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Chapter | 10

Services and Other Intangibles: Marketing the Product That Isn’t There

Real People Profiles

A Decision Maker at the Philadelphia 76ers Lara Price is senior vice president of busi- ness operations for the Philadelphia 76ers professional basketball team. When Lara was elevated to vice president of market- ing in August 1998, she became one of only 18 female vice presidents in the NBA (National Basketball Association). After being named the team’s senior vice president in August 2001, Price was pro- moted to her current position in June 2003

and continues to oversee the day-to-day activities of the 76ers business operation. She is responsible for the team’s sales and marketing along with the communica- tions department, which includes public relations, community relations, and new me- dia, as well as game entertainment. She also oversees the Sixers’ television and radio broadcasts.

The recipient of several awards for excellence in advertising and public rela- tions, Price joined the 76ers in 1996 as director of marketing after serving as man- ager of team services for the NBA. She also served as director of team services for the Continental Basketball Association. A native of Boulder, Colorado, Price is a graduate of Colorado State University, where she was also a member of the women’s basketball team.

Lara’s Info

What do I do when I’m not working? A) Running or walking my Rottweiler, Deuce.

First job out of school? A) Continental Basketball Association.

Career high? A) Going to the NBA Finals in 2001 and helping to organize the NBA All-Star Weekend Celebration that honored the 50 greatest players. Having the opportunity to stand with all of them and organize them before they went out on the court.

A job-related mistake I wish I hadn’t made? A) Letting a vendor talk me into using more fireworks than we should have used for opening night. The haze/smoke didn’t lift for at least 5 minutes. This delayed the game and the team was fined.

Business book I’m reading now? A) Competing on Analytics by Thomas H. Davenport and Jeanne G. Harris.

My hero? A) My parents.

My motto to live by? A) Never quit and the Golden Rule.

What drives me? A) Passion.

My management style? A) Hands on!

My pet peeve? A) People who blame others and don’t try to resolve the issue or problem at hand. Figure out why it happened, correct it, and move on.

Profile Info

Lara L. Price

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To better serve its fans (customers), the 76ers needed to compile more detailed information

about its customer base. The team’s management had access to several data sources; these included some surveys, notes from customer service represen- tatives that recorded highlights of conversations with fans, and a ticketing sys- tem (which showed past purchases)—but this system only recorded a ticket

buyer’s name, address, length of being a sea- son ticket holder, and any miscellaneous notes that customer service representatives added to the account. Lara knew that she needed a better system to compile buying habit infor- mation to predict what Sixers fans wanted, as opposed to the poorly organized “spray and pray” strategy the team was currently using.

Sports have been a little bit slower than other industries to jump on board with CRM techniques (customer relationship manage- ment; see Chapter 7). Many professional teams don’t have the resources or type of in-

ternal culture that encourages a lot of rigorous analysis of what fans want and do, but Lara recognized the value of systematically tracking this information to fine-tune her marketing strategies. Still, she acknowledged that you can’t run before you can walk: The company (not just the 76ers but the team’s parent company, Comcast Spectacor, which owns the Flyers, 76ers, Phantoms, the Wachovia Center/Spectrum, and Comcast SportsNet) needed to find a work- able CRM solution. This solution had to grow with Comcast’s business needs; it wouldn’t work to put an overly sophisticated system in place that was too complicated to use and would be rejected before it had a chance to show why it was superior to the way the team tracked customers’ buying habits now.

Lara considered her Options 1 • 2 • 3 Phase in a CRM database approach. This would allow Lara to obtain a full view of her customers and segment her base ac- cording to relevant drivers, such as purchasing behaviors, Web site viewing habits (even which specific pages customers were going to on the site), which e-mails people are opening, who re- sponds to direct mail/letters, text messages, and so on. This sys-

tem is more efficient in the long run because it tracks behaviors (purchasing) and requires minimal human input. However, to adopt such a system would require buy-in from the company at all levels (including senior management), and it wasn’t clear that her colleagues would be receptive to this more ana- lytical approach to monitoring fans’ behavior as opposed to a more tradi- tional “hands-on” perspective. And, depending upon the CRM system the company adopted, this could be a pricey option, ranging from six figures to more than $2 million.

See what option Lara chose and its success on page 291

Send out several surveys to season ticket holders each year. These would request feedback about many topics includ- ing game operations, payment options, broadcast preferences, and the general direction of the team. Although this is a proven (and relatively inexpensive) method to get feedback from cus- tomers, mail surveys might not capture rapid changes in prefer-

ences. In addition, it’s risky to base business decisions on customers’ opinions rather than taking into account their actual behaviors.

Analyze the lifetime value of customers by projecting how their spending habits over time will provide revenue to the organization. This technique would allow Lara to iden- tify her most profitable customers to be sure she was allocating her marketing dollars toward satisfying their needs. The Sixers’ full season ticket holders are the lifeblood of the team’s busi-

ness, but other segments such as partial plan holders, individual game pur- chasers, and broadcast viewers are very important as well. This approach would let Lara’s staff identify which types of customers provide the largest revenue to the company over time and tailor its promotions accordingly. A lifetime value analysis is useful because it’s based on actual behavior rather than on what fans say they will do in the future. On the other hand, these behaviors don’t tell the whole story: It’s still important to know about cus- tomers’ demographics and psychographics (see Chapter 5) to enable the team to market one-to-one. For example, a lifetime value analysis doesn’t in- dicate if a customer wants her Sixers information delivered via the Web, phone, or mail.

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

You Choose

Which Option would you choose, and why?

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

Real People, Real Choices

273

Option

Here’s my problem. . .

Things to remember

The Philadelphia 76ers didn’t have a rigorous system in place to measure their fans’ experiences. The team needed to do a better job of tracking the specific aspects of its service that either attracted or turned off potential ticket buyers.

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Marketing What Isn’t There What do a Lady Gaga concert, a college education, a Cubs baseball game, and a visit to Walt Disney World have in common? Easy answer—each is a product that combines experiences with physical goods to create an event that the buyer consumes. You can’t have a concert without musical instruments (or bizarre masks, in Lady Gaga’s case), a college education without textbooks (Thursday night parties don’t count), a Cubbies game

without a hot dog, or a Disney experience without the mouse ears. But these tangibles are secondary to the primary product, which is some act that, in these cases, produces enjoyment, knowledge, or excitement.

In this chapter we’ll consider some of the challenges and opportunities that face marketers whose primary offerings are intangibles: services and other experience-based products that we can’t touch. The marketer whose job is to build and sell a better football, automobile, or smartphone—all tangibles— deals with issues that are somewhat different from the job of the marketer who wants to sell tickets to a basketball game, limousine service to the airport, or al- legiance to a hot new rock band. In the first part of this chapter, we’ll discuss services, a type of intangible that also happens to be the fastest-growing sector in our economy. As we’ll see, all services are intangible, but not all intangibles are services. Then we’ll look at a few other types of intangibles as well.

What Is a Service? Services are acts, efforts, or performances exchanged from producer to user without ownership rights. Like other intangibles, a service satisfies needs when it provides pleasure, information, or convenience. In 2010, service in- dustry jobs accounted for over 75 percent of all employment in the United States and over two-thirds of the gross domestic product (GDP).1 If you pur- sue a marketing career, it’s highly likely that you will work somewhere in the services sector of the economy. Got your interest?

Of course, the service industry includes many consumer-oriented ser- vices, ranging from dry cleaning to body piercing. But it also encompasses a vast number of services directed toward organizations. Some of the more com- mon business services include vehicle leasing, information technology services, insurance, security, Internet transaction services (Amazon.com, Google, on- line banking, etc.), legal advice, food services, consulting, cleaning, and main- tenance. In addition, businesses also purchase some of the same services as consumers, such as electricity, telephone service, and gas (although as we saw in Chapter 6 these purchases tend to be in much higher quantities).

The market for business services has grown rapidly because it is often more cost effective for organizations to hire outside firms that specialize in these services than to hire a workforce and handle the tasks themselves.

Characteristics of Services Services come in many forms, from those done to you, such as a massage or a teeth cleaning, to those done to something you own, such as having your com- puter tuned up by the Geek Squad or getting a new paint job on your classic 1965 Mustang. Regardless of whether they affect our bodies or our posses-

Chapter 10

274 PART THREE | CREATE THE VALUE PROPOSITION

Objective Outline 1. Describe the characteristics of

services and the ways marketers classify services.

MARKETING WHAT ISN’T THERE (p. 274)

2. Appreciate the importance of service quality to marketers.

HOW WE PROVIDE QUALITY SERVICE (p. 281)

3. Explain the marketing of people, places, and ideas.

MARKETING PEOPLE, PLACES, AND IDEAS (p. 286)

(pp. 286–290)

(pp. 280–286)

(pp. 274–280)

Check out chapter 10 Study Map on page 292

1 OBJECTIVE

Describe the

characteristics of

services and the ways

marketers classify

services. (pp. 274–280)

services Intangible products that are exchanged directly from the producer to the customer.

intangibles Experience-based products.

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CHAPTER 10 | SERVICES AND OTHER INTANGIBLES 275

Variability Inseparability

Intangibility Perishability

Figure 10.1 Snapshot | Characteristics of Services

Services have four unique characteristics versus products.

sions, all services share four characteristics, which are summarized in Figure 10.1: in- tangibility, perishability, inseparability, and variability. The discussion that follows shows how marketers can address the unique issues related to these characteristics of services that don’t pop up when they deal with tangible goods.

Intangibility

Part of the title of this chapter is “Marketing the Product That Isn’t There.” The essence is that unlike a bottle of Izzo soda or a flat screen TV—both of which have physical, tangible properties—services do assume a tangible form. Intangibility means customers can’t see, touch, or smell good service. Unlike the purchase of a tangible good, we can’t inspect or han- dle services before we buy them. This makes it much more difficult for con- sumers to evaluate many services. Although it may be easy to evaluate your new haircut, it is far less easy to determine whether the dental hygienist did a great job when she cleaned your teeth.

Because they’re buying something that isn’t there, customers look for re- assuring signs before they purchase—so marketers must ensure that these signs are readily available. That’s why they try to overcome the problem of in- tangibility by providing physical cues to reassure the buyer. These cues might be the “look” of the facility, its furnishings, logo, stationery, business cards, ap- pearance of its employees, or well-designed advertising and Web sites.

Perishability

Perishability refers to the characteristic of a service that makes it impossible to store for later sale or consumption—it’s a case of use it or lose it. When rooms go unoccupied at a ski resort, there is no way to make up for the lost opportunity to rent them for the weekend. Marketers try to avoid these prob- lems when they use the marketing mix to encourage demand for the service during slack times. One popular option is to reduce prices to increase de- mand for otherwise unsold services. Airlines do this when they offer more lower-priced seats in the final days before a flight by direct e-mail to cus- tomers who sign up for last-minute deals or online through outlets like Priceline.com. In a last-ditch effort to fill their ships to the highest possible ca- pacity, Disney Cruise Lines offers Walt Disney World Resort employees dis- counts in excess of 50 percent off about a week before the ship sets sail. We’ll talk more about these and other pricing tactics in Chapter 11.

intangibility The characteristic of a service that means customers can’t see, touch, or smell good service.

perishability The characteristic of a service that makes it impossible to store for later sale or consumption.

Because services are intangible, marketers often find it useful to link them to very vivid images—like talking money.

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276 PART THREE | CREATE THE VALUE PROPOSITION

Capacity management is the process by which orga- nizations adjust their services in an attempt to match sup- ply with demand. This strategy may mean adjusting the product, or it may mean adjusting the price. In the sum- mer, for example, the Winter Park Ski Resort in Colorado combats its perishability problem when it opens its lifts to mountain bikers who tear down the sunny slopes. Rental car companies offer discounts on days of the week when business travel is light, and many hotels offer special weekend packages to increase weekend occupancy rates. Las Vegas might add free meals, room discounts, show passes, or other incentives to lure travelers during slow weeks, yet during a big convention or major boxing match prices go sky high and amenities disappear.

Variability

An NFL quarterback may be hot one Sunday and ice cold the next, and the same is true for most services. Variability

means that over time even the same service the same individual performs for the same cus- tomer changes—even only in minor ways. It’s rare when you get exactly the same cut from a hairstylist each time you visit him. Even your physician might let a rough day get in the way of her usual charming bedside manner with patients.

It’s difficult to standardize services because service providers and customers vary. Think about your experiences in your college classes. A school can standardize its offer- ings to some degree—course catalogs, course content, and classrooms are fairly control- lable. Professors, however, vary in their training, life experiences, and personalities, so there is little hope of being able to make teaching uniform (not that we’d want to do this anyway). And because students with different backgrounds and interests vary in their needs, the lecture that you find fascinating might put your friend to sleep (trust us on this). The same is true for customers of organizational services. Differences in the quality of individual security guards or cleaning personnel mean variability in how organizations deliver these services.

The truth is, if you really stop and think about it, we don’t necessarily want standardi- zation when we purchase a service. Most of us desire a hairstyle that fits our face and per- sonality, and a personal trainer who will address our unique physical training needs. Businesses like McDonald’s, Wendy’s, and Burger King want unique advertising campaigns to set them apart from each other, not cookie-cutter messages. Because of the nature of the tasks service providers perform, customers often appreciate the one that customizes its ser- vice for each individual.

Inseparability

In services, inseparability means that it is impossible to divide the production of a service from the consumption of that service. Think of the concept of inseparability this way: A firm can manufacture goods at one point in time, distribute them, and then sell them later (likely at a different location than the original manufacturing facility). In contrast, by its nature a service can take place only at the time the actual service provider performs an act on either the customer or the customer’s possession. Nobody wants to eat a meal at a restaurant that was prepared yesterday at another location—that’s inseparability. And you can’t bulk up haircuts or empty seats on airplanes as inventory for future use!

Still, it’s difficult if not impossible to detach the expertise, skill, and personality of a provider or the quality of a firm’s employees, facilities, and equipment from the offering it- self. The central role that employees play in making or breaking a service underscores the

capacity management The process by which organizations adjust their offerings in an attempt to match demand.

variability The characteristic of a service that means that even the same service performed by the same individual for the same customer can vary.

A symphony orchestra provides an intangible service that is also variable from one performance to another.

inseparability The characteristic of a service that means that it is impossible to separate the production of a service from the consumption of that service.

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CHAPTER 10 | SERVICES AND OTHER INTANGIBLES 277

importance of the service encounter, or the interaction between the customer and the ser- vice provider.2 The most expertly cooked meal is just plain mush if a surly or incompetent waiter brings it to the table.

To minimize the potentially negative effects of bad service encounters and to save on labor costs, some service businesses turn to disintermediation, which means removing the “middleman” and thus eliminating the need for customers to interact with people at all. Ex- amples include self-checkouts at the supermarket or home improvement store, self-service gas pumps, and bank ATMs. Even salad and dessert bars reduce reliance on a restaurant server. Although some consumers resist dealing with machines, pumping their own gas, or fixing their own salad, most prefer or at least don’t mind the speed and efficiency disinter- mediation provides. The remaining consumers who want a Caesar salad prepared table-side by your server with old fashioned flare or a fill-up that includes an oil check and a clean windshield provide marketing opportunities for full-service restaurants and the few gas sta- tions that still provide these higher levels of service—usually at a higher price.

The Internet provides many opportunities for disintermediation, especially in the fi- nancial services area. Banking customers can access their accounts, transfer funds from one account to another, and pay their bills with the click of a mouse. Many busy consumers can check out mortgage interest rates and even apply for a loan at their convenience—a much better option than taking an afternoon off from work to sit in a mortgage company office. Online brokerage services are popular, as many consumers seek to handle their invest- ments themselves so they can avoid the commission a full-service brokerage firm charges. Insurance companies like GEICO and Progressive aggressively lead consumers to the Web instead of to an agent’s office to get rate quotes and visit about the weather and fishing.

The Service Encounter Earlier we said that a service encounter occurs when the customer comes into contact with the organization—which usually means she interacts with one or more employees who rep- resent that organization. The service encounter has several dimensions that are important to marketers.3 First, there is the social contact dimension—one person interacting with another person. The physical dimension is also important—customers often pay close attention to the environment where they receive the service.

Despite all the attention (and money) firms pay to create an attractive facility and de- liver a quality product, this contact is “the moment of truth”—the employee often deter- mines whether the customer will come away with a positive or a negative impression of the service. Our interactions with service providers can range from the most superficial, such as when we buy a movie ticket, to telling a psychiatrist (or bartender) our most intimate se- crets. In each case, though, the quality of the service encounter exerts a big impact on how we feel about the service we receive.

Because services are intimately tied to company employees who deliver the service, the quality of a service is only as good as its worst employee. The employee represents the organiza- tion; her actions, words, physical appearance, courtesy, and professionalism reflect its val- ues. Customers entrust themselves and/or their possessions to the care of the employee, so it is important that employees look at the encounter from the customer’s perspective.

However, the customer also plays a part in the type of experience that results from a service encounter. When you visit a doctor, the quality of the health care you receive de- pends not only on the physician’s competence. It’s also influenced by your ability to accu- rately and clearly communicate the symptoms you experience and how well you follow the regimen she prescribes to treat you. The business customer must provide accurate informa- tion to her accounting firm. And even the best personal trainer is not going to make the de- sired improvements in a client’s physique if the client refuses to do the workout designed for her.

service encounter The actual interaction between the customer and the service provider.

disintermediation A service that requires the customer to obtain an outcome without the intervention of a human provider.

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278 PART THREE | CREATE THE VALUE PROPOSITION

How We Classify Services? When they understand the characteristics of different types of services, marketers can de- velop strategies to ramp up customer satisfaction. As Table 10.1 shows, we classify services in terms of whether the service is performed directly on the customer or on something the customer owns, and whether the service consists of tangible or intangible actions. Cus- tomers themselves receive tangible services to their bodies—a haircut or a heart transplant. The education (we hope!) you are receiving in this course is an intangible service directed at the consumer. A customer’s possessions are the recipient of tangible services such as the re- pair of a favorite carpet. Intangible services directed at a consumer’s possessions include in- surance and home security.

In reality, most products are a combination of goods and services. The purchase of a “pure good” like a Cadillac Escalade still has service components, such as bringing it to the dealer for maintenance work or using its OnStar service to figure out how to find the dealer in the first place. The purchase of a “pure service” like a makeover at a department store has product components, for example, lotions, powders, and lipsticks the cosmetologist uses to create the “new you.” Either tangible or intangible elements dominate some products, such as salt versus teaching, whereas others such as a commercial airline flight tend to include more of a mixture of goods and services. To make sense of this, it’s useful to consider a firm’s offerings within the context of three categories: goods-dominated products, equipment- or facility-based services, and people-based services.

Goods-Dominated Products

Even if this means only that the company maintains a toll-free telephone line for questions or provides a 30-day warranty against defects, companies that primarily sell tangible products still must provide support services. Automobile, major appliance, and electronics firms can realize a competitive advantage when they provide customers with this support better than the competition. Services may be even more important for marketers of B2B tangibles. Busi- ness customers often will not even consider buying from manufacturers who don’t provide services after the sale like employee training and equipment maintenance. For example, hos- pitals that buy lifesaving patient care and monitoring equipment costing hundreds of thou- sands of dollars demand not only in-service training for their nursing and technician

Table 10.1 | Marketing Strategies for Different Service Characteristics

Characteristic Marketing Response

Intangibility Provide tangibility through physical appearance of the facility

Furnishings

Employee uniforms

Logo

Web sites

Advertising

Perishability Adjust pricing to influence demand

Adjust services to match demand (capacity management)

Variability Institute total quality management programs

Offer service guarantees

Conduct gap analysis to identify gaps in quality

Inseparability Train employees about successful service encounters

Explore means for disintermediation

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CHAPTER 10 | SERVICES AND OTHER INTANGIBLES 279

personnel, but also quick response to breakdowns and regular maintenance of the equipment.

Equipment- or Facility-Based Services

Some products include a mixture of tangible and intangible elements. Al- though a restaurant is a balanced product because it includes the prepara- tion and delivery of the food to your table plus the food itself, for many other offerings the tangible elements of the service are less evident. For example, in the case of hospitals and hotels, customers do not take away a tangible good from the service encounter, but clearly these organizations do rely on expensive equipment or facilities to deliver a their offerings. Equipment- or facility-based services such as automatic car washes, amusement parks, mu- seums, movie theaters, health clubs, tanning salons, and zoos all must be concerned with important operational, locational, or environmental factors of the service encounter.

• Operational factors: Clear signs and other guidelines must show cus- tomers how to use the service (think about the infamous roped waiting spaces at airport ticket counters, banks, and hotel check-in lobbies. In particular, firms need to minimize waiting times (or at least give that il- lusion). Marketers employ a number of tricks to give impatient cus- tomers the illusion that they aren’t waiting too long. One hotel chain, responding to complaints about the long wait for elevators, installed mirrors in the lobby: People tended to check themselves out until the el- evators arrived, and lo and behold, protests decreased.4

• Locational factors: These are especially important for frequently purchased services, such as dry cleaning or retail banking, that we obtain at a fixed spot. When you select a bank, a restaurant, or a health club, its location often factors into your decision. Marketers of these services make sure their service sites are convenient and in neighborhoods that are attractive to prospective customers.

• Environmental factors: Service managers who operate a storefront service that requires people to come to their location realize they must create an attractive environment to lure customers. One trend is for such services to adopt a more retail-like philosophy, borrowing techniques from clothing stores or restaurants to create a pleasant environ- ment as part of their marketing strategy. Banks, for example, increasingly create signa- ture looks for their branches through the careful use of lighting, color, and art.5

People-Based Services

We’ve already pointed out that the unique service characteristics of inseparability and vari- ability are largely due to the fact that individual service providers—even for the same firm— are inherently unique and different. When dad takes his six-year-old son to get male-bonding haircuts at Big League Barbers, one can only hope that the cut will be basically consistent time and again! Because people have less and less time to get things done today, the importance of people-based services is increasing. Self-improvement services such as those wardrobe consultants and personal trainers offer are increasingly popular, and in some locales even professional dog walkers and mobile pet washing trucks do a brisk business. Many of us hire someone to do our legal work, repair our cars and appliances, or do our tax returns.

Core and Augmented Services When we buy a service, we may actually purchase a set of services. The core service is a benefit that a customer gets from the service. For example, when your car breaks down, repairing the problem is a core service you seek from an auto dealer or a garage. In most

An amusement park is an equipment-based service.

core service The basic benefit of having a service performed.

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Ethical/Sustainable Decisions in the Real World The fast food industry certainly is a great example of a product that is about equal in tangible and intangible elements. And employees and customers interact to create a sale. McDonald’s is the 800-pound gorilla in fast food. The chain is by far number one 1 in revenue, and it also ranks as the sixth biggest brand in the world in terms of brand value ($32.3 billion in 2009). With such size comes a certain, shall we say, visibility, and McDonald’s comes under the scrutiny of many consumer and governmental groups. Re- cently much of that focus has been related to the epidemic of childhood obesity and how McDonald’s, through its sheer market power, could con-

tribute to solutions. A recent study focused on an aspect of Mc-

Donald’s service, specifically the likelihood that a counter or drive-through employee will mention healthier choices to consumers when they pur- chase a kid’s Happy Meal. Nutrition researchers working for the Center for Science in the Public

280 PART THREE | CREATE THE VALUE PROPOSITION

cases though, the core service alone just isn’t enough. To attract customers, a service firm of- ten tries to offer augmented services—additional service offerings that differentiate the firm from the competition. When the auto dealership provides pickup and delivery of your car, a free car wash, or a customer lounge with donuts and coffee, it gains your loyalty as a customer.

And what about your own college education? Over the last decade, increased compe- tition for students prompted many colleges and universities to emphasize a whole variety of augmented products such as full-service gyms and fitness centers, comprehensive on-site health services, upgraded dining options, writing and editing centers for term paper devel- opment, expanded hours for campus support departments, more variety of housing options including boutique and upscale dorms, user-friendly grant and scholarship counseling, and convenient bill payment plans. With so many augmented services, hopefully in their spare moments students even squeeze in a few classes along the way!

Physical Elements of the Service Encounter: Servicescapes and Other Tangibles As we noted earlier in the chapter, because services are intangible, mar- keters have to be mindful of the physical evidence that goes along with them. An important part of this physical evidence is the servicescape: the environment in which the service is delivered and where the firm

and the customer interact. Servicescapes include facility exteriors—elements such as a building’s architecture, the signage, parking, and even the landscaping. They also include interior elements, such as the design of the office or store, equipment, colors, air quality, tem- perature, and smells. For hotels, restaurants, banks, airlines, and even schools, the ser- vicescape is quite elaborate. For other services, such as an express mail drop-off, a dry cleaner, or an ATM, the servicescape can be very simple.

Marketers know that carefully designed servicescapes can have a positive influence on customers’ purchase decisions, their evaluations of service quality, and their ultimate satis- faction with the service. Thus, for a service such as a pro basketball game that Lara Price

servicescape The actual physical facility where the service is performed, delivered, and consumed.

Ripped from the Headlines Interest visited 44 McDonald’s restaurants around the United States and ordered 75 Happy Meals without specifying the side dish or beverage.The side dish options are French fries or apple slices with a low-fat caramel dipping sauce (apple slices alone apparently don’t cut it). The beverage options are 1 percent low-fat milk, 100 percent juice, or standard sodas. The result: 93 per- cent of the time McDonald’s employees served fries automatically without of- fering the apple choice, and 84 percent of the time sugar-loaded sodas were the first option mentioned for the accompanying drink (think: Would you like a Coke with that?). More than 75 percent of stores had toy displays for the Happy Meals, essentially implying a reward for ordering and consuming a high- fat, high-calorie, high-sugar meal.

Of all 24 possible Happy Meal product combinations McDonald’s describes on its Web site, calories range from 380 to 650 per meal. At the high end, 650 is half of the 1,300-calorie recommended daily intake for kids 4 to 8 years old. McDonald’s, along with Coca-Cola and other providers of food products heavily consumed by children, is becoming increasingly sensitive about its role in childhood obesity.

What should McDonald’s do to ensure that healthier options are offered to customers by its service personnel? Would you make menu changes to the Happy Meal to make it healthier?

YES NO

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

2 OBJECTIVE

Appreciate the

importance of service

quality to marketers. (pp. 280–286)

augmented services The core service plus additional services provided to enhance value.

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sells, much planning goes into designing not only the actual court, but also the exterior de- sign and entrances of the stadium, landscaping, seating, restrooms, concession stands, and ticketing area. Similarly, marketers pay close attention to the design of other tangibles that facilitate the performance of the service or provide communications. For the basketball fan, these include the signs that direct people to the stadium, the game tickets, the programs, the team’s uniforms, and the hundreds of employees who help to deliver the service.

Nowadays, for many consumers the first tangible evidence of a business (service or oth- erwise) is its Web site. Web sites send a strong cue to customers about you, and sites that are unattractive or frustratingly dysfunctional provide a horrible first impression of the com- pany and its service. Searchability is important, as is paying attention to search engine op- timization (SEO): a systematic process of ensuring that your firm comes up at or near the top of lists of typical search phrases related to your business. SEO is critical, because if your organization’s name doesn’t come up when someone Googles, she’ll just click on one of the competitors that does appear on the list (try Googling our book’s title Real People, Real Choices, and see what happens).

How We Provide Quality Service If a service experience isn’t positive, it can quickly turn into a disservice with nasty conse- quences. Quality service ensures that customers are satisfied with what they have paid for. However, satisfaction is relative because the service recipient compares the current experi- ence to some prior set of expectations. That’s what makes delivering quality service tricky. What may seem like excellent service to one customer may be mediocre to another person who has been “spoiled” by earlier encounters with an exceptional service provider. So, mar- keters must identify customer expectations and then work hard to exceed them.

In air travel, lots of “little things” that used to be considered a normal part of the ser- vice are now treated by most airlines as extras. Many fliers believe the airlines are “nickel and diming” them for extra bag weight, blankets and pillows, small snacks and drinks, and prime seat locations. Southwest, though, has continued to offer all these perks as part of the basic service. Thus, by essentially doing nothing different from what they’ve always done, Southwest now stands out from the crowd and exceeds customer expectations. No surprise that for over five straight years Southwest has been ranked among the top three in customer satisfaction among low-priced carriers by J.D. Power and Associates.6

The Cutting Edge

Airlines Introduce Handheld Devices to Improve Service The beleaguered airline industry is looking for any ways it can use handheld technology to improve performance with customers (and save time and money in the process!). Airline agents are increasingly going mobile at airports, with tools in hand to help passengers check in and print boarding passes, and even- tually help sell augmented services (which is where they get a lot of their profit).

