki/Bausch_&_Lomb,

accessed August 2012.

7. See John P. Falcone, “Kindle vs. Nook vs. iPad: Which E- Book Reader Should You Buy?” cnet News, May 5, 2012, www

.digitaltrends.com/mobile/is-the-amazon-kindle-in-trouble/; Geoff

Duncan, “Amazon Says Kindle Sales Tripled During Holidays,” Digital

Trends, February 1, 2012, www.digitaltrends.com/mobile/amazon-

says-kindle-sales-tripled-during-holidays/; and Geoff Duncan, “Is

Amazon Kindle in Trouble?” Digital Trends, May 4, 2012, www.digi-

taltrends.com/mobile/is-the-amazon-kindle-in-trouble/.

8. Arianna Huffington, “HuffPost + AOL: The First Year in Numbers,” HuffPost Media, February 2, 2012, www.huffingtonpost.com/ari-

anna-huffington/huffington-post-aol-first-year_b_1249497.html.

9. Adapted from information found in W. Chan Kim and Renée Mauborgne, “Blue Ocean Strategy: How to Create Uncontested Market Space and

Make Competition Irrelevant,” www.blueoceanstrategy.com/pre/down-

loads/BlueOceanStrategySummary.pdf, accessed September 2012.

Also see Kim and Mauborgne, Blue Ocean Strategy: How to Create

Uncontested Market Space and Make Competition Irrelevant (Boston:

Harvard Business Press, 2005). For other discussion, see “Blue Ocean

Strategy,” www.blueoceanstrategy.com/, accessed October 2012.

10. Adapted from information found in Robert Klara, “Puff Daddy,” Brand- week, May 19, 2008, pp. 25–27; Eric Slack, “Pirate Brands: Healthy

Treasure,” Retail Merchandisers, March/April 2010, pp. 125–127,

“Call Him Coach,” Success, www.success.com/articles/1268-call-

him-coach, accessed August 2012; and http://piratebrands.com/,

accessed October 2012.

11. Richard Branson, “Richard Branson on Intrepreneurs,” Entrepreneur, January 31, 2011, www.entrepreneur.com/article/218011.

12. Michael E. Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors (New York: Free Press, 1980), chap-

ter 2; and Porter, “What Is Strategy?” Harvard Business Review,

November– December 1996, pp. 61–78. Also see Stefan Stern, “May

the Force Be with You and Your Plans for 2008,” Financial Times,

January 8, 2008, p. 14; and “Porter’s Generic Strategies,” www

.quickmba.com/strategy/generic.shtml, accessed October 2012.

13. See Michael Treacy and Fred Wiersema, “Customer Intimacy and Other Value Disciplines,” Harvard Business Review, January–February 1993,

pp. 84–93; Treacy and Wiersema, The Discipline of Market Leaders:

Choose Your Customers, Narrow Your Focus, Dominate Your Market

(New York: Perseus Press, 1997); and Wiersema, Double-Digit Growth:

How Great Companies Achieve It—No Matter What (New York: Port-

folio, 2003). Also see Elaine Cascio, “Fast, Cheap, or Good—Pick

Two,” Inter@ction Solutions, January/February 2012, p. 8; and Jürgen

Kai-Uwe Brock and Josephine Yu Zhou, “Customer Intimacy,” Journal

of Business and Industrial Marketing, 2012, pp. 370–383.

14. Based on information from Michael Bush, “Why You Should Be Put- ting on the Ritz,” Advertising Age, June 21, 2010, p. 1; Julie Barker,

“Power to the People,” Incentive, February 2008, p. 34; and Carmine

Gallo, “Employee Motivation the Ritz-Carlton Way,” BusinessWeek,

February 29, 2008, accessed at www.businessweek.com/smallbiz/

content/feb2008/sb20080229_347490.htm; Stuart Elliott, “Luxury

Hotels Market the Memories They Can Make,” New York Times,

September 14, 2012, p. B3; and Philip Kotler and Kevin Lane Keller,

Marketing Management, 14th ed. (Upper Saddle River, NJ: Prentice

Hall, 2012), p. 381. Also see http://corporate.ritzcarlton.com/en/

About/Awards.htm#Hotel, accessed October 2012.

15. For more discussion, see Philip Kotler and Kevin Lane Keller, Market- ing Management, 14th ed. (Upper Saddle River, NJ: Prentice Hall,

2012), chapter 11.

16. Leslie Kwoh, “Weight Watchers Chief Looks to Men, China for Growth,” Wall Street Journal, January 9, 2012, http://online.wsj.com/

article/SB10001424052970204331304577144613938815858.html.

17. See “2000+ Uses,” www.wd40.com/uses-tips/, accessed October 2012. 18. Adapted from information found in Jack Neff, “Why Unilever Lost the

Laundry War,” Advertising Age, August 6, 2007, pp. 1, 25; “Bidders

Eye Unilever’s US Detergent Arm,” Financial Times, April 9, 2008,

p. 24; “Unilever Sells North American Detergents Unit,” July 28,

2008, accessed at www.msnbc.msn.com/id/25884712; and www

.unilever.com/brands/homecarebrands/ and www.unileverusa.com/

brands/personalcarebrands/, accessed October 2012.

19. See “U.S. Sales of Shampoo via Different Sales Channels in 2010/2011,” Statista, accessed at www.statista.com/statistics/

1 9 3 1 0 2 / u s - shampoo-sales-via-different-sales-channels-in-

2010-and-2011/; and Martinne Geller, “Update 2-U.S. Soda Con-

sumption Fell Faster in 2011,” Reuters, March 20, 2012, www.reuters

.com/article/2012/03/20/drinks-idUSL1E8EK1P620120320.

20. See Oded Shenkar, “Defend Your Research: Imitation Is More Valuable Than Innovation,” Harvard Business Review, April 2010, pp. 28–29.

21. Example based on information from David J. Bryce and Jeffrey H. Dyer, “Strategies to Crack Well-Guarded Markets,” Harvard Business

Review, May 2007, pp. 84–91; with information from Teressa Iezzi,

“For Showing What It Really Means to Transform Yourself into a Me-

dia Brand,” Fast Company, www.fastcompany.com/most-innovative-

companies/2012/red-bull-media-house, accessed August 2012.

22. “Zipcar Expands Service to Austin, Texas,” April 27, 2012, http:// ir.zipcar.com/releasedetail.cfm?ReleaseID=668036; and annual re-

ports and other information from www.zipcar.com and www.enter-

priseholding.com, accessed October 2012.

23. Information from www.vfc.com, accessed October 2012.

Many Western companies view Africa as an untamed final

frontier—a kind of no man’s land plagued by poverty, political

corruption and instability, unreliable transportation, and short-

ages of fresh water and other essential resources. But Coca-Cola

sees plenty of opportunity in Africa to justify the risks. Africa

has a growing population of more than 1 billion people and a

just-emerging middle class. The number of African households

earning at least $5,000—the income level where families begin

to spend at least half their income on non-food items—is ex-

pected to exceed 106 million by 2014, almost double the number

in 2000. “You’ve got an incredibly young population, a dynamic

population,” says Coca-Cola CEO Muhtar Kent, “[and] huge

Part 1: Defining Marketing and the Marketing Process (Chapters 1–2)

Part 2: Understanding the Marketplace and Consumers (Chapters 3–6)

Part 3: Designing a Customer-Driven Strategy and Mix (Chapters 7–17)

Part 4: Extending Marketing (Chapters 18–20)

The Global Marketplace 19

Chapter Preview You’ve now learned the fun-

damentals of how companies

develop competitive marketing strategies to create customer

value and build lasting customer relationships. In this chapter,

we extend these fundamentals to global marketing. Although we

discussed global topics in each previous chapter—it’s difficult to

find an area of marketing that doesn’t contain at least some in-

ternational elements—here we’ll focus on special considerations

that companies face when they market their brands globally. Ad-

vances in communication, transportation, and other technologies

have made the world a much smaller place. Today, almost every

firm, large or small, faces international marketing issues. In this

chapter, we will examine six major decisions marketers make in

going global.

To start our exploration of global marketing, let’s look at

Coca-Cola, a truly global operation. You’ll find a Coca-Cola

product within arm’s length of almost anyone, anywhere in the

world. “We sell moments of happiness, for cents at a time, more

than 1.7 billion times a day in more than 200 countries,” says the

company in its annual report. Like many companies, Coca-Cola’s

greatest growth opportunities lie in international markets. Here,

we examine the company’s odyssey into Africa.

Coca-Cola in Africa: “Everything Is Right There to Have It Happen.”

C oca-Cola is one of the world’s truly iconic brands—a

$46-billion global powerhouse. It puts Coke prod-

ucts within “an arm’s length” of 98 percent of the

world’s population. Already the world’s number

one soft drink maker, Coca-Cola plans to double its global sys-

tem revenues between 2008 and 2020. But achieving such growth

won’t be easy. The major problem: Soft drink-sales growth has

lost its fizz in North America and Europe, two of Coca-Cola’s

largest and most profitable markets. In fact, the U.S. soft drink

market has shrunk for five straight years. With sales stagnating

in its mature markets, Coca-Cola must look elsewhere to meet

its ambitious growth goals.

In recent years, Coca-Cola has sought growth primarily

in developing global markets such as China and India, which

boast large emerging middle classes but relatively low

per capita consumption of Coke. However,

both China and India are now crowded

with competitors and notoriously

difficult for outsiders to navigate.

So while Coca-Cola will continue

to compete heavily in those coun-

tries, it has set its sights on an even

more promising long-term growth

opportunity—Africa.

With its home markets losing their

fizz, Coca-Cola is looking for growth in emerging markets such as Africa. But in Africa, “Coke is,

in a sense, sticking its hand into a bees’ nest to get some honey.”

Chapter 19 | The Global Marketplace 573

With sales stagnating in its

Cola is looking to emerging

markets—such as Africa—

to meet its ambitious

growth goals. Its African

distribution network is

rudimentary but effective.

Marco Di Lauro/Getty Images

disposable income. I mean $1.6 trillion of GDP,

which is bigger than Russia, bigger than India.”

erated there since 1929, and it’s the only multi

country. The company has a dominant 29 percent

sumption of Coke in Kenya is just 40 servings, com

Coke brand but also for its large stable of other soft

drinks, waters, and juices. Whereas the beverage gi

the past decade, it plans to invest twice that amount during the

ing its hand into a bees’ nest to get some honey.” To grow its

smaller communities with more grassroots tactics. “[Just] be

ing in a country is very easy; you can go and set up a depot in

We go to every town, every village, every community, every

become important, as

yet used to guzzling Coke by the gallon.”

community outside Nairobi, Kenya. Piles of trash burn outside

thing from mattresses to plastic buckets, all in a room about the

ers drink the soda in the store while sitting on overturned red

To earn her “Gold” status, Kingori follows carefully pre

frigerated cooler by the front entrance, protected by a blue

large bottles on the bottom. Inside the store, she posts red menu

25 Kenyan shillings.

In Kabira, another poor Nairobi

neighborhood, the crowded streets

are lined with shops painted Coke

red. The local bottler hires an artist

to paint the shops with logos and

Swahili phrases like “Burudika

na Coke Baridi,” meaning “enjoy

Coke cold.” In countless communi

dukas in Nairobi or tuck shops in

Such shops are supplied by a rudimentary but effective

with 22 to 40 crates of Coke and other soft drinks from Rosinje

Ginger Beer, and other

roads crowded with traffi c, moving drinks by hand is often the

remote areas, making them available as people develop a taste

for soft drinks and have the income to buy them.

rule is to get its products “cold and close.” “If they don’t have

roads to move products long distances on trucks, we will use

574 Part 4 | Extending Marketing

In the past,

need to learn other languages, deal with strange and changing currencies, face political and

Global Marketing Today The world is shrinking rapidly with the advent of faster communication, transportation,

friend at a Japanese restaurant who later returns home to drink Russian vodka and watch

American Idol International trade has boomed over the past three decades. Since 1990, the number of

of these multinationals are true giants. In fact, of the largest 150 economies in the world, only

largest countries.2

Objective Outline

Objective 1 environments affect a company’s international marketing decisions.

Global Marketing Today (pp 574–576)

Looking at the Global Marketing Environment (pp 576–583)

Deciding Whether to Go Global (pp 583–584)

Deciding Which Markets to Enter (pp 584–585)

Objective 2 Describe three key approaches to entering international markets.

Deciding How to Enter the Market (pp 585–588)

Objective 3 Explain how companies adapt their marketing strategies and mixes for international markets.

Deciding on the Global Marketing Program (pp 588–594)

Objective 4 Identify the three major forms of international marketing organization.

Deciding on the Global Marketing Organization (pp 594–595)

Objective 1 Discuss how the international

trade system and the economic,

environments affect a company’s

international marketing

decisions.

Chapter 19 | The Global Marketplace 575 Between 2005 and 2011, total value of world trade

merchandise and commercial services grew 10 and 9 per

cent, respectively. Despite a dip in world trade caused

by the recent worldwide recession, the world trade of

products and services last year was valued at more than

have become household words. Other products and ser

or owned by foreign companies, such as Ben & Jerry’s

ice cream,

Shampoo, does

panding aggressively into new international markets, and home markets are no longer as

delay taking steps toward internationalizing, they risk being shut out of growing markets in

kets but also risk losing their home markets. Domestic companies that never thought about

foreign competitors suddenly fi nd these competitors in their own backyards.

Ironically, although the need for companies to go abroad is greater today than in the

past, so are the risks. Companies that go global may face highly unstable governments and

currencies, restrictive government policies and regulations, and high trade barriers. The

recently dampened global economic environment has also created big global challenges.

In addition, corruption is an increasing problem; offi cials in several countries often award

business not to the best bidder but to the highest briber.

global fi rm is one that, by operating in more than one country, gains marketing, pro

to purely domestic competitors. Since the global company sees the world as one market, it

minimizes the importance of national boundaries and develops global brands. The global

company raises capital, obtains materials and components, and manufactures and markets

its goods wherever it can do the best job.

This does not mean, however, that every fi rm must operate in a dozen countries to

succeed. Smaller fi rms can practice global niching. But the world is becoming smaller, and

establish its place in world markets.

The rapid move toward globalization means that all companies will have to answer

our economic region, and globally? Who will our global competitors be and what are their

strategies and resources? Where should we produce or source our products? What strategic

alliances should we form with other fi rms around the world?

Many American companies have now made the world their market, as

this Niketown storefront in China featuring NBA star Kobe Bryant suggests.

markets.

Dorothea Schmid/Redux Pictures

Global fi rm

A firm that, by operating in more than

one country, gains R&D, production,

marketing, and financial advantages in its

costs and reputation that are not available

to purely domestic competitors.

576 Part 4 | Extending Marketing

Figure 19.1

keting. We discuss each decision in detail in this chapter.

Looking at the Global Marketing Environment Before deciding whether to operate internationally, a company must understand the in

ternational marketing environment. That environment has changed a great deal in recent

decades, creating both new opportunities and new problems.

trade system. When selling to another country, a fi rm may face restrictions on trade between nations.

Governments may charge tariffs products designed to raise revenue or protect domestic fi rms.

Tariffs are often used to force favorable trade behaviors from

business. In retaliation, to help level the highly competitive

solar cells and panels imported from China. New Chinese com

could face a tariff up to 250 percent.6

Countries may set quotas, limits on the amount of foreign imports that they will accept in certain product categories. The

exchange controls

nontariff trade barriers, such as bi

businesses in China appear to receive unusually close scrutiny

and harsh treatment from Chinese authorities, aimed at boost

ing the fortunes of local competitors. Last year, for instance,

national and local Chinese regulators lunched what appeared

to be a new wave of protectionism, with the goal of shielding

Chinese brands from their Western rivals in a slowing economy.

The harshest treatment was reserved for Western retailers such

as Walmart. The retailer was fi rst fi ned for misleading pricing

lators in Chongqing accused Walmart of selling regular pork

improperly labeled as organic, forcing the chain to temporarily

protectionist moves appeared to be more to hinder Walmart’s

It’s a big and beautiful but threatening world out there for marketers! Most large American firms

66 percent of its sales from outside the United States.

| 19.1

Major International Marketing

Decisions

Nontariff trade barriers: Walmart and other foreign businesses

in China appear to receive unusually close scrutiny and harsh

treatment from Chinese authorities, aimed at boosting the

fortunes of local Chinese competitors.

REUTERS/Jason Lee

Chapter 19 | The Global Marketplace 577

“Why go to the effort of getting your own guys to raise their game when you can tear down

a foreign guy instead?”

help

The World Trade Organization

in 1994, was designed to promote world trade by reducing tariffs and other interna

tional trade barriers.

reassess trade barriers and establish new rules for international

trade. The WTO also imposes international trade sanctions and

mediates global trade disputes. Its actions have been produc

tive. The fi rst seven rounds of negotiations reduced the average

worldwide tariffs on manufactured goods from 45 percent to just

5 percent.

guay Round, dragged on for seven long years before concluding

tended the WTO to cover trade in agriculture and a wide range of

services, and toughened the international protection of copyrights,

of global WTO trade talks, the Doha Round, began in Doha, Qatar,

in late 2001 and was set to conclude in 2005; however, the discus

sions still continued through 2012.9

Certain countries have formed free trade zones or economic communities. These are groups of nations organized to work toward common goals in the regulation of interna

tional trade. One such community is the European Union (EU)

services, fi nances, and labor among member countries and developing policies on trade

kets. 10

bigger and more competitive. Perhaps an even greater concern, however, is that lower barriers

inside outside

a common currency. Widespread adoption of the euro has decreased much of the currency

weak currencies more attractive markets. However, the adoption of a common currency

had to step in recently to prop up weaker economies such as those of Greece and Portugal.11

In 1994, the North American Free Trade Agreement (NAFTA) established a free trade zone

The WTO promotes trade by reducing tariffs and other

international trade barriers. It also imposes international trade

sanctions and mediates global trade disputes.

(left) Corbis Images; (right) Donald Stampfli/Associated Press

Economic community

A group of nations organized to work

toward common goals in the regulation of

international trade.

578 Part 4 | Extending Marketing

barriers and investment restrictions among the three

in 2011.

Nicaragua. Other free trade areas have formed in

tariffs between nations by 2019.14

ferent products and services and its attractiveness as a market to foreign fi rms depend on

Economic Environment The international marketer must study each country’s economy. Two economic factors

distribution.

The country’s industrial structure shapes its product and service needs, income levels,

Subsistence economies: In a subsistence economy, the vast majority of people engage in simple agriculture. They consume most of their output and barter the rest for simple

countries fall into this category.

Raw material exporting economies: These economies are rich in one or more natural re

ment, tools and supplies, and trucks. If there are many foreign residents and a wealthy

Emerging economies (industrializing economies): In an emerging economy, fast growth in

cally creates a new rich class and a growing middle class, both demanding new types

petitive, many marketers are now targeting growth opportunities in emerging markets

Industrial economies:

them to other types of economies for raw materials and semifi nished goods. The var

ied manufacturing activities of these industrial nations and their large middle class

Japan, and Norway.

single largest markets. Its current member countries contain more than half a

billion consumers and account for 20 percent of the world’s exports.

Chapter 19 | The Global Marketplace 579

Marketing in Brazil presents both opportunities and challenges. Nestlé’s “Ate Voce”

basin.

Bloomberg via Getty Images

When it comes to talk of the world’s emerging

economies, China and India seem to ink most

of the headlines. But ask Brazilians what they

think of their country and they’ll likely respond

that it’s “O pais maior do mundo”—“The

greatest country in the world.” And based

on the strength of Brazil’s growing consumer

markets, many global marketers would agree.

South America’s largest country, Brazil

it’s expected to pass France to take the num

ber five spot within the next decade. And al

though both India and China each have more

than six times Brazil’s population of 200 million,

Brazil bests both countries by a wide margin in

per capita purchasing power. In fact, Brazil’s

GDP is 200 percent larger than India’s.

Thanks to historically low unemployment,

rising wages, and an influx of foreign direct

investment, Brazil’s consumer markets are

soaring. And the world’s marketers are begin

ning to covet Brazil’s rapidly exploding middle

class—a group that has grown by 40 million in

just the past five years. The growing prosperity

and aspirations of this segment have resulted

brands in categories ranging from soft drinks

to mobile phones to imported luxury goods.

The world’s largest retailers are now set

ting up shop in Brazil. They are finding suc

cess through innovative formats that target

ers, small businesses, and wealthier shoppers.

France’s Carrefour is a market leader with its

Costco, Atacadao stores offer premium brands

store environment combined with enticing pro

motions and low prices. Walmart is also expe

riencing big growth in Brazil with 532 stores,

including Walmart Supercenters, Sam’s Clubs,

supermarkets featuring the assortment of na

tional brands and private labels that Walmart is

known for around the world, but served up in a

way that appeals to Brazilians.

One product category showing strong

growth among Brazil’s increasingly affluent

middle class is child’s play—literally. With

Brazilian disposable income on the rise,

spending on traditional toys and games has

grown by more than 25 percent annually in

recent years. Mattel leads the market with

a substantial 30 percent share, followed by

Hasbro. Brazil’s toy market looks a lot like

the U.S. toy market, with Brazilian tots and

preteens clamoring not only for Hot Wheels

and Barbies but also for other North Ameri

can favorites ranging from Disney’s prin

cesses, Shrek, and Toy Story characters to

Nickelodeon’s “Dora la Exploradora.”

Just as it offers opportunities, Brazil

also presents challenges. Although its mar

ket infrastructure is light years ahead of what

it was even a decade ago, the country’s

fragmented social classes and regional

variances create difficulties for multinational

marketers. For example, southern and south

eastern Brazil contain some of the country’s

reach areas, such as Sao Paulo, Brazil’s rich

est state. In contrast, the northeast region is

Brazil’s poorest, and many residents there lack

access to basics such as roads and running

water. This region historically prefers local mar

kets over supermarkets and regional brands

over global brands. With more mouths to feed

in every household, northeastern Brazilian

consumers are also sticklers for low prices.

But as it happens, northeast Brazil is also

the region with the greatest growth in household

income. So as Brazil’s more affluent regions be

come increasingly competitive, marketers are

finding innovative ways to meet the distribution

challenges in regions like the northeast to cap

ture the growing potential there. For example,

Nestlé developed its “Ate Voce” (“Reaching

door with push carts—a method residents find

very appealing—selling “kits” full of dairy prod

ucts, cookies, yogurt, and desserts. More than

just selling products, these Nestlé vendors are

trained to serve as nutrition consultants, helping

customers to develop healthier diets.

To serve consumers in northeast Brazil’s

Amazon River basin, which lacks a solid net

work of roads and highways, Nestlé has even

launched a floating supermarket that takes

goods directly to consumers. Setting sail from

Belem, Brazil’s biggest city along the Amazon,

the boat serves 1.5 million consumers in

27 riverside towns with 300 different Nestlé

products. It spends one day at each stop. Cus

tomers can check the floating store’s schedule

ber, or text for more information and plan their

19.1Real Marketing Brazil: An Emerging Market or Already Emerged?

580 Part 4 | Extending Marketing

shopping accordingly. This and other innova

tive Ate Voce marketing initiatives are paying

off for Nestlé. “Demand for our products has

more than doubled in the north and northeast

compared to other Brazilian regions,” says

Nestlé’s marketing manager in Brazil.

Many companies are adapting their prod

ucts to meet local northeastern Brazilian tastes.

For example, Nestlé makes a cookie based on

in northeast Brazil. Huge multinational agribusi

Brazilian version of its Primor margarine—a

firmer, saltier version that doesn’t melt in north

east Brazil’s searing heat. Even Nike scored

a hit with the launch of a regional sneaker—

northeastern Brazilians by evoking images of

a state flag.

Keeping up with local brands can be

challenging, even for the biggest global

been the number one soft drink brand in

Brazil. However, a local beverage brand—

Guaraná Jesus—runs a close second.

Named for the druggist who formulated it

from extracts of Brazil’s guarana plant in

Cola bought the brand. Now, in Brazil, the

company makes and sells both the world’s

Cola) and the country’s favorite local brand

Cola’s

marketing slogan, that’s “Open Happiness.”

As Brazil’s poverty fades and its mid

dle class continues to burst its boundar

ies, more and more global marketers will

find fertile ground for growing their brands

there. As Brazil prepares to host the 2014

Football World Cup and the 2016 Olympics,

foreign investment and business activity in

Brazil are booming. Global marketers that

can tap into the unique tastes of Brazil’s

growing middle class will reap the benefits.

Many global marketers are now asking:

Does Brazil still belong among the ranks of

the world’s emerging economies? Or has it

already emerged?

Sources: Advertising Age,

Euromonitor, February 27, 2012, http://blog.euromonitor

The second economic factor is the country’s income distribution. Industrialized nations

sistence economies consist mostly of households with very low family incomes. Still other

emerging economies may be attractive markets for all kinds of goods. These days, com

consumer named Sandeep. Sandeep is a young profes

sional who currently drives a motorcycle. But given his

improving means and pending family, he now wants

something bigger. “There are huge numbers of people

Environment

ments. In considering whether to do business in a

given country, a company should consider factors such

as the country’s attitudes toward international buying, government bureaucracy, political

stability, and monetary regulations.

Some nations are very receptive to foreign fi rms; others are less accommodating.

Namas Bhojani/Namas Bhojani Photography

Chapter 19 | The Global Marketplace 581 restrictions, and other limitations that make operating there a challenge. In contrast, neigh-

boring Asian countries, such as Singapore and Thailand, court foreign investors and shower

them with incentives and favorable operating conditions. Political and regulatory stability

is another issue. For example, Venezuela’s government is notoriously volatile—because of

economic factors such as inflation and steep public spending—which increases the risk of

doing business there. Although most international marketers still find the Venezuelan mar-

ket attractive, the unstable political and regulatory situation will affect how they handle

business and financial matters.16

Companies must also consider a country’s monetary regulations. Sellers want to take

their profits in a currency of value to them. Ideally, the buyer can pay in the seller ’s cur-

rency or in other world currencies. Short of this, sellers might accept a blocked currency—

one whose removal from the country is restricted by the buyer ’s government—if they

can buy other goods in that country that they need or can sell elsewhere for a needed

currency. In addition to currency limits, a changing exchange rate also creates high risks

for the seller.

Most international trade involves cash transactions. Yet many nations have too little

hard currency to pay for their purchases from other countries. They may want to pay with

other items instead of cash. Barter involves the direct exchange of goods or services. For example, China agreed to help the Democratic Republic of Congo develop $6 billion of des-

perately needed infrastructure—2,400 miles of roads, 2,000 miles of railways, 32 hospitals,

145 health centers, and two universities—in exchange for natural resources needed to feed

China’s booming industries—10 million tons of copper and 400,000 tons of cobalt.17

Cultural Environment Each country has its own folkways, norms, and taboos. When designing global marketing

strategies, companies must understand how culture affects consumer reactions in each of its

world markets. In turn, they must also understand how their strategies affect local cultures.

The Impact of Culture on Marketing Strategy Sellers must understand the ways that consumers in different countries think about and use

certain products before planning a marketing program. There are often surprises. For ex-

ample, the average French man uses almost twice as many cosmetics and grooming aids as

his wife. The Germans and the French eat more packaged, branded spaghetti than Italians

do. Some 49 percent of Chinese eat on the way to work. Most American women let down

their hair and take off makeup at bedtime, whereas 15 percent of Chinese women style their

hair at bedtime and 11 percent put on makeup.18

Companies that ignore cultural norms and differences can make some very expensive

and embarrassing mistakes. Here are two examples:

Nike inadvertently offended Chinese officials when it ran an ad featuring LeBron James crushing

a number of culturally revered Chinese figures in a kung fu–themed television ad. The Chinese

government found that the ad violated regulations to uphold national dignity and respect the

“motherland’s culture” and yanked the multimillion-dollar campaign. With egg on its face, Nike

released a formal apology. Burger King made a similar mistake when it created in-store ads in

Spain showing Hindu goddess Lakshmi atop a ham sandwich with the caption “a snack that is

sacred.” Cultural and religious groups worldwide objected strenuously—Hindus are vegetarian.

Burger King apologized and pulled the ads.19

Business norms and behaviors also vary from country to country. For example,

American executives like to get right down to business and engage in fast and tough

face-to-face bargaining. However, Japanese and other Asian businesspeople often find this

behavior offensive. They prefer to start with polite conversation, and they rarely say no

in face-to-face conversations. As another example, firm handshakes are a common and

expected greeting in most Western countries; in some Middle Eastern countries, however,

handshakes might be refused if offered. In some countries, when being entertained at a

meal, not finishing all the food implies that it was somehow substandard. In other coun-

tries, in contrast, wolfing down every last bite might be taken as a mild insult, suggesting

that the host didn’t supply enough quantity.20 American business executives need to under-

stand these kinds of cultural nuances before conducting business in another country.

By the same token, companies that understand cultural nuances can use them to

their advantage in the global markets. For example, furniture retailer IKEA’s stores are

582 Part 4 | Extending Marketing

and a place to grab a reliable lunch. “Customers come on family outings, hop into display

beds and nap, pose for snapshots with the décor, and

hang out for hours to enjoy the air conditioning and

free soda refi lls,” notes one observer. On a typical

cupied, with customers of all ages lounging or even

fi guring that familiarity with the store will result in

later purchasing when shoppers’ incomes eventu

ally rise to match their

ice cream for 10 years, then maybe you will consider

ket, and its sales in China increased 20 percent last

year.

Thus, understanding cultural traditions, prefer

ences, and behaviors can help companies not only

avoid embarrassing mistakes but also take advantage

Whereas marketers worry about the impact of global cultures on their marketing strate

ture have become pervasive worldwide.22

and bad.”

The Lexus and the Olive Tree Understanding Globalization

longer spend each morning visiting local meat, bread, and produce markets to gather

the ingredients for dinner. Instead, they now shop at Walmart Supercenters. Women in

drank coffee before Starbucks entered the market. Now Chinese consumers rush to Star

bucks stores “because it’s a symbol of a new kind of lifestyle.” Similarly, in China,

The impact of culture on marketing strategy: IKEA customers in China

furniture.

Lou Linwei/Alamy

Chapter 19 | The Global Marketplace 583

in Beijing alone, nearly half of all children identify the

chain as a domestic brand.

Such concerns have sometimes led to a backlash

brands have become the targets of boycotts and pro

by antiglobalization protestors in hot spots around

peaks.

Despite such problems, defenders of globalization

brands are doing very well internationally. In the most

of global consumer brands, 16 of the top 20 brands

model in China last year, demand was so heavy that the company had to abandon sales in

some Beijing stores to avert the threat of rioting by mobs of eager consumers. China is now

The Office, American Idol, and Dancing with the Stars

international roots.

Belarus.

Deciding Whether to Go Global

local businesses need to market well only in their local marketplaces. Operating domesti

They don’t have to deal with unstable currencies, face political and legal uncertainties, or

operate in global industries, where their strategic positions in specifi c markets are affected

strongly by their overall global positions, must compete on a regional or worldwide basis

to succeed.

The impact of marketing strategy on culture: Nearly half of all children in

China identify McDonald’s as a domestic brand.

Tomoko Kunihiro

584 Part 4 | Extending Marketing

ample, global competitors might attack the company’s home market by offering better

products or lower prices. The company might want to counterattack these competi

tors in their home markets to tie up their resources. The company’s customers might

is making major pushes into 90 emerging markets, such as China, India, and the entire 26

Before going abroad, the company must weigh several risks and answer many ques

tions about its ability to operate globally. Can the company learn to understand the pref

erences and buyer behavior of consumers in other countries? Can it offer competitively

attractive products? Will it be able to adapt to other countries’ business cultures and deal

effectively with foreign nationals? Do the company’s managers have the necessary interna

environments of other countries?

Deciding Which Markets to Enter Before going abroad, the company should try to defi ne its international marketing objectives and policies. It should decide what volume small when they go abroad. Some plan to stay small, seeing international sales as a small

part of their business. Other companies have bigger plans, however, seeing international

business as equal to or even more important than their domestic business.

The company also needs to choose in how many countries it wants to market. Compa

types factors, income and population, political climate, and other considerations. In recent years,

many major new markets have emerged, offering both substantial opportunities and daunt

ing challenges.

countries.

see a market like Nigeria [with a population of more than 150 million] and it feels like a big

we really need to think about it a city at a time as opposed to a country at a time.”

Possible global markets should be ranked on several factors, including market size,

market growth, the cost of doing business, competitive advantage, and risk level. The

goal is to determine the potential of each market, using indicators such as those shown in

Table 19.1

return on investment.

Chapter 19 | The Global Marketplace 585

Deciding How to Enter the Market Once a company has decided to sell in a foreign country, it must determine the best mode of

entry. Its choices are exporting, joint venturing, and direct investment. Figure 19.2 shows

each succeeding strategy involves more commitment and risk but also more control and

potential profi ts.

Exporting The simplest way to enter a foreign market is through exporting. The company may

Table 19.1| Indicators of Market Potential

Demographic Characteristics

Education

Population size and growth

Population age composition

Sociocultural Factors

Consumer lifestyles, beliefs, and values

Business norms and approaches

Cultural and social norms

Geographic Characteristics

Climate

Country size

Population density—urban, rural

Transportation structure and market accessibility

Political and Legal Factors

National priorities

Political stability

Government attitudes toward global trade

Government bureaucracy

Monetary and trade regulations

Economic Factors

GDP size and growth

Income distribution

Industrial infrastructure

Natural resources

Financial and human resources

Objective 2 Describe three key approaches

to entering international markets.

Exporting is the simplest way to enter a foreign market, but it usually offers less control and profit potential.

affords greater control and profit potential, but it’s often riskier.

| 19.2

Market Entry Strategies

Exporting

Entering foreign markets by selling

goods produced in the company’s home

country, often with little modification.

586 Part 4 | Extending Marketing

vestments, or mission.

Companies typically start with indirect exporting, working through independent inter

fi rm does not require an overseas marketing organization or network. It also involves less

ship, so the seller normally makes fewer mistakes. Sellers may eventually move into direct exporting greater in this strategy, but so is the potential return.

Joint Venturing joint venturing

ing in that the company joins with a host country partner to sell or market abroad. It differs

from direct investment in that an association is formed with someone in the foreign country.

tracting, and joint ownership.

Licensing Licensing is a simple way for a manufacturer to enter international marketing. The

royalty payments, the licensee buys the right to use the company’s manufacturing pro

cess, trademark, patent, trade secret, or other item of value. The company thus gains

entry into a foreign market at little risk; at the same time, the licensee gains production

start from scratch.

In Japan, Budweiser beer flows from Kirin breweries,

by licensing bottlers around the world and supplying them

with the syrup needed to produce the product. Its global

and Russia.

Licensing has potential disadvantages, however. The fi rm

has less control over the licensee than it would over its own op

has given up these profi ts, and if and when the contract ends, it

may fi nd it has created a competitor.

Contract Manufacturing contract manufacturing, in which the

company makes agreements with manufacturers in the foreign

market to produce its product or provide its service. Sears used

Spain, where it found qualifi ed local manufacturers to produce

many of the products it sells. The drawbacks of contract manu

facturing are decreased control over the manufacturing process

and loss of potential profi ts on manufacturing. The benefi ts are

the chance to start faster, with less risk, and the later oppor

tunity either to form a partnership with or buy out the local

manufacturer.

Management Contracting management contracting, the domestic fi rm pro

items are produced by Moringa Milk Company.

Joint venturing

Entering foreign markets by joining with

foreign companies to produce or market

a product or service.

Licensing

Entering foreign markets through

developing an agreement with a licensee

in the foreign market.

Contract manufacturing

A joint venture in which a company

contracts with manufacturers in a foreign

market to produce its product or provide

its service.

Management contracting

A joint venture in which the domestic firm

the domestic firm exports management

services rather than products.

Chapter 19 | The Global Marketplace 587 management services rather than products. Hilton uses this arrangement in managing ho

yields income from the beginning. The arrangement is even more attractive if the contract

ing fi rm has an option to buy some share in the managed company later on. The arrange

ment is not sensible, however, if the company can put its scarce management talent to better

tracting also prevents the company from setting up its own operations for a period of time.

Joint Ownership Joint ownership ventures consist of one company joining forces with foreign investors to

interest in a local fi rm, or the two parties may form a new business venture. Joint owner

foreign government may require joint ownership as a condition for entry.

Often, companies form joint ownership ventures to merge their complementary

strengths in developing a global marketing opportunity.

company’s soups in China.29

China represents a tremendous opportunity for Camp

servings of soup annually. However, Chinese consum

ers currently prefer the homemade variety, leaving

plenty of room for growth of commercial soups. Camp

bell Swire will manufacture and market Campbell’s

to the partnership. Campbell knows how to make and

distribution in China and a deep understanding of the

Chinese market. Together, each can accomplish more

than either could alone. “This partnership will help un

lock the potential of the soup market in China by pair

ing Campbell’s brands, recipes, and consumer insights

with Swire’s sales force, logistics capabilities, and over

all market knowledge,” says the president of Campbell

International.

Joint ownership has certain drawbacks, however.

The partners may disagree over investment, marketing,

vest earnings for growth, local fi rms often prefer to take

role of marketing, local investors may rely on selling.

Direct Investment The biggest involvement in a foreign market comes through direct investment

Joint ownership

A cooperative venture in which a

company creates a local business with

investors in a foreign market, who share

ownership and control.

Direct investment

Entering a foreign market by developing

facilities.

Direct investment: Ford has made major direct investments in several

countries, such as India, China, and Thailand, to help satisfy Ford’s

burgeoning demand in Asian markets.

AFP/Getty Images

588 Part 4 | Extending Marketing If a company has gained experience in exporting and if the foreign market is large

enough, foreign production facilities offer many advantages. The firm may have lower costs

in the form of cheaper labor or raw materials, foreign government investment incentives,

and freight savings. The firm may also improve its image in the host country because it cre-

ates jobs. Generally, a firm develops a deeper relationship with the government, customers,

local suppliers, and distributors, allowing it to adapt its products to the local market better.

Finally, the firm keeps full control over the investment and therefore can develop manufac-

turing and marketing policies that serve its long-term international objectives.

The main disadvantage of direct investment is that the firm faces many risks, such as

restricted or devalued currencies, falling markets, or government changes. In some cases, a

firm has no choice but to accept these risks if it wants to operate in the host country.

Deciding on the Global Marketing Program Companies that operate in one or more foreign markets must decide how much, if at all, to

adapt their marketing strategies and programs to local conditions. At one extreme are global

companies that use standardized global marketing, essentially using the same marketing

strategy approaches and marketing mix worldwide. At the other extreme is adapted global

marketing. In this case, the producer adjusts the marketing strategy and mix elements to each

target market, resulting in more costs but hopefully producing a larger market share and return.

The question of whether to adapt or standardize the marketing strategy and program

has been much debated over the years. On the one hand, some global marketers believe

that technology is making the world a smaller place, and consumer needs around the world

are becoming more similar. This paves the way for global brands and standardized global

marketing. Global branding and standardization, in turn, result in greater brand power and

reduced costs from economies of scale.

On the other hand, the marketing concept holds that marketing programs will be

more effective if tailored to the unique needs of each targeted customer group. If this

concept applies within a country, it should apply even more across international mar-

kets. Despite global convergence, consumers in different countries still have widely varied

cultural backgrounds. They still differ significantly in their needs and wants, spending

power, product preferences, and shopping patterns. Because these differences are hard to

change, most marketers today adapt their products, prices, channels, and promotions to fit

consumer desires in each country.

However, global standardization is not an all-or-nothing proposition. It’s a matter of

degree. Most international marketers suggest that companies should “think globally but act

locally”—that they should seek a balance between standardization and adaptation. Star-

bucks has found this balance internationally, leveraging its substantial global brand recog-

nition but adapting its marketing and operations to specific markets. The company’s overall

brand strategy provides global strategic direction. Then regional or local units focus on

adapting the strategy and brand to specific local markets such as India and China (see Real

Marketing 19.2). “The best brand organizations drive a single-minded brand purpose and

then challenge and empower local marketers to develop the best activation mix to bring

that to fruition in every market,” says a global branding expert.31

Collectively, local brands still account for the overwhelming majority of consumers’

purchases. “The vast majority of people still lead very local lives,” says a global analyst. “By

all means go global, but the first thing you have to do is win on the ground. You have to go

local.” Another analyst agrees: “You need to respect local culture and become part of it.”

A global brand must “engage with consumers in a way that feels local to them.” Simon Clift,

former chief marketing officer at global consumer-goods giant Unilever, put it this way:

“We’re trying to strike a balance between being mindlessly global and hopelessly local.”32

McDonald’s operates this way: It uses the same basic fast-food look, layout, and op-

erating model in its restaurants around the world but adapts its menu and design to local

tastes. For example, McDonald’s France uses the power of its global brand and operating

model but has redefined itself as a French company that adapts to the needs and preferences

of French consumers:33

“France—the land of haute cuisine, fine wine, and cheese—would be the last place you would expect

to find a thriving [McDonald’s],” opines one observer. Yet the fast-food giant has turned France into its

Objective 3 Explain how companies adapt

their marketing strategies and

mixes for international markets.

Standardized global marketing

An international marketing strategy

that basically uses the same marketing

strategy and mix in all of the company’s

international markets.

Adapted global marketing

An international marketing approach that

adjusts the marketing strategy and mix

elements to each international target

market, which creates more costs but

hopefully produces a larger market share

and return.

Chapter 19 | The Global Marketplace 589

translate into local success in India. The brand

must adapt to the tastes of Indian consumers and

the complexities of India’s political and business

environments.

Starbucks is now opening for business in

India, with 50 stores planned by the end of

2012 and a bunch more to follow quickly.

Given India’s rapidly emerging economy and

its huge population of well over 1.2 billion

people, entering the Indian market seems like

a no brainer for the global brand.

Opportunities abound for Starbucks in

now in the midst of a coffee café explosion,

fueled by the nation’s growing middle class

and large youth population. India—espe

cially the young adult segment—is ready for

Starbucks. In a country that still largely dis

approves of young adults, especially young

women, socializing in bars or pubs, coffee

shops provide ideal hangouts. “When you

don’t want to drink, when you just want to

150 rupees (about $3) for a cup of coffee and

time away from home with her friends.

If the coffee market is heating up in In

dia, so is the Starbucks brand. Even though

it’s just now setting up shop there, thanks to

Starbucks’ global prowess, many Indians are

already familiar with the brand. In fact, accord

ing to Bhandari, the growth of India’s coffee

market in the first place resulted in part from

Starbucks’ global success. “The growth didn’t

only come because [of local coffee shops. It]

came because of the lifestyle that Starbucks

started in the United States and other places.”

So, because of its global brand power, the

café tables are already set for Starbucks as

it enters India.

However, global brand power won’t

automatically translate into local brand suc

cess for Starbucks. India is very different from

the United States, Canada, or Europe. To

succeed in India’s complex market environ

ment, Starbucks must carefully adapt to the

tastes of Indian consumers and the complexi

ties of India’s political, business, and social

environments.

For example, doing business in India

heavily favors insiders. By market capitaliza

tion, more than 70 percent of Indian business

relationships in India takes time and patience,

and even then family ties can dominate. To

make things even more challenging for out

side firms, the Indian government is notori

ously slow when it comes to making foreign

investment decisions. For instance, in re

sponse to protests from local businesses,

awaited decision to let foreign retailers own

a 51 percent or greater stake in Indian retail

operations. In such an uncertain political en

vironment, foreign investment in India has de

clined in recent years and economic growth

has slowed.

But Starbucks—the world’s largest cof

fee chain with nearly 17,500 stores in 59

countries—is no stranger to the difficulties

of entering new global markets.

The company has studied India

for years, learning all it can and

patiently honing its entry strategy.

To smooth the way, Starbucks

Tata Global Beverages, a division

of India’s largest business group.

The Tata alliance eases the finan

cial risks and gives Starbucks in

sider business and political status.

to understand the needs of Indian

consumers. According to John

Culver, president of Starbucks

China and Asia Pacific, even with

out government restrictions on for

eign ownership, Starbucks would

never have considered trying to

go it alone in India. “We never

considered 51 percent,” he says.

“When we looked at the opportu

nity to enter India, understanding

the complexities of the market

and the uniqueness that is India,

we wanted to find a local business

partner.”

In entering India, Starbucks

also faces a market that’s percolat

tors. One local competitor—Café

Coffee Day—dominates with 1,200

stores and a planned 2,000 stores

as “India’s favorite coffee shop,

where the young and young at heart unwind,”

fee experience at affordable prices. Several

foreign coffee chains have also invaded India,

feature low prices, with small cappuccinos

commonly selling for $1 or less.

But despite the growing competition,

Starbucks has been welcomed in India,

even by the leading local competitor. Given

the huge size and rapid growth of the Indian

coffee market, there appears to be plenty of

room for all players. “There are a lot of for

eign brands already available in India, and still

it hasn’t made any difference from a compe

tition point of view,” says Café Coffee Day’s

chief operating officer. And “when compa

nies like Starbucks come in,” he says, “the

awareness levels go up tremendously [and]

the overall market size grows.” Adds another

Café Coffee Day executive, “We will hopefully

learn a few things from them.” According to

one analyst, at some point India can easily

19.2Real Marketing Starbucks in India: A Global Brand

590 Part 4 | Extending Marketing

support 5,000 Starbucks, enough stores in

India alone to increase Starbucks’ worldwide

count by nearly 30 percent.

Starbucks’ strategy in India for adapting

to local consumer preferences is still emerg

ing, but many analysts expect that the com

pany will apply the lessons it learned in China.

When Starbucks entered China in 1998, given

observers expected success. But Starbucks

soon be Starbucks’ largest market outside of

the United States.

Starbucks’ success in China results from

adapting its global brand strategy to the unique

characteristics of Chinese consumers. Rather

than forcing U.S. products on the Chinese,

Starbucks developed new flavors—such as

orders, which account for most of its U.S. rev

making its stores the perfect meeting place for

Chinese professionals and their friends. And

prices in China, Starbucks boosted prices even

higher, positioning the brand as a status sym

bol for the rapidly growing Chinese middle and

upper classes. Under this adapted strategy,

Starbucks China is thriving.

For now, Indian consumers may not

know which Starbucks size is bigger, grande

or venti. And they might not know the exact

difference between a Frappuccino and a Caffè

Mocha. But all that will likely change soon as

the Starbucks brand grows and prospers.

Success will depend on how well Starbucks

applies its global brand muscle to the unique

tastes of Indian customers. According to Star

bucks’ president Culver, it’s full steam ahead.

“We’re going to move as fast as possible in

opening as many stores as we can, so long

as we are successful and so long as we are

embraced by the Indian consumers.”

Sources: New

York Times

with Tata Global Beverages,” Huffington Post

Time, January 31,

Starbucks Succeeds in China and Others Haven’t,” USA Today, February 12, 2012, www.usatoday.com/money/

ald’s in Paris might at fi rst seem a lot like one in Chicago,

although a majority of revenues still come from burgers

offers up burg

baguettes, so

But perhaps the biggest difference isn’t in the food,

but in the design of the restaurants themselves, which

taurant interiors to create a comfortable, welcoming en

vironment where customers want to linger and perhaps

Product

global market (see Figure 19.3 We fi rst discuss the three product strategies and then

turn to the two communication strategies.

means marketing a product in a foreign market with

out making any changes to the product. Top management tells its marketing people, “Take

Think globally, act locally: By leveraging the power of its global brand

but constantly adapting to the needs and preferences of French consumers

profi table world market.

ERIC PIERMONT/AFP/Getty Images/Newscom

Chapter 19 | The Global Marketplace 591

the product as is and fi nd customers for it.” The fi rst step, however, should be to fi nd out

whether foreign consumers use that product and what form they prefer.

consumers prefer a solid wafer or cake form. Likewise, Philips began to make a profit

in Japan only after it reduced the size of its coffeemakers to fit into smaller Japanese

because it involves no additional product development costs, manufacturing changes,

or new promotion. But it can be costly in the long run if products fail to satisfy consum

ers in specific global markets.

Product adaptation involves changing the product to meet local requirements, con

consumers while simultaneously providing the better gas mileage and lower emissions

required by the country’s regulations. The gas tank is 40 percent larger to accommodate

Product invention consists of creating something new to meet the needs of con

ance manufacturers and carmakers to candy and soft drink producers have developed

oped sturdier washing machines for rural users in emerging markets, where it found that

vegetables as well as clothes.

The real question buried in this figure is this: How much should a company standardize or adapt its products and marketing across global markets?

| 19.3

Five Global Product and

Communications Strategies

Marketing a product in a foreign market

without making any changes to the

product.

Product adaptation

Adapting a product to meet local

conditions or wants in foreign markets.

Product invention

Creating new products or services for

foreign markets.

592 Part 4 | Extending Marketing share their phones, the company developed handsets with multiple address books.

Promotion Companies can either adopt the same communication strategy they use in the home market

or change it for each local market. Consider advertising messages. Some global companies

of iPods with a single global campaign featuring silhouetted fi gures dancing against a col

to Senegal to the Czech Republic.

Of course, even in highly standardized communications campaigns, some adjustments

tive, the retailer runs the same ads digitally adapted to better cover its models.

Global companies often have diffi culty crossing the language barrier, with results

ranging from mild embarrassment to outright failure. Seemingly innocuous brand

names and advertising phrases can take on unintended or hidden meanings when

veloped a brand name “hall of shame” list, which contained

these and other foreign brand names you’re never likely to

mistakes.

Other companies follow a strategy of communication

adaptation, fully adapting their advertising messages to

this for many of its brands.

emphasize anything from whiter teeth or fresher breath to

tional approach, emphasizing the importance of brushing

poo to serve the varying needs of consumers in different

markets. Whereas its standard Western shampoo ads tend

washed locks over their shoulders, Sunsilk’s Lively Clean

and scalp oil that wearing a tudung can cause.

vertisers must buy time months in advance, and they have little

Adapting advertising messages: Whereas Western ads for

tional approach emphasizing healthy teeth.

Unilever plc

Communication adaptation

A global communication strategy of fully

adapting advertising messages to local

markets.

Chapter 19 | The Global Marketplace 593

Price

but this amount would be too high of a price in poor countries and not high enough in

rich ones. It could charge what consumers in each country would bear, but this strategy

could use a standard markup of its costs everywhere, but this approach might price

costs are high.

Regardless of how companies go about pricing their

products, their foreign prices probably will be higher

price escalation problem. It must add the cost of transportation, tariffs, importer margin, wholesaler margin, and retailer

margin to its factory price. Depending on these added

costs, a product may have to sell for two to fi ve times as

much in another country to make the same profi t.

companies make simpler or smaller versions of their

products that can be sold at lower prices. Others have

introduced new, more affordable brands in emerging

markets.

Denizen brand, created for teens and young adults in

emerging markets such as China, India, and Brazil who

the fi rst four letters of denim with zen, a word with Japa nese and Chinese roots that means “meditative state” or

“escape from the hustle and bustle of everyday life.”41

ample, the Internet is making global price differences more obvious. When fi rms sell their

wares over the Internet, customers can see how much products sell for in different countries.

They can even order a given product directly from the company location or dealer offering

the lowest price. This is forcing companies toward more standardized international pricing.

Distribution Channels of the problem of distribut

ing products to fi nal consumers. Figure 19.4 shows the two major links between the

seller and the fi nal buyer. The fi rst link, channels between nations, moves company products from points of production to the borders of countries within which they are sold. The sec

ond link, channels within nations, moves products from their market entry points to the fi nal

marketing channel. It recognizes that to compete well internationally, the company must

effectively design and manage an entire global value delivery network.

created for teens and young adults in emerging markets such as China,

Nelson Ching/Getty Images USA, Inc.

Designing international channels that

take into account the entire global supply

chain and marketing channel, forging an

effective global value delivery network.

Distribution channels can vary dramatically around the world. For example, in the U.S., Nokia distributes phones through a network of sophisticated retailers. In rural India, it maintains

prowl the rutted country roads.

| 19.4

International Marketing

594 Part 4 | Extending Marketing Channels of distribution within countries vary greatly from nation to nation. There are

large differences in the numbers and types of intermediaries serving each country market

done by small, independent retailers. In India, millions of retailers operate tiny shops or sell

in open markets. Thus, in its efforts to sell those rugged, affordable phones discussed earlier 42

In India, Nokia has a presence in almost 90 percent of retail out

kiosks. That makes it diffi cult to control how products are dis

where people live, what the shopping patterns are,” says a

To reach rural India,

branded vans that prowl the rutted country roads. Staffers park

festival days. There, with crowds clustering around, Nokia reps

even more remote places. Thanks to smart product develop

ment and innovative channels, Nokia now owns an impressive

Similarly, as we learned in the story about its ventures

consumption and scoot around congested city streets with greater ease. In rural areas,

Cola sales reps makes regular visits to small retailers, often on foot or bicycle. To reach the

most isolated spots, the company even relies on teams of delivery donkeys. In Tanzania,

Deciding on the Global Marketing Organization

and fi nally become a global organization.

export department with a sales

clude various marketing services so that it can actively go after business. If the fi rm moves

third, and own a subsidiary in a fourth. Sooner or later it will create international divisions or subsidiaries to handle all its international activity.

corporate staff consists of marketing, manufacturing, research, fi nance, planning, and per

sonnel specialists. It plans for and provides services to various operating units, which can

be organized in one of three ways. They can be geographical organizations, with country managers who are responsible for salespeople, sales branches, distributors, and licensees

in their respective countries. Or the operating units can be world product groups, each re

international subsidiaries, each responsible for their own sales and profi ts.

Distribution channels vary greatly from nation to nation. In its

efforts to sell rugged, affordable phones to Indian consumers,

Nokia forged its own distribution structure, including a fl eet of

to visit remote villages.

Atul Loke/Panos Pictures

Objective 4 Identify the three major forms

of international marketing

organization.

Chapter 19 | The Global Marketplace 595 global

organizations. ducer of household, health, and personal care products and consumer goods with a stable

RB operates in more than 60 countries. Its top 400 managers rep

ecutive offi cer.

RB recently relocated several of its operations to put key

to Sao Paulo, Brazil. The company has spent the past decade

building a culture of global mobility because it thinks that’s one

of the best ways to generate new ideas and create global en

account

during the economic downturn, the company has outperformed

Global organizations don’t think of themselves as national marketers who sell abroad

but as global marketers. The top corporate management and staff plan worldwide manu

operations, not just domestic or international operations. Global companies recruit manage ment from many countries, buy components and supplies where they cost the least, and

panies successfully invade their domestic markets, companies must move more aggressively

into foreign markets. They will have to change from companies that treat their international

operations as secondary to companies that view the entire world as a single borderless market.

managers . . . view themselves as global citizens rather than as

citizens of any given nation.”

Reckitt Benckiser plc.

Reviewing the Concepts

Companies today can no longer afford to pay attention only to their

domestic market, regardless of its size. Many industries are global

industries, and firms that operate globally achieve lower costs and

higher brand awareness. At the same time, global marketing is

risky because of variable exchange rates, unstable governments,

tariffs and trade barriers, and several other factors. Given the po

tential gains and risks of international marketing, companies need

a systematic way to make their global marketing decisions.

Reviewing Objectives and Key Terms

Objectives Review

596 Part 4 | Extending Marketing

Objective 1

Objective 2

Objective 3

Objective 4

Key Terms

Objective 1 Global firm (p 575)

Economic community (p 577)

Objective 2 Exporting (p 585)

Joint venturing (p 586)

Licensing (p 586)

Contract manufacturing (p 586)

Management contracting (p 586)

Joint ownership (p 587)

Direct investment (p 587)

Objective 3 Standardized global marketing (p 588)

Adapted global marketing (p 588)

Straight product extension (p 590)

Product adaptation (p 591)

Product invention (p 591)

Communication adaptation (p 592)

Discussion and Critical Thinking

Discussion Questions

1. Explain what is meant by the term global firm, and list the six major decisions involved in international marketing. (AACSB:

Communication)

2. Compare and contrast a tariff and a quota. (AACSB: Communication)

3. Name and define the four types of country industrial struc tures. (AACSB: Communication)

4. Discuss the strategies used for adapting products to a global market. Which strategy is best? (AACSB: Communication)

5. Discuss how global distribution channels differ from domestic channels. (AACSB: Communication)

Discuss how the international

trade system and the economic,

a company’s international marketing decisions.

