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realChoices People

MARKETING 7E

Michael R. SOLOMON SAINT JOSEPH’S UNIVERSITY

Greg W. MARSHALL ROLLINS COLLEGE

Elnora W. STUART THE UNIVERSITY OF SOUTH CAROLINA

UPSTATE

Prentice Hall Boston Columbus Indianapolis New York San Francisco Upper Saddle River

Amsterdam Cape Town Dubai London Madrid Milan Munich Paris Montreal Toronto Delhi Mexico City Sao Paulo Sydney Hong Kong Seoul Singapore Taipei Tokyo

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Marketing: Real People, Real Choices, Seventh Edition, by Michael R. Solomon, Greg W. Marshall, and Elnora W. Stuart. Published by Prentice Hall. Copyright © 2012, 2009, 2008, 2006, 2003 Pearson Education, Inc.

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Editorial Director: Sally Yagan Editor in Chief: Eric Svendsen Acquisitions Editor: Melissa Sabella Director of Editorial Services: Ashley Santora Editorial Project Manager: Kierra Bloom Editorial Assistant: Elisabeth Scarpa Director of Marketing: Patrice Lumumba Jones Senior Marketing Manager: Anne Fahlgren Marketing Assistant: Melinda Jensen Senior Managing Editor: Judy Leale Project Manager: Becca Richter Senior Operations Supervisor: Arnold Vila

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Library of Congress Cataloging-in-Publication Data

Solomon, Michael R. Marketing : real people, real choices / Michael R. Solomon, Greg W. Marshall, Elnora W. Stuart. – 7th ed.

p. cm. ISBN-13: 978-0-13-217684-2 ISBN-10: 0-13-217684-X 1. Marketing--Vocational guidance. I. Marshall, Greg W. II. Stuart, Elnora W. III. Title. HF5415.35.S65 2011 658.8--dc22

2010051148

Credits and acknowledgments borrowed from other sources and reproduced, with permission, in this textbook appear on appropriate page within text.

Microsoft® and Windows® are registered trademarks of the Microsoft Corporation in the U.S.A. and other countries. Screen shots and icons reprinted with permission from the Microsoft Corporation. This book is not sponsored or endorsed by or affiliated with the Microsoft Corporation.

Copyright © 2012, 2009, 2008, 2006, 2003 Pearson Education, Inc., publishing as Prentice Hall, One Lake Street, Upper Saddle River, New Jersey 07458. All rights reserved. Manufactured in the United States of America. This publication is protected by Copyright, and permission should be obtained from the publisher prior to any prohibited reproduction, storage in a retrieval system, or transmission in any form or by any means, electronic, mechanical, photocopying, recording, or likewise. To obtain permission(s) to use material from this work, please submit a written request to Pearson Education, Inc., Permissions Department, One Lake Street, Upper Saddle River, New Jersey 07458.

Many of the designations by manufacturers and seller to distinguish their products are claimed as trademarks. Where those designations appear in this book, and the publisher was aware of a trademark claim, the designations have been printed in initial caps or all caps.

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ISBN 10: 0-13-217684-X ISBN 13: 978-0-13-217684-2

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realChoices People

MARKETING 7E

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Part One

Welcome to the first set of chapters in Marketing: Real People, Real Choices! The book is divided into five major sections called

“Parts.” Each of these Parts focuses on a key element of market- ing as a value-adding element to any organization’s success. Each Part Opener (like this one) provides you with a brief overview of the learning opportunities within that Part. Then, through a ficti- tious company called S&S Smoothie (which is published in its en- tirety in the book’s Appendix), you will learn how the pieces of a marketing plan come together so that “You Can Do It Too!”

Whether or not you are assigned a marketing plan as a class project, you will find the Part Openers worth reading because link- ing each Part’s content to the bigger picture of marketing planning will help you understand the “five W’s and an H”—who, what,

when, where, why, and how—related to the way the particular material in that Part fits into the big picture of marketing. Don’t be concerned right now if the notion of a marketing plan is brand- new to you. In Chapter 2 we’ll focus on them and bring you up to speed on what marketing planning is all about. There we include a useful tear-out that serves as a roadmap for how each chapter’s content fits into the process of developing a marketing plan.

Part One offers three chapters that kick off your study of marketing, with an overall focus on making marketing value de- cisions. In Chapter 1 you will learn what value is, as well as pick up a lot of great insights on the contemporary field of marketing to pique your interest in the course. You will notice right away that this book is about people doing marketing, as opposed to merely being a narrative about products, firms, and other inan-

Make Marketing Value Decisions Part One Overview

Make marketing value decisions (Part One)

Understand consumers’ value needs (Part Two)

Create the value proposition (Part Three)

Communicate the value proposition (Part Four)

Deliver the value proposition (Part Five)

P ro

ce ss

You are here

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imate objects. The Real People, Real Choices vignettes that begin each chapter help you connect marketing to actual people mak- ing decisions. As such, marketing truly comes alive! As men- tioned, Chapter 2 takes you through the entire process of marketing planning. Finally, Chapter 3 addresses the fact that to- day all marketing is global. You’ll get to see the various elements of the external environment that impact marketers’ ability to do successful planning in both domestic and global markets.

Marketing Plan Connection: Tricks of the Trade As mentioned earlier, the Appendix at the end of the book pro- vides you with an abbreviated marketing plan example for the fictitious S&S Smoothie Company. That plan is flagged to indi- cate what elements from the plan correspond to each of the Parts within the book. In addition, in Chapter 2 you will find a tear- out guide called “Build a Marketing Plan,” which can be used as a template for marketing planning. It is also cross-referenced to chapters by section of the marketing plan.

In the chapters within Part One, there are major learning ele- ments that guide you in developing four initial parts of a market- ing plan: internal environmental analysis, external environmental analysis, SWOT analysis, and setting marketing objectives. Let’s take a look at each of these elements.

Internal Environmental Analysis Chapter 2 provides an overview of marketing planning from the perspective of a marketing firm. It might surprise you to learn that accomplishing a useful internal environmental analysis is of- ten more challenging than is the analysis of the external environ- ment. It’s like the old saying, “We have found the enemy and it is us!” Some firms do not have a culture that supports honest self- reflection, and instead they tend to just sweep problems under the rug. This is, of course, very dangerous, since future market- ing planning depends on a realistic assessment of the firm and its internal capabilities.

When you review the case of S&S Smoothie, take special note of their mission, how the firm is set up and who the key players are, the nature of their organizational culture, and how they are currently deploying the 4 Ps of the marketing mix. What is evidently working well for them already? What likely could be improved through marketing planning?

External Environmental Analysis In Chapter 3 you will gain solid knowledge of the global envi- ronment in which marketers today do business. In contrast to the internal environment, the external environment consists of elements that are largely outside the direct control of a firm and its managers. The company operates within the context of its ex- ternal environment, but in most instances it can do little directly to shape and form that environment. Because of this, it becomes incredibly important that firms accurately identify the external

factors that are likely to have the greatest impact on success and then work to develop approaches to proactively take these fac- tors into account when developing plans and forecasts.

Key elements in the external environment include the following:

• Competitive environment—Who do you compete with and how?

• Economic environment—In what ways do economic forces impact the marketing success of the firm?

• Technological environment—What is the role of advancing technology on the business?

• Political and legal environment—How do these elements im- pact decisions the firm makes about products and markets?

• Sociocultural environment—What is the impact of changing societal tastes and values on the marketplace? One of the most challenging aspects of doing external envi-

ronmental analysis is that the information gathered is not static. It is constantly changing! This means that marketers need to continually scan the elements of the external environment for trends and (hopefully) make changes to their marketing plans before the trends get away from them. As you review S&S Smoothie’s marketing plan, try to imagine which of the external environmental elements identified are most likely to change in the near future, and how the changes would impact their plan.

SWOT Analysis A SWOT analysis (for Strengths, Weaknesses, Opportunities, and Threats) is a convenient way of summarizing your situation analysis. You will note that the S&S Smoothie example has a very succinct set of 3–4 bulleted items under each of the SWOT subheadings. This is what you should strive for in a SWOT—a succinct prioritization of the main internal and external situa- tional factors that you believe, based on your analysis, are most important to future planning for the firm.

Marketing Objectives An objective is something that you set out to accomplish. You will learn in Chapter 2 that for objectives to be useful they must meet several important criteria in the way they are written. A well-stated objective is specific, measurable, and realistically at- tainable. Objectives are not very useful to marketers for plan- ning purposes if they are vague, if you don’t know what metrics tell you that you’ve succeeded, or if they are impossible to ac- complish. S&S Smoothie has identified four important market- ing objectives. See if you think they meet these criteria.

>>You Can Do It Too! Now, if you are working on a marketing plan as part of your course, you can go to mymarketinglab to apply what you learn in Part One to your own marketing plan project.

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Chapter | 1

Welcome to the World of Marketing Create and Deliver Value

Real People Profiles

A Decision Maker at Pandora Joe Kennedy is chief executive officer and president of Pandora, the Internet radio company that more than 65 million people use to create personalized radio stations that they can listen to from their comput- ers, phones, TVs, and cars. Just type the name of one of your favorite songs or artists into Pandora and it will instantly generate a station with music pulled from

its collection of more than 800,000 songs. Enter Rihanna and connect to similar artists like Loer Velocity and The Cab. Is Ludacris more your speed? Discover 112 or Sensational.

How does Pandora customize stations to each individual listener? It all has to do with the Music Genome Project; Pandora describes it as the most comprehensive analysis of music ever undertaken. Over the last decade the MGP’s team of musician- analysts has classified each song based on up to 400 distinct musical characteristics. It takes an analyst 20–30 minutes to analyze a song and record the details that de- fine it, such as melody, harmony, instrumentation, rhythm, vocals, and lyrics. Artists receive royalties from Pandora every time one of their songs is played on a station.

Joe Kennedy joined Pandora in 2004 following a five-year stint at E-LOAN, where he was president and chief operating officer. From 1995 to 1999, he was the vice president of sales, service and marketing for Saturn Corporation, which he grew to more than $4 billion in revenue and established as the top brand for customer satisfaction in the auto industry. Joe joined the initial startup team at Saturn, four months after it was founded, as a marketing manager and held positions of increas- ing marketing responsibility over the course of his 11-year tenure there.

Joe has an MBA from Harvard Business School and a BS degree in electrical en- gineering and computer science from Princeton University, where he dabbled in mu- sic theory and learned to compose his own Gregorian chants. According to his bio on the Pandora site, he is Pandora’s resident pop music junkie. Joe has also been playing the piano for more than 30 years, spending a majority of that time attempt- ing to master Gershwin’s “Rhapsody in Blue.”

Joe’s Info

What do I do when I’m not working? A) Working on my tennis game, trying to finally reach that elusive top 10 national ranking in my age group.

Business book I’m reading now? A) Checklist Manifesto by Atul Gawande.

My hero? A) Skip LeFauve, the president of Saturn from 1986 to 1995.

What drives me? A) I love to bring about game-changing innovation in categories consumers are passionate about.

My management style? A) Hire senior, experienced, self-motivated leaders who know more about their functional areas than I do and let them do their thing.

My pet peeve? A) People who are always running late. It’s a clear sign of self- centeredness when someone always keeps other people waiting.

Profile Info

Joe Kennedy

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The company was founded in January 2000 by Tim Westergren, a pianist who played in rock and jazz

bands for 10 years before he became a film composer. As he analyzed mu- sic to decide what film directors would like, he got the idea of creating a technology that would reflect people’s tastes and deliver music that fit those tastes. Tim raised $1.5 million and started Savage Beast Technologies, which

sold music recommendations services to companies like Best Buy. But the company struggled as the dot-com boom of the late 1990s burst. Tim and his employees worked on an unpaid basis for several years before they got more financial backing in 2004 (af- ter Tim made 347 unsuccessful pitches to in- vestors!). Tim paid his employees, switched the company’s name to Pandora, and changed its focus to consumers instead of businesses. To lead this strategic shift the newly christened Pandora hired Joe Kennedy, who had solid experience building consumer products. The company knew it was on to something when it first released Pandora in a beta version for family and friends. Within a week, 5,000 people had used the service to discover new music.

That was encouraging, but a 5,000-user base isn’t nearly enough to entice advertisers to buy space on the site. Pandora needed to make money by attracting enough people to capture the interest of potential advertising clients; these companies in turn would pay to place ads that would reach Pandora’s users. The challenge was to avoid the fate of many other Internet startups that offered cool fea- tures but never grew to the scale where they could turn a profit. Joe needed to build a solid customer base so he could develop a firm business model for Pandora. He knew that if he could just make music lovers aware of the value Pandora offered, he would be able to turn the fledgling service into a marketing success.

Joe considered his Options 1 • 2 • 3 Launch an advertising campaign on radio stations, in music magazines, and at record stores. Advertising is a great way to create awareness of a new product or service, but it takes a lot of money to cut through the clutter of competing messages. To afford advertising, Pandora would have had to convince financial backers that a substantial up-front invest-

ment would pay off as droves of users flocked to the site once they heard or read about it.

See what option Joe chose on page 33

Build a buzz about Pandora through word of mouth. Put Tim Westergen, the company’s founder, in front of groups of mu- sic lovers to tell the unique story of Pandora and how the Music Genome Project makes it work. Cultivate a dedicated fan base by reaching out to social networks on Twitter and Facebook, and then rely on these converts to spread the word to their friends.

A buzz-building strategy is very inexpensive, and if done well, it can create a large group of devoted followers almost overnight. On the other hand, a startup has to compete with the thousands of others that are trying to recruit fans, and it might be difficult to reach a mass audience as opposed to hard-core music lovers without any catchy advertising.

Sell the service to a large chain of record stores, a music magazine, or even a record label. Pandora could return to its roots as a music recommendation service for businesses. If a large company (like Virgin Records) could offer the service exclu- sively to its customers, almost instantly Pandora would have access to many thousands of music buyers. In the same way that

USA Today is able to claim a huge circulation (and thus attract a lot of adver- tising dollars) because it is distributed free to hotel guests across the coun- try, Pandora would inherit an impressive distribution network. However, this choice would entail giving up control of the unique Music Genome Project and its sophisticated database that the company had worked so hard to build. Hardcore music fans might accuse Pandora of “selling out,” and they might question how objective its recommendations were.

Now, put yourself in Joe’s shoes: Which option would you consider, and why?

You Choose

Which Option would you choose, and why?

1. YES NO 2. YES NO 3. YES NO

Here’s my problem. . .