American Airlines recently equipped its agents at several U.S. airports with mobile devices. The plan is to eventually assign them at every gate. Delta in- troduced agents with mobile devices last year too, and the airline has since in- creased the number of devices to 900 units used at all domestic airports.

Services in place or planned via the devices include printing boarding passes, providing flight and gate information, displaying maps of other airports, printing bag tags, making upgrade purchases and other bundled offerings, adding passengers to standby lists, rebooking canceled flights and issuing meal vouchers, and paying for oversized bags that shouldn’t have cleared security.

Despite the industry’s generally bad service reputation, one thing they have done well over time is integrating technology into the service encounter.As trav- elers, we’ve all been trained to use the Internet to buy tickets and self-serve kiosks to check in and print boarding passes. Our expectations are very low for having an actual human encounter throughout the process.With the handhelds, the airlines can reintroduce a human touchpoint and maximize opportunities for up-sale to travelers while at the same time speeding along the airport process.7

search engine optimization (SEO) A systematic process of ensuring that your firm comes up at or near the top of lists of typical search phrases related to your business.

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Of course, it’s not always so easy to meet or exceed customer expectations. The stories we hear from friends and acquaintances may influence our standards, and these may not always be realistic in the first place.8 In some cases, there is little marketers can do to soothe ruffled feathers. Exaggerated customer expectations, such as providing a level of personal service im- possible for a large company to accomplish, account for about 75 percent of the complaints ser- vice businesses report. However, providing customers with logical explanations for service failures and compensating them in some way can substantially reduce dissatisfaction.

Service Quality Attributes Because services are inseparable in that an organization doesn’t produce one until the time a customer consumes it, it is difficult to estimate how good a service will be until you buy it. Most service businesses cannot offer a free trial. Because services are variable, it is hard to predict consistency of quality and there is little or no opportunity for comparison shopping. The selection process for services is somewhat different than for goods, especially for serv- ices that are highly intangible. Service marketers have to come up with creative ways to illus- trate the benefits their service will provide. A useful way to begin to develop approaches to marketing services effectively is to consider three types of service quality attributes—search qualities, experience qualities, and credence qualities.

• Search qualities are product attributes that the consumer can examine prior to pur- chase. These include color, style, price, fit, smell, and texture. Tangible goods, of course, are more likely to have these characteristics, so services need to build them in by pay- ing attention to details such as the style of flight attendants’ uniforms or the decor of a hotel room.

• Experience qualities are product attributes that customers identify during or after con- sumption. For example, we can’t really predict how good a vacation will be until we have it, so marketers need to reassure customers before the fact that they are in for a pos- itive experience. A travel agency may invest in a slick presentation complete with allur- ing images of a tropical resort and perhaps even supply enthusiastic recommendations from other clients who had a positive experience at the same location. On the other hand, the last thing a marketer wants to do is overpromise and then fall short in the ac- tual delivery—so conveniently cropping out that construction site that’s located right next to the resort may not be a great idea.

search qualities Product characteristics that the consumer can examine prior to purchase.

experience qualities Product characteristics that customers can determine during or after consumption.

Insurance companies like this one in Germany need to reassure customers about what they will receive if and when they actually need the service they sell.

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• Credence qualities are product attributes we find difficult to evaluate even after we’ve experienced them. For example, most of us don’t have the expertise to know if our doc- tor’s diagnosis is correct.9 To a great extent the client must trust the service provider. That is why tangible clues of professionalism, such as diplomas, an organized office, or even the professional’s attire (for example, a physician in a lab coat instead of blue jeans) count toward purchase satisfaction.

How We Measure Service Quality Because the customer’s experience of a service determines if she will return to the provider in the future, service marketers feel that measuring positive and negative service experi- ences is the “Holy Grail” for the services industry. Marketers gather consumer responses in a variety of ways. For example, some companies hire “mystery shoppers” to check on ho- tels and airlines and report back. These shoppers usually work for a research firm, although some airlines reportedly recruit “spies” from the ranks of their most frequent flyers. Some firms also locate “lost customers” (former patrons) so they can find out what turned them off and correct the problem.

SERVQUAL

The SERVQUAL scale is one popular instrument to measure consumers’ perceptions of ser- vice quality. SERVQUAL identifies five dimensions, or components, of service quality:

• Tangibles: the physical facilities and equipment and the professional appearance of personnel

• Reliability: the ability to provide dependably and accurately what was promised

• Responsiveness: the willingness to help customers and provide prompt service

• Assurance: the knowledge and courtesy of employees, and the ability to convey trust and confidence

• Empathy: the degree of caring and individual attention customers receive10

Thousands of service businesses apply the SERVQUAL scale. They usually administer it in a survey format through a written, online, or phone questionnaire. Firms often track SERVQUAL scores over time to understand how their service quality is (hopefully) improv- ing. They also can use this measure to apply the gap analysis approach we describe next.

Gap Analysis

Gap analysis (no, nothing to do with a Gap clothing store) is a measurement approach that gauges the difference between a customer’s expectation of service quality and what actually occurs. By identifying specific places in the service system where there is a wide gap be- tween what customers expect and what they receive, services marketers can get a handle on what needs improvement. Figure 10.2 illustrates where the gaps can occur in service, both on the consumer’s side (often referred to as “in front of the curtain”) and on the mar- keter’s side (“behind the curtain”). Some major gaps include the following:11

• Gap between consumers’ expectations and management’s perceptions: A major quality gap oc- curs when the firm’s managers don’t understand what its customers’ expectations are in the first place. Many service organizations have an operations orientation rather than a customer orientation. For example, banks often used to close branches at midday to bal- ance transactions because that’s more efficient for them, even though it’s not conven- ient for customers who want to do their banking during their lunch hour. Today more and more banks are open late and on weekends.

• Gap between management’s perception and quality standards the firm sets: Quality suffers when a firm fails to establish a quality-control program. Successful service firms, such

credence qualities Product characteristics that are difficult to evaluate even after they have been experienced.

SERVQUAL A multiple-item scale used to measure service quality across dimensions of tangibles, reliability, responsiveness, assurance, and empathy.

gap analysis A marketing research method that measures the difference between a customer’s expectation of a service quality and what actually occurred.

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as American Express, Ritz-Carlton, and JetBlue, develop written quality goals. American Express found that customers complained most about its responsiveness, accuracy, and timeliness. The company established 180 specific goals to correct these problems, and it now monitors how fast employees answer phones in an effort to be more responsive.

• Gap between established quality standards and service delivery: One of the biggest threats to service quality is poor employee performance. When employees do not deliver the ser- vice at the level the company specifies, quality suffers. Teamwork is crucial to service success. Unfortunately, many companies don’t clearly specify what they expect of em- ployees. Merrill Lynch addressed this problem when the brokerage firm assembled its operations personnel into quality groups of 8 to 15 employees each to clarify its expec- tations for how its personnel should interact with clients.

• Gap between service quality standards and consumers’ expectations: Sometimes a firm makes exaggerated promises or does not accurately describe its service to customers. When the Holiday Inn hotel chain developed an advertising campaign based on the promise that guests would receive “No Surprises,” many operations personnel opposed the idea. They pointed out that no service organization, no matter how good, can anticipate every single thing that can go wrong. Sure enough, the campaign was unsuccessful. A services

Personal needs Word-of-mouth communications

Expected service

Word-of-mouth communications

Perceived service

Service delivery (including pre-

and post-contacts)

Translation of perceptions into service-quality specifications

Management perceptions of

consumer expectations

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to consumers

GAP 5

GAP 3

GAP 2

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CONSUMER MARKETER

Figure 10.2 Process | The Gap Model of Service Delivery A gap analysis identifies specific places in the service system where there is a wide gap between what customers expect and what they receive, allowing marketers to get a handle on what needs improvement.

A. Parasuraman, Valarie A. Zeithaml, and Leonard L. Berry, “A Conceptual Model of Service Quality and its Implications for Future Research,” Journal of Marketing (Fall 1985), pp. 41–50.

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firm is better off when it communicates exactly what the customer can expect and how the company will make it right if it doesn’t deliver on its promises.

• Gap between expected service and actual service: Some- times consumers misperceive the quality of the ser- vice. Thus, even when communications accurately describe what service quality the firm provides and what customers can expect, buyers are less than satis- fied. Some diners at fine restaurants are so demand- ing that even their own mothers couldn’t anticipate their every desire (that’s probably why they’re eating out in the first place).

The Critical Incident Technique

The critical incident technique is another way to measure service quality.12 Using this approach, the company col- lects and closely analyzes very specific customer com- plaints. It can then identify critical incidents—specific contacts between consumers and service providers that are most likely to result in dissatisfaction.

Some critical incidents happen when the service orga- nization simply can’t meet a customer’s expectations. For example, it is impossible to satisfy a passenger who says to a flight attendant, “Come sit with me. I don’t like to fly alone.” In other cases, though, the firm is capable of meeting these expectations but fails to do so. For example, the customer might complain to a flight attendant, “My seat won’t re- cline.”13 A service provider can turn a potentially dissatisfied customer into a happy one if it addresses the problem or perhaps even tells the customer why the problem can’t be solved at this time. Customers tend to be fairly forgiving if the organization gives them a reason- able explanation for the problem.

Strategic Issues When We Deliver Service Quality We’ve seen that delivering quality is the goal of every successful service organization. What can the firm do to maximize the likelihood that a customer will choose its service and be- come a loyal customer? Because services differ from goods in so many ways, decision mak- ers struggle to market something that isn’t there. But, just as in goods marketing, the first step is to develop effective marketing strategies. Table 10.2 illustrates how three different types of service organizations might devise effective marketing strategies.

Of course, no one (not even your marketing professor) is perfect, and mistakes happen. Some failures, such as when your dry cleaner places glaring red spots on your new white sweater, are easy to see at the time the firm performs the service. Others, such as when the dry cleaner shrinks your sweater, are less obvious and you recognize them only at a later time when you’re running late and get a “surprise.” But no matter when or how you dis- cover the failure, the important thing is that the firm takes fast action to resolve the problem. A timely and appropriate response means that the problem won’t occur again (hopefully) and that the customer’s complaint will be satisfactorily resolved. The key is speed; research shows that customers whose complaints are resolved quickly are far more likely to buy from the same company again than from those that take longer to resolve complaints.14

To make sure that they keep service failures to a minimum and that when they do blow it they can recover quickly, managers should first understand the service and the potential points at which failures are most likely to occur so they can plan how to recover ahead of time. That’s why it’s so important to identify critical incidents. In addition, employees

Disney Parks and Resorts is a real champion of consistency between standards and delivery. Disney makes all employees, or “Cast Members” (whether they sell ice cream on Main Street USA or they come in from another company to fill an executive role), go through “Traditions” training, as well as many other training programs, to help ensure that all Disney cast members know how they should interact with guests. They follow up frequently with refresher seminars and meetings to remind everyone of the company’s history and traditions.

critical incident technique A method for measuring service quality in which marketers use customer complaints to identify critical incidents—specific face-to-face contacts between consumer and service providers that cause problems and lead to dissatisfaction.

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should be trained to listen for complaints and be empowered to take appropriate actions immediately. Many hoteliers allow front desk employees the discretion to spend up to a cer- tain amount per service failure to compensate guests for certain inconveniences.

Marketing People, Places, and Ideas By now, you understand that services are intangibles that marketers work hard to sell. But as we said earlier, services are not the only intan- gibles that organizations need to market. Intangibles such as people, places, and ideas often need to be “sold” by someone and “bought” by someone else. Let’s consider how marketing is relevant to each of these.

Marketing People As we saw in Chapter 1, people are products, too. If you don’t believe that, you’ve never been on a job interview or spent a Saturday night in a singles bar! Many of us find it distaste- ful to equate people with products. In reality, though, a sizable number of people hire per- sonal image consultants to devise a marketing strategy for them, and others undergo plastic surgery, physical conditioning, or cosmetic makeovers to improve their “market position” or “sell” themselves to potential employers, friends, or lovers.15 Let’s briefly touch on a few prominent categories of people marketing.

Sophisticated consultants create and market politicians when they “package”” candi- dates (clients) who then compete for “market share” as measured by votes. We trace this per-

Table 10.2 | Marketing Strategies for Service Organizations Dry Cleaner City Opera Company A State University

Marketing objective

Increase total revenues by 20 percent within one year by increasing business of existing customers and obtaining new customers

Increase to 1,000 the number of season memberships to opera productions within two years

Increase applications to undergraduate and graduate programs by 10 percent for the coming academic year

Target markets

Young and middle-aged professionals living within a five-mile radius of the business

Clients who attend single performances but do not purchase season memberships

Primary market: prospective undergraduate and graduate students who are residents of the state

Other local residents who enjoy opera but do not normally attend local opera performances

Secondary market: prospective undergraduate and graduate students living in other states and in foreign countries

Benefits offered

Excellent and safe cleaning of clothes in 24 hours or fewer

Experiencing professional-quality opera performances while helping ensure the future of the local opera company

High-quality education in a student- centered campus environment

Strategy Provide an incentive offer to existing customers such as one suit cleaned for free after 10 suits cleaned at regular price

Correspond with former membership holders and patrons of single performances encouraging them to purchase new season memberships

Increase number of recruiting visits to local high schools; arrange a special day of events for high-school counselors to visit campus

Use newspaper and direct mail advertising to communicate a limited-time discount offer to all customers

Arrange for opera company personnel and performers to be guests for local television and radio talk shows

Communicate with alumni encouraging them to recommend the university to prospective students they know

3 OBJECTIVE

Explain the marketing

of people, places,

and ideas. (pp. 286–290)

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spective all the way back to the 1952 and 1956 presidential campaigns of Dwight Eisenhower. Advertising executive Rosser Reeves (one of the original “Mad Men” who shaped the industry) repackaged the bland but amiable army general as he invented jingles and slogans such as “I like Ike” and contrived man-on-the-street interviews to improve the candidate’s market position.16 For better or worse, Reeves’s strategies revolutionized the political landscape as people realized they could harness the tactics they use to sell soap to sell candidates for public office. To- day, the basic idea remains the same, even though the techniques are more sophisticated.

In the age of electronic everything, marketing politics gets a little wackier. For example, comedian Stephen Col- bert announced on his show that he was running for pres- ident in the 2008 election as “both a Democrat and a Republican.” After his announcement, an online group was set up, and through links with social networking sites such as Facebook, he managed to acquire one million sup- porters! In fact, his fans’ responses inspired the creation of the “1,000,000 Strong for Stephen T. Colbert” Facebook group, which modeled itself after a similarly named group set up for Democratic candidate Barack Obama’s campaign. It took more than eight months for Obama to gain 380,000 sup- porters, while it took less than two weeks for Colbert’s group to become one of the largest political groups on Facebook.17

From actors and musicians to athletes and supermodels, the famous and near-famous jockey for market position in popular culture. Agents carefully package celebrities as they connive to get their clients exposure on TV, starring roles in movies, recording contracts, or product endorsements.18 Like other products, celebrities even rename themselves to craft a “brand identity.” They use the same strategies marketers use to ensure that their products make an impression on consumers, including memorability (Evel Knievel), suit- ability (fashion designer Oscar Renta reverted to his old family name of de la Renta be- cause it sounded more elegant), and distinctiveness (Steveland Morris Hardaway became Stevie Wonder).

It’s hard to imagine anyone topping Stefani Joanne Angelina Germanotta for pure marketing chutzpah. Oh, by the way, that’s Lady Gaga’s real name. Her stage name was inspired by the Queen song “Radio Ga Ga” and in 2010 she laid claim to the most Facebook friends of any living person with over 11 million. A lot of corporate marketing gurus could take a lesson or two from Lady Gaga’s marketing playbook!

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Celebrities and the services they sell (i.e., concerts) get packaged and promoted in many ways, including these innovative messages from a ticket agency in Israel.

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In addition to these branding efforts, there are other strategies marketers use to “sell” a celebrity as Table 10.3 shows. These include the following:

1. The pure selling approach: An agent presents a client’s qualifications to potential “buy- ers” until she finds one who is willing to act as an intermediary.

2. The product improvement approach: An agent works with the client to modify certain characteristics that will increase her market value.

3. The market fulfillment approach: An agent scans the market to identify unmet needs. Af- ter identifying a need, the agent then finds a person or a group that meets a set of min- imum qualifications and develops a new “product.”

Marketing Places Place marketing strategies regard a city, state, country, or other locale as a brand. Marketers use the marketing mix to create a suitable identity so that consumers choose this brand over competing destinations when they plan their travel. Because of the huge amount of money tourism generates, the competition to attract visitors is fierce. There are about 1,600 visitors’ bureaus in the United States alone that try to brand their locations. In addition, almost every town or city has an economic development office charged with luring new businesses or res- idents. For example, after the 2001 attack on the World Trade Center, New York City un- veiled a new tourism advertising campaign that November with the slogan “The New York Miracle: Be a Part of It.” The campaign included six 30-second TV commercials and some of New York’s biggest celebrities such as Woody Allen and Robert DeNiro.19 Since then, NYC & Company, the city’s official tourism marketer, reports that both the domestic and overseas visitor counts are returning to pre-9/11 levels.20

Table 10.3 | Strategies to Sell a Celebrity Marketing Approach Implementation

Pure Selling Approach Agent presents a client

– to record companies

– to movie studios

– to TV production companies

– to talk show hosts

– to advertising agencies

– to talent scouts

Product Improvement Approach Client is modified

– New name

– New image

– Voice lessons

– Dancing lessons

– Plastic surgery

– New back-up band

– New music genre

Market Fulfillment Approach Agent looks for market opening

– Identify unmet need

– Develop a new product (band, singer) to the specifications of consumer wants

place marketing Marketing activities that seek to attract new businesses, residents, or visitors to a town, state, country, or some other site.

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Marketing Ideas You can see people. You can stand in a city. So how do you market something you can’t see, smell, or feel? Idea mar- keting refers to strategies that seek to gain market share for a concept, philosophy, belief, or issue. Even religious organizations market ideas about faith and desirable be- havior when they adopt secular marketing techniques to attract young people. Some evangelists use the power of television to convey their messages. So-called mega- churches are huge steel and glass structures, with acres of parking and slickly produced services complete with live bands and professional dancers that draw huge audi- ences. Some offer aerobics, bowling alleys, and multime- dia Bible classes inspired by MTV to attract “customers” turned off by traditional approaches to religion.21

But make no mistake about it, the marketing of ideas can be even more difficult than marketing goods and ser- vices. Consumers often do not perceive that the value they receive when they wear seat belts or recycle garbage or des- ignate a driver or even when they conserve to reduce global warming is worth the cost—the extra effort necessary to re- alize these goals. Governments and other organizations use marketing strategies, often with only limited success, to sell ideas that will save the lives of millions of unwilling con- sumers or that will save our planet.

The Future of Services As we look into the future, we recognize that service industries will continue to play a key role in the growth of both the United States and the global economy. In fact, in recent years the accelerating impact of service as an integral part of any firm’s value proposition has led some analysts to argue that there is now a new dominant logic for marketing. This means that we need to rethink our traditional distinction between services and goods. Instead, we need to recognize that a service is the central (core) deliverable in every exchange; any physical products involved are relatively minor in terms of their contribution to the value proposition.22 Figure 10.3 provides several trends for us to consider that will provide both opportunities and challenges for the marketers of services down the road (that means you). In the future, we can expect services we can’t even imagine yet. Of course, they will

idea marketing Marketing activities that seek to gain market share for a concept, philosophy, belief, or issue by using elements of the marketing mix to create or change a target market’s attitude or behavior.

The marketers whose job is to promote Las Vegas as a tourist destination have changed course several times. First they tried to clean up the city’s original image as a den of corruption and vice to encourage family visits. Then they switched direction and plugged the city’s bawdy roots with the slogan “What happens in Vegas stays in Vegas.” Oops, then the recession hit and companies clamped down on business and convention travel to “Sin City.” Now, Vegas no longer promotes its famous tagline as it opens its arms to families once again with all sorts of kid-friendly activities and incentives. Pascal Le Segretain/Getty Images

new dominant logic for marketing A reconceptualization of traditional marketing to redefine service as the central (core) deliverable and the actual physical products purveyed as comparatively incidental to the value proposition.

Technological Advances

Globalization Proliferation of

Information

Changing Demographics

The Future of Services

Figure 10.3 Snapshot | Factors That Shape the Future of Services

Changing demographics, globalization, technological advances, and proliferation of information all impact services.

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also provide many new and exciting job opportunities for future marketers.

• Changing demographics: As the population ages, ser- vice industries that meet the needs of older consumers will see dramatic growth. Companies that offer recre- ational opportunities, health care, and living assis- tance for seniors will be in demand.

• Globalization: The globalization of business will in- crease the need for logistics and distribution services to move goods around the world (we’ll talk more about these in Chapter 15) and for accounting and legal services that facilitate these global exchanges. In addition, global deregulation will affect the delivery of services by banks, brokerages, insurance, and other financial service industries because globalization means greater competition. For example, many “medical tourists” now journey to countries like

Thailand and India to obtain common surgical procedures that may cost less than half what they would in the United States. Meanwhile, hospitals back home often look more like luxury spas as they offer amenities such as adjoining quarters for family members, choice of different ethnic cuisines, and in-room Internet access. In the hotel in- dustry, demand for luxury properties is growing around the world. Hyatt International is expanding aggressively in China with 14 lux- ury properties either open or scheduled to open. Hyatt expects to have as many as 24 properties there within a decade.23

• Technological advances: Changing technology provides opportuni- ties for growth and innovation in global service industries such as telecommunications, health care, banking, and Internet services. And we can also expect technological advances to provide oppor- tunities for services that we haven’t even thought of yet but that will dramatically change and improve the lives of consumers. Best Buy’s Geek Squad makes the company a ton of money by show- ing people how to set up and use their home computers—with new advances there will always be “clueless” customers who need help to keep up with progress! Meanwhile, social media Web sites, smartphones, blogs, and the Internet in general all are central to successfully marketing all kinds of intangibles. In the political realm, the U.S. presidential campaign of 2008 was a breakthrough in the use of digital platforms as handlers for both parties’ candi- dates invested heavily to support these “real-time” methods of communicating with tech-savvy voters about their candidate’s ideas and position on the issues du jour.

• Proliferation of information: In many ways, we have become an in- formation society. The availability of, flow of, and access to infor- mation are critical to the success of organizations. These changes will provide greater opportunities for database services, artificial intelligence systems, communications systems, and other services that facilitate the storage and transfer of knowledge.

Non-profit organizations often use vivid imagery to communicate the seriousness of their causes.

This Australian ad promotes the idea of safe driving.

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Brand YOU! Corporate life is not for everyone. You can blaze a trail to suc- cess in many different ways. Learn about the myths and realities of the job market and how you can explore different options for your career, including being a contract employee with flexible hours, a free agent with many clients and projects, or even pur- suing your personal passion while you are working. Consider your options in Chapter 10 of the Brand You supplement.

Real People, Real Choices

Here’s my choice. . .

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

Why do you think Lara chose option 1?

OptionOption Option

How It Worked Out at the Philadelphia 76ers The Sixers hired a Web-based company that provided a data warehouse, and the vendor also developed soft- ware to help the Sixers track their customer base. The team realized a 150-to-1 return on its investment due to the money it saved in advertising spending (TV, print, and radio). The CRM approach has proven to be so suc- cessful that the company is in the process of developing more sophisticated systems.

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Objective Summary Key Terms Apply Study Map CHAPTER 10

1. Objective Summary Describe the characteristics of services and the ways marketers classify services. Services are products that are intangible and that are ex- changed directly from producer to customer without ownership rights. Generally, services are acts that accomplish some goal and may be directed either toward people or toward an object. Both consumer services and business-to-business services are important parts of the economy. Important service characteris- tics include the following: (1) intangibility (they cannot be seen, touched, or smelled), (2) perishability (they cannot be stored), (3) variability (they are never exactly the same from one time to the next), and (4) inseparability from the producer (most serv- ices are produced, sold, and consumed at the same time).

In reality, most products are a combination of goods and services. Some services are goods-dominant (i.e., tangible prod- ucts are marketed with supporting services). Some are equip- ment- or facility-based (i.e., the creation of the service requires elaborate equipment or facilities). Other services are people- based (i.e., people are actually a part of the service marketed).

Like goods, services include both a core service, or the ba- sic benefit received, and augmented services, including inno- vative features and convenience of service delivery. Banking and brokerages, computer software, music, travel, dating ser- vices, career services, distance learning, and medical care are among some of the services available on the Internet. Mar- keters know that both the social elements of the service en- counter (i.e., the employee and the customer) and the physical evidence including the servicescape are important to a positive service experience.

Key Terms intangibles, p. 274

services, p. 274

intangibility, p. 275

perishability, p. 275

capacity management, p. 276

variability, p. 276

inseparability, p. 276

service encounter, p. 277

disintermediation, p. 277

core service, p. 279

augmented services, p. 280

servicescape, p. 280

(pp. 274–280) 2. Objective Summary Appreciate the importance of service quality to marketers. The customer’s perception of service quality is related to prior expectations. Because services are intangible, evaluation of ser- vice quality is more difficult, and customers often look for cues to help them decide whether they have received satisfactory service. Marketers improve customers’ perceptions of services by designing important search qualities, experience qualities, and credence qualities.

SERVQUAL is a multiple-item scale used to measure con- sumer perceptions of service quality across dimensions of tan- gibles, reliability, responsiveness, assurance, and empathy. Gap analysis measures the difference between customer expecta- tions of service quality and what actually occurred. Using the critical incident technique, service firms can identify the spe- cific contacts between customers and service providers that create dissatisfaction. When service quality does fail, marketers must understand the points at which failures occur and take fast action.

Key Terms search engine optimization (SEO), p. 281

search qualities, p. 282

experience qualities, p. 282

credence qualities, p. 283

SERVQUAL, p. 283

gap analysis, p. 283

critical incident technique, p. 285

3. Objective Summary Explain the marketing of people, places, and ideas. Managers follow the steps for marketing planning when mar- keting other intangibles as well. People, especially politicians and celebrities, are often packaged and promoted. Place marketing aims to create or change the market position of a particular locale, whether a city, state, country, resort, or insti- tution. Idea marketing (gaining market share for a concept, phi- losophy, belief, or issue) seeks to create or change a target

(pp. 286–290)

(pp. 280–286)

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Chapter Questions and Activities Concepts: Test Your Knowledge

1. What are intangibles? How do basic marketing concepts apply to the marketing of intangibles?

2. What is a service? What are the important characteristics of services that make them different from goods?

3. What is the service continuum? What are goods-dominated services, equipment- or facility-based services, and people- based services?

4. What are core and augmented services? How do mar- keters increase market share with augmented services?

5. What are the social and physical elements of the service encounter?

6. What are search qualities, experience qualities, and cre- dence qualities?

7. What dimensions do consumers and business customers use to evaluate service quality? How do marketers measure service quality?

8. How should marketers respond to failures in service quality? 9. What is the so-called “new dominant logic for market-

ing”? Why is it especially relevant to someone just start- ing a career in business (either in marketing or otherwise)?

10. What do we mean by marketing people? Marketing places? Marketing ideas?

Activities: Apply What You’ve Learned

1. Because of increased competition in its community, you have been hired as a marketing consultant by a local bank. You know that the characteristics of services (in- tangibility, perishability, variability, and inseparability) cre- ate unique marketing challenges. You also know that these challenges can be met with creative marketing strategies. Outline the challenges for marketing the bank created by each of the four characteristics of services. List your ideas for what might be done to meet each of these challenges.

2. Assume that you are a physician. You are opening a new family practice clinic in your community. You feel that you have the best chance of being successful if you can create a product that is superior to that offered by competing businesses. Put together a list of ways in which you can augment the basic service offering to develop a better product. List the advantages and disadvantages of each.

3. You are currently a customer for a college education, a very expensive service product. You know that a service organi- zation can create a competitive advantage by focusing on how the service is delivered after it has been purchased— making sure the service is efficiently and comfortably deliv- ered to the customer. Develop a list of recommendations for your school for improving the delivery of its service. Consider both classroom and nonclassroom aspects of the educational product.