(pp 574–576)

A company must understand the global marketing environment,

especially the international trade system. It should assess each for

eign market’s economic, , and cultural characteristics.

The company can then decide whether it wants to go abroad and

consider the potential risks and benefits. It must decide on the vol

ume of international sales it wants, how many countries it wants to

market in, and which specific markets it wants to enter. These deci

sions call for weighing the probable returns against the level of risk.

Describe three key approaches

to entering international

markets. (pp 585–588)

The company must decide how to enter each chosen market—

whether through exporting, joint venturing, or direct investment.

Many companies start as exporters, move to joint ventures, and fi

nally make a direct investment in foreign markets. In exporting, the

company enters a foreign market by sending and selling products

through international marketing intermediaries (indirect exporting) or

the company’s own department, branch, or sales representatives or

agents (direct exporting). When establishing a joint venture, a com

pany enters foreign markets by joining with foreign companies to

produce or market a product or service. In licensing, the company

enters a foreign market by contracting with a licensee in the foreign

market and offering the right to use a manufacturing process, trade

mark, patent, trade secret, or other item of value for a fee or royalty.

Explain how companies adapt

their marketing strategies and

mixes for international markets. (pp 588–594)

Companies must also decide how much their marketing strate

gies and their products, promotion, price, and channels should be

adapted for each foreign market. At one extreme, global companies

use standardized global marketing worldwide. Others use adapted

global marketing, in which they adjust the marketing strategy and

mix to each target market, bearing more costs but hoping for a

larger market share and return. However, global standardization is

national marketers suggest that companies should “think globally

but act locally”—that they should seek a balance between globally

standardized strategies and locally adapted marketing mix tactics.

Identify the three major forms

of international marketing

organization. (pp 594–595)

The company must develop an effective organization for inter

national marketing. Most firms start with an export department

and graduate to an international division. A few become global

organizations, with worldwide marketing planned and managed

by the top officers of the company. Global organizations view the

entire world as a single, borderless market.

Chapter 19 | The Global Marketplace 597

Critical Thinking Exercises

1. Visit www.transparency.org and click on “corruption perception index” (CPI). What is the most recent CPI for the following coun-

tries: Denmark, Jamaica, Malaysia, Myanmar, New Zealand,

Somali, and the United States? What are the implications of this

index for U.S.-based companies doing business in these coun-

tries? (AACSB: Communication; Use of IT; Reflective Thinking)

2. Selling a product in a foreign country is difficult, and many companies make mistakes. Find and report on two examples

of companies making marketing mistakes when entering a for-

eign country. (AACSB: Communication; Reflective Thinking)

3. One way to analyze the cultural differences among countries is to conduct a Hofestede analysis. Visit http://geert-hofstede

.com/ to learn what this analysis considers. Develop a presen-

tation explaining how three countries of your choice differ from

the United States when analyzed using this method. (AACSB:

Communication; Use of IT; Reflective Thinking)

Applications and Cases

Marketing Technology Pixels Instead of Pine Swedish company IKEA releases a 300-plus-page catalog each

year featuring its furniture in fashionably modern room settings.

The 2013 catalog comes in 62 different versions for 43 countries.

IKEA’s photo shoots for the catalog take place in one of Europe’s

largest studios—94,000 square feet—which employs almost

300 photographers, interior designers, carpenters, and others

involved in making each scene just perfect. The process is very

labor-intensive and wasteful because rooms are built up and torn

down and often thrown into a dumpster after the photo shoot.

The catalog typically consumes 70 percent of the company’s

marketing budget each year. However, all that is being reduced

thanks to technology. IKEA’s catalog is going digital. Instead of

a couch or bed or table or entire room, many items depicted

in the catalogs are now merely pixels instead of pine. This year,

12 percent of the content online, in catalogs, and in brochures

is not even real, and that proportion will increase to 25 percent

next year. Using 3-D graphics to create the scenes, IKEA can cut

costs and more easily manipulate imagery from one country to

the next. Whereas Americans might prefer darker woods, a given

living room can be shown with lighter woods for Japanese con-

sumers. Don’t expect to find any fake people or pets, however,

because 3-D figures tend to look like ghosts.

1. Visit www.ikea.com and compare a catalog from one country to that of another. What differences do you notice? Can you

discern that some photos are 3-D mockups instead of real

rooms with furniture? (AACSB: Communication; Use of IT; Re-

flective Thinking)

2. Note the prices of some of the products. Convert some of the foreign prices to U.S. dollars and compare them to the prices in

the U.S. catalog. Are the prices equivalent? Are they consistently

higher or lower? (AACSB: Communication; Reflective Thinking)

Marketing Ethics Trade Incentives The U.S. apparel industry is fiercely competitive, and marketers

often need to keep prices low to survive. Many apparel manu-

facturers have shuttered their U.S. factories in favor of cheaper

labor across the globe, and our government is encouraging this

behavior. For example, the African Growth and Opportunity Act

(AGOA) was signed into law in 2000 to foster economic growth

in sub-Saharan Africa countries. Consequently, several clothing

manufacturers have located in Africa to take advantage of the

cheap labor and liberal U.S. market access to these countries.

The AGAO allows poorly developed African countries to export to

the United States duty-free. There has been an unintended con-

sequence, however, as more-developed African countries such

as South Africa, which must pay regular duties to export to the

United States, are seeing their textile industries suffer. One factor

is rising labor costs—65 cents per hour in South Africa but only

19 cents in neighboring African countries such as Lesotho, Swa-

ziland, and Mozambique. Another significant factor is the ability

of these countries to export to the United States duty-free as al-

lowed by the AGAO. As a result, the South African textile industry

saw 52 factories closed in the first half of 2011 alone, 8,000 jobs

lost, and a reduction of $1.5 billion in direct investment. Although

regulations enacted in the United States are not completely re-

sponsible for this decline, critics argue that the AGOA plays a

major role.

1. Find another example of a U.S. law or trade agreement that encourages or discourages trade with foreign countries. Dis-

cuss the positive and negative consequences of the law.

(AACSB: Communication; Reflective Thinking)

Marketing by the Numbers Balance of Trade The United States exported more than $2 trillion worth of goods

and services in 2011 yet realized a trade deficit of more than

$500 million, meaning it imported more than it exported. The U.S.

balance of trade has been negative for decades, although the

598 Part 4 | Extending Marketing

Video Case The U.S. Film Industry If you like movies, you’ve no doubt seen a foreign film at some

point. But did you know that American films are some of the big-

gest and most anticipated foreign films in the world? In fact, for-

eign box office and DVD sales account for nearly 70 percent of

all revenues for the U.S. film industry. With that much financial

impact, foreign markets are playing a bigger and bigger role not

only in the pricing, distribution, and promotion of U.S. films, but

in the product itself.

This video illustrates the challenges faced by the U.S. film

industry stemming from differences in the marketing environ-

ment throughout different international markets. The result is that

this industry is now like any other export industry: The market-

ing mix must be adapted at an optimum level in order to meet

the needs of global markets while still maintaining the benefits of

standardization.

After viewing this video, answer the following questions about

the U.S. film industry and the global marketplace:

1. Which part of the marketing environment seems to be having the greatest impact on U.S. films abroad?

2. Which of the five strategies for adapting products and pro- motion for the global market is most relevant to the U.S. film

industry?

3. Is the U.S. film industry now dependent upon foreign markets for success? Compare the export of U.S. films to other U.S.

exports.

Company Case Buick: Number One Import Brand There’s an old joke that goes something like this: A certain Buick

dealer went broke as the popularity of imported cars finally took

its toll and forced him out of business. One day he found a bottle

from which a genie emerged, offering to grant him one wish. He

wished for a successful foreign car dealership in a major city. In-

stantly, he found himself smack dab in the showroom of his old

Buick dealership—but in Tokyo!

Most Americans perceive Buick as a brand that sells only in

the United States. But there has always been one big exception

to that—China. In fact, if the dealer in the genie tale had found

his dealership in Shanghai or Beijing, he truly would have gotten

his wish. You see, Buick sells more premium vehicles in China

than any other brand—even BMW or Mercedes-Benz. Moreover,

Buick is the number five auto brand in China, luxury or otherwise.

Buick’s success in China makes an interesting story. But perhaps

more important than how the brand got there is what General Mo-

tors is doing now to take advantage of it. GM is not only embracing

the Chinese market for Buick (and for some of its other brands), it’s

using the Chinese market as a key driver for Buick products in the

United States and other countries. Globalization for Buick no longer

means exporting the domestic product. Rather, GM is looking to

China for key customer insights into creating a truly global product.

A Car for Royalty Folks in the United States might think that American products

in China today are a relatively recent phenomenon. However,

Buick’s place at the top of the Chinese market has a history al-

most as old as the brand itself. Buick first hung out its shingle

in 1899, making it the oldest American automotive brand still in

existence. Soon after, Chinese government officials began show-

ing an interest in introducing the vehicle to China. The first Buicks

arrived on the streets of Shanghai in 1912.

Buick immediately became associated with Chinese political

leaders. Pu Yi, China’s last emperor, owned a Buick in the 1920s,

while provincial presidents were also known for choosing Buicks

over brands such as Rolls-Royce and Mercedes-Benz. That led

Buick to open a sales office in Shanghai in 1929 and start adver-

tising there. Some early examples of advertising copy include,

“One out of every six cars [in China] is a Buick,” and “Buick own-

ers are mostly the leading men in China.”

Over the years, Buick’s image as the vehicle of choice for

China’s elite burned itself into the minds of the Chinese people. As

China’s market economy began to take off in the late 1900s, its ex-

ploding middle class fueled the demand for cars. Buick was poised

to ride the trend to the top. In 1997, GM formed a joint venture with

Shanghai Automotive Industry Corporation—Shanghai GM—to

build GM cars in China. The first Chinese-made Buick rolled off the

assembly line in 1998. Shanghai GM would go on to become the

first Chinese auto manufacturer to sell more than 1 million vehicles

in a single year. Around that time, Buick enjoyed a brand familiarity

rating of more than 85 percent in China.

An Evolving Global Strategy For decades, GM’s international marketing strategy was largely char-

acterized by exporting products made for the U.S. market. In GM’s

thinking, what worked in America would work globally. This included

selling left-hand drive cars in right-hand drive countries like Japan and

Great Britain. The strategy made sense at a time when the United

States was far and away the biggest car market in the world and GM

was selling far more cars in the United States than anywhere else.

But U.S. automotive sales matured years ago at a time when

growth in other markets took off. China is now the world’s largest

passenger car market, and with over 1.3 billion people, it has a way

to go before the market is saturated. Fortunately for GM, Buick had

rubber on the road in China before that market started accelerating.

When the Chinese market took off, GM put things into overdrive. As

a result, GM sold 2.55 million cars in China in 2011—a car every

12 seconds! That marks the seventh consecutive year for GM as

2011 deficit was lower than it was in 2004 through 2008. Some

Americans believe trade deficits harm the country.

1. Visit www.bea.gov and find the U.S. balance of trade in goods and services. Create a line chart showing the balance of trade

from 1992 to present. (AACSB: Communication; Use of IT; Re-

flective Thinking)

2. Debate the pros and cons of the United States having trade deficits consistently year after year. (AACSB: Communication;

Reflective Thinking)

Chapter 19 | The Global Marketplace 599 China’s number one automaker. It’s also the second time that GM

sold more cars outside the United States than it did at home.

As GM’s overall growth dynamics shifted, Buick was ahead

of the curve. The year 2000 was one of Buick’s best years ever

in the United States, with sales of more than 400,000 vehicles.

But that began a steady and steep decline for the brand. As GM

worked its way through the recession, bankruptcy, and a gov-

ernment bailout, it considered eliminating Buick entirely. But in

China, Buick sales were rising as fast as they were sinking in the

United States. In 2009, the same year that Buick’s U.S. sales hit

an all-time low of just 102,000 units, the brand sold 450,000 cars

in China. No doubt about it, China saved Buick from the fate that

befell discontinued GM brands Oldsmobile, Pontiac, and Saturn.

As Buick’s sales have shifted, so has its Chinese portfolio of

models. Currently at the bottom of Buick’s Chinese line is the Ex-

celle. It may be a Korean Daewoo dressed up to look like a Buick,

but it’s also the number one selling passenger car in China. That

car is not to be confused with the top-trim Excelle GT, based on an

entirely different vehicle, the German-designed Opel Astra. China’s

Regal and LaCrosse models are assembled at Shanghai GM, but

share their designs with the same models assembled at other GM

plants. The Enclave SUV is built in Lansing, Michigan. And the top-

of-the line Park Avenue is built on a platform from GM’s Australian

division, Holden. Buick China also sells a minivan—a vehicle class

that still enjoys popularity in the Land of the Rising Sun.

China Takes the Lead Buick’s Chinese lineup seems like a better international product

strategy than the old approach of selling only domestic U.S. mod-

els. But in many respects, it’s a hodgepodge of cars from GM’s

world operations that have little in common other than the trade-

mark three-shield emblem. What isn’t apparent from the descrip-

tion of these models alone is the extent to which the Chinese

market is influencing the design not only of future Buick vehicles

for China, but also for the rest of world. Enter car designer Joe Qiu.

Joe Qiu doesn’t own a car. He doesn’t even have a driver’s license.

His favorite vehicle, actually, is a go-kart with a top speed of 75 miles

per hour. His distressed leather bomber jacket, which he rarely takes

off, betrays his fascination with airplanes and all things military. His

jeans, the hems unfashionably turned up, and a brushlike crewcut,

are pure 21st-century China. His TAG Heuer watch: a nod to the in-

ternational uniform of designers. At 31, Qiu still lives with his parents.

But he spends much of his time drinking in the vibes at the expensive

high-end clubs, over-the-top shopping malls, and elegant, luxurious

hotels where Shanghai’s burgeoning middle class gathers. “I’m just

a piece of white paper,” he says, collecting insights into China’s sky-

rocketing consumer culture. He has an uncanny knack for divining

Chinese tastes and whims, what it is they’ll buy.

Joe Qiu is also a designer for Shanghai GM’s Pan Asia Technical

Automotive Center (PATAC). A few years ago, Qiu and a team of

PATAC designers won a competition with other GM design centers

throughout the world to take charge of designing what is now the

current-model Buick LaCrosse. As one of the smallest and least-

known GM design houses, this was akin to a high school basketball

team competing in the NBA playoffs and winning the finals. As Qiu

and his colleagues considered the rounded-exterior and plain-vanilla

interior of the original LaCrosse, they knew that Chinese consum-

ers would sneer at such frumpy wheels meant to appeal to Buick’s

aging U.S. consumers. Buick’s Chinese customers were in their

mid-30s, successful, entrepreneurial, fashionable, and much more

discerning—a demographic profile that made the bosses back in

Michigan drool.

The PATAC team rethought and reshaped every piece of sheet

metal on the LaCrosse. What came out was a glamorous, elegant

sedan, with enough bling to turn the heads of status-conscious

young Shanghai buyers. Qui was in charge of the interior. With

Shanghai’s trendy clubs in mind, Qui states, “I looked at where

people lived, where they hung out, and then I tried to create that

same feeling inside the car.” The result feels more like a beautifully

designed living room than the stoic interiors common to other

Buicks. Soft, buttery-colored ambient light glows from the instru-

ment panel as well as from hidden lights in the rear. The front and

back seats are well padded and feature power massage.

PATAC’s LaCrosse sold more than 110,000 units in China

during its second year of production. That’s more cars than all

the Buicks sold in the United States during that same year. The

LaCrosse was instrumental in pushing Buick’s 2011 total Chinese

sales to 645,000 units. “Our LaCrosse pushed the expectations,”

says Raymond Bierzynski, president of PATAC. “Our Buick is

what the brand wants to be everywhere in the world.” The move

to incorporate PATAC’s designs into a vehicle that would sell in all

of Buick’s markets signals that GM is recognizing that the world is

bigger than North America. PATAC is taking the lead on creative

strategy. “We aren’t the little voice at the end of the phone any-

more,” Bierzynski says. “China commands 8 million units a year.

We’re GM’s [biggest] market. We are the experts.”

The big question is this: How will Chinese-influenced designs

be received in the United States and other markets? While the

LaCrosse is never expected to be as successful here as it is in

China, 2011 was Buick’s best year in the United States in more

than a decade. Total sales of over 177,000 cars may be a far cry

from its U.S. peak, but it’s a whopping 73.5 percent increase over

what Buick sold just two years prior.

Perhaps more important are changes in consumer perceptions

of the brand that indicate potential for future growth. Last year,

public opinion of Buick improved by 125 percent while purchase

consideration went up 65 percent. That’s not all because of the

LaCrosse, mind you. But it is worth noting that automotive jour-

nalists gave PATAC’s redesign rave reviews. In fact, the LaCrosse

was one of Car and Driver magazine’s three finalists for “Car of the

Year.” The magazine proclaimed it, “Easily the best Buick sedan in

a long time.” The outcome of PATAC’s LaCrosse has earned the

design studio other projects that will sell in multiple world markets.

Buick will be introducing 12 new models to China in the near

future as GM has its sights set on big targets. Its goal is to double

its Chinese sales by 2015, putting its tally at nearly 5 million ve-

hicles, with Buick accounting for more than 1 million of that. Ford

barely broke the 500,000 mark in China for the first time in 2011,

and Chrysler isn’t even on the radar. But some financial analysts

aren’t so optimistic, estimating that GM will grow to only 3.3 million

units in China by 2015 and will actually lose market share in the

rapidly growing Chinese market. Whatever the outcome, it’s clear

that Buick is a global brand with momentum in the right place.

Questions for Discussion 1. Does Buick have a truly global strategy, or just a series of re-

gional strategies? Explain.

2. Do GM’s global manufacturing facilities, such as Shanghai GM, solidify a global strategy? Why or why not?

3. Discuss Buick’s global strategy in terms of the five global prod- uct and communications strategies.

4. Can competitors easily replicate Buick’s strategy in China? Why or why not?

5. Based on Buick’s goals as discussed in the case, what do you predict for Buick in the coming years in China? In the United

States?

600 Part 4 | Extending Marketing Sources: Jessica Caldwell, “Drive by the Numbers—Buick Excel- ling in China,” Edmunds, May 8, 2012, www.edmunds.com/industry-

center/analysis/drive-by-numbers-buick-excelling-in-china.html; Steve

Shannon, “Buick Is Popular in China?,” http://fastlane.gmblogs.com/

archives/2006/12/buick_is_popula_1.html; Jeremy Cato, “Buick Mak-

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www.theglobeandmail.com/globe-drive/new-cars/auto-news/buick-

making-a-comeback-in-north-america/article4423994/; Fara Warner,

“Made in China,” Fast Company, December 2007, www.fastcompany

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tative, “Joint Statement from 2012 NAFTA Commission Meeting,” April

2012, www.ustr.gov/about-us/press-office/press-releases/2012/

april/joint-statement-2012-nafta-commission-meeting.

14. See www.comunidadandina.org/ingles/sudamerican.htm, accessed August 2012.

15. Example based on information found in Bruce Einhorn, “Alan Mulally’s Asian Sales Call,” Bloomberg BusinessWeek, April 12, 2010, pp. 41–43;

“Ford, Volkswagen Eye Up North India to Set Up New Facilities,” Busi-

nessline, December 8, 2010, p. 1; and “Ford to Tag New Figo 2012

Less by INR 16,000,” Crazy About Cars, March 9, 2012, www.carzy

.co.in/blog/car-news/ford-tag-figo-2012-inr-16000.html/.

16. See “2012 Investment Climate Statement—Venezuela,” U.S. Bureau of Economic and Business Affairs, June 2012, www.state

.gov/e/eb/rls/othr/ics/2012/191262.htm; and “Welcome to the U.S.

Commercial Service Venezuela,” http://export.gov/venezuela/, ac-

cessed October 2012.

17. See “$9 Billion Barter Deal,” BarterNews.com, April 19, 2008, www .barternews.com/9_billion_dollar_barter_deal.htm; David Pilling, “Africa

Builds as Beijing Scrambles to Invest,” Financial Times, December 10,

2009, p. 11; and International Reciprocal Trade Association, www.irta

.com/modern-trade-a-barter.html, accessed November 2012.

18. For these and other examples, see Emma Hall, “Do You Know Your Rites? BBDO Does,” Advertising Age, May 21, 2007, p. 22.

19. Jamie Bryan, “The Mintz Dynasty,” Fast Company, April 2006, pp. 56–61; Viji Sundaram, “Offensive Durga Display Dropped,”

India-West, February 2006, p. A1; and Emily Bryson York and Ru-

pal Parekh, “Burger King’s MO: Offend, Earn Media, Apologize,

Repeat,” Advertising Age, July 8, 2009, accessed at http://adage.

com/print?article_id=137801.

20. For these and other examples, see “Managing Quality Across the (Global) Organization, Its Stakeholders, Suppliers, and Custom-

ers,” Chartered Quality Institute, www.thecqi.org/Knowledge-Hub/

Knowledge-portal/Corporate-strategy/Managing-quality-globally,

accessed October 2012.

21. Quotes and other information found in David Pierson, “Beijing Loves IKEA—but Not for Shopping,” Los Angeles Times, August 25, 2009,

http://articles.latimes.com/2009/aug/25/business/fi-china-ikea25;

Michael Wei, “In IKEA’s China Stores, Loitering Is Encouraged,”

Bloomberg Businessweek, November 1, 2010, pp. 22–23; and

Jens Hansegard, “Ikea Taking China by Storm,” Wall Street Journal,

March 2012, http://online.wsj.com/article/SB10001424052702304

636404577293083481821536.html.

22. Andres Martinez, “The Next American Century,” Time, March 22, 2010, p. 1.

23. Thomas L. Friedman, The Lexus and the Olive Tree: Understanding Globalization (New York: Anchor Books, 2000); and Michael Wei and

Margaret Conley, “Global Brands: Some Chinese Kids’ First Word:

Mickey,” Bloomberg Businessweek, June 19, 2011, pp. 24–25.

24. “BrandZ Top Global Brands 2012,” Millward Brown Optimor, www .millwardbrown.com/BrandZ/Top_100_Global_Brands.aspx, accessed

August 2012.

25. See Kim-Mai Cutler, “Apple’s Chinese iPhone Sales ‘Mind-Boggling,’ Bring China Revenues to $7.9 Billion,” Tech Crunch, April 24, 2012,

http://techcrunch.com/2012/04/24/apples-iphone-sales-in-china-

are-up-by-fivefold-from-a-year-ago/; and Nick Wingfield, “Apple

Profit Rises on Higher iPhone and iPad Sales,” New York Times,

April 24, 2012, p. B1.

26. Duane Stanford, “Can Coke Surpass Its Record High of $88 a Share?” Bloomberg Businessweek, June 2, 2011, p. 1; William J.

Holstein, “How Coca-Cola Manages 90 Emerging Markets,”

Chapter 19 | The Global Marketplace 601 Strategy+Business, November 7, 2011, www.strategy-business.com/

article/00093?gko=f3ca6; and Monica Mark, “Coca-Cola and Nestlé

Target New Markets in Africa,” The Guardian, May 4, 2012, www

.guardian.co.uk/world/2012/may/04/coca-cola-nestle-markets-africa.

27. Barney Jopson and Andrew England, “Walmart to Apply ‘Sweat and Muscle’ to Africa,” Financial Times, June 5, 2011, p. 18; Emma Hall,

“Marketers, Agencies Eye Booming Africa for Expansion,” Advertis-

ing Age, June 13, 2011, p. 28; and Addis Ababa, “Walmart Focused

on Existing Africa Markets,” Reuters, May 10, 2012, www.reuters

.com/article/idUSBRE8490L120120510.

28. See http://en.wikipedia.org/wiki/Doubletree, accessed October 2012.

29. Example based on information from “Campbell Soup Company and Swire Pacific Form Joint Venture in China,” BusinessWire, January 12,

2011, www.businesswire.com/news/home/20110112005834/en/

Campbell-Soup-Company-Swire-Pacific-Form-Joint.

30. “Ford India Lays Foundation Store for Sanand Plant,” March 22, 2012, www.drivingford.in/tag/ford-india-plant/; and Alan Ohnsman,

“Major Auto Production at Toyota, Honda Boosts U.S. Economy,”

July 17, 2012, www.autonews.com.

31. Marc de Swaan Arons, “There Is Absolutely a Need for One Single Global Vision,” Marketing News, September 30, 2011, p. 30.

32. Quotes from Andrew McMains, “To Compete Globally, Brands Must Adapt,” Adweek, September 25, 2008, www.adweek.com; Pankaj

Ghemawat, “Regional Strategies for Global Leadership,” Harvard

Business Review, December 2005, pp. 97–108; Eric Pfanner, “The

Myth of the Global Brand,” New York Times, January 11, 2009, www

.nytimes.com; and Marc de Swaan Arons, “There Is Absolutely a

Need for One Single Global Vision,” Marketing News, September 30,

2011, p. 30. Also see Pankej Ghemawat, “Finding Your Strategy in the

New Landscape,” Harvard Business Review, March 2010, pp. 54–60.

33. Based on information from Lucy Fancourt, Bredesen Lewis, and Nicholas Majka, “Born in the USA, Made in France: How

McDonald’s Succeeds in the Land of Michelin Stars,” Knowledge@

Wharton, January 3, 2012, http://knowledge.wharton.upenn.edu/

article.cfm?articleid=2906.

34. See Warren J. Keegan and Mark C. Green, Global Marketing, 6th ed. (Upper Saddle River, NJ: Prentice Hall, 2011), pp. 314–321.

35. For these and other examples, see Bruce Einhorn, “There’s More to Oreo Than Black and White,” Bloomberg Businessweek, May 3,

2012, www.businessweek.com/articles/2012-05-03/theres-more-

to-oreo-than-black-and-white.

36. James R. Healey, “Fiat 500: Little Car Shoulders Huge Responsibil- ity in U.S.; Retro Cutie Had to Be Redone from Inside Out for Sale

Here,” USA Today, June 1, 2011, p. B1; and “New 2012 Fiat 500

Named ‘Best Car’ in Travel + Leisure Annual Design Awards Issue,”

PRNewswire, February 15, 2012.

37. See “Easier Said Than Done,” The Economist, April 15, 2010, www. economist.com/node/15879299; and Normandy Madden, “In

China, Multinationals Forgo Adaptation for New-Brand Creation,”

Advertising Age, January 17, 2011, p. 10.

38. “Nokia Still Dominant in Africa in Market Share,” Celebrating Progress Africa, June 12, 2011, www.cp-africa.com/2011/06/12/nokia-still-

dominant-in-africa-in-market-share-ad-impressions; and “Nokia Still

a Hot Brand among Indian Consumers: Survey,” The Press Trust of

India, July 10, 2011.

39. Emma Hall, “Marketers, Agencies Eye Booming Africa for Expan- sion,” Advertising Age, June 13, 2011, p. 28; and Liz Gooch, “The

Biggest Thing Since China: Global Companies Awake to the Muslim

Consumer, and Marketers Follow Suit,” International Herald Tribune,

August 12, 2010, p. 1.

40. See George E. Belch and Michael A. Belch, Advertising and Promo- tion: An Integrated Marketing Communications Perspective, 7th ed.

(New York: McGraw Hill, 2007), Chapter 20; Shintero Okazaki and

Charles R. Taylor, “What Is SMS Advertising and Why Do Multination-

als Adopt It?” Journal of Business Research, January 2008, pp. 4–12;

and Warren J. Keegan and Mark C. Green, Global Marketing, 6th ed.

(Upper Saddle River, NJ: Prentice Hall, 2011), pp. 413–415.

41. For these and other examples, see Normandy Madden, “In China, Multinationals Forgo Adaptation for New-Brand Creation,” Adver-

tising Age, January 17, 2011, p. 10; Cristina Drafta, “Levi Strauss

Targets Asia with Denizen,” EverythingPR, May 16, 2011, www

.pamil-visions.net/denizen/228239/; and www.levistrauss.com/

brands/denizen/, accessed October 2012.

42. Adapted from Jack Ewing, “First Mover in Mobile: How It’s Selling Cell Phones to the Developing World,” BusinessWeek, May 14,

2007, p. 60; with information from “Nokia’s Market Share Trou-

bles to Hit Profits,” Reuters, January 19, 2011, www.reuters.com/

article/2011/01/19/us-nokia-idUSTRE70I25P20110119.

43. See “Coca-Cola Rolls Out New Distribution Model with ZAP,” ZAP, January 23, 2008, www.zapworld.com/zap-coca-cola-truck; Jane

Nelson, Eriko Ishikawa, and Alexis Geaneotes, “Developing Inclu-

sive Business Models: A Review of Coca-Cola’s Manual Distribu-

tion Centers in Ethiopia and Tanzania,” Harvard Kennedy School,

2009, www.hks.harvard.edu/ m-rcbg/CSRI/publications/other_10_

MDC_report.pdf; and “How Coca-Cola’s Distribution System

Works,” Colalife, December 19, 2010, www.colalife.org/2010/

12/19/how-coca-colas-distribution-system-works/. For some

interesting photos of Coca-Cola distribution methods in third-world

and emerging markets, see www.flickr.com/photos/73509998@N00/

sets/72157594299144032/, accessed November 2012.

44. Adapted from information found in Bart Becht, “Building a Com- pany Without Borders,” Harvard Business Review, April 2010,

pp. 103–106; “From Cincy to Singapore: Why P&G, Others Are

Moving Key HQs,” Advertising Age, June 10, 2012, http://adage.

com/print/235288; and www.rb.com/Investors-media/Investor-

information, accessed November 2012.

Sustainable Living Plan—an aggressive long-term plan that takes

capitalism to the next level. Under the plan, the company has set

out to “create a better future every day for people around the

world: the people who work for us, those we do business with,

the billions of people who use our products, and future genera-

tions whose quality of life depends on the way we protect the

environment today.” According to Polman, Unilever’s long-run

commercial success depends on how well it manages the social and environmental impact of its actions.

The Sustainable Living Plan sets out three major social and

environmental objectives to be accomplished by 2020: “(1) To

help more than one billion people take action to improve their

health and well-being; (2) to halve the environmental footprint

of the making and use of our products; and (3) to source 100 per-

cent of our agricultural raw materials sustainably.”

Part 1: Defining Marketing and the Marketing Process (Chapters 1–2)

Part 2: Understanding the Marketplace and Consumers (Chapters 3–6)

Part 3: Designing a Customer-Driven Strategy and Mix (Chapters 7–17)

Part 4: Extending Marketing (Chapters 18–20)

Sustainable Marketing20

Chapter Preview In this final chapter, we’ll ex-

amine the concepts of sus-

tainable marketing, meeting the needs of consumers, businesses,

and society—now and in the future—through socially and envi-

ronmentally responsible marketing actions. We’ll start by defining

sustainable marketing and then look at some common criticisms

of marketing as it impacts individual consumers, as well as public

actions that promote sustainable marketing. Finally, we’ll see how

companies themselves can benefit from proactively pursuing sus-

tainable marketing practices that bring value to not only individual

customers but also society as a whole. Sustainable marketing

actions are more than just the right thing to do; they’re also good

for business.

First, let’s look at an example of sustainable marketing in

action at Unilever, the world’s third-largest consumer products

company. For 13 years running, Unilever has been named sus-

tainability leader in the food and beverage industry by the Dow

Jones Sustainability Indexes. The company recently launched its

Sustainable Living Plan, by which it intends to double its size by

2020 while at the same time reducing its impact on the planet and

increasing the social benefits arising from its activities. That’s an

ambitious goal.

Sustainability at Unilever: Creating a Better Future Every Day

W hen Paul Polman took over as CEO of Unilever

in 2009, the foods, home and personal care prod-

ucts company was a slumbering giant. Despite

its stable of star-studded brands—including the

likes of Dove, Axe, Noxema, Sunsilk, OMO, Hellmann’s, Knorr,

Lipton, and Ben & Jerry’s—Unilever had experienced a decade

of stagnant sales and profits. The company needed renewed en-

ergy and purpose. “To drag the world back to sanity, we need to

know why we are here,” said Polman.

To answer the “why are we here” question and find a more en-

ergizing mission, Polman looked beyond the usual corporate goals

of growing sales, profits, and shareholder value. Instead, he asserted,

growth results from accomplishing a broader social and environ-

mental mission. Unilever exists “for consumers, not shareholders,”

he said. “If we are in sync with consumer needs and the environ-

ment in which we operate, and take responsibility for our [societal

impact], then the shareholder will also be rewarded.”

Evaluating and working on societal and

environmental impact is nothing new at

Unilever. Prior to Polman taking the

reins, the company already had mul-

tiple programs in place to manage the

impact of its products and operations.

But the existing programs and results—

while good— simply didn’t go far enough

for Polman. So in late 2010 Unilever launched its

Under Unilever’s Sustainable Living

Plan, the consumer goods giant has set out to “create a better future every day for people around

the world.” Unilever’s long-run commercial success depends on how well it manages the social and environmental

impact of its actions.

Social Responsibility

and Ethics

6.5 percent, a modest fi gure, but

one that exceeded market growth

rates where the company does

business. Perhaps more important,

at the same time that it improves

is progressing toward its aggres

The company is right on target

the other seven.

in new products and new consumer benefi ts. And it creates new

Chapter 20 | Sustainable Marketing: Social Responsibility and Ethics 603

Under its Sustainable

Living Plan, Unilever has

identifi ed “Five Levers

for Change”—things it

can do to inspire its more

than 2 billion consumers

around the world to adopt

sustainable behaviors.

Reproduced with kind permission of

Unilever PLC and group companies

everyday actions

604 Part 4 | Extending Marketing

Objective Outline

Objective 1 Defi ne sustainable marketing and discuss its importance.

Sustainable Marketing (pp 604–606)

Objective 2 Identify the major social criticisms of marketing.

Social Criticisms of Marketing (pp 606–613)

Objective 3 Defi ne consumerism and environmentalism and explain how they affect marketing strategies.

Consumer Actions to Promote Sustainable Marketing (pp 613–618)

Objective 4 Describe the principles of sustainable marketing.

Business Actions Toward Sustainable Marketing (pp 618–623)

Objective 5 Explain the role of ethics in marketing.

Marketing Ethics (pp 623–625)

The Sustainable Company (p 625)

Responsible marketers discover what consumers want and respond with

ing concept

ing and why is it important?

Sustainable Marketing Sustainable marketing

Figure 20.1 2

The marketing concept

Objective 1 Defi ne sustainable marketing

and discuss its importance.

Sustainable marketing

Socially and environmentally responsible

marketing that meets the present needs

of consumers and businesses while also

preserving or enhancing the ability of

future generations to meet their needs.

Chapter 20 | Sustainable Marketing: Social Responsibility and Ethics 605

Whereas the societal marketing concept strategic planning concept

sustainable marketing concept

tomers and the company.

waste management.

Sustainable marketing means meeting current needs in a way that preserves the rights and options of future generations of consumers and businesses.

The marketing concept means meeting the current needs of both customers and the company. But that can sometimes mean compromising the future of both.

FIGURE | 20.1

Sustainable Marketing

Sustainable marketing: McDonald’s “Plan to Win”

strategy has both created sustainable value for customers

and positioned the company for a profi table future.

Alexandre Gelebart/REA/Redux

606 Part 4 | Extending Marketing

Social Criticisms of Marketing

and other business fi rms.

Marketing’s Impact on Individual Consumers

High Prices Many critics charge that the American marketing system causes prices to be higher than

high costs of distribution, high advertising and promotion costs, and excessive markups.

High Costs of Distribution.

other discounters pressure their competitors to oper

High Advertising and Promotion Costs. Mod

promotion and packaging costs that can amount to

a brand. Brand name products may cost more, but

Objective 2 Identify the major social

criticisms of marketing.

A heavily promoted national brand sells for much more than a virtually

promotion adds only psychological value to the product rather than

functional value.

Photo courtesy of Gary Armstrong

Chapter 20 | Sustainable Marketing: Social Responsibility and Ethics 607

prices, they want

At the same time, companies are cost conscious about promotion and try to spend their

Excessive Markups.

Deceptive Practices

pricing,

promotion, and packaging. Deceptive pricing

Deceptive promotion Deceptive

Deceptive practices: Critics argue that

deceptive claims are still common, even for

brand recently faced allegations of deceptive

and unsubstantiated—even “outlandish”—

health claims for its products.

Photo courtesy of Gary Armstrong

packaging

5 And sev

products.6

608 Part 4 | Extending Marketing

The ads suggested that your credit card can make it happen. But critics charge that

caused many consumers to over

Marketers argue that most companies avoid deceptive practices. Because such prac

used cars are sold, not bought

can resist.

Shoddy, Harmful, or Unsafe Products

Chapter 20 | Sustainable Marketing: Social Responsibility and Ethics 609

want

Planned Obsolescence planned

obsolescence

with perceived obsolescence

buying.

Marketers respond that consumers like want

expectations.

Poor Service to Disadvantaged Consumers

redlining

Harmful products: Is the soft drink industry being irresponsible

by promoting overindulgence, or is it simply serving the wants of

customers by offering products that ping consumer taste buds

while letting consumers make their own consumption choices?

Department of Health Western Australia

610 Part 4 | Extending Marketing

As a

food deserts

agreed to open or expand more stores that bring nutri 11

tomers too much.

Marketing’s Impact on Society as a Whole

False Wants and Too Much Materialism

own rather than by who they are. The critics

overconsumption. Says one critic: “For most

12 For

The Story of Stuff

income areas, many disadvantaged consumers fi nd themselves in “food

deserts,” with little or no access to healthy, affordable fresh foods.

Materialism: Consumer activist

Annie Leonard’s “The Story of

Stuff” video about the social and

environmental consequences of

America’s love affair with stuff has

been viewed more than 1.2 million

times online and in thousands of

schools and community centers

around the world.

Handout/MCT/Newscom

Chapter 20 | Sustainable Marketing: Social Responsibility and Ethics 611

as the economy.

Too Few Social Goods

A second option is to make consumers pay the

To reduce rush hour

cisco,

hours

Cultural Pollution cultural pollution

communication

Bay Bridge between Oakland and San Francisco reduced traffi c fl ow and

cut the average wait time in half.

612 Part 4 | Extending Marketing

Marketing’s Impact on Other Businesses

For instance,

Walmart prescription pricing: Is it predatory pricing or is it just good

business?

Associated Press

Chapter 20 | Sustainable Marketing: Social Responsibility and Ethics 613

Consumer Actions to Promote Sustainable Marketing

movements have been consumerism and environmentalism.

Consumerism Consumerism

sellers’ rights

content or execution

buyers’ rights

Objective 3 Defi ne consumerism and

environmentalism and explain

how they affect marketing

strategies.

Consumer desire for more information led to packing labels with useful

facts, from ingredients and nutrition facts to recycling and country of origin

information.

Ryan McVay

Consumerism

An organized movement of citizens

and government agencies designed to

improve the rights and power of buyers in

relation to sellers.

products and marketing practices

tions by the government.

614 Part 4 | Extending Marketing

right responsibility

Environmentalism

Environmentalism is

However, the

environmental

sustainability

Figure 20.2 shows a grid that companies can use to gauge their progress toward

greening activities beyond greening

Environmentalism

An organized movement of concerned

citizens, businesses, and government

agencies designed to protect and

improve people’s current and future living

environment.

Environmental sustainability

A management approach that involves

developing strategies that both sustain

the environment and produce profits for

the company.

Tomorrow: Beyond Greening

Today: Greening How does “environmental sustainability”

relate to “marketing sustainability”? Environmental sustainability involves preserving the natural environment, whereas marketing sustainability is a broader concept that involves both the natural and social environments—pretty much everything in this chapter.

FIGURE | 20.2

The Environmental

Sustainability Portfolio Source: Stuart L. Hart, “Innovation,

Creative Destruction, and Sustainability,”

Research Technology Management,

September–October 2005, pp. 21–27.

Chapter 20 | Sustainable Marketing: Social Responsibility and Ethics 615

around an environmental sustainability theme: “Food With Integrity.”

Envision this. You’re sitting in a restaurant

where the people—from the CEO on down

to the kitchen crew—obsess over using only

the finest ingredients. They come to work each

morning inspired by all the “fresh produce and

meats they have to marinate, rice they have to

cook, and fresh herbs they have to chop,” says

the CEO. The restaurant prefers to use sustain

able, naturally raised ingredients sourced from

local family farms. This restaurant is on a mis

sion not just to serve its customers good food

but to change the way its entire industry pro

falutin’, gourmet specialty restaurants, right?

Wrong. It’s your neighborhood Chipotle Mexi

izing much of their food preparation to cut costs

and keep prices low, Chipotle is doing just the

opposite. The chain’s core sustainable mission

is to serve “Food With Integrity.” What does that

mean? The company explains it this way:

Chipotle is committed to finding the very best

ingredients raised with respect for animals,

the environment, and farmers. It means serv

ing the very best sustainably raised food pos

sible with an eye to great taste, great nutrition,

and great value. It means that we support and

sustain family farmers who respect the land

and the animals in their care. It means that

whenever possible we use meat from animals

raised without the use of antibiotics or added

hormones. And it means that we source or

ganic and local produce when practical, and

that we use dairy from cows raised without

the use of synthetic hormones. In other words,

“integrity” is kind of a funny word for “good.”

When founder and CEO Steve Ells

opened the first Chipotle in Denver in 1993,

his primary goal was to make the best gour

met burrito around. However, as the chain

grew, Ells found that he didn’t like the way

the ingredients Chipotle used were raised

and processed. So in 2000, Chipotle began

developing a supply chain with the goal of

producing and using naturally raised, organic,

modified in

food processing, factory farms were booming,

whereas independent farms producing natu

rally raised and organic foods were in decline.

To obtain the ingredients it needed, Chipo

tle had to develop many new sources. To help

that cause, the company founded the Chipotle

Cultivate Foundation, which supports family

farming and encourages sustainable farming

methods. Such efforts have paid off. For ex

ample, when Chipotle first started serving natu

rally raised pork in 2000, there were only 60 to

70 farms producing meat for the Niman Ranch

pork cooperative, an important Chipotle sup

plier. Now, there are 600 to 700.

Sourcing such natural and organic ingre

dients not only serves Chipotle’s sustainability

mission, it results in one of the most nutritious,

something the company can brag about to

game of trying to obscure the truth,” says Chi

potle’s chief marketing officer. “The more peo

the less likely they’d want to be a customer.”

But Chipotle doesn’t play that game. Instead,

customers what’s really inside its burritos.

Chipotle chose the “Food With Integrity”

slogan because it sends the right message in

an appetizing way. “Saying that we don’t buy

dairy from cows that are given the hormone

rBGH is not an appetizing message,” says

Ells. So the company is building its marketing

campaign around the more positive message

that food production should be healthier and

more ethical. Chipotle communicates this po

sitioning via an integrated mix of traditional and

digital promotion venues, ranging from its Farm

customers earn rewards based not on frequent

buying but on knowledge about food and how

it is produced—to its Pasture Pandemonium

smartphone app, where players try to get their

pig across a pasture without getting trapped in

pens or pricked by antibiotic needles.

Last year, Chipotle made a big splash dur

ing the broadcast for the Grammy Awards with

ing a family hog farm converting to an efficient,

industrialized farm. Then, when the farmer real

izes that it’s not the right thing to do, he tears

down his factory farm and reverts to raising hogs

sustainably in open pastures. Willie Nelson pro

vides the soundtrack with a cover of Coldplay’s

“The Scientist,” giving the ad its name, “Back

to the Start.” Before it ever aired as a TV ad,

the video played in 10,000 movie theaters and

online, where it became a viral hit on YouTube.

Viewers were urged to download the Willie Nel

son tune via iTunes, with the proceeds going to

the Chipotle Cultivate Foundation.

Companies with a socially responsible busi

ness model often struggle to grow and make

profits. But Chipotle is proving that a company

can do both. Last year, its 30,000 employees

chopped, sliced, diced, and grilled their way to

$2.3 billion in revenues and $215 million in prof

its at Chipotle’s 1,230 restaurants in 41 states.

And the chain is growing fast, opening a new

restaurant almost every two days. In the past

20.1Real Marketing Chipotle’s Environmental Sustainability Mission: Food With Integrity

616 Part 4 | Extending Marketing

three years, Chipotle’s stock price has tripled,

suggesting that the company’s investors are as

Founder and CEO Ells wants Chipotle to

grow and make money. But ultimately, on a

larger stage, he wants to change the way fast

food is produced and sold—not just by Chipotle

but by the entire industry. “We think the more

people understand where their food comes

from and the impact that has on independent

family farmers [and] animal welfare, the more

they’re going to ask for better ingredients,” says

Ells. Whether customers stop by Chipotle’s

restaurants to support the cause, gobble down

the tasty food, or both, it all suits Ells just fine.

created just to position the company as “socially

responsible.” Doing good “is the company’s

ethos and ingrained in everything we do,” says

Chipotle’s director of communications. “Chipo

tle is a very different kind of company where the

deeper you dig into what’s happening, the more

there is to like and feel good about.”

Sources: Based on information and quotes from Danielle Sacks, “Chipotle: For Exploding All the Rules of Fast Food,”

Fast Company, March 2012, pp. 125–126; John Trybus, “Chipotle’s Chris Arnold and the Food With Integrity Approach

to Corporate Social Responsibility,” The Social Strategist, March 22, 2012, https://blogs.commons.georgetown.edu/

Chicago Tribune,

September 30, 2011; Elizabeth Olson, “An Animated Ad with a Plot Line and a Moral,” New York Times, February 10, 2012,

practice pollution prevention

waste before

product stewardship

reducing costs. Many companies are adopting design for environment (DFE) and

the company.

Pollution prevention: The total amount of

industrial waste that Honda of America sends

to landfi lls has dwindled from 62.8 pounds

per vehicle produced in 2001 to an estimated

1.8 pounds per vehicle now. Incredibly, most of

its North American plants send no waste at all

to landfi lls.

Chapter 20 | Sustainable Marketing: Social Responsibility and Ethics 617

greening tect the environment. The beyond greening

new clean technology. Many organiza

sustainability vision, which serves as a guide to the

ing companies practice product stewardship and are

For Walmart, sustainability is about more than just doing the right thing.

Above all, it’s makes good business sense—“driving out hidden costs,

conserving our natural resources for future generations, and providing

sustainable and affordable products for our customers so they can save

money and live better.”

AP Images/PRNewsFoto/Walmart; Bebay/iStockphoto

618 Part 4 | Extending Marketing

Public Actions to Regulate Marketing

that .

Figure 20.3

management.

Business Actions Toward Sustainable Marketing

Sustainable Marketing Principles

, , innovative mar keting, , and societal marketing.

value

Objective 4 Describe the principles of

sustainable marketing.

A principle of sustainable marketing

that holds a company should view and

organize its marketing activities from the

consumer’s point of view.

A principle of sustainable marketing

holding that a company should put most

building marketing investments.

Chapter 20 | Sustainable Marketing: Social Responsibility and Ethics 619

for con from consumers in return.

Innovative Marketing innovative marketing

better way.

is Samsung:

broad social terms rather than narrow product

brand and consumers.

FIGURE | 20.3

Major Marketing Decision

Areas That May Be Called into

Question under the Law (photo) wavebreakmedia ltd/Shutterstock

.com

Innovative marketing

A principle of sustainable marketing that

requires a company to seek real product

and marketing improvements.

A principle of sustainable marketing

holding that a company should define its

mission in broad social terms rather than

narrow product terms.

620 Part 4 | Extending Marketing

However, having a double bottom line

do good, they must fi rst do well

Societal Marketing societal marketing, a company makes marketing decisions by

For the PEDIGREE Brand, “Everything we do is because we

love dogs. It’s just so simple.” The PEDIGREE Brand’s “We’re for

food brand.

Courtesy of Mars, Incorporated. PEDIGREE® is a registered trademark of Mars. Incorporated.

Societal marketing

A principle of sustainable marketing

holding that a company should make

marketing decisions by considering

consumers’ wants, the company’s

Chapter 20 | Sustainable Marketing: Social Responsibility and Ethics 621

Method’s mission is to inspire a happy, healthy home

Adam Lowry, “business is the most powerful agent for positive

change on the planet.”

Christopher Schall/Impact Photo

Chances are, when you hear the term socially

responsible business, a handful of compa

nies leap to mind, such as Ben & Jerry’s, The

Body Shop, Burt’s Bees, Stonyfield Farms,

Patagonia, Timberland, and TOMS Shoes,

to name a few. Such companies pioneered

make the world a better place.

The classic “do good” pioneer is Ben &

Jerry’s. Ben Cohen and Jerry Greenfield

founded the company in 1978 as a firm that

cared deeply about its social and environmen

tal responsibilities. Ben & Jerry’s bought only

organic fruits and nuts to make its ice cream,

which it sold in environmentally friendly con

tainers. It went to great lengths to buy from

minority and disadvantaged suppliers. From

its early Rainforest Crunch to Imagine Whirled

Peace to Chocolate Macadamia (made with

Jerry’s has championed a host of social and

environmental causes over the years. From

the start, Ben & Jerry’s donated a whopping

7.5 percent of pretax profits to support proj

ects in line with its social mission to “meet hu

man needs and eliminate injustices [relating to]

children and families, the environment and…

those who have been denied [economic op

premium ice cream brand.

However, as competitors not shackled by

Ben & Jerry’s “principles before profits” mis

sion invaded its markets, growth and profits

flattened. After several years of lackluster fi

nancial returns, Ben & Jerry’s was acquired

pened to the founders’ lofty ideals of caring

capitalism? Looking back, Ben & Jerry’s may

have focused too much on social issues at the

expense of sound business management. Ben

Cohen never really wanted to be a business

person, and he saw profits as a dirty word.

Cohen once commented, “There came a point

[when I had to admit] ‘I’m a businessman.’ And

I had a hard time mouthing those words.”

Having a “triple bottom line” of people,

planet, and profits is no easy proposition. Op

erating a business is tough enough. Adding

social goals to the demands of serving cus

tomers and making a profit can be daunting

and distracting. You can’t take good inten

tions to the bank. In fact, many of the pioneer

acquired by bigger companies. For example,

bought out Burt’s Bees, L’Oréal acquired The

Body Shop, Dannon ate up Stonyfield Farms,

and VFC acquired Timberland.

The experiences of pioneers like Ben &

Jerry’s, however, taught the socially re

sponsible business movement some hard

lessons. As a result, a new generation of

not social activists with big hearts who hate

ers and company builders with a passion

devotees know that to do good, they must

first do well in terms of viable and profitable

business operations.

For example, home and cleaning prod

ucts company Method is on a mission to “in

spire a happy, healthy

home revolution.” All of

Method’s products are

derived from natural in

gredients, such as soy,

coconut, and palm oils.

The products come in

environmentally respon

sible, biodegradable

packaging. But Method

knows that just do

ing good things won’t

make it successful. In

fact, it’s the other way

around—being suc

cessful will let it do good

things. “Business is the

most powerful agent for

positive change on the

planet,” says Method

greenskeeper” Adam

Lowry. “Mere sustainability is not our goal. We

want to go much farther than that. We want

to become restorative and enriching in every

thing we do so that the bigger we get, the more

good we can create. We are striving for sus

tainable abundance. That’s why we’ve geared

our company to be the best at getting better.”

Beyond its social responsibility mission,

keter. “We don’t run from the green, we just

don’t make that the lead story,” says Eric Ryan,

emphasizes product performance, innovation,

and style. Its products are “more powerful than

a bottle of sodium hypochlorite,” yet “gentler

than a thousand puppy licks.” According to

Ryan, “What’s worked really well for the brand

is people have come in because of the more

joyful, fun side [of our products] and then dis

cover that this is actually good for you.”

In only a few short years, through smart

business practices, Method has become

nies, with more than $100 million in annual

revenues. The young company has attained

retailers—including Kroger, Safeway, Target,

Whole Foods Market, Bed Bath & Beyond,

Staples, and Amazon.com—and a growing

list of international retailers. In the process, it’s

achieving its broader social goals.

Small companies with big social goals

are one thing. However, today, socially re

sponsible missions are no longer the exclu

20.2Real Marketing Socially Responsible Marketing: Making the World a Better Place

622 Part 4 | Extending Marketing

Social responsibility has gone mainstream,

with large corporations—from Walmart and

Nike to Starbucks and Mars—adopting

For example, Walmart is fast becoming the

bucks created C.A.F.E. practices, guidelines

for achieving product quality, economic ac

countability, social responsibility, and envi

ronmental leadership.

Nike supports a broad social and envi

ronmental responsibility agenda, everything

facturing processes to improving conditions

for the nearly 800,000 workers in its global

supply chain to programs that engage the

world’s youth in the fight against AIDS in

Africa. Sounding more like Ben & Jerry’s or

Method than a large, uncaring corporation,

Nike states “We can use the power of our

brand, the energy and passion of our peo

ple, and the scale of our business to create

meaningful change.” Says one Nike manager,

“Our customers expect this from us. It’s not

about two or three green shoes—it’s about

changing the way our company does things

in general.”

responsibility in its core or a large corporation

looking to embed social responsibility in its mis

sion, it’s now clear that doing good and doing

pends on how well it manages the social and

environmental impact of its actions. But today’s

social entrepreneurs have learned that it goes

both ways: A company’s ability to have ben

depends on its commercial success as well.

Sources: Quotes and other information from Tilde Herrera, “Want to Sell a Green Product? Don’t Call It Green,”

GreenBiz

David Choi and Edmund Gray, (Taylor & Francis, 2010), p. 29;

New York Times, June 12, 2010, p. B3; and www

accessed September 2012.

Figure 20.4

Defi cient products

Pleasing products

Salutary products

Desirable products give

benefi ts, such as a tasty and

hurting the consumer. The product opportunity, there

Defi cient products

Products that have neither immediate

Pleasing products

Products that give high immediate

satisfaction but may hurt consumers in

the long run.

Desirable products: Nau’s urban outdoor apparel products are

environmentally, aesthetically, and socially sustainable. The company

donates 2 percent of every sale to Partners for Change organizations

chosen by customers.

Nau Holdings, LLC.

Chapter 20 | Sustainable Marketing: Social Responsibility and Ethics 623

Marketing Ethics

marketing conduct.

corporate marketing ethics policies

Table 20.1

any

go in good conscience.

But what

The goal? Create desirable products— those that create both immediate

benefit. For example, Philips Ambient LED light bulbs provide good lighting and at the same time give long life and energy savings.

FIGURE | 20.4

Societal Classification

of Products

Salutary products

Products that have low immediate appeal

but may benefit consumers in the long run.

Desirable products

Products that give both high immediate

Objective 5 Explain the role of ethics in

marketing.

624 Part 4 | Extending Marketing

way conversation with their customers create stronger,

against bribery and corruption have been signed and

Table 20.1 | Some Morally Diffi cult Situations in Marketing

1. Your R&D department has slightly changed one of your company’s products. It is not really “new and improved,” but you know that putting this statement on the package and in advertising will increase sales. What would you do?

3. You are thinking of hiring a product manager who has just left a competitor’s company. She would be more than happy to tell you all the competitor’s plans for the coming year. What would you do?

4. One of your top dealers in an important territory recently has had family troubles, and his sales have slipped. It looks like it will take him a while to straighten out his family troubles. Meanwhile, you are losing many sales. Legally, on performance grounds, you can

terminate the dealer’s franchise and replace him. What would you do?

5. You have a chance to win a big account that will mean a lot to you and your company. The purchasing agent hints that a “gift” would

6. You have heard that a competitor has a new product feature that will make a big difference in sales. The competitor will demonstrate the feature in a private dealer meeting at the annual trade show. You can easily send a snooper to this meeting to

learn about the new feature. What would you do?