Option

Things to remember

Pandora doesn’t charge people to use its service. It makes its money by attracting advertisers who want to reach users. In order for the company to entice companies to advertise, it has to offer them access to large numbers of consumers who are likely to tune in on the ads they will encounter on the site.

Part of Pandora’s unique product offering is the ability to customize music for each individual user. Everyone who registers can create their own “stations” that play songs with similar characteristics. This enables users to learn about artists they might not otherwise stumble upon, so potentially Pandora can create new audiences for independent musicians and for music labels.

Word of mouth is the least expensive way to attract large numbers of web surfers to Pandora’s site. However, it’s difficult to build buzz in an environment where many other products and services compete for the consumer’s scarce attention.

Real People, Real Choices

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Welcome to Brand You Alex wakes up with a groan as Vampire Weekend belts out a song from the next bedroom. Why does her room- mate have to download these loud ringtones onto her cell phone and then leave it on so early in the morning? She throws back the Ralph Lauren sheets and rolls off her new Sleep Number mattress. As Alex stumbles across the room in her VS Signature pajamas from Victoria’s Secret, her senses are further assaulted as she catches wafts of Amanda’s trademark Juicy Couture perfume. She pours

herself a steaming cup of Starbucks Verona Blend coffee from the Capresso CoffeeTeam Luxe coffeemaker and stirs in a heaping mound of Splenda. As she starts to grab a Yoplait from the SubZero, she checks her iPhone and suddenly remembers: Big job interview with Sprout Networks today! Yeah for LinkedIn! Good thing she gChatted her friends last night to get advice about what to wear so she won’t have to think about it this morning. Alex does a quick scan of the New York Times on her Apple iPad, checks the forecast on Weather.com, and for one last time googles the executive who will be interviewing her. Hope- fully he won’t remember to check out her Facebook page; those photos she posted from her trip to Cancun don’t exactly communicate a professional im- age! Well, he’ll be more impressed by the volunteer work she’s doing with Sweatshopwatch.org to build a buzz about horrific labor conditions in devel- oping countries. Just in case, she glances down at her wrist to be sure she’s wearing her turquoise advocacy bracelet (which new cause was that for, anyway?).

Alex slips into her sleek new BCBG suit, slides on her Prada shoes, grabs her Coach briefcase that was a graduation present from her parents, and climbs into her Jeep Grand Cherokee. As she listens to the Coke ad blaring over the loudspeakers while she gasses up at the Exxon station, Alex finds herself look- ing forward to tomorrow. The pressure will be off, and she can throw on her Madewell dress, Ray-Ban Aviators, and of course those new Frye wedges. Then, it’ll be out to that hot new bar to look for Mr. Right—or maybe a few Mr. Wrongs. Oh yes, and perhaps a quick check on Craigslist for a new roommate.

Marketing is all around us. Indeed, some might say we live in a branded world. Like Alex, you have encounters with many marketers even before you leave for the day: ads, products, TV, the Web, charitable causes, podcasts.

What’s more, like Alex, you are a product. That may sound weird, but companies like LinkedIn couldn’t exist if you were not a product with value. We’re going to use that word a LOT in this book, so let’s define it now: Value refers to the benefits a customer receives from buying a good or service.

You have “market value” as a person—you have qualities that set you apart from others and abilities other people want and need. After you finish this course, you’ll have even more value because you’ll know about the field of marketing and how this field relates to you both as a future businessper- son and as a consumer. In addition to learning about how marketing influ- ences each of us, you’ll have a better understanding of what it means to be “Brand You”—and hopefully some ideas about what you can do to increase your value to employers and maybe even to society.

Chapter 1

6 PA RT O N E | M A K E M A R K E T I N G VA L U E D E C I S I O N S

Objective Outline 1. Understand who marketers are,

where they work, and marketing’s role in a firm.

WELCOME TO BRAND YOU (p. 6) THE WHO AND WHERE OF MARKETING (p. 7)

2. Explain what marketing is and how it provides value to everyone involved in the marketing process.

MARKETING CREATES VALUE (p. 8)

3. Explain the evolution of the marketing concept.

WHEN DID MARKETING BEGIN? THE EVOLUTION OF A CONCEPT (p. 13)

4. Understand the range of services and goods that organizations market.

WHAT CAN WE MARKET? (p. 18)

5. Understand value from the perspectives of customers, producers, and society.

THE VALUE OF MARKETING AND THE MARKETING OF VALUE (p. 21)

6. Explain the basics of marketing planning and the marketing mix tools we use in the marketing process.

MARKETING AS A PROCESS (p. 30)

(pp. 30–32)

(pp. 21–29)

(pp. 18–21)

(pp. 13–18)

(pp. 8–12)

(pp. 6–8)

Check out chapter 1 Study Map on page 33

1 OBJECTIVE

Understand who

marketers are, where

they work, and

marketing’s role in a

firm. (pp. 6–8)

value The benefits a customer receives from buying a good or service.

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C H A P T E R 1 | W E L C O M E T O T H E W O R L D O F M A R K E T I N G : C R E AT E A N D D E L I V E R VA L U E 7

Although it may seem strange to think about the mar- keting of people, in reality we often talk about ourselves and others in marketing terms. It is common for us to speak of “positioning” ourselves for job interviews or to tell our friends not to “sell themselves short.” Some people who are cruising for potential mates even refer to them- selves as “being on the market.” In addition, many con- sumers hire personal image consultants to devise a “marketing strategy” for them, while others undergo plas- tic surgery or makeovers to improve their “product im- ages.” The desire to package and promote ourselves is the reason for personal goods and services markets ranging from cosmetics and exercise equipment to résumé special- ists and dating agencies.1

So the principles of marketing apply to people, just as they apply to coffee, convertibles, and computer processors. Sure, there are differences in how we go about marketing each of these, but the general idea remains the same: Marketing is a fundamental part of our lives both as consumers and as players in the business world. We’ll tell you why throughout this book. But first, we need to answer the basic questions of marketing: Who? Where? What? When? and Why? Let’s start with Who and Where.

The Who and Where of Marketing Marketers come from many different backgrounds. Although many have earned marketing degrees, others have backgrounds in areas such as engineering or agriculture. Retailers and fashion marketers may have training in merchandising or design. Advertising copywriters often have degrees in English. E-marketers who do business over the Internet may have studied computer science.

Marketers work in a variety of locations. They work in consumer goods companies such as General Mills or at service companies like The Philadelphia 76ers basketball team. You’ll see them in retail organizations like Sam’s Club and at companies that manufacture products for other companies to use like NCR. You’ll see them at philanthropic companies like Product (RED) and at cutting-edge advertising and social media agencies like Campfire and Pandora. We’ll get to know these and other companies better as we make our way through this book.

And, although you may assume that the typical marketing job is in a large, consumer- oriented company like Disney, marketers work in other types of organizations too. There are many exciting marketing careers in companies that sell to other businesses. In small organizations, one person (perhaps the owner) may handle all the marketing responsi- bilities. In large organizations, marketers work on different aspects of the marketing strategy.

No matter where they work, all marketers are real people who make choices that affect themselves, their companies, and very often thousands or even millions of consumers. At the beginning of each chapter, we’ll introduce you to marketing profes- sionals like Joe Kennedy of Pandora in a feature we call “Real People, Real Choices.” We’ll tell you about a decision the marketer had to make and give you the possible options he or she considered. Think about these options as you read through the chapter so you can build an argument for selecting an option. At the end of each chapter, we’ll tell you what option the marketer chose and why in a feature called “Real People, Real Choices: How It Worked Out.”

You are a product—hopefully a successful one!

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8 PA RT O N E | M A K E M A R K E T I N G VA L U E D E C I S I O N S

Marketing’s Role in the Firm: Cross-Functional Relationships What role do marketers play in a firm? The importance organizations assign to marketing activities varies a lot. Top management in some firms is very marketing-oriented (especially when the chief executive officer comes from the marketing ranks), whereas in other compa- nies marketing is an afterthought. However, analysts estimate that at least one-third of CEOs come from a marketing background—so stick with us!

Sometimes a company uses the term marketing when what it really means is sales or ad- vertising. In some organizations, particularly small, not-for-profit ones, there may be no one in the company specifically designated as “the marketing person.” In contrast, some firms realize that marketing applies to all aspects of the firm’s activities. As a result, there has been a trend toward integrating marketing with other business functions (such as management and accounting) instead of making it a separate function.

No matter what size the firm, a marketer’s decisions affect—and are affected by—the firm’s other operations. Marketing managers must work with financial and accounting officers to figure out whether products are profitable, to set marketing budgets, and to de- termine prices. They must work with people in manufacturing to be sure that products are produced on time and in the right quantities. Marketers also must work with research-and- development specialists to create products that meet consumers’ needs.

Where Do You Fit In? Careers in Marketing Marketing is an incredibly exciting, diverse discipline that brims with opportunities. There are many paths to a marketing career; we’ve tried to summarize the most typical ones here. Check out Table 1.1 to start thinking about which path might be best for you. Okay, now that you’ve gotten a glimpse of who marketers are and where they work, it’s time to dig into what marketing really is.

Marketing Creates Value Marketing. Lots of people talk about it, but what is it? When you ask people to define marketing, you get many answers. Some people say, “That’s what happens when a pushy salesman tries to sell me some- thing I don’t want.” Other people say, “Oh, that’s simple—TV commer- cials.” Students might answer, “That’s a course I have to take before I can get my business degree.” Each of these responses has a grain of truth in it, but the official definition of marketing the American Marketing Association adopted in late 2007 is as follows:

“Marketing is the activity, set of institutions, and processes for cre- ating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large.”2

The basic idea of this somewhat complicated definition is that marketing is all about delivering value to everyone who is affected by a transaction. Let’s take a closer look at some of the different ideas that relate to this definition.

Marketing Meets Needs One important part of our definition of marketing is that it meets the needs of diverse stake- holders. The term stakeholders here refers to buyers, sellers, or investors in a company, com- munity residents, and even citizens of the nations where goods and services are made or sold—in other words, any person or organization that has a “stake” in the outcome. Thus, marketing is about satisfying everyone involved in the marketing process.

marketing An organizational function and a set of processes for creating, communicating, and delivering value to customers and for managing customer relationships in ways that benefit the organization and its stakeholders.

2 OBJECTIVE

Explain what

marketing is and

how it provides value

to everyone involved

in the marketing

process. (pp. 8–12)

stakeholders Buyers, sellers, or investors in a company, community residents, and even citizens of the nations where goods and services are made or sold—in other words, any person or organization that has a “stake” in the outcome.

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Table 1.1 | Careers in Marketing Marketing Field Where Can I Work?

What Entry-Level Position Can I Get? What Course Work Do I Need?

Advertising Advertising agency: Media, research, and creative departments; account work

Large corporation: Advertising department: brand/product management

Media: Magazine, newspaper, radio, and television selling; management consulting; marketing research

Account coordinator (traffic department); assistant account executive; assistant media buyer; research assistant; assistant brand manager

Undergraduate business degree

Brand Management

Any size corporation: Coordinate the activities of specialists in production, sales, advertising, promotion, R&D, marketing research, purchasing, distribution, package development, and finance

Associate brand manager M.B.A. preferred, but a few com- panies recruit undergraduates. Expect a sales training program in the field from one to four months and in-house classes and seminars.

Business-to- Business Marketing

Any size corporation: Only a few companies recruit on campus, so be prepared to search out job opportunities on your own, as well as interview on campus.

Sales representative; market research administrator; product manager; pricing administrator; product administrator; assistant marketing manager; sales administrator; assistant sales manager; sales service administrator

Undergraduate business degree. A broad background of subjects is generally better than concentrating on just one area. A technical degree may be important or even required in high-technology areas. Courses in industrial marketing and marketing strategy are very helpful.

Direct–Response Marketing

Any size corporation: Marketing-oriented firms, including those offering consumer goods, industrial products, financial institutions, and other types of service establishments. Entrepreneurs seeking to enter business for themselves.

Direct-response marketing is expanding rapidly and includes direct mail; print and broadcast media, telephone marketing, catalogues, in- home presentations, and door-to- door marketing.

Seek counsel from officers and directors of the Direct Marketing Association and the Direct Selling Association.

Undergraduate business degree. Supplemental work in communications, psychology, and/or computer systems recommended.

Supply-Channel Management

Any size corporation, including transportation corporations: The analysis, planning, and control of activities concerned with the procurement and distribution of goods. The activities include transportation, warehousing, forecasting, order processing, inventory control, production planning, site selection, and customer service.

Physical distribution manager; supply chain manager; inventory-control manager; traffic manager; distribution-center manager; distribution-planning analyst; customer service manager; transportation marketing and operations manager

Undergraduate business degree and M.B.A. Broad background in the core functional areas of business, with particular emphasis in distribution related topics such as logistics, transportation, purchasing, and negotiation.

International Marketing

Large corporations: Marketing Department at corporate headquarters

Domestic sales position with an international firm may be the best first step toward international opportunities.

M.B.A. A broad background in marketing is recommended, with some emphasis on sales management and market research.

Marketing Models and Systems Analysis

Large corporations: Consult with managers who are having difficulty with marketing problems.

Undergraduate: Few positions available unless you have prior work experience. Graduate: market analyst, market research specialist, and management scientist.

M.B.A. Preparation in statistics, mathematics, and the behavioral sciences.

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One important stakeholder is YOU. A consumer is the ultimate user of a good or service. Consumers can be individuals or organizations, whether a company, govern- ment, sorority, or charity. We like to say that the consumer is king (or queen), but it’s im- portant not to lose sight of the fact that the seller also has needs—to make a profit, to remain in business, and even to take pride in selling the highest-quality products possi- ble. Products are sold to satisfy both consumers’ and marketers’ needs—it’s a two-way street. When you strip away the big words, try this as a bumper sticker: Marketers do it to satisfy needs.

Needs, Wants, and Benefits

Most successful firms today practice the marketing concept—that is, marketers first iden- tify consumer needs and then provide products that satisfy those needs, ensuring the firm’s long-term profitability. A need is the difference between a consumer’s actual state and some ideal or desired state. When the difference is big enough, the consumer is motivated to take

consumer The ultimate user of a good or service.

marketing concept A management orientation that focuses on identifying and satisfying consumer needs to ensure the organization’s long-term profitability.

need The recognition of any difference between a consumer’s actual state and some ideal or desired state.

Table 1.1 | Careers in Marketing Marketing Field Where Can I Work?

What Entry-Level Position Can I Get? What Course Work Do I Need?

Marketing Research

Any size corporation: Provide management with information about consumers, the marketing environment, and the competition

Assistant market analyst or assistant product analyst level.