4. Assume that you work for a marketing firm that has been asked to develop a marketing plan for an up-and-coming rock band called Stalagmite and its new CD, Slow Drip. Prepare an outline for your marketing plan. First, list the special problems and challenges associated with market- ing people rather than a physical product. Then outline your ideas for product, price, and promotion strategies.

5. Address the same issues in question #4 for a marketing plan for your hometown.

6. Assume that you have been recently hired by your city gov- ernment to head up a program to create 100 percent com- pliance with recycling regulations. Develop a presentation for the city council in which you will outline the problems in “selling” recycling. Develop an outline for the presenta- tion. Be sure to focus on each of the Four Ps.

Choices: What Do You Think?

1. Why are first impressions we form about a service through the Internet so important? What can a service firm do to ensure a favorable first impression online? (Hint: Consider issues beyond the Web site itself.)

2. Sometimes service quality may not meet customers’ expec- tations. What problems have you experienced with quality in the delivery of the following services? a. A restaurant meal b. An airline flight c. Automobile repairs d. Your college education

What do you think is the reason for the poor quality? 3. Internet dating services, while becoming very popular, may

present some dangers for those who use their services. Who do you think uses Internet dating services? What, if anything, should dating services do to protect their clients?

market’s attitude or behavior. Marketing is used by religious organizations and to promote important causes. Marketing of ideas may be especially difficult, as consumers may not consider the value to be worth the cost.

Key Terms place marketing, p. 288

idea marketing, p. 289

new dominant logic for marketing, p. 289

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294 PART THREE | CREATE THE VALUE PROPOSITION

4. What “service” do providers such as MySpace convey? What core and augmented services do they offer? How should we evaluate MySpace’s service quality?

5. There has been a lot of criticism about the way politicians have been marketed in recent years. What are some of the ways marketing has helped our political process? What are some ways the marketing of politicians might have an ad- verse effect on our government?

6. Many not-for-profit and religious organizations have found that they can be more successful by marketing their ideas. What are some ways that these organizations market themselves that are similar to and different from the mar- keting by for-profit businesses? Is it ethical for churches and religious organizations to spend money on marketing? Why or why not?

7. In the chapter we mentioned that most of the airlines have transformed elements of their core service (extra bags, pil- lows and blankets, etc.) into “extras.” They claim that this is better for customers because they can now pay for only what they want instead of paying for a bundle of services they do not even use. How do you react to their premise? Do you agree or disagree?

8. Many developed countries, including the United States, have in recent decades become primarily service economies; that is, there is relatively little manufacturing of goods, and most people in the economy are employed by service industries. Why do you think this has occurred? In what ways is this trend a good and/or a bad thing for a country? Do you think this trend will continue?

Marketing Metrics Exercise

The consulting firm Market Metrix employs a metric it calls the Marketing Metrix Hospitality Index (MMHI) to measure cus- tomer satisfaction with hotel, airline, and car rental compa- nies. The metric is based on 35,000 in-depth consumer interviews. The MMHI includes most major brand hotels, air- lines, travel industry Web sites, and car rental companies— each rated on over 50 different dimensions. Subscribers to the quarterly report can measure their company’s stand-alone performance and also benchmark its ratings against those of competitors and highly ranked companies within and across the other hospitality industries. Go to the MMHI Web site (www.marketmetrix.com), then click on “Hospitality Index.”

Review the information on MMHI Winners, Brand History, and MMHI Brand List. Based on recent results, how are your fa- vorite brands faring on their index? Do you agree with the re- sults provided about your favorites?

Miniprojects: Learn by Doing

Miniproject 1 1. Select a service that you, as a consumer, will purchase in

the next week or so. 2. As you experience the service, record the details of every

aspect, including the following: a. People b. Physical facilities c. Location d. Waiting time e. Hours f. Transaction g. Other customers h. Tangible aspects i. Search qualities j. Credence qualities

3. Recommend improvements for this service encounter.

Miniproject 2 Theme and entertainment parks like Universal Studios fall in the middle of the goods/services continuum—half goods and half services. To be successful in this highly competitive market, these parks must carefully develop targeting and positioning strategies. Visit the Web sites of the four top theme park orga- nizations: Walt Disney World (www.disneyworld.com), Six Flags parks (www.sixflags.com), Universal’s Orlando® Theme Park (www.universalstudios.com), and Busch Gardens (www .buschgardens.com). Thoroughly investigate each site.

1. How is the Web site designed to appeal to each theme park organization’s target markets?

2. How does each park position its product? How is this po- sitioning communicated through the Web site?

3. What changes or improvements would you recommend for each Web site?

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Marketing in Action Case Real Choices at Clear & SIMPLE™

Want to know how to fit your very complicated life into your very small apartment? How to organize your clothes so you can find that great pink sweater on Friday night? What to do with those very valuable high school football trophies? Like many people, you may be faced with a seemingly insurmountable problem of clutter.

As evidenced by the increasing popularity of TV programs like Clean Sweep (TLC), Clean House (Style Network), and Mission: Organization (HGTV), many consumers recognize that they suffer from home chaos. For some of us, the clutter comes from excessive buying or an attachment to things, while for others the problem is simply a lack of organizational skills. A disorganized home or office not only lowers our efficiency but also create stress and interrupts the harmony of the space. For- tunately, there is help.

Clear & SIMPLE™, founded in 1999, is one of a number of professional organizing companies that meets the growing need for home and office organization skills. Because many of us seem to be missing a gene for good organizational skills, profes- sional organizers like Clear & SIMPLE™ help clients to build a har- monized life and restore order to their homes and workplaces.

Clear & SIMPLE™ owners Marla Dee and Lisa Parsons try to convince homeowners and businesses that “Getting Organized can be Fun, Simple, and Freeing!” The company offers clutter- afflicted consumers a variety of services. Their two major sys- tems, SEE IT • MAP IT • DO IT and S.T.A.C.K.S.™, aim to train clients how to identify their problems with clutter and chaos and then show them how to better organize their space.

Most of the objects we accumulate relate to our memories; we’re afraid to throw away and/or give away these things be- cause it means losing part of our past. Thus, a major part of the training is learning how to separate meaningful things that are

also useful from those that no longer are very meaningful. In addition to its training programs, Clear & SIMPLE™ products in- clude workshops, individual consultation and needs assess- ment, plus a variety of organizational skills books, kits, and self-study courses. Clear & SIMPLE™ also introduced a certifi- cate program to train more professional organizers to meet the growing demand in the market.

Despite its current success, Clear & SIMPLE™ faces a num- ber of challenges. The increasing number of competitors in the industry and the growing number of Internet Web sites on de- livering organizing skills can have a direct impact on Clear & SIMPLE’s™ future success. While we wouldn’t classify Clear & SIMPLE™ as a luxury product, consumers may question if help in organizing their space is a necessary expense in times of eco- nomic recession. How can Clear & SIMPLE™ build on its current success for a sustainable future that will endure economic ups and downs? Even more important, what should Marla and her colleagues do to make their brand stand out among their other “neat” competitors?

You Make the Call 1. What is the decision facing Clear & SIMPLE™? 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: Russell W. Belk, Joon Yong Seo, and Eric Li, “Dirty Little Secret: Home Chaos and Professional Organizers,” Consumption, Markets and Culture, Volume 10, Number 2, June 2007, pp. 133–40; Clear & SIMPLE™ Official Web site, “About Us,” Clear & SIMPLE™ Official Web site (http://www.clearsimple.com/aboutus.html).

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Part Four

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)

Pr o

ce ss

You are here

Communicate the Value Proposition Now that you have your offering developed and priced—all with a great value proposi- tion that you think will be a home run with

your target market—it’s time to make important decisions about how you’ll communicate that value proposition to your potential purchasers. The chapters in Part Four take you on a fascinating journey through the various marketing communication ap- proaches you can employ to get your message out there. Should you advertise on TV, send free samples of your product in the mail, use Facebook to sponsor a consumer do-it-yourself advertising contest, or something else? Making the right choice of approach is critical, largely because most of the available promotion tools come at a very high cost to the marketer!

Part Four Overview

Chapter 12 introduces you to these options for communi- cating the marketing message—called the promotion mix. You’ll enjoy learning about building buzz in the marketplace and using various forms of new media to do the trick. Then in Chapter 13, you’ll get some great guidelines on doing "mass" communica- tion through advertising, public relations, and consumer sales promotion—communicating “one to many.” Finally, Chapter 14 is devoted to “one to one” promotion through trade sales pro- motion, direct marketing, and personal selling. The overarching theme of the chapters in Part Four is how to go about making a decision on which elements of the promotion mix will be most effective for communicating the value proposition of your offer- ing to your target markets.

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Marketing Plan Connection: Tricks of the Trade Recall that the Appendix at the end of the book provides you with an abbreviated marketing plan example for the fictitious S&S Smoothie Company. That plan is flagged to indicate what elements from the plan correspond to each of the Parts within the book. In addition, in Chapter 2 you found a tear-out guide called “Build a Marketing Plan,” which can be used as a tem- plate for marketing planning. It is also cross-referenced to chap- ters by section of the marketing plan.

In the chapters within Part Four, there are major learning el- ements that guide you in developing an integrated approach to marketing communication within your marketing plan. In do- ing so, not all possible promotion elements are appropriate for a given offering at a given time. Marketers must apply the differ- ent promotion elements based on the positioning strategy. That is, along with the other marketing mix elements, promotion helps communicate the positioning to the consumer. Recall that S&S Smoothie seeks to position its products as the first-choice smoothie beverage for the serious health-conscious consumer, including those who are seeking to lower their carbohydrate in- take. The justification for this positioning is as follows: Many smoothie beverages are available. The S&S Smoothie formula provides superior flavor and nutrition in a shelf-stable form. S&S Smoothie has developed its product (including packaging) and pricing in support of this positioning strategy. Let’s review how S&S Smoothie has chosen to support this positioning through promotional strategies.

Promotional Strategies In the past, S&S Smoothie has used mainly personal selling to promote its products to the trade channel. To support this effort, signage has been provided for the resellers to promote the prod- uct at the point of purchase. Posters and stand-alone table cards show appealing photographs of the product in the different fla- vors and communicate the brand name and the healthy benefits of the product. Similar signage will be developed for use by re- sellers who choose to stock the S&S Smoothie Gold and the Low- Carb Smoothies.

Selling has previously been handled by a team of over 75 manufacturers’ agents who sell to resellers. In addition, in some

geographic areas, an independent distributor does the selling. To support this personal selling approach, S&S Smoothie plans for additional promotional activities to introduce its new prod- ucts and meet its other marketing objectives. These include the following:

1. Television advertising: S&S Smoothie will purchase a limited amount of relatively inexpensive and targeted cable chan- nel advertising. A small number of commercials will be shown during prime-time programs with high viewer rat- ings by the target market. Television advertising can be an important means of not only creating awareness of the product, but also enhancing the image of the product.

2. Magazine advertising: Because consumers in the target mar- ket are not avid magazine readers, magazine advertising will be limited and will supplement other promotion ac- tivities. During the next year, S&S Smoothie will experi- ment with limited magazine advertising in such titles as Sports Illustrated. The company will also investigate the potential of advertising in university newspapers.

3. Sponsorships: S&S Smoothie will attempt to sponsor sev- eral marathons in major cities. The advantage of sponsor- ships is that they provide visibility for the product while at the same time showing that the company supports ac- tivities of interest to the target market.

4. Digital Marketing: S&S Smoothie will continue its use of social media to communicate with consumers and to mon- itor customers’ postings about S&S products. In addition, S&S TV commercials will be available on the company Web site and on YouTube. In the latter part of the year, the company will sponsor a do-it-yourself ad competition through its Web site. The winning ads will be aired on cable TV.

5. Sampling: Sampling of S&S Smoothie beverages at select venues will provide an opportunity for prospective cus- tomers to become aware of the product and to taste the great flavors. Sampling will include only the two new products being introduced. Venues for sampling will in- clude the following: a. Marathons b. Weight-lifting competitions c. Gymnastics meets d. Student unions located on selected college campuses

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

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Chapter | 12

One-to-Many to Many-to-Many: Traditional and New Media

Real People Profiles

A Decision Maker at Campfire Mike Monello is partner/executive cre- ative director at Campfire, a communica- tion agency based in New York. Mike started out as a DIY filmmaker, and in 1998 he created The Blair Witch Project with four other film school friends. This integrated, interactive experience forged a community around the film’s mythology. It resulted in a pop-culture phenomenon with over $240 million in worldwide box-office and changed the way mar- keters approach the Internet.

Excited by this marketing/entertainment hybrid, Mike co-founded Campfire, where he has been intimately involved in the creative development of every project that has come through Campfire’s doors. From “Beta-7” for Sega and “Art of the Heist” for Audi to “Frenzied Waters” for Discovery Channel’s Shark Week, he’s led work that has been awarded top honors at the One Show, Clio, Mixx, ad:Tech, and Addy awards. A vocal force in the world of transmedia storytelling, Mike has spo- ken at many prestigious events, including Futures of Entertainment at M.I.T. and SXSW Interactive.

Mike’s Info

What do I do when I’m not working? A) Creative projects with my kids, travel with my family, collecting tiki mugs and other Polynesian pop, playing amateur mixologist.

First job out of school? A) Commissioned salesman at Circuit City. I still use what I learned on that job.

Career high? A) Standing shell-shocked in Barnes & Noble looking at The Blair Witch Project on the covers of both Time and Newsweek.

A job-related mistake I wish I hadn’t made? A) Put off making a tough decision too long until it turned into a crisis.

Business book I’m reading now? A) I don’t read too many traditional business books. For inspiration, I’m currently reading Signal and Noise: Media, Infrastructure, and Urban Culture in Nigeria by Brian Larkin, and Experience Design 1 by Nathan Shedroff.

My hero? A) Too many to list, but some of my professional heroes are George C. Tilyou, Frederic Thompson, Elmer Dundy, and the entrepreneurs of Coney Island for figuring it all out.

What drives me? A) Passion. It’s the one constant across every successful thing I’ve done.

My management style? A) Could be better.

Profile Info

Michael Monello

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Campfire’s growth has been completely organic. It started as a small group of associates and collabo-

rators who would come together to work on a project and evolved to a “real” agency with offices in New York City. Campfire is a project-based

agency that is not reliant on specific media platforms to generate revenue (30-second TV spots, or banner ads and Flash-based Web sites, for example). Most advertising agencies seek AOR (Agency of Record) relationships, where the client pays a monthly retainer fee to the agency for cre- ative services. The AOR relationship, how- ever, can create a structure that supports only the most common and “safe” work to be presented to the client, since entire teams of people depend on that retainer for their jobs.

Campfire’s work centers around story- telling and experience, and the marketing programs it develops for clients aren’t easily put into the usual traditional/digital silos. For example, Campfire’s work for Verizon FiOS encompasses a 30-minute technology home makeover show, large block-party events, a

robust online experience, local PR outreach, direct mail, casting events, and more. Most clients, including Verizon, usually build a roster of specialized agencies and put them in silos to develop their own particular pieces, so the traditional ad agency develops for TV and print while the event agency does all the public events and sponsorships, the direct mail agency works on their pieces, branded content companies may be in the mix for product place- ment, digital agencies for online work, and so on. The result is almost never integrated beyond simple things like an overall look and feel and perhaps a tagline. Campfire’s expertise is not in any one particular silo but in develop- ing all these elements as part of the total integrated project. Campfire sits at the intersection of entertainment and marketing, and this is one reason why the company’s position in the agency landscape is a bit of a mystery to some. Since its campaigns cross all media channels, Campfire has been called, at one time or another, a digital agency, a branded content agency, a transme- dia agency, a social media agency, and simply a creative shop. That mystery has served Mike and his partners well, as it tends to attract clients who want to take bold chances; they often are willing to take risks with Campfire and approve projects that they would never accept from their traditional agencies.

In 2007, Advertising Age listed Campfire as one of “The Hottest Dig- ital Agencies Around.”1 The company had only really been a full-time agency for about a year at that point, and it had never identified itself as a “digital agency.” This was fantastic recognition that opened many new doors for the agency. As a result, Mike and his partners found themselves at a crossroads soon after when a potential client approached them to become their digital agency of record (AOR). Campfire had only seven employees at the time, and this was both a big opportunity as well as a significant change in the young agency’s business model. While it had built Web sites, banner ads, and other more traditional media, these efforts were always in the service of a larger project. Campfire’s leaders had to decide if they were to take the leap to be- come a full-service digital agency.

See what option Michael chose on page 373

Mike considered his Options 1 • 2 • 3 Become the client’s digital AOR. To do this Campfire would have to hire new creative, account, and production people and develop a more traditional digital offering. As a small agency built up organically, it would gain some breathing room in the race for new business, as well as a longer window into its finan- cial future. On the other hand, the culture and structure re-

quired to develop the kinds of projects Campfire is known for is quite different from that of a traditional digital shop. While most agencies have strong hierarchies with creative directors, account planning, account man- agement, art directors and copywriter teams, studio creatives and more, Campfire develops projects with smaller teams of higher level people whose skills and knowledge cross the boundaries of their titles. The agency would have to make adjustments to accommodate the new work as well as con- sider what building out that offering would mean for its own brand and dif- ferentiation in the marketplace.

Partner with a smaller, more traditional agency and split the work according to capabilities in order to handle all the client’s needs. Each agency could do what it does best with the added benefit of bridging strategy, research, and cre- ative across both agencies, something that’s often difficult for clients to manage on their own. While Campfire had worked

successfully with partners in the past, the process would be complicated, and it would have to be managed very closely in order to keep it simple for the client. Dividing account services in particular could be tricky: Who owns the overall creative strategy when there are disagreements between agencies?

Walk away. Campfire could turn the client away gracefully, ex- plain that the agency isn’t structured to service the kind of work they require on an ongoing basis, and hope to keep the door open for a future project that more closely aligns with Camp- fire’s services. Turning away any work for a growing agency is not easy, especially when you need the income. While Campfire

would stay true to its brand, would it also toss away a great opportunity to expand the scope of its business? After all, there are a lot more potential clients who want traditional digital work rather than the kind of fully inte- grated projects Campfire had done up to that time.

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

You Choose

Which Option would you choose, and why?

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

Here’s my problem. . . Real People, Real Choices

349

Option

Things to remember

Campfire is largely a “new media” agency; this means that Mike and his colleagues employ a number of nontraditional channels to tell stories about their clients’ brands. Mike has to choose between retaining that independence from “business as usual” and gaining access to resources (including employees and clients) that work in more established areas like television advertising.

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One-to-Many: The Traditional Communication Model Test your advertising memory:*

1. What energy drink “gives you wiiings?”

2. What product advertises that “Even a caveman can do it?”

3. What character do Energizer battery ads feature?

4. At Burger King, you can have it “_______________,” whereas at Hardees the burgers are “____________” broiled.

5. Which paper towel brand is “The Quicker Picker-Upper?”1

Did you get them all right? You owe your knowledge about these and a thousand other trivia questions to the efforts of people who specialize in mar- keting communication. Of course today, these slogans are “old school” as marketers have followed consumers onto Facebook and Twitter and into vir- tual worlds to talk with their customers.

As we said in Chapter 1, promotion is the coordination of marketing communication efforts to influence attitudes or behavior. This function is one of the famous Four Ps of the marketing mix and it plays a vital role—whether the goal is to sell hamburgers, insurance, ringtones, or healthy diets. Of course, virtually everything an organization says and does is a form of market- ing communication. The ads it creates, the packages it designs, the uniforms its employees wear, and what other consumers say about their experiences with the firm contribute to the thoughts and feelings people have of the com- pany and its products. In fact, savvy marketers should consider that every element of the marketing mix is actually a form of communication. After all, the price of a product, where it is sold, and of course the quality of the product it- self contribute to our impression of it.

In the previous four chapters we talked about creating, managing, and pricing tangible and intangible products. But it’s not enough just to produce great products—successful marketing plans must also provide effective mar- keting communication strategies. Just what do we mean by communication? Today messages assume many forms: quirky television commercials, innova- tive Web sites, viral videos, sophisticated magazine ads, funky T-shirts, blimps blinking messages over football stadiums—even do-it-yourself, customer-made advertising. Some marketing communications push specific products (like the Apple iPad) or actions (like donating blood), whereas others try to create or reinforce an image that represents the entire organization (like General Electric or the Catholic Church).

Marketing communication in general performs one or more of four roles:

1. It informs consumers about new goods and services.

2. It reminds consumers to continue using certain brands.

Chapter 12

350 PART FOUR | COMMUNICATE THE VALUE PROPOSITION

Objective Outline 1. Understand the communication

process and the traditional promotion mix.

ONE-TO-MANY: THE TRADITIONAL COMMUNICATION MODEL (p. 350)

2. Understand how marketers communicate using an updated communication model that incorporates buzz marketing activities and new social media.

MANY-TO-MANY: THE NEW MEDIA COMMUNICATION MODEL (p. 358)

3. Describe the steps in traditional and multichannel promotional planning.

PROMOTIONAL PLANNING IN A WEB 2.0 WORLD (p. 366)

(pp. 366–373)

(pp. 358–366)

(pp. 350–357)

Check out chapter 12 Study Map on page 374

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

AOR (Agency of Record) relationship A relationship where the client pays a monthly retainer fee to an agency for creative services.

1 OBJECTIVE

Understand the

communication

process and the

traditional promotion

mix. (pp. 350–357)

*Answers: (1) Red Bull energy drink, (2) GEICO Insurance, (3) the Energizer Bunny, (4) “your way,” “char,” (5) Bounty paper towels

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integrated marketing communication (IMC) A strategic business process that marketers use to plan, develop, execute, and evaluate coordinated, measurable, persuasive brand communication programs over time to targeted audiences.

multichannel promotional strategy A marketing communication strategy where they combine traditional advertising, sales promotion, and public relations activities with online buzz-building activities.

3. It persuades consumers to choose one brand over others.

4. It builds relationships with customers.

Many marketing experts now believe a successful promotional strategy should blend several diverse forms of marketing communication. Integrated marketing com- munication (IMC) is the process that marketers use “to plan, develop, execute, and evaluate coordinated, measur- able, persuasive brand communication programs over time”2 to plan, develop, execute, and evaluate coordi- nated, measurable, persuasive brand communication pro- grams over time to targeted audiences. The IMC approach argues that consumers come in contact with a company or a brand in many different ways before, after, and during a purchase. Consumers see these points of contact or touchpoints as we described in Chapter 7—a TV commer- cial, a company Web site, a coupon, an opportunity to win a sweepstakes, or a display in a store—as a whole, as a single company that speaks to them in different places and different ways. IMC marketers understand that to achieve their mar- keting communication goals, they must selectively use some or all of these touchpoints to deliver a consistent message to their customers in a multichannel promotional strategy where they combine traditional advertising, sales promotion, and public relations activities with online buzz-building activities. That’s a lot different from most traditional marketing communication programs of the past that made little effort to coordinate the varying mes- sages consumers received. When an advertising campaign runs independently of a sweep- stakes, which in turn has no relation to a NASCAR racing sponsorship, consumers often get conflicting messages that leave them confused and unsure of the brand’s identity. With IMC, marketers seek to understand what information consumers want as well as how, when, and where they want it—and then to deliver information about the product using the best com- bination of communication methods available to them.

It’s great to talk about a multichannel strategy, but that still leaves a lot of questions about how we get our customers to understand what we’re trying to say. And, in today’s high-tech world these questions get even more complicated because the communication op- tions available to marketers change literally almost every day—there will probably be new formats that appear on the scene between the time you start and finish this course!

It helps to understand these options when we look at how we as consumers get our in- formation. Figure 12.1 shows three communication models. The first, traditional com- munication model is a “One-to-Many” view in which a single marketer develops and sends messages to many, perhaps even millions of consumers at once. The one-to-many approach involves traditional forms of marketing communication such as advertising including tradi- tional mass media (TV, radio, magazines, and newspapers), out-of-home (like billboards), and Internet advertising. This model also benefits from consumer sales promotions such as coupons, samples, rebates, or contests; and press releases and special events that public rela- tions professionals organize.

Today, these traditional methods still work in some circumstances—but there are a lot of other options available that often mesh better with our “wired” 24/7 culture. When you take a break from posting to your friends on Facebook, you’ll recognize that you also learn about products and services from your own social network in addition to ads, billboards, or coupons. For this reason we need to consider an updated communication model where market- ing messages are what we think of as many-to-many. This newer perspective recognizes the huge impact of word-of-mouth communication where consumers look to each other for in- formation and recommendations. Many of us are more likely to choose a new restaurant

Promotion takes many forms, including humorous print ads like this one for a German company that makes pens.

word-of-mouth communication When consumers provide information about products to other consumers.

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352 PART FOUR | COMMUNICATE THE VALUE PROPOSITION

based on users’ reviews we read on Yelp than because we saw a cool commercial for the place on TV. Ditto for nail salons, bike stores, and maybe even cars.

In the updated model, marketers add new tools to their communications toolbox in- cluding buzz-building activities that use viral and evangelical marketing techniques as well as new social media platforms such as brand communities, product review sites, and social network- ing sites. The odds are you’re using many of these platforms already, though you may not call them by these names. By the end of this section, you will.

We also need to expand our traditional communication model to include one-to-one mar- keting, where marketers speak to consumers and business customers individually. The one- to-one forms of marketing communication include personal selling, trade sales promotion activities used to support personal selling, and a variety of database marketing activities that include direct marketing. In this chapter and the following two we’ll examine each of these different ways to communicate with our customers.

The Communication Model Wired or not, the communication model in Figure 12.2 is a good way to understand the basics of how any kind of message works. In this perspective, a source transmits a message through some medium to a receiver who (we hope) listens and understands the message. The

I. The One-to-Many Model Advertising Sales Promotion Public Relations

II. The One-to-One Model Database Marketing Direct Marketing Personal Selling

III. The Many-to-Many Model Buzz Building Social Media

☺ Marketer

☺☺☺☺☺ ☺☺☺☺☺ Consumers

☺☺☺☺☺ ☺☺☺☺☺

☺ Marketer

Consumers ☺☺☺☺☺☺☺ ☺

☺

☺ ☺☺☺☺

☺

☺ ☺

☺

☺ Marketer

☺☺☺☺☺ ☺☺☺☺☺ Consumers☺

Market☺

Figure 12.1 Snapshot | Three Models of Marketing Communication

Marketers today make use of the traditional one-to-many communication model and the updated many-to-many communication model as well as talking one-to-one with consumers and business customers.

communication model The process whereby meaning is transferred from a source to a receiver.

encoding The process of translating an idea into a form of communication that will convey meaning.

source An organization or individual that sends a message.

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(decoding)(encoding)

Feedback

• Purchase data • Product awareness • Brand loyalty

Noise

• Competing messages

Source

• Company • Individual

Receiver

• Consumer

Message

• Advertising • Public relations • Sales promotion • Salesperson pitch • Communication from other consumers

Medium

• Magazines • Newspapers • Television • Radio • Billboards • Direct mail • Word of mouth

Figure 12.2 Process | Communication Model The communication model explains how organizations create and transmit messages from the marketer (the source) to the consumer (the receiver) who (we hope) understands what the marketer intends to say.

basic idea is that any way a marketer reaches out to consumers—a hat with a Caterpillar tractor logo on it, a personal sales pitch from a Mary Kay rep- resentative, or a televised fashion show with supermodels strutting their stuff for Victoria’s Secret—this is part of the basic communication process.

The communication model specifies the elements necessary for effective communication to occur: a source, a message, a medium, and a receiver. Re- gardless of how a marketer sends messages, her objective is to capture re- ceivers’ attention and relate to their needs.

The Source Encodes

Let’s start to explore this basic model from a good place: the beginning. Encoding is the process by which a source translates an idea into a form of communication that conveys the desired meaning. The source is the organi- zation or individual that sends the message. It’s one thing for marketers to form an idea about a product in their own minds, but it’s not quite as simple to express the idea to their customers. To make their messages more believ- able or more attractive to consumers, marketers sometimes choose a real per- son (like the computer users that appeared in Microsoft’s “Windows 7 Was My Idea” advertising), hire an actor or a model (William Shatner of Star Trek fame for Priceline.com or Queen Latifah for Cover Girl Cosmetics) or create a character (the GEICO gecko with the Cockney accent) to represent the source.3

In other cases the message features actual customers. In advertising to counter negative consumers’ responses to Toyota’s massive recall, the com- pany used ads in which Toyota customers told why they were going to con- tinue to buy the cars.