(c) involves a noisy, somewhat irritating commercial that is sure to gain audience attention. Pretests show that the campaigns

are effective in the following order: c, b, and a. What would you do?

8. You are interviewing a capable female applicant for a job as salesperson. She is better qualified than the men who have been interviewed. Nevertheless, you know that in your industry some important customers prefer dealing with men, and you will lose

some sales if you hire her. What would you do?

forced Mattel to recall millions of toys worldwide, the company’s forthright

response helped it to maintain customer confi dence. Mattel even involved

its panel of 400 moms as “brand advisors” to help shape its response.

Redux Pictures

Chapter 20 | Sustainable Marketing: Social Responsibility and Ethics 625 paid out worldwide. One study showed that the most flagrant bribe-paying firms were

from Indonesia, Mexico, China, and Russia. Other countries where corruption is common

include Somalia, Myanmar, and Haiti. The least corrupt were companies from Belgium,

Switzerland, and the Netherlands.31 The question arises as to whether a company must

lower its ethical standards to compete effectively in countries with lower standards. The

answer is no. Companies should make a commitment to a common set of shared standards

worldwide.

Many industrial and professional associations have suggested codes of ethics, and

many companies are now adopting their own codes. For example, the American Marketing

Association, an international association of marketing managers and scholars, developed a

code of ethics that calls on marketers to adopt the following ethical norms:32

Do no harm. This means consciously avoiding harmful actions or omissions by embody- ing high ethical standards and adhering to all applicable laws and regulations in the

choices we make.

Foster trust in the marketing system. This means striving for good faith and fair dealing so as to contribute toward the efficacy of the exchange process as well as avoiding decep-

tion in product design, pricing, communication, and delivery of distribution.

Embrace ethical values. This means building relationships and enhancing consumer con- fidence in the integrity of marketing by affirming these core values: honesty, responsi-

bility, fairness, respect, transparency, and citizenship.

Companies are also developing programs to teach managers about important ethical

issues and help them find the proper responses. They hold ethics workshops and seminars

and create ethics committees. Furthermore, most major U.S. companies have appointed

high-level ethics officers to champion ethical issues and help resolve ethics problems and

concerns facing employees.

PricewaterhouseCoopers (PwC) is a good example. In 2002, PwC established a global

ethics office and comprehensive ethics program, headed by a high-level global ethics officer.

The ethics program begins with a code of conduct called “Doing the Right Thing—the PwC

Way.” PwC employees learn about the code of conduct and about how to handle thorny eth-

ics issues in comprehensive ethics training programs, which start when the employee joins

the company and continue throughout the employee’s career. The program also includes

ethics champions around the world and channels such programs as ethics helplines to enable people to raise concerns. “It is obviously not enough to distribute a document,” says PwC’s

former CEO, Samuel DiPiazza. “Ethics is in everything we say and do.”33

Still, written codes and ethics programs do not ensure ethical behavior. Ethics and

social responsibility require a total corporate commitment. They must be a component of

the overall corporate culture. PwC’s ethics policies are deeply embedded in everything

the company does and are every bit as important as other activities such as product de-

velopment or marketing research. According to DiPiazza, “We ask ourselves every day,

‘Are we doing the right things?’”34

The Sustainable Company At the foundation of marketing is the belief that companies that fulfill the needs and wants

of customers will thrive. Companies that fail to meet customer needs or that intentionally or

unintentionally harm customers, others in society, or future generations will decline.

Says one observer, “Sustainability is an emerging business megatrend, like electrifica-

tion and mass production, that will profoundly affect companies’ competitiveness and even

their survival.” Says another, “increasingly, companies and leaders will be assessed not

only on immediate results but also on . . . the ultimate effects their actions have on societal

wellbeing. This trend has been coming in small ways for years but now is surging. So pick

up your recycled cup of fair-trade coffee, and get ready.”35

Sustainable companies are those that create value for customers through socially, envi-

ronmentally, and ethically responsible actions. Sustainable marketing goes beyond caring

for the needs and wants of today’s customers. It means having concern for tomorrow’s

customers in assuring the survival and success of the business, shareholders, employees,

and the broader world in which they all live. It means pursuing the mission of a triple bot-

tom line: “people, planet, profits.”36 Sustainable marketing provides the context in which

companies can build profitable customer relationships by creating value for customers in order to capture value from customers in return—now and in the future.

626 Part 4 | Extending Marketing

Reviewing the Concepts

In this chapter, we addressed many of the important sustainable

marketing concepts related to marketing’s sweeping impact on

individual consumers, other businesses, and society as a whole.

Sustainable marketing requires socially, environmentally, and ethi

consumers and businesses but also future generations and soci

ety as a whole. Sustainable companies are those that act respon

sibly to create value for customers in order to capture value from

customers in return—now and in the future.

Defi ne sustainable marketing

and discuss its importance.

(pp 604–606)

Sustainable marketing calls for meeting the present needs of con

sumers and businesses while preserving or enhancing the ability

of future generations to meet their needs. Whereas the marketing

day needs of customers, sustainable marketing calls for socially

and environmentally responsible actions that meet both the im

mediate and future needs of customers and the company. Truly

system in which consumers, companies, public policy makers,

and others work together to ensure responsible marketing actions.

Identify the major social criticisms

of marketing. (pp 606–613)

Marketing’s has been criti

shoddy or unsafe products, planned obsolescence, and poor ser

vice to disadvantaged consumers. Marketing’s impact on society

has been criticized for creating false wants and too much material

ism, too few social goods, and cultural pollution. Critics have also

denounced marketing’s impact on other businesses for harming

competitors and reducing competition through acquisitions, prac

tices that create barriers to entry, and unfair competitive marketing

practices. Some of these concerns are justified; some are not.

Defi ne consumerism and

environmentalism and explain

how they affect marketing strategies. (pp 613–618)

Concerns about the marketing system have led to citizen action

movements. Consumerism is an organized social movement

intended to strengthen the rights and power of consumers

relative to sellers. Alert marketers view it as an opportunity to

serve consumers better by providing more consumer informa

tion, education, and protection. is an orga

nized social movement seeking to minimize the harm done to

the environment and quality of life by marketing practices. Most

companies are now accepting responsibility for doing no en

vironmental harm. They are adopting policies of

tal sustainability—developing strategies that both sustain the

environment and produce profits for the company. Both con

sumerism and environmentalism are important components of

sustainable marketing.

Describe the principles

of sustainable marketing.

(pp 618–623)

Many companies originally resisted these social movements

and laws, but most now recognize a need for positive con

tainable marketing concept, a company’s marketing should

system. It should be guided by five sustainable marketing

principles: ,

keting, , , and

societal marketing.

Explain the role of ethics in

marketing. (pp 623–625)

Increasingly, companies are responding to the need to provide

company policies and guidelines to help their managers deal

with questions of marketing ethics. Of course, even the best

guidelines cannot resolve all the difficult ethical decisions that

individuals and firms must make. But there are some principles

from which marketers can choose. One principle states that the

free market and the legal system should decide such issues.

A second and more enlightened principle puts responsibility not

on the system but in the hands of individual companies and

managers. Each firm and marketing manager must work out a

the sustainable marketing concept, managers must look be

yond what is legal and allowable and develop standards based

sumer welfare.

Reviewing Objectives and Key Terms

Objectives Review

Objective 1

Objective 2

Objective 3

Objective 4

Objective 5

Chapter 20 | Sustainable Marketing: Social Responsibility and Ethics 627

Key Terms

Objective 1 Sustainable marketing (p 604)

Objective 3 Consumerism (p 613)

Environmentalism (p 614)

Environmental sustainability (p 614)

Objective 4 Consumer-oriented marketing (p 618)

Customer-value marketing (p 618)

Innovative marketing (p 619)

Sense-of-mission marketing (p 619)

Societal marketing (p 620)

Deficient products (p 622)

Pleasing products (p 622)

Salutary products (p 622)

Desirable products (p 622)

Discussion and Critical Thinking

Discussion Questions

1. What is sustainable marketing? Explain how the sustainable marketing concept differs from the marketing concept and the

societal marketing concept. (AACSB: Communication)

2. Critics claim that advertising and promotion result in higher prices for consumers. Discuss the bases for this claim and

how marketers refute them. (AACSB: Communication)

3. What is consumerism? What rights do consumers have, and why do some critics feel buyers need more protection?

(AACSB: Communication)

4. What is environmental sustainability? How should compa- nies gauge their progress toward achieving it? (AACSB:

Communication)

5. Describe the two philosophies regarding what principle should guide companies and marketing managers on issues of ethics

and social responsibility. (AACSB: Communication)

Critical Thinking Exercises

1. Conduct an online search for “green awards” to learn about the various awards programs recognizing environmental conscious-

ness and sustainable practices. Select one that recognized a

business for a sustainable marketing practice and develop a

brief presentation explaining why the company received the

award. (AACSB: Communication; Use of IT; Reflective Thinking)

2. Many consumers want to recycle, but varying rules across lo- calities make it difficult for consumers to know if something is

recyclable. Voluntary “How2Recycle” labels are starting to ap-

pear on products to help consumers. Visit www.how2recycle

.info to learn about these voluntary labels and the types of

products that will be carrying them. Will these labels make it

easier for consumers to recycle? (AACSB: Communication;

Use of IT; Reflective Thinking)

Applications and Cases

Marketing Technology Compostable Packaging Corn-based packaging is hitting the shelves for everything from

bottles to bags. But one such endeavor had unintended conse-

quences. Frito-Lay came out with a 100 percent compostable bag

for its Sun Chip line of chips. The package, made from 100 per-

cent polylactic acid (PLA), a corn-based biopolymer that fully de-

composes within 14 weeks, had one drawback—it was terribly

noisy. A U.S. Air Force pilot posted a video on YouTube showing

the sound reaching 95 decibels when the bag was touched, lead-

ing him to claim it was “louder than the cockpit of my jet.” Others

likened the sound to “revving motorcycles” or “glass breaking.”

The package soon became the butt of jokes, even resulting in a

Facebook group called “Sorry But I Can’t Hear You Over This Sun

Chips Bag.” Frito-Lay relented and reintroduced a less-noisy bag.

1. Search the Internet for more examples of compostable packag- ing. Discuss three of them. (AACSB: Communication; Use of IT)

2. Is corn-based compostable packaging a sustainable solution to replace petroleum-based plastic packaging? Discuss the

pros and cons of this alternative. (AACSB: Communication;

Reflective Thinking)

628 Part 4 | Extending Marketing

Marketing Ethics Mobile Medical Apps With the explosion of mobile devices and apps, it’s not surpris-

ing that medical apps are taking off. There are apps to identify

pills, track pregnancy, check for melanoma skin cancer, and even

teach medical professionals how to read electrocardiograms.

Some apps are replacing devices used by health-care profes-

sionals in hospitals and doctors’ offices. There are more than

40,000 medical applications available, and the market is still in

its infancy. The market’s growth has caught the attention of the

Food and Drug Administration (FDA), the agency responsible for

regulating medical devices. So far, medical apps have been un-

regulated, but that is about to change. The FDA released guide-

lines requiring developers to apply for FDA approval, which could

take years. According to the Government Accountability Office, it

takes the FDA six months to approve a device that is similar to

an existing one and up to 20 months for new devices. According

to another report, approval costs $24 million to $75 million. Not

all apps would require FDA approval—only ones making medical

claims. Although many developers think regulation is necessary

to protect the public, most believe that the current process is too

slow and a new regulatory framework is necessary.

1. Describe two examples of mobile apps for health-care provid- ers. (AACSB: Communication; Use of IT)

2. Is regulatory approval of medical mobile apps necessary? Will the FDA’s requirement for approval constrain innovation? Explain.

(AACSB: Communication; Ethical Reasoning; Reflective Thinking)

Marketing by the Numbers The Cost of Sustainability One element of sustainability is organic farming. But if you’ve

priced organic foods, you know they are more expensive. Organic

farming costs much more than conventional farming, and those

higher costs are passed on to consumers. For example, a dozen

conventionally farmed eggs costs consumers $1.50, whereas a

dozen organic eggs costs $2.80. However, if prices get too high,

consumers will not purchase the organic eggs. Suppose that the

average fixed costs per year for conventionally farmed eggs are

$1 million per year, and that they are twice that amount for or-

ganic eggs. Organic farmers’ variable costs per dozen are twice

as much as well, costing $1.80 per dozen. Refer to Appendix 2,

Marketing by the Numbers, to answer the following questions.

1. Most large egg farmers sell eggs directly to retailers. What is the farmer’s price per dozen to the retailer for both conventional and

organic eggs if the retailer’s margin is 20 percent based on the

retail price? (AACSB: Communication; Analytical Reasoning)

2. How many dozen eggs does a conventional farmer need to sell to break even? How many does an organic farmer need to sell

to break even? (AACSB: Communication; Analytical Reasoning)

Video Case Life Is Good Most companies these days are trying to figure out how they can

be more socially responsible in the manufacturing and market-

ing of the goods and services they produce. But few companies

produce goods and services with the primary purpose of making

the world a better place. Life Is Good is one of those companies.

Most people are familiar with the cheerful logo on Life Is Good

products. But few are aware of what the company does with its

profits behind the scenes.

This video focuses on Life Is Good Playmakers, a nonprofit

organization dedicated to helping children overcome life-threatening

challenges. From the time Life Is Good started selling t-shirts in

the early 1990s, its founders supported Playmakers. The relationship

between the two organizations progressively became stronger,

ultimately leading Life Is Good to make Playmakers an official

branch of the company.

After viewing the video featuring Life Is Good, answer the fol-

lowing questions:

1. Give as many examples as you can of how Life Is Good defies the common social criticisms of marketing.

2. Discuss how Life Is Good practices sustainable marketing principles.

3. With all its efforts to do good, can Life Is Good continue to do well? Explain.

Company Case International Paper: Combining Industry and Social Responsibility

What image comes to mind when you hear “industrial corpora-

tion”? Pollution-belching smoke stacks? Strip-mined landscapes?

Chemicals seeping into water supplies? Now think about “envi-

ronmental steward.” Although that label might not seem com-

patible, the truth is that changes in regulations, combined with

pressure from environmental and consumer groups, have forced

most industrial companies to be more socially responsible. But at

least one company has had social responsibility as a core value

since it started business more than 110 years ago. That company

is International Paper (IP). Today, IP is considered by many to be

one of the most socially responsible companies in the world.

You may not know much about International Paper, but it

makes products that you use every day—such as paper for print-

ers, envelopes for mail, cardboard clamshells and paper bags

for fast food, and the boxes that hold your cold cereal, to name

just a few. And IP makes lots of those products. Last year, it sold

Chapter 20 | Sustainable Marketing: Social Responsibility and Ethics 629 over $26 billion worth of paper, packaging, and wood products,

placing it 111th on the Fortune 500. With operations all over the

world, IP employs more than 62,000 people. Those are pretty big

numbers for a company that most people know little about.

But International Paper is more than just big. For many years, it

has also ranked consistently among Fortune magazine’s most ad-

mired companies. It grabbed the number one spot on that list in its

industry for seven out of the last eight years. And social responsi-

bility was a big part of that score. That’s right—a paper and lumber

company leading in initiatives to make the world a better place.

At the heart of International Paper’s admirable actions, we have

to look at the comprehensive, integrated plan that the company

labels “sustainability.” The company sums up the program with

the slogan, “Sustaining a better world for generations: the IP way.”

That’s not just a catchphrase. It lies at the heart of IP’s corporate

mission statement and has created a culture based on a set of

supporting principles. According to company literature, “We have

always taken a sustainable approach to business that balances

environmental, social, and economic needs. This approach has

served our company and society well.” IP constantly maintains

this balance by adhering to three key pillars that transform the

concepts into action: managing natural resources, reducing the

environmental footprint, and building strategic partnerships.

Managing Natural Resources The philosophy at IP is that taking care of the environment and tak-

ing care of the business are interdependent concepts. By taking

care of the environment, IP has a system in place to ensure that

every phase of its corporate global supply chain—manufacturing,

distribution, sales, and recycling—is carried out in a way that safely

and responsibly cares for natural resources. For example, Interna-

tional Paper has been a leader in promoting the planting and grow-

ing of trees. It believes that if forest resources are properly managed,

they provide an infinite supply of raw materials for the company’s

products while supporting clean water, diverse wildlife habitats,

recreational opportunities, and aesthetic beauty. To this end, the

company actively supports research, innovation, and third-party

certification to improve the management of forest resources.

Another way that International Paper manages natural re-

sources is through conservation. It has proven time and time

again that conservation doesn’t have to be a sunk cost. It can be

an investment that provides cost savings for a company.

Pulp and paper mills are complex, energy intensive operations.

Finding ways to reduce, reuse, and recycle energy at each of its

facilities reduces the consumption of fossil fuels and reduces air

emissions, including carbon dioxide.

Typically gas, coal or bark fuels are fired in boilers to produce

steam to power operations throughout the mill. Capturing steam in

one area and reusing it in another reduces the amount of fresh steam

required and reduces the amount of fuel needed to power the plant.

[The IP] mill in Vicksburg, Mississippi, is recovering and reusing

38,000 pounds of steam per hour. A one-time investment of $2.8 million

in capital improvements will save an estimated $2.4 million in fuel

costs annually. At [an IP] mill in Savannah, Georgia, an investment of

$900,000 in capital improvements reduced the demand for steam,

and consequently the coal needed to produce it, by 25,000 pounds

per hour. The annual savings are estimated at more than $600,000.

Reducing the Environmental Footprint By reducing its environmental footprint, International Paper means

that it is committed to transparently reporting its activities to the

public for any of its activities that impact the environment, health,

or safety. “At International Paper, we’ve been routinely sharing our

environmental, economic, and social performance with the public

for over a decade,” said David Struhs, vice president of Environ-

ment, Health, and Safety. “Over the years, these reports have

offered a level of transparency unmatched in our industry.” This

reporting philosophy applies to any company activity that leaves

a footprint, including air emissions, environmental performance,

health and safety, solid waste, and environmental certifications.

With transparency comes accountability. Because of its re-

porting practices, International Paper is more motivated to reduce

its environmental footprint. As just one example, over the past

decade, the company cut its global greenhouse gas emissions by

40 percent, earning IP a Climate Leadership Award from the Envi-

ronmental Protection Agency. But IP also made improvements in

virtually every company footprint area. A recent account of com-

pany activities in Brazil illustrates this concept well.

Nature, once tamed, is again growing wild along Brazil’s Mogi Guacu

River, which means “large river of snakes” in the native language of

Tupi. This year, seven constructed lagoons running along the banks of

the Mogi Guacu designed to filter used water from the nearby Interna-

tional Paper plant were replaced by a more modern wastewater facility.

Although the lagoons are no longer needed for water treat-

ment, International Paper recognized their potential environmental

benefits. Five of the ponds were restored with native vegetation

to establish a vast expanse of natural wetland habitat. Two of the

ponds were preserved to sustain wildlife that had made their home

in the area—snakes included.

To better manage the future impact of mill operations on the lush

tropical landscape, the mill also installed technology at the river’s

edge to continuously measure and report water quality. The results

are monitored remotely by facility managers as well as by govern-

ment regulators. This unprecedented access to information on

environmental performance has set a standard for other industries

along this large river of snakes.

Building Strategic Partnerships In order to most efficiently carry out its sustainability efforts, Interna-

tional Paper must enlist the help of numerous organizations. Build-

ing strategic partnerships is therefore critical. International Paper

has a long tradition of partnering with a broad range of governmen-

tal, academic, environmental, and customer organizations. These

partnerships are guided by the objectives of making progress in

sustainability, providing solutions for customers, making a positive

impact on the environment, and supporting social responsibility.

International Paper has partnered with some of the biggest

sustainability organizations to make big differences. Partners

include the National Park Foundation, the National Recycling

Coalition, and the Conservation Fund. But the following story

from a company press release illustrates how even a minor part-

nership oriented around a small product can make a “latte” dif-

ference in the world:

Coffee is one of the world’s most popular drinks. Coffee houses—

long a fixture in cultures and countries around the globe—sprang

up across America during the last 20 years. Every year, as many as

15 billion “cups of joe” are served on the go in paper cups and that

number is expected to grow to 23 billion by the end of the decade.

While coffee connoisseurs savored the flavors of new varieties

of beans and brews, engineers and scientists at International Paper

were thinking about how to improve the cup. Though cups are made

of fiber grown and harvested from sustainable forests, conventional

paper cups are lined with a petroleum-based plastic. The plastic lining

is a small part of the cup but is made from non-renewable resources

and inhibits the decomposition of the underlying paper. As a result,

disposable cups once filled with coffee are filling up our landfills.

But what if disposable coffee cups could join coffee grounds in

the compost heap? To achieve that vision, International Paper, with

partners DaniMer Scientific and NatureWorks LLC, developed a new

630 Part 4 | Extending Marketing type of cup lining made from plants instead of petro-chemicals. The

revolutionary new cup, dubbed the ecotainer, is coated with a resin

made from modified biopolymer. When discarded in commercial and

municipal operations, cups with the new lining become compost,

which can then be used for gardening, landscaping, and farming.

Since the launch of the ecotainer with Green Mountain Coffee

Roasters in 2006, large and small companies alike have adopted

this new cup. More than half a billion cups have eliminated over

a million pounds of petrochemical plastic from the marketplace—

enough petroleum to heat more than 32,000 homes for one year.

Coffee cups are just the beginning. International Paper is explor-

ing opportunities to expand the technology to other products used

in foodservice disposable packaging. So next time you order an

espresso with steamed milk, ask for one in an ecotainer and you too

can make a “latte” difference in the world.

It is very clear to those who know IP that the company doesn’t

just pay lip service to concepts of sustainability and social re-

sponsibility. Such principles lie at the heart of how the company

operates. “At International Paper, we’re proud of our legacy of

sustainability and environmental stewardship,” says John Faraci,

IP’s chairman and CEO. “Demonstrating our ongoing commitment

to these efforts through continuous improvements is important

not just for our employees but for our customers, shareowners,

and neighbors in the communities where we operate.”

International Paper hasn’t been one of the high-growth jug-

gernauts of the corporate world. Then again, it operates in a very

mature industry. But IP makes innovative products that meet the

needs of consumers. It employs tens of thousands of people

References 1. Quotes and other information from or adapted from Andrew

Saunders, “Paul Polman of Unilever,” Management Today, March

2011, pp. 42–47; Adi Ignatius, “Captain Planet,” Harvard Busi-

ness Review, June 2012, pp. 2–8; and www.unilever.com/images/

mc_innovation-fact-sheet_tcm13-269251.pdf, www.unilever.com/

sustainable-living/customers-suppliers/, www.unilever.com/images/

UnileverSustainableLivingPlan_tcm13-284876.pdf, and other reports

and documents found at www.unilever.com, accessed October 2012.

2. The figure and the discussion in this section are adapted from Philip Kotler, Gary Armstrong, Veronica Wong, and John Saunders, Prin-

ciples of Marketing: European Edition, 5th ed. (London: Pearson

Publishing, 2009), Chapter 2.

3. “McDonald’s Launches Marketing for ‘Favorites under 400 Calories’ Platform,” Advertising Age, July 24, 2012, http://adage.com/print/

236291/.

4. McDonald’s financial information and other facts from www .aboutmcdonalds.com/mcd/investors.html and www.aboutmcdonalds

.com/mcd, accessed October 2012.

5. Brent Kendall, “Sketchers Settles with FTC over Deceptive-Advertising of Toning Shoes,” Wall Street Journal, May 17, 2012, p. B3.

6. Based on information from Patrick Corcoran, "Vitaminwater Awash in Accusations of Deceptive Advertising," FairWarning, February 14, 2011,

www.fairwarning.org/2011/02/vitaminwater-awash-in-accusations-of-

deceptive-advertising/; “Consumer Group Urges FTC to Halt Vitamin-

water’s Outlandish Claims," International Business Times, February 4,

2011, http://m.ibtimes.com/coca-cola-vitaminwater-advertising-

national-washington-consumers-league-ftc-flu-shots-108891.html;

and “NCL Disappointed in FTC Conclusion of Investigation of Mislead-

ing Marketing Claims for ‘vitaminwater,’” February 3, 2012, www.nclnet

.org/newsroom/press-releases/621-ncl-disappointed-in-ftc-

conclusion-of-investigation-of-misleading-marketing-claims-for-

vitaminwater-.

7. See Ian Cooper, “Obesity in America: What about the 66%?” Exam- iner.com, June 1, 2012; and “Overweight and Obesity,” Centers for

Disease Control and Prevention, www.cdc.gov/obesity/data/index

.html, accessed October 2012.

throughout the world, contributing substantially to the communi-

ties in which it does business. It has grown in size to become one

of the largest companies in the United States. It has been consis-

tently profitable. And it does all these things while sustaining the

world for future generations. Indeed, International Paper proves

that good business and good corporate citizenship can go hand

in hand.

Questions for Discussion 1. Give as many examples as you can for how International Pa-

per defies the common social criticisms of marketing.

2. Why is International Paper successful in applying concepts of sustainability?

3. Analyze International Paper according to the Environmental Sustainability Portfolio in Figure 16.2.

4. Does International Paper practice enlightened marketing? Support your answer with as many examples as possible.

5. Would International Paper be more financially successful if it were not so focused on social responsibility? Explain.

Sources: Extracts and other case information are from International Paper’s corporate Web site, www.internationalpaper.com/US/EN/

Company/Sustainability/index.html, accessed August 2012, and Inter-

national Paper’s 2011 Sustainability Report; additional information from

money.cnn.com/magazines/fortune/mostadmired/, accessed August 2012.

8. Elena Ferretti, “Soft Drinks Are the Whipping Boy of Anti- Obesity Campaigns,” Fox News, June 1, 2012, www.foxnews.com/

leisure/2012/06/01/soda-ban/.

9. For more on perceived obsolescence, see Annie Leonard, The Story of Stuff (New York: Free Press, 2010), pp. 162–163; and www

.storyofstuff.com, accessed November 2012.

10. Rob Walker, “Replacement Therapy,” Atlantic Monthly, September 2011, p. 38.

11. See Karen Auge, “Planting Seed in Food Deserts: Neighborhood Gardens, Produce in Corner Stores,” Denver Post, April 18, 2010,

p. 1; Spence Cooper, “National Food Chains Join First Lady to

Reach ‘Food Deserts,’” Friends Eat, July 25, 2011, http://blog.

friendseat.com/michelle-obama-program-reaches-food-deserts;

and “Supermarket Campaign: Improving Access to Supermarkets

in Underserved Communities,” The Food Trust, www.thefoodtrust

.org/php/programs/super.market.campaign.php, accessed Octo-

ber 2012.

12. Richard J. Varey, “Marketing Means and Ends for a Sustainable Society: A Welfare Agenda for Transformative Change,” Journal of

Macromarketing, June 2010, pp. 112–126.

13. See “The Story of Stuff,” www.storyofstuff.com, accessed Novem- ber 2012.

14. See “The American Dream Has Been Revised Not Reversed,” Busi- ness Wire, March 9, 2009; Connor Dougherty and Elizabeth Holmes,

“Consumer Spending Perks Up Economy,” Wall Street Journal,

March 13, 2010, p. A1; John Gerzema, “How U.S. Consumers Are

Steering the Spend Shift,” Advertising Age, October 11, 2010, p. 26;

and Gregg Fairbrothers and Catalina Gorla, “The Decline and Rise of

Thrift,” Forbes, April 23, 2012, www.forbes.com.

15. See Texas Transportation Institute, “Traffic Problems Ties to the Economy,” September 27, 2011, http://mobility.tamu.edu/ums/

media-information/press-release/.

16. See Michael Cabanatuan, “Tolls Thin Traffic in Bay Bridge Car- pool Lanes,” San Francisco Chronicle, November 7, 2011, www

.sfgate.com/news/article/Tolls-thin-traffic-in-Bay-Bridge-carpool-

lanes-2323670.php#photo-1829296.

Chapter 20 | Sustainable Marketing: Social Responsibility and Ethics 631 17. See Martin Sipkoff, “Four-Dollar Pricing Considered Boom or Bust,”

Drug Topics, August 2008, p. 4S; and Sarah Bruyn Jones, “Economic

Survival Guide: Drug Discounts Common Now,” McClatchy-Tribune

Business News, February 23, 2009; and www.walmart.com/cp/

PI-4-Prescriptions/1078664, accessed October 2012.

18. Philip Kotler, “Reinventing Marketing to Manage the Environmental Imperative,” Journal of Marketing, July 2011, pp. 132–135.

19. See “SC Johnson Integrity,” www.scjohnson.com/en/commitment/ overview.aspx, accessed November 2012.

20. Based on information in Drew Winter, “Honda Workers Eliminate Landfill Waste,” WardsAuto, August 1, 2011, http://wardsauto

.com/news-amp-analysis/honda-workers-eliminate-landfill-waste;

and Kate Bachman, “Manufacturers Gone Zero Landfill,” Green

Manufacturer, January 31, 2012, www.greenmanufacturer.net/

article/facilities/manufacturers-gone-zero-landfill.

21. See Alan S. Brown, “The Many Shades of Green,” Mechanical Engi- neering, January 2009, http://memagazine.asme.org/Articles/2009/

January/Many_Shades_Green.cfm; www-03.ibm.com/financing/us/

recovery/large/disposal.html; www.puma-annual-report.com/en/

PUMAAnnualReport2011_ENG.pdf; and www.ibm.com/ibm/

environment/products/recycling.shtml, accessed October 2012.

22. Based on information from Simon Houpt, “Beyond the Bottle: Coke Trumpets Its Green Initiatives,” The Globe and Mail (Toronto), Janu-

ary 13, 2011; Marc Gunther, “Coca-Cola’s Green Crusader,” Fortune,

April 28, 2008, p. 150; “Coca-Cola to Install 1,800 CO2 Coolers in

North America,” April 30, 2009, www.r744.com/articles/2009-04-

30-coca-cola-to-install-1800-co2-coolers-in-north-america.php;

Christina Caldwell, “Coca-Cola Pilots Plant-Based Soda Bottle,”

Earth911.com, March 9, 2012; “Plant Bottle? Really? Really!” June

5, 2012, http://ccbcu.com/1257-2/; and “The Business of Recy-

cling,” www.thecoca-colacompany.com/citizenship/environment_

case_studies.html, accessed November 2012.

23. Based on information from “Walmart,” Fast Company, March 2010, p. 66; “Walmart Eliminates More Than 80 Percent of Its Waste in

California That Would Otherwise Go to Landfills,” March 17, 2011,

http://walmartstores.com/pressroom/news/10553.aspx; Jack Neff,

“Why Walmart Has More Green Clout Than Anyone,” Advertising

Age, October 15, 2007, p. 1; Denise Lee Yohn, “A Big, Green,

Reluctant Hug for Retailing’s 800-lb. Gorilla,” Brandweek, May 5,

2008, p. 61; Edward Humes, Force of Nature: The Unlikely Story of

Walmart’s Green Revolution (New York: HarperCollins, 2011); and

“Sustainability,” http://walmartstores.com/sustainability/, accessed

November 2012.

24. Based on information found in Chuck Salter, “Fast 50: The World’s Most Innovative Companies,” Fast Company, March 2008, pp. 73+.

Also see Yukari Iwatani Kane and Daisuke Wakabayashi, “Nintendo

Looks Outside the Box,” Wall Street Journal, May 27, 2009, p. B5.

25. Information from Mark Borden and Laurie Burkitt, “Samsung’s Big Spend,” Forbes, June 7, 2010, p. 60; Tarun Khanna, Jaeyong Song,

and Kyungmook Lee, “The Paradox of Samsung’s Rise,” Harvard

Business Review, July–August 2011, pp. 142–147; and Miyoung

Kim, “Samsung Group Plans Record $41 Billion Investment in 2012,”

Reuters, January 17, 2012, www.reuters.com/article/2012/01/17/

us-samsung-investment-idUSTRE80G00W20120117.

26. Information from Eleftheria Parpis, “Must Love Dogs,” Adweek, February 18, 2008, accessed at www.adweek.com; and www.pedigree

.com and www.mars.com/global/global-brands/pedigree.aspx,

accessed November 2012. PEDIGREE® is a registered trademark

of Mars, Incorporated.

27. Based on information found at http://vision.puma.com/us/en/ and http://about.puma.com/sustainability/, accessed November

2012/.

28. Information from www.nau.com, accessed November 2012. 29. Nanette Byrnes, “Pepsi Brings in the Health Police,” Bloomberg

Businessweek, January 25, 2010, pp. 50–51; and Mike Esterl,

“You Put What in This Chip?” Wall Street Journal, March 24, 2011,

p. D1.

30. Based on information from material found in Jeff Heilman, “Rules of Engagement,” The Magazine of Branded Engagement, Winter 2009,

pp. 7–8; “Top Ten Social Media Comebacks,” Marketwire, Septem-

ber 11, 2011, www.slideshare.net/Marketwire/top-10-social-media-

comebacks; and “Mattel’s the Playground Community Created by

Communispace Helps Them Weather Recall,” accessed at www

.communispace.com/uploadedFiles/Clients_Section/Forrester_

Groundswell/Groundswell_Mattel.pdf, September 2012.

31. See Transparency International, “Bribe Payers Index 2011,” http:// bpi.transparency.org/results/; and Transparency International, “Global

Corruption Barometer 2010/2011,” http://archive.transparency.org/

policy_research/surveys_indices/gcb/2010_11. Also see Michael

Montgomery, “The Cost of Corruption,” American RadioWorks,

http://americanradioworks.publicradio.org/features/corruption/, ac-

cessed August 2012.

32. See www.marketingpower.com/AboutAMA/Pages/Statement%20 of%20Ethics.aspx, accessed November 2012.

33. See Samuel A. DiPiazza, Jr., “Ethics in Action,” Executive Excel- lence, January 2002, pp. 15–16; “Interview: Why Have a Code?”

www.pwc.com/gx/en/ethics-business-conduct/why-have-a-code-

interview.jhtml, accessed August 2011; “Doing the Right Thing—

the PwC Way,” http://download.pwc.com/ie/pubs/2011_code_of_

conduct.pdf, accessed November 2012; and “Ethics and Business

Conduct,” www.pwc.com/ethics, accessed November 2012.

34. DiPiazza, “Ethics in Action,” p. 15. 35. David A. Lubin and Daniel C. Esty, “The Sustainability Imperative,”

Harvard Business Review, May 2010, pp. 41–50; and Roasbeth

Moss Kanter, “It’s Time to Take Full Responsibility,” Harvard Busi-

ness Review, October 2010, p. 42.

36. “Why Companies Can No Longer Afford to Ignore Their So- cial Responsibilities,” Time, May 28, 2012, http://business.time

.com/2012/05/28/why-companies-can-no-longer-afford-to- ignore-

their-social-responsibilities/.

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The Marketing Plan: An Introduction As a marketer, you will need a good marketing plan to provide direction and focus for your

brand, product, or company. With a detailed plan, any business will be better prepared to

launch a new product or build sales for existing products. Nonprofit organizations also

use marketing plans to guide their fund-raising and outreach efforts. Even government

agencies put together marketing plans for initiatives such as building public awareness of

proper nutrition and stimulating area tourism.

The Purpose and Content of a Marketing Plan Unlike a business plan, which offers a broad overview of the entire organization’s mission,

objectives, strategy, and resource allocation, a marketing plan has a more limited scope. It

serves to document how the organization’s strategic objectives will be achieved through spe-

cific marketing strategies and tactics, with the customer as the starting point. It is also linked

to the plans of other departments within the organization. Suppose, for example, a market-

ing plan calls for selling 200,000 units annually. The production department must gear up to

make that many units, the finance department must arrange funding to cover the expenses,

the human resources department must be ready to hire and train staff, and so on. Without the

appropriate level of organizational support and resources, no marketing plan can succeed.

Although the exact length and layout will vary from company to company, a market-

ing plan usually contains the sections described in Chapter 2. Smaller businesses may cre-

ate shorter or less formal marketing plans, whereas corporations frequently require highly

structured marketing plans. To guide implementation effectively, every part of the plan

must be described in considerable detail. Sometimes a company will post its marketing

plans on an intranet site, which allows managers and employees in different locations to

consult specific sections and collaborate on additions or changes.

The Role of Research Marketing plans are not created in a vacuum. To develop successful strategies and action pro-

grams, marketers need up-to-date information about the environment, the competition, and

the market segments to be served. Often, analysis of internal data is the starting point for as-

sessing the current marketing situation, supplemented by marketing intelligence and research

investigating the overall market, the competition, key issues, and threats and opportunities.

As the plan is put into effect, marketers use a variety of research techniques to measure prog-

ress toward objectives and identify areas for improvement if results fall short of projections.

Finally, marketing research helps marketers learn more about their customers’ require-

ments, expectations, perceptions, and satisfaction levels. This deeper understanding pro-

vides a foundation for building competitive advantage through well-informed segmenting,

targeting, differentiating, and positioning decisions. Thus, the marketing plan should out-

line what marketing research will be conducted and how the findings will be applied.

The Role of Relationships The marketing plan shows how the company will establish and maintain profitable cus-

tomer relationships. In the process, however, it also shapes a number of internal and exter-

nal relationships. First, it affects how marketing personnel work with each other and with

other departments to deliver value and satisfy customers. Second, it affects how the com-

pany works with suppliers, distributors, and strategic alliance partners to achieve the objec-

tives listed in the plan. Third, it influences the company’s dealings with other stakeholders,

633

Appendix 1 Marketing Plan

634 Appendix 1 | Marketing Plan including government regulators, the media, and the community at large. All of these rela-

tionships are important to the organization’s success, so they should be considered when a

marketing plan is being developed.

From Marketing Plan to Marketing Action Companies generally create yearly marketing plans, although some plans cover a longer

period. Marketers start planning well in advance of the implementation date to allow time

for marketing research, thorough analysis, management review, and coordination between

departments. Then, after each action program begins, marketers monitor ongoing results,

compare them with projections, analyze any differences, and take corrective steps as needed.

Some marketers also prepare contingency plans for implementation if certain conditions

emerge. Because of inevitable and sometimes unpredictable environmental changes, mar-

keters must be ready to update and adapt marketing plans at any time.

For effective implementation and control, the marketing plan should define how prog-

ress toward objectives will be measured. Managers typically use budgets, schedules, and per-

formance standards for monitoring and evaluating results. With budgets, they can compare

planned expenditures with actual expenditures for a given week, month, or other period. Sched-

ules allow management to see when tasks were supposed to be completed—and when they

were actually completed. Performance standards track the outcomes of marketing programs

to see whether the company is moving toward its objectives. Some examples of performance

standards are market share, sales volume, product profitability, and customer satisfaction.

Sample Marketing Plan: Chill Beverage Company

Executive Summary The Chill Beverage Company is preparing to launch a new line of vitamin-enhanced water

called NutriWater. Although the bottled water market is maturing, the vitamin-enhanced

water category is still growing. NutriWater will be positioned by the slogan “Expect

more”—indicating that the brand offers more in the way of desirable product features and

benefits at a competitive price. Chill Beverage is taking advantage of its existing experi-

ence and brand equity among its loyal current customer base of Millennials who consume

its Chill Soda soft drink. NutriWater will target similar Millennials who are maturing and

looking for an alternative to soft drinks and high-calorie sugared beverages.

The primary marketing objective is to achieve first-year U.S. sales of $30 million,

roughly 2 percent of the enhanced water market. Based on this market share goal, the com-

pany expects to sell more than 17 million units the first year and break even in the final

period of the year.

Current Marketing Situation The Chill Beverage Company was founded in 2001 by an entrepreneur who had success-

fully built a company that primarily distributed niche and emerging products in the bever-

age industry. Its Chill Soda soft drink brand hit the market with six unique flavors in glass

bottles. A few years later, the Chill Soda brand introduced an energy drink as well as a

line of natural juice drinks. The company now markets dozens of Chill Soda flavors, many

unique to the brand. Chill Beverage has grown its business every year since it was founded.

In the most recent year, it achieved $185 million in revenue and net profits of $14.5 million.

As part of its future growth strategy, Chill Beverage is currently preparing to enter a new

beverage category with a line of vitamin-enhanced waters.

As a beverage category, bottled water experienced tremendous growth during the

1990s and 2000s. Currently, the average person in the United States consumes more than

28 gallons of bottled water every year, a number that has increased 20-fold in just 30 years.

Bottled water consumption is second only to soft drink consumption, ahead of milk, beer,

and coffee. Although bottled water growth has tapered off somewhat in recent years, it is

still moderately strong at approximately 3 percent growth annually. Most other beverage

categories have experienced declines. In the most recent year, 8.75 billion gallons of bottled

water were sold in the United States with a value of more than $7.6 billion.

Appendix 1 | Marketing Plan 635 Competition is more intense now than ever as demand slows, industry consolidation

continues, and new types of bottled water emerge. The U.S. market is dominated by three

global corporations. With a portfolio of 12 brands (including Poland Spring, Nestlé Pure

Life, and Arrowhead), Nestlé leads the market for “plain” bottled water. However, when

all subcategories of bottled water are included (enhanced water, fl avored water, and so on),

but is number two at 21.5 percent of the total bottled water market. PepsiCo is third with

To break into this market, dominated by huge global corporations and littered with

dozens of other small players, Chill Beverage must carefully target specifi c segments with

features and benefi ts valued by those segments.

Market Description

include spring, purifi ed, mineral, and distilled. Although these different types of water are sold

as consumer products, they also serve as the core ingredient for other types of bottled waters, in

cluding enhanced water, fl avored water, sparkling water, or any combination of those categories.

Although some consumers may not perceive much of a difference between brands,

others are drawn to specifi c product features and benefi ts provided by different brands. For

example, some consumers may perceive spring water as healthier than other types of water.

Some may look for water that is optimized for hydration. Others seek additional nutritional

benefi ts claimed by bottlers that enhance their brands with vitamins, minerals, herbs, and

other additives. Still other consumers make selections based on fl avor. The industry as a

drinks, sports drinks, energy drinks, and other types of beverages.

Bottled water brands also distinguish themselves by size and type of container, mul

tritional content. This market includes traditional soft drink consumers who want to im

plain bottled water. Specifi c segments that Chill Beverage will target during the fi rst year

include athletes, the health conscious, the socially responsible, and Millennials who favor

independent corporations. The Chill Soda brand has established a strong base of loyal cus

tomers, primarily among Millennials. This generational segment is becoming a prime target

Table A1.1 shows how

NutriWater addresses the needs of targeted consumer segments.

Product Review

lowing features:

ing electrolytes).

Competitive Review

to expand. In addition to the various types of plain water, new categories emerged. These

636 Appendix 1 | Marketing Plan

Table A1.1 | Segment Needs and Corresponding Features/Benefi ts of NutriWater

Targeted Segment Customer Need Corresponding Features/Benefi ts

Athletes

Angels

Millennials

Enhanced waters emerged to bridge the gap between soft drinks and waters, appealing to

people who knew they should drink more water and less soft drinks but still wanted fl avor.

successful smaller brands, providing the bigger fi rms with a solid market position in this

category and diversifi cation in bottled waters in general. Currently, enhanced water sales

account for approximately 18 percent of the total bottled water market.

The fragmentation of this category, combined with domination by the market lead

ers, has created a severely competitive environment. Although there is indirect competition

posed by all types of bottled waters and even other types of beverages (soft drinks, energy

water brands. For the purposes of this analysis, enhanced water is bottled water with addi

tives that are intended to provide health and wellness benefi ts. The most common additives

include vitamins, minerals (including electrolytes), and herbs. Most commonly, enhanced

waters are sweetened, fl avored, and colored. This defi nition distinguishes enhanced water

from sports drinks that have the primary purpose of maximizing hydration by replenishing

electrolytes.

Enhanced water brands are typically sweetened with a combination of some kind of

and calories of regular soft drinks and other sweetened beverages. The types of sweeteners

used create a point of differentiation. Many brands, including the market leaders, sell both

Pricing for this product is consistent across brands and varies by type of retail out

let, with convenience stores typically charging more than grocery stores. The price for a

Vitaminwater:

Appendix 1 | Marketing Plan 637

annual sales and commands 61 percent of the enhanced water market. More notably, it

SoBe Lifewater:

by fl avor and one of six different functional categories: Electrolytes, Lean Machine,

of vitamins, minerals, and herbs designed to provide the claimed benefi t. The most re

a combination of sugar and erythritol, Lifewater makes the claim to be “all natural.”

It contains no artifi cial fl avors or colors. However, some analysts debate the “natural”

Propel Zero: of this leading sports drink marketer. Originally marketed and labeled as “fi tness wa

ter,” it is now available only as Propel Zero. Although the fi tness water designation

has been dropped, Propel Zero still leans toward that positioning with the label stating

containing the same blend of B vitamins, vitamin C, vitamin E, antioxidants, and elec

trolytes. It is sweetened with sucralose. Propel Zero is available in a wider variety of

Propel Zero is the number three enhanced water brand with a 12 percent share of the

enhanced water market.

RESCUE Water: The Arizona Beverage Company is best known as the number one

other enhanced waters with green tea extract added to a blend of vitamins and min

erals. This provides a signifi cant point of differentiation for those desiring green tea,

Coconut Hydrate variety contains real coconut water, an emerging alternative bev

Niche brands: The market for enhanced water includes at least four companies that

age and gain recognition among the targeted segments. The brand offers strong points of

port for a relevant social cause. With other strategic assets, Chill Beverage is confi dent that

it can establish a competitive advantage that will allow NutriWater to grow in the market.

Table A1.2 shows a sample of competing products.

Channels and Logistics Review

system. NutriWater will be distributed through an independent distributor to a network of

638 Appendix 1 | Marketing Plan

Water customers. As with the rollout of the core Chill Soda brand, this strategy will focus on

placing coolers in retail locations that will exclusively hold NutriWater. These retailers include:

Grocery chains: East, and WinCo in the West.

Health and natural food stores: Chains such as Whole Foods, as well as local health food

Fitness centers: other regional chains.

As the brand gains acceptance, channels will expand into larger grocery chains, conve

Strengths, Weaknesses, Opportunities, and Threat Analysis

try posed by limited retail space, as well as image issues for the bottled water industry.

Table A1.3

threats.

Strengths NutriWater can rely on the following important strengths:

1. Superior quality: NutriWater boasts the highest levels of added vitamins of any en

artifi cial fl avors, colors, or preservatives. It is sweetened with both pure cane sugar and

2. Expertise in alternative beverage marketing: The Chill Soda brand went from nothing to a successful and rapidly growing soft drink brand with fi ercely loyal customers in a

matter of only one decade. This success was achieved by starting small and focusing on

gaps in the marketplace.

Table A1.2 | Sample of Competitive Products

Competitor Brand Features

Appendix 1 | Marketing Plan 639

Social responsibility: Every customer will have the added benefi t of helping malnour ished children throughout the world. Although the price of NutriWater is in line with

the prices of other competitors, low promotional costs allow for the substantial chari

table donation of 25 cents per bottle while maintaining profi tability.

The big brands have decent products and strong distribution

relationships. But they also carry the image of the large, corporate establishments. Chill

Beverage has achieved success with an underdog image while remaining privately

Weaknesses 1. Lack of brand awareness: As an entirely new brand, NutriWater will enter the market

with limited or no brand awareness. The affi liation with Chill Soda will be kept at a

minimum in order to prevent associations between NutriWater and soft drinks. This

issue will be addressed through promotion and distribution strategies.

2. Limited budget: As a smaller company, Chill Beverage has much smaller funds available for promotional and research activities.

Opportunities 1. Growing market: Although growth in the overall market for bottled water has slowed to

beverage categories. Of the top six beverage categories, soft drinks, beer, milk, and

fruit drinks experienced declines. The growth for coffee was less than 1 percent. More

important than the growth of bottled waters in general, the enhanced water category is

experiencing growth in the high single and low double digits.

2. Gap in the distribution network: The market leaders distribute directly to retailers. This

brands are currently being sold through independent distributors.

Health trends: Weight and nutrition continue to be issues for consumers in the United

continue to rise. Additionally, Americans get 21 percent of their daily calories from

beverages, a number that has tripled in the last three decades. Consumers still desire

baby boomers.

Table A1.3 NutriWater’s Strengths, Weaknesses, Opportunities, and Threats

Strengths Weaknesses

Opportunities Threats

640 Appendix 1 | Marketing Plan Threats 1. Limited shelf space: Whereas competition is generally a threat for any type of product,

competition in retail beverages is particularly high because of limited retail space. Car-

rying a new beverage product requires retailers to reduce shelf or cooler space already

occupied by other brands.

2. Image of enhanced waters: The image of enhanced waters is currently in question, as

The lawsuit exposed the number one bottled water brand as basically sugar water with

minimal nutritional value.

3. Environmental issues: Environmental groups continue to educate the public on the en- vironmental costs of bottled water, including landfill waste, carbon emissions from

production and transportation, and harmful effects of chemicals in plastics.

Objectives and Issues Chill Beverage has set aggressive but achievable objectives for NutriWater for the first and

second years of market entry.

First-Year Objectives

2 percent share of the enhanced water market, or approximately $30 million in sales, with

break-even status achieved in the final period of the year. With an average retail price of

$1.69, that equates with a sales goal of 17,751,480 bottles.

Second-Year Objectives -

ing zero-calorie varieties. The second-year objective is to double sales from the first year, to

$60 million.

Issues In launching this new brand, the main issue is the ability to establish brand awareness and a

meaningful brand image based on positioning that is relevant to target customer segments.

Chill Beverage will invest in nontraditional means of promotion to accomplish these goals

and to spark word-of-mouth interactions. Establishing distributor and retailer relationships

will also be critical in order to make the product available and provide point-of-purchase

communications. Brand awareness and knowledge will be measured in order to adjust mar-

keting efforts as necessary.

Marketing Strategy NutriWater’s marketing strategy will involve developing a “more for the same” positioning

based on extra benefits for the price. The brand will also establish channel differentiation, as

it will be available in locations where major competing brands are not. The primary target

segment is Millennials. This segment is comprised of tweens (ages 10 to 12), teens (13 to 18),

and young adults (19 to 33). NutriWater will focus specifically on the young adult market.

Subsets of this generational segment include athletes, the health conscious, and the socially

responsible.

Positioning NutriWater will be positioned on an “Expect more” value proposition. This will allow for

differentiating the brand based on product features (expect more vitamin content and all-

natural ingredients), desirable benefits (expect greater nutritional benefits), and values (do

more for a social cause). Marketing will focus on conveying that NutriWater is more than

just a beverage: It gives customers much more for their money in a variety of ways.

Product Strategy

awareness takes hold and retail availability increases, more varieties will be made available.

Appendix 1 | Marketing Plan 641 A zero-calorie version will be added to the product line, providing a solid fit with the health

benefits sought by consumers. Chill Beverage’s considerable experience in brand-building

will be applied as an integral part of the product strategy for NutriWater. All aspects of the

marketing mix will be consistent with the brand.

Pricing There is little price variation in the enhanced water category, particularly among leading

brands. For this reason, NutriWater will follow a competition-based pricing strategy. Given

that NutriWater claims superior quality, it must be careful not to position itself as a lower-

cost alternative. Manufacturers do not quote list prices on this type of beverage, and prices

vary considerably based on type of retail outlet and whether or not the product is refriger-

in discount-retailer stores and as high as $1.89 in convenience stores. Because NutriWater

will not be targeting discount retailers and convenience stores initially, this will allow Chill

Beverage to set prices at the average to higher end of the range for similar products in the

same outlets. For grocery chains, this should be approximately $1.49 per bottle, with that

price rising to $1.89 at health food stores and fitness centers, where prices tend to be higher.

Distribution Strategy

NutriWater will employ a selective distribution strategy with well-known regional grocers,

health and natural food stores, and fitness centers. This distribution strategy will be ex-

ecuted through a network of independent beverage distributors, as there are no other major

brands of enhanced water following this strategy. Chill Beverage gained success for its core

Chill Soda soft drink line using this method. It also placed coolers with the brand logo in

truly unique venues such as skate, surf, and snowboarding shops; tattoo and piercing par-

lors; fashion stores; and music stores—places that would expose the brand to target custom-

ers. Then, the soft drink brand expanded by getting contracts with retailers such as Panera,

Barnes & Noble, Target, and Starbucks. This same approach will be taken with NutriWater

by starting small, then expanding into larger chains. NutriWater will not target all the same

stores used originally by Chill Soda, as many of those outlets were unique to the positioning

and target customer for the Chill Soda soft drink brand.

Marketing Communication Strategy As with the core Chill Soda brand, the marketing communication strategy for NutriWater

will not be based on traditional mass-communication advertising. Initially, there will be no

broadcast or print advertising. Promotional resources for NutriWater will focus on three

areas:

Online and mobile marketing: The typical target customer for NutriWater spends more time online than with traditional media channels. A core component for this strategy

will be building Web and mobile brand sites and driving traffic to those sites by cre-

NutriWater brand will also incorporate location-based services by Foursquare and

Facebook to help drive traffic to retail locations. A mobile phone ad campaign will

provide additional support to the online efforts.

Trade promotions: Like the core Chill Soda brand, NutriWater’s success will rely on re- lationships with retailers to create product availability. Primary incentives to retailers

will include point-of-purchase displays, branded coolers, and volume incentives and

contests. This push marketing strategy will combine with the other pull strategies.

Event marketing: product samples at events such as skiing and snowboarding competitions, golf tourna-

ments, and concerts.

Marketing Research To remain consistent with the online promotional approach, as well as using research meth-

ods that will effectively reach target customers, Chill Beverage will monitor online dis-

perceptions of the brand, the products, and general satisfaction. For future development of

the product and new distribution outlets, crowdsourcing methods will be utilized.

642 Appendix 1 | Marketing Plan Action Programs NutriWater will be introduced in February. The following are summaries of action programs

that will be used during the first six months of the year to achieve the stated objectives.

January: Chill Beverage representatives will work with both independent distributors and retailers to educate them on the trade promotional campaign, incentives, and ad-

retailers are educated on product features and benefits as well as instructions for display-

ing point-of-purchase materials and coolers. The brand Web site and other sites such as

Facebook will present teaser information about the product as well as availability dates

and locations. Buzz will be enhanced by providing product samples to selected product

reviewers, opinion leaders, influential bloggers, and celebrities.

February: On the date of availability, product coolers and point-of-purchase displays will be placed in retail locations. The full brand Web site and social network campaign will

“Expect more” slogan, as well as illustrate the ways that NutriWater delivers more than

expected on product features, desirable benefits, and values by donating to Vitamin An-

gels and the social cause of battling vitamin deficiency in children.

March: To enhance the online and social marketing campaign, location-based services Four- square and Facebook Places will be employed to drive traffic to retailers. Point-of-purchase

displays and signage will be updated to support these efforts and to continue supporting

retailers. The message of this campaign will focus on all aspects of “Expect more.”

April: A mobile phone ad campaign will provide additional support, driving Web traffic to the brand Web site and social network sites, as well as driving traffic to retailers.

May: A trade sales contest will offer additional incentives and prizes to the distributors and retailers that sell the most NutriWater during a four-week period.

June: An event marketing campaign will mobilize a team of NutriWater representatives -

ity for the brand as well as give customers and potential customers the opportunity to

sample products.

Budgets Chill Beverage has set a first-year retail sales goal of $30 million with a projected average

retail price of $1.69 per unit for a total of 17,751,480 units sold. With an average wholesale

price of 85 cents per unit, this provides revenues of just over $15 million. Chill Beverage ex-

pects to break even during the final period of the first year. A break-even analysis assumes

per-unit wholesale revenue of 85 cents per unit, a variable cost per unit of 14 cents, and

estimated first-year fixed costs of $12,500,000. Based on these assumptions, the break-even

calculation is:

$12,500,000

$0.85>unit - $0.14>unit = 17,605,634

Controls Chill Beverage is planning tight control measures to closely monitor product quality, brand

awareness, brand image, and customer satisfaction. This will enable the company to react

quickly in correcting any problems that may occur. Other early warning signals that will

be monitored for signs of deviation from the plan include monthly sales (by segment and

channel) and monthly expenses. Given the market’s volatility, contingency plans are also

in place to address fast-moving environmental changes such as shifting consumer prefer-

ences, new products, and new competition.