M.B.A. or an M.S. in Marketing Research although prior experience and training may improve an undergraduate’s chances.

New Product Planning

Any size corporation: Marketing of consumer products, consumer industries, advertising agencies, consulting firms, public agencies, medical agencies, retailing management

Assistant manager or director of product planning or new product development.

M.B.A.

Retail Management

Retail corporations Assistant buyer positions; department manager positions

Undergraduate business degree

Sales and Sales Management

Profit and nonprofit organizations: Financial, insurance, consulting, and government

Trade sales representative who sells to a wholesaler or retailer; missionary sales representative in manufacturing who sells to retailers or decision makers (e.g., pharmaceutical representative); technical sales representative who sells to specified accounts within a designated geographic area.

Undergraduate business degree; M.B.A.; Helpful courses: consumer behavior, psychology, sociology, economics, anthropology, cost accounting, computer science, statistical analysis, communications, drama, creative writing. Language courses, if you’re interested in international marketing; engineering or physical science courses if you’re interested in technical selling.

Services Marketing

Any size corporation: Banking and financial service institutions, health care organizations, leisure- oriented businesses, and in various other service settings.

Assistant brand manager; assistant sales manager

Undergraduate business degree; M.B.A.; Additional course work in management policy, research, advertising and promotion, quantitative analysis, consumer behavior, and the behavioral sciences should prove useful.

Source: This information was based on an excellent compilation prepared by the marketing faculty of the Marshall School of Business, University of Southern California at http://www.marshall.usc.edu/marketing/resources/resources-overview.htm (accessed June 11, 2010). For average salaries broken down by job type and state consult the Aquent/AMA Survey of Marketing Professionals at http://www.marketingsalaries.com/aquent/Home.form or commercial websites such as payscale.com and rileyguide.com.

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action to satisfy the need. When you’re hungry, you buy a snack. If you’re not happy with your hair, you get a new hairstyle. When you need a job (or perhaps just get mad at your boss), you check out LinkedIn.

Needs relate to physical functions (such as eating) or to psychological ones (such as social acceptance). Levi Strauss & Company is one company that tries to meet the psychological needs of consumers to look good (as well as their basic need to be clothed). The company’s research indicates that people wear Levi’s jeans to say important things about themselves and their desired image. From time to time, the company even receives a beat-up, handed-down pair in the mail, with a letter from the owner requesting that the jeans be given a proper burial—that’s a pretty “deep-seated” attachment to a pair of pants!3 The specific way a person sat- isfies a need depends on his or her unique history, learning experiences, and cul- tural environment. That explains why Nestlé’s Kit Kat is the No. 1 candy brand in Japan—but the flavors you buy there include green tea, soy sauce, yubari melon, and sweet potato.4

A want is a desire for a particular product we use to satisfy a need in specific ways that are culturally and socially influenced. For example, two classmates’ stomachs rumble during a lunchtime lecture, and both need food. However, each of the two may satisfy this need in quite a different way. The first student may be a health nut who fantasizes about gulping down a big handful of trail mix, while the second person may lust for a greasy cheeseburger and fries. The first student’s want is trail mix, whereas the second student’s want is fast food (and some antacid for dessert).

A product delivers a benefit when it satisfies a need or want. For marketers to be successful, they must develop products that provide one or more benefits that are impor- tant to consumers. The challenge is to identify what benefits people look for and then de- velop a product that delivers those benefits while also convincing consumers that their product is better than a competitor’s product—making the choice of which product to buy obvious. As the late management guru Peter Drucker observed, “The aim of marketing is to make selling superfluous.”5

Everyone can want your product, but that doesn’t ensure sales unless consumers have the means to obtain it. When you couple desire with the buying power or resources to sat- isfy a want, the result is demand. So the potential customers looking for a snappy red BMW convertible are the people who want the car minus those who can’t afford to buy or lease one (no, stealing the car doesn’t count). A market consists of all the consumers who share a common need that can be satisfied by a specific product and who have the resources, will- ingness, and authority to make the purchase.

A marketplace used to be a location where buying and selling occurs face to face. In today’s “wired” world, however, buyers and sellers might not even see each other. The modern marketplace may take the form of a glitzy shopping mall, a mail-order catalog, a television shopping network, an eBay auction, or an e-commerce Web site. In developing countries, the marketplace may be a street corner or an open-air market where people sell fruits and vegetables much as they did thousands of years ago. Indeed, a marketplace may not even exist in the physical world—as players of online games will tell you. Residents of cyberworlds like Second Life and Habbo Hotel buy and sell virtual real estate, home furnish- ings, and bling for their digital avatars; in 2010 alone they bought about $1.6 billion worth of virtual goods that exist only on a computer server.

Marketing Creates Utility Marketing transactions create utility, which refers to the sum of the benefits we receive when we use a good or service. When it ensures that people have the type of product they want, where and when they want it, the marketing system makes our lives easier. Utility is what

Marketers create value for society when they help to promote worthy causes.

want The desire to satisfy needs in specific ways that are culturally and socially influenced.

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

demand Customers’ desires for products coupled with the resources needed to obtain them.

market All the customers and potential customers who share a common need that can be satisfied by a specific product, who have the resources to exchange for it, who are willing to make the exchange, and who have the authority to make the exchange.

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APPLYING Demand

Joe needs to understand the potential demand for Pandora’s services so he can develop a plan to maximize the number of these consumers who actually visit the site on a regular basis.

Joe Kennedy

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creates value. Marketing processes create several different kinds of utility to provide value to consumers:

• Form utility is the benefit marketing provides by transforming raw materials into finished products, as when a dress manufacturer combines silk, thread, and zippers to create a bridesmaid’s gown.

• Place utility is the benefit marketing provides by making products available where customers want them. The most sophisticated evening gown sewn in New York’s garment district is of little use to a bridesmaid in Kansas City if it isn’t shipped to her in time.

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

• Possession utility is the benefit marketing provides by allowing the consumer to own, use, and enjoy the product. The bridal store provides access to a range of styles and colors that would not be available to a woman outfitting a bridal party on her own.

As we’ve seen, marketers provide utility in many ways. Now, let’s see how customers “take delivery” of this added value.

Marketing and Exchange At the heart of every marketing act—big or small—is something we refer to as an “exchange relationship.” An exchange occurs when a person gives something and gets something else in return. The buyer receives an object, service, or idea that satisfies a need, and the seller receives something he or she feels is of equivalent value. A product is a good, a service, an idea, a place, a person—whatever is offered for sale in the exchange.

For an exchange to occur, at least two people or organizations must be willing to make a trade, and each must have something the other wants. Both parties must agree on the value of the exchange and how it will be carried out. Each party also must be free to accept or reject the other’s terms for the exchange. Under these conditions, a gun-wielding robber’s offer to “ex- change” your money for your life does not constitute a valid exchange. In contrast, although someone may complain that a store’s prices are “highway robbery,” an exchange occurs if he still forks over the money to buy some- thing there—even if he still grumbles about it weeks later.

To complicate things a bit more, everyone does not always agree on the terms of the exchange. Think, for example, about music piracy, which is a huge headache for music labels. On the one hand, they claim that they lose billions of dollars a year when consumers download songs without paying for them. On the other hand, a lot of people who engage in this practice don’t feel that they participate in an unfair exchange that deprives manufacturers of the value of their products. They argue that music piracy is the fault of record companies that charge way too much for new songs. What do you think?

The debate over music downloading reminds us that an agreed upon transfer of value must occur for an exchange to take place. A politician can agree to work toward certain goals in exchange for your vote, or a minister can offer you salvation in return for your faith. Today, most exchanges occur as a monetary transaction in which currency (in the form of cash, check, or credit card) is surrendered in return for a good or a service.

exchange The process by which some transfer of value occurs between a buyer and a seller.

product A tangible good, service, idea, or some combination of these that satisfies consumer or business customer needs through the exchange process; a bundle of attributes including features, functions, benefits, and uses.

Rent the Runway is a new service started by two recent business school grads. It rents high-end dresses from designers like Diane Von Furstenberg, for about one-tenth of the cost of buying the same garment in a store. A woman can rent a dress for four nights; it’s shipped directly to her doorstep much like a Netflix video. The customer returns the dress in a prepaid envelope and the rental price includes the cost of dry cleaning. Place utility at work!6

virtual goods Digital products consumers buy for use in online contexts.

utility The usefulness or benefit consumers receive from a product.

marketplace Any location or medium used to conduct an exchange.

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When Did Marketing Begin? The Evolution of a Concept Now that we have an idea of how the marketing process works, let’s take a step back and see how this process worked (or didn’t work) in “the old days.” Although it just sounds like common sense to us, be- lieve it or not, the notion that businesses and other organizations succeed when they satisfy customers’ needs actually is a pretty recent idea. Before the 1950s, marketing was basically a means of making

production more efficient. Let’s take a quick look at how the marketing discipline has developed. Table 1.2 tells us about some of the more recent events in this marketing history.

The Production Era Many people say that Henry Ford’s Model T changed America forever. Even from the start in 1908, when the “Tin Lizzie,” or “flivver” as the T was known, sold for $825, Henry Ford continued to make improvements in production. By 1912, Ford got so efficient that the car sold for $575, a price even the Ford employees who made the car could afford.7

As the price continued to drop, Ford sold even more flivvers. By 1921, the Model T Ford had 60 percent of the new-car market. In 1924, the ten millionth Model T rolled off the assembly line. The Model T story is perhaps the most well-known and most successful example of an organization that focuses on the most efficient production and distribution of products.

Ford’s focus illustrates a production orientation, which works best in a seller’s market when demand is greater than supply because it focuses on the most efficient ways to pro- duce and distribute products. Essentially, consumers have to take whatever is available— there weren’t a whole lot of other Tin Lizzies competing for drivers in the 1920s. Under these conditions, marketing plays a relatively insignificant role—the goods literally sell them- selves because people have no other choices. In the former Soviet Union, the centralized government set production quotas, and weary shoppers lined up (often for hours) to pur- chase whatever happened to be on a store’s shelves at the time.

Firms that focus on a production orientation tend to view the market as a homogeneous group that will be satisfied with the basic function of a product. Sometimes this view is too narrow. For example, Procter & Gamble’s Ivory soap has been in decline for some time be- cause the company viewed the brand as plain old soap, not as a cleansing product that could provide other benefits as well. Ivory soap lost business to newer deodorant and “beauty” soaps containing cold cream that “cleaned up” in this market.8

The Sales Era When product availability exceeds demand in a buyer’s market, businesses may engage in the “hard sell” in which salespeople aggressively push their wares. During the Great Depression in the 1930s, when money was scarce for most people, firms shifted their focus from a product orientation to moving their goods in any way they could.

This selling orientation means that management views marketing as a sales function, or a way to move products out of warehouses so that inventories don’t pile up. The selling orientation gained in popularity after World War II. During the war, the United States dra- matically increased its industrial capacity to manufacture tanks, combat boots, parachutes, and countless other wartime goods. After the war, this industrial capacity was converted to producing consumer goods.

Consumers eagerly bought all the things they couldn’t get during the war years, but once they satisfied these initial needs and wants they got more selective. The race for consumers’

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

3 OBJECTIVE

Explain the evolution

of the marketing

concept. (pp. 13–18)

selling orientation A managerial view of marketing as a sales function, or a way to move products out of warehouses to reduce inventory.

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Table 1.2 | Marketing History Year Marketing Event

1955 Ray Kroc opens his first McDonald’s.

1956 Lever Brothers launches Wisk, America’s first liquid laundry detergent.

1957 Ford rolls out Edsel, loses more than $250 million in two years.

1959 Mattel introduces Barbie.

1960 The FDA approves Searle’s Enovid as the first oral contraceptive.

1961 Procter & Gamble launches Pampers.

1962 Walmart, Kmart, Target, and Woolco open their doors.

1963 The Pepsi Generation kicks off the cola wars.

1964 Blue Ribbon Sports (now known as Nike) ships its first shoes.

1965 Donald Fisher opens The Gap, a jeans-only store in San Francisco.

1971 Cigarette advertising is banned on radio and television.

1973 Federal Express begins overnight delivery services.

1976 Sol Price opens the first warehouse club store in San Diego.

1980 Ted Turner creates CNN.

1981 MTV begins.

1982 Gannett launches USA Today.

1983 Chrysler introduces minivans.

1984 Apple Computer introduces the Macintosh.

1985 New Coke is launched; Old Coke is brought back 79 days later.

1990 Saturn, GM’s first new car division since 1919, rolls out its first car.

1993 Phillip Morris reduces price of Marlboros by 40 cents a pack and loses $13.4 billion in stock market value in one day.

1994 In the largest switch in ad history, IBM yanks its business from scores of agencies worldwide and hands its entire account to Ogilvy & Mather.

1995 eBay goes online as an experimental auction service.

1997 McDonald’s gives away Teenie Beanie Babies with Happy Meals. Consumer response is so overwhelming that McDonald’s is forced to take out ads apologizing for its inability to meet demand. Nearly 100 million Happy Meals are sold during the promotion.a

1998 Germany’s Daimler-Benz acquires America’s Chrysler Corporation for more than $38 billion in stock to create a new global automaking giant called Daimler-Chrysler.b

2003 Amazon debuts its “Search Inside the Book” feature that allows you to search the full text of more than 33 million pages from over 120,000 printed books.

2004 Online sales in the United States top $100 billion.c

2007 About 30 open source companies were purchased for more than $1 billion.d

2008 MySpace boasts over 225 million members worldwide.d

2010 Apple launches the iPad; sells 300,000 of the tablets on the first day and one million iPads in 28 days —less than half of the 74 days it took to sell one million iPhones. Consumers watch more than 30 billion videos online per month.e

Sources: Patricia Sellers, “To Avoid Trampling, Get Ahead of the Mass,” Fortune, 1994, 201–2 except as noted. a Tod Taylor, “The Beanie Factor,” Brandweek, June 16, 1997, 22–27. b Jennifer Laabs, “Daimler-Benz and Chrysler: A Merger of Global HR Proportions,” Workforce, July 1998, 13. c Keith Regan, “Report: Online Sales Top $100 Billion,” E-Commerce Times, June 1, 2004, www.ecommercetimes.com/story/34148.html. d Frank Rose, “Wired Business Trends 2008,” Wired http://www.wired.com/techbiz/it/ magazine/16-04/bz_opensource, December 2007. e Eliot Van Buskirk, “Apple iPad Reaches ‘1 Million Sold’ Twice as Fast as iPhone” (May 3, 2010), Wired, http://www .wired.com/epicenter/2010/05/apple-ipad-reaches-one-million-sold-twice-as-fast-as-iphone/#ixzz0qBrfv3tj, accessed June 7, 2010; Mashable.com (April 5, 2010), http://mashable.com/2010/04/05/ipad-stats-300000-sold/, accessed June 7, 2010; “30 Billion Videos Watched Online in April” (June 11, 2010), Center for Media Research, http://www.mediapost.com/publications/?fa�Articles.showArticle&art_aid�129561, accessed June 11, 2010.