Many marketing messages rely on an expert or highly credible source to encourage recipients to take them seriously.

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The Message

The message is the actual content that goes from the source to a receiver. It includes infor- mation necessary to persuade, inform, remind, or build a relationship. Advertising mes- sages may include both verbal and nonverbal elements, such as beautiful background scenery or funky music. The marketer must select the ad elements carefully so that the mes- sage connects with end consumers or business customers in its target market. Otherwise ef- fective communication simply does not occur and the organization just wastes its money.

The Medium

No matter how the source encodes the message, it must then transmit it via a medium, a communication vehicle that reaches members of a target audience. This vehicle can be tele- vision, radio, social media sites such as Facebook or Twitter, a magazine, a company Web site, an Internet blog, a personal contact, a billboard, or even a coffee mug that displays a product logo. Marketers face two major challenges when they select a medium. First, they must make sure the target market will be exposed to the medium—that the intended re- ceivers actually read the magazine or watch the TV show where the message appears. Sec- ond, the attributes of the advertised product should match those of the medium. For example, magazines with high prestige are more effective to communicate messages about overall product image and quality, whereas specialized magazines do a better job when they convey factual information.4

The Receiver Decodes

If a tree falls in the forest and no one hears it, did it make a sound? Zen mysteries aside, com- munication cannot occur unless a receiver is there to get the message. The receiver is any in-

dividual or organization that intercepts and interprets the message. Assuming that the customer is even paying attention (a big assumption in our overloaded, media-saturated society), she interprets the message in light of her unique experiences. Decoding is the process whereby a receiver as- signs meaning to a message; that is, she translates the message she sees or hears back into an idea that makes sense to her.

Marketers hope that the target consumer will decode the message the way they intended, but effective communication occurs only when the source and the receiver share a mutual frame of reference. Too often sources and receivers aren’t on the same page, and the results can range from mildly embarrassing to downright disastrous. As we saw way back in Chapter 3, this mismatch is especially likely to happen when the source and the receiver don’t share the same cultural background or language.

Noise

The communication model also acknowledges that noise—anything that in- terferes with effective communication—can block messages. As the many ar- rows between noise and the other elements of the communication model in

Figure 12.2 indicate, noise can occur at any stage of communication. It can pop up at the encoding stage if the source uses words or symbols that the receiver will not understand. Or a nearby conversation may distract the re- ceiver. There may be a problem with transmission of the message through the medium— especially if it’s drowned out by the chorus of other marketers clamoring for us to look at their messages instead. Marketers try to minimize noise when they place their messages where there is less likely to be distrac- tions or competition for consumers’ attention. Calvin Klein, for example, will

An Italian candy ad communicates the product’s caffeine content quite vividly.

message The communication in physical form that goes from a sender to a receiver.

medium A communication vehicle through which a message is transmitted to a target audience.

receiver The organization or individual that intercepts and interprets the message.

Campfire’s current work typically relies on nontraditional media like online videos. Traditional media have advantages (such as the ability to reach a big audience at one time) and disadvantages (such as higher costs). The mix of media to send a campaign’s messages is a crucial strategic decision.

Mike Monello APPLYING The Medium

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often buy a block of advertising pages in a magazine so that the reader sees only pictures of its clothing as she leafs through that section.

Feedback

To complete the communication loop, the source gets feedback from receivers. Feedback is a reaction to the mes- sage that helps marketers gauge the effectiveness of the message so they can fine-tune it. Sometimes consumers eagerly provide this feedback—especially if they are un- happy. They may call a toll-free number or post an e-mail to the manufacturer to resolve a problem. More often, though, marketers must actively seek their customers’ feedback. The need for this “reality check” reminds us of the importance of conducting marketing research (as we discussed in Chapter 4) to verify that a firm’s strategies are working. And, keep in mind that even though nobody likes to be yelled at, we actually want customers to complain so that we have an opportunity to address their concerns before they say negative things to others.

The Traditional Promotion Mix As we said earlier, promotion, or marketing communication, is one of the Famous Four Ps. Marketers use the term promotion mix to refer to the communication elements that the marketer controls. These elements of the traditional promotion mix include:

• Advertising

• Sales promotion

• Public relations

• Personal selling

• Direct marketing

Just as a DJ combines different songs or phrases to create an entertain- ment experience, the term mix implies that a company’s promotion strategy focuses on more than one element. And as we said, promotion works best when the marketer/DJ skillfully combines all of the elements of the promo- tion mix to deliver a single consistent message about a brand.

Another challenge is to be sure that the promotion mix works in har- mony with the overall marketing mix to combine elements of promotion with place, price, and product to position the firm’s offering in people’s minds. For example, marketers must design ads for luxury products such as Rolex watches or Jaguar automobiles to communicate that same luxury character of the product, and the ads should appear in places that reinforce that upscale image. A chic commercial that appears before a showing of the latest Jackass movie just won’t cut it.

Marketers have a lot more control over some kinds of marketing com- munication messages than they do others. As Figure 12.3 shows, mass- media advertising and sales promotion are at one end of the continuum, where the marketer has total control over the message she delivers. At the other end

Gillette employs a creative medium to get its message to customers.

feedback Receivers’ reactions to the message.

noise Anything that interferes with effective communication.

For effective decoding to occur, the source and the receiver must share a mutual frame of reference. In this ad the receiver needs to understand the meaning of a “white flag” in order for the message to make sense.

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decoding The process by which a receiver assigns meaning to the message.

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is word-of-mouth (WOM) communication, where everyday people rather than the company run the show. WOM is a vitally important component of the brand attitudes consumers form—and of their decisions about what and what not to buy. Sandwiched between the ends we find personal selling and direct marketing, where marketers have some but not total con- trol over the message they deliver, and public relations, where marketers have even less con- trol. Table 12.1 presents some of the pros and cons of each element of the promotion mix.

Advertising

High Extent of marketer's control over communication Low

Sales promotion Personal selling Direct marketing Public relations Word of mouth

Figure 12.3 Snapshot | Control Continuum The messages that consumers receive about companies and products differ in terms of how much the marketer can control the content.

Table 12.1 | A Comparison of Elements of the Traditional Promotion Mix Promotional Element Pros Cons

Advertising • The marketer has control over what the message will say, when it will appear, and who is likely to see it.

• Because of the high cost to produce and distribute, it may not be an efficient means of communicating with some target audiences.

• Some ads may have low credibility and/or be ignored by audience.

Sales promotion • Provides incentives to retailers to support one’s products.

• Builds excitement for retailers and consumers.

• Encourages immediate purchase and trial of new products.

• Price-oriented promotions cater to price-sensitive consumers.

• Short-term emphasis on immediate sales rather than a focus on building brand loyalty.

• The number of competing promotions may make it hard to break through the promotional clutter.

• If marketers use too many price-related sales promotion activities, consumers’ perception of a fair price for the brand may be lowered.

Public relations • Relatively low cost

• High credibility

• Lack of control over the message that is eventually transmitted and no guarantee that the message will ever reach the target.

• It is difficult to measure the effectiveness of PR efforts.

Personal selling • Direct contact with the customer gives the salesperson the opportunity to be flexible and modify the sales message to coincide with the customer’s needs.

• The salesperson can get immediate feedback from the customer.

• High cost per contact with customer.

• Difficult to ensure consistency of message when it is delivered by many different company representatives.

• The credibility of salespeople often depends on the quality of their company’s image, which has been created by other promotional strategies.

Direct marketing • Targets specific groups of potential customers with different offers.

• Marketers can easily measure the results.

• Provides extensive product information and multiple offers within a single appeal.

• Provides a way for a company to collect feedback about the effectiveness of its messages in an internal database.

• Consumers may have a negative opinion of some types of direct marketing.

• Costs more per contact than mass appeals.

promotion mix The major elements of marketer-controlled communication, including advertising, sales promotion, public relations, personal selling, and direct marketing.

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Mass Communication

Some elements of the promotion mix include messages intended to reach many prospective customers at the same time. Whether a company offers customers a coupon for 50 cents off or airs a television commercial to mil- lions, it promotes itself to a mass audience. These are the elements of the pro- motion mix that use mass communication, i.e., TV radio, magazines, and newspapers:

• Advertising: Advertising is, for many, the most familiar and visible ele- ment of the promotion mix. It is nonpersonal communication from an identified sponsor using the mass media. The most important advan- tage of advertising is that it reaches large numbers of consumers at one time. In addition, advertising can convey rich and dynamic images that establish and reinforce a distinctive brand identity. This helps marketers bond with customers and boost sales. Advertising also is useful to com- municate factual information about the product or to remind consumers to buy their favorite brand. However, it sometimes suffers from a cred- ibility problem: Cynical consumers tune out messages they think are biased or are intended to sell them something they don’t need. Adver- tising can also be very expensive, so firms must ensure that their mes- sages deliver the best bang for the buck.

• Sales promotion: Consumer sales promotion includes programs such as con- tests, coupons, or other incentives that marketers design to build inter- est in or encourage purchase of a product during a specified period. Unlike other forms of promotion, sales promotion intends to stimulate immediate action (often in the form of a purchase) rather than build long-term loyalty.

• Public relations: Public relations describes a variety of communication activities that seek to create and maintain a positive image of an organization and its products among var- ious publics, including customers, government officials, and shareholders. Public rela- tions programs also include efforts to present negative company news in the most positive way so that this information will have less damaging consequences. In contrast to sales promotion, public relations components of the promotion mix usually do not seek a short-term increase in sales. Instead, they try to influence feelings, opinions, or beliefs for the long term.

Personal Communication

Sometimes marketers want to communicate with consumers on a personal, one-on-one level. The most immediate way for a marketer to make contact with customers is simply to tell them how wonderful the product is. This is part of the personal selling element of the pro- motion mix we mentioned previously. It is the direct interaction between a company repre- sentative and a customer that can occur in person, by phone, or even over an interactive computer link.

Salespeople are a valuable source of communication because customers can ask ques- tions and the salesperson can immediately address objections and describe product bene- fits. Personal selling can be tremendously effective, especially for big-ticket consumer items and for industrial products for which the “human touch” is essential.

Marketers also use direct mail, telemarketing, and other direct marketing activities to cre- ate personal appeals. Like personal selling, direct marketing provides direct communication with a consumer or business customer. Because direct marketing activities seek to gain a di- rect response from individual consumers, the source can target a communication to market segments of a few or—with today’s technology—even segments of one.

Advertising can convey rich and dynamic images that establish and reinforce a distinctive brand identity.

mass communication Relates to television, radio, magazines, and newspapers.

advertising Nonpersonal communication from an identified sponsor using the mass media.

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Many-to-Many: The New Media Communication Model It seems as if most of us are “on” 24/7 these days, whether we’re check- ing our e-mail while on vacation or Tweeting about the fabulous new restaurant we just discovered. Authors Charlene Li and Josh Bernoff refer to the changing communication landscape as the groundswell: “a social trend in which people use technology to get the things they need from each other, rather than from traditional institutions like corporations.”5 In other words, today’s consumers are increasingly getting their information on running shoes, nightclubs, cars, new bands, or even last week’s eco- nomics class lecture from one another rather than from the original source.

The Web Revolution is here! What has led to this new communica- tion model and how is it changing marketing? Much of the answer lies in changing technology. Everyone is online now. Millions of people around the globe surf the Web, talk with their friends, watch TV, and

purchase products from traditional marketers, from Internet-only marketers, and from each other on their computers or their mobile phones with broadband Internet connections. For example, at last report, Facebook had over 400 million users, more than the population of any country except India and China. These users all have the potential to connect with each other and to share feedback—whether it’s about how hard that statistics test was this morning or where they bought a great new swimsuit for summer and how much they paid for it. Mar- keters are no longer the only ones who talk about their products—millions of consumers have the ability and the desire to spread the good (or bad) news about the goods and services they buy. That’s why we’re moving from a one-to-many communication model to the new world of many-to-many.

At the same time, traditional advertising has diminished as a way to talk to customers. As consumers, especially younger ones, spend more and more time online, they don’t lounge in front of the TV as much and they don’t tend to read printed magazines. For those who do watch TV, there are literally hundreds of channels to choose from. This abundance of choice fragments the TV audience and makes the job of reaching a mass market both complex and costly.

As one telling example of this realignment, in 2010 Pepsi decided to forego advertising on the Super Bowl for the first time in 23 years in order to put money into online formats, especially Facebook. The Pepsi Refresh Project combined online activities and a charitable campaign that Pepsi hoped would let young consumers know it was serious about doing good for the world—and increase its market share. Pepsi accepted one thousand ideas a month online from consumers on ways to improve their communities. The best ideas were chosen by online consumer voting. In all, Pepsi offered a total of $20 million in grants of be- tween $5,000 and $250,000 to implement the best ideas.6 After the tremendous success of the Pepsi Refresh project (over 45 million votes were cast by more than 1 million Facebook users in the first nine months), Pepsi decided to expand the project in 2011 to Europe, Latin Amer- ica and Asia, as well as to continue to fund the project in the U.S. and Canada.7

Like Pepsi, many other marketers are moving money away from traditional communica- tion vehicles such as TV advertising and investing heavily in new media. In 2010, global adver- tisers spent over $60 billion on online advertising! Retailers also find that their online business is growing but the Internet customer is harder to please and less loyal since she has easy access to competing prices and to the reviews of products and sellers from other online shoppers. The growth of Internet C2C shopping sites such as eBay and Craigslist means more and more con- sumers buy from each other than (gulp) pay retail prices. In order to better understand this new communication model and its consequences, we need to first look at how marketers encourage and enable consumers to talk about their products in “buzz” building activities. Then we’ll look at some of the specific new media that pop up in the marketing communication landscape.

2 OBJECTIVE

Understand how

marketers

communicate using

an updated

communication

model that

incorporates buzz

marketing activities

and new social

media. (pp. 358–366)

groundswell A social trend in which people use technology to get the things they need from each other, rather than from traditional institutions like corporations.

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Buzz Building

Why do the heavy lifting when you can put your customers to work for you? The many-to- many communication model relies on consumers like you to talk to one another about goods, services, and organizations. Marketers think of buzz as everyday people helping their marketing efforts when they share their opinions with their friends and neighbors.8

The idea is nothing new. It’s basically the so-called “office water-cooler effect” where coworkers dish about the latest TV sitcom on Monday morning.

The trick is to create buzz that works for you, not against you. How does this happen? Or more specifically, how do marketers make sure it happens? Let’s look at Volvo’s recent online-only campaign called “The Naughty Volvo” to see buzz in action. The carmaker’s goal was to get driving enthusiasts to talk about the new S60 model’s innovative design and technology. The campaign was called “naughty” because instead of focusing on Volvo’s tra- ditional image of safety, it included online demonstrations of the S60’s performance and handling. Online viewers could use a virtual dial to go from a “tame” test of the auto to one where the car swerved around a goldfish bowl or, in an even “naughtier” one, to drive the car in reverse (okay, maybe that’s not so naughty). Fans could also submit their ideas for more “naughty” films.9

Companies today spend millions to create consumer positive buzz. Firms like Dell have named word-of-mouth (WOM) marketing managers, and the WOMMA (Word-of-Mouth Marketing Association) membership roster includes most of the top consumer brand com- panies.10 According to advertising agency JWT Worldwide, over 85 percent of the top 1,000 marketing firms now use word-of-mouth tactics.11 Techniques to encourage consumers to spread information about companies and their products come under a variety of names such as word-of-mouth marketing, viral marketing, buzz marketing, and evangelist marketing.

As we’ve noted, buzz isn’t really new. In fact, we can point to the fame of none other than the Mona Lisa portrait as one of the first examples of buzz marketing. In 1911 the paint- ing was stolen from the Louvre museum in Paris. The theft created buzz around the globe while it catapulted da Vinci’s masterpiece into the limelight (note: we’re not advocating that you arrange to get your product stolen to build buzz).

What is new is the magnifying effect that technology exerts on the spread of buzz: When you think of the effect of consumers talking one-on-one a century ago, imagine the exponential increase in influence of the individual consumer “connectors” or “e-fluentials” who use Facebook, blogs, and other social media to increase their reach.12 How many online “friends” do you have? Compared to traditional advertising and public relations activities, these endorsements are far more credible and thus more valuable to the brand.

People like to share their experiences, good or bad, with others. Truly happy customers will share their excitement about a brand. Unfortunately, the unhappy ones will be even more eager to tell their friends about their unpleasant experiences. When Honda’s PR staff set up a Facebook fan page for the 2010 Honda Accord Crosstour, customers disliked the car’s visual appearance and responded with such comments as “Oh god, it looks like the mutant redheaded offspring of a Chrysler Crossfire and a Pontiac Aztec.”13 By the way, that unpredictability is a good reason to think twice before you post those photos from last Sat- urday night on your Facebook page.

Of course, marketers don’t necessarily create the buzz around their product anyway— sometimes they just catch a wave that’s building and simply ride it home. WOMMA refers to buzz that comes from deliberate buzz marketing campaigns as “amplified WOM” while it calls buzz that occurs naturally “organic WOM.” Organic buzz allowed Procter & Gam- ble to discover that its Home Café coffee maker had a tendency to start fires after 3,000 peo- ple complained.14 Naturally occurring buzz also can create negative publicity as Southwest Airlines learned firsthand after a director and actor named Kevin Smith was removed from a Southwest plane because he was too fat to fit in his seat. He used Twitter to express his dis- pleasure. Southwest responded to Smith’s tweets, apologized, and offered him a seat.15

buzz Word-of-mouth communication that customers view as authentic.

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Ethical Problems in Buzz Marketing

Just as firms are discovering there are a myriad of opportunities for buzz marketing, there are equally large opportunities for unethical or at least questionable marketing behavior. Some of these are the following:

• Activities designed to deceive consumers. Buzz works best when companies put unpaid consumers in charge of creating their own messages. As Table 12.2 shows, WOMMA considers hiring actors to create buzz deceptive and unethical. This is just what Sony Ericsson Mobile Communications did when the company hired 60 actors to go to tourist attractions. Their role was to act like tourists and get unsuspecting passersby to take their photos using the new Sony Ericsson camera phone, and then hype the phone. WOMMA now has rules that state that anyone talking up products should identify the client for whom they work.16

• Directing buzz marketing at children or teens. Some critics say buzz marketing should never do this, as these consumers are more impressionable and easier to deceive than adults.17

• Buzz marketing activities that damage property. Puma encouraged consumers to stencil its cat logo all over Paris. Such activities lead to damage or vandalism, which the company will ultimately have to pay for. In addition, individual consumers could find them- selves in trouble with the law, a problem that could ultimately backfire and damage the company image.

• Stealth marketing activities that deliberately deceive or lie on behalf of clients. WOMMA con- siders such activities—whether authoring a positive product review on a shopbot, pre- tending to read a new novel on the subway, or calling a supermarket to ask the manager why she is not stocking a certain product—to be unethical.

Viral Marketing

One form of buzz building is viral marketing. This term refers to marketing activities that aim to increase brand awareness or sales by consumers passing a message along to other consumers, hopefully in an exponential fashion—much like your roommate passes a cold on to you and you pass it along to all your other friends. Some of the earliest examples of viral marketing were messages at the bottom of e-mails by Yahoo! and Hotmail that adver- tised the free e-mail services, much like the tag today at the bottom of e-mails, “Sent from my BlackBerry.” Consumers could not choose whether they wanted to participate in these viral marketing programs. Today, most viral marketing tactics are more subtle and consist of marketers’ use of video clips, interactive games, or other activities that consumers will find so interesting or unique that they want to share them with their friends using digital technology. To see a classic viral spot in action, visit www.subservientchicken.com.

Ripped from the Headlines

Ethical/Sustainable Decisions in the Real World Social media sites like Facebook and Twitter are great places for users to get together with their friends, to talk about what they are doing right now (“drop-

ping off my dry cleaning!”), and to share news. But sometimes the news isn’t exactly true—and unfortunately the fun goes too far.

When Ed McMahon, Farrah Fawcett, and Michael Jackson died over the span of a few days, the Web was full of made-up death reports about various celebrities. Within a week, rumors that

Harrison Ford had died at sea in his capsized yacht, George Clooney’s private plane had nosedived, and Jeff Goldblum had fallen to his death on a movie set quickly spread on Twitter and Facebook. Most of the rumors started on a prank Web site called Fakeawish.com, where a user can enter a celebrity’s name and then gets a list of fake stories to circulate about him or her.

But is this ethical? Does it damage the credibility of Web sites? Does it se- riously harm any celebrities or their families? Should such prankster Web sites be allowed to exist? Should consumers participate in a prankster Web site such as Fakeawish?

What would you do?

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

Would you spread rumors about celebrities on the Web as an online prank?

YES NO

A lot of Mike’s work has involved viral marketing, where his team creates an engaging message and relies on viewers to disseminate it broadly. This was the key to the success of the groundbreaking “Blair Witch Project.”

Mike Monello APPLYING Viral Marketing

viral marketing Marketing activities that aim to increase brand awareness or sales by consumers passing a message along to other consumers.

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Table 12.2 | Positive and Unethical Word-of-Mouth Marketing Strategies Positive Word-of-Mouth Marketing Strategies Unethical Word-of-Mouth Marketing Strategies

1. Encourage communication.

Develop tools to make telling a friend easier.

Create forums and feedback tools.

Work with social networks.

2. Give people something to talk about.

Transmit information they can share or forward.

Create advertising, stunts, and other publicity that encourage conversation.

Work with product development to build WOM elements into products.

3. Create communities and connect people.

Create user groups and fan clubs.

Support independent groups that form around your product.

Host discussions and message boards about your products.

Support grassroots organizations such as local meetings and other real-world participation.

4. Work with influential communities.

Find people who are likely to respond to your message.

Identify people who are able to influence your target customers.

Inform these individuals about what you do and encourage them to spread the word.

Promote good-faith efforts to support issues and causes that are important to these individuals.

5. Create evangelist or advocate programs.

Provide recognition and tools to active advocates.

Recruit new advocates, teach them about the benefits of your products, and encourage them to talk about them.

6. Research and listen to customer feedback.

Track online and off-line conversations by supporters, detractors, and neutrals.

Listen and respond to both positive and negative conversations.

7. Engage in transparent conversation.

Encourage two-way conversations with interested parties.

Create blogs and other tools to share information.

Participate openly on online blogs and discussions.

8. Co-creation and information sharing.

Involve consumers in marketing and creative executions (solicit feedback on ads, allow enthusiasts to create their own commercials, etc.).

Let customers go “behind the curtain” to obtain first access to information and content.

1. Stealth Marketing

Any practice designed to deceive people about the involvement of marketers in a communication.

2. Shilling

Pay people to talk about (or promote) a product without disclosing that they are working for the company; impersonate a customer.

3. Infiltration

Use fake identities in an online discussion to promote a product; take over a Web site, conversation, or live event against the wishes or rules set by the proprietor.

4. Comment Spam

Use automated software (“bots”) to post unrelated or inappropriate comments to blogs or other online communities.

5. Defacement

Vandalize or damage property to promote a product.

6. Spam

Send bulk or unsolicited e-mail or other messages without clear, voluntary permission.

7. Falsification

Knowingly disseminate false or misleading information.

Source: Adapted from “Word-of-Mouth 101: An Introduction to Word-of-Mouth Marketing,” WOMMA, www.womma.org/wom101.htm (accessed March 12, 2008).

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Brand Ambassadors and Evangelists

Many marketers realize that they can’t create buzz by themselves; they recruit loyal cus- tomers as brand ambassadors or brand evangelists to help them. These zealous consumers can be the best salespeople a company can ever find—and they often work for free. They are heavy users, take a product seriously, care a great deal about it, and want it to suc- ceed.18 In addition, they know the target audience better than anyone because they are a part of it. A new twist in evangelist marketing is the brand party in the intimate settings provided by consumers’ homes. For example, to introduce Windows 7, Microsoft enlisted nearly 60,000 hosts who held parties attended by an estimated 7 million consumers world- wide. Each Windows 7 host received an autographed edition of the operating system, a tote bag, a deck of cards, and other party favors.19

So how do marketers identify and motivate these loyal customers to be brand ambas- sadors? Sometimes they seek out customers who already blog about the product and share what they love about the brand. One way to motivate brand ambassadors is to give them special access or privileges to the company and its marketing strategies. Some might be re- cruited and featured through a brand contest. Months before its Ford Fiesta launch in the United States, Ford initiated its “Fiesta Movement” program to build buzz among the 70 million Millennials, also known as Generation Y consumers, for its car. The campaign sought to recruit 100 “agents” to complete Ford-assigned “missions” and write about their experiences on social networks Facebook, Flickr, and YouTube. To be considered for the “agent” job, consumers were asked to upload a two- to five-minute video to the company Web site explaining why they wanted to become an agent.20

New Social Media In addition to buzz building, social media are an important part of the Updated Communi- cation Model. This term refers to Internet-based platforms that allow users to create their own content and share it with others who access these sites. It’s hard to grasp just how much these new formats will transform the way we interact with marketers; they “democratize”

messages because they give individual consumers a seat at the table when organizations shape brand meanings and promote themselves in the marketplace. This makes it much easier for companies to tap into their brand evangel- ists to help them spread the word. The flip side is that the bad stuff also gets out much quicker and reaches people a lot faster: In one survey 20 percent of respondents said they had used social media to share a negative experience with a brand or service.21

There’s no doubt that social media is the place to be in marketing communication now, even if many organiza- tions haven’t quite figured out just what to do with these platforms. Traditional brands such as McDonald’s, Pizza Hut, and Church’s Chicken are scrambling to move hefty portions of their promotion budgets out of advertising and into social media. Pizza Hut has over a million fans on its Facebook page, and the franchise launched a campaign on Twitter looking for summer “twiterns” who would blog to their fans about all things pizza. Church’s Chicken spon- sored a “pay it forward” promotion on Twitter, promising to donate $1 to the company pledge fund for each person who joined their Twitter feed during a 30-day period.22

Social media include blogs, forums, picture- and video- sharing sites, wikis, and podcasts, to name a few. While

A brand community is a group of people who are organized around a lifestyle or idea that is representative of a brand. The brand community members are admirers of the brand and share in the rituals and traditions they associate with it. They feel connected to the brand and as a result they bond with each other. After near bankruptcy in 1983, Harley focused on building a brand community. The Harley Owners Group®, fondly referred to as H.O.G., is credited with helping to turn the company around. Harley supports riders’ passions for their bikes by sponsoring huge rallies around the country where members can meet up. In 2009, Harley enjoyed revenues of over $4 billion.

social media Internet-based platforms that allow users to create their own content and share it with others who access these sites.

brand ambassadors or brand evangelists Loyal customers of a brand recruited to communicate and be salespeople with other consumers for a brand they care a great deal about.

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marketers can and do use all these types of sites, we are going to focus on just a few platforms: social networking sites, virtual worlds, product review sites, and geospatial mobile apps.

Social Networks

Social networks are sites used to connect people with other similar people. Successful net- working sites ask users to develop profiles of themselves so that those with similar back- grounds, interests, hobbies, religious beliefs, racial identities, or political views can “meet” online. Social networks such as Facebook and LinkedIn are some of the most popular sites on the Internet with millions of users from around the globe. Once a user has created a pro- file, it’s easy to connect with old and new friends.

So what’s in all this social networking for marketers? First, social networks make it easy for marketers to reach influential people such as journalists and consumers who are opin- ion leaders. But even more important is the opportunity social networks provide to create a brand community. We’ll talk later about brand communities but first, let’s examine a couple of the most popular social media sites.