Sources: Beverage Spectrum Magazine, Fast Company

. fastcompany.com; “New Playbook at Jones Soda,” Beverage Spectrum Magazine, March 2008; Beverage Spectrum Magazine

p. 74; and product and market information obtained from www.lifewater.com, www. vitamin

water.com, www.nestlewaters.com, www.drinkarizona.com, and www.jonessoda.com, accessed Sep-

tember 2012.

Marketing managers are facing increased accountability for the financial implications of

their actions. This appendix provides a basic introduction to measuring marketing financial

performance. Such financial analysis guides marketers in making sound marketing deci-

sions and in assessing the outcomes of those decisions.

The appendix is built around a hypothetical manufacturer of consumer electronics

products—HD. The company is introducing a device that plays videos and television pro-

gramming streamed over the Internet on multiple devices in a home, including high-definition

televisions, tablets, and mobile phones. In this appendix, we will analyze the various deci-

sions HD’s marketing managers must make before and after the new-product launch.

The appendix is organized into three sections. The first section introduces pricing, break- even, and margin analysis assessments that will guide the introduction of HD’s new prod-

uct. The second section discusses demand estimates, the marketing budget, and marketing performance measures. It begins with a discussion of estimating market potential and

company sales. It then introduces the marketing budget, as illustrated through a pro forma profit-and-loss statement followed by the actual profit-and-loss statement. Next, we discuss

marketing performance measures, with a focus on helping marketing managers to better

defend their decisions from a financial perspective. In the third section, we analyze the finan- cial implications of various marketing tactics.

Each of the three sections ends with a set of quantitative exercises that provide you

with an opportunity to apply the concepts you learned to situations beyond HD.

Pricing, Break-Even, and Margin Analysis

Pricing Considerations Determining price is one of the most important marketing mix decisions. The limiting fac-

tors are demand and costs. Demand factors, such as buyer-perceived value, set the price

ceiling. The company’s costs set the price floor. In between these two factors, marketers

must consider competitors’ prices and other factors such as reseller requirements, govern-

ment regulations, and company objectives.

Most current competing Internet-streaming products sell at retail prices between $100

and $500. We first consider HD’s pricing decision from a cost perspective. Then, we con-

sider consumer value, the competitive environment, and reseller requirements.

Determining Costs Recall from Chapter 10 that there are different types of costs. Fixed costs do not vary with

production or sales level and include costs such as rent, interest, depreciation, and clerical

and management salaries. Regardless of the level of output, the company must pay these

costs. Whereas total fixed costs remain constant as output increases, the fixed cost per unit

(or average fixed cost) will decrease as output increases because the total fixed costs are

spread across more units of output. Variable costs vary directly with the level of produc-

tion and include costs related to the direct production of the product (such as costs of goods

sold—COGS) and many of the marketing costs associated with selling it. Although these

costs tend to be uniform for each unit produced, they are called variable because their total

varies with the number of units produced. Total costs are the sum of the fixed and vari-

able costs for any given level of production.

HD has invested $10 million in refurbishing an existing facility to manufacture the

new video-streaming product. Once production begins, the company estimates that it

will incur fixed costs of $20 million per year. The variable cost to produce each device is

estimated to be $125, and is expected to remain at that level for the output capacity of

the facility.

643

Appendix 2 Marketing by the Numbers

Total costs

The sum of the fixed and variable costs

for any given level of production.

Variable costs

Costs that vary directly with the level of

production.

Fixed costs

Costs that do not vary with production or

sales level.

644 Appendix 2 | Marketing by the Numbers Setting Price Based on Costs HD starts with the cost-based approach to pricing discussed in Chapter 10. Recall that

the simplest method, cost-plus pricing (or markup pricing), simply adds a standard

markup to the cost of the product. To use this method, however, HD must specify ex-

pected unit sales so that total unit costs can be determined. Unit variable costs will re-

main constant regardless of the output, but average unit fixed costs will decrease as output increases.

To illustrate this method, suppose HD has fixed costs of $20 million, variable costs

of $125 per unit, and expects unit sales of 1 million players. Thus, the cost per unit is

given by:

Unit cost = variable cost + fixed costs unit sales

= $125 + $20,000,000

1,000,000 = $145

Note that we do not include the initial investment of $10 million in the total fixed cost figure. It is not considered a fixed cost because it is not a relevant cost. Relevant costs are those that will occur in the future and that will vary across the alternatives being considered.

HD’s investment to refurbish the manufacturing facility was a one-time cost that will not

reoccur in the future. Such past costs are sunk costs and should not be considered in future analyses.

Also notice that if HD sells its product for $145, the price is equal to the total cost per

unit. This is the break-even price—the price at which unit revenue (price) equals unit cost

and profit is zero.

Suppose HD does not want to merely break even but rather wants to earn a 25%

markup on sales. HD’s markup price is:1

Markup price = unit cost

11 - desired return on sales2 =

$145

1 - 0.25 = $193.33

This is the price at which HD would sell the product to resellers such as wholesalers or

retailers to earn a 25% profit on sales.

Another approach HD could use is called return-on-investment (ROI) pricing (or

target-return pricing). In this case, the company would consider the initial $10 million investment, but only to determine the dollar profit goal. Suppose the company wants a

30% return on its investment. The price necessary to satisfy this requirement can be deter-

mined by:

ROI price = unit cost + ROI * investment

unit sales = $145 +

0.3 * $10,000,000 1,000,000

= $148

That is, if HD sells its product for $148, it will realize a 30% return on its initial investment

of $10 million.

In these pricing calculations, unit cost is a function of the expected sales, which were

estimated to be 1 million units. But what if actual sales were lower? Then the unit cost

would be higher because the fixed costs would be spread over fewer units, and the realized

percentage markup on sales or ROI would be lower. Alternatively, if sales are higher than

the estimated 1 million units, unit cost would be lower than $145, so a lower price would

produce the desired markup on sales or ROI. It’s important to note that these cost-based

pricing methods are internally focused and do not consider demand, competitors’ prices, or reseller requirements. Because HD will be selling this product to consumers through

wholesalers and retailers offering competing brands, the company must consider markup

pricing from this perspective.

Setting Price Based on External Factors Whereas costs determine the price floor, HD also must consider external factors when

setting price. HD does not have the final say concerning the final price of its product to

consumers—retailers do. So it must start with its suggested retail price and work back.

In doing so, HD must consider the markups required by resellers that sell the product to

consumers.

Cost-plus pricing (or markup pricing)

A standard markup to the cost

of the product.

Relevant costs

Costs that will occur in the future and

that will vary across the alternatives being

considered.

Break-even price

The price at which total revenue equals

total cost and profit is zero.

Return on investment (ROI) pricing (or target-return pricing)

A cost-based pricing method that

determines price based on a specified

rate of return on investment.

Appendix 2 | Marketing by the Numbers 645 In general, a dollar markup is the difference between a company’s selling price for a

product and its cost to manufacture or purchase it. For a retailer, then, the markup is the

difference between the price it charges consumers and the cost the retailer must pay for the

product. Thus, for any level of reseller:

Dollar markup = selling price - cost

Markups are usually expressed as a percentage, and there are two different ways to

compute markups—on cost or on selling price:

Markup percentage on cost = dollar markup

cost

Markup percentage on selling price = dollar markup

selling price

To apply reseller margin analysis, HD must first set the suggested retail price and then

work back to the price at which it must sell the product to a wholesaler. Suppose retailers

expect a 30% margin and wholesalers want a 20% margin based on their respective selling

prices. And suppose that HD sets a manufacturer’s suggested retail price (MSRP) of $299.99

for its product.

HD selected the $299.99 MSRP because it is lower than most competitors’ prices but is

not so low that consumers might perceive the product to be of poor quality. And the com-

pany’s research shows that it is below the threshold at which more consumers are willing

to purchase the product. By using buyers’ perceptions of value and not the seller’s cost to

determine the MSRP, HD is using value-based pricing. For simplicity, we will use an

MSRP of $300 in further analyses.

To determine the price HD will charge wholesalers, we must first subtract the retailer’s

margin from the retail price to determine the retailer’s cost ($300 – [$300 � 0.30] � $210).

The retailer’s cost is the wholesaler’s price, so HD next subtracts the wholesaler’s margin

($210 – [$210 � 0.20] � $168). Thus, the markup chain representing the sequence of mark-

ups used by firms at each level in a channel for HD’s new product is:

Suggested retail price: $300

minus retail margin (30%): – $90

Retailer’s cost/wholesaler’s price: $210

minus wholesaler’s margin (20%): – $ 42

Wholesaler’s cost/HD’s price: $168

By deducting the markups for each level in the markup chain, HD arrives at a price for the

product to wholesalers of $168.

Break-Even and Margin Analysis The previous analyses derived a value-based price of $168 for HD’s product. Although this

price is higher than the break-even price of $145 and covers costs, that price assumed a demand

of 1 million units. But how many unit sales and what level of dollar sales must HD achieve to

break even at the $168 price? And what level of sales must be achieved to realize various profit

goals? These questions can be answered through break-even and margin analysis.

Determining Break-Even Unit Volume and Dollar Sales Based on an understanding of costs, consumer value, the competitive environment, and

reseller requirements, HD has decided to set its price to wholesalers at $168. At that price,

what sales level will be needed for HD to break even or make a profit on its product?

Break-even analysis determines the unit volume and dollar sales needed to be profitable

given a particular price and cost structure. At the break-even point, total revenue equals

total costs and profit is zero. Above this point, the company will make a profit; below it,

Markup

The difference between a company’s

selling price for a product and its cost to

manufacture or purchase it.

Value-based pricing

Offering just the right combination of

quality and good service at a fair price.

Markup chain

The sequence of markups used by firms

at each level in a channel.

Break-even analysis

Analysis to determine the unit volume and

dollar sales needed to be profitable given

a particular price and cost structure.

646 Appendix 2 | Marketing by the Numbers the company will lose money. HD can calculate break-even volume using the following

formula:

- Break even volume = fixed costs

price - unit variable cost

The denominator (price – unit variable cost) is called unit contribution (sometimes

called contribution margin). It represents the amount that each unit contributes to covering fixed costs. Break-even volume represents the level of output at which all (variable and

fixed) costs are covered. In HD’s case, break-even unit volume is:

- Break even volume = fixed cost

price - variable cost =

$20,000,000

$168 - $125 = 465,116.2 units

Thus, at the given cost and pricing structure, HD will break even at 465,117 units.

To determine the break-even dollar sales, simply multiply unit break-even volume by

the selling price:

BE sales = BEvol * price = 465,117 * $168 = $78,139,656

Another way to calculate dollar break-even sales is to use the percentage contribution mar-

gin (hereafter referred to as contribution margin), which is the unit contribution divided

by the selling price:

Contribution margin = price - variable cost

price =

$168 - $125 $168

= 0.256 or 25.6%

Then,

- Break even sales = fixed costs

contribution margin =

$20,000,000

0.256 = $78,125,000

Note that the difference between the two break-even sales calculations is due to rounding.

Such break-even analysis helps HD by showing the unit volume needed to cover costs.

If production capacity cannot attain this level of output, then the company should not

launch this product. However, the unit break-even volume is well within HD’s capacity.

Of course, the bigger question concerns whether HD can sell this volume at the $168 price.

We’ll address that issue a little later.

Understanding contribution margin is useful in other types of analyses as well, partic-

ularly if unit prices and unit variable costs are unknown or if a company (say, a retailer) sells

many products at different prices and knows the percentage of total sales represented by

variable costs. Whereas unit contribution is the difference between unit price and unit vari-

able costs, total contribution is the difference between total sales and total variable costs.

The overall contribution margin can be calculated by:

Contribution margin = total sales - total variable costs

total sales

Regardless of the actual level of sales, if the company knows what percentage of sales

is represented by variable costs, it can calculate contribution margin. For example, HD’s

unit variable cost is $125, or 74% of the selling price ($125 � $168 � 0.74). That means

for every $1 of sales revenue for HD, $0.74 represents variable costs, and the difference

($0.26) represents contribution to fixed costs. But even if the company doesn’t know its

unit price and unit variable cost, it can calculate the contribution margin from total sales

and total variable costs or from knowledge of the total cost structure. It can set total sales

equal to 100% regardless of the actual absolute amount and determine the contribution

margin:

Contribution margin = 100% - 74%

100% =

1 - 0.74 1

= 1 - 0.74 = 0.26 or 26%

Note that this matches the percentage calculated from the unit price and unit variable

cost information. This alternative calculation will be very useful later when analyzing vari-

ous marketing decisions.

Unit contribution

The amount that each unit contributes

to covering fixed costs—the difference

between price and variable costs.

Contribution margin

The unit contribution divided by the

selling price.

Appendix 2 | Marketing by the Numbers 647 Determining the Break-Even Point for Profit Goals Although it is useful to know the break-even point, most companies are more interested in

making a profit. Assume HD would like to realize a $5 million profit in the first year. How

many units must it sell at the $168 price to cover fixed costs and produce this profit? To

determine this, HD can simply add the profit figure to fixed costs and again divide by the

unit contribution to determine unit sales:

Unit volume = fixed cost + profit goal

price - variable cost =

$20,000,000 + $5,000,000 $168 - $125

= 581,395.3 units

Thus, to earn a $5 million profit, HD must sell 581,396 units. Multiply by price to determine

the dollar sales needed to achieve a $5 million profit:

Dollar sales = 581,396 units * $168 = $97,674,528

Or use the contribution margin:

Sales = fixed cost + profit goal

contribution margin =

$20,000,000 + $5,000,000 0.256

= $97,656,250

Again, note that the difference between the two break-even sales calculations is due to

rounding.

As we saw previously, a profit goal can also be stated as an ROI goal. For example, re-

call that HD wants a 30% return on its $10 million investment. Thus, its absolute profit goal

is $3 million ($10,000,000 � 0.30). This profit goal is treated the same way as in the previous

example:2

Unit volume = fixed cost + profit goal

price - variable cost =

$20,000,000 + $3,000,000 $168 - $125

= 534,884 units

Dollar sales � 534,884 units � $168 � $89,860,512

Dollar sales = fixed cost + profit goal

contribution margin =

$20,000,000 + $3,000,000 0.256

= $89,843,750

Finally, HD can express its profit goal as a percentage of sales, which we also saw in

previous pricing analyses. Assume HD desires a 25% return on sales. To determine the unit

and sales volume necessary to achieve this goal, the calculation is a little different from the

previous two examples. In this case, we incorporate the profit goal into the unit contribution

as an additional variable cost. Look at it this way: If 25% of each sale must go toward profits,

that leaves only 75% of the selling price to cover fixed costs. Thus, the equation becomes:

Unit volume = fixed cost

price - variable cost - 10.25 * price2 or

fixed cost

10 .75 * price2 - variable cost

So,

Unit volume = $20,000,000

(0.75 * 168) - $125 = 20,000,000 units

Dollar sales necessary � 20,000,000 units � $168 � $3,360,000,000

Thus, HD would need more than $3 billion in sales to realize a 25% return on sales

given its current price and cost structure! Could it possibly achieve this level of sales? The

major point is this: Although break-even analysis can be useful in determining the level of

sales needed to cover costs or to achieve a stated profit goal, it does not tell the company

whether it is possible to achieve that level of sales at the specified price. To address this issue, HD needs to estimate demand for this product.

Before moving on, however, let’s stop here and practice applying the concepts covered

so far. Now that you have seen pricing and break-even concepts in action as they relate to

HD’s new product, here are several exercises for you to apply what you have learned in

other contexts.

648 Appendix 2 | Marketing by the Numbers Marketing by the Numbers Exercise Set 1 Now that you’ve studied pricing, break-even, and margin analysis as they relate to

HD’s new-product launch, use the following exercises to apply these concepts in other

contexts.

1.1. Elkins, a manufacturer of ice makers, realizes a cost of $250 for every unit it produces. Its total fixed costs equal $5 million. If the company manufactures 500,000 units, com-

pute the following:

a. unit cost

b. markup price if the company desires a 10% return on sales

c. ROI price if the company desires a 25% return on an investment of $1 million

1.2. A gift shop owner purchases items to sell in her store. She purchases a chair for $125 and sells it for $275. Determine the following:

a. dollar markup

b. markup percentage on cost

c. markup percentage on selling price

1.3. A consumer purchases a coffee maker from a retailer for $90. The retailer’s markup is 30%, and the wholesaler’s markup is 10%, both based on selling price. For what price

does the manufacturer sell the product to the wholesaler?

1.4. A lawn mower manufacturer has a unit cost of $140 and wishes to achieve a margin of 30% based on selling price. If the manufacturer sells directly to a retailer which then

adds a set margin of 40% based on selling price, determine the retail price charged to

consumers.

1.5. Advanced Electronics manufactures DVDs and sells them directly to retailers that typ- ically sell them for $20. Retailers take a 40% margin based on the retail selling price.

Advanced’s cost information is as follows:

DVD package and disc $2.50/DVD

Royalties $2.25/DVD

Advertising and promotion $500,000

Overhead $200,000

Calculate the following:

a. contribution per unit and contribution margin

b. break-even volume in DVD units and dollars

c. volume in DVD units and dollar sales necessary if Advanced’s profit goal is 20%

profit on sales

d. net profit if 5 million DVDs are sold

Demand Estimates, the Marketing Budget, and Marketing Performance Measures

Market Potential and Sales Estimates HD has now calculated the sales needed to break even and to attain various profit goals

on its new product. However, the company needs more information regarding demand in

order to assess the feasibility of attaining the needed sales levels. This information is also

needed for production and other decisions. For example, production schedules need to be

developed and marketing tactics need to be planned.

The total market demand for a product or service is the total volume that would be

bought by a defined consumer group in a defined geographic area in a defined time period

in a defined marketing environment under a defined level and mix of industry market-

ing effort. Total market demand is not a fixed number but a function of the stated condi-

tions. For example, next year’s total market demand for this type of product will depend

on how much other producers spend on marketing their brands. It also depends on many

Total market demand

The total volume that would be bought

by a defined consumer group in a defined

geographic area in a defined time period

in a defined marketing environment

under a defined level and mix of industry

marketing effort.

Appendix 2 | Marketing by the Numbers 649 environmental factors, such as government regulations, economic conditions, and the level

of consumer confidence in a given market. The upper limit of market demand is called

market potential.

One general but practical method that HD might use for estimating total market de-

mand uses three variables: (1) the number of prospective buyers, (2) the quantity purchased

by an average buyer per year, and (3) the price of an average unit. Using these numbers, HD

can estimate total market demand as follows:

Q = n * q * p

where

Q � total market demand

n � number of buyers in the market

q � quantity purchased by an average buyer per year

p � price of an average unit

A variation of this approach is the chain ratio method. This method involves mul-

tiplying a base number by a chain of adjusting percentages. For example, HD’s product is

designed to stream high-definition video on high-definition televisions as well as play other

video content streamed from the Internet to multiple devices in a home. Thus, consumers

who do not own a high-definition television will not likely purchase this player. Addition-

ally, only households with broadband Internet access will be able to use the product. Fi-

nally, not all HDTV-owning Internet households will be willing and able to purchase this

product. HD can estimate U.S. demand using a chain of calculations like the following:

Total number of U.S. households � The percentage of HDTV-owning U.S. households

with broadband Internet access � The percentage of these households willing

and able to buy this device

The U.S. Census Bureau estimates that there are approximately 113 million households

in the United States.3 HD’s research indicates that 60% of U.S. households own at least one

HDTV and have broadband Internet access. Finally, the company’s research also revealed

that 30% of households possess the discretionary income needed and are willing to buy a

product such as this. Then, the total number of households willing and able to purchase

this product is:

113 million households * 0.60 * 0.30 = 20.34 million households

Households only need to purchase one device because it can stream content to other

devices throughout the household. Assuming the average retail price across all brands is

$350 for this product, the estimate of total market demand is as follows:

20.34 million households * 1 device per household * $350 = $7,119,000,000

This simple chain of calculations gives HD only a rough estimate of potential demand.

However, more detailed chains involving additional segments and other qualifying fac-

tors would yield more accurate and refined estimates. Still, these are only estimates of mar- ket potential. They rely heavily on assumptions regarding adjusting percentages, average

quantity, and average price. Thus, HD must make certain that its assumptions are reason-

able and defendable. As can be seen, the overall market potential in dollar sales can vary

widely given the average price used. For this reason, HD will use unit sales potential to

determine its sales estimate for next year. Market potential in terms of units is 20.34 million

(20.34 million households � 1 device per household).

Assuming that HD forecasts it will have a 3.66% market share in the first year after

launching this product, then it can forecast unit sales at 20.34 million units � 0.0366 �

744,444 units. At a selling price of $168 per unit, this translates into sales of $125,066,592

(744,444 units � $168 per unit). For simplicity, further analyses will use forecasted sales of

$125 million.

This unit volume estimate is well within HD’s production capacity and exceeds not

only the break-even estimate (465,117 units) calculated earlier, but also the volume neces-

sary to realize a $5 million profit (581,396 units) or a 30% return on investment (534,884

units). However, this forecast falls well short of the volume necessary to realize a 25% return

on sales (20 million units!) and may require that HD revise expectations.

Market potential

The upper limit of market demand.

Chain ratio method

Estimating market demand by multiplying

a base number by a chain of adjusting

percentages.

650 Appendix 2 | Marketing by the Numbers To assess expected profi ts, we must now look at the budgeted expenses for launching

All marketing managers must account for the profi t impact of their marketing strategies. A

major tool for projecting such profi t impact is a (or projected)

(or ). A pro forma statement

shows projected revenues less budgeted expenses and estimates the projected net profi t for

an organization, product, or brand during a specifi c planning period, typically a year. It in

cludes direct product production costs, marketing expenses budgeted to attain a given sales

statement typically consists of several major components (see ):

Net sales— gross sales revenue minus returns and allowances (for example, trade, cash, quantity, and promotion allowances). HD’s net sales for 2013 are estimated to be $125

million, as determined in the previous analysis.

Cost of goods sold (sometimes called cost of sales)—the actual cost of the merchandise sold by a manufacturer or reseller. It includes the cost of inventory, purchases, and other

costs associated with making the goods. HD’s cost of goods sold is estimated to be 50%

of net sales, or $62.5 million.

Gross margin (or gross profit)—the difference between net sales and cost of goods sold. HD’s gross margin is estimated to be $62.5 million.

Operating expenses—the expenses incurred while doing business. These include all other expenses beyond the cost of goods sold that are necessary to conduct business.

Operating expenses can be presented in total or broken down in detail. Here, HD’s

estimated operating expenses include marketing expenses and general and administrative expenses.

Marketing expenses include sales expenses, promotion expenses, and distribu

tion expenses. The new product will be sold though HD’s sales force, so the company

budgets $5 million for sales salaries. However, because sales representatives earn a

10% commission on sales, HD must also add a variable component to sales expenses

of $12.5 million (10% of $125 million net sales), for a total budgeted sales expense of

$17.5 million. HD sets its advertising and promotion to launch this product at $10 mil

lion. However, the company also budgets 4% of sales, or $5 million, for cooperative

A statement that shows projected

revenues less budgeted expenses and

estimates the projected net profit for an

organization, product, or brand during a

specific planning period, typically a year.

Table A2.1 December 31, 2013

Net Sales $125,000,000 100%

Cost of Goods Sold 62,500,000 50%

Gross Margin $ 62,500,000 50%

Marketing Expenses

Sales expenses $17,500,000

Promotion expenses 15,000,000

Freight 12,500,000 45,000,000 36%

General and Administrative Expenses

Managerial salaries and expenses $2,000,000

Indirect overhead 3,000,000 5,000,000 4%

Net Profit Before Income Tax $12,500,000 10%

Appendix 2 | Marketing by the Numbers advertising allowances to retailers who promote HD’s new product in their adver

tising. Thus, the total budgeted advertising and promotion expenses are $15 million

of net sales, or $12.5 million, for freight and delivery charges. In all, total marketing

expenses are estimated to be $17.5 million $15 million $12.5 million $45 million.

General and administrative expenses are estimated at $5 million, broken down into

$2 million for managerial salaries and expenses for the marketing function and $3 mil

lion of indirect overhead allocated to this product by the corporate accountants (such

as depreciation, interest, maintenance, and insurance). Total expenses for the year,

then, are estimated to be $50 million ($45 million marketing expenses $5 million in

general and administrative expenses).

Net profit before taxes—profi t earned after all costs are deducted. HD’s estimated net profi t before taxes is $12.5 million.

In all, as Table A2.1 shows, HD expects to earn a profi t on its new product of $12.5

termined by dividing the cost fi gure by net sales (that is, marketing expenses represent 36%

of net sales determined by $45 million $125 million). As can be seen, HD projects a net

profi t return on sales of 10% in the fi rst year after launching this product.

agement wants to assess its sales and profi t performance. One way to assess this perfor

mance is to compute performance ratios derived from HD’s

(or or ).

projected fi nancial perfor mance, the statement given in shows HD’s actual fi nancial performance based on actual sales, cost of goods sold, and expenses during the past year. By comparing

A statement that shows actual revenues

less expenses and net profit for an

organization, product, or brand during a

specific planning period, typically a year.

Table A2.2 2013

Net Sales $100,000,000 100%

Cost of Goods Sold 55,000,000 55%

Gross Margin $ 45,000,000 45%

Marketing Expenses

Sales expenses $15,000,000

Promotion expenses 14,000,000

Freight 10,000,000 39,000,000 39%

General and Administrative Expenses

Managerial salaries and expenses $2,000,000

Indirect overhead 5,000,000 7,000,000 7%

Net Profit Before Income Tax ($1,000,000) (–1%)

652 Appendix 2 | Marketing by the Numbers

Gross margin percentage

The percentage of net sales remaining

after cost of goods sold—calculated by

dividing gross margin by net sales.

Net profit percentage

The percentage of each sales dollar

going to profit—calculated by dividing net

profits by net sales.

Operating expense percentage

The portion of net sales going to

operating expenses—calculated by

dividing total expenses by net sales.

the profit-and-loss statement from one period to the next, HD can gauge performance

against goals, spot favorable or unfavorable trends, and take appropriate corrective action.

The profit-and-loss statement shows that HD lost $1 million rather than making the

$12.5 million profit projected in the pro forma statement. Why? One obvious reason is

that net sales fell $25 million short of estimated sales. Lower sales translated into lower

variable costs associated with marketing the product. However, both fixed costs and the

cost of goods sold as a percentage of sales exceeded expectations. Hence, the product’s

contribution margin was rather than the estimated 26%. That is, variable costs represented

of sales (55% for cost of goods sold, 10% for sales commissions, 10% for freight, and 4% for

co-op allowances). Recall that contribution margin can be calculated by subtracting that

fraction from 1 (1 – 0.79 � 0.21). Total fixed costs were $22 million, $2 million more than

estimated. Thus, the sales that HD needed to break even given this cost structure can be

calculated as:

Break even sales = fixed costs

contribution margin =

$22,000,000

0.21 = $104,761,905

If HD had achieved another $5 million in sales, it would have earned a profit.

Although HD’s sales fell short of the forecasted sales, so did overall industry sales for

this product. Overall industry sales were only $2.5 billion. That means that HD’s market

share was 4% ($100 million � $2.5 billion � 0.04 � 4%), which was higher than forecasted.

Thus, HD attained a higher-than-expected market share but the overall market sales were

not as high as estimated.

Analytic Ratios The profit-and-loss statement provides the figures needed to compute some crucial oper-

ating ratios—the ratios of selected operating statement items to net sales. These ratios let

marketers compare the firm’s performance in one year to that in previous years (or with

industry standards and competitors’ performance in that year). The most commonly used

operating ratios are the gross margin percentage, the net profit percentage, and the operat-

ing expense percentage. The inventory turnover rate and return on investment (ROI) are

often used to measure managerial effectiveness and efficiency.

The gross margin percentage indicates the percentage of net sales remaining after

cost of goods sold that can contribute to operating expenses and net profit before taxes. The

higher this ratio, the more a firm has left to cover expenses and generate profit. HD’s gross

margin ratio was 45%:

Gross margin percentage = gross margin

net sales =

$45,000,000

$100,000,000 = 0.45 = 45%

Note that this percentage is lower than estimated, and this ratio is seen easily in the

percentage of-sales column in Table A2.2. Stating items in the profit-and-loss statement as

a percent of sales allows managers to quickly spot abnormal changes in costs over time.

If there was previous history for this product and this ratio was declining, management

should examine it more closely to determine why it has decreased (that is, because of a

decrease in sales volume or price, an increase in costs, or a combination of these). In HD’s

case, net sales were $25 million lower than estimated, and cost of goods sold was higher

than estimated (55% rather than the estimated 50%).

The net profit percentage shows the percentage of each sales dollar going to profit.

It is calculated by dividing net profits by net sales:

Net profit percentage = net profit

net sales =

- $1,000,000 $100,000,000

= 0.01 = - 1.0%

This ratio is easily seen in the percent-of-sales column. HD’s new product generated nega-

tive profits in the first year—not a good situation, given that before the product launch net

profits before taxes were estimated at more than $12 million. Later in this appendix, we will

discuss further analyses the marketing manager should conduct to defend the product.

The operating expense percentage indicates the portion of net sales going to op-

erating expenses. Operating expenses include marketing and other expenses not directly

Market share

Company sales divided by market sales.

Operating ratios

The ratios of selected operating

statement items to net sales.

Appendix 2 | Marketing by the Numbers 653 related to marketing the product, such as indirect overhead assigned to this product. It is

calculated by:

Operating expense percentage = total expenses

net sales =

$46,000,000

$100,000,000 = 0.46 = 46%

This ratio can also be quickly determined from the percent-of-sales column in the profit-

and-loss statement by adding the percentages for marketing expenses and general and ad-

ministrative expenses (39% � 7%). Thus, 46 cents of every sales dollar went for operations.

Although HD wants this ratio to be as low as possible, and 46% is not an alarming amount,

it is of concern if it is increasing over time or if a loss is realized.

Another useful ratio is the inventory turnover rate (or stockturn rate for resell-

ers). The inventory turnover rate is the number of times an inventory turns over or is sold

during a specified time period (often one year). This rate tells how quickly a business is

moving inventory through the organization. Higher rates indicate that lower investments

in inventory are made, thus freeing up funds for other investments. It may be computed on

a cost, selling price, or unit basis. The formula based on cost is:

Inventory turnover rate = cost of goods sold

average inventory at cost

Assuming HD’s beginning and ending inventories were $30 million and $20 million, re-

spectively, the inventory turnover rate is:

Inventory turnover rate = $55,000,000

1$30,000,000 + $20,000,0002 > 2 =

$55,000,000

$25,000,000 = 2.2

That is, HD’s inventory turned over 2.2 times in 2013. Normally, the higher the turnover

rate, the higher the management efficiency and company profitability. However, this rate

should be compared to industry averages, competitors’ rates, and past performance to de-

termine if HD is doing well. A competitor with similar sales but a higher inventory turnover

rate will have fewer resources tied up in inventory, allowing it to invest in other areas of

the business.

Companies frequently use return on investment (ROI) to measure managerial effec-

tiveness and efficiency. For HD, ROI is the ratio of net profits to total investment required to

manufacture the new product. This investment includes capital investments in land, build-

ings, and equipment (here, the initial $10 million to refurbish the manufacturing facility)

plus inventory costs (HD’s average inventory totaled $25 million), for a total of $35 million.

Thus, HD’s ROI for this product is:

Return on investment = net profit before taxes

investment =

- $1,000,000 $35,000,000

= 0.286 = 2.86%

ROI is often used to compare alternatives, and a positive ROI is desired. The alternative

with the highest ROI is preferred to other alternatives. HD needs to be concerned with the

ROI realized. One obvious way HD can increase ROI is to increase net profit by reducing

expenses. Another way is to reduce its investment, perhaps by investing less in inventory

and turning it over more frequently.

Marketing Profitability Metrics Given the financial results just discussed, you may be thinking that HD should drop this

new product. But what arguments can marketers make for keeping or dropping this prod-

uct? The obvious arguments for dropping the product are that first-year sales were well

below expected levels and the product lost money, resulting in a negative ROI.

So what would happen if HD did drop this product? Surprisingly, if the company drops

the product, the profits for the total organization will decrease by $4 million! How can that

be? Marketing managers need to look closely at the numbers in the profit-and-loss state-

ment to determine the net marketing contribution for this product. In HD’s case, the net mar- keting contribution for the product is $4 million, and if the company drops this product, that

contribution will disappear as well. Let’s look more closely at this concept to illustrate how

marketing managers can better assess and defend their marketing strategies and programs.

Inventory turnover rate (or stockturn rate for resellers)

The number of times an inventory turns

over or is sold during a specified time

period (often one year)—calculated based

on costs, selling price, or units.

Return on investment (ROI)

A measure of managerial effectiveness

and efficiency—net profit before taxes

divided by total investment.

654 Appendix 2 | Marketing by the Numbers Net Marketing Contribution Net marketing contribution (NMC), along with other marketing metrics derived from it,

measures marketing profitability. It includes only components of profitability that are con- trolled by marketing. Whereas the previous calculation of net profit before taxes from the

profit-and-loss statement includes operating expenses not under marketing’s control, NMC

does not. Referring back to HD’s profit-and-loss statement given in Table A2.2, we can cal-

culate net marketing contribution for the product as:

NMC � net sales � cost of goods sold � marketing expenses

� $100 million � $55 million � $41 million � $4 million

The marketing expenses include sales expenses ($15 million), promotion expenses

($14 million), freight expenses ($10 million), and the managerial salaries and expenses of

the marketing function ($2 million), which total $41 million.

Thus, the product actually contributed $4 million to HD’s profits. It was the $5 million

of indirect overhead allocated to this product that caused the negative profit. Further, the

amount allocated was $2 million more than estimated in the pro forma profit-and-loss state-

ment. Indeed, if only the estimated amount had been allocated, the product would have

earned a profit of $1 million rather than losing $1 million. If HD drops the product, the $5 million in fixed overhead expenses will not disappear—it will simply have to be al-

located elsewhere. However, the $4 million in net marketing contribution will disappear.

Marketing Return on Sales and Investment To get an even deeper understanding of the profit impact of marketing strategy, we’ll now

examine two measures of marketing efficiency—marketing return on sales (marketing ROS) and marketing return on investment (marketing ROI).4

Marketing return on sales (or marketing ROS) shows the percent of net sales at- tributable to the net marketing contribution. For our product, ROS is:

Marketing ROS = net marketing contribution

net sales =

$4,000,000

$100,000,000 = 0.04 = 4%

Thus, out of every $100 of sales, the product returns $4 to HD’s bottom line. A high market-

ing ROS is desirable. But to assess whether this is a good level of performance, HD must

compare this figure to previous marketing ROS levels for the product, the ROSs of other

products in the company’s portfolio, and the ROSs of competing products.

Marketing return on investment (or marketing ROI) measures the marketing pro-

ductivity of a marketing investment. In HD’s case, the marketing investment is represented

by $41 million of the total expenses. Thus, marketing ROI is:

Marketing ROI = net marketing contribution

marketing expenses =

$4,000,000

$41,000,000 = 0.0976 = 9.67%

As with marketing ROS, a high value is desirable, but this figure should be compared with

previous levels for the given product and with the marketing ROIs of competitors’ prod-

ucts. Note from this equation that marketing ROI could be greater than 100%. This can be

achieved by attaining a higher net marketing contribution and/or a lower total marketing

expense.

In this section, we estimated market potential and sales, developed profit-and-loss

statements, and examined financial measures of performance. In the next section, we dis-

cuss methods for analyzing the impact of various marketing tactics. However, before mov-

ing on to those analyses, here’s another set of quantitative exercises to help you apply what

you’ve learned to other situations.

Marketing by the Numbers Exercise Set 2 2.1. Determine the market potential for a product that has 20 million prospective buyers

who purchase an average of 2 per year and price averages $50. How many units must

a company sell if it desires a 10% share of this market?

2.2. Develop a profit-and-loss statement for the Westgate division of North Industries. This division manufactures light fixtures sold to consumers through home improve-

Marketing return on sales (or marketing ROS)

The percent of net sales attributable

to the net marketing contribution—

calculated by dividing net marketing

contribution by net sales.

Net marketing contribution (NMC)

A measure of marketing profitability that

includes only components of profitability

controlled by marketing.

Marketing return on investment (or marketing ROI)

A measure of the marketing productivity

of a marketing investment—calculated

by dividing net marketing contribution by

marketing expenses.

Appendix 2 | Marketing by the Numbers 655 ment and hardware stores. Cost of goods sold represents 40% of net sales. Marketing

expenses include selling expenses, promotion expenses, and freight. Selling expenses

include sales salaries totaling $3 million per year and sales commissions (5% of sales).

The company spent $3 million on advertising last year, and freight costs were 10%

of sales. Other costs include $2 million for managerial salaries and expenses for the

marketing function, and another $3 million for indirect overhead allocated to the di-

vision.

a. Develop the profit-and-loss statement if net sales were $20 million last year.

b. Develop the profit-and-loss statement if net sales were $40 million last year.

c. Calculate Westgate’s break-even sales.

2.3. Using the profit-and-loss statement you developed in question 2.2b, and assuming that Westgate’s beginning inventory was $11 million, ending inventory was $7 mil-

lion, and total investment was $20 million including inventory, determine the fol-

lowing:

a. gross margin percentage

b. net profit percentage

c. operating expense percentage

d. inventory turnover rate

e. return on investment (ROI)

f. net marketing contribution

g. marketing return on sales (marketing ROS)

h. marketing return on investment (marketing ROI)

i. Is the Westgate division doing well? Explain your answer.

Financial Analysis of Marketing Tactics Although the first-year profit performance for HD’s new product was less than desired,

management feels that this attractive market has excellent growth opportunities. Although

the sales of HD’s product were lower than initially projected, they were not unreasonable

given the size of the current market. Thus, HD wants to explore new marketing tactics to

help grow the market for this product and increase sales for the company.

For example, the company could increase advertising to promote more awareness of

the new product and its category. It could add salespeople to secure greater product distri-

bution. HD could decrease prices so that more consumers could afford its product. Finally,

to expand the market, HD could introduce a lower-priced model in addition to the higher-

priced original offering. Before pursuing any of these tactics, HD must analyze the financial

implications of each.

Increase Advertising Expenditures HD is considering boosting its advertising to make more people aware of the benefits of this

device in general and of its own brand in particular. What if HD’s marketers recommend

increasing national advertising by 50% to $15 million (assume no change in the variable

cooperative component of promotional expenditures)? This represents an increase in fixed

costs of $5 million. What increase in sales will be needed to break even on this $5 million

increase in fixed costs?

A quick way to answer this question is to divide the increase in fixed costs by the con-

tribution margin, which we found in a previous analysis to be 21%:

Increase in sales = increase in fixed cost

contribution margin =

$5,000,000

0.21 = $23,809,524

Thus, a 50% increase in advertising expenditures must produce a sales increase of almost

$24 million to just break even. That $24 million sales increase translates into an almost

1 percentage point increase in market share (1% of the $2.5 billion overall market equals $25

million). That is, to break even on the increased advertising expenditure, HD would have

to increase its market share from 4% to 4.95% ($123,809,524 � $2.5 billion � 0.0495 or 4.95%

market share). All of this assumes that the total market will not grow, which might or might

not be a reasonable assumption.

656 Appendix 2 | Marketing by the Numbers Increase Distribution Coverage HD also wants to consider hiring more salespeople in order to call on new retailer accounts

and increase distribution through more outlets. Even though HD sells directly to wholesal-

ers, its sales representatives call on retail accounts to perform other functions in addition to

selling, such as training retail salespeople. Currently, HD employs 60 sales reps who earn

an average of $50,000 in salary plus 10% commission on sales. The product is currently sold

to consumers through 1,875 retail outlets. Suppose HD wants to increase that number of

outlets to 2,500, an increase of 625 retail outlets. How many additional salespeople will HD

need, and what sales will be necessary to break even on the increased cost?

One method for determining what size sales force HD will need is the workload

method. The workload method uses the following formula to determine the salesforce size:

NS = NC * FC * LC

where

NS � number of salespeople

NC � number of customers

FC � average frequency of customer calls per customer

LC � average length of customer call

TA � time an average salesperson has available for selling per year

HD’s sales reps typically call on accounts an average of 20 times per year for about

2 hours per call. Although each sales rep works 2,000 hours per year (50 weeks per year �

40 hours per week), they each spent about 15 hours per week on nonselling activities such

as administrative duties and travel. Thus, the average annual available selling time per

sales rep per year is 1,250 hours (50 weeks � 25 hours per week). We can now calculate how

many sales reps HD will need to cover the anticipated 2,500 retail outlets:

NS = 2,500 * 20 * 2

1,250 = 80 salespeople

Therefore, HD will need to hire 20 more salespeople. The cost to hire these reps will be $1

million (20 salespeople � $50,000 salary per salesperson).

What increase in sales will be required to break even on this increase in fixed costs? The

10% commission is already accounted for in the contribution margin, so the contribution

margin remains unchanged at 21%. Thus, the increase in sales needed to cover this increase

in fixed costs can be calculated by:

Increase in sales = increase in fixed cost

contribution margin =

$1,000,000

0.21 = $4,761,905

That is, HD’s sales must increase almost $5 million to break even on this tactic. So, how many

new retail outlets will the company need to secure to achieve this sales increase? The average

revenue generated per current outlet is $53,333 ($100 million in sales divided by 1,875 outlets).

To achieve the nearly $5 million sales increase needed to break even, HD would need about 90

new outlets ($4,761,905 � $53,333 � 89.3 outlets), or about 4.5 outlets per new rep. Given that

current reps cover about 31 outlets apiece (1,875 outlets � 60 reps), this seems very reasonable.

Decrease Price HD is also considering lowering its price to increase sales revenue through increased vol-

ume. The company’s research has shown that demand for most types of consumer electron-

ics products is elastic—that is, the percentage increase in the quantity demanded is greater

than the percentage decrease in price.

What increase in sales would be necessary to break even on a 10% decrease in price?

That is, what increase in sales will be needed to maintain the total contribution that HD re-

alized at the higher price? The current total contribution can be determined by multiplying

the contribution margin by total sales:5

Workload method

An approach to determining sales force

size based on the workload required and

the time available for selling.

Current total contribution = contribution margin * sales = 0.21 * $100 million = $21 million

Appendix 2 | Marketing by the Numbers 657 Price changes result in changes in unit contribution and contribution margin. Recall

that the contribution margin of 21% was based on variable costs representing 79% of sales.

Therefore, unit variable costs can be determined by multiplying the original price by this

percentage: $168 � 0.79 � $132.72 per unit. If price is decreased by 10%, the new price is

$151.20. However, variable costs do not change just because price decreased, so the contri-

bution and contribution margin decrease as follows:

Old New (reduced 10%)

Price $168 $151.20

– Unit variable cost $132.72 $132.72

� Unit contribution $35.28 $18.48

Contribution margin $35.28/$168 � 0.21 or 21% $18.48/$151.20 � 0.12 or 12%

So, a 10% reduction in price results in a decrease in the contribution margin from 21% to

12%.6 To determine the sales level needed to break even on this price reduction, we calculate

the level of sales that must be attained at the new contribution margin to achieve the origi-

nal total contribution of $21 million:

New contribution margin * new sales level = original total contribution

So,

New sales level = original contribution

new contribution margin =

$21,000,000

0.12 = $175,000,000

Thus, sales must increase by $75 million ($175 million – $100 million) just to break even on a

10% price reduction. This means that HD must increase market share to 7% ($175 million �

$2.5 billion) to achieve the current level of profits (assuming no increase in the total market

sales). The marketing manager must assess whether or not this is a reasonable goal.

Extend the Product Line As a final option, HD is considering extending its product line by offering a lower-priced

model. Of course, the new, lower-priced product would steal some sales from the higher-

priced model. This is called cannibalization—the situation in which one product sold by a

company takes a portion of its sales from other company products. If the new product has a

lower contribution than the original product, the company’s total contribution will decrease

on the cannibalized sales. However, if the new product can generate enough new volume,

it is worth considering.

To assess cannibalization, HD must look at the incremental contribution gained by

having both products available. Recall in the previous analysis we determined that unit

variable costs were $132.72 and unit contribution was just over $35. Assuming costs remain

the same next year, HD can expect to realize a contribution per unit of approximately $35

for every unit of the original product sold.

Assume that the first model offered by HD is called HD1 and the new, lower-priced

model is called HD2. HD2 will retail for $250, and resellers will take the same markup

percentages on price as they do with the higher-priced model. Therefore, HD2’s price to

wholesalers will be $140, as follows:

Retail price: $250

minus retail margin (30%): – $75

Retailer’s cost/wholesaler’s price: $175

minus wholesaler’s margin (20%): – $35

Wholesaler’s cost/HD’s price: $140

If HD2’s variable costs are estimated to be $120, then its contribution per unit will equal

$20 ($140 – $120 � $20). That means for every unit that HD2 cannibalizes from HD1, HD

Cannibalization

The situation in which one product sold

by a company takes a portion of its sales

from other company products.

658 Appendix 2 | Marketing by the Numbers will lose $15 in contribution toward fixed costs and profit (that is, contributionHD2 – contri- butionHD1 � $20 – $35 � –$15). You might conclude that HD should not pursue this tactic

because it appears as though the company will be worse off if it introduces the lower-priced

model. However, if HD2 captures enough additional sales, HD will be better off even though some HD1 sales are cannibalized. The company must examine what will happen to total con- tribution, which requires estimates of unit volume for both products.

Originally, HD estimated that next year’s sales of HD1 would be 600,000 units. How-

ever, with the introduction of HD2, it now estimates that 200,000 of those sales will be

cannibalized by the new model. If HD sells only 200,000 units of the new HD2 model

(all cannibalized from HD1), the company would lose $3 million in total contribution

(200,000 units � –$15 per cannibalized unit � –$3 million)—not a good outcome. How-

ever, HD estimates that HD2 will generate the 200,000 of cannibalized sales plus an ad- ditional 500,000 unit sales. Thus, the contribution on these additional HD2 units will be $10 million (i.e., 500,000 units � $20 per unit � $10 million). The net effect is that HD will

gain $7 million in total contribution by introducing HD2.

The following table compares HD’s total contribution with and without the introduc-

tion of HD2:

HD1 Only HD1 and HD2

HD1 contribution

600,000 units � $35

� $21,000,000

400,000 units � $35

� $14,000,000

HD2 contribution

700,000 units � $20

� $14,000,000

Total contribution $21,000,000 $28,000,000

The difference in the total contribution is a net gain of $7 million ($28 million –

$21 million). Based on this analysis, HD should introduce the HD2 model because it results

in a positive incremental contribution. However, if fixed costs will increase by more than

$7 million as a result of adding this model, then the net effect will be negative and HD

should not pursue this tactic.

Now that you have seen these marketing tactic analysis concepts in action as related

to HD’s new product, here are several exercises for you to apply what you have learned in

this section in other contexts.

Marketing by the Numbers Exercise Set 3 3.1. Alliance, Inc. sells gas lamps to consumers through retail outlets. Total industry sales

for Alliance’s relevant market last year were $100 million, with Alliance’s sales rep-

resenting 5% of that total. Contribution margin is 25%. Alliance’s sales force calls on

retail outlets, and each sales rep earns $50,000 per year plus 1% commission on all

sales. Retailers receive a 40% margin on selling price and generate average revenue of

$10,000 per outlet for Alliance.

a. The marketing manager has suggested increasing consumer advertising by

$200,000. By how much would dollar sales need to increase to break even on this

expenditure? What increase in overall market share does this represent?

b. Another suggestion is to hire two more sales representatives to gain new consumer

retail accounts. How many new retail outlets would be necessary to break even on

the increased cost of adding two sales reps?

c. A final suggestion is to make a 10% across-the-board price reduction. By how much

would dollar sales need to increase to maintain Alliance’s current contribution?

(See Ref. 6 to calculate the new contribution margin.)

d. Which suggestion do you think Alliance should implement? Explain your recom-

mendation.

3.2. PepsiCo sells its soft drinks in approximately 400,000 retail establishments, such as su- permarkets, discount stores, and convenience stores. Sales representatives call on each

retail account weekly, which means each account is called on by a sales rep 52 times

per year. The average length of a sales call is 75 minutes (or 1.25 hours). An average

salesperson works 2,000 hours per year (50 weeks per year � 40 hours per week), but

Appendix 2 | Marketing by the Numbers 659 each spends 10 hours a week on nonselling activities, such as administrative tasks and

travel. How many salespeople does PepsiCo need?

3.3. Hair Zone manufactures a brand of hair-styling gel. It is considering adding a modi- fied version of the product—a foam that provides stronger hold. Hair Zone’s variable

costs and prices to wholesalers are as follows:

Current Hair Gel New Foam Product

Unit selling price 2.00 2.25

Unit variable costs .85 1.25

Hair Zone expects to sell 1 million units of the new styling foam in the first year

after introduction, but it expects that 60% of those sales will come from buyers who

normally purchase Hair Zone’s styling gel. Hair Zone estimates that it would sell

1.5 million units of the gel if it did not introduce the foam. If the fixed cost of launch-

ing the new foam will be $100,000 during the first year, should Hair Zone add the new

product to its line? Why or why not?

References 1. This is derived by rearranging the following equation and solving for

price: Percentage markup � (price − cost) � price.

2. Again, using the basic profit equation, we set profit equal to ROI � I: ROI � I � (P � Q) − TFC − (Q � UVC). Solving for Q gives Q � (TFC

� [ROI � I]) � (P − UVC).

3. U.S. Census Bureau, www.census.gov/prod/1/pop/p25-1129.pdf, accessed October 26, 2009.

4. See Roger J. Best, Market-Based Management, 4th ed. (Upper Saddle River, NJ: Prentice Hall, 2005).

5. Total contribution can also be determined from the unit contribution and unit volume: Total contribution � unit contribution � unit sales.

Total units sold in 2013 were 595,238 units, which can be deter-

mined by dividing total sales by price per unit ($100 million � $168).

Total contribution � $35.28 contribution per unit � 595,238 units �

$20,999,996.64 (difference due to rounding).

6. Recall that the contribution margin of 21% was based on variable costs representing 79% of sales. Therefore, if we do not know price,

we can set it equal to $1.00. If price equals $1.00, 79 cents rep-

resents variable costs and 21 cents represents unit contribution. If

price is decreased by 10%, the new price is $0.90. However, vari-

able costs do not change just because price decreased, so the unit

contribution and contribution margin decrease as follows:

Old New (reduced 10%)

Price $1.00 $0.90

− Unit variable cost $0.79 $0.79

� Unit contribution $0.21 $0.11

Contribution margin

$0.21/$1.00

� 0.21 or 21%

$0.11/$0.90

� 0.12 or 12%

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You may have decided you want to pursue a marketing career because it offers constant

challenge, stimulating problems, the opportunity to work with people, and excellent

advancement opportunities. But you still may not know which part of marketing best suits

you—marketing is a very broad field offering a wide variety of career options.

This appendix helps you discover what types of marketing jobs best match your spe-

cial skills and interests, shows you how to conduct the kind of job search that will get you

the position you want, describes marketing career paths open to you, and suggests other

information resources.

Marketing Careers Today The marketing field is booming, with nearly a third of all working Americans now

employed in marketing-related positions. Marketing salaries may vary by company, posi-

tion, and region, and salary figures change constantly. In general, entry-level marketing

salaries usually are only slightly below those for engineering and chemistry but equal or

exceed starting salaries in economics, finance, accounting, general business, and the liberal

arts. Moreover, if you succeed in an entry-level marketing position, it’s likely that you will

be promoted quickly to higher levels of responsibility and salary. In addition, because of the

consumer and product knowledge you will gain in these jobs, marketing positions provide

excellent training for the highest levels in an organization.

Overall Marketing Facts and Trends In conducting your job search, consider the following facts and trends that are changing the

world of marketing:

Focus on customers: More and more, companies are realizing that they win in the mar- ketplace only by creating superior value for customers. To capture value from custom-

ers, they must first find new and better ways to solve customer problems and improve

customer brand experiences. This increasing focus on the customer puts marketers at

the forefront in many of today’s companies. As the primary customer-facing function,

marketing’s mission is to get all company departments to “think customer.”

Technology: Technology is changing the way marketers work. For example, Internet, mo- bile, and other digital technologies are rapidly changing the ways marketers interact

with and service customers. They are also changing everything from the ways market-

ers create new products and advertise them to how marketers access information and

recruit personnel. Whereas advertising firms have traditionally recruited “generalists” in

account management, “generalist” has now taken on a whole new meaning—advertising

account executives must now have both broad and specialized knowledge.

Diversity: The number of women and minorities in marketing continues to grow, and women and minorities also are advancing rapidly into marketing management. For ex-

ample, women now outnumber men by nearly two to one as advertising account execu-

tives. As marketing becomes more global, the need for diversity in marketing positions

will continue to increase, opening new opportunities.

Global: Companies such as Coca-Cola, McDonald’s, Google, IBM, Walmart, and Procter & Gamble have become multinational, with manufacturing and marketing operations in

hundreds of countries. Indeed, such companies often make more profit from sales outside

the United States than from within. And it’s not just the big companies that are involved

661

Appendix 3 Careers in Marketing

662 Appendix 3 | Careers in Marketing in international marketing. Organizations of all sizes have moved into the global arena.

Many new marketing opportunities and careers will be directly linked to the expanding

global marketplace. The globalization of business also means that you will need more

cultural, language, and people skills in the marketing world of the twenty-first century.

Not-for-profit organizations: Increasingly, colleges, arts organizations, libraries, hospitals, and other not-for-profit organizations are recognizing the need for effectively marketing

their “products” and services to various publics. This awareness has led to new market-

ing positions—with these organizations hiring their own marketing directors and mar-

keting vice presidents or using outside marketing specialists.

Looking for a Job in Today’s Marketing World To choose and find the right job, you will need to apply the marketing skills you’ve learned

in this course, especially marketing analysis and planning. Follow these eight steps for mar-

keting yourself: (1) Conduct a self-assessment and seek career counseling, (2) examine job

descriptions, (3) explore the job market and assess opportunities, (4) develop search strate-

gies, (5) prepare résumés, (6) write a cover letter and assemble supporting documents, (7)

interview for jobs, and (8) follow up.

Conduct a Self-Assessment and Seek Career Counseling If you’re having difficulty deciding what kind of marketing position is the best fit for you,

start out by doing some self-testing or seeking career counseling. Self-assessments require

that you honestly and thoroughly evaluate your interests, strengths, and weaknesses. What

do you do well (your best and favorite skills) and not so well? What are your favorite inter-

ests? What are your career goals? What makes you stand out from other job seekers?

The answers to such questions may suggest which marketing careers you should seek

or avoid. For help in completing an effective self-assessment, look for the following books in

your local bookstore: Shoya Zichy, Career Match: Connecting Who You Are with What You Love to Do (AMACOM Books, 2007) and Richard Bolles, What Color Is Your Parachute? 2013 (Ten Speed Press, 2012; also see www.eparachute.com/index.webui). Many online sites also offer

self-assessment tools, such as the Keirsey Temperament Theory and the Temperament Sorter,

a free but broad assessment available at Keirsey.com. For a more specific evaluation, Career-

Leader.com offers a complete online business career self-assessment program designed by the

Directors of MBA Career Development at Harvard Business School. You can use this for a fee.

For help in finding a career counselor to guide you in making a career assessment,

Richard Bolles’s What Color Is Your Parachute? 2013 contains a useful state-by-state sam- pling. CareerLeader.com also offers personal career counseling. (Some counselors can help

you in your actual job search, too.) You can also consult the career counseling, testing, and

placement services at your college or university.