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hearts and pocketbooks was on. The selling orientation prevailed well into the 1950s. But con- sumers as a rule don’t like to be pushed, and the hard sell gave marketing a bad image.

Companies that still follow a selling orientation tend to be more successful at making one-time sales rather than at building repeat business. We are most likely to find this focus among companies that sell unsought goods—products that people don’t tend to buy without some prodding. For example, most of us aren’t exactly “dying” to shop for cemetery plots, so some encouragement may be necessary to splurge on a final resting place.

The Relationship Era At Direct Tire Sales in Watertown, Massachusetts, customers discover an unusual sight: The customer lounge is clean, there is free coffee with fresh cream and croissants, employ- ees wear ties, and the company will even pay your cab fare home if your car isn’t ready on time. People don’t mind paying 10 to 15 percent more for these extra services.9 Direct Tire Sales has found that it pays to have a consumer orientation that satisfies customers’ needs and wants.

As the world’s most successful firms began to adopt a consumer orientation, marketers had a way to outdo the competition—and marketing’s importance was also elevated in the firm. Marketers did research to understand the needs of different consumers, assisted in tai- loring products to the needs of these various groups, and did an even better job of design- ing marketing messages than in the days of the selling orientation.

The marketing world was humming along nicely, but then inflation in the 1970s and re- cession in the 1980s took their toll on company profits. The marketing concept needed a boost. Firms had to do more than meet consumers’ needs—they had to do this better than the competition and do it repeatedly. They increasingly concentrated on improving the qual- ity of their products. By the early 1990s, many in the marketing community followed an ap- proach termed Total Quality Management (TQM). The TQM perspective takes many forms, but essentially it’s a management philosophy that involves all employees from the assembly line onward in continuous product quality improvement.

Indeed, rapid improvements in manufacturing processes give forward- thinking firms—even small ones—a huge edge in the marketplace because they are more nimble and thus able to create products consumers want when they want them and at the price they want. One way they do is to manufac- ture on demand—this means that they don’t actually produce a product until a customer orders it. The Japanese pioneered this idea with their just-in-time model that we’ll learn more about in Chapter 15.

Today, however, even small mom and pop companies can compete in this space. Technology is creating a new class of business person that we call an instapreneur. All you need is a design; even amateurs can produce jewelry, T-shirts, furniture, and indeed almost anything we can imagine. They don’t have to pay to store their inventory in huge warehouses and they don’t need any money down. For example, the German firm Spread- shirt hosts 500,000 individual T-shirt shops. You see a design you like, place an order, and bam—it gets produced and sent to your door.10

Spreadshirt even partnered with Stardoll, a Swedish virtual world that lets girls create fashion designs and see what they look like on virtual celebrities. Now, they can actually transfer their own designs to the real world.

The Triple Bottom Line Orientation Over time, many forward-thinking organizations began to see their commit- ment to quality even more intensely than “just” satisfying consumers’ needs during a single transaction. A few realized that making monetary profit is

consumer orientation A business approach that prioritizes the satisfaction of customers’ needs and wants.

Total Quality Management (TQM) A management philosophy that focuses on satisfying customers through empowering employees to be an active part of continuous quality improvement.

Marketing messages like this Romanian one for the World Wildlife Fund focus on the environmental bottom line.

instapreneur A businessperson who only produces a product when it is ordered.

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important—but there’s more to think about than just the financial bottom line. Instead, they began to focus on a triple bottom line orientation that meant building long-term bonds with customers rather than merely selling them stuff today.11 This new way of looking at business emphasizes the need to maximize three components:

1. The financial bottom line: Financial profits to stakeholders

2. The social bottom line: Contributing to the communities in which the company operates

3. The environmental bottom line: Creating sustainable business practices that minimize damage to the environment or that even improve it

Is it possible to contribute in a positive way to society and the earth and still contribute to your paycheck? Walmart, the nation’s largest retailer, seems to think so. The huge com- pany announced in 2010 its goal to cut 20 million metric tons of greenhouse gas emissions from its supply chain by the end of 2015—the equivalent of removing more than 3.8 million cars from the road for a year. It’s asking suppliers to take a hard look at the carbon their products emit. Walmart will work with its vendors to make their manufacturing processes more efficient—and hopefully pass cost savings on to customers. The chain has introduced more modest initiatives already; for example, it’s working to change the labels on clothing it sells to indicate the products can be washed in cold water (therefore lowering customers’ electricity bills) and in partnership with 20th Century Fox Home Entertainment it elimi- nated the plastic knob in the center of CD cases to cut greenhouse gas emissions.12

One outgrowth of this new way of thinking was the concept of customer relationship management (CRM), which involves systematically tracking consumers’ preferences and behaviors over time in order to tailor the value proposition as closely as possible to each indi- vidual’s unique wants and needs. With the advent of the Internet, a CRM approach got a lot easier to implement as more and more firms started to rely heavily on the Web to connect with consumers. The Internet provides the ultimate opportunity for implementation of the market- ing concept because it allows a firm to personalize its messages and products to better meet the needs of each individual consumer. More on this in Chapter 12.

Although dot-com companies took a beating in the marketplace during the first “bubble” in the early 1990s, many analysts believe that this was just a preliminary shakeout—the heyday of the Internet is yet to come. More recent success stories like Google, Twitter, Facebook, and Flickr seem to be proving analysts right. Indeed, some marketing analysts suggest that the Internet creates a paradigm shift for business. This means that companies must adhere to a new model to profit in a wired world. They argue that we live in an attention economy, one in which a company’s success will be measured by its share of mind rather than share of market, where companies make money when they attract eyeballs rather than just dollars. For example, Google sells advertising to many other companies, so the more consumers it can persuade to “google” rather than “bing” or “yahoo,” the more it can charge to place ads on search pages.

This means that companies must find new and innovative ways to stand out from the crowd and become an integral part of consumers’ lives rather than just being a dry company that makes and sells products. For ex- ample, major consumer packaged foods companies are drawing many more customers to their Web sites than in the past. More important, the sites are “sticky,” meaning that they tend to keep visitors long enough to make a last- ing impression on them and motivate people to come back for more.

Another result of this new way of long-term thinking is the social marketing concept, which maintains that marketers must satisfy customers’ needs in ways that also benefit society while still delivering a profit to the firm. This perspective is even more important since the terrorist attacks of

triple bottom line orientation A business orientation that looks at financial profits, the community in which the organization operates, and creating sustainable business practices.

customer relationship management (CRM) A systematic tracking of consumers’ preferences and behaviors over time in order to tailor the value proposition as closely as possible to each individual’s unique wants and needs. CRM allows firms to talk to individual customers and to adjust elements of their marketing programs in light of how each customer reacts.

attention economy A company’s success is measured by its share of mind rather than share of market, where companies make money when they attract eyeballs rather than just dollars.

social marketing concept A management philosophy that marketers must satisfy customers’ needs in ways that also benefit society and also deliver profit to the firm.

Green Mountain Coffee uses sustainable business practices.

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2001, which led many people and firms to reexamine their values and redouble their commitments to community and country.

Many big and small firms alike practice this philosophy. Their efforts include satisfying society’s environmental and so- cial needs for a cleaner, safer environment by developing recy- clable packaging, adding extra safety features such as car air bags, voluntarily modifying a manufacturing process to reduce pollution, and sponsoring campaigns to address social prob- lems. Servus Credit Union, a Canadian bank, even handed out $200,000 in $10 increments to finance small good deeds.13

A very important trend now is for companies to think of ways to design and manufacture products with a focus on sustainability, which we define as “meeting present needs without compromising the ability of future generations to meet their needs.”14 Some refer to this philosophy as “cradle to cradle”; this term describes the ideal condition where a product is made from natural materials and is fully reusable, recy- clable, or biodegradable so the net depletion of resources a company needs to make it is zero. When players in the 2010 World Cup ran onto the field, many wore Nike jerseys made from plastic bottles the company retrieved from landfills in Japan and Taiwan. Walmart is a leader in sustainability practices. The giant retail chain makes and sells photo frames from plastic waste products it creates and recycles materials left over from manufacturing its private la- bel diapers into building materials when it constructs new stores. Sustainability is good business because it reduces costs while conserving resources; Walmart estimates savings of $100 million in one year when it switched to a recyclable variety of cardboard it uses to ship goods to its stores. Consumers love it too: In the United States alone we spend more than $500 billion per year on sustainable products.15

Sustainability applies to many aspects of doing business, including social and eco- nomic practices (e.g., humane working conditions and diplomacy to prevent wars that de- plete food supplies, atmospheric quality, and of course lives). One other crucial pillar of sustainability is the environmental impact of the product. Green marketing, the develop- ment of marketing strategies that support environmental stewardship by creating an en- vironmentally founded differential benefit in the minds of consumers, is being practiced by most forward-thinking firms today. Green marketing is one aspect of a firm’s overall commitment to sustainability. A recent study on the impact of green marketing uncovered some interesting results:

• About half the companies reported that they are consciously taking steps to become more green.

• More than 80 percent of respondents indicated they expect to spend more on green mar- keting in the future.

• Companies with smaller marketing budgets tend to spend more on green marketing and also think green marketing is more effective than larger companies do.

• By far the most popular medium for green marketing was the Internet, with 74.2 percent of respondents having spent money online.

• Marketers that track marketing spending and its relation to sales believe people will pay more for green products.

• Marketers tend to lead green initiatives; 50 percent of firm managers surveyed agree that control of the green (sustainability) program is in the hands of marketers.16

In addition to building long-term relationships and focusing on social responsibility, triple bottom line firms place a much greater focus on accountability—measuring just how

sustainability A product design focus that seeks to create products that meet present consumer needs without compromising the ability of future generations to meet their needs.

Game sites like Candystand are “sticky” (this one is built around candy, after all) so many advertisers find these media outlets an attractive place to advertise.

green marketing A marketing strategy that supports environmental stewardship, thus creating a differential benefit in the minds of consumers.

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return on investment (ROI) The direct financial impact of a firm’s expenditure of a resource such as time or money.

much value marketing activities create. This means that marketers at these organizations ask hard questions about the true value of their efforts and their impact on the bottom line. These questions all boil down to the simple acronym of ROI (return on investment). Marketers now realize that if they want to assess just how much value they create for the firm, they need to know exactly what they are spending and what the concrete results of their actions are.

However, it’s not always so easy to assess the value of marketing ac- tivities. Many times managers state their marketing objectives using vague phrases like “increase awareness of our product” or “encourage people to eat healthier snacks.” These goals are important, but their lack of specificity makes it pretty much impossible for senior management to de- termine marketing’s true impact. Because management may view these ef- forts as costs rather than investments, marketing activities often are among the first to be cut out of a firm’s budget. To win continued support for what they do (and sometimes to keep their jobs), marketers in triple bottom line firms do their best to prove to management that they are gen- erating measurable value by aligning marketing activities with the firm’s overall business objectives.17

What Can We Market? Marketers’ creations surround us. It seems that everywhere we turn we get bombarded by advertisements, stores, and products that compete fiercely and loudly for our attention and our dollars. Mar- keters filter much of what we learn about the world, such as when we see images of rich or beautiful people on television commercials or magazines. Ads show us how we should act and what we should own. Marketing’s influence extends from “serious” goods and serv- ices such as health care to “fun” things such as extreme skateboard-

ing equipment and hip-hop music (though many people take these products as seriously as their health).

Lasers to Lady Gaga Popular culture consists of the music, movies, sports, books, celebrities, and other forms of entertainment that the mass market consumes. The relationship between marketing and popular culture is a two-way street. The goods and services that are popular at any time often mirror changes in the larger society. Consider, for example, some U.S. products that reflected underlying cultural changes at the time they were introduced:

• The TV dinner signaled changes in family structure, such as a movement away from the traditional family dinner hour filled with conversation about the day’s events.

• Cosmetics made of natural materials and not tested on animals reflected social concerns about pollution and animal rights.

• Condoms marketed in pastel carrying cases intended for female buyers signaled chang- ing attitudes toward sexual responsibility.

Marketing messages often communicate myths, stories containing symbolic ele- ments that express the shared emotions and ideals of a culture. Consider, for example,

popular culture The music, movies, sports, books, celebrities, and other forms of entertainment consumed by the mass market.

Green marketing in action.

myths Stories containing symbolic elements that express the shared emotions and ideals of a culture.

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Understand the range

of services and goods

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market. (pp. 18–21)

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how McDonald’s takes on mythical qualities. To some, the golden arches are virtually synonymous with American culture.18 These familiar structures offer sanctuary to Americans in foreign lands who are grateful to know ex- actly what to expect once they enter. Basic struggles of good versus evil play out in the fantasy world of McDon- ald’s advertising, as when Ronald McDonald confounds the Hamburglar. McDonald’s even runs Hamburger University, where fast-food majors learn how to make the perfect burger.

Is there any limit to what marketers can market? Marketing applies to more than just canned peas or cola drinks. Some of the best marketers come from the ranks of services companies such as American Express or not- for-profit organizations such as Greenpeace. Politicians, athletes, and performers use marketing to their advantage (just think about that $30 T-shirt you may have bought at a baseball game or rock concert). Ideas such as political systems (democracy, totalitarianism), religion (Christianity, Islam), and art (realism, abstract) also compete for acceptance in a “marketplace.” In this book, we’ll refer to any good, service, or idea that can be marketed as a product, even though what you’re buying may not take a physical form.

Consumer Goods and Services Consumer goods are the tangible products that individual consumers purchase for personal or family use. Services are intangible products that we pay for and use but never own. Service transactions contribute on average more than 60 percent to the gross national product of all industrialized nations. Marketers need to understand the special challenges that arise when marketing an intangible service rather than a tangible good.19

In both cases, though, keep in mind that the consumer looks to obtain some underlying value, such as convenience, security, or status, from a mar- keting exchange. That value can come from a variety of competing goods and services, even those that don’t resemble one another on the surface. For exam- ple, a new CD and a ticket to a local concert may cost about the same, and each may provide the benefit of musical enjoyment, so consumers often have to choose among competing alternatives if they can’t afford (or don’t want) to buy them all.