Facebook

Facebook is the most popular of all social networking sites with over 500 million users as we write this book—and no doubt tons more as you’re reading it. Users of Facebook first develop a profile that remains private unless they choose to connect with a “friend.” While this social media site was originally created to allow college students to keep in touch with their friends (in those days you had to have “.edu” in your e-mail address to join), it is no longer just for students. Today there are many significant user segments including baby-boomer women and even grandparents who use the platform to locate long-lost friends (and keep tabs on their grandchildren).23 Despite this “invasion,” at least for now Facebook is the social media site of choice for college students. In one recent survey of American students, an overwhelming 82 percent of males and 90 percent of females gave it the ultimate compliment: They rated it “cool” and the Go To place over all other networking platforms, and even over Web sites in general, including Google.24 A major advantage for marketers is that you can establish Face- book groups around topics and you can recruit fans for your product. Many firms are rolling out promotions that tap into this fan base. A typical one is the Burgerville restaurant chain. It invites its network of over 10,000 Facebook fans to participate in “Tasting Tuesdays,” where they can sample new menu items and provide feedback. The chain also alerts fans to upcom- ing visits to their areas by the Burgerville “Nomad,” a 24-foot-long mobile restaurant.25

Twitter

Twitter is a free microblogging service that lets users post short text messages with a maxi- mum of 140 characters. People who subscribe to an individual’s Twitter feed are called “fol- lowers.” Users can follow anyone they like, unlike Facebook where you have to be recognized and accepted as a “friend.” Attesting to its popularity, Twitter now has 106 mil- lion registered users who “tweet” 55 million posts a day.26

The good news for marketers is that one in five (20 percent) tweets posted on Twitter is ei- ther a question or a comment about a brand-related product or service.27 Thus it is especially important that marketers monitor Twitter to understand what consumers say about their prod- ucts. Unlike other social media, Twitter is a broadcast medium, which means that marketers can send messages to hundreds of thousands of people at a time. They can use this platform to alert customers to deals and to generate sales. Dell, for example, used Twitter to tell followers about exclusive deals; these tweets generated over $3 million in revenue in 24 months.28

Virtual Worlds

What if a sophisticated video game like Madden Football married a chatroom that enables mul- tiple participants to talk to each other in real time? Suppose they had a baby: This would prob- ably be a virtual world. This term refers to an online, highly engaging digital environment

social networks Sites used to connect people with other similar people.

twitter A free microblogging service that lets users post short text messages with a maximum of 140 characters.

virtual worlds Online, highly engaging digital environments where avatars live and interact with other avatars in real time.

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where avatars—graphic representations of users—live and interact with other avatars in real time. The blockbuster movie Avatar exposed many people to this basic idea as it told the story of a wounded soldier who takes on a new (10 ft. tall and blue) identity in the world of Pandora.

In virtual worlds, residents can hang out at virtual clubs, shop for clothing and bling for their avatars, buy furniture to deck out virtual homes, and yes, even go to college in vir- tual universities. Some people find it hard to believe, but it’s common for people to spend real money to buy digital products that don’t exist in the real world. Indeed, the virtual goods market is booming: In the United States alone, consumers spend well over $1 billion each year to buy items they use only in virtual worlds!

Second Life is one of the largest and best-known virtual worlds, although in reality there are several hundred of these environments up and running. This platform is one of many virtual worlds that has become a booming marketplace for budding fashion designers, mu- sicians, and businesspeople who sell their products and services. A few have even become real-world millionaires by selling virtual goods to users who want to buy bling for their avatars. A sampling of other virtual worlds includes:

• Coke Studios, a promotional virtual world for Coca-Cola that targets teens and young adults. Avatars called “V-egos” create their own customized music mixes in a virtual music studio, games, and contests for Coca-Cola and its partners.

• Disney’s Toontown offers kids a brightly colored cartoon environment where they can outfit their toon avatars and play games. Like offline Disney World, Toontown is de- signed to be a place where kids feel they are in charge.

• Habbo Hotel is a virtual world where teens and young adults inhabit a room (a “habbo”) and decorate it with furniture they purchase with Habbo credits.

• FooPets, especially popular with 12- to 14-year-old girls, allows users to “adopt” digi- tally animated pets, then care for them and feed them. If the pets are not properly cared for, they will be taken to a virtual shelter.30

Most virtual goods, whether sold in virtual worlds or through other social media sites, have micro-prices—from less than $1 to $3. So what’s in it for real-world marketers? Some firms enter the market for virtual goods to keep in touch with consumers, improve the brand’s image and develop loyal customers. MTV Networks gave away virtual replicas of celebrity accessories such as Beyoncé’s diamond ring in its campaign to increase viewership for the Video Music Awards. H&M showed viewers its collection of denim and blue garments and encouraged consumers to visit H&M retail stores on Mytown.And Volvo Cars of NorthAmer-

The Cutting Edge

Where Is Twitter Going? During its few years of existence, Twitter has seen exponential growth. Never- theless, at least two problems have the potential to make the social media site’s future less rosy than its brief past. First, Twitter has to deal with the same basic issue that has confounded many Web 2.0 media platforms—how to “monetize” the site (a fancy way to say make money from it). Second, the site’s future popularity is not guaranteed—it could be overshadowed by the next so- cial media darling idea, just as MySpace lost a lot of its luster when many users defected to Facebook.

Twitter is hoping to address the monetization problem as it embarks on a program to sell advertising, or what it calls Promoted Tweets.29 In much the same way that Google makes money when people use its site to search for in- formation, ads will be activated when users search for keywords that advertis- ers have bought to link to their ads. If a Twitter user searches for information

on vacations in Bali, she may see a Promoted Tweet from an airline that offers— guess what?—special fares on flights to Bali. The messages will appear at the top of the posts no matter when they were added. Later, even when users don’t search for those keywords, the ads that are relevant to a particular user based on his previous searches will be posted in a stream of Twitter posts. The pro- gram will also allow Twitter advertisers to respond to negative tweets. When a tweet about a brand is negative (Twitter already has the software to measure the sentiments of tweets), an ad can be inserted. For example, if a Twitter user says something negative about a movie, the studio can use its ads to link the user to a positive review.

Time will tell if Twitter’s strategy is successful. One potential pitfall: Will users get turned off by the Promoted Tweets and defect to another site that (at least for now) offers an environment with no advertising? If so, cue up problem #2 . . .

avatars Graphic representations of users of virtual worlds.

virtual goods Digital products bought and sold in virtual worlds that don’t exist in the real world.

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ica offered virtual goods on the iPhone app MyTown in a program to improve its image.32

Product Review Sites

Product review sites are social media sites that enable peo- ple to post stories about their experiences with products and services. Marketers hope that product review sites create a connection between the consumer and the brand. Product review sites give users both positive and negative information about companies:

• TripAdvisor provides unbiased hotel reviews com- plete with photos and advice. The site gives con- sumers an opportunity to rate and comment on a hotel that they recently stayed in or to use other consumers’ comments to select a hotel for an upcoming trip.

• Yelp is a product review site that provides reviews of local businesses such as places to eat, shop, drink, or play. Consumers can access Yelp either through the Internet or a mobile phone. Businesses can create pages to enable them to track reviews.

• The Zagat Survey began in 1979 in offline form. Today the online version provides con- sumer survey-based information on restaurants, hotels, nightspots and leisure activi- ties in over 100 countries based on surveys of more than 375,000 consumers. Zagat reviews are available to consumers online, through mobile phones and in-car personal navigation devices.

Mobile Apps and Geospatial Platforms

It’s obvious to almost anyone who’s conscious today that the future of marketing commu- nication lies in that magic little device you practically sleep with—whether it’s a smart- phone or perhaps a computer/phone hybrid like Apple’s iPad. Combine Web browsing capability with built-in cameras and the race is on to bring to the world to your belt or purse. Apple lit up this market when it introduced the iPhone and now everyone is scrambling to “monetize” the mobile market through sales of ringtones, on-demand video, online coupons, and “apps” that entertain or educate. A few to watch include.33

• ShopSavvy finds the lowest prices online and at nearby brick-and-mortar retailers, as well as coupons, and lets users make transactions.

• RetrevoQ uses texts and tweets to provide information about electronics products. Shoppers can text 41411 or tweet @retrevoq, including the make and model of the elec- tronics product they’re considering, and RetrevoQ will respond with advice on whether it’s a good buy, a fair price, the price range available online for that product, and a link to reviews at Retrevo.com, a consumer-electronics shopping and review site.

• Fastmall provides interactive maps of malls, highlights the quickest route to stores, and even helps shoppers remember where they parked their cars. Even better: Shake your phone and it shows you the nearest restroom location.

Geospatial platforms integrate sophisticated GPS technology (like the navigation sys- tem you may have in your car) that enables users to alert friends of their exact whereabouts via their mobile phones. Foursquare is one of the most popular of these new sites with nearly 3 million users; one of its addicting features is that users compete to become “mayor” of a location by checking in from there more than anyone else. Other hot location-based sites

In anticipation of its 2011 launch of the “Cars 2” movie, a sequel to the original 2006 hit, “Cars,” Disney launched an online community it calls “World of Cars.” Subscribers to the community interact with characters from the movie, design their own car and race it on an online track.31

product review sites Social media sites that enable people to post stories about their experiences with products and services.

geospatial platforms Digital applications that integrate sophisticated GPS technology to enable users to alert friends of their exact whereabouts via their mobile phones.

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include Loopt, Gowalla, Booyah, Shopkick, Google’s Latitude and Facebook’s location based service. Many top retailers including Starbucks, Sephora, Gap, Macy’s, Best Buy and American Eagle are finding that the use of check-in sites such as Foursquare, Gowalla, and Shopkick that reach customers on the go increases sales.34 Businesses can ride this wave by offering discounts or free services to people who check in to their locations, or in Foursquare to those who reach the rank of “Mayor,” which obviously encourages consumers to visit the place frequently. Foursquare also provides a “dashboard” to businesses that tells them who checks into their locations and at what times so they can get a handle on how specific mar- keting communications such as a time-limited sales promotion are working (or not) to drive traffic.35

Promotional Planning in a Web 2.0 World Now that we’ve talked about communication and the traditional and new tools marketers can use to deliver messages to their customers, we need to see how to make it all happen. How do we go about the com- plex task of developing a promotional plan—one that delivers just the right message to a number of different target audiences when and where they want it in the most effective and cost-efficient way?

Just as with any other strategic decision-making process, the devel- opment of this plan includes several steps, as Figure 12.4 shows.

First, we’ll go over the steps in promotional planning. Then we’ll take a look at how mar- keters today are developing multichannel promotional strategies.

Step 1. Identify the Target Audience(s) An important part of overall marketing planning is to identify the target audience(s). IMC marketers recognize that we must communicate with a variety of stakeholders who influ- ence the target market. Of course, the intended customer is the most important target audi- ence and the one that marketers focus on the most.

3 OBJECTIVE

Describe the steps in

traditional and

multichannel

promotional

planning. (pp. 366–373)

Step 1: Identify the Target Audiences

Step 2: Establish the Communication Objectives

Step 3: Determine and Allocate the Marketing Communication Budget

Step 4: Design the Promotion Mix

Step 5: Evaluate the Effectiveness of the Communication Program

• Determine the Total Promotion Budget • Decide on a Push or a Pull Strategy • Allocate the Budget to a Specific Promotion Mix

Figure 12.4 Process | Steps to Develop the Promotional Plan

Development of successful promotional plans involves organizing the complex process into a series of several orderly steps.

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Step 2. Establish the Communication Objectives The whole point of communicating with customers and prospective customers is to let them know in a timely and affordable way that the organization has a product to meet their needs. It’s bad enough when a product comes along that people don’t want or need. An even big- ger marketing sin is to have a product that they do want—but you fail to let them know about it. Of course, seldom can we deliver a single message to a consumer that magically transforms her into a loyal customer. In most cases, it takes a series of messages that moves the consumer through several stages.

We view this process as an uphill climb, such as the one Figure 12.5 depicts. The mar- keter “pushes” the consumer through a series of steps, or a hierarchy of effects, from initial awareness of a product to brand loyalty. The task of moving the consumer up the hierarchy becomes more difficult at each step. Many potential buyers may drop out along the way, leav- ing fewer of the target group inclined to go the distance and become loyal customers. Each part of this path entails different communication objectives to “push” people to the next level.

To understand how this process works, imagine how a firm would have to adjust its communication objectives as it tries to establish a presence in the market for Hunk, a new men’s cologne. Let’s say that the primary target market for the cologne is single men age 18 to 24 who care about their appearance and who are into health, fitness, working out, and looking ripped. The company would want to focus more on some promotion methods (such as advertising) and less on others (such as personal selling). Here are some communication objectives the company might develop for its Hunk promotion.

Create Awareness

The first step is to make members of the target market aware that there’s a new brand of cologne on the market. The fragrance’s marketers might place simple, repetitive advertising in magazines, on television, and on the radio that push the brand name. The company could develop a “teaser” ad campaign, in which messages heighten interest because they don’t ini- tially reveal the exact nature of the product (for example, newspaper ads that simply proclaim,

hierarchy of effects A series of steps prospective customers move through, from initial awareness of a product to brand loyalty.

Loyalty Mailing to users Licensed merchandise Product placementPurchase

Point-of-purchase displays Coupons Contests SamplesDesire

Status appeals Sex appeals Celebrity endorsementsKnowledge

Descriptive copy Brochures Infomercials Public relations Personal selling Web siteAwareness

Repetitive advertising Slogans and jingles Publicity stuntsCOMMUNICATION

OBJECTIVES EXAMPLES OF PROMOTIONAL EFFORTS

Figure 12.5 Snapshot | The Hierarchy of Effects Communication objectives move consumers through the hierarchy of effects.

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“Hunk is coming!”). The promotion objective might be to create an 80 percent awareness of Hunk cologne among 18- to 24-year-old men in the first two months. Note how this objective is worded. Objectives are best when they are quantitative (80 percent), when they specify the target consumer or business group (18- to 24-year-old men), and when they specify the time frame during which the plan is expected to reach the objective (in the first two months).

Inform the Market

The next step is to provide prospective users with knowledge about the benefits the new product has to offer—to position it relative to other colognes (see Chapter 7). Perhaps the cologne has a light, slightly mentholated scent with a hint of a liniment smell to remind wearers of how they feel after a good workout. Promotion would focus on communications that emphasize this position. The objective at this point might be to communicate the con- nection between Hunk and muscle building so that 70 percent of the target market develops some interest in the product in the first six months of the communication program.

Create Desire

The next task is to create favorable feelings toward the product and to convince at least some members of this group that they would rather splash on some Hunk instead of other colognes. Communication at this stage might consist of splashy advertising spreads in mag- azines, perhaps with an endorsement by a well-known celebrity “hunk” such as The Rock. The specific objective might be to create positive attitudes toward Hunk cologne among 50 percent of the target market and brand preference among 30 percent of the target market in the first six months.

Encourage Purchase and Trial

As the expression goes, “How do ya know ‘til ya try it?” The company now needs to get some of the men who have become interested in the cologne to try it. A promotion plan might encourage trial by mailing samples of Hunk to members of the target market, insert- ing “scratch-and-sniff” samples in bodybuilding magazines, placing elaborate displays in stores that dispense money-saving coupons, or even sponsoring a contest in which the win- ner gets to have The Rock as his personal trainer for a day. The specific objective now might be to encourage trial of Hunk among 25 percent of 18- to 24-year-old men in the first two months (note: we have not cleared this plan with The Rock).

Build Loyalty

Of course, the real test is loyalty: to convince customers to stay with Hunk after they’ve gone through the first bottle. Promotion efforts must maintain ongoing communication with current users to reinforce the bond they feel with the product. As before, this step will include some mix of strategies, such as direct-mail advertising to current users, product placements in popular television programs or movies, and maybe even the development of a workout clothing line that sports a Hunk logo. The objective might be to develop and maintain regular usage of Hunk cologne among 10 percent of men from 18 to 24 years old.

Step 3: Determine and Allocate the Marketing Communication Budget While setting a budget for marketing communication might seem easy—you just calculate how much you need to accomplish your objectives—in reality it’s not that simple. We need to make three distinct decisions to set a budget:

1. Determine the total communication budget.

2. Decide whether to use a push strategy or a pull strategy.

3. Allocate spending to specific promotion activities.

Attention-getting messages (“fat is sexy”) capture consumers’ attention and inform them about new products.

top-down budgeting Allocation of the promotion budget based on management’s determiniation of the total amount to be devoted to marketing communication.

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Determine the Total Promotion Budget

In the real world, firms often view communication costs as an expense rather than as an investment leading to greater profits (shame on them!). When sales are declining or the company is operating in a difficult economic envi- ronment, it is often tempting to cut costs by reducing spending on advertis- ing, promotion, and other “soft” activities whose contributions to the bottom line are hard to quantify. When this is the case, marketers must work harder to justify these expenses.

Economic approaches to budgeting rely on marginal analysis (we dis- cussed these in Chapter 11), in which the organization spends money on pro- motion as long as the revenues it realizes through these efforts continue to exceed the costs of the promotions themselves. This perspective assumes that a company always intends promotions solely to increase sales, when in fact these activities may have other objectives such as enhancing a firm’s image.

Also, the effects of marketing communication often lag over time. For example, a firm may have to spend a lot on advertising and other forms of marketing communication when it first launches a product without seeing any immediate return. Because of these limitations, most firms rely on two budgeting techniques: top-down and bottom-up. Top-down budgeting tech- niques require top management to establish the overall amount that the or- ganization allocates for promotion activities

The most common top-down technique is the percentage-of-sales method in which the promotion budget is based on last year’s sales or on es- timates for the present year’s sales. The percentage may be an industry av- erage provided by trade associations that collect objective information on behalf of member companies. The advantage of this method is that it ties spending on pro- motion to sales and profits. Unfortunately, this method can imply that sales cause promo- tional spending rather than viewing sales as the outcome of promotional efforts.

The competitive-parity method is a fancy way of saying “keep up with the Joneses.” In other words, match whatever competitors spend. Some marketers think this approach sim- ply mirrors the best thinking of others in the business. However, this method often results in each player simply maintaining the same market share year after year. This method also assumes that the same dollars spent on promotion by two different firms will yield the same results, but spending a lot of money doesn’t guarantee a successful promotion. Firms cer- tainly need to monitor their competitors’ promotion activities, but they must combine this information with their own objectives and capacities.

The problem with top-down techniques is that budget decisions are based more on es- tablished practices than on promotion objectives. Another approach is to begin at the begin- ning: Identify promotion goals and allocate enough money to accomplish them. That is what bottom-up budgeting techniques attempt.

This bottom-up logic is at the heart of the objective-task method, which is gaining in popularity. Using this approach, the firm first defines the specific communication goals it hopes to achieve, such as increasing by 20 percent the number of consumers who are aware of the brand. It then tries to figure out what kind of promotional efforts—how much adver- tising, sales promotion, buzz marketing, and so on—it will take to meet that goal. Although this is the most rational approach, it is hard to implement because it obliges managers to specify their objectives and attach dollar amounts to them. This method requires careful analysis—and a bit of lucky “guesstimating.”

Decide on a Push or a Pull Strategy

The second important decision in promotion budgeting is whether the company will pri- marily push or pull. A push strategy means that the company wants to move its products by convincing channel members to offer them and entice their customers to select these

Many brands have discovered that a great way to build loyalty is to give back to worthy causes.

percentage-of-sales budgeting method A method for promotion budgeting that is based on a certain percentage of either last year’s sales or on estimates of the present year’s sales.

competitive-parity budgeting method A promotion budgeting method in which an organization matches whatever competitors are spending.

bottom-up budgeting techniques Allocation of the promotion budget based on identifying promotion goals and allocating enough money to accomplish them.

objective-task method A promotion budgeting method in which an organization first defines the specific communication goals it hopes to achieve and then tries to calculate what kind of promotion efforts it will take to meet these goals.

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push strategy The company tries to move its products through the channel by convincing channel members to offer them.

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items—it pushes them through the channel. This ap- proach assumes that if consumers see the product on store shelves, they will be motivated to make a trial pur- chase. In this case, promotion efforts will “push” the products from producer to consumers by focusing on per- sonal selling, trade advertising, and trade sales promo- tion activities such as exhibits at trade shows.

In contrast, a company that relies on a pull strategy is counting on consumers to demand its products. This pop- ularity will then convince retailers to respond by stocking these items. In this case, efforts focus on media advertis- ing and consumer sales promotion to stimulate interest among end consumers who will “pull” the product onto store shelves and then into their shopping carts.

Whether we use a push or a pull strategy and the pro- motion mix that we use for a product varies over time be- cause some promotion strategies work better than others at different points in the product life cycle (which we re- viewed back in Chapter 9).

As an example, we might think about the state of electronics in today’s market and the relative positions in the product life cycle. In the introduction phase, the objective is to build awareness of and encourage trial of the product among consumers, often by relying on a pull strategy. That’s the situation today with 3G (third generation) mobile telephone tech- nology that allows voice and data transmission at incredible speeds. This enables you to watch television, have video conversations with your friends, log into your bank account to pay your bills, view video clips of local tourist attractions, and manage your inventory of items that need restocking from your home’s “smart” refrigerator—all from your 3G mobile phone. Advertising is the primary promotion tool to create awareness, and a publicity cam- paign to generate news reports about the new product may help as well. A company may use sales promotion to encourage trial. Business-to-business marketing that emphasizes personal selling—the marketing that a manufacturer does to retailers and other business customers—is important in this phase in order to get channel members to carry the product. For consumer goods that retailers sell, trade sales promotion may be necessary to encour- age retailers to stock the product.

In the growth phase, promotions stress product benefits. For products such as MP3 players, advertising increases, while consumer sales promotions that encourage trial usu- ally decline because people are more willing to try the product without being offered an incentive.

The opposite pattern often occurs with products now in their maturity phase such as DVD players. In these situations many people have already tried the product. The strategy now shifts to encouraging people to switch from competitors’ brands as sales stabilize. This can be tough if consumers don’t see enough differences among the options to bother. Usually, sales promotion activities, particularly coupons and special price deals, have greater chances of success than advertising. In some cases an industry revamps a widely used technology when it introduces one or more new versions or formats that force con- sumers to convert (sometimes kicking and screaming), thus transforming a mature cate- gory back to a new one. That’s what’s happening now in the “DVD format wars,” a high-stakes showdown between the HD DVD and Blu-ray disk formats that Blu-ray won after it gained the backing of a large number of consumer electronics and entertainment companies.36

All bets are off for VCR players, now well into their decline phase. As sales plummet, the company dramatically reduces spending on all elements of the promotion mix. Sales will be

Small businesses need to budget carefully to be sure they get the bang for their scarce bucks. This food delivery company in Brazil decided to invest in an eye-catching print ad.

pull strategy The company tries to move its products through the channel by building desire for the products among consumers, thus convincing retailers to respond to this demand by stocking these items.

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driven by the continued loyalty of a small group of users who keep the prod- uct alive until it is sold to another company or discontinued.

Allocate the Budget to a Specific Promotion Mix

Once the organization decides how much to spend on promotion and whether to use a push or a pull strategy, it must divide its budget among the elements in the promotion mix. Although advertising used to get the lion’s share of the promotion budget, today sales promotion and digital marketing such as buzz building and the use of social media we talked about earlier in this chapter are playing a bigger role in marketing strategies. Overall adver- tising spending, for example, declined 12.3 percent in 2009 compared to spending in 2008 while at the same time companies were investing more in Internet display ads (up 7.3 percent) and coupon inserts (up 3 percent).37 In one study, up to 60 percent of marketers said they were shifting funds from traditional media to interactive marketing, including social media, and mo- bile marketing. While only 12 percent of those surveyed said they were cutting TV ad budgets, 40 percent were cutting direct mail, and more than 25 percent were cutting newspapers and magazines.38

In today’s dynamic media environment, there are few clear guidelines for how to divide up the promotional pie. In some cases managers may simply have a preference for advertising versus sales promotion or other elements of the promotion mix. Also, consumers vary widely in the like- lihood that they will respond to various communication elements. Some thrifty consumers like to clip coupons or stock up with two-for-one offers while others throw away those Sunday newspaper coupons without a glance. College students are especially likely to spend most of their time on the Internet (but you knew that).The size and makeup of a geographic mar- ket also influence promotion decisions. In larger markets, the cost of buy- ing media, such as local TV, can be quite high. If only a small percentage of the total market includes potential customers, then mass media advertis- ing can be a very inefficient use of a promotion budget.

Step 4: Design the Promotion Mix Designing the promotion mix is the most complicated step in marketing communication planning. It includes determining the specific communication tools to use, what message to communicate, and the communication channel(s) that will be used to send the message.

Planners must ask how they can use advertising, sales promotion, personal selling, and public relations most effectively to communicate with different target audiences. Each ele- ment of the promotion mix has benefits and shortcomings, so—as we’ve seen—often a com- bination of a few techniques works the best.

The message ideally should accomplish four objectives (though a single message can rarely do all of these): It should get attention, hold interest, create desire, and produce ac- tion. We call these communication goals the AIDA model. Here we’ll review some different forms the message can take as well as how we might structure the message.

There are many ways to say the same thing, and marketers must take care when they choose how they will encode their message. To illustrate, consider two strategies rival car companies used to promote similar automobiles: Toyota’s advertising for its Lexus model used a rational appeal that focused on the technical advancements in the car’s design. This approach is often effective for promoting products that are technically complex and require a substantial investment. Nissan, in contrast, focused on the spiritual fulfillment a driver might feel tooling down the road in a fine machine.

Consumers can’t wait to read their novels and newspapers on a table instead of toting around all those hard copies but it’s unclear which format will prevail. Will it be Amazon’s Kindle, the Apple iPad, the Barnes & Noble Nook, the Sony Reader—or maybe some upstart we haven’t seen quite yet?

AIDA model The communication goals of attention, interest, desire, and action.

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Step 5: Evaluate the Effectiveness of the Communication Program The final step to manage marketing communication is to decide whether the plan is working. It would be nice if a marketing manager could simply report, “The $3 million campaign for our revolutionary glow-in-the-dark surf- boards brought in $15 million in new sales!” It’s not so easy. There are many random factors in the marketing en- vironment: a rival’s manufacturing problem, a coinciden- tal photograph of a movie star toting one of the boards, or perhaps a surge of renewed interest in surfing sparked by a cult movie hit like Blue Crush.

Still, there are ways to monitor and evaluate the com- pany’s communication efforts. The catch is that it’s easier to determine the effectiveness of some forms of communi- cation than others. As a rule, various types of sales promo- tion are the easiest to evaluate because they occur over a

fixed, usually short period, making it easier to link to sales volume. Advertising researchers measure brand awareness, recall of product benefits communicated through advertising, and even the image of the brand before and after an advertising campaign. The firm can an- alyze and compare the performance of salespeople in different territories, although again it is difficult to rule out other factors that make one salesperson more effective than another. Public relations activities are more difficult to assess because their objectives relate more of- ten to image building than sales volume.

Multichannel Promotional Strategies As we said early in this chapter, marketers today recognize that the traditional one-to-many communication model in which they spent millions of dollars broadcasting ads to a mass audience is less and less effective. At the same time, it isn’t yet clear how effective the new many-to-many model is—or what marketing metrics we should use to measure how well new media campaigns are working. Thus, many marketers opt for multichannel promo- tional strategies where they combine traditional advertising, sales promotion, and public relations activities with online buzz-building activities. For marketers who choose multi-

This Turkish ad for bird seed gets attention and holds interest!

A communication objective may focus on educating consumers about a product like potatoes. The sponsor can measure the effectiveness of a campaign by assessing people’s knowledge before and after the messages have run to determine if they had any impact.

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channel marketing there are important benefits. First, multichannel strategies boost the ef- fectiveness of either online or offline strategies used alone. And multichannel strategies al- low marketers to repeat their messages across various channels; this lets them strengthen brand awareness, and it provides more opportunities to convert customers.

Perhaps the best way to really understand how marketers develop multichannel strate- gies is to look at how some actually do it:

• As part of its recent communication program to encourage consumers to buy its Athenos brand of hummus, Kraft combined traditional radio media with online mes- sages. The campaign featured a three-city restaurant sampling program in Atlanta, Denver, and Chicago. The multichannel campaign also included a “true or false” quiz on the Internet and radio stations promotions in which listeners participated in live quiz events conducted by stations’ morning show hosts. The campaign was also pro- moted on the Athenos Facebook page.39

• The Mexican restaurant chain Del Taco created a Facebook-based entertainment we- bisode, “The Del Taco Super Special Show.” Traditional TV and radio ads promoted the webisode and offered consumers a coupon for a free Classic Taco.40

• Ghiradelli Chocolate combined an online sweepstakes, a 10-city sampling tour, promo- tional packaging, in-store displays, an online banner campaign, and a month-long Times Square billboard in its “Million Moments of Timeless Pleasure” campaign. Consumers were asked to visit a Web site and create a 75-character message about the “sweet little moments” when they enjoyed Ghiradelli. The comments were then streamed live. Se- lected posts were also shown in lights on a billboard in New York City’s Times Square. To sweeten the campaign even more, Ghiradelli distributed one million Ghiradelli squares in a sampling program. Hungry consumers were able to find out where the sampling was taking place by following the campaign on Twitter.41

Real People, Real Choices

Here’s my choice. . .