Examine Job Descriptions After you have identified your skills, interests, and desires, you need to see which market-

ing positions are the best match for them. Two U.S. Labor Department publications avail-

able in your local library or online—the Occupation Outlook Handbook (www.bls.gov/ooh) and the Dictionary of Occupational Titles (www.occupationalinfo.org)—describe the duties involved in various occupations, the specific training and education needed, the availability

of jobs in each field, possibilities for advancement, and probable earnings.

Your initial career shopping list should be broad and flexible. Look for different ways

to achieve your objectives. For example, if you want a career in marketing management,

consider the public as well as the private sector, and local and regional as well as national

and international firms. Be open initially to exploring many options, then focus on specific

industries and jobs, listing your basic goals as a way to guide your choices. Your list might

include “a job in a start-up company, near a big city on the West Coast, doing new-product

planning with a computer software firm.”

Appendix 3 | Careers in Marketing 663 Explore the Job Market and Assess Opportunities At this stage, you need to look at the market and see what positions are actually available.

You do not have to do this alone. Any of the following may assist you.

Career Development Centers Your college’s career development center is an excellent place to start. In addition to check-

ing with your career development center or specific job openings, check the current edition

of the National Association of Colleges and Employers Job Choices (www.jobchoicesonline .com). It contains a national forecast of hiring intentions of employers as they relate to new

college graduates. More and more, college career development centers are also going on-

line. For example, the Web site of the undergraduate career services of Indiana University’s

Kelley School of Business has a list of career links (http://kelley.iu.edu/UCSO/) that can

help to focus your job search.

In addition, find out everything you can about the companies that interest you by con-

sulting company Web sites, business magazine articles and online sites, annual reports,

business reference books, faculty, career counselors, and others. Try to analyze the indus-

try’s and the company’s future growth and profit potential, advancement opportunities,

salary levels, entry positions, travel time, and other factors of significance to you.

Job Fairs Career development centers often work with corporate recruiters to organize on-campus

job fairs. You might also use the Internet to check on upcoming career fairs in your region.

For example, visit National Career Fairs at www.nationalcareerfairs.com or Coast to Coast

Career Fairs listings at www.coasttocoastcareerfairs.com.

Networking Networking—asking for job leads from friends, family, people in your community, and

career centers—is one of the best ways to find a marketing job. Studies estimate that 60 to

90 percent of jobs are found through networking. The idea is to spread your net wide, con-

tacting anybody and everybody.

Internships An internship is filled with many benefits, such as gaining experience in a specific field of

interest and building up a network of contacts. The biggest benefit: the potential of being

offered a job shortly before or soon after graduation. According to a recent survey by the

National Association of Colleges and Employers, employers converted 58.6 percent of last

year’s interns into full-time hires. Sixty percent of the seniors who had paid internship ex-

perience and applied for a job received at least one job offer. Conversely, only 36 percent of

seniors without internship experience who applied for a job received an offer. In addition,

survey results show that the median accepted salary offer for seniors with an internship

was 31 percent higher than the median accepted salary offered to non-intern seniors.

Many company Internet sites have separate internship areas. For example, check out

Internships.com, InternshipPrograms.com, MonsterCollege (http://college.monster.com/

education), CampusCareerCenter.com, InternJobs.com, and GoAbroad.com (www.goabroad

.com/intern-abroad). If you know of a company for which you wish to work, go to that com-

pany’s corporate Web site, enter the human resources area, and check for internships. If none

are listed, try e-mailing the human resources department, asking if internships are offered.

Job Hunting on the Internet A constantly increasing number of sites on the Internet deal with job hunting. You can also

use the Internet to make contacts with people who can help you gain information on and re-

search companies that interest you. The Riley Guide offers a great introduction to what jobs

are available (www.rileyguide.com). CareerBuilder.com and Monster.com are good general

sites for seeking job listings. Other helpful sites are DisabilityInfo.gov and HireDiversity

.com, which contain information on opportunities for African Americans, Hispanic Ameri-

cans, Asian Americans, and Native Americans.

Most companies have their own online sites on which they post job listings. This

may be helpful if you have a specific and fairly limited number of companies that you are

664 Appendix 3 | Careers in Marketing keeping your eye on for job opportunities. But if this is not the case, remember that to find

out what interesting marketing jobs the companies themselves are posting, you may have

to visit hundreds of corporate sites.

Professional Networking Sites Many companies have now begun to take advantage of social networking sites to find

talented applicants. From Facebook to LinkedIn, social networking has become profes-

sional networking. For example, Ernst & Young has a career page on Facebook (www

.facebook.com/ernstandyoungcareers) to find potential candidates for entry-level posi-

tions. So do companies ranging from Walmart (www.facebook.com/walmartcareers?

v=app_7146470109) to BASF (www.facebook.com/home.php#!/basfcareer) and just about

every other potential employer. For job seekers, online professional networking offers more

efficient job targeting and reduces associated costs as compared with traditional interaction

methods such as traveling to job fairs and interviews, printing résumés, and other expenses.

However, although the Internet offers a wealth of resources for searching for the per-

fect job, be aware that it’s a two-way street. Just as job seekers can search the Internet to find

job opportunities, employers can search for information on job candidates. Jobs searches

can sometimes be derailed by information mined by potential employers from online social

networking sites that reveals unintended or embarrassing anecdotes and photos. Internet

searches can sometimes also reveal inconsistencies and résumé inflation.

Develop Search Strategies Once you’ve decided which companies you are interested in, you need to contact them.

One of the best ways is through on-campus interviews. But not every company you are

interested in will visit your school. In such instances, you can write, e-mail, or phone the

company directly or ask marketing professors or school alumni for contacts.

Prepare Résumés A résumé is a concise yet comprehensive written summary of your qualifications, including

your academic, personal, and professional achievements, that showcases why you are the

best candidate for the job. Because an employer will spend on average only 15 to 20 seconds

reviewing your résumé, you want to be sure that you prepare a good one.

In preparing your résumé, remember that all information on it must be accurate and

complete. Résumés typically begin with the applicant’s full name, telephone number, and

mail and e-mail addresses. A simple and direct statement of career objectives generally

appears next, followed by work history and academic data (including awards and intern-

ships), and then by personal activities and experiences applicable to the job sought.

The résumé sometimes ends with a list of references the employer may contact (at other

times, references may be listed separately). If your work or internship experience is limited,

nonexistent, or irrelevant, then it is a good idea to emphasize your academic and nonaca-

demic achievements, showing skills related to those required for excellent job performance.

There are three types of résumés. Reverse chronological résumés, which emphasize ca- reer growth, are organized in reverse chronological order, starting with your most recent

job. They focus on job titles within organizations, describing the responsibilities and ac-

complishments for each job. Functional résumés focus less on job titles and work history and more on assets and achievements. This format works best if your job history is scanty

or discontinuous. Mixed, or combination, résumés take from each of the other two formats. First, the skills used for a specific job are listed, then the job title is stated. This format works

best for applicants whose past jobs are in other fields or seemingly unrelated to the position.

For further explanation and examples of these types of résumés, see the Résumé Resource

format page (www.resume-resource.com/format.html).

Your local bookstore or library has many books that can assist you in developing your

résumé. A popular guide is Brenda Greene, Get the Interview Every Time: Proven Résumé and Cover Letter Strategies from Fortune 500 Hiring Professionals (Kaplan Publishing, 2009). Com- puter software programs, such as RésuméMaker (ResumeMaker.com), provide hundreds of sample résumés and ready-to-use phrases while guiding you through the résumé prepa-

ration process. CareerOneStop (www.careeronestop.org/resumeguide/introduction.aspx)

offers a step-by-step résumé tutorial, and Monster (http://career-advice.monster.com)

Appendix 3 | Careers in Marketing 665 offers résumé advice and writing services. Finally, you can even create your own personal-

ized online résumé at sites such as optimalresume.com.

Online Résumés The Internet is now a widely used job-search environment, so it’s a good idea to have your

résumé ready for the online environment. You can forward it to networking contacts or

recruiting professionals through e-mail. You can also post it in online databases with the

hope that employers and recruiters will find it.

Successful Internet-ready résumés require a different strategy than that for paper

résumés. For instance, when companies search résumé banks, they search key words and

industry buzz words that describe a skill or the core work required for each job, so nouns

are much more important than verbs. Two good resources for preparing electronic résumés

are Susan Ireland’s Résumé Site (http://susanireland.com/resume/online/email/) and

the Riley Guide (www.rileyguide.com/eresume.html).

After you have written your electronic résumé, you need to post it. The following sites

may be good locations to start: Monster (www.monster.com) and CareerBuilder.com (www

.careerbuilder.com/JobSeeker/Resumes/PostResumeNew/PostYourResume.aspx). How-

ever, use caution when posting your résumé on various sites. In this era of identity theft,

you need to select sites with care so as to protect your privacy. Limit access to your personal

contact information, and don’t use sites that offer to “blast” your résumé into cyberspace.

Résumé Tips -

ples whenever possible.

sional résumé.

considered.

tain to your targeted job.

the font of choice. Avoid too much “design” or gimmicky flourishes.

Write Cover Letter, Follow Up, and Assemble Supporting Documents Cover Letter You should include a cover letter informing the employer that a résumé is enclosed. But a

cover letter does more than this. It also serves to summarize in one or two paragraphs the

contents of the résumé and explains why you think you are the right person for the position.

The goal is to persuade the employer to look at the more detailed résumé. A typical cover

letter is organized as follows: (1) the name and position of the person you are contacting;

(2) a statement identifying the position you are applying for, how you heard of the vacancy,

and the reasons for your interest; (3) a summary of your qualifications for the job; (4) a de-

scription of what follow-ups you intend to make, such as phoning in two weeks to see if the

résumé has been received; and (5) an expression of gratitude for the opportunity of being

a candidate for the job. CareerOneStop (www.careeronestop.org/ResumeGuide/Writeef-

fectivecoverletters.aspx) offers a step-by-step tutorial on how to create a cover letter, and

Susan Ireland’s Web site contains more than 50 cover letter samples (http://susanireland

.com/letter/cover-letter-examples). Another popular guide is Kimberly Sarmiento’s Com- plete Guide to Writing Effective Résumé Cover Letters (Atlantic Publishing, 2009).

Follow Up Once you send your cover letter and résumé to perspective employers via the method they

prefer—e-mail, their Web site, or regular mail—it’s often a good idea to follow up. In today’s mar-

ket, job seekers can’t afford to wait for interviews to find them. A quality résumé and an attractive

666 Appendix 3 | Careers in Marketing cover letter are crucial, but a proper follow-up may be the key to landing an interview. However,

before you engage your potential employer, be sure to research the company. Knowing about the

company and understanding its place in the industry will help you shine. When you place a call,

send an e-mail, or mail a letter to a company contact, be sure to restate your interest in the posi-

tion, check on the status of your résumé, and ask employers about any questions they may have.

Letters of Recommendation Letters of recommendation are written references by professors, former and current em-

ployers, and others that testify to your character, skills, and abilities. Some companies may

request letters of recommendation, to be submitted either with the résumé or at the inter-

view. Even if letters of recommendation aren’t requested, it’s a good idea to bring them with

you to the interview. A good reference letter tells why you would be an excellent candidate

for the position. In choosing someone to write a letter of recommendation, be confident that

the person will give you a good reference. In addition, do not assume the person knows

everything about you or the position you are seeking. Rather, provide the person with your

résumé and other relevant data. As a courtesy, allow the reference writer at least a month to

complete the letter and enclose a stamped, addressed envelope with your materials.

In the packet containing your résumé, cover letter, and letters of recommendation, you

may also want to attach other relevant documents that support your candidacy, such as

academic transcripts, graphics, portfolios, and samples of writing.

Interview for Jobs As the old saying goes, “The résumé gets you the interview; the interview gets you the job.”

The job interview offers you an opportunity to gather more information about the organi-

zation, while at the same time allowing the organization to gather more information about

you. You’ll want to present your best self. The interview process consists of three parts:

before the interview, the interview itself, and after the interview. If you pass through these

stages successfully, you will be called back for the follow-up interview.

Before the Interview In preparing for your interview, do the following:

1. Understand that interviewers have diverse styles, including the “chitchat,” let’s-get-

to-know-each-other style; the interrogation style of question after question; and the

tough-probing “why, why, why” style, among others. So be ready for anything.

2. With a friend, practice being interviewed and then ask for a critique. Or videotape

yourself in a practice interview so that you can critique your own performance. Your

college placement service may also offer “mock” interviews to help you.

3. Prepare at least five good questions whose answers are not easily found in the com-

pany literature, such as “What is the future direction of the firm?” “How does the firm

differentiate itself from competitors?” or “Do you have a new-media division?”

4. Anticipate possible interview questions, such as “Why do you want to work for this com-

pany?” or “Why should we hire you?” Prepare solid answers before the interview. Have a clear

idea of why you are interested in joining the company and the industry to which it belongs.

5. Avoid back-to-back interviews—they can be exhausting, and it is unpredictable how

long each will last.

6. Prepare relevant documents that support your candidacy, such as academic transcripts,

letters of recommendation, graphics, portfolios, and samples of writing. Bring multiple

copies to the interview.

7. Dress conservatively and professionally. Be neat and clean.

8. Arrive 10 minutes early to collect your thoughts and review the major points you in-

tend to cover. Check your name on the interview schedule, noting the name of the

interviewer and the room number. Be courteous and polite to office staff.

9. Approach the interview enthusiastically. Let your personality shine through.

During the Interview During the interview, do the following:

1. Shake hands firmly in greeting the interviewer. Introduce yourself, using the same

form of address that the interviewer uses. Focus on creating a good initial impression.

Appendix 3 | Careers in Marketing 667 2. Keep your poise. Relax, smile when appropriate, and be upbeat throughout.

3. Maintain eye contact and good posture, and speak distinctly. Don’t clasp your hands or

fiddle with jewelry, hair, or clothing. Sit comfortably in your chair.

4. Along with the copies of relevant documents that support your candidacy, carry extra

copies of your résumé with you.

5. Have your story down pat. Present your selling points. Answer questions directly.

Avoid either one-word or too-wordy answers.

6. Let the interviewer take the initiative but don’t be passive. Find an opportunity to di-

rect the conversation to things about yourself that you want the interviewer to hear.

7. To end on a high note, make your most important point or ask your most pertinent

question during the last part of the interview.

8. Don’t hesitate to “close.” You might say, “I’m very interested in the position and I have

enjoyed this interview.”

9. Obtain the interviewer’s business card or address and phone number so that you can

follow up later.

A tip for acing the interview: Before you open your mouth, find out what it’s like to be a brand manager, sales representative, market researcher, advertising account executive, or

other position for which you’re interviewing. See if you can find a “mentor”—someone in

a position similar to the one you’re seeking, perhaps with another company. Talk with this

mentor about the ins and outs of the job and industry.

After the Interview After the interview, do the following:

1. Record the key points that arose. Be sure to note who is to follow up and when a deci-

sion can be expected.

2. Analyze the interview objectively, including the questions asked, the answers to them,

your overall interview presentation, and the interviewer’s responses to specific points.

3. Immediately send a thank-you letter or e-mail, mentioning any additional items and

your willingness to supply further information.

4. If you do not hear from the employer within the specified time, call, e-mail, or write the

interviewer to determine your status.

Follow-Up Interview If your first interview takes place off-site, such as at your college or at a job fair, and if you

are successful with that initial interview, you will be invited to visit the organization. The

in-company interview will probably run from several hours to an entire day. The organiza-

tion will examine your interest, maturity, enthusiasm, assertiveness, logic, and company

and functional knowledge. You should ask questions about issues of importance to you.

Find out about the working environment, job role, responsibilities, opportunities for ad-

vancement, current industrial issues, and the company’s personality. The company wants

to discover if you are the right person for the job, whereas you want to find out if it is the

right job for you. The key is to determine if the right fit exists between you and the company.

Marketing Jobs This section describes some of the key marketing positions.

Advertising Advertising is one of the most exciting fields in marketing, offering a wide range of career

opportunities.

Job Descriptions Key advertising positions include copywriter, art director, production manager, account

executive, account planner, and media planner/buyer.

Copywriters write advertising copy and help find the concepts behind the written words and visual images of advertisements.

668 Appendix 3 | Careers in Marketing Art directors, the other part of the creative team, help translate the copywriters’ ideas into dramatic visuals called “layouts.” Agency artists develop print layouts, package

designs, television and video layouts (called “storyboards”), corporate logotypes,

trademarks, and symbols. Production managers are responsible for physically creating ads, in-house or by contracting through outside production houses.

Account development executives research and understand clients’ markets and customers and help develop marketing and advertising strategies to impact them.

Account executives serve as liaisons between clients and agencies. They coordinate the planning, creation, production, and implementation of an advertising campaign for the

account.

Account planners serve as the voice of the consumer in the agency. They research con- sumers to understand their needs and motivations as a basis for developing effective

ad campaigns.

Media planners (or buyers) determine the best mix of television, radio, newspaper, maga- zine, digital, and other media for the advertising campaign.

Skills Needed, Career Paths, and Typical Salaries Work in advertising requires strong people skills in order to interact closely with an often-

difficult and demanding client base. In addition, advertising attracts people with strong

skills in planning, problem solving, creativity, communication, initiative, leadership, and

presentation. Advertising involves working under high levels of stress and pressure cre-

ated by unrelenting deadlines. Advertisers frequently have to work long hours to meet

deadlines for a presentation. But work achievements are very apparent, with the results of

creative strategies observed by thousands or even millions of people.

Positions in advertising sometimes require an MBA. But most jobs only require a busi-

ness, graphics arts, or liberal arts degree. Advertising positions often serve as gateways

to higher-level management. Moreover, with large advertising agencies opening offices all

over the world, there is the possibility of eventually working on global campaigns.

Starting advertising salaries are relatively low compared to those of some other mar-

keting jobs because of strong competition for entry-level advertising jobs. Compensation

will increase quickly as you move into account executive or other management positions.

For more facts and figures, see the online pages of Advertising Age, a key ad industry publi- cation (www.adage.com, click on the Jobs link) and the American Association of Advertis-

ing Agencies (www.aaaa.org).

Brand and Product Management Brand and product managers plan, direct, and control business and marketing efforts for

their products. They are involved with research and development, packaging, manufactur-

ing, sales and distribution, advertising, promotion, market research, and business analysis

and forecasting.

Job Descriptions A company’s brand management team consists of people in several positions:

Brand managers guide the development of marketing strategies for a specific brand. Assistant brand managers are responsible for certain strategic components of the brand. Product managers oversee several brands within a product line or product group. Product category managers direct multiple product lines in the product category. Market analysts research the market and provide important strategic information to the project managers.

Project directors are responsible for collecting market information on a marketing or product project.

Research directors oversee the planning, gathering, and analyzing of all organizational research.

Skills Needed, Career Paths, and Typical Salaries Brand and product management requires high problem-solving, analytical, presentation,

communication, and leadership skills, as well as the ability to work well in a team. Product

management requires long hours and involves the high pressure of running large projects.

Appendix 3 | Careers in Marketing 669 In consumer goods companies, the newcomer—who usually needs an MBA—joins a brand

team as an assistant and learns the ropes by doing numerical analyses and assisting senior

brand people. This person eventually heads the team and later moves on to manage a larger

brand, then several brands.

Many industrial goods companies also have product managers. Product management

is one of the best training grounds for future corporate officers. Product management also

offers good opportunities to move into international marketing. Product managers com-

mand relatively high salaries. Because this job category encourages or requires a master’s

degree, starting pay tends to be higher than in other marketing categories such as advertis-

ing or retailing.

Sales and Sales Management Sales and sales management opportunities exist in a wide range of profit and not-for-profit

organizations and in product and service organizations, including financial, insurance, con-

sulting, and government organizations.

Job Descriptions Key jobs include consumer sales, industrial sales, national account managers, service sup-

port, sales trainers, and sales management.

Consumer sales involves selling consumer products and services through retailers. Industrial sales involves selling products and services to other businesses. National account managers (NAMs) oversee a few very large accounts. Service support personnel support salespeople during and after the sale of a product. Sales trainers train new hires and provide refresher training for all sales personnel. Sales management includes a sequence of positions ranging from district manager to vice president of sales.

Salespeople enjoy active professional lives, working outside the office and interacting

with others. They manage their own time and activities. And successful salespeople can

be very well paid. Competition for top jobs can be intense. Every sales job is different, but

some positions involve extensive travel, long workdays, and working under pressure. You

can also expect to be transferred more than once between company headquarters and re-

gional offices. However, most companies are now working to bring good work–life balance

to their salespeople and sales managers.

Skills Needed, Career Paths, and Typical Salaries Selling is a people profession in which you will work with people every day, all day long.

In addition to people skills, sales professionals need sales and communication skills. Most

sales positions also require strong problem-solving, analytical, presentation, and leadership

abilities as well as creativity and initiative. Teamwork skills are increasingly important.

Career paths lead from salesperson to district, regional, and higher levels of sales man-

agement and, in many cases, to the top management of the firm. Today, most entry-level

sales management positions require a college degree. Increasingly, people seeking selling

jobs are acquiring sales experience in an internship capacity or from a part-time job before

graduating. Sales positions are great springboards to leadership positions, with more CEOs

starting in sales than in any other entry-level position. This possibly explains why competi-

tion for top sales jobs is intense.

Starting base salaries in sales may be moderate but compensation is often supple-

mented by significant commission, bonus, or other incentive plans. In addition, many sales

jobs include a company car or car allowance. Successful salespeople are among most com-

panies’ highest paid employees.

Other Marketing Jobs Retailing Retailing provides an early opportunity to assume marketing responsibilities. Key jobs in-

clude store manager, regional manager, buyer, department manager, and salesperson. Store managers direct the management and operation of an individual store. Regional managers manage groups of stores across several states and report performance to headquarters.

670 Appendix 3 | Careers in Marketing Buyers select and buy the merchandise that the store carries. The department manager acts as store manager of a department, such as clothing, but on the department level. The sales- person sells merchandise to retail customers. Retailing can involve relocation, but generally there is little travel, unless you are a buyer. Retailing requires high people and sales skills

because retailers are constantly in contact with customers. Enthusiasm, willingness, and

communication skills are very helpful for retailers, too.

Retailers work long hours, but their daily activities are often more structured than in

some types of marketing positions. Starting salaries in retailing tend to be low, but pay

increases as you move into management or a retailing specialty job.

Marketing Research Marketing researchers interact with managers to define problems and identify the informa-

tion needed to resolve them. They design research projects, prepare questionnaires and

samples, analyze data, prepare reports, and present their findings and recommendations to

management. They must understand statistics, consumer behavior, psychology, and sociol-

ogy. As more and more marketing research goes digital, they must also understand the ins

and outs of obtaining and managing online information. A master’s degree helps. Career

opportunities exist with manufacturers, retailers, some wholesalers, trade and industry as-

sociations, marketing research firms, advertising agencies, and governmental and private

nonprofit agencies.

New-Product Planning People interested in new-product planning can find opportunities in many types of organi-

zations. They usually need a good background in marketing, marketing research, and sales

forecasting; they need organizational skills to motivate and coordinate others; and they

may need a technical background. Usually, these people work first in other marketing posi-

tions before joining the new-product department.

Marketing Logistics (Physical Distribution) Marketing logistics, or physical distribution, is a large and dynamic field, with many career

opportunities. Major transportation carriers, manufacturers, wholesalers, and retailers all

employ logistics specialists. Increasingly, marketing teams include logistics specialists, and

marketing managers’ career paths include marketing logistics assignments. Coursework in

quantitative methods, finance, accounting, and marketing will provide you with the neces-

sary skills for entering the field.

Public Relations Most organizations have a public relations staff to anticipate problems with various publics,

handle complaints, deal with media, and build the corporate image. People interested in

public relations should be able to speak and write clearly and persuasively, and they should

have a background in journalism, communications, or the liberal arts. The challenges in this

job are highly varied and very people-oriented.

Not-for-Profit Services The key jobs in not-for-profits include marketing director, director of development, event

coordinator, publication specialist, and intern/volunteer. The marketing director is in charge of all marketing activities for the organization. The director of development organizes, man- ages, and directs the fund-raising campaigns that keep a not-for-profit in existence. An event coordinator directs all aspects of fund-raising events, from initial planning through imple- mentation. The publication specialist oversees publications designed to promote awareness of the organization.

Although typically an unpaid position, the intern/volunteer performs various market- ing functions, and this work can be an important step to gaining a full-time position. The

not-for-profit sector is typically not for someone who is money-driven. Rather, most not-for-

profits look for people with a strong sense of community spirit and the desire to help others.

Therefore, starting pay is usually lower than in other marketing fields. However, the bigger

the not-for-profit, the better your chance of rapidly increasing your income when moving

into upper management.

Appendix 3 | Careers in Marketing 671

Other Resources Professional marketing associations and organizations are another source of information

about careers. Marketers belong to many such societies. You may want to contact some of

the following in your job search:

Advertising Women of New York, 25 West 45th Street, New York, NY 10036. (212) 221-

7969 (www.awny.org)

American Advertising Federation, 1101 Vermont Avenue, NW, Suite 500, Washington,

DC 2005. (202) 898-0089 (www.aaf.org)

American Marketing Association, 311 South Wacker Drive, Suite 5800, Chicago, IL 60606.

(800) AMA-1150 (www.marketingpower.com)

The Association of Women in Communications, 3337 Duke Street, Alexandria, VA 22314.

(703) 370-7436 (www.womcom.org)

Market Research Association, 1156 15th Street NW, Suite 302, Washington, DC 20005.

(202) 800-2545 (www.marketingresearch.org)

National Association of Sales Professionals, 555 Friendly Street, Bloomfield Hills, MI

48302. (866) 365-1520 (www.nasp.com)

National Management Association, 2210 Arbor Boulevard, Dayton, OH 45439. (937) 294-

0421 (www.nma1.org)

National Retail Federation, 325 Seventh Street NW, Suite 1100, Washington, DC 20004.

(800) 673-4692 (www.nrf.com)

Product Development and Management Association, 401 Michigan Avenue, Chicago, IL

60611. (312) 321-5145 (www.pdma.org)

Public Relations Society of America, 33 Maiden Lane, Eleventh Floor, New York, NY

10038. (212) 460-1400 (www.prsa.org)

Sales and Marketing Executives International, 885 West Georgia Street, Suite 1500,

Vancouver, BC, V6C 3E8 Canada. (312) 893-0751 (www.smei.org)

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Glossary

Adapted global marketing An international marketing approach that adjusts the market-

ing strategy and mix elements to each interna-

tional target market, which creates more costs

but hopefully produces a larger market share

and return.

Administered VMS A vertical marketing system that coordinates successive stages of

production and distribution through the size

and power of one of the parties.

Adoption process The mental process through which an individual passes from first hearing

about an innovation to final adoption.

Advertising Any paid form of nonpersonal presentation and promotion of ideas, goods,

or services by an identified sponsor.

Advertising agency A marketing services firm that assists companies in planning, pre-

paring, implementing, and evaluating all or

portions of their advertising programs.

Advertising budget The dollars and other re- sources allocated to a product or a company

advertising program.

Advertising media The vehicles through which advertising messages are delivered to

their intended audiences.

Advertising objective A specific communi- cation task to be accomplished with a specific target audience during a specific period of time.

Advertising strategy The strategy by which the company accomplishes its advertising

objectives. It consists of two major elements:

creating advertising messages and selecting

advertising media.

Affordable method Setting the promotion budget at the level management thinks the

company can afford.

Age and life-cycle segmentation Divid- ing a market into different age and life-cycle

groups.

Agent A wholesaler who represents buyers or sellers on a relatively permanent basis, per-

forms only a few functions, and does not take

title to goods.

Allowance Promotional money paid by man- ufacturers to retailers in return for an agree-

ment to feature the manufacturer’s products

in some way.

Alternative evaluation The stage of the buyer decision process in which the consumer uses

information to evaluate alternative brands in

the choice set.

Approach The sales step in which a salesper- son meets the customer for the first time.

Attitude A person’s consistently favorable or unfavorable evaluations, feelings, and ten-

dencies toward an object or idea.

Baby boomers The 78 million people born during the years following World War II and

lasting until 1964.

Basing-point pricing A geographical pricing strategy in which the seller designates some

city as a basing point and charges all cus-

tomers the freight cost from that city to the

customer.

Behavioral segmentation Dividing a market into segments based on consumer knowledge,

attitudes, uses, or responses to a product.

Belief A descriptive thought that a person holds about something.

Benchmarking Comparing the company’s products and processes to those of competi-

tors or leading firms in other industries to

identify best practices and find ways to im-

prove quality and performance.

Benefit segmentation Dividing the market into segments according to the different ben-

efits that consumers seek from the product.

Blogs Online journals where people post their thoughts, usually on a narrowly defined topic.

Brand A name, term, sign, symbol, or design, or a combination of these, that identifies the

products or services of one seller or group of

sellers and differentiates them from those of

competitors.

Brand equity The differential effect that knowing the brand name has on customer re-

sponse to the product or its marketing.

Brand extension Extending an existing brand name to new product categories.

Break-even analysis Analysis to determine the unit volume and dollar sales needed to

be profitable given a particular price and cost

structure.

Break-even price The price at which total revenue equals total cost and profit is zero.

Break-even pricing (target return pricing) Setting price to break even on the costs of

making and marketing a product, or setting

price to make a target return.

Broker A wholesaler who does not take title to goods and whose function is to bring buyers

and sellers together and assist in negotiation.

Business analysis A review of the sales, costs, and profit projections for a new product

673

to find out whether these factors satisfy the

company’s objectives.

Business buyer behavior The buying be- havior of organizations that buy goods and

services for use in the production of other

products and services that are sold, rented, or

supplied to others.

Business buying process The decision process by which business buyers determine which

products and services their organizations need

to purchase and then find, evaluate, and choose

among alternative suppliers and brands.

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

Business promotions Sales promotion tools used to generate business leads, stimulate

purchases, reward customers, and motivate

salespeople.

Business-to-business (B-to-B) online mar- keting Businesses using online marketing to reach new business customers, serve current

customers more effectively, and obtain buying

efficiencies and better prices.

Business-to-consumer (B-to-C) online mar- keting Businesses selling goods and services online to final consumers.

Buyer-readiness stages The stages consum- ers normally pass through on their way to a

purchase, including awareness, knowledge,

liking, preference, conviction, and, finally, the

actual purchase.

Buyers People in an organization’s buying center who make an actual purchase.

Buying center All the individuals and units that play a role in the purchase decision-

making process.

Buzz marketing Cultivating opinion lead- ers and getting them to spread information

about a product or a service to others in their

communities.

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

price more competitive.

Cannibalization The situation in which one product sold by a company takes a portion of

its sales from other company products.

Captive-product pricing Setting a price for products that must be used along with a main

product, such as blades for a razor and games

for a video-game console.

Catalog marketing Direct marketing through print, video, or digital catalogs that are mailed

to select customers, made available in stores,

or presented online.

Category killer A giant specialty store that carries a very deep assortment of a particular

line.

Causal research Marketing research to test hy- potheses about cause-and-effect relationships.

Chain ratio method Estimating market de- mand by multiplying a base number by a

chain of adjusting percentages.

Channel conflict Disagreements among mar- keting channel members on goals, roles, and

rewards—who should do what and for what

rewards.

Channel level A layer of intermediaries that performs some work in bringing the product

and its ownership closer to the final buyer.

Click-and-mortar companies Traditional brick- and-mortar companies that have added online

marketing to their operations.

Click-only companies The so-called dot- coms, which operate online only and have no

brick-and-mortar market presence.

Closing The sales step in which a salesperson asks the customer for an order.

Co-branding The practice of using the estab- lished brand names of two different compa-

nies on the same product.

Cognitive dissonance Buyer discomfort caus ed by postpurchase conflict.

Commercialization Introducing a new prod- uct into the market.

Communication adaptation A global com- munication strategy of fully adapting adver-

tising messages to local markets.

Competition-based pricing Setting prices based on competitors’ strategies, prices, costs, and mar-

ket offerings.

Competitive advantage An advantage over competitors gained by offering greater customer

value, either by having lower prices or provid-

ing more benefits that justify higher prices.

Competitive marketing intelligence The systematic collection and analysis of publicly

available information about consumers, com-

petitors, and developments in the marketing

environment.

Competitive marketing strategies Strategies that strongly position the company against

competitors and give the company the stron-

gest possible strategic advantage.

Competitive-parity method Setting the pro- motion budget to match competitors’ outlays.

Competitor analysis Identifying key com- petitors; assessing their objectives, strategies,

strengths and weaknesses, and reaction pat-

terns; and selecting which competitors to at-

tack or avoid.

Competitor-centered company A company whose moves are mainly based on competi-

tors’ actions and reactions.

Complex buying behavior Consumer buy- ing behavior in situations characterized by

high consumer involvement in a purchase

and significant perceived differences among

brands.

Concentrated (niche) marketing A market- coverage strategy in which a firm goes after a

large share of one or a few segments or niches.

Concept testing Testing new-product con- cepts with a group of target consumers to

find out if the concepts have strong consumer

appeal.

Consumer buyer behavior The buying be- havior of final consumers—individuals and

households that buy goods and services for

personal consumption.

Consumer market All the individuals and households that buy or acquire goods and ser-

vices for personal consumption.

Consumer product A product bought by fi- nal consumers for personal consumption.

Consumer promotions Sales promotion tools used to boost short-term customer buying and

involvement or enhance long-term customer

relationships.

Consumer-generated marketing Brand ex- changes created by consumers themselves—

both invited and uninvited—by which

consumers are playing an increasing role in

shaping their own brand experiences and

those of other consumers.

Consumer-oriented marketing A principle of sustainable marketing that holds a com-

pany should view and organize its marketing

activities from the consumer’s point of view.

Consumer-to-business (C-to-B) online mar- keting Online exchanges in which consum- ers search out sellers, learn about their offers,

initiate purchases, and sometimes even drive

transaction terms.

Consumer-to-consumer (C-to-C) online mar- keting Online exchanges of goods and infor- mation between final consumers.

Consumerism An organized movement of citizens and government agencies designed

to improve the rights and power of buyers in

relation to sellers.

Contract manufacturing A joint venture in which a company contracts with manufactur-

ers in a foreign market to produce its product

or provide its service.

Contractual VMS A vertical marketing sys- tem in which independent firms at different

levels of production and distribution join to-

gether through contracts.

Contribution margin The unit contribution divided by the selling price.

Convenience product A consumer product that customers usually buy frequently, im-

mediately, and with minimal comparison and

buying effort.

Convenience store A small store, located near a residential area, that is open long hours

seven days a week and carries a limited line of

high-turnover convenience goods.

Conventional distribution channel A chan- nel consisting of one or more independent

producers, wholesalers, and retailers, each

a separate business seeking to maximize its

own profits, perhaps even at the expense of

profits for the system as a whole.

Corporate (or brand) Web site A Web site designed to build customer goodwill, collect

customer feedback, and supplement other

sales channels rather than sell the company’s

products directly.

Corporate chains Two or more outlets that are commonly owned and controlled.

Corporate VMS A vertical marketing system that combines successive stages of production

and distribution under single ownership—

channel leadership is established through

common ownership.

Cost-based pricing Setting prices based on the costs of producing, distributing, and sell-

ing the product plus a fair rate of return for

effort and risk.

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

Creative concept The compelling “big idea” that will bring an advertising message strat-

egy to life in a distinctive and memorable way.

Crowdsourcing Inviting broad communities of people—customers, employees, indepen-

dent scientists and researchers, and even the

public at large—into the new-product innova-

tion process.

Cultural environment Institutions and other forces that affect society’s basic values, per-

ceptions, preferences, and behaviors.

Culture The set of basic values, percep- tions, wants, and behaviors learned by a

member of society from family and other

important institutions.

Customer (or market) sales force structure A sales force organization in which salespeople

specialize in selling only to certain customers

or industries.

Customer database An organized collection of comprehensive data about individual custom-

ers or prospects, including geographic, demo-

graphic, psychographic, and behavioral data.

Customer equity The total combined cus- tomer lifetime values of all of the company’s

customers.

Customer insights Fresh understandings of customers and the marketplace derived from

marketing information that become the basis

for creating customer value and relationships.

Customer lifetime value The value of the entire stream of purchases a customer makes

over a lifetime of patronage.

674 Glossary

| Glossary 675 Customer relationship management The overall process of building and maintaining

profitable customer relationships by deliver-

ing superior customer value and satisfaction.

Customer relationship management (CRM) Managing detailed information about individ-

ual customers and carefully managing customer

touch points to maximize customer loyalty.

Customer satisfaction The extent to which a product’s perceived performance matches a

buyer’s expectations.

Customer value analysis An analysis con- ducted to determine what benefits target cus-

tomers value and how they rate the relative

value of various competitors’ offers.

Customer value-based pricing Setting price based on buyers’ perceptions of value rather

than on the seller’s cost.

Customer-centered company A company that focuses on customer developments in de-

signing its marketing strategies and deliver-

ing superior value to its target customers.

Customer-centered new-product develop- ment New-product development that fo- cuses on finding new ways to solve customer

problems and create more customer-satisfying

experiences.

Customer-managed relationships Marketing relationships in which customers, empowered

by today’s new digital technologies, interact

with companies and with each other to shape

their relationships with brands.

Customer-perceived value The customer’s evaluation of the difference between all the

benefits and all the costs of a marketing offer

relative to those of competing offers.

Customer-value marketing A principle of sustainable marketing holding that a com-

pany should put most of its resources into cus-

tomer-value-building marketing investments.

Deciders People in an organization’s buying center who have formal or informal power to

select or approve the final suppliers.

Decline stage The PLC stage in which a prod- uct’s sales fade away.

Deficient products Products that have nei- ther immediate appeal nor long-run benefits.

Demand curve A curve that shows the number of units the market will buy in a given time pe-

riod, at different prices that might be charged.

Demands Human wants that are backed by buying power.

Demographic segmentation Dividing the mar- ket into segments based on variables such as

age, life-cycle stage, gender, income, occupation,

education, religion, ethnicity, and generation.

Demography The study of human popula- tions in terms of size, density, location, age,

gender, race, occupation, and other statistics.

Department store A retail store that carries a wide variety of product lines, each operated

as a separate department managed by special-

ist buyers or merchandisers.

Derived demand Business demand that ul- timately comes from (derives from) the de-

mand for consumer goods.

Descriptive research Marketing research to better describe marketing problems, situa-

tions, or markets, such as the market potential

for a product or the demographics and atti-

tudes of consumers.

Desirable products Products that give both high immediate satisfaction and high long-

run benefits.

Differentiated (segmented) marketing A market-coverage strategy in which a firm de-

cides to target several market segments and

designs separate offers for each.

Differentiation Actually differentiating the market offering to create superior customer

value.

Direct investment Entering a foreign mar- ket by developing foreign-based assembly or

manufacturing facilities.

Direct marketing Direct connections with carefully targeted individual consumers to

both obtain an immediate response and culti-

vate lasting customer relationships.

Direct marketing channel A marketing chan- nel that has no intermediary levels.

Direct-mail marketing Marketing that oc- curs by sending an offer, announcement, re-

minder, or other item directly to a person at a

particular address.

Direct-response television (DRTV) market- ing Direct marketing via television, including direct-response television advertising (or in-

fomercials) and interactive television (iTV)

advertising.

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

larger quantities.

Discount store A retail operation that sells stan- dard merchandise at lower prices by accepting

lower margins and selling at higher volume.

Disintermediation The cutting out of mar- keting channel intermediaries by product

or service producers or the displacement of

traditional resellers by radical new types of

intermediaries.

Dissonance-reducing buying behavior Con- sumer buying behavior in situations char-

acterized by high involvement but few

perceived differences among brands.

Distribution center A large, highly auto- mated warehouse designed to receive goods

from various plants and suppliers, take or-

ders, fill them efficiently, and deliver goods to

customers as quickly as possible.

Diversification Company growth through starting up or acquiring businesses outside

the company’s current products and markets.

Dynamic pricing Adjusting prices continu- ally to meet the characteristics and needs of

individual customers and situations.

E-mail marketing Sending highly targeted, highly personalized, relationship-building

marketing messages via e-mail.

E-procurement Purchasing through electronic connections between buyers and sellers—

usually online.

Economic community A group of nations or- ganized to work toward common goals in the

regulation of international trade.

Economic environment Economic factors that affect consumer purchasing power and

spending patterns.

Environmental sustainability A manage- ment approach that involves developing strat-

egies that both sustain the environment and

produce profits for the company.

Environmental sustainability Developing strategies and practices that create a world

economy that the planet can support

indefinitely.

Environmentalism An organized movement of concerned citizens, businesses, and gov-

ernment agencies designed to protect and

improve people’s current and future living

environment.

Ethnographic research A form of observa- tional research that involves sending trained

observers to watch and interact with consum-

ers in their “natural environments.”

Event marketing (or event sponsorships) Creating a brand-marketing event or serving

as a sole or participating sponsor of events

created by others.

Exchange The act of obtaining a desired ob- ject from someone by offering something in

return.

Exclusive distribution Giving a limited num- ber of dealers the exclusive right to distribute

the company’s products in their territories.

Execution style The approach, style, tone, words, and format used for executing an ad-

vertising message.

Experience curve (learning curve) The drop in the average per-unit production cost that comes

with accumulated production experience.

Experimental research Gathering primary data by selecting matched groups of subjects,

giving them different treatments, controlling

related factors, and checking for differences in

group responses.

Exploratory research Marketing research to gather preliminary information that will help

define problems and suggest hypotheses.

676 Glossary| Exporting Entering foreign markets by sell- ing goods produced in the company’s home

country, often with little modification.

Factory outlet An off-price retailing opera- tion that is owned and operated by a manufac-

turer and normally carries the manufacturer’s

surplus, discontinued, or irregular goods.

Fad A temporary period of unusually high sales driven by consumer enthusiasm and im-

mediate product or brand popularity.

Fashion A currently accepted or popular style in a given field.

Fixed costs (overhead) Costs that do not vary with production or sales level.

FOB-origin pricing A geographical pricing strategy in which goods are placed free on

board a carrier; the customer pays the freight

from the factory to the destination.

Focus group interviewing Personal inter- viewing that involves inviting 6 to 10 people

to gather for a few hours with a trained in-

terviewer to talk about a product, service, or

organization. The interviewer “focuses” the

group discussion on important issues.

Follow-up The sales step in which a sales- person follows up after the sale to ensure cus-

tomer satisfaction and repeat business.

Franchise A contractual association between a manufacturer, wholesaler, or service orga-

nization (a franchisor) and independent busi-

nesspeople (franchisees) who buy the right

to own and operate one or more units in the

franchise system.

Franchise organization A contractual vertical marketing system in which a channel mem-

ber, called a franchisor, links several stages in

the production-distribution process.

Freight-absorption pricing A geographical pricing strategy in which the seller absorbs all

or part of the freight charges in order to get the

desired business.

Gatekeepers People in an organization’s buying center who control the flow of infor-

mation to others.

Gender segmentation Dividing a market into different segments based on gender.

General need description The stage in the business buying process in which a buyer de-

scribes the general characteristics and quan-

tity of a needed item.

Generation X The 49 million people born be- tween 1965 and 1976 in the “birth dearth” fol-

lowing the baby boom.

Geographic segmentation Dividing a market into different geographical units, such as na-

tions, states, regions, counties, cities, or even

neighborhoods.

Geographical pricing Setting prices for cus- tomers located in different parts of the coun-

try or world.

Global firm A firm that, by operating in more than one country, gains R&D, production,

marketing, and financial advantages in its

costs and reputation that are not available to

purely domestic competitors.

Good-value pricing Offering just the right combination of quality and good service at a

fair price.

Government market Governmental units— federal, state, and local—that purchase or rent

goods and services for carrying out the main

functions of government.

Gross margin percentage The percentage of net sales remaining after cost of goods sold—

calculated by dividing gross margin by net

sales.

Group Two or more people who interact to accomplish individual or mutual goals.

Growth stage The PLC stage in which a prod- uct’s sales start climbing quickly.

Growth-share matrix A portfolio-planning method that evaluates a company’s SBUs in

terms of market growth rate and relative mar-

ket share.

Habitual buying behavior Consumer buying behavior in situations characterized by low

consumer involvement and few significant

perceived brand differences.

Handling objections The sales step in which a salesperson seeks out, clarifies, and over-

comes any customer objections to buying.

Horizontal marketing system A channel ar- rangement in which two or more companies

at one level join together to follow a new mar-

keting opportunity.

Idea generation The systematic search for new-product ideas.

Idea screening Screening new-product ideas to spot good ideas and drop poor ones as soon

as possible.

Income segmentation Dividing a market into different income segments.

Independent off-price retailer An off-price re- tailer that is either independently owned and

run or is a division of a larger retail corporation.

Indirect marketing channel A marketing channel containing one or more intermediary

levels.

Individual marketing Tailoring products and marketing programs to the needs and

preferences of individual customers.

Industrial product A product bought by indi- viduals and organizations for further process-

ing or for use in conducting a business.

Influencers People in an organization’s buying center who affect the buying deci-

sion; they often help define specifications

and also provide information for evaluating

alternatives.

Information search The stage of the buyer decision process in which the consumer is mo-

tivated to search for more information.

Innovative marketing A principle of sustain- able marketing that requires a company to seek

real product and marketing improvements.

Inside sales force Salespeople who conduct business from their offices via telephone,

the Internet, or visits from prospective

buyers.

Institutional market Schools, hospitals, nurs- ing homes, prisons, and other institutions that

provide goods and services to people in their

care.

Integrated logistics management The logis- tics concept that emphasizes teamwork—both

inside the company and among all the mar-

keting channel organizations—to maximize

the performance of the entire distribution

system.

Integrated marketing communications (IMC) Carefully integrating and coordinating the

company’s many communications channels to

deliver a clear, consistent, and compelling mes-

sage about the organization and its products.

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

Interactive marketing Training service em- ployees in the fine art of interacting with cus-

tomers to satisfy their needs.

Intermarket (cross-market) segmentation Forming segments of consumers who have

similar needs and buying behaviors even

though they are located in different countries.

Intermodal transportation Combining two or more modes of transportation.

Internal databases Electronic collections of consumer and market information ob-

tained from data sources within the company

network.

Internal marketing Orienting and motivat- ing customer-contact employees and support-

ing service employees to work as a team to

provide customer satisfaction.

Internet A vast public web of computer networks that connects users of all types all

around the world to each other and to an

amazingly large information repository.

Introduction stage The PLC stage in which a new product is first distributed and made

available for purchase.

Inventory turnover rate (or stockturn rate for resellers) The number of times an inventory turns over or is sold during a specified time

period (often one year)—calculated based on

costs, selling price, or units.

Joint ownership A cooperative venture in which a company creates a local business with

investors in a foreign market, who share own-

ership and control.

| Glossary 677 Joint venturing Entering foreign markets by joining with foreign companies to produce or

market a product or service.

Learning Changes in an individual’s behav- ior arising from experience.

Licensing Entering foreign markets through developing an agreement with a licensee in

the foreign market.

Lifestyle A person’s pattern of living as ex- pressed in his or her activities, interests, and

opinions.

Line extension Extending an existing brand name to new forms, colors, sizes, ingredients,

or flavors of an existing product category.

Local marketing Tailoring brands and mar- keting to the needs and wants of local cus-

tomer segments—cities, neighborhoods, and

even specific stores.

Macroenvironment The larger societal forces that affect the microenvironment—

demographic, economic, natural, technologi-

cal, political, and cultural forces.

Madison & Vine A term that has come to represent the merging of advertising and en-

tertainment in an effort to break through the

clutter and create new avenues for reaching

customers with more engaging messages.

Management contracting A joint venture in which the domestic firm supplies the manage-

ment know-how to a foreign company that

supplies the capital; the domestic firm exports

management services rather than products.

Manufacturers’ sales branches and of- fices Wholesaling by sellers or buyers them- selves rather than through independent

wholesalers.

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

Market challenger A runner-up firm that is fighting hard to increase its market share in

an industry.

Market development Company growth by identifying and developing new market seg-

ments for current company products.

Market follower A runner-up firm that wants to hold its share in an industry without

rocking the boat.

Market leader The firm in an industry with the largest market share.

Market nicher A firm that serves small seg- ments that the other firms in an industry over-

look or ignore.

Market offerings Some combination of products, services, information, or experi-

ences offered to a market to satisfy a need or

want.

Market penetration Company growth by increasing sales of current products to cur-

rent market segments without changing the

product.

Market potential The upper limit of market demand.

Market segment A group of consumers who respond in a similar way to a given set of mar-

keting efforts.

Market segmentation Dividing a market into smaller segments of buyers with dis-

tinct needs, characteristics, or behaviors that

might require separate marketing strategies

or mixes.

Market share Company sales divided by market sales.

Market targeting (targeting) Evaluating each market segment’s attractiveness and selecting

one or more segments to enter.

Market-centered company A company that pays balanced attention to both customers

and competitors in designing its marketing

strategies.

Market-penetration pricing Setting a low price for a new product in order to attract a

large number of buyers and a large market

share.

Market-skimming pricing (price skim- ming) Setting a high price for a new product to skim maximum revenues layer by layer

from the segments willing to pay the high

price; the company makes fewer but more

profitable sales.

Marketing The process by which companies create value for customers and build strong

customer relationships in order to capture

value from customers in return.

Marketing channel (or distribution chan- nel) A set of interdependent organizations that help make a product or service available

for use or consumption by the consumer or

business user.

Marketing channel design Designing ef- fective marketing channels by analyzing

customer needs, setting channel objectives,

identifying major channel alternatives, and

evaluating those alternatives.

Marketing channel management Selecting, managing, and motivating individual channel

members and evaluating their performance

over time.

Marketing concept A philosophy in which achieving organizational goals depends on

knowing the needs and wants of target mar-

kets and delivering the desired satisfactions

better than competitors do.

Marketing control Measuring and evaluat- ing the results of marketing strategies and

plans and taking corrective action to ensure

that the objectives are achieved.

Marketing environment The actors and forces outside marketing that affect mar-

keting management’s ability to build and

maintain successful relationships with target

customers.

Marketing implementation Turning mar- keting strategies and plans into marketing

actions to accomplish strategic marketing

objectives.

Marketing information system (MIS) Peo- ple and procedures dedicated to assessing

information needs, developing the needed

information, and helping decision makers to

use the information to generate and validate

actionable customer and market insights.

Marketing intermediaries Firms that help the company to promote, sell, and distribute

its goods to final buyers.

Marketing logistics (or physical distribu- tion) Planning, implementing, and con- trolling the physical flow of materials, final

goods, and related information from points of

origin to points of consumption to meet cus-

tomer requirements at a profit.

Marketing management The art and science of choosing target markets and building prof-

itable relationships with them.

Marketing mix The set of tactical marketing tools—product, price, place, and promotion—

that the firm blends to produce the response it

wants in the target market.

Marketing myopia The mistake of paying more attention to the specific products a com-

pany offers than to the benefits and experi-

ences produced by these products.

Marketing research The systematic design, collection, analysis, and reporting of data rel-

evant to a specific marketing situation facing

an organization.

Marketing return on investment (or mar- keting ROI) A measure of the marketing productivity of a marketing investment—cal-

culated by dividing net marketing contribu-

tion by marketing expenses.

Marketing return on sales (or marketing ROS) The percent of net sales attributable to the net marketing contribution—calculated by di-

viding net marketing contribution by net sales.

Marketing strategy The marketing logic by which the company hopes to create cus-

tomer value and achieve profitable customer

relationships.

Marketing strategy development Designing an initial marketing strategy for a new prod-

uct based on the product concept.

Marketing Web site A Web site that interacts with consumers to move them closer to a di-

rect purchase or other marketing outcome.

Markup The difference between a company’s selling price for a product and its cost to man-

ufacture or purchase it.

Markup chain The sequence of markups used by firms at each level in a channel.

Maturity stage The PLC stage in which a product’s sales growth slows or levels off.

678 Glossary| Merchant wholesaler An independently owned wholesale business that takes title to

the merchandise it handles.

Microenvironment The actors close to the company that affect its ability to serve its

customers—the company, suppliers, market-

ing intermediaries, customer markets, com-

petitors, and publics.

Micromarketing Tailoring products and mar- keting programs to the needs and wants of spe-

cific individuals and local customer segments; it

includes local marketing and individual marketing.

Millennials (or Generation Y) The 83 million children of the baby boomers born between

1977 and 2000.

Mission statement A statement of the orga- nization’s purpose—what it wants to accom-

plish in the larger environment.

Mobile marketing Marketing to on-the-go consumers through mobile phones, smart-

phones, tablets, and other mobile communica-

tion devices.

Modified rebuy A business buying situation in which the buyer wants to modify product

specifications, prices, terms, or suppliers.

Motive (drive) A need that is sufficiently pressing to direct the person to seek satisfac-

tion of the need.

Multichannel distribution system A distri- bution system in which a single firm sets up

two or more marketing channels to reach one

or more customer segments.

Natural environment The physical envi- ronment and the natural resources that are

needed as inputs by marketers or that are af-

fected by marketing activities.

Need recognition The first stage of the buyer decision process, in which the consumer rec-

ognizes a problem or need.

Needs States of felt deprivation.

Net marketing contribution (NMC) A mea- sure of marketing profitability that includes

only components of profitability controlled by

marketing.

Net profit percentage The percentage of each sales dollar going to profit—calculated by di-

viding net profits by net sales.

New product A good, service, or idea that is perceived by some potential customers as new.

New task A business buying situation in which the buyer purchases a product or ser-

vice for the first time.

New-product development The develop- ment of original products, product improve-

ments, product modifications, and new

brands through the firm’s own product devel-

opment efforts.

Nonpersonal communication channels Me- dia that carry messages without personal

contact or feedback, including major media,

atmospheres, and events.

Objective-and-task method Developing the promotion budget by (1) defining specific pro-

motion objectives, (2) determining the tasks

needed to achieve these objectives, and (3) es-

timating the costs of performing these tasks.

The sum of these costs is the proposed promo-

tion budget.

Observational research Gathering primary data by observing relevant people, actions,

and situations.

Occasion segmentation Dividing the market into segments according to occasions when

buyers get the idea to buy, actually make their

purchase, or use the purchased item.

Off-price retailer A retailer that buys at less- than-regular wholesale prices and sells at less

than retail.

Online advertising Advertising that appears while consumers are browsing the Internet,

including display ads, search-related ads, on-

line classifieds, and other forms.

Online focus groups Gathering a small group of people online with a trained mod-

erator to chat about a product, service, or or-

ganization and gain qualitative insights about

consumer attitudes and behavior.

Online marketing Efforts to market products and services and build customer relationships

over the Internet.

Online marketing research Collecting pri- mary data online through Internet surveys,

online focus groups, Web-based experiments,

or tracking consumers’ online behavior.

Online social networks Online social com- munities—blogs, social networking sites, and

other online communities—where people so-

cialize or exchange information and opinions.

Operating expense percentage The portion of net sales going to operating expenses—

calculated by dividing total expenses by net

sales.

Operating ratios The ratios of selected oper- ating statement items to net sales.

Opinion leader A person within a reference group who, because of special skills, knowl-

edge, personality, or other characteristics, ex-

erts social influence on others.

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

main product.

Order-routine specification The stage of the business buying process in which the

buyer writes the final order with the chosen

supplier(s), listing the technical specifications,

quantity needed, expected time of delivery,

return policies, and warranties.

Outside sales force (or field sales force) Sales- people who travel to call on customers in the

field.

Packaging The activities of designing and producing the container or wrapper for a

product.

Partner relationship management Working closely with partners in other company de-

partments and outside the company to jointly

bring greater value to customers.

Percentage-of-sales method Setting the pro- motion budget at a certain percentage of cur-

rent or forecasted sales or as a percentage of

the unit sales price.

Perception The process by which people se- lect, organize, and interpret information to

form a meaningful picture of the world.

Performance review The stage of the busi- ness buying process in which the buyer as-

sesses the performance of the supplier and

decides to continue, modify, or drop the

arrangement.

Personal communication channels Channels through which two or more people communi-

cate directly with each other, including face to

face, on the phone, via mail or e-mail, or even

through texting or an Internet chat.