Business-to-Business Goods and Services Business-to-business marketing is the marketing of goods and services from one organization to another. Although we usually relate marketing to the thousands of consumer goods begging for our dollars every day, the reality is that busi- nesses and other organizations buy a lot more goods than consumers do. They purchase these industrial goods for further processing or to use in their own business operations. For example, automakers buy tons of steel to use in the manufacturing process, and they buy computer systems to track manufacturing costs and other information essential to operations.

Similarly, there is a lot of buzz about e-commerce and the buying and selling of products— books, CDs, cars, and so forth—on the Internet. However, just like in the off-line world, much of the real online action is in the area of business-to-business marketing.

Marketing messages sometimes refer to familiar cultural stories, like this ad from Chile that borrows imagery from Little Red Riding Hood.

consumer goods The goods individual consumers purchase for personal or family use.

Marketing an intangible service like the assistance this British realtor offers poses unique challenges.

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services Intangible products that are exchanged directly between the producer and the customer.

business-to-business marketing The marketing of goods and services from one organization to another.

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Shrinkage

Someone steals from a store every five seconds. Shrinkage is the industry term for inventory and cash losses from shoplifting and employee theft. As we’ll see in Chapter 16, this is a massive problem for businesses that they in turn pass on to consumers in the form of higher prices. Analysts attribute about 40 percent of the losses to employees rather than shoppers.

Anticonsumption

Some types of destructive consumer behavior are anticonsumption, when people deliber- ately deface products. This practice ranges from relatively mild acts like spray-painting graffiti on buildings and subways, to serious incidences of product tampering or even the release of computer viruses that can bring large corporations to their knees.

Not-for-Profit Marketing As we noted earlier, you don’t have to be a businessperson to use marketing principles. Many not-for-profit organizations, including museums, zoos, and even churches, practice the marketing concept. Local governments are adopting marketing techniques to create more effective taxpayer services and to attract new businesses and industries to their coun- ties and cities. Even states are getting into the act: We’ve known for a long time that I ♥ NY, but recently Kentucky and Oregon hired advertising agencies to develop statewide branding campaigns (the official state motto of Oregon is now “Oregon. We love dream- ers.”).22 The intense competition for support of civic and charitable activities means that only the not-for-profits that meet the needs of their constituents and donors will survive.

Idea, Place, and People Marketing Marketing principles also encourage people to endorse ideas or to change their behaviors in positive ways. Many organizations work hard to convince consumers to use seat belts, not to litter our highways, to engage in safe sex, or to believe that one political system is prefer- able to another. In addition to ideas, places and people also are marketable. We are all famil- iar with tourism marketing that promotes exotic resorts like Club Med (“the antidote for civilization”). For many developing countries like Thailand, tourism provides an important opportunity for economic growth.

You may have heard the expression, “Stars are made, not born.” There’s a lot of truth to that. Lady Gaga may have a killer voice and Ryan Howard may have a red-hot baseball

anticonsumption The deliberate defacement of products.

Ripped from the Headlines!

Ethical/Sustainable Decisions in the Real World Back in the day, the “typical” marijuana smoker (or at least the stereotype) was a bearded, bell-bottomed hippie who zoned out in front of the TV watching re- runs on Nick at Night and eating Oreos by the bagful.Today, there’s a good chance a user is a senior citizen or a suburban housewife who smokes joints to fight the negative effects of glaucoma or chemotherapy. Pot is going mainstream.The drug is legal with a prescription in 14 states including California, Colorado, and New

Jersey, and some feel it’s only a matter of time be- fore American voters decide in favor of full-scale legalization.

Some businesspeople smell opportunity through the smoke. One consulting firm called CannBe (advocates prefer the term cannabis to marijuana) offers seminars to budding marketers

(pun intended) who want to learn about the best techniques to merchandise the drug and related paraphernalia in a cleaned-up context. The firm’s president ob- serves, “If we can’t demonstrate professionalism and legitimacy, we’re never going to gain the trust of our citizens.” Taking a page from marketers like General Motors and General Mills, the firm is diversifying its product line as it offers a weaker ver- sion of weed to attract first-time potheads. California dispensaries (there are more in the state than there are Starbucks outlets) offer regular promotions including coupons and even free parking to lure customers.20 At the Harborside Health Cen- ter in Oakland, customers can check out different strains on display under a glass counter with brand names like Blue Dreams, Super Diesel, and Original Purple. Shoppers who enjoy reading detailed wine reviews will feel at home with write-ups of recommended varieties like this one: “. . . lush and spicy . . . reminiscent of Cali mist yet fatter and more body. The high is up and giggly and long lived as well. I was baked for four hours after smoking some.”21

ETHICS CHECK: Find out what other students taking this course would do and why on www .mypearsonmarketinglab .com

YES NO

not-for-profit organizations Organizations with charitable, educational, community, and other public service goals that buy goods and services to support their functions and to attract and serve their members.

Should marijuana be marketed like makeup or milk?

Would you open a cannabis dispensary in your community?

industrial goods Goods individuals or organizations buy for further processing or for their own use when they do business.

e-commerce The buying or selling of goods and services electronically, usually over the Internet.

shrinkage Losses experienced by retailers due to shoplifting, employee theft, and damage to merchandise.

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bat, but talent alone doesn’t make thousands or even millions of people buy CDs or stadium seats. Entertainment events do not just happen. People plan them. Whether for a concert or a baseball game, the application of sound marketing principles helps ensure that patrons will continue to support the activity and buy tickets. Today, sports and the arts are hotbeds of marketing activity. Many of the famous people you pay to see became famous with the help of shrewd marketing: They and their managers developed a “product” that they hoped would appeal to some segment of the population. To appre- ciate how far these efforts can go (maybe too far!), recently reports circulated that the Russian government plans to rebrand the infamous dictator Josef Stalin as part of an effort to improve its global image. Since Stalin “purged” (i.e., executed) about 20 million people, this campaign may be a bit ambi- tious.23

Some of the same principles that go into “creating” a celebrity apply to you. An entertainer—whether Adam Lambert or Tony Bennett—must “package” his talents, identify a market that is likely to be interested, and work hard to gain exposure to these potential customers by appearing in the right musical venues.

In the same way, everyday people like Alex “package” themselves when they sum up their accomplishments on LinkedIn and join professional groups to link with as many “buyers” as they can. And this person market- ing perspective is more valid than ever—now that almost everyone can find “15 minutes of fame” on a Web site, a blog, or a YouTube video. We even have a new word—microcelebrity— to describe those who are famous, not necessarily to millions of people, but certainly to hun- dreds or even thousands who follow their comings and goings on Facebook, Flickr, or Twitter. Some of these stories reveal heartbreak and despair—including the chronicle of a woman named Jennifer who described her husband’s betrayal in intimate detail to the 55,000 readers of her blog, NakedJen.com.24 Others focus on more crucial issues like how to handle a bad hair day—Blogger.com lists more than 4,000 postings that ask readers: “Should I cut my hair?” In a way, when you post some text about how you spent your day on your blog or Facebook wall, you’re basically sending out a press release about yourself (we’ll find out more about those in Chapter 13). So, be careful what you broadcast—you might make the news sooner than you think!25

The Value of Marketing and the Marketing of Value So far, we’ve talked a lot about marketing practices that deliver value to customers. As we noted at the beginning of this chapter, value refers to the benefits a customer receives from buying a good or ser- vice. Marketers communicate these benefits to the customer in the form of a value proposition, a marketplace offering that fairly and ac- curately sums up the value that the customer will realize if he or she purchases the product. The challenge to the marketer is to create an at- tractive value proposition. A big part of this challenge is to convince

customers that this value proposition is superior to others they might choose from competitors.

How do customers (such as your potential employers) decide how much value they will get from a purchase? One way to look at value is to think of it simply as a ratio of benefits to costs—that is, customers “invest” their precious time and money to do business with a firm, and they expect a certain bundle of benefits in return.

Not-for-profit organizations also use marketing tools.

5 OBJECTIVE

Understand value

from the perspectives

of customers,

producers, and

society. (pp. 21–29)

value proposition A marketplace offering that fairly and accurately sums up the value that will be realized if the good or service is purchased.

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But here’s the tricky part: Value is in the eye of the beholder; this means that something (or someone) may be worth a lot to one person but not to another. Your mother may believe that you are the greatest person on the planet, but a prospective employer may form a different opinion. A big role marketers play in an organization is to ensure that consumers appreciate the value of a product, service, or idea. Let’s look at value from the different perspectives of the parties that are involved in an exchange: the customers, the sellers, and society.

Value from the Customer’s Perspective Think about something you would like to buy, say, a new pair of shoes. You have narrowed the choice down to several options. Your purchase decision no doubt will be affected by the ratio of costs versus benefits for each type of shoe. When you buy a pair of shoes, you consider the price (and other costs) along with all the other benefits (utilities) that each competing pair of shoes provides you.

As we noted previously, the value proposition includes the whole bundle of benefits the firm promises to deliver, not just the benefits of the product itself. For example, although most people probably couldn’t run faster or jump higher if they were wearing Nikes versus Reeboks, many die-hard loyalists swear by their favorite brand. These archrival brands are largely marketed in terms of their images—meanings their respective advertising agencies have carefully crafted with the help of legions of athletes, slickly produced commercials, and millions of dollars. When you buy a Nike “swoosh,” you’re doing more than choosing shoes to wear to the mall—you may also be making a statement about the type of person you are or wish you were. In addition to providing comfort

or letting you run faster, that statement also is part of the value the product delivers to you. You can probably think of possessions you own with which you’ve “bonded” in some

way—that is, their value to you goes beyond their function. Marketers who understand this know that in the long run, their value proposition will be successful if they manage to build a relationship between their product and the people who buy it.

Value from the Seller’s Perspective We’ve seen that marketing transactions produce value for buyers, but how do sellers expe- rience value, and how do they decide whether a transaction is valuable? One answer is obvious: They determine whether the exchange is profitable to them. Has it made money for the company’s management, its workers, and its shareholders?

That’s a very important factor, but not the only one. Just as we can’t measure value from the consumer’s perspective only in functional terms, value from the seller’s perspective can take many forms. For example, in addition to making a buck or two, many firms measure value along other dimensions, such as prestige among rivals or pride in doing what they do well. Some firms by definition don’t even care about making money, or they may not even be allowed to make money; nonprofits like Greenpeace, the Smithsonian Institution, or National Public Radio regard value in terms of their ability to motivate, educate, or delight the public.

Because value is such a complicated but important concept, now more than ever mar- keters search for new and better ways to accurately measure just what kind of value they deliver. They also try to learn how this stacks up to the competition, and—as we’ll see next— in some cases even whether the relationship they have with a customer possesses enough value for them to continue it.

Build Value: Market with Customers, Not to Them

Smart companies today understand that making money from a single transaction doesn’t pro- vide the kind of value they desire. Instead, their goal is to satisfy the customer over and over again so that they can build a long-term relationship rather than just having a “one-night stand.”

Marketing strategies exert an important influence on major social problems such as finding a cure for cancer.

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In recent years many firms have transformed the way they do business. They now regard consumers as partners in the transaction rather than as passive “victims.” That explains why it’s becoming more common for companies to host events (sometimes called brandfests) to thank customers for their loyalty. Harley-Davidson builds strong bonds with riders when it sponsors activities every year (including test drives of its new bikes) at the massive motorcycle rally in Sturgis, S.D.26 This is one venue where thousands of members of Harley chapters called HOGs (Harley Owners Groups) come to hang out and commune with fellow brand loyalists.

Customers Have Value (Some More Than Others)

Harley’s cultivation of its HOGs reflects an important lesson the company understands very well: It is more expensive to attract new customers than it is to retain current ones. Although this notion has transformed the way many companies do business, it doesn’t always hold true. In recent years, companies have been working harder to calculate the true value of their re- lationships with customers by asking, “How much is this customer really worth to us?” Firms recognize that it can be very costly in terms of both money and human effort to do whatever it takes to keep some customers loyal to the company. Very often these actions pay off, but there are cases in which keeping a customer is a losing proposition.

This way of thinking is similar to how we may decide which friends are “worth keep- ing.” You may do a lot of favors for two friends, only to discover that when you need some- thing, one of them is always there for you, while the other is nowhere to be found. Over time, you may decide that maintaining a friendship with that second person just doesn’t make sense. Similarly, a company may use a lot of resources to appeal to two customers and find that one returns the favor by buying a lot of its products, while the other buys hardly any- thing. In the long run, the firm may decide to “fire” that second customer. Perhaps you once ordered something in a catalog, and you get that catalog in your mailbox every month. If you don’t order anything for a certain period of time, the company will stop sending you the catalog. In the words of Donald Trump, “You’re fired!” In a promotion, Burger King went a step farther: The chain created a Facebook app that awarded a coupon for a free hamburger. The catch: All you had to do was delete ten people from your friends list. Just how much is a Facebook “friend” worth to you?27

Companies that calculate the lifetime value of a customer look at how much profit they expect to make from a particular customer, including each and every purchase he or she will make from them now and in the future. To calculate lifetime value, companies estimate the amount the person will spend and then subtract what it will cost to maintain this relationship.

Provide Value Through Competitive Advantage How does a firm go about creating a competitive advantage? The first step is to identify what it does really well. A distinctive competency is a firm’s capability that is superior to that of its competition. For example, Coca-Cola’s success in global markets—Coke com- mands 50 percent of the world’s soft-drink business—is related to its distinctive competen- cies in distribution and marketing communications. Coke’s distribution system got a jump on the competition during World War II. To enable U.S. soldiers fighting overseas to enjoy a five-cent Coke, the U.S. government assisted Coca-Cola in building 64 overseas bottling plants. Coke’s skillful marketing communications program, a second distinctive compe- tency, has contributed to its global success. In addition to its television commercials, Coke blankets less-developed countries such as Tanzania with signs posted on roads and on store- fronts so that even people without televisions will think of Coke when they get thirsty.

The second step in developing a competitive advantage is to turn a distinctive competency into a differential benefit—value that competitors don’t offer. Differential benefits set products apart from competitors’ products by providing something unique that customers want. Differ- ential benefits provide reasons for customers to pay a premium for a firm’s products and exhibit a strong brand preference. For many years, loyal Apple computer users benefited from superior

APPLYING Customer Value

Joe understands that it’s more expensive to attract new customers than it is to retain current ones. He needs to find ways to motivate Pandora’s users to visit the site more often and to recommend it to their friends to build a loyal customer base.