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

Why do you think Mike chose option #3?

How It Worked Out at Campfire Mike and his partners declined the account. They felt that moving in that direction would reduce the agency’s differentiation in the marketplace. Today the agency has grown to 25 employees and works on innovative forms of marketing and storytelling, such as recent work for Discovery Channel’s Shark Week, a transmedia experience that used influencer outreach, Facebook Connect, and a chilling Web site to bring the visceral terror of a shark attack directly to its audience.

OptionOption Option

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Brand YOU! Get the word out about your brand ... to all the right people.

Create an integrated marketing communication plan for your personal brand. It’s easy to increase your chances of get- ting interviews when you use all the available “media” to get your cover letter and résumé to your target audiences. Plan your personal brand marketing communication plan in Chapter 12 of the Brand You supplement.

Objective Summary Key Terms Apply Study Map CHAPTER 12

1. Objective Summary Understand the communication process and the traditional promotion mix. Firms use promotion and other forms of marketing communica- tion to inform consumers about new products, remind them of familiar products, persuade them to choose one alternative over another, and build strong customer relationships. Recognizing that consumers come in contact with a brand at many different touch points, firms today often practice integrated marketing communication to reach consumers through a multichannel pro- motional strategy. Because marketers understand the impact of word-of-mouth communication, they are likely to supplement the traditional one-to-many communication model with a newer many-to-many model and also talk one-to-one with consumers.

The traditional communication model includes a message source that creates an idea, encodes the idea into a message, and transmits the message through some medium. The mes- sage is delivered to the receiver, who decodes the message and may provide feedback to the source. Anything that interferes with the communication is called “noise.”

The promotion mix refers to the marketing communication elements that the marketer controls. Advertising, sales promo- tion, and public relations use the mass media to reach many consumers at a single time while personal selling and direct marketing allow marketers to communicate with consumers one-on-one.

Key Terms AOR (Agency of Record) relationship, p. 349

promotion, p. 350

integrated marketing communication (IMC), p. 351

(pp. 350–357) multichannel promotional strategy, p. 351

word-of-mouth communication, p. 351

communication model, p. 352

encoding, p. 353

source, p. 353

message, p. 354

medium, p. 354

receiver, p. 354

decoding, p. 354

noise, p. 354

feedback, p. 355

promotion mix, p. 355

mass communication, p. 357

2. Objective Summary Understand how marketers communicate using an updated communication model that incorporates buzz marketing activities and social media. Because consumers spend more time online and less time watch- ing TV or reaching magazines, traditional advertising has dimin- ished as a way to talk to consumers. Consumers today are increasingly getting their information on products from one an- other rather than from firms as technology magnifies the spread of consumer buzz. Marketers use buzz-building activities to en- courage consumers to share their opinions about products with friends and neighbors. While organic word-of-mouth (WOM) oc- curs naturally, buzz marketing campaigns create amplified WOM.

Viral marketing refers to activities that aim to increase brand awareness or sales by consumers passing a message along to

(pp. 358–366)

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other consumers. Marketers may recruit loyal customers who care a great deal about a product and want it to succeed as brand ambassadors or brand evangelists to help create buzz.

Social media are Internet-based platforms that allow users to create their own content and share it with others. Social net- working sites or social networks such as Facebook, Twitter, vir- tual worlds, product review sites, mobile apps, and geospatial platforms connect people with other similar people.

Key Terms advertising, p. 357

groundswell, p. 358

buzz, p. 359

viral marketing, p. 360

brand ambassadors or brand evangelists, p. 362

social media, p. 362

social networks, p. 363

twitter, p. 363

virtual worlds, p. 363

avatars, p. 364

virtual goods, p. 364

product review sites, p. 365

geospatial platforms, p. 365

3. Objective Summary Describe the steps in traditional and multichan- nel promotional planning. Recognizing the importance of communicating with a variety of stakeholders who influence the target market, marketers be- gin the promotional planning process by identifying the target

(pp. 366–373)

audience(s). Next they establish communication objectives. Ob- jectives often are to create awareness, inform the market, cre- ate desire, encourage purchase and trial, and/or build loyalty.

Marketers develop promotion budgets from rules of thumb such as the percentage-of-sales method, the competitive-parity method, and the objective-task method. They then decide on a push or a pull strategy and allocate monies from the total budget to various elements of the promotion mix.

Next marketers design the promotion mix by deciding how they can use advertising, sales promotion, personal selling, and public relations most effectively to communicate with different target audiences. The final step is to evaluate the effectiveness of the communication program in order to determine whether the plan is working.

Marketers today often opt for multichannel promotional strategies where they combine traditional advertising, sales promotion, and public relations activities with online buzz- building activities. Multichannel strategies boost the effective- ness of either online or offline strategies used alone and allow marketers to repeat their messages across various channels, thus strengthening brand awareness and providing more op- portunities to convert customers.

Key Terms hierarchy of effects, p. 367

top-down budgeting techniques, p. 369

percentage-of-sales method, p. 369

competitive-parity method, p. 369

bottom-up budgeting techniques, p. 369

objective-task method, p. 369

push strategy, p. 369

pull strategy, p. 370

AIDA model, p. 371

Chapter Questions and Activities Questions: Test Your Knowledge

1. What is integrated marketing communication? What are multichannel promotional strategies? Why is word-of- mouth communication so important?

2. Describe the traditional communication model. 3. List the elements of the promotion mix and describe how

they are used to deliver personal and mass appeals. 4. Explain the many-to-many communication model and why

it is important for marketers today. 5. What is buzz? How do marketers practice buzz building? 6. What are some ethical problems in buzz marketing? 7. What is viral marketing? How do marketers use brand am-

bassador or brand evangelists? 8. What is social media? What are social networks? Describe

Facebook, Twitter, virtual worlds, product review sites, mo- bile apps, and geospatial platforms.

9. List and explain the steps in promotion planning. 10. Explain the hierarchy of effects and how it is used in com-

munication objectives. 11. Describe the major ways in which firms develop marketing

communication budgets. 12. Describe push versus pull strategies. How are push and pull

strategies useful in different stages of the product life cycle?

Activities: Apply What You’ve Learned

1. Assume you are the director of marketing for a firm that markets one of the following products.

i. Environmentally friendly household cleaning supplies ii. Hand-made wooden toys for 2- to 5-year-old children iii. A line of designer book bags for students

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You are developing a promotional plan. Develop sug- gestions for each of the following items. a. Marketing communication objectives b. A method for determining the communication budget c. The use of a push strategy or a pull strategy d. Elements of the traditional promotion mix you will use e. Use of buzz-building and social media activities

Then, in a role-playing situation, present your recom- mendations to your boss.

2. Many firms today are using a variety of buzz-building ac- tivities to encourage word-of-mouth communication about their products. Select a product that you and your classmates might purchase. You might, for example, think about (1) a specialty coffee shop, (2) a night spot where you and your friends might hang out on the weekends, or (3) a local theme or amusement park.

For your selected product, develop ideas for at least three different buzz-building activities. Outline the details as to exactly how these activities would be implemented. Next, rank order the activities as to which you feel are the top three, and tell why you feel that way. Develop a report for your class on your ideas.

3. As a marketing consultant, you are frequently asked by clients to develop recommendations for marketing com- munication strategies. The traditional elements used in- clude advertising, sales promotion, public relations, and personal selling. Which of these do you feel would be most effective for each of the following clients? a. A company that provides cellular phone service b. A hotel c. A university d. A new soft drink e. A sports equipment company

4. Assume that you are a marketing consultant for one of the clients in question 3 above. You believe that the client would benefit from non-traditional marketing. Develop several ideas for buzz building and social-media tactics that you feel would be successful for the client.

5. First, schedule an appointment with your university’s mar- keting communication or university relations department to discuss their communication program. You will probably want to ask them about a. The target audiences for their communication program b. The objectives of their communication program c. The different types of traditional and nontraditional

communication methods they use d. Their use of social media e. How they evaluate the effectiveness of their commu-

nication program(s) Based on your discussions, develop a report that (1) pro-

vides a critique of the university’s communication program and (2) makes recommendations for improvement.

6. More and more firms are engaged in multichannel promo- tional programs. You can learn about many of these by searching library or Internet sources. Some Internet sources that may be useful are Brandchannel.com Adweek.com (Adweek magazine) NYTimes.com (New York Times) Adage.com (Advertising Age magazine)

Gather information on one or more multichannel pro- motional programs. Develop a report that describes the

program(s) and makes suggestions for how it/they might be improved.

Marketing Metrics Exercise

One of the important benefits of social media such as Facebook and Twitter is that they allow marketers to learn what con- sumers are saying about their brand—and about the competi- tion. To better understand that process, you can research what consumers are saying about a brand on Twitter.

1. Select a brand or a product category to study. If you are do- ing a marketing plan project for your marketing course, you may use that product. If not, choose a brand or prod- uct that you use—or one that you dislike.

2. Go to Twitter.com. Search for the product. Keep a record of the results. You might want to categorize the results in some way such as the categories listed below. Of course, you may be able to develop even better categories based on your product and the specific characteristics of the product. a. Number of tweets that are positive (and negative)

about the benefits of the product b. Number of tweets that are positive (and negative)

about the style or looks of the product c. Number of tweets that are positive (and negative)

about the quality of the product d. Number of tweets that are positive (and negative)

about using the product e. Number of tweets that ask questions

Choices: What Do You Think?

1. Some buzz marketing activities engage buzz “agents” to tell their friends about a product, ask store managers to stock the product, and in other ways purposefully create word-of-mouth. Are these activities ethical?

2. There is increasing concern about consumer privacy on so- cial networking sites such as Facebook. How do you feel about privacy on social networks? Is allowing personal infor- mation to be available to others without a user’s specific per- mission unethical? Should the network owners do more to protect users’ privacy? Should there be greater government regulation or should the sites be free to develop as they want to meet the needs of users? How much responsibility should users accept in protecting their own private information?

3. Marketing seems to be moving at breakneck speed toward greater use of the Internet. Where do you think this is headed? Will social media become even more important in the future? Will some types of social media grow in popu- larity and usefulness to marketers while others decline? What are the major factors in the growth or decline of an individual social media site?

4. Many companies are using brand ambassadors or brand evangelists to spread the word about their product. For what types of products do you think brand ambassadors are likely to be most useful? When would they be less use- ful? Would you be willing to be a brand ambassador for a product? If so, which product(s)? If not, why not?

5. Recently Twitter has joined other Internet sites in selling preferred positions on the site to generate revenue. Do you feel that such revenue-generating activities make sites such as Twitter less attractive? If you know that the top

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Marketing in Action Case Real Choices at American Express

What do Robert DeNiro, Ellen DeGeneres, Tiger Woods, Kate Winslet, and Laird Hamilton have in common? Let’s see, Robert DeNiro is one of the greatest living actors; Ellen DeGeneres is a famous comedienne; Tiger Woods is arguably the best golfer ever; Kate Winslet is a multiple Academy Award nominee; and Laird Hamilton is perhaps the greatest surfer who ever lived. However, being famous and best in their fields are not the only things these folks have in common. They also all carry the American Express credit card and have appeared in television or print commercials to promote the card in the company’s “My Life, My Card” campaign.

The fast pace of today’s busy lifestyles and the rapid changes in information technology mean that, more than ever, companies like American Express have to rely on the familiar faces of celebrities to get its messages across. In late 2004, American Express started to feature famous and recognizable people as attractive spokespersons in the “My Life, My Card” advertising campaign in an attempt to capture the attention of current and potential consumers. Each of the AMEX ads in- cluded brief biographical information on the celebrity such as where they live, profession, greatest triumphs or greatest dis- appointments, and basic philosophy on life. The final point of each ad showed how the American Express card helps enable individuals to pursue what is important to them. American Ex- press sought to communicate to its current and potential cus- tomers that they are just like these celebrities—simply trying to live life at its best. So, the slogan of “My Life, My Card” was perfect for the ad campaign. Consumers loved the ads.

Unfortunately for American Express, its “My Life, My Card” advertising campaign had some serious competition. Visa had been running ads for some time with the slogan of “Life takes Visa,” which is a clever variation on Amex’s campaign theme. American Express’s other main competitor, MasterCard, was us- ing its “Priceless” theme commercials that are aimed at encour- aging customers to use the card to create priceless moments.

In the end, however, the “My Life, My Card” campaign, while well-liked, really wasn’t working. Measures of customer loyalty showed that American Express was first in its product category in 1997, but by 2007, the American Express card was fifth, trailing Discover, Capital One, Visa, and MasterCard.

So in 2007, American Express replaced its “My Life, My Card” ads with a campaign that that presented a productori- ented approach rather than the general image-oriented ap- proach. New ads asked consumers the question, “Are you a cardmember?”

Historically, American Express has not switched campaigns quickly. The “Do you know me?” campaign ran from 1974 to 1987 and is still a well-known advertising saying. “Membership has its privileges” was used from 1987 to 1996, and the “Do More” campaign ran from 1996 to 2004. With only three cam- paigns in thirty years, how could consumers respond to this quick change of focus? Was American Express risking confusing consumers about American Express’s positioning? And what if the new “Are you a cardmember?” campaign didn’t improve loyalty ratings. Should American Express move quickly to de- velop still another new campaign or stick with this one?

You Make the Call 1. What is the decision facing American Express? 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: Brian Steinberg, “Now Showing: Clustered Ad Spots on Television,” Wall Street Journal, February 15, 2006, B3; Business Wire Inc., “American Express Launches the Restaurant Partnership Program with Savings, Access and Information,” Business Wire, June 8, 2006; Centaur Communications Ltd., “Amex Expands Tourist Podcast After Turin Olympics Success,” New Media Age, March 2, 2006, 2; Dan Sewell, “Companies Use Online Magazines to Woo Customers,” Associated Press Financial Wire, January 2, 2006; Sentido Comun, “American Express Launches New Promotion Campaign in Mexico,” Latin American News Digest, February 14, 2006; Stuart Elliott, “American Express Gets Specific and Asks, ‘Are You a Cardmember?’” New York Times, April 6, 2007, http://www.nytimes.com/2007/04/06/business/media/ 06adco.html?scp=7&sq=american+express+marketing&st=nyt (accessed on April 14).

comments on a site have their positions because firms paid for them, are you likely to change your use of the sites? Are there other ways that an Internet site such as Twitter can generate revenue?

6. While marketers are spending less in mass media advertis- ing today than in previous times, TV, radio, magazine, and newspaper advertising remains an important means of communicating with customers for many products. What products do you think most benefit from mass media ad- vertising? Why is this so? Do you feel traditional advertis- ing will continue to decline in importance as a means for marketing communication or will it rebound in the future?

Miniproject: Learn by Doing

This miniproject is designed to help you understand how impor- tant word-of-mouth marketing is to consumers like yourself.

1. Ask several of your classmates to participate in a focus- group discussion about how they communicate with oth-

ers about products. Some questions you might ask are the following: a. What products that you buy do you discuss with oth-

ers at least from time to time? b. What experiences have you had discussing products

face-to-face with others? c. What experiences have you had discussing products or

reading comments of others about products on blogs, social networks, or other Internet sites?

d. What are your experiences with product-related Web sites? Do you participate in games and entertainment opportunities on product-related Web sites?

e. How do you think firms could improve their Web sites to provide more information for you?

2. Make a presentation of your findings and to your class.

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One-to-Many: Advertising, Public Relations, and Consumer Sales Promotion

Real People Profiles

A Decision Maker at Brownstein Group

Brand Communication Marc Brownstein is president and CEO of Brownstein Group Brand Communica- tion. He went to his first client meeting at the age of 3 when his father, founder of what was then Brownstein Advertis- ing, had unexpected babysitting duties and brought his son along. After gradu- ating from Penn State, Marc spent most of his early years at Ogilvy & Mather, be- coming one of the youngest members of the agency’s new business development team. He has created award-winning

campaigns for AT&T, American Express, Sports Illustrated, Hershey Foods, Hallmark, and Campbell Soup Company. In 1989, Brownstein joined the firm his father founded and assumed the responsibilities of creative director and later, president and CEO of Brownstein Group (BG). The agency has grown fivefold since Marc took over the agency’s leadership, and BG is considered an innovator in digital advertis- ing and social media. The agency’s clients include Microsoft, IKEA, Gore-Tex, and Comcast.

Marc serves on the board of directors of the National Multiple Sclerosis Soci- ety; the American Association of Advertising Agencies (AAAA); Philly Ad Club; and the Young Presidents’ Organization (YPO Philadelphia and YPO International). He speaks regularly before industry groups and is a blogger for Advertising Age maga- zine. The Boy Scouts of America honored Marc in 2007 with its annual Good Scout Award for his community and business leadership. Penn State also named him an “Alumni Fellow” in 2009, the highest honor awarded by the Alumni Association.

Marc’s Info

What do I do when I’m not working? A) Spend time with my family and get some form of exercise: working out at the gym, biking, golf, tennis.

First job out of school? A) Copywriter.

Career high? A) Winning the Microsoft business when all odds were against us.

A job-related mistake I wish I hadn’t made? A) Waiting too long to fire a high-level executive.

Business book I’m reading now? A) The Outliers, by Malcolm Gladwell.

My hero? A) Steve Jobs—he changed how we live.

My motto to live by? A) 1. Never discount an underdog. 2. Don’t listen when others say the odds are against you. 3. Always remember that dreams DO come true.

What drives me? A) Winning.

My management style? A) I give people the opportunity to be entrepreneurial, unless they prove otherwise.

Don’t do this when interviewing with me? A) Make the mistake of not visiting our company’s Web site first.

My pet peeve? A) People who don’t make eye contact when speaking to me.

Profile Info

Marc Brownstein

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In the first quarter of 2010 one of Marc’s clients (a large consumer communications company) was

under siege. Its primary competitor was relentlessly attacking the company with clever advertising in major markets across the United States that took

direct aim at a new product the client had launched.

Marc’s agency took exception to these unfair attacks and his account team proac- tively approached the client with three possi- ble responses. Each of these solutions was based on a strategic direction the agency formulated. The group proposed a multi- pronged counterattack on multiple plat- forms including TV spots, outdoor billboards, print ads, online banner ads, and a landing page for the client’s Web site.

The decision to develop these options was a risky one since the client had not re- quested the work and there was no budget provided to lay out these solutions. If the client didn’t approve the work, Marc’s agency would have invested over $200,000 worth of services for which it would not be compensated.

Still, Marc felt the competitor’s cam- paign demanded an aggressive response. He created three integrated teams within the agency; each included creatives, PR special- ists, strategists, and account managers. He gave each team 24 hours to propose an idea. Each team then presented its idea.

Marc considered his Options 1 • 2 • 3 Clearly define the new product. This campaign focused solely on defining exactly what the client’s new product is and why it’s better than the competing product. The team believed that the current advertising—which another ad agency had created—didn’t do a very good job of explaining the product. The messages consumers were seeing left them confused about

just what the product does and why it’s superior to the competition. To re- spond to the rival’s attack, new messages needed to inject clarity into the in- formation people were getting. However, the client might not agree with this assessment because they had already approved the current campaign. The team’s judgment was subjective; there was no formal research that ac- tually demonstrated whether people were confused by the campaign. There’s always a risk when an agency has to tell a client that its current ad- vertising doesn’t work very well.

See what option Marc chose on page 412

Fire back. This concept took direct aim at the competition’s brand name and product claims. The messages mocked the ri- val’s brand name, and they aimed to create doubt in consumers’ minds about whether their product really possessed the suppos- edly superior product benefits it claimed. This was a very hard- hitting campaign that was also highly memorable—but it also

posed a bigger risk. A direct attack response was not typical of the client’s company culture; they didn’t believe in starting ad wars that duked it out be- tween two brands (like Coke vs. Pepsi). This aggressive approach would draw a lot of attention to the client and probably launch a bitter battle with the ri- val. However, the team argued that the competitor was already firing at them so they had no choice but to respond forcefully.

Launch a guerrilla marketing strategy that attacked the ri- val more subtly than a major ad campaign. The idea was to stage a mock product comparison on the streets of various U.S. cities. Consumers would compare both products, while hidden cameras videotaped their reactions. The team intended to use this footage to launch a viral campaign that encouraged people

to share the clips with their friends via YouTube and also post them on the client’s Web site. Ads would follow to promote the mock comparisons; these would provide a link to the videos, and a strong PR campaign would work in tandem to drum up awareness of the clips among the public. The team be- lieved this approach would send the message that the client’s product is superior—but that people should draw their own conclusions rather than let advertising draw it for them. This was clearly an unconventional campaign that might make the client a bit nervous; but then again the team knew that the client wanted to ramp up its brand’s “cool factor.” However, the idea’s success depended on the quality of the videotaped reactions people would provide. If they weren’t as provocative as the team hoped, they wouldn’t generate much buzz and the campaign wouldn’t go viral after all.

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

You Choose

Which Option would you choose, and why?

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

Here’s my problem. . . Real People, Real Choices

379

Things to remember

Marc and his team need to define their client’s image and clearly show how it differs from competing brands. They have a variety of possible communications tools they might use to accomplish this.

The team needs to counterattack in response to a competitor’s messages. They need to decide how aggressive they should be and whether they should “go negative.”

As consumers increasingly become involved in spreading messages about the brands they like and don’t like, many marketers try to harness this power to their own advantage. However, this strategy can backfire if customers aren’t motivated enough to participate or even worse if they spread negative opinions to others.

Option

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Advertising: The Image of Marketing Advertising is so much a part of marketing that many people think of the two as the same thing. Remember, product, price, and distribution strategies are just as im- portant as marketing communications. And, as we saw in Chapter 12, there are many ways to get a message out to a target audience in addition to advertising. Make no mistake—traditional advertising is still important, even during hard economic times. In 2009, U.S. marketers spent just over $125 billion on advertising, down 12.3

percent from $142.9 billion in 2008.1 As a result, U.S. advertising and market- ing firms cut 7.9% of their staff or over 58,000 jobs.2

In today’s competitive environment even the big guys like Procter & Gamble and General Motors are rethinking how much they want to invest in pricey ad campaigns as they search for alternative ways to get their messages out there. Indeed, while total ad spending declined, spending on Internet ad- vertising increased 7.3 percent among all advertisers and a whopping 34 per- cent among the top 100 U.S. advertisers.3

One thing is sure—as the media landscape continues to change, so will advertising. Sales of Internet-ready and 3-D TVs are booming, as is the num- ber of households with digital video recorders (DVRs) that let viewers skip through the commercials. Nielsen reported that in the first quarter of 2010, 138 million consumers watched video on the Internet and 20.3 million viewed mobile video.4

With all of this bleak news, is traditional advertising dead? Don’t write any obituaries yet. Mass media communications are still the best way to reach a large audience. For that reason, producers of FMCGs (fast-moving con- sumer goods) such as P&G and Unilever will continue to rely on these tradi- tional channels of communication to reach their customers. They will just be more creative as they mix-and-match different platforms to reach various tar- get markets.

Indeed, wherever we turn advertising bombards us. Television com- mercials, radio spots, banner ads, and huge billboards scream, “Buy me!” Advertising, as we said in Chapter 12, is nonpersonal communication an identified sponsor pays for that uses mass media to persuade or inform an audience.5 Advertising can be fun, glamorous, annoying, informative—and hopefully an effective way to let consumers know what a company is sell- ing and why people should run out and buy it today. Advertising is also a potent force that creates desire for products; it transports us to imaginary worlds where the people are happy, beautiful, or rich. In this way, advertis- ing allows the organization to communicate its message in a favorable way and to repeat the message as often as it deems necessary to have an impact on receivers.

A long-running Virginia Slims cigarettes advertising campaign pro- claimed, “You’ve come a long way, baby!” We can say the same about ad- vertising itself. Advertising has been with us a long time. In ancient Greece and Rome, ad messages appeared on walls, were etched on stone tablets, or were shouted by criers, interspersed among announcements of successful military battles or government proclamations. Would the ancients have be-

Chapter 13

380 PART FOUR | COMMUNICATE THE VALUE PROPOSITION

Objective Outline 1. Tell what advertising is, describe the

major types of advertising, and discuss some of the criticisms of advertising.

ADVERTISING: THE IMAGE OF MARKETING (p. 380)

2. Describe the process of developing an advertising campaign and how marketers evaluate advertising.

DEVELOP THE ADVERTISING CAMPAIGN (p. 386)

3. Explain the role of public relations and the steps in developing a public relations campaign.

PUBLIC RELATIONS (p. 402)

4. Explain what sales promotion is, and describe the different types of consumer sales promotion activities.

SALES PROMOTION (p. 408)

(pp. 408–411)

(pp. 402–408)

(pp. 386–402)

(pp. 380–386)

Check out chapter 13 Study Map on page 412

1 OBJECTIVE

Tell what advertising

is, describe the major

types of advertising,

and discuss some of

the criticisms of

advertising. (pp. 380–386)

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Product Advertising

Corporate Advertising

Advocacy Advertising

Public Service Advertisements

Retail and Local Advertising

Institutional Advertising

Figure 13.1 Snapshot | Types of Advertising

Advertisements that an organization runs can take many different forms.

lieved that today we get messages about products almost wherever we are, whether we cruise down the road or around the Web? Some of us even get advertising messages on our mobile phones or in public restrooms. It’s hard to find a place where ads don’t try to reach us.

Types of Advertising Although almost every business advertises, some industries are bigger spenders than others. Retail advertising tops the list with spending on measured advertising (magazines, newspapers, radio, television, and Internet) of over $15 billion in 2009, down 11.5 percent from 2008. The automotive industry with its recent problems cut measured ad spending 23 percent to a little over $12 billion in 2009. In contrast, the telecommunications industry’s 2009 spending was up 1.5 percent from the previous year to $10.2 billion while medicine and remedies and financial services finished up the top five ad spenders with a little over $8 bil- lion each, down 4.9 and 16.4 percent respectively.6 Because they spend so much on advertising, marketers must decide which type of ad will work best to get their money’s worth given their organizational and marketing goals. As

Figure 13.1 shows, the advertisements an organization runs can take many forms, so let’s review the most common kinds.

Product Advertising

When people give examples of advertising, they are likely to recall the provocative poses in Victoria’s Secret ads or the cheeky reminders from the GEICO gecko. These are examples of product advertising, where the mes- sage focuses on a specific good or service. While not all advertising features a product or a brand, most of the advertising we see and hear is indeed prod- uct advertising.

Institutional Advertising

Rather than a focus on a specific brand, institutional advertising promotes the activities, personality, or point of view of an organization or company. Corporate advertising promotes the company as a whole instead of the firm’s individual products. Some firms, in fact, do not advertise specific products at all but have built their businesses with only corporate advertis- ing. Cisco, for example, uses corporate advertising to brand itself as “the human network.” Other firms like Dow Chemical Co. use corporate adver- tising in addition to product advertising. Dow boosted its brand equity 25 percent through its “Human Element” corporate advertising campaign that said it is the “human element” that can solve some of the world’s prob- lems such as climate change and lack of clean water.7

product advertising Advertising messages that focus on a specific good or service.

institutional advertising Advertising messages that promote the activities, personality, or point of view of an organization or company.

corporate advertising Advertising that promotes the company as a whole instead of a firm’s individual products.

Product advertising focuses on a specific good or service.

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Marc Brownstein

Some institutional messages state an organization’s position on an issue to sway public opinion, a strategy we call advocacy advertising. For example, U.S. governors joined together in a campaign to get Congress to pass climate change legislation. The campaign included a 30-second TV commercial starring three governors, including California governor and Terminator movie star Arnold Schwarzenegger.8

Other messages take the form of public service advertisements (PSAs) that the media run free of charge. These messages promote not-for-profit organizations that serve society in some way, or they champion an issue such as increasing literacy or discouraging drunk driving. Advertising agencies often take on one or more public service campaigns on a pro bono (for free, not the U2 singer) basis. Little League baseball aired a 15-second PSA on ESPN that featured a 10-year old at the plate. In the stands the father yells, “Come on, son. Hit the ball.” The boy rolls his eyes, turns around to face his dad, and yells back, “DAD, IS THAT THE BEST YOU CAN DO?! THAT’S PATHETIC. I DON’T EVEN KNOW WHY YOU BOTHER SHOWING UP! WHY CAN’T YOU BE MORE LIKE JIMMY’S DAD?! ALL THE OTHER PARENTS ARE GOING TO LAUGH AT YOU! YOU MAKE ME SICK!” The ad ends with a supertitle, “Now you know how it feels. Just let them play.”9

Retail and Local Advertising

Both major retailers and small, local businesses advertise to encourage customers to shop at a specific store or use a local service. Local advertising informs us about store hours, loca- tion, and products that are available or on sale. These ads may take the form of popup ads online or perhaps newspaper circulars that fill out your Sunday newspaper.