Personal selling Personal presentation by the firm’s sales force for the purpose of making

sales and building customer relationships.

Personality The unique psychological char- acteristics that distinguish a person or group.

Pleasing products Products that give high immediate satisfaction but may hurt consum-

ers in the long run.

Political environment Laws, government ag- encies, and pressure groups that influence and

limit various organizations and individuals in

a given society.

Portfolio analysis The process by which manage ment evaluates the products and busi-

nesses that make up the company.

Positioning Arranging for a market offering to occupy a clear, distinctive, and desirable

place relative to competing products in the

minds of target consumers.

Positioning statement A statement that sum- marizes company or brand positioning using

this form: To (target segment and need) our

(brand) is (concept) that (point of difference).

Postpurchase behavior The stage of the buyer decision process in which consumers

take further action after purchase, based on

their satisfaction or dissatisfaction.

Preapproach The sales step in which a sales- person learns as much as possible about a pro-

spective customer before making a sales call.

Presentation The sales step in which a sales- person tells the “value story” to the buyer,

showing how the company’s offer solves the

customer’s problems.

Price The amount of money charged for a product or service, or the sum of the values

that customers exchange for the benefits of

having or using the product or service.

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

| Glossary 679 Primary data Information collected for the specific purpose at hand.

Problem recognition The stage of the busi- ness buying pr ocess in which the company

recognizes a problem or need that can be met

by acquiring a good or a service.

Product Anything that can be offered to a market for attention, acquisition, use, or con-

sumption that might satisfy a want or need.

Product adaptation Adapting a product to meet local conditions or wants in foreign markets.

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

price.

Product concept A detailed version of the new-product idea stated in meaningful con-

sumer terms.

Product concept The idea that consumers will favor products that offer the most qual-

ity, performance, and features; therefore, the

organization should devote its energy to mak-

ing continuous product improvements.

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

market segments.

Product development Developing the prod- uct concept into a physical product to ensure

that the product idea can be turned into a

workable market offering.

Product invention Creating new products or services for foreign markets.

Product life cycle (PLC) The course of a product’s sales and profits over its lifetime.

Product line A group of products that are closely related because they function in a

similar manner, are sold to the same customer

groups, are marketed through the same types

of outlets, or fall within given price ranges.

Product line pricing Setting the price steps between various products in a product line

based on cost differences between the prod-

ucts, customer evaluations of different fea-

tures, and competitors’ prices.

Product mix (or product portfolio) The set of all product lines and items that a particular

seller offers for sale.

Product position The way a product is de- fined by consumers on important attributes—

the place the product occupies in consumers’

minds relative to competing products.

Product quality The characteristics of a prod- uct or service that bear on its ability to satisfy

stated or implied customer needs.

Product sales force structure A sales force or- ganization in which salespeople specialize in

selling only a portion of the company’s prod-

ucts or lines.

Product specification The stage of the busi- ness buying process in which the buying or-

ganization decides on and specifies the best

technical product characteristics for a needed

item.

Product/market expansion grid A portfolio- planning tool for identifying company growth

opportunities through market penetration,

market development, product development,

or diversification.

Production concept The idea that consum- ers will favor products that are available and

highly affordable; therefore, the organization

should focus on improving production and

distribution efficiency.

Profit-and-loss statement (or income state- ment or operating statement) A statement that shows actual revenues less expenses and

net profit for an organization, product, or

brand during a specific planning period, typi-

cally a year.

Pro forma (or projected) profit-and-loss statement (or income statement or operat- ing statement) A statement that shows pro- jected revenues less budgeted expenses and

estimates the projected net profit for an orga-

nization, product, or brand during a specific

planning period, typically a year.

Promotion mix (or marketing communica- tions mix) The specific blend of promotion tools that the company uses to persuasively

communicate customer value and build cus-

tomer relationships.

Promotional pricing Temporarily pricing products below the list price, and sometimes

even below cost, to increase short-run sales.

Proposal solicitation The stage of the busi- ness buying process in which the buyer in-

vites qualified suppliers to submit proposals.

Prospecting The sales step in which a sales- person or company identifies qualified poten-

tial customers.

Psychographic segmentation Dividing a market into different segments based on social

class, lifestyle, or personality characteristics.

Psychological pricing Pricing that considers the psychology of prices and not simply the

economics; the price is used to say something

about the product.

Public Any group that has an actual or poten- tial interest in or impact on an organization’s

ability to achieve its objectives.

Public relations (PR) Building good rela- tions with the company’s various publics by

obtaining favorable publicity, building up

a good corporate image, and handling or

heading off unfavorable rumors, stories, and

events.

Pull strategy A promotion strategy that calls for spending a lot on consumer advertising

and promotion to induce final consumers to

buy the product, creating a demand vacuum

that “pulls” the product through the channel.

Purchase decision The buyer’s decision about which brand to purchase.

Push strategy A promotion strategy that calls for using the sales force and trade promotion

to push the product through channels. The pro-

ducer promotes the product to channel mem-

bers, which in turn promote it to final consumers.

Reference prices Prices that buyers carry in their minds and refer to when they look at a

given product.

Relevant costs Costs that will occur in the fu- ture and that will vary across the alternatives

being considered.

Retailer A business whose sales come primar- ily from retailing.

Retailing All the activities involved in selling goods or services directly to final consumers

for their personal, nonbusiness use.

Return on advertising investment The net return on advertising investment divided by

the costs of the advertising investment.

Return on investment (ROI) A measure of managerial effectiveness and efficiency—net

profit before taxes divided by total investment.

Return on investment (ROI) pricing (or target-return pricing) A cost-based pric- ing method that determines price based on a

specified rate of return on investment.

Return on marketing investment (or market- ing ROI) The net return from a marketing investment divided by the costs of the market-

ing investment.

Sales force management Analyzing, plan- ning, implementing, and controlling sales

force activities.

Sales promotion Short-term incentives to en- courage the purchase or sale of a product or

service.

Sales quota A standard that states the amount a salesperson should sell and how sales should

be divided among the company’s products.

Salesperson An individual who represents a company to customers by performing one

or more of the following activities: pros-

pecting, communicating, selling, servicing,

information gathering, and relationship

building.

Salutary products Products that have low immediate appeal but may benefit consumers

in the long run.

Sample A segment of the population selected for marketing research to represent the popu-

lation as a whole.

Secondary data Information that already ex- ists somewhere, having been collected for an-

other purpose.

Segmented pricing Selling a product or ser- vice at two or more prices, where the difference

in prices is not based on differences in costs.

Selective distribution The use of more than one but fewer than all of the intermediaries who

are willing to carry the company’s products.

680 Glossary| Selling concept The idea that consumers will not buy enough of the firm’s products unless

the firm undertakes a large-scale selling and

promotion effort.

Selling process The steps that salespeople follow when selling, which include prospect-

ing and qualifying, preapproach, approach,

presentation and demonstration, handling ob-

jections, closing, and follow-up.

Sense-of-mission marketing A principle of sustainable marketing holding that a com-

pany should define its mission in broad social

terms rather than narrow product terms.

Service An activity, benefit, or satisfaction of- fered for sale that is essentially intangible and

does not result in the ownership of anything.

Service inseparability Services are produced and consumed at the same time and cannot be

separated from their providers.

Service intangibility Services cannot be seen, tasted, felt, heard, or smelled before they are

bought.

Service perishability Services cannot be stored for later sale or use.

Service profit chain The chain that links ser- vice firm profits with employee and customer

satisfaction.

Service retailer A retailer whose product line is actually a service; examples include hotels,

airlines, banks, colleges, and many others.

Service variability The quality of services may vary greatly depending on who provides

them and when, where, and how they are

provided.

Share of customer The portion of the cus- tomer’s purchasing that a company gets in its

product categories.

Shopper marketing Using in-store promo- tions and advertising to extend brand equity

to “the last mile” and encourage favorable in-

store purchase decisions.

Shopping center A group of retail businesses built on a site that is planned, developed,

owned, and managed as a unit.

Shopping product A consumer product that the customer, in the process of selecting and

purchasing, usually compares on such attri-

butes as suitability, quality, price, and style.

Social class Relatively permanent and or- dered divisions in a society whose members

share similar values, interests, and behaviors.

Social marketing The use of commercial marketing concepts and tools in programs

designed to influence individuals’ behavior to

improve their well-being and that of society.

Societal marketing A principle of sustainable marketing holding that a company should

make marketing decisions by considering

consumers’ wants, the company’s require-

ments, consumers’ long-run interests, and so-

ciety’s long-run interests.

Societal marketing concept The idea that a company’s marketing decisions should con-

sider consumers’ wants, the company’s re-

quirements, consumers’ long-run interests,

and society’s long-run interests.

Spam Unsolicited, unwanted commercial e- mail messages.

Specialty product A consumer product with unique characteristics or brand identification

for which a significant group of buyers is will-

ing to make a special purchase effort.

Specialty store A retail store that carries a narrow product line with a deep assortment

within that line.

Standardized global marketing An interna- tional marketing strategy that basically uses

the same marketing strategy and mix in all of

the company’s international markets.

Store brand (or private brand) A brand created and owned by a reseller of a product or service.

Straight product extension Marketing a product in a foreign market without making

any changes to the product.

Straight rebuy A business buying situation in which the buyer routinely reorders something

without any modifications.

Strategic group A group of firms in an indus- try following the same or a similar strategy.

Strategic planning The process of develop- ing and maintaining a strategic fit between

the organization’s goals and capabilities and

its changing marketing opportunities.

Style A basic and distinctive mode of expression.

Subculture A group of people with shared value systems based on common life experi-

ences and situations.

Supermarket A large, low-cost, low-margin, high-volume, self-service store that carries a

wide variety of grocery and household products.

Superstore A store much larger than a regu- lar supermarket that offers a large assortment

of routinely purchased food products, non-

food items, and services.

Supplier development Systematic develop- ment of networks of supplier-partners to en-

sure an appropriate and dependable supply

of products and materials for use in making

products or reselling them to others.

Supplier search The stage of the business buying process in which the buyer tries to find

the best vendors.

Supplier selection The stage of the business buying process in which the buyer reviews

proposals and selects a supplier or suppliers.

Supply chain management Managing up- stream and downstream value-added flows

of materials, final goods, and related informa-

tion among suppliers, the company, resellers,

and final consumers.

Survey research Gathering primary data by asking people questions about their knowl-

edge, attitudes, preferences, and buying

behavior.

Sustainable marketing Socially and environ- mentally responsible marketing that meets the

present needs of consumers and businesses

while also preserving or enhancing the ability

of future generations to meet their needs.

SWOT analysis An overall evaluation of the company’s strengths (S), weaknesses (W), op-

portunities (O), and threats (T).

Systems selling (or solutions selling) Buying a packaged solution to a problem from a single

seller, thus avoiding all the separate decisions

involved in a complex buying situation.

Target costing Pricing that starts with an ideal selling price, then targets costs that will

ensure that the price is met.

Target market A set of buyers sharing com- mon needs or characteristics that the company

decides to serve.

Team selling Using teams of people from sales, marketing, engineering, finance, techni-

cal support, and even upper management to

service large, complex accounts.

Team-based new-product development New-product development in which various

company departments work closely together,

overlapping the steps in the product devel-

opment process to save time and increase

effectiveness.

Technological environment Forces that cre- ate new technologies, creating new product

and market opportunities.

Telemarketing Using the telephone to sell di- rectly to customers.

Territorial sales force structure A sales force organization that assigns each salesperson to

an exclusive geographic territory in which

that salesperson sells the company’s full line.

Test marketing The stage of new-product development in which the product and its

proposed marketing program are tested in re-

alistic market settings.

Third-party logistics (3PL) provider An in- dependent logistics provider that performs

any or all of the functions required to get a cli-

ent’s product to market.

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

Total market demand The total volume that would be bought by a defined consumer

group in a defined geographic area in a de-

fined time period in a defined marketing en-

vironment under a defined level and mix of

industry marketing effort.

Trade promotions Sales promotion tools used to persuade resellers to carry a brand,

give it shelf space, promote it in advertising,

and push it to consumers.

| Glossary 681 Undifferentiated (mass) marketing A market- coverage strategy in which a firm decides to

ignore market segment differences and go after

the whole market with one offer.

Uniform-delivered pricing A geographical pricing strategy in which the company charges

the same price plus freight to all customers, re-

gardless of their location.

Unit contribution The amount that each unit contributes to covering fixed costs—the differ-

ence between price and variable costs.

Unsought product A consumer product that the consumer either does not know about or knows

about but does not normally consider buying.

Users Members of the buying organization who will actually use the purchased product

or service.

Value-added pricing Attaching value-added features and services to differentiate a com-

pany’s offers and charging higher prices.

Value-based pricing Offering just the right combination of quality and good service at a

fair price.

Value chain The series of internal depart- ments that carry out value-creating activities

to design, produce, market, deliver, and sup-

port a firm’s products.

Value delivery network A network com- posed of the company, suppliers, distributors,

and, ultimately, customers who partner with

each other to improve the performance of the

entire system in delivering customer value.

Value proposition The full positioning of a brand—the full mix of benefits on which it is

positioned.

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

Variety-seeking buying behavior Consumer buying behavior in situations characterized

by low consumer involvement but significant

perceived brand differences.

Vertical marketing system (VMS) A chan- nel structure in which producers, wholesal-

ers, and retailers act as a unified system. One

channel member owns the others, has con-

tracts with them, or has so much power that

they all cooperate.

Viral marketing The Internet version of word-of-mouth marketing: a Web site, video,

e-mail message, or other marketing event that

is so infectious that customers will seek it out

or pass it along to friends.

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

personality.

Warehouse club An off-price retailer that sells a limited selection of brand-name gro-

cery items, appliances, clothing, and other

goods at deep discounts to members who pay

annual membership fees.

Wheel-of-retailing concept A concept that suggests new types of retailers usually begin as

low-margin, low-price, low-status operations

but later evolve into higher-priced, higher-ser-

vice operations, eventually becoming like the

conventional retailers they replaced.

Whole-channel view Designing international channels that take into account the entire global

supply chain and marketing channel, forging

an effective global value delivery network.

Wholesaler A firm engaged primarily in wholesaling activities.

Wholesaling All the activities involved in selling goods and services to those buying for

resale or business use.

Word-of-mouth influence The impact of the personal words and recommendations of

trusted friends, associates, and other consum-

ers on buying behavior.

Workload method An approach to determin- ing sales force size based on the workload re-

quired and the time available for selling.

Zone pricing A geographical pricing strategy in which the company sets up two or more

zones. All customers within a zone pay the

same total price; the more distant the zone,

the higher the price.

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Indexes

Name, Organization, Brand, Company Index

A reference appearing in italic indicates a figure on that page. The letter n indicates the reference note number on the page containing the name listed.

1-800-Flowers, 142

2030 Water Resources Group, 105n32

30 Rock, 468 3M, 295

50PlusExpeditions, 99

7 for All Mankind, 82, 218, 561, 565

7-Eleven, 398, 399, 402, 575, 591

A Aaker, Jennifer, 169n20

Abbott, Andrew, 287n7

ABC Television Network, 65

ABC World News Tonight, 468 Abercrombie & Fitch, 73, 75, 231, 406, 549, 561

Abou Shakra restaurant, 55–56

Academic Partnerships, 277

Accenture, 270

Access GE, 511

Accord, 184

Ace Hardware, 401, 402, 534 Acland, Charles R., 173n24

Acme, 419

Activia, 449

Acura, 587, 592

Acxiom, 168, 222 Ad Council of America, 253

Adams, Rob, 285n3

Adams, Susan, 123n1

Adcouncil.org, 29n6

Adidas, 247, 300, 553, 575

AdMeter, 40–41

Adobe, 54

Adriano Goldshmied, 278

Advertising Age, 90, 123, 450, 537 Aeropostale, 561

Aerosmith, 440

AFA Foods, 207

Affiliated Computer Services, 119

Aflac, 264 Air Wick, 595

AirAsia, 212–213

Akarlılar, Ersin, 279

Akarlılar, Sait, 278

Al Jazeera, 66–67

Al Thani, Sheikh Abdullah Bin Mohammad, 311

Alamo, 530

Alber, Laura, 410

Albertsons, 419

Albright, Paul, 82n17

Aldi, 414

Aldridge, James, 126n5

Aleve, 437

All detergent, 562

Allen, James, 295n19

Allred, Anthony A, 343n8

Allstate, 102, 264, 437, 454–455

Alsever, Jennifer, 164n11

Amazon Payments, 117

Amazon Prime, 361

Amazon.com, 24–25, 36, 43, 137, 138, 147, 151, 157, 175, 229, 234, 237,

267, 268, 269, 295, 308, 338, 345, 346, 352, 357–358, 361, 363, 371, 389, 391, 396, 397, 409, 410, 413, 517, 518, 525, 530, 534, 535, 541,

542, 553, 583, 621

AmazonSupply.com, 25

AMC Theatres, 315, 317, 351 American Airlines, 103

American Apparel, 106, 561

American Association of Advertising Agencies, 173, 537 American Baby, 152, 153 American Chopper, 48 American Consumer Satisfaction Index, 559

American Eagle, 229

American Express, 147, 296, 488

American Heart Association, 234

American Idol, 443, 574, 583 American Marketing Association, 27n4, 148, 173

American Society for Quality, 253

American Trucking Association, 382

Ameriprise Financial, 103

AMP Energy, 273

Amway, 365

Anders, George, 25, 25n1

Anderson, Eric, 343

Anderson, George, 166n13

Anderson, James C., 193n3, 501n20

Andreasen, Alan R., 253n6

Android, 287, 307, 533

Angie’s List, 261, 477

Anheuser-Busch, 54, 103, 437, 524

Ansoff, H. Igor, 69n7

Anthropologie, 218

Antitrust Division of the Attorney General, 107

Apple, 36, 54, 97–98, 114, 124, 125, 128, 169, 180, 207, 221, 235, 236, 237, 249–250, 266, 267, 268, 269, 272, 277, 283, 285, 294, 295, 308, 317, 336–337, 355, 361, 363, 373, 407, 461, 473, 524, 533, 538, 553, 554,

559–560, 561, 575, 583, 591, 592, 593, 608

Aquafina, 273

Arc’teryx, 191

Arçelik Group, 394

Arends, Brett, 314n3

Ariel, 348

Arizona Jean Company, 271

Armani, 271

Armstrong, Evan, 385n25

Armstrong, Gary, 604n2

Arnage T luxury sports sedan, 242

Arons, Marc de Swaan, 588n31

Associated Grocers, 401, 402 Association of National Advertisers, 537

Aston Martin, 569

Astor IV, John Jacob, 243

AT&T, 258, 258n17, 267, 274, 325, 457, 538, 552, 563

Atik, Chiara, 171n21

Auchan, 414

Auclair, Xavier, 189

Audi, 75, 134, 277, 459

Auge, Karen, 610n11

Aventis, 270

Avis, 227, 369, 565

Avner, Amit, 137n18, 139

Avon, 222

683

684 Indexes

Bentley, Walter Owen, 242

Berfield, Susan, 292n12

Bergdorf Goodman, 406–407

Bergesen, Mich, 269

Berkshire-Hathaway, 455

Berman, John, 174n25

Berner, Robert, 294n17

Berra, Yogi, 44, 360

Berry, Leonard, 260n22

Best Buy, 94, 157, 179, 228, 229, 237, 342, 345, 366, 371, 373, 396, 397, 398, 399, 408, 410, 414, 487, 520–521, 524, 530, 534–535, 549

BestBuy.com, 137, 138, 175

Bettencourt, Lance A., 29n7

Better, 153 Better Homes and Gardens, 152, 153 Betty Crocker, 190

Bezos, Jeff, 24, 25 Bhanoo, Sindya N., 622

Bharti Airtel, 483

BHG.com, 152

Bialik, Carl, 343n8

Bibbentuckers, 145 Biederman, David, 385n25

Big Gulp, 54

Big Mac, 346 Binder, Alysa, 170

Binder, Dan, 170

Bing, 110, 369–370, 530

Binkley, Christina, 109n35, 220

Birchall, Jonathon, 247n1

Birkner, Christine, 42n28, 45n36, 101n17, 256n11, 269, 315n4

Bisquick, 190

BJ’s, 398, 401 Bjerga, Alan, 433n9

Black & Decker, 591

Black, Gregory S., 111n40

Black, James, 255n10

Blackboard, 270

Blair, Adam, 410n25

Blige, Mary J., 440

Blizzard, 272

Blockbuster, 360

Bloom, Jonah, 439n11

Bloomberg BusinessWeek, 335, 468 Bloomberg, Michael, 54

Bloomingdale’s, 106, 278, 406

Bloomingdale’s Outlets, 401

Bluestein, Adam, 202n10, 271n39

BMW, 31, 43, 75, 134, 185, 225, 232, 236, 249, 258, 317, 459, 555, 574

Bobbi Brown Cosmetics, 472

Body Shop, 524, 621

Boehle, Sarah, 491n12

Boeing, 114, 115, 190, 204, 485, 575 Boise Cascade, 498

Bold, 225

Bongard, Kristen, 170

Bono, 219

Bootmakers Blog, 164, 166 Borden, Mark, 247n1, 619n25

Borders Books, 371, 408

Bose, 234

Bosman, Julie, 371n10

Boston Beer Company, 463

Boston Harbor Cruises, 241–242

Boston Market, 61

Bounce Dryer Bar, 439

Bounds, Gwendolyn, 171

Bounty, 315

Bounty Basic, 351

Bourne, Michael, 40n22, 465n15

Awesome Auger, 524

Axe, 171, 217, 298, 445

B Bachman, Kate, 616n20

Bachman, Katy, 396n2

Bagozzi, Richard P., 269n35

Bajaj, Vikas, 590

Baker, Loren, 370n8

Baker, Michael B., 547n1

Baker, Richard, 217n7

Baker, Rosie, 427n1

Baker, Stephen, 137n18, 139

Bakugan Battle Brawler, 583

Baldwin, Heather, 501n20

Ball Park, 458

Ball, David, 153

Ball, Jeffrey, 523n11

Bally’s Total Fitness, 315

BAND-AID, 270, 555, 575

Bang & Olufsen, 322

Bank of America, 102, 114, 115

Banner, David, 127

Banquet, 325, 349

Baojun, 591

Barbie, 231, 272, 299 Barker, Julie, 557n14

Barkley, Charles, 561

Barnes & Noble, 228, 357, 369, 371, 398 Barnum & Bailey, 554

Barron, Robert, 442

Barry, Keith, 166

BASF, 289

Bass Pro Shops, 403

Bass, Diana Butler, 112n46

BatteryDepot.com, 405

Bauerlein, Valery, 127n6

BAUMA, 506

Baumgarnter, Felix, 452

Bausch & Lomb, 553

Bawa, Anupam, 178n27

BAX Global, 385

Bayer, 109

Bayer HealthCare Pharmaceuticals, 491

BBDO Worldwide, 470

Beanie Babies, 504

Beautyrest, 269

Becht, Bart, 595n44

Beckham, David, 440

Bed Bath & Beyond, 502, 504, 621

Beef Products, Inc., 207

Beem, Dan, 272n40

Beetle, 184

BehaviorScan, 292

beIN SPORT, 66

Belch, George E., 593n40

Belch, Michael A., 593n40

Bell, David E., 303n27

Beltrone, Gabriel, 40n22

Ben & Jerry’s, 49, 467, 575, 621

Bendapudi, Neeli, 260n22

Bender, Ruth, 543

Benes, Robert J., 94n3

Benioff, Marc, 510–511

Benjamin Hotel, 170, 170 Benjamin Moore, 110–111, 463 Bennett, Jeff, 112n41

Bennetton, 368

Bentley motors, 242–243

Bentley, 373

Indexes 685

Camaro, 504

Campbell Soup Company, 220, 258–259, 561–562, 587 Camry, 255

Canaday, Henry, 203n12, 487n3, 491n11, 491n12

Canon, 119, 157, 550, 575

Canopy, 271

Cappello, Fabio, 441

Car and Driver, 599 CareerBuilder, 464

Carhartt, 168

Caribou Coffee, 69, 467

Carnation, 575

Carnegie Mellon, 227

Carnival Cruise Lines, 153

Carr, David F., 528n29

Carr, J. Mark, 81n16

Carrefour, 304, 414, 579

Carroll, Dave, 114, 115

Carter, Jon, 69n8

Cascio, Elaine, 557n13

Cassidy, William B., 380n16

CatalogSpree, 522

Catching Fire, 151 Caterpillar, 190, 376, 377–378, 557, 560, 562, 574, 575 Cath Kidston Ltd, 331

Cato, Jeremy, 600

Cayenne, 185

Cellfire, 503

Cendrowski, Scott, 247n1

Center, Allen, 472n24

Chaker, Anne Marie, 314n3

Chakraborty, Goutam, 343n8

Chambers, John, 208, 209, 210

Chanel, 407

Chapin, Carolyn, 221n10

Chapman, Mike, 468n20

Char-Broil, 35

Charmin, 175, 315 Charmin Basic, 351

Chatter, 510

Chavez, Jon, 408n18

Chee, Foo Yun, 352n15

Cheer, 225, 296

Cheerios, 190, 272, 472

Cheetos, 140, 273

Chef Designs, 565

Chen, Yubo, 177n26

Cheney, Lillian H., 197

Chevrolet, 254, 293, 463, 479, 504

Chex, 190

Chex Mix, 190

Chicago Bulls, 39

Children’s Advertising Review Unit, 231

China Mobile, 267

Chipotle, 63–64, 615–616

Chipsy Egypt, 464–465

Choi, David, 622

Choi, Thomas Y., 378

ChotuKool, 349

Chozick, Amy, 140n19

Chrome, 295, 307, 437

Chrysler, 112, 153, 461, 479, 563, 569

Chuang, Ming-Ling, 375n12

Chuck E. Cheese, 122

Chuck Taylor All Stars, 300

Cif, 562

CineForm, 157

Cinnabon, 272

Circle K, 398 Circuit City, 408

Bowie, David, 219

Boyle, Matthew, 401n10

BP, 446

Brack, Andy, 380n17

Brady, Diane, 81n16, 229

Brand USA, 253

Brandau, Mark, 335n1

Brandweek, 123 Branson, Richard, 556, 556n11

Braun, Kanoe, 547

Bravo, 510

Brennan, Margret, 344n9

Brenner, Michael, 493n16

Bridge, R. Gary, 45n37

Bridgestone, 479

Brinkman, Jorg, 194n5

Bristol-Myers Squibb, 205

Britt, Bruce, 522n9

Brock, Jüren Kai-Uwe, 557n13

Brohaugh, Bill, 98n7

Brokeback Mountain, 102 Brookstone, 345, 405

Broom, Glen, 472n24

Brown, Alan S., 617n21

Brown, Bruce, 289

Brown, Graham, 42n30

Brown, Inc., 509

Brown, Rachel, 523n15

Brownlow, Mark, 533n42

Brunel, Frederic, 465n14

Bryan, Jamie, 581n19

Bryant, Kobe, 235, 252, 575

Bryant, Shannon, 503n25

Bryce, David J., 563n21

Budweiser, 128, 296, 463, 575, 586

Buffett, Warren, 455

Bugles, 190

Buhalis, Dimitrious, 213n1

Buick, 598–599

Bulwark, 565

Bunge, 580

Burberry, 241, 400

Burger King, 62, 235, 351, 369, 440, 561, 562, 581

Burger, Katherine, 126n5

Burkitt, Laurie, 283n1, 619n25

Burns, Ursula, 118

Burnson, Patrick, 385n25

Burrows, Peter, 157n1, 295n18

Burt’s Bees, 75, 621 Burton, 191

Bush, Michael, 473n27, 537n50, 557n14

BusinessWeek, 335, 468 Bust Buy, 409, 458

Bustillo, Miguel, 346n11, 357, 371n9

Byerley, Robert, 145, 145 Byrnes, Nanette, 623n29

Byron, Ellen, 289, 397n4

C Cabanatuan, Michael, 611n16

Cabela’s, 405–406 Cadillac, 43, 232, 277 Café Coffee Day, 589

CafeMom.com, 531

Calder, Bobby J., 236n29

Caldwell, Christina, 617n22

Caldwell, Jessica, 600

Calgon, 595

Callahan, Sean, 202, 495

Calvin Klein, 271

686 Indexes

Country Home, 153 Coupland, Douglas, 99

Coupons.com, 503

CoverGirl, 161, 288, 440, 443

CoverGirl Queen Collection, 161

Coy, Peter, 341n7

Craftsman, 405

Craigslist, 164, 345, 525, 527, 554

Crapsy Fruit, 592

Crate&Barrel, 229

Credit Suisse, 541

Cremer, Andreas, 459n6

Crest, 161, 253, 288, 463

Crest Whitestrips, 288

Crisco, 301

Crocs, 297

Cron, William L., 492n13

Crosbie, Jackie, 179n29

Crosby, Lawrence A., 274n44

Crossen, Cynthia, 178n27

Crowley, Dennis, 228

Crum, Chris, 370n8

Cub Foods, 419

Cube, 236

Culver, John, 589

Cunningham, Todd, 480

Curtis, Jamie Lee, 449

Cutler, Kim-Mai, 583n25

Cutlip, Scott, 472n24

CVS, 402, 445, 472, 490, 504, 524

D Daewoo, 599

Dahl, Gary, 297

Dahlquist, Cheryl, 152

Dairy Queen, 99–100, 272 Dancing with the Stars, 583 Dannon, 449, 479, 621

Dap, 410

Darden.com, 244

Darth Vader, 166

Dash, 225

Data.com, 510

Datsun 280-ZX, 185

Daujotas, Giedrius, 580

David’s Bridal, 237

Davidson, Paul, 535

Davies, Iain, 490n9

Davis, Rece, 167

Davis, Scott, 25n1, 267n33, 335

Davis, Shelly, 165

Davis, Wendy, 538n52

Day, George S., 289n9

DDR Corporation, 229

De Beers, 47, 325

de Moraes, Lisa, 443n17

de Swaan Arons, Marc, 588n32

Deadliest Catch, 157 DeCarlo, Thomas E., 492n13

Deen, Paula, 91 Defense Logistics Agency, 205

DeGeneres, Ellen, 102, 530

Degree, 109

del Valle, Elena, 161n5

Dell, 39, 103, 115, 128, 199, 204, 345, 373, 527, 530

Delo, Cotton, 515n1

Delta, 351

DeltaREALLYsucks.com, 114

DeMarco, Anthony, 48n39

Demirbag, M., 395n1

Cirque du Soleil, 554

Cisco Show and Share, 209

Cisco Systems, Inc., 101, 200, 208–210, 285, 287, 495, 526

Cisco Virtual Office, 209

Citigroup, 147

Citrix, 194–195, 195n6 Clairol Perfect 32, 288

Clearasil, 595

Clever Little Bag, 256, 256 Clifford, Stephanie, 227n19, 299n23

Clift, Simon, 588

Climax Portable Machine Tools, 489

Clinique, 306

Clorox Company, 369, 533

CNBC, 510

Coach, 400

Coburn, Tavis, 466n17

Coca-Cola, 39, 94, 118, 125, 164, 223–224, 235, 255, 266, 267, 268, 269,

277, 296, 303, 342, 369, 373, 439, 442, 444, 457, 458, 459, 466, 469,

471, 474–475, 479, 502, 515, 524, 530, 531, 549, 560, 563, 572–573,

575, 580, 582, 583, 584, 594, 607, 617

Coca-Cola Zero, 218

Coca-Cola, 441

Coffe, Jean Pierre, 423

Coffee Bean & Tea Leaf, 589

Cohen, Ben, 621

Coinstar, 360

Colchester, Max, 543

Cold Stone Creamery, 39–40, 272 Coldplay, 615

Coldwater Creek, 522

Cole, Stephen, 274n44

Coleman, 504

Coleman-Lochner, Lauren, 405

Colgate, 232, 352, 575

Colvin, Geoff, 120, 378

Comcast, 361, 390, 467

Comet, 301

Comfort, 562

Compeau, Larry D., 351, 352n14 Complaints.com, 528

ComScore, 541

ConAgra Foods, 325, 349

Concentric Pharma Advertising, 491

Conley, Margaret, 582n23

Connect + Develop, 287, 288–289 Conservation Fund, 629

Consolidated Amalgamation, 196

Constine, Josh, 535

Consumer Product Safety Commission, 106, 107, 301

Consumer Reports, 324, 536 Continental Airlines, 103

Converse, 299, 300–301 Converse All Stars, 299

Converse Rubber Tracks, 300

Cook, Tim, 124, 207, 583

Cooper, Ian, 608n7

Cooper, Robert G., 293n16

Cooper, Spence, 610n11

Coors, 563

Corcoran, Patrick, 607n5

Corolla, 255

Corrections Corporation of America, 202

Corum, Dan, 339

Corvette, 504

Costco, 94, 183, 237, 282, 376, 396, 397, 398, 401, 407, 408, 414, 504, 557, 562 Cottrill, Geoff, 300

Coudreaut, Daniel, 61

Council of American Survey Research Organizations, 148

Council of Better Business Bureaus, 458

Indexes 687

DuPont, 190, 485

Duracell, 109 Dyer, Jeffrey H., 563n21

E E*TRADE, 463, 530

EA Sports, 441

EarthShare, 437

Eastern Mountain Sports, 412

Eastman, George, 550

Eastwood, Clint, 479

Eaton, 208

eBay, 103, 117, 345, 517, 525, 526, 542–543

EcoEasy, 413

EcoHub, 494–495

Ecoist, 118

Edelhart, Courtenay, 408n17

Edelson, Sharon, 45n35, 409n19

Edleson, Harriet, 253n4

Edwards, Cliff, 98, 361n1

Efrati, Amir, 92n1

Eggland’s Best, 255

Ehmann, Lain Chroust, 493n16, 495, 496n18

Ehrlich, Robert, 555–556

Einhorn, Bruce, 580n15, 590n35

Eisenerich, Andreas B., 221n11

Eisenstein, Paul A., 480

Eisenten, Paul, 378

ElderTreks, 99 Eli Lilly, 509

Elliott, Stuart, 112n41, 162n10, 166, 169n18, 436n10, 469n22, 557n14

Ells, Steve, 615–616

Emirates Airlines, 311

EmSense, 140

eMusic, 391

Enclave, 599

Encyclopedia Britannica, 525 England, Andrew, 584n27

Enterprise, 565

Enterprise Collaboration Platform, 209

Enterprise Rent-A-Car, 227, 363, 530

Environmental Protection Agency, 105, 107, 629

Envirosax, 622

Envisage Technologies, 204

Epicurious, 175

Epinions.com, 175, 345

Equate, 271

Escalade, 232–233 Escape, 296

ESPN, 65, 167, 266, 287

ESPN The Magazine, 468 ESPN Zone, 65

ESPN.com, 525

Esterl, Mike, 623n29

Esty, Daniel C., 625n35

Etihad Airways, 73, 74–75

Etsy.com, 465

European Economic Commission, 203

Evernote, 238 Everson, Carolyn, 515

Every Day with Rachael Ray, 152 EWA Bespoke Communications, 150–151

Ewanick, Joel, 479

Ewing, Jack, 594n42

Expedia.com, 48, 410, 525

Expedition 228, 164

Experian, 222

Experian Simmons, 130, 131 Exxon Mobil, 223, 269, 303, 556, 574

Eyring, Matthew J., 349

Denizen, 593

Denny’s, 461, 462

Department of Veterans Affairs, 205

Department of Veterans Affairs Office of Acquisition & Material

Management, 205n15

Desk.com, 510

Deutsche Bank, 303

DeVry University, 241

DHL Logisitics, 385

Dialog, 130

Diapers.com, 357

DiCaprio, Leonardo, 220

Dick’s Sporting Goods, 36, 264

Dickler, Jessica, 343

DieHard, 405

Diet Coke, 472

Dillon, David, 28

DiPiazza, Samuel A. Jr., 625, 625n33

Dipo, M. Adhi, 382n22

Direct Marketing Association (DMA), 517, 517n2, 521n7, 523n13

DirectTV, 153

DiscoverAmerica.com, 253

Discovery Channel, 48, 157

Disney, 29, 118, 140, 249, 266, 268, 269, 272, 274, 277, 524, 527, 536, 538, 560, 582

DivineCaroline.com, 152

Dixon, Matthew, 36n14

Do-It Best, 401, 402 Dogster, 531

DogTV, 170–171

Dolce&Gabbana, 400

Dole, 549

Dole Classic, 255

Dollar General, 31, 104, 218, 237, 398, 400

Dollar Shave Club, 339

Dollar Tree, 218

Dolliver, Mark, 47

Domanski, Jim, 489n6

Domino’s Pizza, 48, 122–123, 151, 215–216 Dominus, Susan, 536n49

Donahoe, John, 542

Donnelly, Sara, 491n12

Dora the Explorer, 272

Doran, Ryan, 217n5

Doritos, 40–41, 273, 463, 479

DoubleTree, 587

Dougherty, Connor, 611n14

Dow Performance Plastics, 192 Dowding, Geoff, 243

Downes, Larry, 371n9

Downy, 562

Doyle, Patrick, 123

Dr. Pepper Snapple Group, 549

Dr. Scholls, 109

Dr. Seuss, 272

Drafta, Cristina, 593n41

Drakes, Sean, 547n1

DreamWorks, 472

Dreft, 225

Dreier, Troy, 531n34

Drumright, Minette E., 29n7

DSW Shoes, 237

Duane Reade, 227

Dube, Leon F., 111n40

Dun & Bradstreet, 128

Duncan Hines, 301

Duncan, Geoff, 554n7

Dunder Mifflin, 484–485

Dunkin’ Donuts, 39, 147, 233, 236, 266, 351, 531 Dunn, Collin, 256n12

688 Indexes

Flickr, 115, 164, 165, 166, 269, 494, 525, 531

Flixter, 533

Flurry, Laura A., 167n15

FluTrends, 295, 307

FocusVision, 136 Folger’s Coffee, 232, 301

Folgers Gourmet Selections, 351

Fong, Mei, 337n3

Food and Drug Administration, 106, 107, 257, 509, 628

Food Network, 252

Foot Locker, 36

Forbes, 123, 229 Forbes, Paula, 113n48

Ford F150, 169

Ford Motor Company, 28, 30, 76–77, 104, 165, 169, 274, 277, 364, 366, 368, 466, 563, 569–570, 580, 587

Ford, Chester, 382n22

Ford, Henry, 33

ForeFlight, 532

Forester, 307

Formica, 270

Formspring, 536

Fortune, 262 Foster, Tom, 157n1

Four Seasons, 236, 546–547, 549

Fournier, Susan, 465n14

Foursquare, 164, 227, 228, 229, 504, 535

Fowler, Geoffrey, 473n26, 543

Fox Sports, 48

Fox, Justin, 261n24

Frank, Barney, 102

Frankel, Daniel, 271n39

Frazier, Mya, 349

Freddy for Music, 371

Free People, 321

Freeman, Karen, 36n14

French National Commission of Fair Trade, 423

French, Tom, 72n10

French’s, 595

Fresh Market, 131

Freud, Sigmund, 171

Friedman, Thomas L., 582n23

Friedmann, Roberto, 29n7

Frito-Lay, 118, 140, 556, 627

Frosted Flakes, 167, 270

Frosted Mini-Wheats, 148 Frye, 296

Fuchs, Christoph, 293n16

Fuji, 524, 549

Futures Company, 130

G Gain, 167, 225, 315

Galante, Joseph, 229

Galaxy, 237, 282, 283

Gale International, 209

Gallo, Carmine, 557n14

Gallup Consulting, 490

Gamm, Scott, 120

Gap, 228, 229, 257, 368, 400, 549, 561 Garfield, Bob, 465n14

Garmin, 330, 534

Gartner, 207, 494

Gasparro, Annie, 244, 327n13, 335n1

Gatorade, 127–128, 235, 273 Gatorade Mission Control Center, 127–128

Gaviño, 390

Gay.com, 102

GE (General Electric), 33, 199, 204, 259, 266, 267, 277, 295, 369, 373, 487, 488, 529, 551, 552, 560, 562, 575, 583, 608

F Fabel, Leah, 515n1

Facebook, 31, 39–40, 41, 48, 64, 90, 100, 109, 110, 115, 117, 122, 123, 125, 127, 137, 138, 147, 157, 161, 164, 165, 166, 183, 200, 201, 202, 217, 228, 229, 247, 260, 265, 266, 267, 268, 269, 277, 283, 287, 293, 300,

306, 307–308, 406, 411, 436, 449, 462, 464, 468, 472, 473, 475, 477,

479, 494, 495, 504, 509, 514–515, 516, 517, 519, 522, 525, 526, 527,

531, 533, 534, 535, 536, 538, 541, 560, 562, 574, 582

Facebook Credits, 515

Facebook Payments, 515

Fadly, Mohamed, 189

Fahmy, Sam, 160n3, 161n6, 161n8

Fairbrothers, Gregg, 47

Falcone, John P., 554n7

Falstad, Jan, 405n13

Family Circle, 152, 153 Family Dollar, 104, 218, 237, 407, 524

Fancourt, Lucy, 588n33

Fanta, 573

Faraci, John, 630

Faribrothers, Gregg, 611n14

Faris, Charles W., 193n3, 197n7

FarmersOnly.com, 532

Farquharson, Bill, 498n19

FashionFix, 409

Fast Company, 307, 559 FBI Internet Crime Complaint Center (IC3), 536

Febreeze, 167, 288

Febreze Candles, 288, 289

Federal Aviation Administration, 107

Federal Bureau of Investigation, 232

Federal Business Opportunities, 204

Federal Communications Commission, 107, 330

Federal Energy Regulatory Commission, 107

Federal Trade Commission, 107, 108, 139, 148, 148n33, 523, 537–538, 607

FedEx, 114, 115, 238, 261, 267, 363, 549, 558

FedEx Logistics, 385

FedMart, 563

Feld, Anthony, 123n1

Feldman, Gayle, 357

Feldmann, Laura, 111n40

Fels-Naptha, 296

Fender, 371

Fendi, 241

Ferguson, Rick, 98n7

Fernandes, Tony, 212

Ferrari, 73

Ferretti, Elana, 609n8

Ferris Bueller’s Day Off, 531 Festinger, Leon, 178n27

Fiat, 306, 591

Fiber One, 190

Fields, Mark, 569

Fiesta, 104, 165 Fifield, Charles, 492n15

Figo, 580, 591

Fincher, David, 361

TheFind, 345

Finkbeiner, Carl, 43n32

Fiora, Bill, 224n15

First Convenience Bank of Texas, 234

Fisher-Price, 131

Fit, 232

Fitness Magazine, 152 FitnessMagazine.com, 152

Five Guys Burger and Fries, 403, 405

Flandez, Raymund, 38n17

Flash, 54

Flatts, Rascal, 356

Flex Seal, 485

Indexes 689

GoToMeeting, 495

Goulding, Ellie, 219

Graham, John, 498n19

Graham, Marty, 171

Grainger, 414, 418

Grand Marnier, 322

Gray, Edmund, 622

Gray, Verne, 443n17

Great Clips, 369

Great Outdoors, 403

Great Value, 271 Greco, Susan, 492n14

Green, Cee Lo, 219

Green, Heather, 43n31

Green, Mark C., 146n29, 590n34, 593n40

Greenberg, Karl, 293n15

Greenfield, Jerry, 621

Greenleigh, Ian, 520n5

Grewal, Dhruv, 351, 352n14 Grind, 102 Gripevine.com, 115

Grisham, John, 357

Gronroos, Christian, 42n30, 43n32

Groupon, 227, 228–229, 466, 503, 509 Grover, Ronald, 361n1

Grubb, Jim, 209

Gruley, Bryan, 98

Gruver, Karen, 295n19

GSA Advantage!, 205

Gschwandtner, Gerhard, 492n15, 493n16, 495

Guaraná Jesus, 580

Gucci, 169, 171, 241, 271, 346 Gude, Dorsey, 45, 47

Gude, Karl, 45, 47

Guinness, 296

Guitar Center, 371

Gulf Air, 311

Gumpert, David, 186

Gunther, Marc, 617n22

Gupta, Vivek, 483

Gustin, Sam, 551

Guthy-Renker, 523

H H.J. Heinz, 40, 41, 64–65, 430 H&M, 223, 224, 368, 592 Häagen-Dazs, 190, 433–434

Hachman, Mark, 531n35

Haier, 31

Hale, Todd, 271n37

Half.com, 542

Hall, Emma, 475, 581n18, 584n27, 592n39

Hall, Julie, 285n3

Halliday, Jean, 459n6

Hallmark Cards, 225–226 Hammacher Schlemmer, 522

Hammerpress, 356

Hampton Inn, 261, 396, 549

Hanlon, Patrick, 505n30

Hannah Montana, 272

Hannon, Elliot, 590

Hansegard, Jens, 582n21

Hansel, Jeff, 260n22

Hanssens, Dominique M., 43n32

Happy Meals, 231, 504

Harley-Davidson, 40, 102, 165, 230, 266, 267, 298, 531, 555

Harlistas: An American Journey, 102 Harmer, Janet, 220

Harris, Neil Patrick, 102

Harrison, Joyce V., 217n5

GE Capital, 511

GE Healthcare, 487

Geaneotes, Alexis, 594n43

Gee, Vivian, 33n10

Geewa, 515

GEICO, 234, 264, 365, 373, 454–455, 463, 516,

517, 535

Geller, Martinne, 369n6

Gelles, David, 430n7, 531n34

General Electric. See GE (General Electric) General Mills, 45, 160, 190

General Mills Foodservice, 203

General Motors (GM), 70, 274, 277, 293, 303, 479, 531, 565, 569, 591, 598–599

General Sentiment, 479

General Services Administration, 204, 205

Generation Y consumers, 519

Gentile, Mary C., 29n7

German Volkswagen AG group, 243

Geron, Tomio, 515n1

Gerzema, John, 46, 47, 611n14

GetSatisfaction.com, 528

Ghemawat, Pankaj, 588n32

Gibbons, L., 427n1

Gillette, 220, 296, 339, 348, 591

Gillette Fusion ProGlide, 339

Gillette, Felix, 317

Giorgio Armani, 400

Girl Scouts, 272 Gizmodo, 164

Glacéau, 129

Glad Products Company, 298, 467

Glaxo, 509

GlaxoSmithKline, 607

Glazer, Emily, 92n1

Glee, 102 GM. See General Motors (GM) Gmail, 295, 307, 449

GNC, 345

Go, Diego, Go!, 272

Godrej & Boyce, 348–349

Goetz, Kaomi, 101n20

Goetzi, David, 39n20

Goffan, Claudia, 160n3

GoFISH.com, 531

Gold Medal flour, 190

Goldsmith, Andy, 255n9

Golesworthy, Terry, 455n1

Gooch, Liz, 592n39

Good Grips, 254 Goodwill Industries, 184

Goodyear, 190–191, 204

Google, 27, 33, 64, 85, 90, 140, 160, 229, 235, 241, 266, 267, 269, 270, 277,

294–295, 306, 307–308, 361, 370, 391, 437, 468, 509, 515, 525, 528, 530, 535, 560, 582, 583

Google Android, 295, 307

Google Blog Search, 295, 307

Google Checkout, 307

Google Earth, 295, 307

Google Glass, 85, 241

Google Labs, 307

Google Maps, 295, 307

Google Picasa, 295, 307

Google Play, 152, 307, 361

Google Wallet, 515

Google+, 307–308

GoPro, 156–157, 157n1 Gore-Tex, 191, 230 Gorla, Catalina, 47, 611n14

Gortons, 221

Gossage, Bobbie, 47

690 Indexes

House, Martha, 86–87

Hoyer, Wayne D., 169n20

HP (Hewlett-Packard), 29, 96, 119, 318, 364, 373, 382, 524, 565 Hsieh, Tony, 262, 263

Hsu, Tiffany, 335n1

Huang, Ming-Hui, 265n28

Huffington Post, 554 Huffington, Arianna, 554, 554n8

Huggies, 376, 468

Hughes, Nick, 382n21

Hulu, 64, 91, 100, 266, 360, 361, 390 Humes, Edward, 617n23

Hummer, 70, 274

Humphrey, Michael, 92n1

Hunger Games, 151 Huntington Learning Center, 369

Huston, Larry, 289

Hymowitz, Carol, 405

Hypios, 287

Hyundai, 45

I IBM, 33, 119, 147, 190, 193, 201–202, 223, 235, 252, 267, 277, 382,

482–483, 489, 575, 583, 608

IBM Global Assess Recovery Services, 617

iCarly, 272

Iezzi, Teressa, 563n21

IGA (Independent Grocers Alliance), 401, 402 Iggy Pop, 219

iGoogle, 307

IHOP, 232

IKEA, 93–94, 167, 337, 385, 462, 575, 581–582, 583, 597 Impreza, 307

In-N-Out Burger, 269

Infiniti Q78, 233X Infor, 384

InfoScan, 131

Ingersoll, John, 522

InnoCentive, 287

Intel, 33, 277

Interactive Advertising Bureau, 537

Interbrand of London, 592

International Chamber of Commerce, 147

International Consumer Electronics Show, 506

International Design Excellence Awards, 283

International Paper, 628–630

Internet Bid Board System, 205

Internet Crime Complaint Center, 232

Interpublic Group of Companies, 303

InterVu, 136 iPad, 85, 180, 221, 237, 249–250, 269, 283, 285, 298, 299, 429, 461, 473,

552, 553, 554, 583, 591, 593, 608

iPhone, 74, 180, 207, 221, 229, 236, 283, 285, 287, 295, 306, 336–337, 355,

552, 559–560, 583, 608

iPod, 97, 124, 125, 180, 272, 295, 363, 559–560, 561, 592, 608 Irwin, Tanya, 103n27

Ishikawa, Eriko, 594n43

Israel, Shel, 511

Istanbul Cevahir Shopping, 411

iTunes, 221, 268, 295, 356, 361, 363, 371, 391, 549, 615

J J. Crew, 342, 400, 561

Jackson, Anna-Louise, 123n1

Jaguar, 569

Jain, Subhash C., 146n29

James, Frank, 549n2

James, LeBron, 162, 220, 235, 455

Jana, Reena, 254n8

Harry, Debbie, 219

Harte, Susan, 197

Hasbro, 579

Hastings, Reed, 360–361, 361n1 HateStarbucks.com, 114

Hatton, Celia, 303n27

HauteLook, 409

Havaianas, 470–471 Hawkins, Del I., 133

Hayes, John, 295n19

Haysbert, Dennis, 455

HBO, 533

Healey, James R., 591n36

Hearts On Fire, 236, 236 Heilman, Jeff, 624n30

Hein, Kenneth, 103n28, 327n14, 409n19

Heinz, 273, 430, 438

Helle, Pekka, 42n30, 43n32

Hello Kitty, 272, 583

Helm, Bert, 366n2

Hempel, Jesi, 483n1

Hendricks, Barbara, 490n10

Henkel, 352

Henshaw, Steve, 339n5

Heraclitus, 90, 92

Hermes, 407

Hermoso, Tito, 459n6

Herrera, Tilde, 622

Hertz, 227, 369, 563, 565

Heskett, James L., 261n23

Heussner, Ki Mae, 147n31

Hibbard, Casey, 39n21, 202

Hill, Kashmir, 40n22

Hilton, 587

Hiltzik, Michael, 551

Himler, Peter, 433

Hirai, Kazuo, 97

Hitachi, 283

Hochman, Paul, 259n20

Hoffmann, Melissa, 523n14

Hogan, John, 313n2, 326n12

Hogan, John E., 336n2, 352n14

Hohner, 557

Holiday Inn, 366, 369, 402, 549, 557

Holiday Inn Express, 237

Hollister, 75, 271

Holmes, Elizabeth, 343n8, 611n14

Holstein, William J., 584n26

Holthaus, David, 349

Home Depot, 64, 81, 94, 153, 199, 220, 237, 327, 369, 372, 373, 381, 383, 385, 396, 399, 405, 408, 410, 414, 445, 487, 563

Home Shopping Network, 422, 542

Hometown, 405

Honda, 103, 184, 283, 325, 330, 363, 479, 563, 587 Honda of America, 616

Honest Tea, 232 Honomichl, Jack, 130n10

Hoover, 128

Hoover, Stephen, 119

Hoovers, 493

Horizon Organic, 255

Hormel, 432–433

Hornsby, Heba, 39n21

Horovitz, Bruce, 164n12, 480

Horse, Austin, 451

Horstein, Scott, 126n5

Hot Mama, 321, 321 Hot Wheels, 299 Houpt, Simon, 617n22

Indexes 691

Kennedy, John F., 106

Kent, Muhtar, 572–573

Kessler, Sarah, 265n27

Kestenbaum, David, 171

KFC, 62, 303, 366, 375, 428, 467, 583, 592 Khanna, Tarun, 619n25

Khalifa, Khalil, 75

Kharif, Olga, 179n29

Kia Motors, 216, 479 Kickstarter, 117

Kid Rock, 217

Kidston, Cath, 331

Kiefaber, David, 216n4

Kiehl’s, 378

Kikkoman, 296

Kilar, Jason, 266, 266n30

Kiley, David, 466n16

Kim, Miyoung, 283n1

Kim, W. Chan, 113n47, 554n9

Kimberly-Clark, 373, 560

Kimberly, S., 427n1

Kindle, 25, 151, 352, 371, 553, 554

Kindle Fire, 25, 85, 237, 338

Kinetz, Erika, 590

King, Carolyn, 409n20

King, Karen, 459n5

King, Karen Whitehill, 267n31

King, Stephen, 357

Kingori, Mamakamau, 573

Kingsford Match Light Charcoal Briquettes, 342

Kingsolver, Barbara, 357

Kinky-Curly Hair Products, 165

Kirchoff, David, 561

Kirin, 586

Kirkland, 376

Kirkman, 296

Klaassen, Abbey, 227n21

Klara, Robert, 216n3, 227n19, 556n10

Kleenex, 270

Klie, Leonard, 99n10

Kmart, 400, 409, 564

Knight, India, 231n23

Knight, Phil, 247

Ko, Vanessa, 115

Koch, Jim, 463

Kodak, 524, 549, 550–551

Koechner, David, 462

Koger, Eric, 227

Koger, Susan Gregg, 227

Koh, S.C.L., 395n1

Kohl’s, 169, 315, 321, 397, 398, 404, 413, 444 Kohler, 322

Kohler Kallista, 322

Kohler Sterling, 322

Kohler, Kristin, 100

Komatsu, 562

Kornak, Joseph, 492n13

Korosec, Kirsten, 82n19

Kosner, Anthony, 475

Kotler, Philip, 27n3, 48n41, 71n9, 77n14, 80n15, 193n3, 194n5, 216n3,

221n9, 224n15, 225n16, 234n28, 236n29, 253n6, 253n7, 258n18,

266n29, 267n33, 301n25, 302, 315n5, 486n2, 520n6, 557n14, 560n15, 604n2, 614n18

Kowitt, Beth, 62n1, 324

Kozinets, Robert V., 132n13

Kraft, 91, 216, 274, 369, 373, 382, 458, 459, 535, 591 Kramer, Mark R., 33, 33n10