Joe Kennedy

brandfests Events companies host to thank customers for their loyalty.

lifetime value of a customer The potential profit a single customer’s purchase of a firm’s products generates over the customer’s lifetime.

distinctive competency A superior capability of a firm in comparison to its direct competitors.

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graphics capability compared to their PC-using counterparts. Later, when PC manufacturers caught up with this competitive advantage, Apple relied on its inventive product designers to create another differential benefit—futuristic-looking computers in a multitude of colors. This competitive advantage even tempted many loyal PC users to take a bite of the Apple.

Note that a differential benefit does not necessarily mean simply offering something different. For example, Mennen marketed a deodorant with a distinctive feature: It con- tained vitamin D. Unfortunately, consumers did not see any reason to pay for the privilege of spraying a vitamin under their arms. Despite advertising claims, consumers saw no ben- efit, and the product failed. The moral: Effective product benefits must be both different from the competition and things customers want. A firm that delivers these desired benefits provides value to its customers and other stakeholders.

Add Value Through the Value Chain Many different players—both within and outside a firm—need to work together to create and deliver value to customers. The value chain is a useful way to appreciate all the players that work together to create value. This term refers to a series of activities involved in de- signing, producing, marketing, delivering, and supporting any product. In addition to mar- keting activities, the value chain includes business functions such as human resource management and technology development.28

The value chain concept reminds us that every product starts with raw materials that are of relatively limited value to the end customer. Each link in the chain has the potential to either add or remove value from the product the customer eventually buys. The successful firm is the one that can perform one or more of these activities better than other firms—this is its compet- itive advantage. The main activities of value-chain members include the following:

• Inbound logistics: Bringing in materials to make the product

• Operations: Converting the materials into the final product

• Outbound logistics: Shipping out the final product

• Marketing: Promoting and selling the final product

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

For example, when you buy a new iPad at your local Apple store, do you think about all the people and steps involved in designing, manufacturing, and delivering that product to the store? Not to mention other people who create brand advertising, conduct consumer research to figure out what people like or dislike about their mobile music players, or even make the box it comes in or those little plastic peanuts that keep the unit from being damaged in shipment?

As Figure 1.1 shows, all these companies (and more) belong to Apple’s value chain. This means that Apple must make a lot of decisions. What electronic components will go into its music players? What accessories will it include in the package? What trucking com- panies, wholesalers, and retailers will deliver the iPods to stores? What service will it provide to customers after the sale? And what marketing strategies will it use? In some cases, members of a value chain will work together to coordinate their activities to be more efficient and thus create a competitive advantage.

We’ve organized this book around the sequence of steps necessary to ensure that the appro- priate value exchange occurs and that both parties to the transaction are satisfied—making it more likely they’ll continue to do business in the future. Figure 1.2 shows these steps. Basically, we’re going to learn about what marketers do as a product makes its way through the value chain from manufacturers into your hands. We’ll start with a focus on how companies decide what to make, how and where to sell it, and to whom to sell it. Then we’ll take a look at how they decide to “po- sition” the product in the marketplace, including choices about what it should look like, how its value should be communicated to customers, and how much to charge for it. As we reach the end of our marketing journey, we’ll talk about how the product actually gets delivered to consumers.

Joe Kennedy APPLYING Distinctive Competency

Pandora’s distinctive competency is the site’s ability to build customized “radio stations” that offer the listener the specific types of music he or she likes to hear based on a similar song or artist.

value chain A series of activities involved in designing, producing, marketing, delivering, and supporting any product. Each link in the chain has the potential to either add or remove value from the product the customer eventually buys.

marketing scorecards Feedback vehicles that report (often in quantified terms) how the company or brand is actually doing in achieving various goals.

metrics Measurements or “scorecards” marketers use to identify the effectiveness of different strategies or tactics.

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How Do We Know What’s Valuable? How do marketers measure value? Increasingly, they develop marketing scorecards that report (often in quantified terms) how the company or brand is actually doing in achieving various goals. We can think of a scorecard as a marketing department’s report card. Scorecards tend to be short and to the point, and they often use charts and graphs to summarize information in an easy-to-read format. They might report “grades” on factors such as actual cost per sale, a com- parison of Web hits (the number of people who visit an e-commerce site) versus Web transactions (the number who actually buy something at the site), a measure of customers’ satisfaction with a company’s repair facilities, or perhaps even a percentage of consumers who respond to a mail piece that asks them to make a donation to a charity that the firm sponsors. You can see an example of a simple scorecard in Table 1.3. Throughout this book, we’ll give you the opportunity to “get your hands dirty” as you calculate ROI using various kinds of scores, or metrics.

Consumer-Generated Value: From Audience to Community One of the most exciting developments in the marketing world is the evolution of how consumers interact with marketers. In particular, we’re seeing everyday people actually generating value instead of just buying it—consumers are turning into ad- vertising directors, retailers, and new-product-development consultants. They create their own ads (some flattering, some not) for products and post them on sites like YouTube. They buy and sell merchandise ranging from Beatles memorabilia to washing machines (to body parts, but that’s another story) on eBay. They share ideas for new styles with fashion designers and customize their own unique versions of products on Web sites. Some even proudly announce the latest stuff they’ve bought at websites like Blippy or in “haul videos” they shoot and post on YouTube. These changes mean that marketers need to adjust their thinking about customers: They need to stop thinking of buyers as a passive audience and start thinking of

Inbound Logistics

• Planar lithium battery (Sony) • Hard drive (Toshiba) • MP3 decoder and controller chip (PortalPlayer) • Flash memory chip (Sharp Electronics Corp.) • Stereo digital-to-analog converter (Wolfson Microelectronics Ltd.) • Firewire interface controller (Texas Instruments)

Operations

• Consumer research • New product development team • Engineering and production

Outbound Logistics

• Trucking companies • Wholesalers • Retailers

Marketing and Sales

• Advertising • Sales force

Service

• Computer technicians

Figure 1.1 Snapshot | Apple’s Value Chain Apple’s value chain includes inbound logistics, operations, outbound logistics, marketing and sales, and service.

Make marketing value decisions (Part One)

Understand consumers’ value needs (Part Two)

Create the value proposition (Part Three)

Communicate the value proposition (Part Four)

Deliver the value proposition (Part Five)

P ro

ce ss

Figure 1.2 Process | Create and Deliver Value This book is organized around the sequence of steps necessary to ensure that the appropriate value exchange occurs and that both parties to the transaction are satisfied. Each step corresponds to one of the books five parts.

Source: Based on information from Erik Sherman, “Inside the Apple iPod Design Triumph,” Electronics Design Chain (May 27, 2006), accessed at <http://www.designchain.com/coverstory.asp?issue=summer02>http://www.designchain.com/coverstory.asp?issue=summer02"

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Table 1.3 | An Example of a Customer Service Scorecard Quarterly Scores

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

Satisfaction with

C1 Employee responsiveness 60% 65% 68%

C2 Product selection 60% 62% 63%

C3 Service quality 60% 62% 55%

C4 Cleanliness of facility 75% 80% 85%

C5 Knowledge of employees 62% 62% 58%

C6 Appearance of employees 60% 62% 63%

C7 Convenience of location 60% 65% 68%

consumer-generated content Everyday people functioning in marketing roles, such as participating in creating advertisements, providing input to new product development, or serving as wholesalers or retailers.

them as a community that is motivated to participate in both the production and the con- sumption of what companies sell. Some of these consumers are amafessionals: They con- tribute ideas for the fun and challenge rather than to receive a paycheck, so their motivation is to gain psychic income rather than financial income. We’ll talk more about this phenomenon later, but for now think about these recent examples of consumer- generated content:

• Ghirardelli Chocolate broadcast consumer-generated comments in New York’s Times Square about when and where they most enjoyed eating its chocolate squares.29

• On MySpace more than five million amafessional artists and bands place their songs right next to those of professionals—about 15 percent of the total active music participants.30

• Rite-Solutions, a software company that builds advanced command-and-control systems for the Navy, set up an internal “prediction market” in which any employee can propose that the company acquire a new technology, enter a new business, or make an efficiency improvement. These proposals become stocks, complete with ticker symbols, discussion lists, and e-mail alerts. Employees buy or sell the stocks, and prices change to reflect the sentiments of the company’s engineers, computer scientists, and project managers—as well as its marketers, accountants, and even the receptionist. One “stock” resulted in the development of a new product that now accounts for 30 percent of the company’s sales.31

Social Networking

The tremendous acceleration of social networking fuels this fire. In a social network a user represents him- or herself via a profile on a Web site and provides and receives links to other members of the network to share input about common interests. The odds are you and most of your classmates checked your Facebook page before (or during?) class today. Social media platforms like this are very hot today; more and more advertisers realize that these sites are a great way to reach an audience that tunes in regularly and enthusiastically to catch up with friends, check out photos of what they did at that outrageous party Satur- day night, proclaim opinions about political or social issues, or share discoveries of new musical artists.

Social networking is an integral part of what many call Web 2.0, which is like the In- ternet on steroids. The key difference between Web 1.0 and the new version is the interac- tivity we see among producers and users, but these are some other characteristics of a Web 2.0 site:32

social networking Online platforms that allow a user to represent him- or herself via a profile on a Web site and provide and receive links to other members of the network to share input about common interests.

Web 2.0 The new generation of the World Wide Web that incorporates social networking and user interactivity.

amafessionals Consumers who contribute ideas to online forums for the fun and challenge rather than to receive a paycheck, so their motivation is to gain psychic income rather than financial income.

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• It improves as the number of users increases. For example, Amazon’s ability to recom- mend books to you based on what other people with similar interests have bought gets better as it tracks more and more people who are entering search queries.

• Its currency is eyeballs. Google makes its money by charging advertisers according to the number of people who see their ads after they type in a search term.

• It’s version-free and in perpetual beta. Unlike static Web sites or books, content is always a work in progress. Wikipedia, the online encyclopedia, gets updated constantly by users who “correct” others’ errors.

• It categorizes entries according to folksonomy rather than “taxonomy.” In other words, sites rely on users rather than preestablished systems to sort contents. Listeners at Pandora.com create their own “radio stations” that play songs by artists they choose as well as other sim- ilar artists.33

This last point highlights a key change in the way some new media companies approach their businesses: Think of it as marketing strategy by committee. The wisdom of crowds perspective (from a book by that name) argues that under the right circumstances, groups are smarter than the smartest people in them. If this is true, it implies that large numbers of (non- expert) consumers can predict successful products.34

Open Source Business Models

Another related change is the rise of the open source model that turns some of our conventional assumptions about the value of products and services on its head. This model started in the software industry where the Linux system grows by leaps and bounds—even IBM uses it now. Unlike the closely guarded code that companies like Microsoft use, open source developers post their programs on a public site, and a community of volunteers is free to tinker with it, develop other applications using the code, then give their changes away for free. For example, the company that gives out (for free) the Mozilla Firefox Inter- net browser that competes with Microsoft commands over 20 percent market share among users.36 We’ll talk more about this—and answer the question of how in the world you can make money from something when you give it away—in Chapter 11.

Value from Society’s Perspective Every company’s activities influence the world around it in ways both good and bad. There- fore, we must also consider how marketing transactions add or subtract value from society. In many ways, we are at the mercy of marketers because we trust them to sell us products that are safe and perform as promised. We also trust them to price and distribute these prod- ucts fairly. Conflicts often arise in business when the pressure to succeed in the marketplace provokes dishonest business practices—the huge failure of major financial services organi- zations like AIG and Goldman Sachs is a painful case in point.

Companies usually find that stressing ethics and social responsibility also is good busi- ness, at least in the long run. Some find out the hard way: Toyota squandered massive

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The Cutting Edge

Social Media What isn’t an app these days? StickyBits software turns a Coke can, iPhone, or box of detergent into an app that lets users link video, photos, text, or au- dio to any object that has a barcode. Some call these apps physical URLs; they enable user-generated clouds of content to form around products you encounter in the store or on the street.When you scan the barcode you can

upload your own content or see what others have already uploaded. Brands such as Ben & Jerry’s, Campbell Soup, and Doritos already have content form- ing around their products. A similar app lets users link for good causes; when they participate in CauseWorld, they earn money for charity as they scan products from P&G and Kraft.35 Before long, will we all be remembering to scan our cans?

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

wisdom of crowds Under the right circumstances, groups are smarter than the smartest people in them, meaning that large numbers of consumers can predict successful products.

open source model A practice used in the software industry in which companies share their software codes with one another to assist in the development of a better product.

physical URLs New apps that enable user-generated clouds of content to form around products; barcode scans allow the user to upload content or see what others have already uploaded.

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amounts of consumer loyalty when the company allegedly hid evidence of safety defects from customers and regulators before it was forced to recall cars due to acceleration problems. BP’s handling of the massive Gulf oil spill and the subsequent cleanup attempts similarly eroded its image in the marketplace as consumers boycotted the company’s gas stations to protest the tragic incident and its consequences for the environment.37 In con- trast, Procter & Gamble voluntarily withdrew its Rely tampons from the market following reports of women who had suffered toxic shock syndrome (TSS). Although scientists did not claim a causal link between Rely and TSS, the company agreed with the Food and Drug Administration that they would undertake extensive advertising notifying women of the symptoms of TSS and asking them to return their boxes of Rely for a refund. The company took a $75 million loss and sacrificed an unusually successful new product that had already captured about one-quarter of the billion-dollar sanitary product market.38

Is Marketing Evil? For some—hopefully not many and hopefully not you after you read this book—marketing is a four-letter word. The field sometimes gets attacked for a number of reasons.39 Here are some primary ones:

Criticism: Marketing corrupts society. The marketing system comes under fire from both ends of the political spectrum. On the one hand, some members of the Religious Right believe that marketers contribute to the moral breakdown of society because they present images of hedonistic pleasure and encourage the pursuit of secular humanism at the expense of spiritu- ality and the environment. On the other hand, some leftists argue that the same deceitful promises of material pleasure function to buy off people who would otherwise be revolution- aries working to change the system.40

A Response: A need is a basic biological motive; a want represents one way that society has taught us to satisfy the need. For example, thirst is biologically based; we are taught to want Coca-Cola to satisfy that thirst rather than, say, goat’s milk. Thus, the need is already there; marketers simply recommend ways to satisfy it. A basic objective of marketing is to create awareness that needs exist, not to create needs.

Criticism: Advertising and marketing are unnecessary. Marketers arbitrarily link products to desirable social attributes, fostering a materialistic society in which people measure us by what we own.

A Response: Products are designed to meet existing needs, and advertising only helps to com- municate their availability.41 Advertising is a service for which consumers are willing to pay, because the information it provides reduces search time.