Who Creates Advertising? An advertising campaign is a coordinated, comprehensive plan that carries out promotion objectives and results in a series of advertisements placed in various media over a period of time. Although a campaign may be based around a single ad idea, most use multiple mes- sages with all ads in the campaign having the same look-and-feel. Some campaigns run for only a short period of times while others remain with us for many years. Take, for example, GEICO’s advertising campaigns. In recent years the insurance company has mounted a to- tal of four different advertising campaigns; the messages often run simultaneously. These four are (1) the GEICO gecko campaign, (2) the caveman campaign that even spawned a short-lived TV sitcom (“so easy a caveman can do it”), (3) the “money you could be saving” campaigns with the googly-eyed dollar bills, and (4) the “Rhetorical Questions” campaign that includes ads featuring Charlie Daniels, Elmer Fudd, and the Waltons. While all of these campaigns promote the same company and its products and all use the same tag line, “Fif- teen minutes could save you 15 percent or more on car insurance,” they are each creatively distinct. Each includes multiple ads (there have been at least 22 caveman TV commercials), but each ad is obviously part of a coordinated campaign.

Although some firms create their own advertising in-house, in many cases several spe- cialized companies work together to develop an advertising campaign. Typically the firm retains one or more outside advertising agencies to oversee this process. A limited-service agency provides one or more specialized services, such as media buying or creative devel- opment. In contrast, a full-service agency supplies most or all of the services a campaign re- quires, including research, creation of ad copy and art, media selection, and production of the final messages. The largest global agencies are Dentsu (based in Japan), McCann World- wide Group, BBDO Worldwide, and DDB Worldwide, each with over 2 billion in billings.10

A campaign has many elements; it requires the services of many different people to pull it all together. Big or small, an advertising agency hires a range of specialists to craft a mes- sage and make the communication concept a reality:

• Account management: The account executive, or account manager, is the “soul” of the operation. This person supervises the day-to-day activities on the account and is the

public service advertisements (PSAs) Advertising run by the media for not-for-profit organizations or to champion a particular cause without charge.

advertising campaign A coordinated, comprehensive plan that carries out promotion objectives and results in a series of advertisements placed in media over a period of time.

limited-service agency An agency that provides one or more specialized services, such as media buying or creative development.

full-service agency An agency that provides most or all of the services needed to mount a campaign, including research, creation of ad copy and art, media selection, and production of the final messages.

account executive (account manager) A member of the account management department who supervises the day-to-day activities of the account and is the primary liaison between the agency and the client.

APPLYING Advertising Campaign

Marc’s agency is responsible for creating a series of messages over a period of time for its telecommunications client.

advocacy advertising A type of public service advertising where an organization seeks to influence public opinion on an issue because it has some stake in the outcome.

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primary liaison between the agency and the client. The account executive has to ensure that the client is happy while verifying that people within the agency execute the de- sired strategy. The account planner combines research and account strategy to act as the voice of the consumer in creating effective advertising. It is the job of the account plan- ner to use market data, qualitative research, and product knowledge to become inti- mately familiar with the consumer and to translate what customers are looking for to the creative teams who create the ads.

• Creative services: Creatives are the “heart” of the communication effort. These are the people who actually dream up and produce the ads. They include the agency’s creative director, copywriters, and art director. Creatives are the artists who breathe life into marketing objectives and craft messages that (hopefully) will interest consumers.

• Research and marketing services: Researchers are the “brains” of the campaign. They collect and analyze information that will help account executives develop a sensible strategy. They assist creatives in getting consumer reactions to different versions of ads or by providing copywriters with details on the target group.

• Media planning: The media planner is the “legs” of the campaign. He helps to deter- mine which communication vehicles are the most effective and recommends the most efficient means to deliver the ad by deciding where, when, and how often it will appear.

As we saw in Chapter 12, more and more agencies practice integrated marketing commu- nication (IMC), in which advertising is only one element of a total communication plan. Be- cause IMC includes more than just advertising, client teams composed of people from account services, creative services, media planning, research, public relations, sales promo- tion, and direct marketing may work together to develop a plan that best meets the commu- nication needs of each client.

User-Generated Advertising Content The latest promotional craze is to let your customers actually create your advertising for you. User-generated content (UGC), also known as consumer-generated media (CGM), includes the millions of online consumer comments, opinions, advice, consumer-to- consumer discussions, reviews, photos, images, videos, podcasts and webcasts, and product- related stories available to other consumers through digital technology. Marketers that embrace this strategy understand that it’s okay to let people have fun with their products. For example, join the millions of others who checked out the infamous YouTube videos where “mad scientists” mix Mentos candies with Diet Coke for explosive results (such as http://www.youtube.com/watch?v5hKoB0MHVBvM).

Marketers need to monitor (and sometimes encourage) UGC for two reasons. First, con- sumers are more likely to trust messages from fellow consumers than what companies tell them. In fact, they’re more likely to say they “trust completely” product information they re- ceive from other consumers than from any other source.11 Second, we’ve already seen in the last chapter how social media is proliferating everywhere; a person who searches online for a company or product name is certain to access any number of blogs, forums, homegrown commercials, or online complaint sites that the product manufacturer had nothing to do with. Some companies resist this trend when they restrict access to their material or even sue consumers who talk about them because they fear they will lose control over their brand mes- sages. They really need to get over it and recognize that in our digital world their messages (like your Facebook page) are almost impossible to control. In Web 2.0, you’re either on the train or under it!

To take advantage of this phenomenon, some marketers encourage consumers to con- tribute their own do-it-yourself (DIY) ads. When Frito-Lay sponsored a contest for 2010 Su- per Bowl ads, two of the winners, “House Rules” and “Underdog,” turned out to be the

account planner A member of the account management department who combines research and account strategy to act as the voice of the consumer in creating effective advertising.

creative services The agency people (creative director, copywriters, and art director) who dream up and produce the ads.

research and marketing services Advertising agency department that collects and analyzes information that will help account executives develop a sensible strategy and assist creatives in getting consumer reactions to different versions of ads.

media planners Agency personnel who determine which communication vehicles are the most effective and efficient to deliver the ad.

user-generated content (UGC) or consumer-generated media (CGM) Online consumer comments, opinions, advice and discussions, reviews, photos, images, videos, podcasts, webcasts, and product, related stories available to other consumers.

Marc Brownstein APPLYING Consumer-Generated Media

Marc’s team needs to decide if it wants to rely on consumers to help it define and spread the word about the client.

do-it-yourself (DIY) ads Product ads that are created by consumers.

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most watched ads of the game.12 In its “Priceless” campaign, MasterCard invited consumers to write their own ad copy for two filmed commercials—all entries had to end with the word “Priceless.” Converse allowed customers to send homemade commercials to its Web site, then ran several of them on television.13 Other companies that have experimented with do- it-yourself (DIY) advertising are L’Oréal (“You Make the Commercial”), JetBlue (“Travel Stories”), and McDonald’s (“Global Casting”).14

For advertisers do-it-yourself advertising offers several benefits. First, consumer- generated spots cost only one-quarter to one-third as much as professional TV and Internet ads—about $60,000 compared to the $350,000 or more to produce a traditional 30-second spot. This can be especially important for smaller businesses and emerging brands. Equally important, even to large companies with deep pockets, is the feedback on how consumers see the brand and the chance to gather more creative ideas to tell the brand’s story.15

Crowdsourcing is a practice in which firms outsource marketing activities (such as se- lecting an ad) to a community of users, that is, a crowd. When the D.C. Lottery created a new game with new ways to win, it decided to update its 28-year-old logo at the same time. To get the public involved and to select a logo that would be inviting to lottery “customers,” the organization invited visitors to its Web site to vote on which of six logos they preferred.16

To get the ball rolling, an agency typically solicits ideas from online communities that people access because they are fans of a product or a specific brand. The idea behind crowd- sourcing is that if you want to know what consumers think and what they like, the most log- ical thing to do is to ask them. First the agency shares a challenge with a large number of people who have varying degrees of expertise. Whether motivated by money, competition, or obsession, individuals then submit their solution to the problem.

Kraft, a global marketer of fast-moving-consumer goods including Lacta, a chocolate brand in Greece, recently enlisted a crowdsourcing technique to develop a branded film. Kraft first asked consumers to submit real love tales that might be the subject of a short film that would feature Lacta. A story about two strangers, a young soldier and a musician, meeting on a train was the winner out of the 1,307 real love tales submitted. Next Kraft used online polls for voters to select screen tests, names of characters, and costumes. The film created so much buzz that when Greece’s #1 TV station ran the film for free, over 335,000 people watched it.17

Ethical Issues in Advertising Advertising, more than any other part of marketing, has been sharply criticized for decades. Such criticism certainly may be based less on reality than on the high visibility of advertis- ing and the negative attitudes of consumers who find ads an intrusion in their lives. The ob- jections to advertising are similar to those some people have to marketing in general as we discussed in Chapter 1. Here are the main ones:

• Advertising is manipulative: Advertising causes people to behave like robots and do things against their will—to make purchases they would not otherwise make were it not for the ads. However, consumers are not robots. Since they are consciously aware of appeals made in advertising, they are free to choose whether to respond to an ad or not. Of course, consumers can and often do make bad decisions that advertising may influence, but that is not the same as manipulation.

• Advertising is deceptive and untruthful: Deceptive advertising means that an ad falsely represents the product and that consumers believe the false information and act on it. Indeed, there is some false or deceptive advertising, but as a whole advertisers try to present their brands in the best possible light while being truthful. In the United States, both government regulation and the industry itself strongly encourage honesty.

To protect consumers from being misled, the Federal Trade Commission (FTC) has specific rules regarding unfair or deceptive advertising. Some deceptive ads make statements that can be proven false. For example, the FTC fined Volvo and its ad agency $150,000 each for an ad containing a “rigged” demonstration. The Volvo “Bear Food”

crowdsourcing A practice in which firms outsource marketing activities (such as selecting an ad) to a community of users.

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ad campaign showed a monster truck running over a row of cars and crushing all but the Volvo station wagon. The Volvos, however, had been structurally reinforced, while the structural supports in some of the other cars had been cut.18

In addition to fining firms for deceptive advertising, the FTC also has the power to require firms to run corrective advertising, messages that clarify or qualify previous claims.19 Yaz, a best-selling birth control pill by Bayer, was accused of overstating its ability to improve women’s moods and clear up acne and not adequately communi- cating the drug’s health risks. As a result the Food and Drug Administration and the attorneys general of 27 states required Bayer to spend $20 million over six years in corrective advertising, telling consumers that they should not take the pill to cure pimples or premenstrual syndrome.

Other ads, although not illegal, may create a biased impression of products when they use puffery—claims of superiority that neither sponsors nor critics of the ads can prove are true or untrue. For example, Nivea bills itself as “the world’s number 1 name in skin care,” Neutrogena claims that its cream cleanser produces “the deepest feeling clean,” and DuPont says that its Stainmaster Carpet is “a creation so remarkable, it’s practically a miracle.”

Does this mean that puffery is an unethical marketing practice? Not really. In fact, both advertisers and consumers generally accept puffery as a normal part of the advertis- ing game. Although a little exaggeration may be reasonable, in most cases the goal is to create marketing communications that are both honest and that present the products in the most positive way possible. This approach works to the firm’s advantage in the long run since it prevents consumers from becoming overly cynical about the claims it makes.

• Advertising is offensive and in bad taste: To respond to this criticism, we need to recognize that what is offensive or in bad taste to one person may not be to another. Yes, some TV com- mercials are offensive to some people, but then news and program content in the media can be and often is even more explicit or in poor taste. While advertisers seek to go the dis- tance using humor, sex appeals, or fear appeals to get audiences’ attention, most shy away from presenting messages that offend the very audience they want to buy their products.

• Advertising creates and perpetuates stereotypes: Some advertising critics assert that adver- tising portrays certain groups of consumers in negative ways. For example, advertising has portrayed women more often as homemakers than as industry leaders. While there is evidence that advertising (and media program content) is guilty of perpetuating stereotypes, it is important to recognize that these stereotypes already exist in the cul- ture. Advertising doesn’t create them so much as it reflects them.

corrective advertising Advertising that clarifies or qualifies previous deceptive advertising claims.

puffery Claims made in advertising of product superiority that cannot be proven true or untrue.

Ripped from the Headlines

Ethics/Sustainable Decisions in the Real World Many consumers today are concerned about greenwashing; a practice in which companies promote their products as environmentally friendly when in truth the brand provides little ecological benefit. This practice may refer to a company that boasts in its corporate image advertising of the cutting-edge re- search it does to save the planet when in fact this work accounts for only a small fraction of its activities. Hotels claim they are “green” because they al- low guests to choose not to have clean sheets and clean towels in their rooms every day. And grocery stores claim to be green because you can return your plastic bags there.

Critics of greenwashing single out Huggies Pure and Natural disposable dia- pers because the brand claims to be more environmentally friendly and safer for a baby. Its advertising claims that it offers parents the “pure bliss of a diaper that

includes gentle, natural materials.” However, the only real difference in the Pure and Natural Huggies from the original is a piece of organically grown cotton fab- ric that is on the outside of the diaper, not where it touches the baby’s skin.

But are such claims ethical? Are consumers being deceived into buying products that they think make a real difference to the environment when in re- ality the products are not substantially different? Those who are accused of greenwashing would argue that even small ef- forts toward “going green” are important and that such claims are justified. If you were a mar- keter, would you try to promote your product as more environmentally friendly even though dif- ferences between your product and those of the competition are very minor?

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

If you worked for an advertising agency, would you approve an ad that implies a product is environmentally friendly when there is little to support such claims?

YES NO

greenwashing A practice in which companies promote their products as environmentally friendly when in truth the brand provides little ecological benefit.

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Step 1: Understand the Target Audience

Step 2: Establish Message and Budget Objectives

Step 3: Create the Ads

Step 4: Pretest What the Ads Will Say

Step 5: Choose the Media Type(s) and Media Schedule

Step 6: Evaluate the Advertising

Figure 13.2 Process | Steps to Develop an Advertising Campaign

Developing an advertising campaign includes a series of steps that will ensure that the advertising meets communication objectives.

• Advertising causes people to buy things they don’t really need: The truth of this criticism de- pends on how you define a “need.” If we believe that all consumers need is the basic functional benefits of products—the transportation a car provides, the nutrition we get from food, and the clean hair we get from shampoo—then advertising may be guilty as charged. If, on the other hand, you think you need a car that projects a cool image, food that tastes fantastic, and a shampoo that makes your hair shine and smell ever so nice, then advertising is just a vehicle that communicates those more intangible benefits.

Develop the Advertising Campaign The advertising campaign is about much more than creating a cool ad and hoping people notice it. The campaign should be intimately related to the organization’s overall communication goals. That means the firm (and its outside agency if it uses one) must have a good idea of whom it wants to reach, what it will take to appeal to this market, and where and when it should place its messages. Let’s examine the steps required to do this, as Figure 13.2 shows.

Step 1: Understand the Target Audience The best way to communicate with an audience is to understand as much as possible about them and what turns them on and off. An ad that uses the latest “hip-hop” slang may relate to teenagers but not to their parents—and this strategy may backfire if the ad copy reads like an “ancient” 40-year-old trying to sound like a 20-year-old.

As we discussed in Chapter 7, marketers often identify the target audience for an ad- vertising campaign from research. Researchers (like Jim Multari, the director of research for PBS Kids Sprout) try to get inside the customer’s head to understand just how to create a message that he will understand and to which he will respond. For example, an account ex- ecutive working on a campaign for Pioneer Stereo was assigned to hang out with guys who were likely prospects to buy car stereos. His observations resulted in an advertising cam- paign that incorporated the phrases they actually used to describe their cars: “My car is my holy temple, my love shack, my drag racer of doom.”20

2 OBJECTIVE

Describe the process

of developing an

advertising campaign

and how marketers

evaluate advertising. (pp. 386–402)

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Step 2: Establish Message and Budget Objectives Advertising objectives should be consistent with the overall communication plan. That means that both the underlying message and its costs need to relate to what the marketer is trying to say about the product and what the marketer is willing or able to spend. Thus, ad- vertising objectives generally will include ob- jectives for both the message and the budget.

Set Message Objectives

As we noted earlier, because advertising is the most visible part of marketing, many people as- sume that marketing is advertising. In truth, ad- vertising alone is quite limited in what it can achieve. What advertising can do is inform, per- suade, and remind. Accordingly, some adver- tisements are informational—they aim to make the customer knowledgeable about features of the product or how to use it. At other times, ad- vertising seeks to persuade consumers to like a brand or to prefer one brand over the compe- tition. But many, many ads simply aim to keep the name of the brand in front of the consumer—reminding consumers that this brand is the one to choose when they look for a soft drink or a laundry detergent.

Set Budget Objectives

Advertising is expensive. Procter & Gamble, which leads all U.S. companies in advertising expenditures, spends almost $5 billion per year while second- and third-place ad spenders AT&T and General Motors each spend well over $3 billion each.21

An objective of many firms is to allocate a percentage of the overall communication budget to advertising, depending on how much and what type of advertising the company can afford. The major approaches and techniques to setting overall promotional budgets, such as the percentage-of-sales and objective-task methods we discussed in Chapter 12, also set advertising budgets.

Major corporations like General Motors advertise heavily on expensive media such as television to promote multiple products throughout the year. Other companies may be more selective, and smaller firms may want to put their advertising dollars into cheaper media outlets such as direct mail or trade publications. Or a firm may decide to blow its entire ad- vertising budget in one grand gesture—as the Web site host company GoDaddy.com does when it buys airtime during the Super Bowl.

Step 3: Create the Ads The creation of the advertising begins when an agency formulates a creative strategy, which gives the advertising “creatives” (art directors, copywriters, photographers, and others) the di- rection and inspiration they need to begin the creative process. The strategy is summarized in a written document known as a creative brief, a rough blueprint that guides but does not re- strict the creative process. It provides only the most relevant information and insights about the marketing situation, the advertising objective, the competition, the advertising target and, most importantly, the message that the advertising must deliver.

This German ad speaks to many of the viewers the SciFi channel hopes to reach.

creative strategy The process that turns a concept into an advertisement.

creative brief A guideline or blueprint for the marketing communication program that guides the creative process.

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Creative Element Element Options

Appeals Rational (Unique Selling Proposition) Emotional Reminder Advertising Teaser Ads

Execution Formats Comparison Demonstration Testimonial Slice of Life Lifestyle

Straightforward Humor Dramatic Romantic Apprehension/Fear

Tonality

Creative Tactics and Techniques Animation and Art Celebrities Music, Jingles, and Slogans

Figure 13.3 Snapshot | Creative Elements of Advertising Creating good ads includes making decisions about the four different ad elements.

It’s one thing to know what a company wants to say about itself or its products and an- other to figure out how to say it. The role of the creative brief is to provide the spark that helps the ad agency come up with “the big idea,” the visual and/or verbal concept that de- livers the message in an attention-getting, memorable, and relevant manner. From this the creatives develop the ads by combining already-known facts, words, pictures, and ideas in new and unexpected ways. Specifically, to come up with finished ads, they must consider four elements of the ads shown in Figure 13.3: the appeal, the format, the tonality, and the creative tactics and techniques.22

Advertising Appeals

An advertising appeal is the central idea of the ad and the basis of the advertising messages. It is the approach used to influence the consumer. Generally, we think of appeals as infor- mational or emotional.

Informational or rational appeals relate to consumers’ practical need for the product. They emphasize the features of the product and/or the benefits we receive from using it. Of- ten informational appeals are based on a unique selling proposition (USP) that gives con- sumers a clear, single-minded reason why the advertiser’s product is better than other products at solving a problem. For example, “M&Ms melt in your mouth, not in your hands” is a USP. In general, a USP strategy is effective if there is some clear product advan- tage that consumers can readily identify and that is important to them.

Because consumers often buy products based on social or psychological needs, adver- tisers frequently use emotional appeals instead where they try to pull our heartstrings rather than make us think differently about a brand. Emotional appeals focus on an emotional or social benefit the consumer may receive from the product such as safety, love, excitement, pleasure, respect, or approval.

Of course, not all ads fit into these two appeal categories. Well-established brands often use reminder advertising just to keep their name in people’s minds or to be sure that con- sumers repurchase the product as necessary. For example, Arm & Hammer baking soda re-

advertising appeal The central idea or theme of an advertising message.

unique selling proposition (USP) An advertising appeal that focuses on one clear reason why a particular product is superior.

reminder advertising Advertising aimed at keeping the name of a brand in people’s minds to be sure consumers purchase the product as necessary.

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minds us to replace the open box many of us keep in our refrigerators to absorb odors on a regular basis.

Sometimes advertisers use teaser or mystery ads to generate curiosity and interest in a to-be-introduced product. Teaser ads draw attention to an upcoming ad campaign without mentioning the product. Before the creative team can craft and polish the words and visu- als to bring the big idea to life, they still must choose the most appropriate format and tonal- ity of the advertising. We’ll turn to those ideas next.

Execution Formats

Execution format describes the basic structure of the message. Some of the more common formats, sometimes used in combination, include:

• Comparison: A comparative advertisement explicitly names one or more competitors. Pizza Hut’s recent “America’s Favorite Pizza” spots claimed that consumers preferred its hand-tossed pizzas 2 to 1 over both number two Domino’s and number three Papa John’s. Ads showed rival pizza delivery drivers eating Pizza Hut pizza at the Pizza Hut driver’s home. Papa John’s countered with claims that its crust was made fresh while Pizza Hut’s was frozen.23

Comparative ads can be very effective, but there is a risk of turning off consumers who don’t like the negative tone. While in many countries comparative advertising is il- legal, it’s a widely used tactic in the United States. This format is best for brands that have a smaller share of the market and for firms that can focus on a specific feature that makes them superior to a major brand. When market leaders use comparative advertis- ing, there is the risk consumers will feel they are “picking on the little guy.” One excep- tion is the “cola wars” advertising by Coca-Cola and Pepsi. In the recent Pepsi Max ad which features the song “Why Can’t We Be Friends?” by War, delivery drivers for Coke and Pepsi meet in a diner; the Coke driver samples Pepsi Max and prefers it.

• Demonstration: The ad shows a product “in action” to prove that it per- forms as claimed: “It slices, it dices!” Demonstration advertising is most useful when consumers are unable to identify important benefits except when they see the product in use.

• Testimonial: A celebrity, an expert, or a “man in the street” states the product’s effectiveness. The use of a celebrity endorser is a common but expensive strategy.

• Slice of life: A slice-of-life format presents a (dramatized) scene from every- day life. Slice-of-life advertising can be effective for everyday products such as peanut butter and headache remedies that consumers may feel good about if they see “real” people buy and use them.

• Lifestyle: A lifestyle format shows a person or persons attractive to the tar- get market in an appealing setting. The advertised product is “part of the scene,” implying that the person who buys it will attain the lifestyle. For example, a commercial on MTV might depict a group of “cool” Cal- ifornia skateboarders who take a break for a gulp of milk and say, “It does a body good.”

Tonality

Tonality refers to the mood or attitude the message conveys. Some common tonalities include:

• Straightforward: Straightforward ads simply present the information to the audience in a clear manner. Informative ads are frequently used in radio but less often in TV.

teaser or mystery advertising Ads that generate curiosity and interest in a to- be-introduced product by drawing attention to an upcoming ad campaign without mentioning the product.

execution format The basic structure of the message such as comparison, demonstration, testimonial, slice-of- life and lifestyle.

tonality The mood or attitude the message conveys (straightforward, humor, dramatic, romantic, sexy, and apprehension/fear).

Humorous, witty or outrageous ads can be an effective way to break through advertising clutter.

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• Humor: Humorous, witty or outrageous ads can be an effective way to break through ad- vertising clutter. But humor can be tricky, because what is funny to one person may be of- fensive or stupid to another. Different cultures also have different senses of humor. A recent Reebok commercial showed women at a basketball game checking out the all-male cheerleading squad. The spot was witty, but people from countries that don’t feature cheerleaders at sports events (you don’t find too many pom-poms at soccer matches) might not “get it.”

Perhaps the major benefit of humorous advertising is that it attracts consumers’ at- tention and leaves them with a pleasant feeling. Of course, humor in advertising can backfire. In the United Kingdom, a Renault Megane 225 ad that featured people in everyday situations shaking uncontrollably as the car passed was banned by the gov- ernment’s Office of Communications: Viewers complained that the ad mocked people with illnesses such as Parkinson’s disease.24

• Dramatic: A dramatization, like a play, presents a problem and a solution in a manner that is often exciting and suspenseful—a fairly difficult challenge in 30 or 60 seconds.

• Romantic: Ads that present a romantic situation can be especially effective at getting consumers’ attention and at selling products people associate with dating and mating. That’s why fragrance ads often use a romantic format.

• Sexy: Some ads appear to sell sex rather than products. In a Guess jeans ad, a shirtless man lies near an almost shirtless woman. Ads such as these rely on sexuality to get consumers’ attention. Sex appeal ads are more likely to be effective when there is a connection between the product and sex (or at least romance). For example, sex appeals will work well with a perfume but are less likely to be effective when you’re trying to sell a lawn mower.

• Apprehension/Fear: Some ads highlight the negative consequences of not using a prod- uct. Some fear appeal ads focus on physical harm, while others try to create concern for social harm or disapproval. Mouthwash, deodorant, and dandruff shampoo makers and life insurance companies successfully use fear appeals. So do ads aimed at chang- ing behaviors, such as messages discouraging drug use or encouraging safe sex. In gen- eral, fear appeals can be successful if the audience perceives there to be an appropriate level of intensity in the fear appeal. For example, horrible photos of teens lying on the highway following an auto accident can be quite effective in PSAs designed to persuade teens not to drink and drive, but they are likely to backfire if an insurance company tries to “scare” people into buying life insurance.

Creative Tactics and Techniques

In addition to ad formats and tonality, the creative process may also include a number of different creative tactics and techniques. Some of these are

• Animation and art: Not all ads are executed with film or photography. Sometimes a creative decision is made to use art, illustration, or animation to achieve the desired look of a print ad or TV commercial or to attract attention. For example, Coke used the popular Simpsons cartoon characters in its Super Bowl ads in 2010.25

• Celebrities. Sometimes they just appear in testimoni- als, or for endorsements such as Marie Osmond’s pitches for NutriSystem. Other times using a celebrity is simply a casting decision—a technique to make anGillette uses a romantic theme in China.

Marc Brownstein APPLYING Tonality

Marc’s team must make a crucial decision regarding the “tone” of the messages it launches to combat a competitor’s critical advertising. This tonality might be positive or negative, so they have to decide what kind of emotional response (if any) they want to arouse in current and potential subscribers.

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ad more interesting or appealing, such as when the actor Luke Wilson shows up in com- mercials for AT&T mobile phones.

• Music, jingles and slogans. Jingles are original words and music written specifically for advertising executions. Many of us remember classic ad jingles such as “I wish I were an Oscar Mayer Wiener” (Oscar Mayer) and ad slogans such as “Finger lickin’ good” (KFC), “Got milk?” (initially created for the California Milk Processor Board), and “Just do it” (Nike). Jingles aren’t used as often as they were in the past, but many advertisers still like to set their slogan to original music at the end of a commercial. These are called “musical buttons” or “tags.” A currently popular technique is to add a few appropriate measures of a popular song near the end of a commercial to emphasize the message.