Krapp, 592

Krauss, Michael, 33n10

Janet, Bob, 257n16

Jannarone, John, 400n9

Jared, 463

Jargon, Julie, 99n11, 230n22, 375n13

Jarman, Abbie, 94n3

JCPenney, 106, 169, 271, 342, 344, 397 Jeep Wrangler, 461

JELL-O, 216, 270, 467, 591

Jelly Belly, 269

JENNIE-O, 432–433

JetBlue Airways, 35–36, 39, 164, 269, 371, 557 Jewel-Osco, 419

JH Audio, 230

Jif, 167, 301

Jiffy Lube, 402, 402 Jink, Beth, 551

Jobs, Steve, 54, 98, 207, 559–560

Joe, Ryan, 456n2

Joes Jeans, 321

Joffrey Ballet, 229

John Deere, 230, 370, 438, 445

Johnson & Johnson, 33, 103, 165, 303, 509, 553, 555

Johnson, Bradley, 103n27

Johnson, Caitlin, 460n8

Johnson, Eric, 511

Johnson, Mark W., 349

Johnson, Morieka, 171

Johnson, Ray William, 91

Johnson, Robert, 297n21

Johnson, Sheree L., 274n44

Jopson, Barney, 584n27

Jordan, Michael, 235

Joseph, Jim, 560

Jouret, Guido, 287n8

Jovoto, 287

JWT, 462

K Kamangar, Salar, 91

Kane, Yukari Iwantani, 473n26

Kang, Cecilia, 536n49

Kang, Shinhye, 283n1

Kansal, Purva, 178n27

Kanter, Roasbeth Moss, 625n35

Kaplan University, 241

Kaplan, David, 409n20

Kaplan, David A., 69n8

Karamchandani, Ashish, 347n12

Kardashian, Kim, 163–164, 449

KarmSolar Inc, 188–189

Karp, Gregory, 115

Karp, Hannah, 271n37

Kashi, 463

Katchpole, Molly, 114

Kaye, Leon, 380n18

Kazakina, Katya, 297n21

KB Toys, 408, 409

KC Masterpiece, 272

Keds, 100 Keegan, Warren J., 146n29, 590n34, 593n40

Keen, 553

Kelleher, Herb, 32

Kelleher, Kevin, 361n1, 543

Keller, Kevin Lane, 27n3, 71n9, 80n15, 169n20, 193n3, 194n5, 216n3,

221n9, 224n15, 224n16, 234n28, 236n29, 258n18, 266n29, 267n33,

301n25, 302, 315n5, 486n2, 520n6, 557n14, 560n15 Kellogg Company, 70, 148, 167, 270, 273, 299, 341, 440 Kendall, Brent, 370n8, 607n5

Kenmore, 405

692 Indexes

Leonard, Annie, 609n9, 610

Leonard, Stew, 42 Lerner, Jeff, 147

Let’s Move, 28

Leung, Jane, 317

Levi Strauss, 102, 103, 270, 346, 400, 593

Levitt, Theodore, 29n7

Levy, Piet, 98n7, 100n12, 100n13

Lewis, Bredesen, 588n33

Lewis, Tanya, 491n12

LexisNexis, 128, 130

Lexmark International, 119

Lexus, 42, 45, 134–137, 135, 223, 236–237, 255, 267, 274, 375, 459, 517, 562 Lexus Advisory Board, 136

Lexus L592, 233X LG, 98, 461, 583

Li, Shan, 324

Liddell, Chuck, 479

Liddle, Alan J., 399n7

Liesse, Julie, 433, 473n28, 522n8

Life Is Good, 95, 277, 628 Life Savers, 273, 296 Lightco, Inc., 390

Liker, Jeffrey K., 378

Lilly, Bryan, 296n20

Lima, Adriana, 479

The Limited, 271

Lincoln, 104, 233, 569 Lincoln, Abraham, 106

Lindsay, Greg, 210

Linens ‘n Things, 408

LinkedIn, 109, 115, 200, 201, 202, 493, 494

Linksys, 208

Lippert, Barbara, 247n1

Lipton, 273

Listerine, 438, 555

Little Caeser’s Pizza, 467

Little Einsteins, 272

Living Social, 227, 228, 229

LivingSocial, 503

Livingston, Geoff, 287n8

Liyakasa, Kelly, 35n13

Llopis, Glenn, 324

Lockheed Martin, 204 Loechner, Jack, 526n23

Logility, 384 LOGO, 103

Lombardo, Jenné, 219

London, Theophilus, 219

Loopt, 228, 229

Lopez, Jennifer, 241

Los Angeles Fire Department, 39

Los Angeles Lakers, 515

Los Angeles’ Fiesta Broadway, 102

Love, Richard, 44

Lovemark, 269

Lowe’s, 199, 237, 370, 372, 373, 409, 445, 487, 563

Lowrider Tours, 102

Lowry, Adam, 621

Lubine, David A., 625n35

Lucy, 218

Lynley, Matt, 308

Lyons, Daniel, 25n1

Lysol, 595

M M&Ms, 220, 230, 469

Mac, 221, 559–560

Mack, Ann, 101n17

Mackey, John, 261

Kreindler, Derek, 137n17

Krishnaswamy, Suj, 486n2

Kristof, Nicholas D., 115

Kroc, Ray, 60

Kroger, 28, 112, 226, 368, 398, 401, 402, 419, 503, 592, 612, 621 Kromer, Harley, 169n20

Kronsberg, Matthew, 286n6

Krummert, Bob, 244

Kubzansky, Mike, 347n12

Kucera, Danielle, 338n4

Kumar, Nirmalya, 72n10, 77n14, 501n20

Kumar, V., 42n30, 43n32, 44n34

Kumon, 369

Kusturica, Emir, 279

Kwintessential, 196 Kwoh, Leslie, 561n16

L L.L. Bean, 191, 345, 518

L’Oréal, 376, 378, 621

L’Oréal’s Men’s Expert line, 217

LaBorde, Ted, 381n19

LaCrosse, 599

Ladies’ Home Journal, 152 Lady Gaga, 219

Lafayette, Jon, 100n12

Lafley, A. G., 293–294

Lalwani, Nishant, 347n12

Lamborghini, 251

Lamey, Lien, 271n37

Lamont, Judith, 409n20

Lampert, Edward, 404

Lancôme, 378

Land Cruiser, 233, 233, 255 Land Rover, 134, 233, 569 Landor Associates, 268, 269

Lands’ End, 404–405, 522

Lane Bryant, 405

Lane, Ronald, 459n5

Lane, W. Ronald, 267n31

Lashinsky, Adam, 129n8

LASIK, 341

Last Call, 401

Latif, Ray, 129n9

Latin American Motorcycle Association, 102

Latin Billboard Music Awards, 102

Lauterborn, Robert, 77n14

Lavazza, 589

Lay’s, 272

Layfayette, Jon, 431n8

Leaf, 289

Lean Cuisine, 269

Learmonth, Michael, 531n33

Leary, Lynn, 352n16

Ledbetter, James, 495

Lee, 82, 218

Lee, Alex, 255

Lee, Don, 576n6

Lee, Josey Duncan, 269

Lee, Kyungmook, 619n25

Lee, Nancy, 253n6

Lee, Nancy R., 48n41

Leffew, Judd, 479

Legacy, 161, 307

LEGO CUUSOO, 286 LEGO Group, 286–287

Lemon, Katherine N., 43n32, 43n33, 82n19

LendingTree, 565

Leno, Jay, 440

Lenovo, 31, 347

Indexes 693

McDonald, Robert, 349

McDonald, Ronald, 60

McDonald’s, 27, 40, 45, 49, 60–62, 61, 64, 69, 72, 75–76, 94, 103, 133, 160, 162, 207, 231, 235, 236, 264, 266, 267, 268, 274, 277, 293, 315, 346, 351, 364, 369, 374, 375, 390, 402, 403, 405, 408, 414, 428, 434–435, 438, 439, 463, 470, 471, 504, 524, 527, 560, 561, 562, 563, 574, 575,

582, 583, 588, 590, 605

McGarvey, Robert, 492n14, 495, 495n17, 496n18

McGirt, Ellen, 120, 210

McGraw, Tim, 217, 356

McGregor, Jean, 126n5

McKay, Lauren, 147n31

McKendrick, Joe, 533n43

McKesson, 418

McMains, Andrew, 588n32

MediaLab, 140 MedTronic, 510

Meijer, 398, 399 Meineke Mufflers, 402 Meiners, Jens, 186

Men’s Health, 532 Mënaji.com, 217, 217n5 Mercedes, 134, 232, 236–237, 459

Mercedes GL Class, 222

Mercedes, Cardona, 524n16

Mercury, 259, 569

Mercury, Freddie, 219

Meredith Corporation, 152–153

Merrell, 522

Merrill Lynch, 96 Merry Maids, 402

Method, 49, 270, 430, 463, 621

Metro, 414

Meyers, Tiffany, 433n9

Micheals, 408

Michelin, 80, 80, 575 Michigan Economic Development Corporation, 28

Michigan.org, 29n6

Microsoft, 27, 97, 110, 114, 140, 141, 147, 267, 277, 283, 303, 307, 308,

369–370, 528, 538, 560, 583

Midwest Living, 152 Mielach, David, 203n13

Miemis, Venessa, 515n1

Migicovsky, Eric, 117

Mikasa, 398 Milano, Alyssa, 530

Mildon, Jed, 157

Miley, Marissa, 101n17

Miller beer, 563

Miller, Brandon, 103n27

Millstone, 351

Millward Brown Optimor, 583

MINI Cooper, 258, 555

Miramax, 515

Misonzhnik, Elaine, 408n18

Missoni, 409

Missouri State University, 277

Mitchell, Alan, 164n12, 166

Mittal, Vikas, 38n19

Modcloth.com, 227 Modern Family, 102, 473 Moen, 383

Mohn, Tanya, 103n28

Mohr, Jakki J., 44n34

Mohwak, 410

Moin, David, 226n18

Mojang, 286

Molson, 563

Monae, Janelle, 219

Mongrelluzzo, Bill, 380n18

MacMillan, Douglas, 531n36

Macy’s, 106, 142, 216, 315, 321, 389, 396, 398, 403, 404, 408, 440, 517, 524

Mad Magazine, 556 Mad Science Group, 402

Madagascar, 504 Madden, Normandy, 591n37, 593n41

Maddox, Kate, 202

Madi, Yumna, 189

Madigan, Kathleen, 47

Madonna, 219, 479

Magic Eraser, 273

Magic Reach, 273

Magill, Ken, 532n39

Mahoney, Sarah, 100n13

Maich, Steve, 560

Majka, Nicholas, 588n33

Makino Machine Tools, 201, 495–496 Makita, 593

Malär, Lucia, 169n20

Mangalindan, JP, 43n31

Mangano, Terry, 160n3

Manning, Kenneth C., 343n8

Margreta, Michael, 382n22

Mark, Monica, 573n1, 584n26

Marketing Research Association, 147, 148

Marks & Spencer, 150

Marmot, 191

Marn, Michael V., 352n14

Maroon 5, 224

Marriott, 258, 260, 530

Marriott International, 265

Mars, 118, 177, 469, 622 Marshall, Norman W., 42n30

Marshalls, 400

Martin, Andrew, 62n1

Martin, Janette S., 197

Martin, Jim, 189n1

Martin, Justin D., 345n10

Martin, Timothy W., 398n6

Martinez, Andres, 582n22

Martinez, Juan, 147n31

Mary Kay Cosmetics, 365, 372, 443

Maslow, Abraham, 171, 172, 172n22

Massachusetts Right to Repair Coalition, 568

Massage Envy, 369

Massmart, 584

MasterCard, 40, 303, 399, 535, 608

Mateschitz, Dietrich, 450–452

Matioli, Dana, 346n11

Matrix, 255

Mattel, 299, 624

Mauborgne, Renée, 113n47, 554n9

Mavi Jeans, 278–279

Max Havelaar Foundation, 423

Maxim, 468 Maximo Professional Services, 193

Maybelline, 378, 505

Mayer, Allan, 486n2

Mayo Clinic, 260 Maytag, 372

McCale, Sheilynn, 124n2

McCann Worldgroup, 303

McCarthy, E. Jerome, 77n14

McCarty, Dawn, 551

McClean, Roy, 77n14

McClellan, Steve, 460n9

McDonald, Bob, 271, 289

McDonald, Maurice, 60

McDonald, Richard, 60

694 Indexes

National Park Foundation, 629

National Recycling Coalition, 629

Nationwide Insurance, 170

Nature Valley, 190

Nau, 622

Nautica, 82, 218

Navigator, 104, 233 NBA, 162, 439, 440

NBCUniversal, 510

NBox, 330

Neff, Jack, 166n13, 169n20, 269, 269n34, 396n2, 397n3, 439n12, 445n19,

562n18

Neiman Marcus, 104, 222, 397, 398, 401, 522, 553 Nelson, Jane, 594n43

Nelson, Tammy R., 296n20

Nelson, Willie, 615

Nesta, Alessandro, 220

Nestlé, 33, 49, 160, 161, 375, 385, 463, 485, 529, 575, 579, 580 Netflix, 91, 268, 356, 360–361, 390, 517, 518, 535

NeuFlex, 555

Neuman, Andrew Adam, 462n13

NeuroFocus, 140

Neuticles, 171

Neutrogena, 75

New Balance, 31, 291–292 New York Times, 42, 113, 525 Newman, Andrew Adam, 103n28, 217n6, 430n4

Newmark, Craig, 554

News Corp, 392

Newsweek, 468 Newton, Casey, 157n1

Nextag.com, 530

NextBlue, 473, 475

Nexus 7 tablet, 85

Nexus Q, 85

NFLShop.com, 479

Ngai, Joe, 519

Nickelodeon, 272

Nielsen Company, 130, 146, 151, 208, 222, 478, 479, 541, 556 Nike, 36, 49, 75, 103, 230, 235, 246–247, 249, 252, 258, 266, 267, 269, 272,

283, 300, 301, 327, 439, 440, 441, 458, 485, 532, 535, 553, 555, 557,

560, 575, 580, 581, 582, 583, 616, 620, 622

Nike Coach, 247

Nike Digital Sport, 247

Nike+, 247

Nike1iPod Sport Kit, 272

Niketown, 247

Nikon, 173, 174

Nintendo, 98, 583

Nishi, Dennis, 166

Nissan, 185, 232, 236, 277, 289, 330, 531

Nivea, 449

No Fear, 273

Nocera, Joe, 25n1

Nokia, 49, 293, 308, 591, 592, 594

Nook, 371

Nordstrom, 31, 36, 104, 218, 257, 278, 389, 397, 398, 403, 404, 533, 549, 553, 558

Nordstrom Rack, 401

North Face, 82, 165

The North Face, 191, 218 Novartis, 270

Nuckols, Ben, 115

Nudd, Tim, 167n14, 466n19, 475

Nutrish, 252

Nyffenegger, Bettina, 169n20

NYPD, 252

NyQuil, 469

Monocryl, 555

Monopoly, 298

Montana, Joe, 449

Montgomery, Michael, 625n31

Moore, Caulder, 243

Moore, Ellen, 172n23

Mop & Glo, 269

MORE, 152 Morgan, Spencer, 406n14

Moringa Milk Company, 586

Morphy, Erika, 511

Morran, Chris, 36n14

Morrison, Maureen, 351n13, 403n12

Morrison, Scott, 370n8

Morrissey, Brian, 139, 247n1, 428n1

Moss, Kate, 441

Motavalli, Jim, 289n10

Motel 28, 237, 269, 575

Motorola, 479, 592

Moumenine, Mo, 440n14

Mountain Dew, 165–166, 218, 273

Mr. Clean, 273, 299, 338, 463 Mr. Clean AutoDry, 273

Mr. Clean Magic Eraser, 288, 289

Mr. Handyman, 368, 369, 402 MSN, 525

MSNBC, 461

MTV Networks, 103

Mucinex, 595

Mug, 273

Mulally, Alan, 28, 259

Mulcahy, Anne, 118

Mulier, Tom, 326n11

Mullally, Alan, 569

Murphy, H. Lee, 408n18

Murphy, Samantha, 227n20

Murshed, Feisal, 38n19

Murthi, B. P. S., 343

Musician’s Junkyard, 371

Mustafa, Isaiah, 432, 530

Mycoskie, Blake, 109

MyCoupster, 503

MyFleetAtPenske.com, 144 MyGulf, 446

Myriad Genetics, 568

Myser, Michael, 202n10, 232n26

Myspace, 392

myTransponder.com, 532

N Nagle, Thomas T., 313n2, 326n12, 336n2, 352n14

Nair, Hari, 349

Nam Kee Noodle Shop Company, 519–520

Nano, 103, 104 Napolitano, Maida, 106n34, 382n21

Narasimhan, Chakravarthi, 343

Narayandas, Das, 82n19, 193n3

Narus, James A., 193n3, 501n20

NASA, 64n2, 287

NASCAR, 39, 54

Nassauer, Sarah, 263

National Consumers League, 607

National Enquirer, 469 National Football League, 505

National Guard, 268

National Heart, Lung, and Blood Institute, 472

National Hockey League (NHL), 532

National Institutes of Health, 472

Indexes 695

Pardee, Thomas, 475

Parekh, Rupal, 581n19

Parents Magazine, 152, 153, 222, 468 Parents.com, 152

Parikh, Rahul, 523n15

Parker, Mark, 247

Parpis, Eleftheria, 162n10, 620n26

Passat, 166

Passikoff, Robert, 263

Passions Network, 531

Patagonia, 49, 221, 621 Patel, Kunar, 468n20, 503n27, 533n43, 535

Patrana, Travis, 451

Patterson, James, 357

PayPal, 287, 515, 542, 543

PayPalSucks.com, 114

PayPass, 399, 535

Pebble Technology Corporation, 117

PEDIGREE, 619–620

Peerless Paper Company, 344

Peers, Martin, 430n3

Penenberg, Adam L., 140n21

Penn, Sean, 220

Penske Logistics, 385

Penske Truck Leasing, 144 Penteado, Claudia, 580

Pepitone, Julianne, 381n20

PepsiCo, 40, 112, 125, 127, 140, 165, 228, 255, 256, 272, 273, 274, 283, 303, 369, 463, 464, 488, 533, 563, 620, 622–623

Perdue, 255

Personicx, 168 Persson, Andreas, 82n19

Pet Airways, 170

Pet Rocks, 296, 297

Peters, Kevin, 28n5

Peterson, Tim, 161n9

Petplan USA, 170

Petrecca, Laura, 480

Pets.com, 392

PetSmart, 237, 398, 399, 408 PetZen, 171

Pew Forum on Religion & Public Life, 112n45

Pfanner, Eric, 588n32

Pfizer, 509

Phelps, Michael, 440, 463

The Philadelphia Channel, 91

Philadelphia Cream Cheese, 91 Philips AmbientLED, 622

Phillips, Rick, 498n19

Picture People, 469

Pien, Katty, 433n9

Pierson, David, 582n21

Piggly Wiggly, 380

Piling, David, 581n17

Pillsbury, 190, 272

Pink, 231

Pinterest, 39, 468, 472, 473, 525, 531

Pirate Brands, 555–556

Pixar, 65

Pizza Hut, 62, 123, 303, 402 Planet Out Inc., 102

PlanetFeedback.com, 528

PlanetOut.com, 102

PlantBottle, 617

Plastic Wood, 410

Plato’s Closet, 369

Playmonk, 515

PlayStation, 97, 98, 527

Plopp, 592

O O’Brien, Jeffrey, 547n1

O’Brien, Keith, 27n2, 62n1, 527n28

O’Leary, Michael, 316 O’Leary, Noreen, 440n13

O’Reilly Auto Parts, 504

O’Leary, Michael, 316

O’Leary, Noreen, 217n6

O’Malley, Gavin, 41n26

Oberhelman, Doug, 377 Ocean Spray, 273

Octagon, 296

Odyssey, 325 Offer, Vince, 524

Office Depot, 179, 304

OfficeMax, 408

Ogilvy Public Relations Worldwide, 472, 472n25

OgilvyAction, 396

Ohnsman, Alan, 587n30

Okazaki, Shintero, 593n40

Olay, 221

Olay Definity, 161

Olay ProX, 288

Olay Regenerist, 288, 289

Old Spice, 299, 432, 530

Oldsmobile, 70, 274

Olive Garden, 232

Olympics, 224

Omaha Steaks, 365

Omar, Aireen, 213

Omo, 562

Opel Astra, 599

Oracle, 141, 384

Oral B Pulsonic, 288, 289

Oral-B, 346

Orbitz, 103

Ordinario, Cai U., 577n9

Orek, 449

Oreo, 461, 591

Oscar Mayer, 458

Ostrow, Adam, 127n6

Otis Elevator, 575

Out, 102 Out Traveler, 102 Outback, 307, 504

Overstock.com, 342, 353, 400, 526–527, 541

OxiClean, 524

OXO, 86, 254–255, 450 Özbek, Rıfat, 278

P P&G (Procter & Gamble), 27, 81, 102, 109, 132, 161, 165, 167, 175, 217,

221, 225, 226, 267, 269, 271, 273, 274, 287, 288–289, 293–294, 295, 298, 299, 301, 315, 348, 349, 351, 352, 369, 376, 382, 383, 384,

396–397, 430, 436, 439, 456, 463, 464, 469, 489–490, 499, 500–501,

524, 528, 530, 552, 555, 560, 562, 608

P&G (Procter & Gamble) Professional Division, 203 Pace, 259

PajamaJeans, 524

Palmer, Alex, 142n22

Pampers, 267, 269, 288, 348, 376, 467

Pampers Swaddlers, 221

Panamera, 185

Panasonic, 157

Pandora, 91, 356, 390–391, 515

Panera Bread Company, 36, 269, 334–335 Pantene, 161, 232

Papa John’s, 123, 479

Paramount, 515

696 Indexes

Ralph Lauren, 342, 400

Ramada Inn, 369

Ramada Limited, 237

Range Rover, 233 Rao, Ram, 343

Rate My Professor, 477

RateMDs.com, 477

Ravelry.com, 531

Ray, Rachael, 252

Razzq, Abdel, 75

RCA, 575

Rdio, 356

Reagan, Ronald, 106

Reagan, Steven J., 236n29

Real Simple, 468 Reckitt Benckiser, 595

RED Brick Road Agency, 427

Red Bull, 129–131, 130, 164, 450–452, 505, 555, 563–564 Red Bull Media House, 451–452

Red Bull Total Zero, 129

Red Cross, 251

Red Dress, 472

Red Kap, 565

Redbox, 360, 524

Redken, 378

RedLaser, 543

Reebok, 300, 449

Reece’s, 267, 268, 269 Reef, 218

Reeves, Rosser, 235

Regal, 599

Regal Cinemas, 48

REI, 157, 169, 229, 397, 398, 534 Reichert, Tom, 267n31

Reilly, Thomas P., 501n21

Rein, Shaun, 590

Reinartz, Werner, 44n34

Reingold, Jennifer, 132n12

Researcharts.com, 33n9

ResearchGATE, 532

Resnick, Brian, 202n10

Retton, Mary Lou, 99

Revlon, 64, 249, 524 Revson, Charles, 249

Rhapsody, 391

Richwine, Lisa, 69n6

Ricoh, 119

Riders, 218

Rigby, Darrell K., 295n19

Ringling Bros., 554

Rishe, Patrick, 345n10

Ritson, Mark, 376n14

Ritz-Carlton Hotels & Resorts, 36, 64, 235, 269, 549, 557–558 RitzCamera.com, 409

Ritzer, Kimberly, 321

Roberto, Ned, 48n41

Roberts, Dexter, 577n7

Robinson, Patrick J., 193n3, 197n7

Robinson, Peter, 186

Rock, Mick, 219

ROCKED, 219 Rockwell Automation, 501

Rockwood, Kate, 335n1

Rodkin, Gary, 325

Rodriguez, Cecilia, 317

Roegner, Eric V., 352n14

Rogers, Christina, 459n6

Rogers, David, 398n5

Rogers, Everett M., 178n28, 179n30

Pogs, 297

Pogue, David, 295n18, 308

Pokémon, 504

Polaroid, 236

Polarvision, 236

Policicchio, Jeff, 501

Pollack, Judann, 455n1

Polman, Paul, 602–603, 614, 622

Polo Ralph Lauren, 400

POM, 449

Pontiac, 70, 274

Poo, 592

POPClock Projection, 96n6

Porsche, 184–186, 232

Porsche, Ferdinand, 184

Porter, Michael, 33, 33n10, 71n9, 224n15, 557, 557n12

Portillo, Ely, 42n28, 271n38

Poynter Institute, 277

Prada, 407

Praeger Publishers, 197

Prahalad, C.K., 132n12, 347n12, 349

Prego, 259

Press’n Seal, 298

Price Club, 563

Price, Sol, 563

PriceGrabber.com, 345

Priceline.com, 345, 517, 528

PriceScan.com, 345

PricewaterhouseCoopers, 625

Pringles, 70

Prius, 255

PRIZM, 222 Proactiv Solutions, 523

Probst, Michele, 217

Procter & Gamble. See P&G (Procter & Gamble) (PRODUCT) RED, 226

Progressive Insurance, 38, 264, 455, 463

Propel, 273

ProQuest, 130

Prozac, 592

PS25, 98

Pshitt, 592

PT Lion Mentari Airlines, 213

Publix, 390, 398, 399 Puente, Maria, 317n6

Pulizzi, Joe, 202

PUMA, 256, 620 Punnose, Fain Abraham, 75

Pure Digital Technologies, 208

Pure Michigan, 28 Purell, 461

Purina, 385

Pyrex, 255

Q Quaker Oats, 266

Queen, 219

Quero, 65

Qui, Joe, 599

Quill.com, 197 Qwikster, 361

R Racal Telecom, 143

Rackham, Neil, 486n2

Radio Shack, 179, 398 Raice, Shayndi, 229

Raisin Bran, 341

Rajeev, Aaron Ahuvia, 269n35

Indexes 697

Saunders, Andrew, 603n1

Saunders, John, 604n2

Save-A-Lot, 419

Sawka, Kenneth, 224n15

SC Johnson, 380, 616

ScentAir, 406

Scheyder, Ernest, 551

Schick, 339

Schiff, Allison, 142n22

Schlesinger, Leonard A., 261n23

Schmidt, Jeff, 38n19

Schmitt, Garrick, 25n1

Schneider, Joan, 285n3

Scholastic Inc., 151

Schomer, Stephanie, 321n9

Schrambling, Regina, 254n8

Schreier, Martin, 293n16

Schreuer, Richard, 81n16

Schrute, Dwight, 484–485

Schultz, E. J., 455n1

Schultz, Howard, 47, 292

Schulz, Greta, 257n16

Schumacher, Doug, 301

Schwab, 535

Schwartz, John, 297n21

Schweitzer, Tamara, 109n35

Scion, 255, 274

Scooby Doo, 272

Scotch Tape, 270

Seadream Yacht Club, 217

Sears, 103, 373, 397, 398, 402, 403, 404–405, 409, 487, 517, 530, 557, 561, 586 Sears Auto Centers, 404

Sears Grand, 404

Sears Hardware, 404

Sears Home Appliance Showrooms, 404

Sears Outlet, 404

Seattle’s Best Coffee, 222–223, 273, 351, 351, 524 Second Life, 164

Secret, 217

Sedaris, David, 102

Seetharaman, P. B., 343

Sega, 583

Seimers, Eric, 327n14

Sengupta, Sanjit, 44n34

Sentinel, 218

Sephora, 522, 524

Sesame Street, 272

Seven & I, 414

Seventh Generation, 234

Sevkli, M., 395n1

Sewell, Dan, 28n5, 47, 530n32

Shactman, Brian, 387

Shah, Denish, 42n30, 43n32

Shahout, Abu, 75

Shaich, Ronald, 334, 335 ShamWow, 485, 524

Sharing Mayo Clinic, 260

Sharkey, Tina, 129n7, 147n30

Sharp, 119, 283

Sharp, Isadore, 546–547

Sharper Image, 408

Sharron, Steve, 600

Shaw Floors, 199–200

Shea, Christopher, 173n24

Sheetz, 398, 399 Sheetz Bros. Coffeez, 399

Sheetz Bros. Kitchen, 399

Shelman, Mary L., 303n27

Shenkar, Oded, 563n20

Rolex, 236, 251, 254, 349, 462

Rolls-Royce, 254, 258

Ronald McDonald, 231

Ronson, Mark, 474

Rooney, Wayne, 441

Roosevelt, Franklin Delano, 106

Rose, Charlie, 361n1

Rose, Lacey, 440n13

Rosenbaum, Steven, 41n27

Rosenbloom, Stephanie, 357, 524n17

Rosinje Distributors, 573

Rossignol, 338

Roth, Eldon, 207

Rothwell, Steve Rothwell, 317

Row Adventures, 99

Rowe, Mike, 466

Rowling, J. K., 583

Royal Caribbean, 101, 351

RPM International, 410

Rubin, Ben Fox, 327n13

Rueter, Thad, 526n22, 526n23

Ruffles, 342

Ruggless, Ron, 36n15

Runcible Spoon Bakery, 515

Russell, Thomas, 459n5

Russi, Venucia de, 278

Rust-Oleum, 410

Rust, Roland T., 43n32, 43n33, 82n19, 265n28

Rustler, 218

Ryals, Lynette, 82n19, 490n9

Ryan, Eric, 621

Ryanair, 315, 316–317

RydeGreen, 385

Ryder, 385

Ryder Supply Chain Solutions, 385

S Saab, 70, 274

Saatchi & Saatchi, 269

SABMiller, 563

Sacks, Danielle, 92n1, 543

Safeway, 81, 112, 364, 398, 490, 504, 621 Safien, Robert, 293n16

Sakkab, Nabil, 289

Saks Fifth Avenue, 218, 271, 304, 398, 405

Saks Off 5th, 401

Sales Cloud, 510

Salesforce.com, 141, 510–511

Salk Institute, 287

Salter, Chuck, 244, 317n18, 308, 641n24

Sam Ash, 371

Sam’s Club, 398, 401, 579 Sam’s Choice, 271

Samsung, 49, 97, 98, 103, 128, 232, 237, 268, 270, 282–283, 295, 361, 366, 443, 479, 529, 530, 574, 575, 583, 619

Samsung Galaxy, 270

Samsung Series 7 Chronos, 282, 283

Samuel Adams Beer, 463

Samuel, Lawrence R., 173n24

Sanders, Gisele, 46

Sands Research, 140

SAP, 384, 494–495, 510

Sara Lee, 458

Sarkees, Matthew, 38n19

SAS, 141

Sass, Erik, 153

Sasser, W. Earl, Jr., 261n23

Sattari, Setayesh, 64n3

Saturn, 70, 274

698 Indexes

Special K, 273, 299

Speer, Jordan, 226n18

Spel, Svenska, 440

SpongeBob SquarePants, 171, 272 Sports Authority, 36

Spotify, 356, 392, 515

Sprint, 38–39, 54, 325

Sprott, David E., 343n8

Sprouts, 398

SQUARED & Design, 177 St. Joseph aspirin, 472

St. Jude Children’s Hospital, 48, 261 St. Regis Hotel, 243

Standard Oil of New Jersey, 269

Stanford, Duane, 573n1, 584n26

Stanley Black & Decker, 81

Stanley, T. L., 123n1, 440n14

Staples, 199, 234, 373, 381, 398, 410, 413, 525, 621 Staples Advantage, 199

Star, 469 Star Wars, 166, 272, 480, 531 Starbucks, 39, 40, 69–70, 144, 222–223, 228, 229, 233, 236, 249, 266, 273,

292, 351, 408, 461, 535, 541, 575, 582, 589–590, 620, 622 Starbucks VIA, 292 StarTrek, 532

Starvish, Maggie, 303n27

Starwood Hotels and Resorts, 219

State Farm, 160, 455

Steel, Emily, 110n36

Steelcase, 223

Stein, Joel, 217n5

Steinberg, Brian, 460n9, 461n12, 466n17

Steins, Tess, 69n8

Steinway, 314, 317

Sterling, Greg, 525n19

Stern, Gary, 400n9

Stern, Stefan, 557n12

Sternberg, Jared, 460n11

Steveman, Ben, 98n7

Stewart, Christopher S., 443n17

Stewart, John, 266

STIHL, 373, 374, 502 Stilwell, Victoria, 244

Stipp, Horst, 468n20

Stolarski, Christopher, 574n2

Stone, Brad, 43n31, 45n37, 357

Stoney Ginger Beer, 573

Stonyfield Farm, 385, 621

Stop-N-Go, 398 Story of Stuff, 610 Stoudemire, Amar’e, 220

StraighterLine, 277

Strauss, Gary, 480

Stringer, Howard, 97, 98

Stroller, Gary, 197

Strom, Stephanie, 230n22

StubHub, 542

Sub-Zero, 551, 552

Subaru, 103, 161–162, 307

Subaru WRX, 162

Subway, 94, 234, 351, 402, 463, 561 SubZero, 236

Sudhir, K., 38n19

Sullivan, Anthony, 524

Sullivan, Elizabeth A., 38n17, 38n18, 40n23, 83n20, 137n18, 139, 166,

202, 486n2, 495n17, 532n40

Sullivan, Laurie, 160n4

Summers, Jeffrey, 301

Sun Chip, 627

Sheraton Hotels, 406

Sherr, Ian, 361n1

Sherwin Williams, 110

Shoebox Greetings, 226

ShoeDazzle, 163–164 Shopkick, 227, 228, 229 Shopping.com, 542

Showrooming 2.0, 411–412

Shrek, 174, 472 Shriners Hospitals for Children, 202

Shum, Christine, 519

Siebel, 510

Sierra Mist, 273

Silk, 270, 462

Silly Bandz, 297

Simester, Duncan, 343

Simon Paul, 550

Simple Elegance, 271

Simply Venus, 221

Singapore Airlines, 213, 234 Sipkoff, Martin, 613n17

SiriusXM Radio, 391, 479

Sit or Squat, 534

Site.com, 510

Siver, Levi, 451

Six Flags, 193–194, 339 Skechers, 449, 607

Skittles, 164, 166

Skrodzki, Anne, 335

Skype, 268, 269, 283, 355, 542

Slack, Eric, 556n10

SlapChop, 524

Slater, Dan, 43n33

Slater, Stanley F., 44n34

Slice, 273

Slicksmile, Harry E., 196–197

Slimfast, 109

Sloan, Paul, 139

Sloane, Garett, 553n5

Sloane, Paul, 285n4

Slutsky, Irena, 129n7

Smart car, 330

Smarthinking, 277

Smartwater, 270

Smashburger, 331

Smith, Ethan, 92n1

Smith, Joyce, 321n9

Smith, N. Craig, 29n7

Smith, Ray, 343n8

Smith, Sandy, 406n14

Snap Fitness, 315, 315 Snap Surveys, 135, 136 Snapper, 381

Snickers, 177, 438 Snow Report, 534

Snuggie, 524, 562

SoBe, 273

Social Marketing Institute (SMI), 253

SocialBlue, 202

Solis, Brian, 263

Solomon, Michael R., 172n22

Song, Jaeyong, 619n25

Sony, 97–98, 103, 124, 223, 282, 283, 527, 550, 561

Soul, 216 Southon, Mike, 345n10

Southwest Airlines, 32, 40, 115, 164, 227, 264–265, 316, 317, 371, 518, 557 Sowa, Anna, 324

Spacey, Kevin, 361

Sparks, Janet, 366n2

Indexes 699

Thrifty, 565

Ticketmaster.com, 345

Tide, 109, 221, 225, 269, 288, 296, 430, 436–437, 439, 534, 562

Tide Total Care, 288

Tierney, Christy, 302n26

Tiffany, 397

Tim Hortons, 272

Timberlake, Cotten, 216n3

Timberland, 49, 105, 164, 218, 553, 621 Time, 469 Time Warner, 140, 140, 467 Timex, 462

Title Nine, 406

Titus Cycles, 322, 324

TJ Maxx, 398, 400, 406 TJX Companies, 400

Toane, Carey, 125n3

TodoDia, 579

Tolve, Andrew, 491n12

Tom’s of Maine, 112, 112 Toman, Nicholas, 36n14

Tommy Hilfiger, 271

TOMS Shoes, 96, 109, 621 Tony the Tiger, 167

TopCoder, 287

Toro, 381

Torrid, 183

Toscani, Olivero, 279

Toshiba, 283, 386–387

Total, 190

Touchstone Pictures, 65

Tower Records, 549

Townsend, Matt, 45n35

Toy Story, 231 Toyota, 27, 37–38, 49, 109, 160, 185, 216, 233, 236, 255, 273, 274, 302, 330,

375, 376, 377–378, 461, 524, 563, 569, 575, 583, 587

Toys “R” Us, 389, 409

Tozzi, John, 145n25

Trachtenberg, Jeffrey A., 357

Trader Joe’s, 165, 269, 271, 322, 323–324, 398, 403 Traditional Home, 153 Trap-Ease America, 86–87

Travelers, 264

Travelocity.com, 410, 529

Treachy, Michael, 557, 557n13

Trefis, 271n37

Trinitron, 97, 98

TripAdvisor, 175

Tripodi, Joe, 466n19, 474

Trix, 190

Tropicana, 54, 273

Tropicana Pure Premium, 112

Trosclair, Carroll, 533n42

Trout, Jack, 266n30

True Blood, 533 True Value, 402 TRUSTe, 538

Tsai, Jessica, 140n20

Tse, Cyrus, 519

Tsirulnik, Giselle, 533n46

Tsneg, Nin-Hai, 47

Tull, Donald S., 133

Tundra, 255

Turner, Bernadette, 99n10

Tutu, Andre, 186

Twitter, 39–40, 100, 110, 115, 122, 123, 125, 127, 137, 138, 147, 164, 165, 166,

200, 201, 202, 217, 228, 265, 285–286, 293, 300, 306, 411, 464, 466, 473, 475, 477, 479, 494, 516, 525, 527, 531, 534, 535, 562

Tyagi, Pradeep K., 132n13

Sun Microsystems, 209

Sundheim, Ken, 492n13

Sunkist, 255

Sunsilk Lively Clean & Fresh, 592

Super Bowl, 40, 128, 166, 220, 443, 460, 461, 478–480, 530

SuperTarget, 398 SuperValu, 398, 419, 610 Supra, 185

Sure, 301

Surf, 562

SurveyMonkey, 136

Susan G. Komen Race for the Cure, 226

Sustainable Living Plan, 602–603

Sutton, Jane, 406n14

Swanson, 259

Swarovski, 472

Swartz, Jon, 468n20

Swiffer, 167, 269, 298

Swiffer Dusters, 288

Swift, Taylor, 356

Swivel Sweeper, 485, 524

Symmetry Live, 219 Symphony- IRI, 292

SymphonyIRI Group, 131

Sztorc, Dan, 511

T T-Mobile, 325, 461

TABASCO, 296 Taco Bell, 62, 113, 303, 315

Tailey, Karen, 405

Tarasi, Crina O., 43n32, 44n34

Target, 27, 45, 48, 81, 85–86, 94, 104, 165, 168, 169, 199, 221, 229, 252, 271, 300, 342, 345, 364, 376, 396, 397, 398, 399, 400, 402, 404, 405, 408–409, 410, 414, 438, 461, 535, 549, 553, 562, 568, 612, 621

Tata Global Beverages, 589

Tata Motors, 103

Tatoglu, E., 395n1

Taylor, Alex, III, 103n29, 104n31

Taylor, Charles R., 593n40

Taylor, Victoria, 164n12

Tazo, 222–223, 273

Team Umizoomi, 272

Tedesco, T. J., 498n19

Teixeira, Thales, 531n34

TelePresence, 495

Templin, Mark, 134–135 Tenet Healthcare, 202

Terry, John, 440, 441

Tesco, 414, 426–427

Tesla, 289 Testors, 410

Tetra Food, 557

Texas Instruments (TI), 318–319, 557

The Advocate, 102 The Athlete’s Foot, 369

The Body Shop, 524

The Fearless Flyer, 324 The Kids Are All Right, 102 The Office, 485, 583 The Playground, 624

The Tonight Show, 524 Thomas Pink, 406

Thomas, Chad, 459n6

Thompson, David, 496n18

Thornton, Emily, 45n36

Thornton, Matthew, 115

Thorogood, Pelin Wood, 493n16

Thorpe, Daniel, 43n32

700 Indexes

Viking, 254, 551

Virgin Atlantic Airways, 555, 556

Virgin Games, 556

Virgin Group, 556

Virgin Mobile, 556

Virgin Wines, 556

Visa, 470, 471

Vistakon, 553

Vocalpoint, 439

Vodafone, 143–144, 483

Voeth, Markus, 194n5

Vogel, Joseph, 352n15

Vogel, Paul, 522n8

Vogue, 468 Volkswagen, 166, 184, 461, 479, 480, 530

Volt, 289

Volvo, 259, 569

Vranica, Suzanne, 112n41

W W Hotels, 218, 219–220 W. L. Gore & Associates, 191

Waananen, Lisa, 430n3

Wade, Dwyane, 220

Wahba, Phil, 405

Walgreens, 109, 227, 364, 445, 503, 504, 524, 535, 610

Walker, Molly Bernhart, 536n48

Walker, Rob, 609n10

Walkman, 124, 561

Wall Street Journal, 113, 222, 469 Wallace, Alicia, 324

Walmart, 24, 25, 27, 30, 33, 64, 71, 81, 85–86, 94, 102, 106, 125, 160, 165, 179, 183, 192, 199, 226, 235, 255, 267, 271, 304, 312, 315, 317, 342, 357–358, 369, 373, 376, 380, 382, 383, 385, 395, 397, 398, 399, 400, 401, 403, 404, 405, 407, 408, 409, 410, 414, 419, 445, 490, 524, 549,

553, 557, 558, 560, 561, 562, 563, 565, 568, 576, 579, 583, 584, 608,

610, 612, 617–618, 620, 622

Walmart Supercenter, 398, 582 Walmart.com, 530

Walmartblows.com, 114

Walmsley, Andrew, 39n20

Walt Disney Company, 68–69. See also Disney Walt Disney Pictures, 65

Walt Disney World Resort, 29, 234

Walters, Helen, 254n8

Walton, Sam, 563

Wanamaker, John, 440

Ward, Sandra, 232n26

Warman, Matt, 308

Warner Bros., 515

Warner, Fara, 600

Washington Post, 169 Wasserman, Todd, 148n33, 229, 301

Watco, 410

Waters, Richard, 120

Watson, Thomas J. Sr., 482

Waugh, Rob, 92n1

Wauters, Robin, 410n22

Waze, 330

WD-40, 269, 561

Weather.com, 530

Weber, 35

Weber Nation, 36

Weber, Joseph, 326n11

WebEx, 101, 495

WebEx Mail, 209

Webster, Frederick E., Jr., 194n5

Wegmans, 324

Wei, Michael, 577n7, 582n21, 582n23

Tylenol, 472, 555

Tyler, Steven, 440

U U-Haul, 565

U.S. Air Force, 241

U.S. Census Bureau, 96n5, 96n6, 101n15, 101n16, 101n18, 101n19,

102n22, 102n23, 102n24, 104n30, 145, 158n2, 160n3, 161n6, 161n8,

396n2, 410n22, 525n19

U.S. Centers for Disease Control and Prevention, 307

U.S. Commerce Department, 204

U.S. Department of Agriculture, 29

U.S. Department of Health & Human Services, 29

U.S. Military, 48

U.S. Navy, 524

U.S. Patent Office and Trademark, 128

U.S. Postal Service, 48, 238, 264, 325, 484, 522, 549

U.S. Security and Exchange Commission, 128

U.S. Small Business Administration, 145, 203

Umpqua Bank, 568

UNICEF, 226

Unilever, 33, 40, 125, 171, 217, 303, 347, 348, 352, 364, 445, 464, 562, 592, 602–603, 614, 621

United Airlines, 114, 115

United Parcel Service, 33–34, 235, 238 United Technologies, 209, 575

United Way, 437

UnitedPackageSmashers.com, 114

Universal Studios, 510, 515, 575

University of Phoenix, 241

UPS, 386–387, 438 UPS Business Solutions, 385

US MONITOR, 130

USA Today, 40–41, 113, 437, 517n3 USAA, 126–127, 209

V VA Advantage!, 205

Valentin, E. K., 343n8

Valentino-DeVries, Jennifer, 523n11

van Auken, Brad, 225n16

Van Camps Pork & Beans, 342

Van de Kamps, 221

Vandebroek, Sophie, 119

Vans, 82, 218, 565

Varey, Richard J., 610n12

Vascellaro, Jessica E., 92n1

Vaseline, 109

Vazquez, Paul, 357

Vega, Tanzina, 100n14, 139

Velotta, Richard N., 253n4

Venus, 220, 221

Venus Breeze, 220

Venus Divine, 220

Venus Embrace, 220

Venza, 216

Vergara, Sofia, 440

Verizon Wireless, 103, 160, 325, 361, 457, 552, 560

Versa, 232

Versace, 241, 400

Veterans Affairs Medical Centers, 202

Veterinary Pet Insurance (VPI), 170

VF Corporation, 82, 218, 218, 565, 621 Viacom, 102

Vibram FiveFinger, 31, 31 Victoria’s Secret, 231, 531, 582

Victorinox, 273

Vidali, Ari, 204n14

Vidalia Onion Committee (VOC), 174, 472

Indexes 701

Wu, Jason, 409

Wyatt, Edward, 139

Wyner, Gordon, 397n4

X Xbox, 390

Xerox, 118–120, 270, 488, 489 Xfinity Streampix, 361, 390

Xhilaration, 271

Xie, Jinhong, 177n26

Y Yahoo!, 128, 167, 270, 307, 369–370, 525, 530, 538

Yahoo!Finance, 530

Yahoo!Shopping, 345

Yamaha, 317

Yan, Wei Xiao, 132 Yaris, 255

Yasu, Mariko, 98

Yee, Rachael W. Y., 261n23

Yelp, 477, 504, 535

Yi, Pu, 598

Yoo, Tae, 209

Yoplait, 190

York, Emily Bryson, 166n13, 293n14, 428n1, 581n19

YouKu, 90

Young & Rubicam’s Brand Asset Valuator, 266, 268

YouTube, 31, 39, 41, 90–92, 100, 114, 115, 147, 156, 157, 161, 162, 164,

165, 166, 200, 201, 202, 221, 247, 260, 266, 268, 269, 361, 436, 437, 443, 461, 464, 466, 468, 473, 475, 494, 495, 516, 517, 519, 524, 525,

526, 530, 531, 533, 615, 627

YUM! Brands, 303

Z Zagat, 403

Zahran, Ahmed, 189

Zale, Joseph, 313n2, 326n12, 336n2, 352n14

Zami, Sigal, 511

Zappos.com, 36, 138, 261, 262–263, 269, 357, 386, 410, 463, 517, 523, 528 Zara, 368, 574

Zawada, Craig C., 352n14

Zeithaml, Valerie A., 43n32, 43n33, 82n19

Zenhabits, 164

Zhang, Qin, 343

Zhou, Josephine Yu, 557n13

Zigmond, Dan, 468n20

Zimmerman, Ann, 145n25, 397n4, 410n23

Zipcar, 534, 535, 564–565

Ziploc, 270

Zmuda, Natalie, 45n35, 48n40, 80n15, 127n6, 256n14, 263, 475, 480

ZoomShops, 524

ZoomSystems, 524

Zuckerberg, Mark, 307, 514–515

Zynga, 515

Subject Index

Page numbers in italic indicate an illustration or photo appears on that page.

A Acquisitions, 612–613

Action, message design, 437–438

Adapted global marketing, 588

Administered vertical marketing system (VMS), 369

Adoption process, new products, 178–180, 179 Advertainment, 461–462, 523–524 Advertising. See also Public relations; Sales promotion

advertising agencies, 470

budget decisions, 459

Weight Watchers, 437, 561

Weiner, Russell, 123

Weiner, Stacy, 231n23

Weise, Karen, 403n12

Weiss, Bari, 229

Welch, David, 25n1, 357

Welch, Jack, 64n3

Welch, Jonathan, 480

Welch, Suzy, 64n3

Wells Fargo, 296

Wendy’s, 62, 94, 562

Werdelin, Henrik, 560

West China Hospital, 209

West, Evan, 381n20

Westbury, Jodi, 292n12

Westergren, Tim, 391

Western Auto, 401, 402 Western Union, 549

Westin Hotel & Resorts, 406

Westin Stamford Hotel, 236

Wheaties, 190

Whirlpool, 373, 487, 551, 552

White Castle, 563

White Cloud, 271

White, Shaun, 451

Whole Foods Market, 112, 131, 165, 226, 261, 271, 323, 327, 327, 398, 408, 621 Wiedeking, Wendelin, 185

Wiersema, Fred, 557, 557n13

Wii, 98

Wikipedia, 266

Wiley, Kim Wright, 495n17, 496n18

Williams-Sonoma, 48, 221, 341, 397, 398, 410, 520, 558 Williams, Ashley, 94n3

Williams, Jeff, 265n27

Williams, Serena, 252

Williams, Steven, 164n12, 166

Wilson, Suzanne, 98n7

Wilson, Thomas, 455

Wilson, Woodrow, 106

Wind, Yoram, 193n3, 194n5, 197n7

Wingfield, Nick, 285n2, 583n25

Winslow, George, 180n31

Winsor, Harry, 114, 115 Winsor, John, 114

Winter, Drew, 616n20

Winters, Dean, 454–455

Wisk, 562

Witeck-Combs Communications, 103n28

Wohl, Jessica, 369n6

Wolf, John, 265

Wolfgang Puck, 259

Wong, Elaine, 299n24

Wong, Susan, 270n36

Wong, Veronica, 604n2

Wonka.com, 529

Woo, Stu, 361n1

Wood, Z, 427n1

Woodland Park Zoo, 339 Woodman, Nick, 157

Wooga, 515

Woolite, 595

World Bank, 624

World POPClock, 96n5, 158n2

World Trade Organization, 577

World Wildlife Fund (WWF), 474

Worthen, Ben, 473n26

WPP, 470

Wrangler, 82, 218, 269, 473, 475

Wright, Chrissi, 324

702 Indexes

habitual buying behavior, 175 labeling, 256–257 licensing, 271–272

managing, 274–275

name selection, 269–270 Nike example, 246–247

overview, 266

packaging, 255–256 positioning, 267–269 public relations, 473–475

Real Marketing, breakaway brands, 268–269

Real Marketing, celebrity endorsements, 441–442

sales promotions, 502–503 service differentiation, 264 store brands, 270–271 value proposition, 31

Brazil, emerging markets, 579–580

Break-even pricing, 319–321, 320 Brick-and-mortar retailers, 525

Broker, 415. See also Wholesalers B-to-B marketers. See Business buyer behavior; Business markets Budget

marketing plan, 79 promotion strategy, 440, 442–443

Bureau of Economic Analysis, 145

Business analysis, 291

Business buyer behavior. See also Business markets buying process, 190, 197–199, 198 buying situations, 193–194

criticism, marketing impact on, 612–613

defined, 190

e-procurement, 199–200 influences on, 194–195, 197 institutional and government markets, 200, 202–205, 203, 204 KarmSolar example, 188–189

model of, 192 participants, 194

Real Marketing, international etiquette, 196–197

Real Marketing, social marketing, 200–202

Business markets

buying unit, nature of, 191–192 defined, 96, 190

industrial products, 251–252

KarmSolar example, 188–189

market segmentation, 222–223

market structure and demand, 191

Business portfolio, designing, 65–67

Business promotions, 502–503, 505–506 Business-to-business marketing. See also Business buyer behavior;

Business markets

current trends, 48

online, 526

salespeople, need for, 494–496

telemarketing, 523

Business-to-consumer online marketing, 526

Buyer-readiness stages, 436–437 Buyers, business buying decisions, 194

Buying centers, 194

Buying decisions, types of, 174–176, 175. See also Business buyer behavior; Consumer behavior

Buzz marketing, 163–164, 438–439 By-product pricing, 339

C CAFTA-DR (Central American Free Trade Agreement), 578

CAN-SPAM Act (2003), 108, 537–538 Capital items, 252

Captive product pricing, 338–339 Career opportunities, 80–81

Caring capitalism

consumer-generated messages, 463–465

costs of, 606–607 infomercials, 523–524

insurance company example, 454–455 international decisions, 470–471 marketing communications trends, 429–431

media selection, 465–469, 466, 467, 468 message creation, 460–465, 461, 463 objectives, 457–458 online advertising, 529–530

overview of, 456–457 promotion mix, 428–429, 443–445 Real Marketing, Coca-Cola, 474–475

return on investment, 469

socially responsible communication, 446–447

strategy development, overview, 459–460

Advertising specialties, 504

Advertorials, 113

Affordable method, promotion budget, 442–443

African American consumers, 161

Age, market segmentation, 168, 215, 216–217 Agencies, advertising, 470

Agents, 415. See also Wholesalers AIDA model, message design, 437–438

Air carriers, 382–383 Airtruck, 383

Allowances, pricing strategies, 340 Alternative evaluation, 177

Alternative media, 467–468 Americans with Disabilities Act (1991), 108 Approach, sales process, 497, 498 Aroma, store atmosphere, 406

Asian American consumers, 161–162

Atmosphere, as communication channel, 439

Atmosphere, retail stores, 405–406

Attack advertising, 457–458. See also Advertising Attention, message design, 437–438

Attitudes, consumer behavior and, 173–174 Audience, communication process, 436–437 Augmented products, 250 Authenticity, branding, 268–269

Awareness stage, buyer-readiness, 436–437

B Baby boomers, 96, 98–99

Bait-and-switch, 447

Barter, 581

Basing-point pricing, 344–345

Behavioral market segmentation, 215, 220–221 Behavioral targeting, 138–139

Beliefs, consumer behavior and, 110–113, 111, 112, 173–174 Benchmark, competitor analysis, 552

Benefit segmentation, 220–221

Biometric data, research, 140

Bisexual consumers, 102–103

Blogs, 527–528. See also Social media Blue-ocean strategy, 554–555 Boston Consulting Group (BCG) approach, planning, 67–68 Brand. See also Advertising

branded entertainment, 461–462 brand equity, 266–267

brand evangelists, 165–166, 438–439, 527–528

brand experiences, 29

brand extension, 273 brand integration, 461–462 brand personality, 169, 171

brand valuation, 267

co-branding, 272 decisions about, 255

development strategies, 272–274, 273

Indexes 703

Real Marketing, Kodak, 550–551

Competitive marketing intelligence, 127–128 Competitive-parity method, promotion budget, 443

Competitor-centered company, 565–566 Competitors. See also Competitive advantage

horizontal marketing systems, 369–370 identifying, 547–551

marketing channel distribution, 378–379

marketing channel objectives, 372–373

marketing impact on, 612–613

microenvironment, 94–95

new product ideas, 286 Complex buying behavior, 174–175 Component parts, 252

Compounded annual growth rate (CAGR), 311

Concentrated marketing, 226–227 Concept development and testing, new products, 289–290 Conformance quality, 254

Consumer behavior

buyer behavior, defined, 158

buyer decision process, 176–178, 177 buying decisions, types of, 174–176, 175 consumer impression and expression, 466 cultural factors, 159–162, 160, 161 family, influence of, 166–167

GoPro example, 156–157

groups and social networks, 162–166, 164 models of, 158–159 new product decisions, 178–180, 179 personal factors, 167–171, 168 psychological factors, 171–174, 172, 173 Real Marketing, online social influence, 165–166

Real Marketing, pet owner lifestyle, 170–171

roles and status, 167

Consumer-generated marketing. See also Social media advertising messages, 463–465

defined, 40–41 Consumerism, 613–614

Consumer markets

defined, 96, 158

GoPro example, 156–157

Consumer-oriented marketing, 618

Consumer products, 250–251 Consumer Product Safety Act (1972), 108 Consumer promotions, 502–505, 504 Consumer spending habits, 103–104 Consumer-to-business online marketing, 528

Consumer-to-consumer online marketing, 526–528

Contact methods, research, 133–137, 135, 136 Content sites, Internet, 525

Content sponsorship, online, 530

Contests, sales promotions, 503–505, 504 Contextual advertising, 530

Continuity, advertising, 469

Continuous inventory replenishment systems, 383

Contract manufacturing, 586

Contractual vertical marketing system (VMS), 368–369 Controls, marketing plan, 79 Convenience products, 250–251 Convenience sample, 137, 139 Convenience stores, 398, 399 Conventional distribution channel, 367 Conventional energy sources, 188

Conventions, 505–506

Conviction, buyer-readiness, 436–437 Core beliefs, 110–113, 111, 112 Corporate chain retailers, 401, 402 Corporate identity materials, 474–475

Corporate image marketing, 252–253 Corporate vertical marketing system, 368

current trends, 49 Cash-and-carry wholesalers, 416 Cash cows, 67–68 Cash discounts, 340