Criticism: Marketers promise miracles and manipulate consumers. Through advertising, con- sumers are led to believe that products have magical properties; products will do special and mysterious things for consumers in a way that will transform their lives. Consumers will be beautiful, have power over others’ feelings, be successful, and be relieved of all ills.

A Response: Advertisers simply do not know enough about people to manipulate them. Con- sider that the failure rate for new products ranges from 40 to 80 percent. Although people think that advertisers have an endless source of magical tricks and scientific techniques to manipulate them, in reality the industry is successful when it tries to sell good products and unsuccessful when selling poor ones.42

The Dark Side of Marketing Whether intentionally or not, some marketers do violate their bond of trust with consumers, and unfortunately the “dark side” of marketing often is the subject of harsh criticism.43 In some cases, these violations are illegal, such as when a retailer adopts a “bait-and-switch” selling strategy, luring consumers into the store with promises of inexpensive products with the sole intent of getting them to switch to higher-priced goods.

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In other cases, marketing practices have detrimental effects on society even though they are not actually illegal. Some alcohol and tobacco companies advertise in low-income neigh- borhoods where abuse of these products is a big problem. Others sponsor commercials de- picting groups of people in an unfavorable light or sell products that encourage antisocial behavior. An online game based on the Columbine High School massacre drew criticism from some who say it trivializes the actions of the two teen killers.

Despite the best efforts of researchers, government regulators, and concerned indus- try people, sometimes consumers’ worst enemies are themselves. We tend to think of our- selves as rational decision makers, calmly doing our best to obtain products and services that will maximize our health and well-being and that of our families and society. In re- ality, however, our desires, choices, and actions often result in negative consequences to ourselves and the society in which we live. Some of these actions are relatively harmless, but others have more onerous consequences. Some harmful consumer behaviors such as excessive drinking or cigarette smoking stem from social pressures, and the cultural value people place on money encourages activities such as shoplifting or insurance fraud. Exposure to unattainable ideals of beauty and success can create dissatisfaction with the self. Let’s briefly review some dimensions of “the dark side” of consumer behavior:

Terrorism: The terrorist attacks of 2001 revealed the vulnerability of nonmilitary targets and reminded us that disruptions of our financial, electronic, and supply networks can po- tentially be more damaging to our way of life than the fallout from a conventional battle- field. The hours many of us spend as we wait to pass through security lines in airports is but one consequence of these attacks.

Addictive consumption: Consumer addiction is a physiological or psychological depen- dency on goods or services. These problems, of course, include alcoholism, drug addiction, and cigarettes—and many companies profit from addictive products or by selling solutions. Although most people equate addiction with drugs, consumers can use virtually anything to relieve (at least temporarily) some problem or satisfy some need to the point that reliance on it becomes extreme. “Shopaholics” turn to shopping much the way addicted people turn to drugs or alcohol.44 Numerous treatment centers in China, South Korea, and Taiwan (and now a few in the United States also) deal with cases of Internet addiction—some hard-core gamers have become so hooked they literally forget to eat or drink and die of dehydration. There is even a Chap Stick Addicts support group with approximately 250 active members!45

Exploited people: Sometimes people are used or exploited, willingly or not, for commer- cial gain in the marketplace; these situations range from traveling road shows that feature dwarfs and little people to the selling of body parts and babies on eBay. Consumed consumers are people who themselves become commodities.

Illegal activities: The cost of crimes consumers commit against businesses has been esti- mated at more than $40 billion per year. A survey the McCann-Erickson advertising agency conducted revealed the following tidbits:46

• Ninety-one percent of people say they lie regularly. One in three fibs about their weight, one in four about their income, and 21 percent lie about their age. Nine percent even lie about their natural hair color.

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

• Nineteen percent say they’ve snuck into a theater to avoid paying admission.

• More than three out of five people say they’ve taken credit for making something from scratch when they have done no such thing. According to Pillsbury’s CEO, this “behav- ior is so prevalent that we’ve named a category after it—speed scratch.”

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Marketing as a Process Our definition of marketing also refers to processes. This means that marketing is not a one-shot operation. When it’s done right, marketing is a decision process in which marketing managers determine the strategies that will help the firm meet its long-term objectives and then execute those strategies using the tools they have at their disposal. In this section, we’ll look at how marketers make business decisions and plan actions and the tools they use to execute their plans. We’ll build on this brief overview in the next chapter, where we’ll also provide you with a “road map” in the form of a pullout planning template you can use to understand the planning process as you work your way through the book.

Marketing Planning A big part of the marketing process is marketing planning, where we think carefully and strategically about the “big picture” and where our firm and its products fit within it. The first phase of marketing planning is to analyze the marketing environment. This means understanding the firm’s current strengths and weaknesses by assessing factors that might help or hinder the development and marketing of products. The analysis must also take into account the opportunities and threats the firm will encounter in the marketplace, such as the actions of competitors, cultural and technological changes, and the economy.

Firms (or individuals) that engage in marketing planning ask questions like these:

• What product benefits will our customers look for in three to five years?

• What capabilities does our firm have that set it apart from the competition?

• What additional customer groups might provide important market segments for us in the future?

• How will changes in technology affect our production process, our communication strategy, and our distribution strategy?

• What changes in social and cultural values are occurring now that will impact our market in the next few years?

• How will customers’ awareness of environmental issues affect their attitudes toward our manufacturing facilities?

• What legal and regulatory issues may affect our business in both domestic and global markets?

Answers to these and other questions provide the foundation for developing an orga- nization’s marketing plan. This is a document that describes the marketing environment, outlines the marketing objectives and strategy, and identifies who will be responsible for carrying out each part of the marketing strategy. As we noted earlier, in Chapter 2 we’ll give you a template you can use to construct your own marketing plan that will help bring this important process to life. If you want, you can even use it to develop a plan to market “Brand You!”

A major marketing decision for most organizations is which products to market to which consumers without simultaneously turning off other consumers. Some firms choose to reach as many customers as possible, so they offer their goods or services to a mass market that consists of all possible customers in a market regardless of the differences in their specific needs and wants. Marketing planning then becomes a matter of developing a basic product and a single strategy to reach everyone.

6 OBJECTIVE

Explain the basics of

marketing planning

and the marketing

mix tools we use in

the marketing

process. (pp. 30–32)

marketing plan A document that describes the marketing environment, outlines the marketing objectives and strategy, and identifies who will be responsible for carrying out each part of the marketing strategy.

mass market All possible customers in a market, regardless of the differences in their specific needs and wants.

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Although this approach can be cost-effective, the firm risks losing potential customers to competitors whose market- ing plans instead try to meet the needs of specific groups within the market. A market segment is a distinct group of cus- tomers within a larger market who are similar to one another in some way and whose needs differ from other customers in the larger market. For example, automakers such as Ford, Gen- eral Motors, and BMW offer different automobiles for different market segments. Depending on its goals and resources, a firm may choose to focus on one segment. A target market is the segment(s) on which an organization focuses its marketing plan and toward which it directs its marketing efforts. A prod- uct’s market position is how the target market perceives the product in comparison to competitors’ brands. We’ll learn more about these ideas in Chapter 7.

Marketing’s Tools: The Marketing Mix When they decide upon the best way to present a good or ser- vice for consumers’ consideration, marketers have to make many decisions, so they need many tools. The marketer ’s strategic toolbox is the marketing mix, which consists of the tools the organization uses to create a desired response among a set of predefined consumers. These tools include the product itself, the price of the product, the promotional activities that introduce it to consumers, and the places where it is available. We commonly refer to the elements of the marketing mix as the Four Ps: product, price, promotion, and place. As Figure 1.3 shows, each P is a piece of the puzzle that the marketer must combine with other pieces. Just as a radio DJ puts together a collection of separate songs (a musical mix) to create a certain mood, the idea of a mix in this context reminds us that no single marketing activity is sufficient to ac- complish the organization’s objectives.

Although we talk about the Four Ps as separate parts of a firm’s marketing strategy, in reality, product, price, promotion, and place decisions are totally interdependent. De- cisions about any single one of the four are affected by and affect every other marketing- mix decision. For example, assume that a firm is introducing a superior quality product, one that is more expensive to produce than its existing line of products. The price the firm charges for this new product must cover these higher costs, but in addition the firm must create advertising and other promotional strategies to convey a top-quality image. At the same time, the price of the product must cover not only the costs of pro- duction but also the cost of advertising. Furthermore, the firm must include high-end retailers in its distribution strategy. The elements of the marketing mix therefore work hand-in-hand.

We’ll examine these components of the marketing mix in detail later in this book. For now, let’s briefly look at each P to gain some insight into its meaning and role in the market- ing mix.

Product

We’ve already seen that the product is a good, a service, an idea, a place, a person— whatever is offered for sale in the exchange. This aspect of the marketing mix includes the design and packaging of a good, as well as its physical features and any associated services, such as free delivery. So we can see that the product is a combination of many different elements, all of which are important to the product’s success. For example,

Product strategies

Place strategies

Price strategies

Promotion strategies

The Marketing Mix

Figure 1.3 Snapshot | The Marketing Mix The marketing mix is the marketer’s strategic toolbox.

market segment A distinct group of customers within a larger market who are similar to one another in some way and whose needs differ from other customers in the larger market.

target market The market segments on which an organization focuses its marketing plan and toward which it directs its marketing efforts.

market position The way in which the target market perceives the product in comparison to competitors’ brands.

marketing mix A combination of the product itself, the price of the product, the place where it is made available, and the activities that introduce it to consumers that creates a desired response among a set of predefined consumers.

Four Ps Product, price, promotion, and place.

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when the British firm Virgin introduced Virgin Cola in the United States, the company attempted to make the product stand out from the competi- tion through its distinctive packaging. Advertising that introduced the brand told customers about the curved squeezable bottles: “If all you got is Va Va, You got to get some Voom; It’s in the curvy bottle, Yeah, Virgin Drinks got Voom. . . . Virgin puts the Voom in your Va Va.”47 We’re not quite sure what that means, but it does get your attention. Whether the fo- cus is on the bottle or some other element, the product is an important part of the marketing mix.

Price

Price is the assignment of value, or the amount the consumer must ex- change to receive the offering. Marketers often turn to price to increase consumers’ interest in a product. This happens when they put an item on sale, but in other cases marketers actually try to sell a product with a higher price than people are used to if they want to communicate that it’s high quality or cutting edge. For example, the Adidas 1 computerized running shoe got a lot of attention in the media. Some of the fuss was that the shoe was billed as the first “smart shoe” because it contains a computer chip that adapts its cushioning level to a runner ’s size and stride. But a lot of the press coverage also revolved around the hefty price tag of $250 per pair, which makes buying the shoe a status statement for the hard-core runner.48

Promotion

Promotion includes all the activities marketers undertake to inform con- sumers about their products and to encourage potential customers to buy

these products. Promotions can take many forms, including personal selling, television ad- vertising, store coupons, billboards, magazine ads, and publicity releases.

Place

Place refers to the availability of the product to the customer at the desired time and loca- tion. This P relates to a supply chain—the set of firms that work together to get a product from a producer to a consumer. For clothing or electronics, this channel includes local retailers as well as other outlets, such as retail sites on the Web that strive to offer the right quantity of products in the right styles at the right time.

To achieve a competitive advantage over rivals in the minds of consumers, the marketer carefully blends the four Ps of the marketing mix—that is, the organization develops prod- uct, price, place, and promotion strategies to meet the needs of its target market. These strategies may vary from one country to another, and marketers may inject them with fresh ideas over time to maintain or change the product’s position.

Now that you’ve learned the basics of marketing, read “Here’s My Choice . . .” to see which strategy Joe selected for Pandora.

A “product” can be an idea. In this Portuguese ad that idea is to encourage people to exercise.

Joe Kennedy APPLYING Promotion

Joe has to decide on a communications strategy for Pandora. Part of this decision is to choose which promotional elements he should use to attract more users. His options include paid advertising, publicity releases and “buzz building.”

price The assignment of value, or the amount the consumer must exchange to receive the offering.

promotion The coordination of a marketer’s communication efforts to influence attitudes or behavior.

place The availability of the product to the customer at the desired time and location.

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Objective Summary Key Terms Apply Study Map

1. Objective Summary Understand who marketers are, where they work, and marketing’s role in a firm. Marketers come from many different backgrounds and work in a variety of locations, from consumer goods companies to non- profit organizations to financial institutions to advertising and

(pp. 6–8) public relations agencies. Marketing’s role in a firm depends on the organization. Some firms are very marketing-oriented, whereas others do not focus on marketing. However, market- ing is increasingly being integrated with other business func- tions. Therefore, no matter what firm marketers work in, their decisions affect and are affected by the firm’s other operations. Marketers must work together with other executives.

Real People, Real Choices

Why do you think Joe chose option 2? Option Option

Here’s my choice. . .

Brand YOU! Do you want to stand out among all the new grads seeking their first job out of college?

Learn how in Brand You, a supplemental text to Marketing: Real People, Real Choices. Discover how to realize professional success, whether it’s landing a great internship or job, getting paid what you’re worth, or launching your own startup. Start the process of creating your own personal brand by reading Chapter 1 in Brand You.

CHAPTER 1

Option

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To learn the whole story, visit www.mypearsonmarketinglab.com.

Pandora relied exclusively on personal communication to build awareness, via town halls led by the company’s founder, e-mail, blog posts,Twitter, and eventually a Facebook fan page. Pandora solved its distribution problem by making the service available on as many Internet-enabled devices as possible. As of mid-2010 the company boasted more than 50 million listeners.

How It Worked Out at Pandora

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Key Term value, p. 6

2. Objective Summary Explain what marketing is and how it provides value to everyone involved in the marketing process. Marketing is the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large. Therefore, marketing is all about delivering value to stake- holders, that is, to everyone who is affected by a transaction. Organizations that seek to ensure their long-term profitability by identifying and satisfying customers’ needs and wants have adopted the marketing concept. Marketing is also about ex- changes or the transfer of value between a buyer and a seller.

Key Terms marketing, p. 8

stakeholders, p. 8

consumer, p. 10

marketing concept, p. 10

need, p. 10

want, p. 11

benefit, p. 11

demand, p. 11

market, p. 11

marketplace, p. 11

virtual goods, p. 11

utility, p. 11

exchange, p. 12

product, p. 12

3. Objective Summary Explain the evolution of the marketing concept. Early in the twentieth century, firms followed a production orien- tation in which they focused on the most efficient ways to pro- duce and distribute products. Beginning in the 1930s, some firms adopted a selling orientation that encouraged salespeople to ag- gressively sell products to customers. In the 1950s, organizations adopted a consumer orientation that focused on customer satis- faction. This led to the development of the marketing concept. Today, many firms are moving toward a triple bottom line orien- tation that includes not only a commitment to quality and value, but also a concern for both economic and social profit.

Key Terms production orientation, p. 13

selling orientation, p. 13

consumer orientation, p. 15

Total Quality Management (TQM), p. 15

(pp. 13–18)

(pp. 8–12)

instapreneur, p. 15

triple bottom line orientation, p. 16

customer relationship management (CRM), p. 16

attention economy, p. 16

social marketing concept, p. 16

sustainability, p. 17

green marketing, p. 17

return on investment (ROI), p. 18

4. Objective Summary Understand the range of services and goods that organizations market. Any good, service, or idea that can be marketed is a product, even though what is being sold may not take a physical form. Consumer goods are the tangible products that consumers purchase for personal or family use. Services are intangible products that we pay for and use but never own. Business- to-business goods and services are sold to businesses and other organizations for further processing or for use in their business operations. Not-for-profit organizations, ideas, places, and people can also be marketed.

Key Terms popular culture, p. 18

myths, p. 19

consumer goods, p. 19

services, p. 19

business-to-business marketing, p. 19

industrial goods, p. 19

e-commerce, p. 19

shrinkage, p. 20

anticonsumption, p. 20

not-for-profit organizations, p. 20

5. Objective Summary Understand value from the perspectives of cus- tomers, producers, and society. Value is the benefits a customer receives from buying a good or service. Marketing communicates these benefits as the value proposition to the customer. For customers, the value proposition includes the whole bundle of benefits the product promises to deliver, not just the benefits of the product itself. Sellers determine value by assessing whether their transac- tions are profitable, whether they are providing value to stake- holders by creating a competitive advantage, and whether they are providing value through the value chain. Customers generate value when they turn into advertising directors, re- tailers, and new product development consultants, often through social networking. Society receives value from mar- keting activities when producers and consumers engage in ethical, profitable, and environmentally friendly exchange relationships.

(pp. 21–29)

(pp. 18–21)

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Chapter Questions and Activities Questions: Test Your Knowledge

1. Where do marketers work, and what role does marketing play in the firm?

2. Briefly explain what marketing is. 3. Explain needs, wants, and demands. What is the role of

marketing in each of these? 4. What is utility? How does marketing create different forms

of utility? 5. Trace the evolution of the marketing concept. 6. Define the terms consumer goods, services, and

industrial goods. 7. To what does the lifetime value of the customer refer, and

how is it calculated? 8. What does it mean for a firm to have a competitive advan-

tage? What gives a firm a competitive advantage? 9. What is involved in marketing planning?

10. List and describe the elements of the marketing mix.

Activities: Apply What You’ve Learned

1. Creative Homework/Short Project An old friend of yours has been making and selling vitamin-fortified smoothies to acquaintances and friends of friends for some time. He is

now thinking about opening a shop in a small college town, but he is worried about whether he’ll have enough customers who want these smoothies to keep a business going. Knowing that you are a marketing student, he’s asked you for some advice. What can you tell him about product, price, promotion, and place (distribution) strate- gies that will help him get his business off the ground?

2. In Class 10–25 Min. for Teams Assume that you are em- ployed by your city’s Chamber of Commerce. One major fo- cus of the chamber is to get industries to move to your city. As a former marketing student, you know that there are is- sues involving product, price, promotion, and place (distri- bution) that can attract business. Next week you and your consulting firm have an opportunity to speak to the mem- bers of the chamber, and your topic will be “Marketing a City.” Develop an outline for that presentation.

3. In Class 10–25 Min. for Teams Successful firms have a competitive advantage because they are able to identify distinctive competencies and use these to create differen- tial benefits for their customers. Consider your business school or your university. What distinctive competencies does it have? What differential benefits does it provide for students? What is its competitive advantage? What are your ideas as to how your university could improve its com- petitive position? Write an outline of your ideas.

Key Terms value proposition, p. 21

brandfests, p. 23

lifetime value of a customer, p. 23

distinctive competency, p. 23

differential benefit, p. 23

value chain, p. 24

marketing scorecards, p. 25

metrics, p. 25

amafessionals, p. 26

consumer-generated content, p. 26

social networking, p. 26

web 2.0, p. 26

physical URLs, p. 27

folksonomy, p. 27

wisdom of crowds, p. 27

open source model, p. 27

environment that could help or hinder the development and marketing of products. On the basis of this analysis, marketers set objectives and develop strategies. Many firms use a target marketing strategy in which they divide the overall market into segments and then target the most attractive one. Then they design the marketing mix to gain a competitive position in the target market. The marketing mix includes product, price, place, and promotion. The product is what satisfies customer needs. The price is the assigned value or amount to be ex- changed for the product. The place or channel of distribution gets the product to the customer. Promotion is the organiza- tion’s efforts to persuade customers to buy the product.

Key Terms marketing plan, p. 30

mass market, p. 30

market segment, p. 31

target market, p. 31

market position, p. 31

marketing mix, p. 31

four Ps, p. 31

price, p. 32

promotion, p. 32

place, p. 32

6. Objective Summary Explain the basics of marketing planning and the marketing mix tools managers use in the market- ing process. The strategic process of marketing planning begins with an as- sessment of factors within the organization and in the external

(pp. 30–32)

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

5. In Class 10–25 Min. for Teams As college students, you and your friends sometimes discuss the various courses you are taking. One of your friends says to you, “Marketing’s not important. It’s just dumb advertising.” Another friend says, “Marketing doesn’t really affect people’s lives in any way.” As a role-playing exercise, present your arguments against these statements to your class.

6. For further research (individual): The chapter discusses the recent development of physical URLs; where packages come with codes that unlock online content. This new technology is also known as “the internet of things.” What is the current status of physical URLs? Can you identify marketers that use this approach to help them gain con- sumer awareness of their products?

7. For further research (groups): Consumer-generated value is one of the big marketing stories today. In addition to sharing in the creation of advertising and submitting ideas for new products, some consumers also participate in the marketing value chain. For example, at the T-shirt design site Threadless.com, visitors vote on their favorite styles and the company only manufactures the most popular choices. Other sites like Groupon pool potential customers so that all participants get a sizeable discount on a product or service because they offer a volume purchase to the merchant. As a group, devise a new approach to this kind of group- oriented purchasing. Create a simple marketing strategy that integrates the 4Ps: Describe how you would promote the site, where you would sell it, how you would price it, and what you would sell. Prepare a short presentation that summarizes the current status of group purchasing and illustrates how your idea fits within this framework.

Marketing Metrics Exercise

The chapter discusses the growing importance of sustainability, and it notes that companies and consumers increasingly con- sider other costs in addition to financial kinds when they decide what to sell or buy. One of these cost categories is damage to the environment. How can marketers make it easier for shop- pers to compute these costs? The answer is more apparent in some product categories than in others. For example, American consumers often are able to compare the power consumption and annual costs of appliances by looking at their EnergyStar™ rating. In other situations we can assess the carbon footprint implications of a product or service; this tells us how much CO2 our purchase will emit into the atmosphere (e.g., if a person flies from New York to London). The average American is responsi- ble for 9.44 tons of C02 per year!

49 A carbon footprint comes from the sum of two parts, the direct, or primary, footprint and the indirect, or secondary, footprint:

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

2. The secondary footprint is a measure of the indirect CO2 emissions from the whole lifecycle of products we use, from their manufacture to their eventual breakdown.50

Although many of us are more aware today that our consumption choices carry unseen costs, there is still a lot of confusion about the best way to communicate the environmen- tal costs of our actions—and in many cases consumers aren’t motivated to take these issues into account unless the costs im- pact them directly and in the short term. What other metrics would you suggest that might address this important measure- ment problem?

Choices: What Do You Think?

1. Ethics Have you ever pirated software? How about music? Is it ethical to give or receive software instead of paying for it? Does the answer depend on the person’s motivation and/or if the person could otherwise afford to buy the product?

2. Critical thinking The marketing concept focuses on the ability of marketing to satisfy customer needs. As a typical college student, how does marketing satisfy your needs? What areas of your life are affected by marketing? What areas of your life (if any) are not affected by marketing?

3. Critical thinking In both developed and developing coun- tries, not all firms have implemented programs that follow the marketing concept. Can you think of firms that still op- erate with a production orientation? A selling orientation? What changes would you recommend for these firms?

4. Critical thinking Ideally, each member of a value chain adds value to a product before someone buys it. Thinking about a music CD you might buy in a store, what kind of value does the music retailer add? How about the label that signs the artist? The public relations firm that arranges a tour by the artist to promote the new CD? The production com- pany that shoots a music video to go along with the cut?

5. Critical thinking User-generated commercials seem to be part of a broader trend toward user-generated content of all sorts. Examples include MySpace, Flickr (where users post photos and comment on others’ pictures), blogging, and video-sharing sites like YouTube. Do you think this is a passing fad or an important trend? How (if at all) should marketers be dealing with these activities?

6. Ethics Some marketing or consumption activities involve the (literal) consumption of people—voluntarily or not. In one recent controversial incident, a man in Germany adver- tised on the Internet to find someone who wanted to be killed and eaten (we are not making this up). He actually found a willing volunteer and did just what he promised— he’s now on trial for murder. If a person consents to be “consumed” in some way, is this still an ethical problem?

7. Ethics The American Psychological Association does not yet recognize Internet addiction as a problem. Should it?

Miniproject: Learn by Doing

The purpose of this miniproject is to develop an understanding of the importance of marketing to different organizations.

1. Working as a team with two or three other students, select an organization in your community that practices market- ing. It may be a manufacturer, a service provider, a retailer,

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Marketing in Action Case

What do you do when you want fresh breath and a clean mouth, and do not have your toothbrush or water? This can be a chal- lenge to the person on the go with little time and limited access to the necessary things and places. The Colgate-Palmolive Com- pany has introduced an option that claims to provide “a clean, fresh mouth anywhere, anytime—no water or rinsing required.” The new Colgate Wisp is a new oral care aide made to remove food and particles from between the teeth and release a liquid- filled bead of freshness in the mouth.

Based in New York City, the Colgate-Palmolive Company “is an American diversified multinational corporation focused on the production, distribution, and provision of household, health care, and personal products, such as soaps, detergents, and oral hygiene products (including toothpaste and tooth- brushes).” The oral hygiene market encompasses products of- fering cleansing, disinfecting, breath freshening, and whitening. This market in the United States represents over $7.5 billion at retail prices. In this spirited market, innovation is necessary for companies to attain and hold market share. Competitors in this marketplace include some of the largest multinational firms, such as, GlaxoSmithKline, Pfizer Inc, Procter & Gamble, Gillette Co, Oral-B Laboratories, and Unilever NV.

The Wisp is a disposable mini-toothbrush with a “breath- freshening bead” in the bristles. The bead dissolves during brushing, eliminating the need for toothpaste, and there is no need to rinse, making it easy to brush at work or on the go. Packaging with an “innovative slim shell design with indi- vidually foil-sealed brushes,” allows for easy disposal of the used brush. To prevent abrasion, the brush head of the Wisp contains tiny, soft, and flexible plastic bristles similar to those of a toothbrush. Three flavors are available: a blue bead for peppermint flavor, a green bead for spearmint flavor, and a red bead for “cinnamint” flavor.

Innovation must be accompanied with value in the minds of consumers. The price for a pack of four Wisps is $2.39 and the price for a 16-pack is $7.99. This pricing strategy is formu- lated to reflect the convenient and disposable nature of the product. Colgate-Palmolive’s goal is that this pricing strategy

will result in gross sales of over $62 million annually during the early years of the product’s introduction.

The Wisp will be distributed through the traditional outlets for oral hygiene products. This includes, but is not limited to, drug stores, supermarkets, and mass merchandisers. In addition, the Wisp will be available for purchase online at major retailers such as, Amazon.com, Walgreens.com, and Drugstore.com.

Colgate-Palmolive has developed a web site dedicated to the Wisp (www.colgatewisp.com). The web site covers as- pects of the product including frequently asked questions, cus- tomer reviews, and Internet coupons. The Wisp’s promotion campaign includes traditional promotions like print and televi- sion advertisements to attract customers that are more tradi- tional. For the young, urban target audience of 18 to 25-year olds, Colgate-Palmolive promotions include social networking, online video, and mobile applications.

The success of the Colgate Wisp is not guaranteed. There is a great deal of competition in the marketing for oral hygiene products and the major players have a good track record for defending their respective market shares. The original marketing strategy for the Wisp’s four Ps—product, price, place, and promotion—has been designed to attract as many customers as possible. However, plans do not always achieve the desired goals. There must always be consideration for what may right as well as what may go wrong.

You Make the Call 1. What is the decision facing Colgate-Palmolive? 2. What factors are important in understanding this decision

situation? 3. What are the alternatives? 4. What decision(s) do you recommend? 5. What are some ways to implement your recommendation?

Based on: Matthew Boyle, “Colgate’s World-Beating Performance,” Bloomberg BusinessWeek, March 26, 2009, (Website: http://www .businessweek.com/magazine/content/09_14/b4125048865641.htm); Shawn Watson, “What is the Colgate Wisp?” About.com, April 24, 2009, (Website: http://www.businessweek.com/magazine/content/09_14/b4125048865641.htm); Colgate-Palmolive, Wikipedia, http://en.wikipedia.org/wiki/Colgate-Palmolive (accessed July 13, 2010).

a not-for-profit organization—almost any organization will do. Then schedule a visit with someone within the organization who is involved in the marketing activities. Arrange for a short visit during which the person can give your group a tour of the facilities and explain the organi- zation’s marketing activities.

2. Divide the following list of topics among your team and ask each person to be responsible for developing a set of questions to ask during the interview to learn about the company’s program:

• What customer segments the company targets • How it determines needs and wants • What products it offers, including features, benefits,

and goals for customer satisfaction • What its pricing strategies are, including any discount-

ing policies it has

• What promotional strategies it uses and what these emphasize to position the product(s)

• How it distributes products and whether it has encoun- tered any problems

• How marketing planning is done and who does it • Whether social responsibility is part of the marketing

program and, if so, in what ways

3. Develop a team report of your findings. In each section of the report, share what you learned that is new or surpris- ing to you compared to what you expected.

4. Develop a team presentation for your class that summa- rizes your findings. Conclude your presentation with com- ments on what your team believes the company was doing that was particularly good and what was not quite so good.

Real Choices at Colgate-Palmolive

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