Catalogs, 522–523 Category killers, 399

Causal research, 129 Cause-and-effect relationships, 133

Cause-related marketing, 109–110 Celebrity endorsements, 441–442

Central American Free Trade Agreement (CAFTA-DR), 578

Central business districts, 407

Cents-off deals, 504

Channel conflict, 366–367 Check-in services, 228–229

Chief financial officer (CFO), 80–81

Chief listening officers, 128

Chief marketing officer (CMO), 80–81

Chief operating officer (COO), 80–81

Child Protection Act (1966), 108 Children’s Online Privacy Protection Act (2000), 108, 538 Children’s Television Act (1990), 108 Citizen-action publics, 95

Clayton Act (1914), 108, 351, 378 Click-and-mortar companies, 525

Click only companies, 525

Closing, sales process, 499

Club marketing programs, 36 Cluster (area) sample, 137, 139 Co-branding, 272 Cognitive dissonance, 178 Cold calling, 497–499 Commercialization, 293

Commercial online databases, 130–131 Commission merchants, 417 Communication effects, measuring, 469

Communication strategy. See also Advertising audience and objectives, 436–437 communication process, 434–435 communications model, 429–431

feedback, collecting, 440

integrated communications, overview, 431–434 media selection, 438–439

message design, 437–438

message source, 439–440

promotion budget decisions, 440, 442–443

promotion mix, overview, 428–429, 443–445 Real Marketing, celebrity endorsement, 441–442

socially responsible communication, 446–447

Community shopping center, 407

Company, microenvironment, 93 Company buying sites, 199–200 Comparative advertising, 457–458. See also Advertising Compensation, salespeople, 492

Competition-based pricing, 321, 324–327, 325, 326, 349–351, 350 Competitive advantage. See also Competitors

basic strategies for, 557–558

competitive intelligence systems, 555

competitive marketing strategies, defined, 548

competitor analysis, 548–553, 549, 551, 552 competitors, selecting targets, 553–555, 554 customer vs. competitor orientation, 565–566 Four Seasons example, 546–547

market challenger strategies, 563–564 market follower strategies, 564

marketing strategies, overview, 555–557, 556 market leader strategies, 560–563, 561 market nicher strategies, 564–565 positioning, 233–234, 558–560 Real Marketing, Apple, 559–560

704 Indexes

customer databases, 518, 520–521 data analysis, 141–142, 144 direct marketing, 518

dynamic pricing strategies, 345

integrated logistics management, 383–387, 384 internal databases, 126–127 marketing intermediaries, 94

Nike example, 246–247

overview, 34–36, 35 partner relationship management, 41

personal selling, 499–501

postpurchase behavior, 178 price changes, 349–350 Real Marketing, breakaway brands, 268–269

Real Marketing, P&G, 500–501

Real Marketing, Vodafone, 143–144

Real Marketing, Zappos, 262–263

sales force, role of, 485–486

sales process, 497–499 as strategy, 81

trends in, 38–41, 40 Customers

marketing environment, 95–96

marketing process, summary of, 50–51 needs and wants, 28–30

Customer sales force structure, 486–490, 487, 488, 489. See also Sales promotion

Customer-segment pricing, 340–341 Customer-solution approach, sales, 497, 498 Customer value. See also Marketing channels

Abou Shakra restaurant, 55–56

Air Arabia, 310–311

Amazon example, 24–25

communication audience and objectives, 436–437 communication process, 434–435 customer value analysis, 553

feedback, collecting, 440

integrated communications campaign, 426–427

integrated communications campaign, overview, 431–434 integrated logistics management, 383–387, 384 logistics, 380–381

marketing channels, importance of, 363–366, 364, 365 marketing communications model, 429–431

media selection, 438–439

message design, 437–438

message sources, 439–440

Panera Bread Company example, 334–335

promotion budget decisions, 440, 442–443

promotion mix, overview, 428–429, 443–445 Real Marketing, celebrity endorsement, 441–442

Real Marketing, marketing channel management, 377–378

socially responsible communication, 446–447

value delivery network, 362–363 Customer-value marketing, defined, 618–619

D Data mining, 141–142 Data warehouse, 141–142 Dealer networks, Real Marketing, 377–378

Deal-of-the-day marketing, 228–229

Deceptive practices, 607–608 Deceptive pricing, 353

Deciders, business buying, 194

Decline stage, product life cycle, 296, 299–301, 302 Decoding, communication process, 434–435 Deficient products, 622

Demand, pricing and, 324–327, 325, 326 Demand chain, 363 Demand curve, 325–326 Demands, customer, 28–30

Corporate web sites, 528–535, 529, 530, 531, 532, 533, 534 Cost-based pricing, 317–321, 318, 319, 320 Cost leadership, 557

Cost-plus pricing, 319

Coupons, 503–505, 504 Cradle-to-cradle practices, 616–618

Creative concept, 462

Criticism of marketing

impact on businesses, 612–613

impact on individuals, 606–610, 607, 609 impact on society, 610–612, 611

CRM. See Customer relationship management (CRM) Cross-cultural marketing, 162. See also Culture Cross-market segmentation, 223–224 Crowdsourcing, 287, 288–289

Cues, pricing and, 342–343

Cultural environment, overview, 110–113, 111, 112 Cultural shift, defined, 160

Culture. See also International markets advertising decisions, 470–471 consumer behavior, influence on, 159–162, 160, 161 cultural pollution, 611–612

distribution channels, 374–375 global marketing strategy and, 581–583, 582 international market segmentation, 223–224 macroenvironment, 102–103

market research and, 146–147 Customer-centered company, 565–566 Customer-centered logistics, 379–380 Customer-centered new-product development, 293–294

Customer databases, 518, 520–521 Customer-driven strategies. See also Brand; Products; Services

AirAsia example, 212–213

analyzing customer needs, 372

behavioral segmentation, 220–221 branding, 255

business markets, 222–223

choosing a strategy, 230–231

concentrated marketing, 226–227 demographic segmentation, 215, 216–218, 217 differentiated marketing, 225–226 differentiation and positioning, 232–238, 233, 234, 235, 236, 237 effective segmentation, 224

geographic segmentation, 215–216 IBM example, 482–483

international markets, 223–224 marketing concept, 32–33 market segmentation, overview, 215 market targeting strategies, overview, 224–225 micromarketing, 227–230, 229 multiple segmentation bases, 222 overview, 30–34, 31, 32, 33, 214–215 Real Marketing, lifestyle marketing, 219–220

Real Marketing, micromarketing, 228–229

socially responsible marketing, 231–232 undifferentiated marketing, 225

Customer equity, building, 43–44 Customer experiences, creating, 249 Customer insights. See also Customer relationship management (CRM);

Social media

Domino’s Pizza example, 122–123

importance of, 124–125 new product ideas, 286–287

Customer intimacy, competitive strategy, 557–558

Customer lifetime value, 42 Customer loyalty programs, 503 Customer relationship management (CRM)

Amazon example, 24–25

capturing value from, 41–44, 42, 43 communication process, 434–435

Indexes 705

Discount stores, 398, 400 Disintermediation, 370–371 Dissonance-reducing buying behavior, 175 Distribution, costs of, 606–607 Distribution centers, 94, 381, 383–387, 384, 418 Distribution channel. See Marketing channels Diversification, strategic planning, 69–70 Diversity, macroenvironment, 102–103

Dogs, strategic business units, 67–68 Doha Round, 577

Do-Not-Call Implementation Act (2003), 108 Do Not Call Registry, 488–489, 523

Do Not Track, 139

Double bottom line, 620

Downsizing, planning for, 69–70 Drop shippers, 416 DVR technology, 460–461

Dynamic pricing, 345–346

E Early adopters, buying decisions, 179–180 Earned media, 432

Economic communities, 577–578 Economic forces

advertising budget, 459

business buyer behavior, 195 consumer behavior, 168–169

criticisms of marketing, 606–607 demographic environment, 96–103

economic environment, 103–104, 578–580 financial intermediaries, 94

Great Recession, impact of, 44–47

marketing channel objectives, 372–373, 374

materialism, 610–611 new-product development, 295

poor service in disadvantaged areas, 609–610 price decisions, 327, 407

product leader strategy, Apple, 559–560

promotion budget decisions, 440, 442–443

retail positioning, 404–405

retail trends, 408–409

sales promotions, 502–503 shopping centers, impact on, 408

wholesalers, 418–419

Education levels, macroenvironment, 102

Electronic data interchange (EDI), 383

E-mail marketing, 532–533

Emerging economies, 578

Emotions

business buying, 194–195 emotional appeals, 437–438

Encoding, 434–435 Endorsements, celebrities, 441–442

Endorsements, message types, 463

Entertainment, advertising as, 461–462 Environment, economic, 578–580. See also Economic forces Environment, marketing. See Marketing environment Environment, place of business, 405–408, 439

Environmental sustainability. See also Sustainable marketing current trends, 49 green retailing, 413

logistics, 380

marketing communications, 433–434

overview, 104–105, 614–618 packaging, 256 Unilever example, 602–603

E-procurement, 199–200 Equipment purchases, 252

Esteem, brand equity, 266–267

E-tailers, 525

Demographic environment

African American consumers, 161

age and life-cycle stage, 168 Asian American consumers, 161–162

Hispanic American consumers, 160–161

marketing macroenvironment, 96–103, 99, 100, 102 market segmentation tools, 222

Demographic market segmentation, 215, 216–218, 217, 222 Demonstration, sales process, 497, 498 Department stores, 397–398

Derived demand, 191

Descriptive research, 129 Design, products and services, 254–255

Designer shops, 397–398

Design for environment (DFE), 616–618

Desirable products, defined, 622

Desire, message design, 437–438

Developing economies, 103–104, 348–349. See also International markets

Development work, public relations, 472–473

Differentiated marketing. See also Customer-driven strategies brand equity, 266–267

competitive strategy, 557

defined, 214–215, 225–226 positioning and, 75–76

retailers, decisions by, 403–405 services, 264

Digital age, impact of, 45, 47–48

Digital devices. See also Online marketing; Social media catalogs, 522–523 consumer promotions, 503–505, 504 direct marketing model, 516–517

ereaders, 371 kiosks, 524 marketing communications model, 429–431

media multitaskers, 468

mobile marketing, 533–535

online presence, creating, 528–535, 529, 530, 531, 532, 533, 534 salespeople, managing, 492–493 sales technology, 493–496 showrooming, 410–412

Direct investment, global markets, 587–588

Direct mail, 467, 521–522, 532–533 Direct marketing

business-to-business, 526

business-to-consumer, 526

catalogs, 522–523 consumer-to-business, 528

consumer-to-consumer, 526–528

customer databases, 518, 520–521 direct mail, 521–522

direct-response television (DRTV), 523–524

Facebook example, 514–515

growth and benefits of, 517–518

kiosks, 524 model for, 516–517

online marketing, overview, 525–526 online presence, creating, 528–535, 529, 530, 531, 532,

533, 534 promotion mix, overview, 428–429, 444–445 public policy issues, 536–538

Real Marketing, mobile marketing, 534–535

Real Marketing, Nam Kee Noodle Shop, 519–520

telemarketing, 523

types, overview, 521 Direct marketing channel, defined, 365. See also Marketing

channels

Direct-response television (DRTV) marketing, 523–524

Disabilities, consumers with, 103

Discounts, 340, 343–344

706 Indexes

Free trade zones, 577–578 Frequency, advertising decisions, 465–466 Frequency marketing programs, 36, 143–144, 503 Full-line forcing, 378

Full-service retailers, 397

Full-service wholesalers, 416 Functional discounts, 340

Functional organization, 80–81

G Gatekeepers, 194

GATT (General Agreement on Tariffs and Trade), 577

Gay consumers, 102–103

Gender segmentation, 215, 217 General Agreement on Tariffs and Trade (GATT), 577

General needs description, 197–198

General public, defined, 95

Generation X, 99–100

Generation Y, 100

Generic brand, 271

Geographical organizations, 594–595

Geographic market segmentation, 215–216, 223–224 Geographic organization, 80–81

Geographic pricing, 344–347

Geographic shifts, demographics, 101

Global firm, defined, 575

Globalization

advertising decisions, 470–471 Coca-Cola example, 572–573

cultural environment, 581–583, 582 current trends, 48–49, 574–575

distribution channels, 374–375, 593–594 international etiquette, 196–197

international subsidiaries, 594–595

international trade system, 576–578, 577 market entry decisions, 583–588, 585, 586, 587 marketing organization decisions, 594–595

marketing program decisions, 588–594, 590, 591, 592, 593 market research, 146–147 new product decisions, 303–304 political-legal environment, 580–581

pricing, 346–349, 593 product strategies, 590–592, 591 promotion decisions, 592–593 Real Marketing, Brazil, 579–580

Real Marketing, Starbucks, 589–590

Real Marketing, UPS, 386–387

retailers, 413–414

segmenting international markets, 223–224 Global organizations, defined, 594–595

Global value delivery network, 593–594 Goals, company, 64–65 Good-value pricing, 314–315 Government agencies. See also Services

as business market, 200, 202–205, 203, 204 marketing by, 48

regulation by, 106–108 Government markets, defined, 96

Government publics, 95

GPS technology, location-based marketing, 228–229

Great Recession, 44–47, 97–98, 104, 327, 459. See also Economic forces

Green manufacturing, 616–618

Green retailing, 413

Green supply chains, 380

Group interviews, research, 133–137, 135, 136 Groups, consumer behavior and, 162–166, 164 Growth, planning for, 69–70 Growth-share matrix, 67–68 Growth stage, product life cycle, 296, 298, 302

Ethics

consumerism, 613–614

marketing communication, 446–447

marketing criticism, impact on businesses, 612–613

marketing criticism, impact on individuals, 606–610, 607, 609 marketing criticism, impact on society, 610–612, 611 marketing ethics, overview, 623–625, 624 marketing intelligence, 128

marketing research and, 147–148

online listening, 138–139

social environment, 107, 109–110

sustainable marketing practices, 49 target marketing, 231–232

Ethnicity, macroenvironment, 102–103

Ethnographic research, 132

Etiquette, international, 196–197

E-training salesforce, 491–492

European Union, 577–578 Event sponsorships, 439, 503–505, 504 Everyday low pricing, 315, 407

Exchange relationships, 29–30 Exclusive dealing, 378

Exclusive distribution, 373, 378

Exclusive territorial agreements, 378

Execution styles, advertising, 462–463

Executive summary, marketing plan, 79 Experience curve, 319 Experiences, creating, 249 Experiential retailing, 405–406

Experimental research, 133

Exploratory research, 129 Exporting, 585–586 External marketing, services, 263 Extranet links, 199–200

F Facebook. See Social media Factory outlets, 400–401

Fad, defined, 296–297

Fair Packaging and Labeling Act (1966), 108, 257 False advertising, 446–447

Family, changes in, 101

Family, consumer behavior influence, 166–167. See also Culture Fantasy messages, 462

Fashion, defined, 296, 297

Federal Cigarette Labeling and Advertising Act (1967), 108 Federal Food and Drug Act (1906), 108 Federal Trade Commission Act (1914), 108, 257 Feedback, communication process, 434–435, 440 Financial intermediaries, 94

Financial publics, 95

Financial Reform Law (2010), 108 Fishyback, 383

Fixed costs, 318

Fixed fee pricing, 339

Flash sales, 343–344, 409 Flickr. See Social media FOB-origin pricing, 344–345

Focus, competitive strategy, 557

Focus group interviews, 133–137, 135, 136 Follow-up, sales process, 499

Forecasting, logistics, 379–380 Formulated marketing, 556

Four C’s of marketing, 76

Four P’s of marketing, 34, 75–76. See also Consumer behavior Foursquare. See Social media Franchises, 366–369, 368, 378, 401–402 Fraud, deceptive practices, 607–608 Fraud, direct marketing, 536–538

Free maintenance offers, 343–344

Indexes 707

Intermediaries, marketing channels, 372–376, 374, 375 Intermodal transportation, 383

Internal databases, 126–127 Internal marketing, services, 263 Internal publics, 95

International market research, 146–147 International market segmentation variables, 242

International markets

advertising decisions, 470–471 Coca-Cola example, 572–573

cultural environment, 581–583, 582 current trends, 574–575

defined, 96

distribution channels, 374–375, 593–594 international etiquette, 196–197

international trade system, 576–578, 577 market entry decisions, 583–588, 585, 586, 587 marketing organization decisions, 594–595

marketing program decisions, 588–594, 590, 591, 592, 593 market research, 146–147 new product decisions, 303–304 political-legal environment, 580–581

pricing, 346–347, 348–349, 593 product strategies, 590–592, 591 promotion decisions, 592–593 Real Marketing, Brazil, 579–580

Real Marketing, India, 589–590

Real Marketing, UPS, 386–387

retailers, expansion of, 413–414

segmentation of, 223–224 International subsidiaries, 594–595

Internet technology, 213

Internet. See also Online marketing; Social media advertising, advantages and disadvantages, 467 buyer decision process, 176–177 channel organization, 370–371 defined, 525

e-procurement, 199–200 ethics and, 109

focus groups, 133–137, 135, 136 integrated communications, overview, 431–434 Internet pricing, 345–346 Internet sellers, 488–489

logistics systems, 380

marketing trends, 45, 47–48

media selection, promotion, 439

mobile marketing, 533–535

netnography research, 132

online listening, 138–139

online marketing research, 135–137, 136 privacy concerns, 147–148

product transportation, 382–383 prospecting customers, 497 public policy issues, 536–538

sales technology, 493–496 search engines, 130–131 showrooming, 410–412

Interpretive consumer research, 172

Intrapreneurial marketing, 556

Intrapreneurial programs, 285–286 Introduction state, product life cycle, 296, 297, 302 Inventory

integrated logistics management, 383–387, 384 logistics, importance of, 379–380 management of, 381–382

online direct marketing, 518

RFID tracking, 412

vendor-managed, 198, 199 Investor relations, 472–473

H Habitual buying behavior, 175 Handling objections, sales process, 499

High-low pricing, 315

High-pressure sales, 608

Hiring salespeople, 490–491

Hispanic American consumers, 160–161

Home offices, 101

Homosexuals, macroenvironment, 102–103

Horizontal channel conflict, 366–367 Horizontal marketing system, 369–370

I Idea generation, new products, 285–289, 286 Ideas, as products, 252–253 Idea screening, new products, 287, 289

Image differentiation, 234–235

Image messages, 462

Immersion groups, 134–135 Impact, advertising media, 465–466 Implementation, marketing plan, 79–80 Inbound logistics, 379–380 Incentives. See Sales promotion Income distribution, 104, 580

Income segmentation, 215, 217–218 Independent off-price retailers, 400

India

economic climate, 103–104 Starbucks example, 589–590

Indirect marketing channel, defined, 365. See also Marketing channels

Individual marketing, 230 Industrial distributors, 416 Industrial economies, 103–104, 578 Industrializing economies, 578

Industrial structure, 578–580

Industry point of view, 549, 551

Influencers, business buying, 194

Influentials, defined, 163

Infomercials, 523–524

Information management. See Marketing information system (MIS)

Information search, buying decisions, 176–177 Information systems, logistics, 379–380, 383 Informative advertising, 457–458. See also Advertising Innovative marketing, 619

Innovators, buying decisions, 179–180 Inside sales force, 488–489. See also Sales force Institutional markets, business buying, 200, 202–205, 203, 204 Integrated communications. See also Advertising

audience and objectives, 436–437 communication process, 434–435 feedback, collecting, 440

media selection, 438–439

message design, 437–438

message source, 439–440

model for, 429–431

overview of, 431–434 promotion budget decisions, 440, 442–443

promotion mix, overview, 428–429, 443–445 Real Marketing, celebrity endorsement, 441–442

socially responsible communication, 446–447

Tesco, 426–427

Integrated logistics management, 383–387, 384 Integrated marketing program, 34. See also Strategic planning Intensive distribution, 373

Interactive marketing, services, 263 Interest, message design, 437–438

Intermarket segmentation, 223–224

708 Indexes

Manufacturers’ agents, 416 Manufacturer-sponsored retailer franchise system, 368–369. See also

Wholesalers

Manufacturers’ sales branches and offices, 415, 417 Manufacturer-wholesale franchise system, 368–369 Market-centered companies, 566 Market challenger, 560, 563–564 Market development, strategic planning, 69–70 Market differentiation, 75–76

Market follower, 560, 564 Market growth rate, planning, 67–68 Marketing

Amazon example, 24–25

changing landscape of, 44–48

criticism of, impact on individuals, 606–610, 607, 609 defined, 26–27

process of, 27–28 sales, coordination with, 486

summary chart, 50–51 Marketing analysis, 77–78 Marketing channels

channel behavior, 366–367 channel design decisions, 371–375, 372, 374 channel management decisions, 375–376

distribution costs, 606–607 global marketing decisions, 593–594 horizontal marketing system, 369–370 innovating within, 360–361

logistics, 379–387 multichannel distribution system, 370 nature and importance of, 363–366, 364, 365 organization of, 370–371 partner relationships, 41

public policy and distribution decisions, 376, 379–380

Real Marketing, logistics, 386–387

Real Marketing, managing partners, 377–378

supply chains and value delivery, 362–363 vertical systems, 367–369, 368

Marketing concept, 32–33, 604–605 Marketing control, defined, 81

Marketing dashboards, 82 Marketing department, organization of, 80–81

Marketing environment. See also Consumer behavior business buyer behavior, 192, 195 cultural environment, 110–113, 111, 112, 159–162, 160, 161 defined, 92–93

economic environment, 103–104 macroenvironment, 96–103, 99, 100, 102 marketing channel objectives, 372–373

marketing information system, 126 microenvironment, 92–96, 93, 94, 95 natural environment, 104–105 political and social environment, 107–110, 108, 109 pricing decisions, 324–327, 325, 326 Real Marketing, 97–98, 114–115

responding to, 113

technological environment, 106 YouTube example, 90–92

Marketing implementation, 79–80 Marketing information system (MIS)

competitive marketing intelligence, 127–128 contact methods, research, 133–137, 135, 136 customer insights, 124–125 customer relationship management, 141–142 defined, 125, 126 distributing and using information, 141, 144 Domino’s Pizza example, 122–123

ethics and, 147–148

experimental research, 133

J Joint ownership, global markets, 587 Joint venturing, global markets, 586–587 Judgment sample, 137, 139 Just-in-time logistics systems, 382

K Kiosks, 524 Knowledge stage, buyer-readiness, 436–437

L Labeling, 256–257 Language, market research and, 146–147 Lanham Trademark Act (1946), 108 Leader Price Holding, 422–423

Leading adapters, defined, 163

Learning, consumer behavior and, 173

Learning curve, 319 Legal environment, 580–581

Legislation, political environment, 107, 108 Lesbian, gay, bisexual, and transgender (LGBT) consumers, 102–103

Less-for-much-less positioning, 237 Liability, new product decisions, 302–303

Licensing, 271–272, 586 Life-cycle, product development, 295–301, 296, 297, 299 Life-cycle segmentation, 215, 216–217 Life-cycle stage, 168 Lifestyle

consumer behavior and, 169

lifestyle messages, 462

lifestyles of health and sustainability, 112

market segmentation, 215, 218 Lifestyle centers, retail, 408

Liking stage, buyer-readiness, 436–437 Limited-service retailers, 397

Limited-service wholesalers, 416 Limited-time offers, 343–344 Line extensions, 272–273 Line filling, products, 258

Line stretching, products, 258

Lobbying, 472–473

Local marketing, 227–230, 229 Local publics, 95

Location, retail decisions, 407–408

Location-based pricing, 340–341 Logistics

importance of, 379–380 information management, 383

integrated logistics management, 383–387, 384 inventory management, 381–382

online direct marketing, 518

Real Marketing, UPS, 386–387

transportation, 382–383 warehousing, 381

Long-run average cost curve, 318 Loss-leader pricing, 342–343

Lower class, defined, 163 Low-interest financing, 343–344 Loyalty, customers, 42, 221. See also Customer relationship

management (CRM)

M Macroenvironment, overview, 93, 96–103, 99, 100, 102 Magazines. See Print advertising Magnuson-Moss Warranty Act (1975), 108 Mail-order wholesalers, 416 Mail questionnaires, 133–134 Management contracting, global markets, 586–587

Manufacturer discounts, 505

Indexes 709

strategic planning, 72–77, 75, 76 target marketing strategies, overview, 224–225 undifferentiated marketing, 225

Market share, expanding, 561–563

Market share, protecting, 562–563

Market-skimming pricing, 336–337

Markets-of-one marketing, 230 Markup pricing, 319

Maslow’s hierarchy of needs, 171–172 Mass customization, 230 Mass marketing, 225 Materialism, 610–612, 611 Materials, as products, 252

Maturity stage, product life cycle, 296, 298–299, 302 Mechanical instruments, research, 139–140

Media. See also Social media advertising decisions, 465–469, 466, 467, 468 communication process, 434–435 media engagement, 466 media multitaskers, 468

media publics, 95

Megaretailers, 409–410

Merchant wholesalers, 415, 416 Message, communication process, 434–435 Message boards. See Social media Message design, 437–438, 460–465, 461, 463 Message sources, 439–440

Message strategy, 462

Microenvironment, defined, 92–96, 93, 94, 95 Micromarketing, 227–230, 229 Middle class, defined, 163 Millennials, 100

MIS. See Marketing information system (MIS) Mission statement, 63–64 Mobile marketing, 533–535

Modified rebuy, 193

Modifying the market, 298–299 Modifying the marketing mix, 299 Modifying the product, 298–299 Monopolistic competition, 325, 612–613 Mood messages, 462

Moral appeals, 437–438

More-for-less positioning, 237 More-for-more positioning, 236–237 More-for-the-same positioning, 236–237 Motivation

business buying, 194–195 consumers, 171–172 salespeople, 492–496, 493

Multibrands, 273–274

Multichannel distribution system, 370 Musical messages, 463

N NAFTA (North American Free Trade Agreement), 577–578 Name selection, brand, 269–270 Narrowcasting, 467–468 National Environmental Policy Act (1969), 108 National Traffic and Safety Act (1958), 108 Natural disasters, 104–105 Natural environment, 104–105, 112. See also Sustainable marketing Natural products, 252

Near-field communication (NFC) technology, 412

Need recognition, purchases, 176 Needs, customer, 28–30 Neighborhood shopping centers, 407

Netnography, 132

Neuromarketing, 140

New products, decisions about

internal databases, 126–127 international research, 146–147 interpreting and reporting results, 141

marketing research, overview, 128–129 needs assessment, 125–126 observational research, 131–132 plan implementation, 140–141

primary data, 131–140 Real Marketing, customer relationship management,

143–144

Real Marketing, online listening, 138–139

research, planning for, 129–130 research instruments, 139–140

sampling plan, research, 137, 139 secondary data, 130–131 small business and nonprofit organizations, 145 survey research, 132–133

Marketing intermediaries, defined, 94

Marketing logistics, 379–380 Marketing management

defined, 30

integrated marketing plans, 34

marketing concept, 32–33 market segment decisions, 31

product concept, 32

production concept, 31–32

selling concept, 32 societal marketing concept, 33–34 value proposition, choosing, 31

Marketing myopia, 29

Marketing point of view, 549, 551

Marketing program, global markets, 588–594, 590, 591, 592, 593 Marketing ROI (return on investment), 81–83, 82 Marketing strategy. See Strategic planning Marketing strategy statement, 290–291 Marketing Web sites, 528–535, 529, 530, 531, 532, 533, 534 Market leader, 560–563, 561 Market nicher, 560, 564–565 Market offerings, defined, 28–29

Market oriented mission, 63–64 Market penetration, strategic planning, 69–70 Market-penetration pricing, 337

Market pioneer, 297

Marketplace, customer needs and wants, 28–30 Markets, defined, 29–30

Market sales force structure, 486–490, 487, 488, 489. See also Sales promotion

Market segmentation. See also Customer-driven strategies; Target marketing

behavioral segmentation, 220–221 branding, 255

business markets, 222–223

choosing a strategy, 230–231

concentrated marketing, 226–227 defined, 31, 214–215 demographic segmentation, 215, 216–218, 217 differentiated marketing, 225–226 differentiation and positioning, 232–238, 233, 234, 235, 236, 237 effective segmentation, 224

geographic segmentation, 215–216 international markets, 223–224 micromarketing, 227–230, 229 multiple segmentation bases, 222 online marketing, public policy concerns, 537–538

overview, 215 Real Marketing, lifestyle marketing, 219–220

Real Marketing, micromarketing, 228–229

retailers, decisions by, 403–405, 406–407 socially responsible marketing, 231–232

710 Indexes

consumer promotions, 503–505, 504 e-procurement, 199–200 integrated communications, overview, 431–434 online retailing, overview, 397

pricing, 345–346 rise of, 410

sales technology, 493–496 showrooming, 410–412

Online social networks, creating and using, 531–532

Online social networks, defined, 164, 525. See also Social media

Open-innovation, new product ideas, 287

Operating control, defined, 81

Operational excellence, 557

Opinion leaders, 163, 438–439

Opportunities, analysis of, 78–79 Optional product pricing, 338 Order processing, logistics and, 379–380 Order-routine specification, 198, 199 Organizations

attitudes about, 111

business buying behavior, 195 global marketing decisions, 594–595

pricing decisions, 324

as products, 252–253 Outbound logistics, 379–380 Outdoor advertising, 467–468 Outlets, factory, 400–401

Outside sales force, 488–489. See also Sales promotion Overconsumption, 610–612, 611 Overhead costs, 318

Owned media, 432

P Packaging, 255–256, 413 Paid media, 432

Partner relationship management

integrated logistics management, 383–387, 384 marketing channel management, 375–376

microenvironment, 93–96 overview, 41

strategic planning for, 70–72

Parts, as products, 252

Pay, salespeople, 492

Perceived obsolescence, 609

Perceived value, 35 Percentage-of-sales, promotion budget, 442–443

Perception, consumer behavior and, 172–173 Perceptual positioning maps, 232–233 Performance measures

marketing return on investment, 81–83, 82 performance review, business buyers, 198, 199 quality, products and services, 253–254

Permission-based e-mail marketing, 533

Personal communication channels, 438–439

Personal interviews, research, 133–137, 135, 136 Personality, as product, 252–253 Personality, consumer behavior and, 169, 171

Personality symbol messages, 463

Personal selling

customer-focused selling, example, 482–483

customer relationship management, 499–501

high-pressure sales, 608

overview of, 484–485

performance evaluation, 496–497

process for, 497–499 promotion mix, 428–429, 444–445 Real Marketing, B-to-B salespeople, 494–495

Real Marketing, customer relationships, 500–501

sales force, motivating, 496

business analysis, 291

buyer decision process, 178–180, 179 commercialization, 293

concept development and testing, 289–290 customer-centered development, 293–294

development strategy, 284–285

economic forces, 295

idea generation, 285–287, 286 idea screening, 287, 289

international markets, 303–304 life-cycle strategies, 295–301, 296, 297, 299 marketing strategy development, 290–291 pricing strategies, 336–337

product development, 291–292 product life cycle, summary, 302 Real Marketing, crowdsourcing, 288–289

Real Marketing, product life cycle, 300–301

Samsung example, 282–283

social responsibility, 301–303

systematic development, 294–295 team-based development, 294

test marketing, 292 Newspapers. See Print advertising New task, defined, 193

Niche marketing, 226–227 Noise, communication process, 434–435 Nonpersonal communication channels, 439

Nonprobability sample, 137, 139 Nonprofit organizations, 145. See also Services Nontariff trade barriers, 576

North American Free Trade Agreement (NAFTA), 577–578 Not-for-profit marketing, 48 Nutritional labeling, 257

Nutrition Labeling and Education Act (1990), 108

O Objective-and-task method, promotion budget, 443

Objectives. See also Strategic planning advertising, 457–458 company, 64–65 competitor assessment, 551–552

Observational research, 131–132 Obsolescence, planned, 609

Occasion segmentation, 220

Occupation, consumer behavior and, 168

Off-price retailers, 398, 400 Oligopolistic competition, 325 One-to-one marketing, 230 Online databases, 130–131, 518, 520–521 Online marketing. See also Social media

business-to-business, 526

business-to-consumer, 526

catalogs, 522–523 channel organization, 370–371 consumer-to-business, 528

consumer-to-consumer, 526–528

creating an online presence, 528–535, 529, 530, 531, 532, 533, 534 current trends, 45, 47–48

customer databases, 518, 520–521 direct marketing, growth and benefits of, 517–518

direct marketing model, 516–517

Facebook example, 514–515

overview, 525–526 public policy issues, 536–538

Real Marketing, mobile marketing, 534–535

Real Marketing, Nam Kee Noodle Shop, 519–520

Online marketing research, 135–137, 136 Online media, 439

Online security, 536–538

Online shopping. See also Internet

Indexes 711

price discrimination, 352–353

price elasticity, 326–327 price-fixing, 351–353, 352 price gouging, 347 price-matching guarantees, 342–343

price packs, 504

price skimming, 336–337

product mix pricing, 337–339, 338 promotional pricing, 343–344 psychological pricing, 341–343

public policy and, 351–353, 352 Real Marketing, good-value pricing, 316–317

Real Marketing, international pricing, 348–349 Real Marketing, price cues, 342–343

Real Marketing, price-value positioning, 323–324

retail decisions, 406–407

retailers, types of, 400–401

segmented pricing, 340–341 value-added pricing, 315–317

wholesaler decisions, 417

Primary data, 130

Print advertising. See also Advertising advantages and disadvantages, 467 integrated communications, overview, 431–434 media selection, 439

as promotion tool, 443–445 public relations, 472–475

socially responsible communication, 446–447

trends, 429–431

Privacy, 108, 109, 138–139, 147–148, 537–538 Private brands, 270–271 Proactive responses, 113

Probability sample, 137, 139 Problem recognition, 197 Producer’s cooperatives, 416 Product bundle pricing, 339

Product-form pricing, 340–341 Production concept, 31–32

Production planning, 379–380 Productivity, managing, 265 Product leadership strategy, 558, 559–560

Product line pricing, 338 Product management organization, 80–81

Product/market expansion grid, 69–70 Product mix pricing, 337–339, 338 Product placement, advertising, 461–462 Product positioning, 232–238, 233, 234, 235, 236, 237 Products. See also Brand; New products, decisions about; Product

positioning

adaptation, global markets, 590–592, 591 attributes of, 253–255 branding, 255

consumer products, 250–251 defined, 248–249

development of, 69–70, 291–292 four P’s of marketing, 34

global marketing decisions, 590–592, 591 green retailing, 413

industrial products, 251–252

labeling, 256–257 levels of, 249–250 marketing criticism, 608–610, 609 marketing mix, 75–76 Nike example, 246–247

organizations, persons, places, and ideas, 252–253 packaging, 255–256 product concept, 32

product invention, global markets, 590–592, 591 product life cycles, 295–301, 296, 297, 299, 302 product line decisions, 258

sales force, recruiting and hiring, 490–491

sales force, role of, 485–486

sales force, supervising and motivating, 492–496, 493 sales force management, 486–490, 487, 488, 489 socially responsible communications, 446–447

Persons, as products, 252–253 Persuasive advertising, 457–458. See also Advertising Pet owner lifestyle, 170–171

Petit Casino markets, 422

Phishing, 536–538

Physical distribution, importance of, 379–380 Physical distribution firms, 94

Piggyback, 383

Place

four P’s of marketing, 34

marketing mix, 75–76 as product, 252–253 retail decisions, 407–408

Planned obsolescence, 609

Pleasing products, defined, 622

Point-of-purchase displays, 503–505, 504 Point-of-sale scanners, 380

Political environment, 107–110, 108, 109, 580–581 Pollution, cultural, 611–612

Pollution control, 616–618

Pop-up stores, 409

Portfolio analysis, 65–67

Positioning. See also Competitive advantage; Customer-driven strategies

brand positioning, 267–269 defined, 214–215 product positioning, 232–238, 233, 234, 235, 236, 237 retailers, decisions by, 403–405, 406–407 strategy for, 75–76

Positioning statement, 238 Postpurchase behavior, 175, 178, 257–258 Power centers, retail, 408

Preapproach, sales process, 497, 498 Predatory pricing, 352–353, 612–613 Preference, buyer-readiness, 436–437 Premiums, sales promotions, 503–505, 504 Presentation, sales process, 497, 498 Press relations, 472–473

Price

adjustment strategies, overview, 339–340 Air Arabia, 310–311

competition-based pricing, 321 cost-based pricing, 317–321, 318, 319, 320 criticisms of marketing, 606–607 customer value-based pricing, 313–314 defined, 312–313

discount and allowance pricing, 340 dynamic and Internet pricing, 345–346 economic factors, 327

four P’s of marketing, 34

geographic pricing, 344–347, 346 global marketing decisions, 593 good-value pricing, 314–315 international pricing, 346–347 market and demand decisions, 324–327, 325, 326 marketing channel and, 363

marketing mix, 75–76 marketing strategy and, 321–324, 322 new-product strategies, 336–337

online pricing, 345–346 organizational considerations, 324

other external factors, 327–328

Panera Bread Company example, 334–335

predatory pricing, 612–613

price changes, 347, 349–351, 350

712 Indexes

Quantity discounts, 340

Question marks, strategic business units, 67–68 Questionnaires

contact methods, 133–137, 135, 136 international market research, 146–147 overview of, 139–140

Quotas, foreign imports, 576

Quota sample, 137, 139

R Race, macroenvironment, 102–103

Rack jobbers, 416 Radio, advertising on, 467 Radio-frequency identification (RFID), 106, 380,

382, 412

Railroads, 382–383 Rational appeals, 437–438

Raw material exporting economies, 578

Raw materials, 252

Reach, advertising media, 465–466 Reactive responses, 113

Real Marketing

Al Jazeera, 66–67

breakaway brands, 268–269

B-to-B salespeople, 494–495

B-to-B social marketing, 201–202

celebrity endorsement, 441–442

Chipsy Egypt, 464–465

competitor myopia, Kodak, 550–551

consumer-generated marketing, 464–465

crowdsourcing, 288–289

customer relationship management, P&G, 500–501

customer service, Zappos, 262–263

direct marketing, Nam Kee Noodle Shop, 519–520

emerging markets, Brazil, 579–580

environmental sustainability, Chipotle, 615–616

Istanbul Cevahir Shopping, 411

Etihad Airways, 74–75

global marketing, Starbucks, 589–590

good-value pricing, Ryanair, 316–317

Great Recession, impact of, 46–47

international marketing manners, 196–197

international pricing, 348–349 lifestyles, pet owners, 170–171

logistics, 386–387

marketing channel management, 377–378

marketing environment, Sony, 97–98

micromarketing, location-based, 228–229

mobile marketing, 534–535

Nam Kee Noodle Shop, 519-520

new communication strategies, 432–433

online listening, 138–139

online social influence, 165–166

positioning, Sears, 404–405

price cues, 342–343

price-value positioning, 323–324

product leader, Apple, 559–560

product life cycle, 300–301

public relations, Coca-Cola, 474–475

showrooming 2.0, 411–412

social media, consumer responses, 114–115

social responsibility, 621–622

strategic planning, 66–67

Toyota Japan, 37–38

trendsetter lifestyle marketing, 219–220

Vodafone, 143–144

Rebates, 504

Receiver, communication process, 434–435 Recruiting, salespeople, 490–491

product mix decisions, 258–259 product stewardship, 616–618

retailing, decisions about, 405–406

Samsung example, 282–283

support services, 257–258 wholesaler decisions, 417

Product sales force structure, 486–490, 487, 488, 489. See also Sales promotion

Product specification, 198 Product value analysis, 198 Promotion. See also Advertising; Sales promotion;

Strategic planning

audience and objectives, 436–437 budget decisions, 440, 442–443

communication process, 434–435 costs of, 606–607 customer-focused selling, example of, 482–483

feedback, collecting, 440

four P’s of marketing, 34

global marketing decisions, 592–593 integrated communications, overview, 431–434 marketing communications model, 429–431

marketing mix, 75–76 media selection, 438–439

message design, 437–438

message source, 439–440

mix, shaping of, 443–445 promotion mix, overview, 428–429

Real Marketing, celebrity endorsement, 441–442

retail decisions, 407

socially responsible communication, 446–447

wholesaler decisions, 417–418

Promotional allowances, 340

Promotional pricing, 343–344 Promotional products, 504

Promotion clutter, 502

Proposal solicitation, 198 Prospecting, 497–499 Psychographic market segmentation, 215, 218 Psychological factors, consumer behavior, 171–174, 172, 173 Psychological pricing, 341–343

Public, defined, 95 Public goods, 611

Public opinion, 113

Public policy

direct marketing, 536–538

marketing channels, 376, 379–380

marketing environment, 107, 108 marketing research and, 147–148

pricing and, 351–353, 352 Public relations

overview, 472–473

promotion mix, 428–429, 444–445 Real Marketing, Coca-Cola, 474–475

tools for, 473–475

Pull strategy, 444–445 Pulsing, advertising, 469

Purchase, buyer-readiness, 436–437 Purchase decisions, process for, 176–178, 177 Purchasing, logistics and, 379–380 Purchasing agents, 417 Pure competition, 325 Push strategy, 444–445

Q Qualifying, sales process, 497–499 Qualitative research, 136 Quality, 32, 253–254, 264–265 Quantitative research, 135–137, 136

Indexes 713

Sale signs, 342–343

Salesperson, defined, 485

Sales promotion

objectives of, 502–503 overview, 501–502

program development, 506

promotion mix, 428–429, 444–445 tools for, 503–506, 504, 505

Sales support people, 488–489

Salutary products, defined, 622

Same for less positioning, 237 Samples, 503–505, 504 Sampling plan, research, 137, 139 Satellite tracking, 380

Satisfaction, customers

customer relationship management, 34–36, 35 customer relationships, trends in, 38–41, 40 loyalty and retention of customers, 42 overview, 29–30 postpurchase behavior, 178 Real Marketing, Zappos, 262–263

SBUs (strategic business units), 65–67

Scanner fraud, 353

Scientific evidence messages, 463

Search engines, 130–131, 525 Search-related ads, 530

Seasonal discounts, 340

Secondary beliefs, 110–113, 111, 112 Secondary data, 130–131 Second Life. See Social media Security, online, 536–538

Segmentation, retail, 403–405 Segmented marketing, defined, 225–226 Segmented pricing, 340–341 Selective attention, 173 Selective distortion, 173 Selective distribution, 373

Selective retention, 173 Self-actualization, 171–172 Self-concept, consumer behavior and, 169, 171

Self-service retailers, 397

Sellers’ rights, 613–614

Selling agents, 417 Selling concept, 32 Sender, communication, 434–435 Sense-of-mission marketing, 619–620

Sequential product development, 294

Service differentiation, 234, 264 Service-firm-sponsored retailer franchise system, 368–369 Service inseparability, 260–261 Service intangibility, 260–261 Service nichers, 564–565 Service perishability, 261 Service retailers, 399–400

Services. See also Brand attributes of, 253–255 branding, 255

defined, 248–249

differentiation, 264 industrial products, 252

international markets, 303–304 levels of, 249–250 marketing, overview, 259–261, 260 poor service to disadvantaged customers, 609–610 productivity, managing, 265 product support services, 257–258 quality management, 264–265

Real Marketing, Zappos, 262–263

retailing, decisions about, 405–406

Redlining, 609–610 Reference prices, 341–343

Refunds, 503–505, 504 Regional free trade zones, 577–578 Regional shopping centers, 407

Regulatory environment, global markets, 580–581

Relative market share, planning, 67–68 Relevance, brand equity, 266–267

Religion, views about, 112

Reminder advertising, 458. See also Advertising Research, marketing

contact methods, 133–137, 135, 136 experimental research, 133

instruments for, 139–140

interpreting and reporting results, 141

overview, 128–129 plan implementation, 140–141

planning for, 129–130 primary data, overview, 131–133 privacy concerns, 147–148

sampling plan, 137, 139 secondary data, 130–131 small business and nonprofit organizations, 145

surveys, 132–133

Resellers, 94

Resources, natural, 104–105 Response, communication process, 434–435 Retail convergence, 409

Retailer cooperatives, 401, 402 Retailers

as marketing intermediaries, 94

trade promotions, 505

Retailing

BEKO, overview of, 394–395

marketing decisions, 402–408, 403 overview of, 396–397

Real Marketing, positioning, 404–405

Real Marketing, showrooming, 410

technology and, 412–413

trends and developments, 408–414

type of retailers, 397–402, 398, 399, 400, 401 Retail price maintenance, 353

Retention of customers, 42 Return on investment

advertising, 469

managing and measuring, 81–83, 82 sales promotion programs, 506

Reverse auctions, 199–200 Rewards programs, 36–144, 503 RFID (radio-frequency identification), 106, 380, 382, 412 Robinson-Patman Act (1936), 108, 351, 352–353, 446

S Safety, new product decisions, 301–303

Sales assistants, 488–489

Sales force

compensation, 492

high-pressure sales, 608

management of, 486–490, 487, 488, 489 motivating, 496

overview, 501–502

performance evaluation, 496–497

personal selling, overview, 484–485

Real Marketing, B-to-B salespeople, 494–495

recruiting and hiring, 490–491

role of, 485–486

selling process, 497–499 supervising and motivating, 492–496, 493 training, 491–492

714 Indexes

online direct marketing, 536–538

packaging, 256 Real Marketing, 621–622

social environment, 107, 109–110

sustainable marketing, overview of, 604–606, 605 sustainable marketing, principles of, 618–623, 619, 620, 621, 622 target marketing, 231–232 Unilever example, 602–603

Social targeting, 138–139

Societal marketing concept, 33–34, 605, 620 Society, marketing criticism, 610–612, 611 Society, views about, 111–112

Solar energy, 188

Solar Management Interface (SMI), 189

Solutions selling, 193 Spam, 532–533, 536–538

Special-event pricing, 343–344 Specialty products, 250–251 Specialty stores, 397

Spirituality, views about, 112

Standardized global marketing, 588

Stars, strategic business units, 67–68 Store brands, 270–271 Straight product extension, global markets, 590–592, 591 Straight rebuy, 193

Strategic business units (SBUs), 65–67

Strategic group, 551–552

Strategic planning

Boston Consulting Group approach, 67–68 business portfolio, designing, 65–67

competitive marketing intelligence, 127–128, 555 competitor analysis, 548–553, 549, 551, 552 competitors, selecting targets, 553–555, 554 customer vs. competitor orientation, 565–566 global market entry decisions, 583–588, 585, 586, 587 global marketing program decisions, 588–594, 590, 591,

592, 593 growth and downsizing, planning for, 69–70 market challenger strategies, 563–564 market follower strategies, 564

marketing analysis, 77–78 marketing control, 81

marketing department organization, 80–81

marketing implementation, 79–80 marketing planning, 78–79 marketing strategy and mix, 72–77, 75, 76, 555–557, 556 market leader strategies, 560–563, 561 market nicher strategies, 564–565 market-oriented mission, 63–64 matrix approaches, problems with, 68–69

McDonald’s example, 60–62

new products, 290–291 objectives and goals, company, 64–65 partnerships, developing, 70–72

process overview, 62–63 Real Marketing, 66–67

return on investment, managing, 81–83, 82 sustainable marketing, overview, 604–605

Stratified random sample, 137, 139 Strip malls, 407

Style, defined, 296, 297

Style and design, products, 254–255

Subculture, consumer behavior and, 159–162, 160, 161 Subliminal advertising, 173 Subsistence economies, 103–104, 578 Super Bowl, advertainment, 461–462 Supermarkets, 398 Superstores, 398, 399 Supervising salespeople, 492–496, 493

service profit chain, 261–264

wholesaler decisions, 417

Service variability, 260–261 Shared media, 432

Shared values, 33–34 Share of customer, defined, 42–43

Sherman Antitrust Act (1890), 108, 351 Ships, 382–383 Shopper marketing, defined, 396

Shopping centers, 407

Shopping products, 250–251 Short-run average cost curve, 318 Showrooming, 345–346, 410–412 Signpost pricing, 342–343

Simple random sample, 137, 139 Slice of life messages, 462

Smartphones, 533–535

Smells, signature, 406

Social class. See also Economic forces consumer behavior and, 159, 162, 163 international markets, 580

market segmentation, 215, 218 poor service criticism, 609–610

Social environment, 107–110, 108, 109 Social goods, 611

Social marketing

ideas as product, 252–253 integrated communications, overview, 431–434

Social media

advertainment, 461–462 business-to-business buying, 200–202

competitive marketing intelligence, 127–128 consumer behavior, 162–166, 164 consumer-generated messages, 463–465

consumer promotions, 503–505, 504 consumer-to-business marketing, 528

consumer-to-consumer marketing, 526–528

customer insights, importance of, 125 customer-managed relationships, 30, 39–41

ethics and, 109

Facebook example, 514–515

local marketing, 227–230, 229 loyalty, monitoring, 221

marketing communications trends, 429–431

marketing research, ethics of, 147–148

media multitaskers, 468

micromarketing, 228–229

online listening, 138–139

online presence, creating, 528–535, 529, 530, 531, 532, 533, 534 personal communication channels, 438–439

product life cycle, 300–301

promotion mix, 443–445 prospecting customers, 497 public relations, 473–475

Real Marketing, 165–166, 519–520

sales technology, 493–496 service quality, managing, 264–265

Social networks. See Social media Social responsibility

consumerism, 613–614

current trends, 49 environmental sustainability, 104–105, 614–618 marketing communications, 433–434, 446–447

marketing criticism, impact on businesses, 612–613

marketing criticism, impact on individuals, 606–610, 607, 609 marketing criticism, impact on society, 610–612, 611 marketing ethics, overview, 623–625, 624 marketing research, 147–148

new product decisions, 301–303

Indexes 715

strategies for, overview, 224–225 undifferentiated marketing, 225

Target return pricing, 319–321, 320 Tariffs, 576

Team-based new-product development, 294

Team selling, 489–490

Technical expertise messages, 463

Technical support people, 488–489

Technology

customer relationship management tools, 141–142 logistics, 380

marketing communications model, 429–431

marketing trends, 45, 47–48

online shopping, rise of, 410

partner relationship management, 375–376

privacy concerns, 147–148

retailing, 412–413

RFID tracking, 106, 380, 382, 412 sales force management, 488–489, 492–493 showrooming, 410–412

technological environment, 106 television advertising and, 460–461

training salespeople, 491–492

warehousing, 381 wholesalers, 418

Telecommuting, 101

Telemarketers, 488–489. See also Sales promotion Telemarketing, 523

Telephone advertising, mobile marketing, 533–535

Telephone Consumer Protection Act (1991), 108 Telephone questionnaires, 133–134 Television advertising. See also Advertising

advantages and disadvantages, 467 cost of, 460

direct-response television (DRTV) marketing, 523–524

integrated communications, overview, 431–434 media selection, 439

message design, 460–465, 461, 463 product placement, 461

as promotion tool, 443–445 public relations, 472–475

socially responsible communication, 446–447

trends, 429–431

Territorial sales force structure, 486–490, 487, 488, 489. See also Sales promotion

Testimonial evidence messages, 463

Testing, new products, 289–290 Test marketing, new products, 292 The Story of Stuff, 610–611 Third-party logistics (3PL) providers, 385–387

Threat analysis, 78–79 Three-day cooling-off rule, 447

Time-and-duty analysis, 492–493 Time-based pricing, 340–341 Total costs, 318

Total quality management, 253–254

Touch point, customers, 141–142 Tourism, 252–253 Trade barriers, global, 576

Trade discounts, 340

Trade-in allowances, 340

Trademarks, 270 Trade promotions, 505

Trade shows, 505–506

Trainship, 383

Transaction sites, Internet, 525

Transgender consumers, 102–103

Transportation planning. See Logistics Truck jobbers, 416

Supplies, industrial products, 252

Supply chain

defined, 41

e-procurement, 199–200 green retailing, 413

green supply chains, 380

integrated logistics management, 383–387, 384 logistics, importance of, 379–380 marketing channel management, 375–376

marketing channels, overview, 362–363 microenvironment, 93 Real Marketing, partnerships with, 377–378

supplier development, 192 supplier search, 198 supplier selection, 198–199 vertical marketing systems (VMS), 369

Survey research

international market research, 146–147 online marketing research, 135–137, 136 overview, 132–133

Sustainable marketing

consumerism, 613–614

criticisms, impact on businesses, 612–613

criticisms, impact on individuals, 606–610, 607, 609 criticisms, impact on society, 610–612, 611 current trends, 49 environmentalism, 614–618

green retailing, 413

logistics, 380

marketing communications, 433–434

marketing environment, 104–105 marketing ethics, 623–625, 624 nature, views of, 112

overview, 33–34 overview of, 604–606, 605 principles of, 618–623, 619, 620, 621, 622 Real Marketing, environmentalism, 615–616

Real Marketing, social responsibility, 621–622

sustainable companies, 625

Unilever example, 602–603

Sweepstakes, 503–505, 504 SWOT analysis, 77–78 Systematic new-product development, 294–295 Systems selling, 193

T Target costing, 322

Target marketing

behavioral segmentation, 220–221 branding, 255

business markets, 222–223

choosing a strategy, 230–231

concentrated marketing, 226–227 defined, 31

demographic segmentation, 215, 216–218, 217 differentiated marketing, 225–226 differentiation and positioning, 232–238, 233, 234, 235, 236, 237 effective segmentation, 224

geographic segmentation, 215–216 international markets, 223–224 market segmentation, overview, 215 micromarketing, 227–230, 229 multiple segmentation bases, 222 online, public policy concerns, 537–538

overview, 214–215 Real Marketing, lifestyle marketing, 219–220

Real Marketing, micromarketing, 228–229

retailers, price decisions, 406–407

socially responsible marketing, 231–232

716 Indexes

Vertical channel conflict, 366–367 Vertical marketing system (VMS), 367–369, 368 Viral marketing, 530–531. See also Social media Virtual instructor-led training (VILT), 491–492

VMS (Vertical marketing system), 367 Voluntary chain retailers, 401, 402

W Wants, customer, 28–30 Warehouse clubs, 401

Warehousing, 379–380, 381, 383–387, 384 Warranties, 343–344 Water carriers, 382–383 Weather, impact of, 104–105 Web sites, creating, 528–535, 529, 530, 531, 532, 533, 534. See also

Internet; Social media

Web wholesalers, 416 Wheeler-Lea Act (1938), 108 Wheel-of-retailing concept, 409

Whole-channel view, 593–594 Wholesale clubs, 401

Wholesale merchants, 416 Wholesalers

marketing decisions, 415–418 marketing intermediaries, 94

overview of, 414–415

trade promotions, 505

trends, 418–419

types of, 415, 416–417 Word-of-mouth influence, 163, 438–439

Working class, defined, 163 World product groups, 594–595

World Trade Organization (WTO), 577

Written proposal, research, 130

Y YouTube. See Social media

Z Zone pricing, 344–345

Trucks, 382–383 Turkey, 394

Truck wholesalers, 416 Twitter. See Social media Two-part pricing, 339

Tying agreements, 378

U UNASUR (Union of South American Nations), 578

Undifferentiated marketing, 225 Uniform-delivered pricing, 344–345

Union of South American Nations (UNASUR), 578

Unique selling proposition, 235

Unit pricing, 257

Unsought products, 250–251 Upper class, defined, 163 Uruguay Round, 577

Usage rate, target markets, 221

Users, business buying, 194

User status, target markets, 221

V Value, expectations of, 29–30 Value-added pricing, 315–317

Value-based pricing, 313–317 Value chain. See also Marketing channels

strategic planning, 71–72

value delivery network, 362–363 Value delivery network, 72, 362–363 Value disciplines, 557

Value marketing, 104

Value proposition, 31, 236–237 Value-retail centers, 400–401

Values, cultural environment, 110–113, 111, 112 Value selling, 499

Variable costs, 318

Variable usage rate, pricing, 339

Variety-seeking buying behavior, 175–176 Vendor-managed inventory, 198, 199, 383 Vendor trade shows, 505–506