Slogans link the brand to a simple linguistic device that is memorable (jingles do the same but set the slogan to music). We usually have no trouble reciting successful slogans (sometimes years after the campaign has ended); think of such die-hards as “Please don’t squeeze the Charmin,” “Double your pleasure, double your fun,” and “Even a caveman can do it.” Firms such as Clorox, Allstate, and Procter & Gamble find that the songs they use in their commercials can become popular on their own; now they offer consumers the opportunity to purchase full-length versions of the music.26

Step 4: Pretest What the Ads Will Say Now that the creatives have performed their magic, how does the agency know if the cam- paign ideas will work? Advertisers try to minimize mistakes by getting reactions to ad mes- sages before they actually place them. Much of this pretesting, the research that goes on in the early stages of a campaign, centers on gathering basic information that will help plan- ners be sure they’ve accurately defined the product’s market, consumers, and competitors. As we saw in Chapter 4, this information comes from quantitative sources, such as surveys, and qualitative sources, such as focus groups.

In these two executions from the U.K. the creatives borrow a nostalgic look from an earlier era.

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jingles Original words and music written specifically for advertising executions.

slogans Simple, memorable linguistic devices linked to a brand.

pretesting A research method that seeks to minimize mistakes by getting consumer reactions to ad messages before they appear in the media.

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In addition, some researchers use physiological measures to pretest ads. For example, the ad agency Bark Group employs eye movement tracking, skin responses, and brain re- sponses to gauge consumers’ emotional responses to ads in order to produce ad campaigns that result in a stronger emotional reaction.27 The idea is to be able to identify the colors, sounds, images and words that elicit the strongest responses—even in some cases when viewers aren’t consciously aware of how they’re feeling.

Step 5: Choose the Media Type(s) and Media Schedule Media planning is a problem-solving process that gets a message to a target audience in the most effective way. Planning decisions include audience selection and where, when, and how frequent the exposure should be. Thus, the first task for a media planner is to find out when and where people in the target market are most likely to be exposed to the communi- cation. Many college students read the campus newspaper in the morning (believe it or not, sometimes even during class!), so advertisers may choose to place ad messages aimed at col- lege students there.

There is no such thing as one perfect medium for advertising. The choice depends on the specific target audience, the objective of the message, and, of course, the budget. For the advertising campaign to be effective, the media planner must match the profile of the target market with specific media vehicles. For example, many Hispanic-American consumers, even those who speak English, are avid users of Spanish-language media. Marketers that wish to reach this segment might allocate a relatively large share of their advertising budget to buying Spanish-language newspapers, magazines, TV, and Spanish webcasts available to broadband Internet users.

The choice of the right media mix is no simple matter, especially as new options includ- ing videos and DVDs, video games, personal computers, the Internet, MP3 players, hun- dreds of new TV channels, and even satellite radio now vie for our attention. Consider that in 1965, advertisers could reach 80 percent of 18- to 49-year-olds in the United States with three 60-second TV spots! That kind of efficiency is just a pipe dream in today’s highly frag- mented media marketplace.

Where to Say It: Traditional Mass Media

What does a 50-inch plasma TV with Dolby Surround Sound have in common with a match- book? Each is a media vehicle that permits an advertiser to communicate with a potential customer. Depending on the intended message, each medium has its advantages and disad- vantages. In this section we’ll take a look at the major categories of traditional mass media; then we’ll look at Internet advertising and some less-traditional indirect forms of advertis- ing. Table 13.1 summarizes some of the pros and cons of each type.

• Television: Because of television’s ability to reach so many people at once, it’s often the medium of choice for regional and national companies. However, advertising on a tele- vision network can be very expensive. The cost to air a 30-second ad on a popular prime- time network TV show one time normally ranges between $200,000 and $750,000 or more depending on the size of the show’s audience. In 2008, ads for a near-finale episode of American Idol, the number one TV show for four years, went for $1 million or more.28 Ad- vertisers may prefer to buy cable, satellite, or local television time rather than network time because it’s cheaper or because they want to reach a more targeted market, such as “foodies,” who are into cooking. Nevertheless, 78 percent of advertisers say TV adver- tising has become less effective as DVRs and video-on-demand grow in popularity.29

While viewing of traditional broadcast TV is down dramatically in recent years, people spend a lot more time watching cable and satellite channels. This explains why the companies that own broadcast networks also are buying up major cable channels— General Electric’s NBC owns MSNBC, CNBC, Bravo, SciFi, and USA TV channels; Walt Disney Co., which owns ABC, also owns ESPN and ABC Family and also is a partial

media planning The process of developing media objectives, strategies, and tactics for use in an advertising campaign.

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Table 13.1 | Pros and Cons of Media Vehicles Vehicle Pros Cons

Television • TV is extremely creative and flexible.

• Network TV is the most cost-effective way to reach a mass audience.

• Cable and satellite TV allow the advertiser to reach a selected group at relatively low cost.

• A prestigious way to advertise.

• Can demonstrate the product in use.

• Can provide entertainment and generate excitement.

• Messages have high impact because of the use of sight and sound.

• The message is quickly forgotten unless it is repeated often.

• The audience is increasingly fragmented.

• Although the relative cost of reaching the audience is low, prices are still high on an absolute basis— often too high for smaller companies. A 30-second spot on a prime-time TV sitcom costs well over $250,000.

• Fewer people view network television.

• People switch from station to station and zap commercials.

• Rising costs have led to more and shorter ads, causing more clutter.

Radio • Good for selectively targeting an audience.

• Is heard outside the home.

• Can reach customers on a personal and intimate level.

• Can use local personalities.

• Relatively low cost, both for producing a spot and for running it repeatedly.

• Because of short lead time, radio ads can be modified quickly to reflect changes in the marketplace.

• Use of sound effects and music allows listeners to use their imagination to create a vivid scene.

• Listeners often don’t pay full attention to what they hear.

• Difficulty in buying radio time, especially for national advertisers.

• Not appropriate for products that must be seen or demonstrated to be appreciated.

• The small audiences of individual stations means ads must be placed with many different stations and must be repeated frequently.

Newspapers • Wide exposure provides extensive market coverage.

• Flexible format permits the use of color, different sizes, and targeted editions.

• Provides the ability to use detailed copy.

• Allows local retailers to tie in with national advertisers.

• Readers are in the right mental frame to process advertisements about new products, sales, etc.

• Timeliness, i.e., short lead time between placing ad and running it.

• Most people don’t spend much time reading the newspaper.

• Readership is especially low among teens and young adults.

• Short life span—people rarely look at a newspaper more than once.

• Offers a very cluttered ad environment.

• The reproduction quality of images is relatively poor.

• Not effective to reach specific audiences.

Magazines • Audiences can be narrowly targeted by specialized magazines.

• High credibility and interest level provide a good environment for ads.

• Advertising has a long life and is often passed along to other readers.

• Visual quality is excellent.

• Can provide detailed product information with a sense of authority.

• With the exception of direct mail, it is the most expensive form of advertising. The cost of a full- page, four-color ad in a general-audience magazine typically exceeds $100,000.

• Long deadlines reduce flexibility.

• The advertiser must generally use several magazines to reach the majority of a target market.

• Clutter.

Directories • Customers actively seek exposure to advertisements.

• Advertisers determine the quality of the ad placement because larger ads get preferential placement.

• Limited creative options.

• May be a lack of color.

• Ads are generally purchased for a full year and cannot be changed.

(continued)

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Table 13.1 | Pros and Cons of Media Vehicles Vehicle Pros Cons

Out-of- home media

• Most of the population can be reached at low cost.

• Good for supplementing other media.

• High frequency when signs are located in heavy traffic areas.

• Effective for reaching virtually all segments of the population.

• Geographic flexibility.

• Hard to communicate complex messages because of short exposure time.

• Difficult to measure advertisement’s audience.

• Controversial and disliked in many communities.

• Cannot pinpoint specific market segments.

Internet Web sites

• Can target specific audiences and individualize messages.

• Web user registration and cookies allow marketers to track user preferences and Web site activity.

• Is interactive—consumers can participate in the ad campaign; can create do-it-yourself ads.

• An entertainment medium allowing consumers to play games, download music, etc.

• Consumers are active participants in the communication process, controlling what information and the amount and rate of information they receive.

• Web sites can facilitate both marketing communication and transactions.

• Consumers visit Web sites with the mindset to obtain information.

• Banners can achieve top of mind awareness (TOMA), even without click-throughs.

• Limited to Internet users only.

• Banners, pop-ups, unsolicited e-mail, etc., can be unwanted and annoying.

• Declining click-through rates for banners— currently less than 0.03 percent.

• If Web pages take too long to load, consumers will abandon the site.

• Phishing is e-mail sent by criminals to get consumers to go to phony Web sites that will seek to gain personal information such as credit card numbers.

• Because advertisers’ costs are normally based on the number of click-throughs, competitors may engage in click fraud by clicking on a sponsored link.

• Difficult to measure effectiveness.

Place-based media

• Effective for certain markets such a pharmaceutical companies to reach their target audience.

• In retail locations it can reach customers immediately before purchase; this provides a last opportunity to influence the purchase decision.

• In locations such as airports, it receives a high level of attention because of lack of viewer options.

• Limited audience.

• Difficult to measure effectiveness.

Branded entertainment

• Brand presented in a positive context.

• Brand message presented in a covert fashion.

• Less intrusive and thus less likely to be avoided.

• Connection with a popular movie plot or TV program and with entertaining characters can help a brand’s image.

• Can build emotional connection with the audience.

• Can create a memorable association that serves to enhance brand recall.

• Little control of how the brand is positioned—is in the hands of the director.

• Difficult to measure effectiveness.

• Costs of placement can be very high.

Advergaming

Mobile phones

• Companies can customize their own games or incorporate brands into existing popular games.

• Some game producers now actively pursue tie-ins with brands.

• Millions of gamers play an average of 40 hours per game before they tire of it.

• Millions of consumers have mobile phones “in their hands.”

• A large variety of different formats using different mobile phone apps.

• Audience limited to gamers.

• Consumers may be unwilling to receive messages through their phones.

Sources: Adapted from J. Thomas Russell and Ron Lane, Kleppner’s Advertising Procedure, 15th ed. (Upper Saddle River, NJ: Prentice Hall, 2002); Terence A. Shimp, Advertising, Promotion and Supplemental Aspects of Integrated Marketing Communications, 8th ed. (Australia: Thomson Southwestern, 2010); and William Wells, John Burnett, and Sandra Moriarty, Advertising: Principles and Practice, 6th ed. (Upper Saddle River, NJ: Prentice Hall, 2003).

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owner for Lifetime, A&E, and E! cable channels; and Viacom Inc. owns MTV, VH1, Comedy Central, Showtime, The Movie Channel, and Nickelodeon along with CBS.30

• Radio: Radio as an advertising medium dates back to 1922, when a New York City apart- ment manager went on the air to advertise properties for rent. One advantage of radio advertising is flexibility. Marketers can change commercials quickly, often on the spot by an announcer and a recording engineer.31

• Newspapers: The newspaper is one of the oldest communication platforms. Retailers in particular have relied on newspaper ads since before the turn of the 20th century to in- form readers about sales and deliveries of new merchandise. While most newspapers are local, USA Today, the Wall Street Journal, and the New York Times have national circu- lations and provide readerships in the millions. Newspapers are an excellent medium for local advertising and for events (such as store sales) that require a quick response. Today, most newspapers also offer online versions of their papers to expand their ex- posure. Some, such as the New York Times, offer online subscribers downloads of the ac- tual newspaper including all the ads at a much lower cost than the paper version. Rates for newspapers vary depending on the circulation of the paper. Most newspapers help advertisers in putting their ads together, a real advantage to the small business. How- ever, the newspaper industry is in serious trouble as more people choose to get their news online and many major papers are closing their doors or struggling.

• Magazines: Today, in addition to general audience magazines such as Readers Digest, there are literally thousands of special-interest magazines. Approximately 92 percent of adults look through at least one magazine per month. New technology such as selective binding allows publishers to personalize their editions so that they can include advertisements for local businesses in issues they mail to specific locations. For advertisers, magazines also offer the opportunity for multipage spreads as well as the ability to include special inserts so they can deliver samples of products such as perfumes and other “scratch-and- sniff” treats. Kimberly Clark’s Viva brand paper towels, for example, included samples of the product stitched into copies of Readers Digest as part of a six-page spread.32

Where to Say It: Digital Media

The term digital media refers to any media that are digital rather than analog. The more pop- ular types of digital media advertisers use today include Web sites, mobile or cellular phones, and digital video such as YouTube.

Owned, Paid, and Earned Media

Internet media can be classified as owned, paid, and earned.33 Companies can control their owned media that includes Web sites, blogs, Facebook, and Twitter accounts. The advantage of these owned media is that they are effective means for companies to build relationships with their customers. Paid media, the most similar model to traditional media, includes dis- play ads, sponsorships, and paid key word searches. Consumers generally dislike the paid ads making their effectiveness less of a sure thing. Earned media refers to word of mouth (WOM) or buzz using social media. The positive of earned media is that it is the most cred- ible to consumers. The challenge is that marketers have no control over earned media; they can only listen and respond.

Website Advertising

Online advertising no longer is a novelty; companies now spend over $21 billion a year to communicate via digital media. Major firms like General Mills and Kraft Foods are boost- ing their spending and the number of brands they promote online.34 The reason? Fifteen per- cent of the time U.S. consumers spend with all media is now online—and of course for some segments such as college students, that figure is much higher.35

digital media Media that are digital rather than analog including Web sites, mobile or cellular phones, and digital video such as YouTube.

earned media Word-of-mouth or buzz using social media where the advertiser has no control.

owned media Internet sites such as Web sites, blogs, Facebook, and Twitter accounts that are owned by an advertiser.

paid media Internet media such as display ads, sponsorships, and paid key word searches that are paid for by an advertiser.

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Online advertising offers several advantages over other media platforms. First, the Internet provides new ways to finely target customers. Web user registrations and cookies allow sites to track user preferences and de- liver ads based on previous Internet behavior. In addition, because the Web site can track how many times an ad is “clicked,” advertisers can measure in real time how peo- ple respond to specific online messages.

Finally, online advertising can be interactive—it lets consumers participate in the advertising campaign, and in some cases they can even become part of the action. View- ers who logged on to a special Web site were able to “di- rect” TV commercials for the Ford Probe by picking the cast and plotlines that Ford’s ad agency then used to cre- ate actual spots. Similarly, during its “whatever.com” campaign, Nike sent consumers to the Web to pick the endings of three cliffhanger TV spots.37

Specific forms of Internet advertising include ban- ners, buttons, pop-up ads, search engines and directories, and e-mail:

• Banners, rectangular graphics at the top or bottom of Web pages, were the first form of Web advertising.

• Buttons are small banner-type advertisements that a company can place anywhere on a page.

• A pop-up ad is an advertisement that appears on the screen while a Web page loads or after it has loaded. Because these messages take up part of the screen’s “real estate” while surfers wait for the desired page to load, they are difficult to ignore. Many surfers find pop-ups a nuisance, so most Internet access software provides an option that blocks all pop-ups. Web advertisers are typically charged only if people actually click through to the ad.

• Search engines and directory listings are ways for people to find Web pages of interest to them. A Web search engine is a program that searches for documents with specified keywords. Because there are millions of Web pages that include a particular word or phrase, most search engines use some method to rank their search results and provide users with the most relevant results first. As we discussed in Chapter 5, firms are in- creasingly paying search engines for more visible or higher placement on results lists. Google, which has 65% of all U.S. web searches, has total global revenues of nearly $30 billion. In June, 2010, BP spent nearly $3.6 million for Google advertising following the Gulf oil spill while Google’s top client, AT&T spent $8.08 million on Google’s AdWords to support its launch of the iPhone 4.38 Unlike search engines, a Web directory does not display lists of Web pages based on keywords but instead lists sites by categories and subcategories. Google, for example, offers its users the Google Directory in addition to its search engine. Who have you Googled today?

• E-mail advertising that transmits messages to very large numbers of inboxes simultane- ously is one of the easiest ways to communicate with consumers—it’s basically the same price whether you send ten messages or ten thousand. Recipients might be drawn from an organization’s list or they may have “opted-in” to receive notifications of a company’s discounts and promotions. One downside to this platform is the explosion of spam. The industry defines this practice as sending unsolicited e-mail to five or more people not personally known to the sender. Many Web sites that offer e-mail give

banners Internet advertising in the form of rectangular graphics at the top or bottom of Web pages.

buttons Small banner-type advertisements that can be placed anywhere on a Web page.

pop-up ad An advertisement that appears on the screen while a Web page loads or after it has loaded.

search engines Internet programs that search for documents with specified keywords.

Web directory Internet program that lists sites by categories and subcategories.

e-mail advertising Advertising messages sent via e-mail to large numbers of people simultaneously.

spam The use of electronic media to send unsolicited messages in bulk.

Alaska Airlines developed a system to create unique ads for individual Web surfers based on their geographic location, the number of times that person has seen an Alaska Airlines ad, the consumer’s purchase history with the airline, and his experience with lost bags, delays, and flight cancellations. The program can offer different prices to different customers, even prices below the lowest published fares.36

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surfers the opportunity to refuse unsolicited e-mail via junk e-mail blockers. This permission marketing strategy gives the consumer the power to opt in or out. Marketers in the United States send about 200 billion e-mails to consumers every year, so they hope that a good portion of these will be opened and read rather than being sent straight to the recycle bin.39

Mobile Advertising

The Mobile Marketing Association defines mobile advertising as “a form of advertising that is communicated to the consumer via a handset.”40 Mobile marketing offers advertisers a variety of ways to speak to customers including Mobile Web sites, mobile applications, mo- bile messaging, and mobile video and TV.

Mobile advertising has just begun to boom, much energized by Apple’s iPhone and all the apps that go with it. Begun with Apple’s iAd, today’s mobile advertising has moved from static tiny static banner ads to rich media that brings motion, interactivity, sound, video, or Flash, to mobile advertising.41 In the U.K., Kellogg’s used mobile advertising for its “The Big Bake” campaign.42 Messages on Kellogg’s cereal boxes encouraged consumers to use their mobile phones to send in photos of themselves cooking recipes that include Kel- logg’s cereals. Winners of the contest were given the opportunity to star in a Kellogg’s TV or print ad. And, before Oprah left TV, she made herself available to fans through a smart- phone app that included a weekly calendar of what was on the show, information about availability of reservations for the show, and access to articles and photos from Oprah.com and O magazine and to her tweets.43

Newer phones with global positioning system (GPS) features that pinpoint your loca- tion allow additional mobile advertising opportunities. Outdoor apparel retailer North Face, for example, used location-based mobile ads to lure consumers to its stores.44 When customers who opt in are close to one of the chain’s stores, they receive a text message about new arrivals or an in-store promotion such as a free water bottle with a purchase.

Video Sharing: Check It Out on YouTube

Video sharing describes the strategy of uploading video recordings or vlogs (pronounced vee-logs) to Internet sites such as YouTube so that thousands or even millions of other In- ternet users can check them out. These videos are a powerful way to break through the clut- ter. To understand how, let’s take a look at how Blendtec, a small electric blender manufacturer, used this strategy to grab a lot of attention quickly and cheaply. The company uploaded a vlog that showed its president dropping a brand-new iPhone into one of its appliances—presto! Within 24 hours, over a million people had watched as presto! purée of phone resulted.45

For marketers, YouTube provides vast opportunities to build relationships with con- sumers. For example, Home Depot provides do-it-yourselfers with free educational videos that promote Home Depot products while these vlogs position the company as a trusted expert. The University of Phoenix uses YouTube to post hundreds of video testimonials. The Boone Oakley advertising agency has established its Web site on YouTube. The inter- active video allows potential clients to view its work in an easily accessible way and is es- pecially appealing to companies that want a nontraditional marketing communications program.

Where to Say It: Branded Entertainment

As we noted earlier, more and more marketers rely on paid product placements in TV shows and movies to grab the attention of consumers who tune out traditional ad messages as fast as they see them. These placements are an important form of branded entertainment, a strategy where marketers integrate products into all sorts of venues including movies, tele- vision shows, videogames, novels, and even retail settings. For one promotion a group of 7-Eleven convenience stores literally became Kwik-E-Marts just like the store Homer loves

permission marketing E-mail advertising in which on-line consumers have the opportunity to accept or refuse the unsolicited e-mail.

mobile advertising A form of advertising that is communicated to the consumer via a handset.

video sharing Uploading video recordings on to Internet sites such as YouTube so that thousands or even millions of other Internet users can see them.

vlogs Video recordings shared on the Internet.

branded entertainment A form of advertising in which marketers integrate products into entertainment venues.

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The Cutting Edge

Augmented Reality Ever wonder how they make those yellow first-down lines in televised football games that spectators in the stadium can’t see? Or how about the trail of the puck in broadcasts of hockey games? The answer is augmented reality (AR), a form of technology where a view of a real-world environment joins a layer of virtual computer-generated imagery to create a mixed reality.

Adidas is one of several companies experimenting with AR in its marketing program.46 Adidas.com uses augmented reality to create three online games for Adidas sneaker customers. One is a skateboard game where the gamer’s

sneaker navigates through the city. Other Adidas games include a Star Wars–like game and a music game.To play all three games, the consumer holds the tongue of the sneaker up to a computer webcam and an implanted code activates a virtual 3-D world that the person sneaks into. The iPhone now of- fers users at least ten AR apps. Hold your phone up to the stars and the app will map the constellations with their names for you while the Firefighter 360 game app sets your location on fire and then allows you to put the fire out and save passers-by to make you a hero.47

to frequent in the TV show The Simpsons. Real-world customers could buy such exotic deli- cacies as “Squishees,” “Buzz Cola,” and “Krusty-Os cereal.” The KFC fast-food chain paid two cities in Indiana to put founder Colonel Sanders’s face on their hydrants and fire extin- guishers to promote its new “fiery” chicken wings.48 And the Twentieth Century Fox movie studio even managed to place a plug for the romantic comedy I Love You, Beth Cooper in a high school valedictorian’s speech (she got paid $1,800 to mention one of the main charac- ters).49 Product placement has also moved to social media as many firms are paying YouTube celebrities to push their products. Because consumers trust what these YouTubers say, companies including giants AT&T, GE, Ford, Colgate, Lancôme Paris, McDonalds, and Coca-Cola are paying $75,000 or more to some YouTube stars.50

Is branded entertainment a solid strategy? The idea is that when consumers see a pop- ular celebrity who uses a specific brand in their favorite movie or TV program, they might develop a more positive attitude toward that brand. Successful brand placements include the BMW Z3 James Bond drove, the Nike shoes Forrest Gump wore, and the Ray-Ban sun- glasses Tom Cruise sported in Risky Business. Audi recently promoted its R8 sports car in the movie Iron Man: Superhero Tony Stark drives the car, while Gwyneth Paltrow as Virginia “Pepper” Potts drives the Audi S5 sports sedan.51

But placing a Pepsi can in a TV show is only one form of branded entertainment. Today advertisers also take a more active role in developing new television programs to showcase their products. For example, TNT and Dodge paired up to produce Lucky Chance, a branded miniseries about an undercover Drug Enforcement Agency agent who drives a 2009 Dodge Challenger to transport money to a mob boss.52

Beyond movies and television shows, what better way to promote to the video genera- tion than through brand placements in video games? The industry calls this technique advergaming. If you are a video game hound, watch for placements of real-life brands such as Ford, Radio Shack, General Motors, Toyota, and Sony embedded in the action of your game. Quiksilver, a clothing manufacturer for extreme-sport participants, now puts its shirts and shorts into video games such as Tony Hawk’s Pro Skater 3.

Where to Say It: Support Media

While marketers (and consumers) normally think of advertising as mass media messages, in reality many of the ads we see today show up in our homes, our workplaces, and in pub- lic venues like restroom walls, on signs that trail behind airplanes, or in movies and televi- sion programs. Support media reach people who may not have been reached by mass media advertising, and these platforms also support the messages traditional media delivers. Here we’ll look at some of the more important support media advertisers use.

• Directories: Directory advertising is the most “down-to-earth,” information-focused advertising medium. In 1883, a printer in Wyoming ran out of white paper while print- ing part of a telephone book, so he substituted yellow paper instead. Today, the Yellow

advergaming Brand placements in video games.

support media Media such as directories or out-of-home media that may be used to reach people who are not reached by mass media advertising.

augmented reality A form of technology where a view of a real- world environment joins a layer of virtual computer-generated imagery to create a mixed reality.

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Pages, including the online Yellow Pages, posts revenues of more than $16 billion in the United States and over $45 billion globally.53 Often consumers look through directories just before they are ready to buy.

• Out-of-home media includes outdoor advertising (billboards and signs), transit adver- tising (signs placed inside and/or outside buses, taxis, trains, train stations, and air- ports) and other types of messages that reach people in public places. In recent years, outdoor advertising has pushed the technology envelope with digital signage that en- ables the source to change the message at will. In a first for out-of-home media, CBS Outdoor installed a high-definition 3-D projection display in New York’s Grand Cen- tral Terminal where 70,000 commuters a day were able to view 3-D commercials (yes, with 3-D glasses) for Visa.54 Of course, many consumers dislike out-of-home media, es- pecially outdoor advertising, because they feel it is unattractive.

• Place-based media like “The Airport Channel” transmit messages to “captive audi- ences” in public places, such as doctors’ offices and airport waiting areas. Place-based video screens are now in thousands of shops, offices, and health clubs across the coun- try including stores like CompUSA, Best Buy, Borders, Foot Locker, and Target. The Walmart TV Network has more than 125,000 screens in 2,850 Walmart stores, and pa- tients who wait in over 10,800 doctors’ offices watch medical programming and ads. NBC Universal has its shows on screens installed in office building elevators and on United Airlines flights.55

• And now, some retailers can even follow you around the store to deliver more up-close and personal messages: RFID technology (radio frequency identification) uses tiny sen- sors embedded in packages or store aisles to track customers as they pass. An unsus- pecting shopper might hear a beep to remind him that he just passed his family’s favorite peanut butter.56 You’re not paranoid; they really are watching you!

When to Say It: Media Scheduling

After she chooses the advertising media, the planner then creates a media schedule that specifies the exact media the campaign will use as well as when and how often the message should appear. Figure 13.4 shows a hypothetical media schedule for the promotion of a new video game. Note that much of the advertising reaches its target audience in the months just before Christmas, and that much of the expensive television budget focuses on adver- tising during specials just prior to the holiday season.

The media schedule outlines the planner’s best estimate of which media will be most ef- fective to attain the advertising objective(s) and which specific media vehicles will do the most effective job. The media planner considers qualitative factors such as the match between the demographic and psychographic profile of a target audience and the people a media vehicle

out-of-home media Communication media that reach people in public places.

digital signage Out-of-home media that use digital technology to change the message at will.

place-based media Advertising media that transmit messages in public places, such as doctors’ offices and airports, where certain types of people congregate.

Medium

Television Specials Saturday cartoons

Newspaper Co-op advertising

Direct Mail

Magazines Mag 1 Mag 2

Jan Feb Mar Apr May June July Aug Sept Oct Nov Dec Figure 13.4 Snapshot | Media Schedule for a Video Game

Media planning includes decisions on where, when, and how much advertising to do. A media schedule such as this one for a video game shows the plan visually.

media schedule The plan that specifies the exact media to use and when to use it.

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reaches, the advertising patterns of competitors, and the capability of a medium to adequately convey the desired information. The planner must also consider factors such as the compati- bility of the product with editorial content. For example, viewers might not respond well to a lighthearted ad for a new snack food during a somber documentary on world hunger.

There are also a number of quantitative factors, which the media planner uses to de- velop the media schedule. Reach is the percentage of the target market that will be exposed to the media vehicle at least once during a given period of time, usually four weeks. For ex- ample, if the target market includes 100 million adults age 18 and over and a specific TV pro- gram has an audience that includes 5 million adults in this age group, the program has a reach of 5. Developing a media plan with high reach is particularly important for widely used products when the message needs to get to as many consumers as possible.

Frequency is the average number of times that an individual or a household will be ex- posed to the message. Note that this is the average. For example, while some members of a target market may be exposed to an ad 2 or 4 or 20 times and others see an ad only once, the average and thus the frequency might be 4. High levels of frequency are important for prod- ucts that are complex or those that are targeted to relatively small markets for which multi- ple exposures to the message are necessary to make an impact.

Gross rating points (GRPs) are a measure of the quantity of media included in the media plan. Just as we talk about buying 15 gallons of gas or a pound of coffee, media planners talk about a media schedule that includes the purchase of 250 gross rating points of radio and 700 GRPs of TV. We calculate gross rating points by multiplying a media vehicle’s rating by the number of planned ad insertions. As we see in Table 13.2, if 30 percent of a target audience watches American Idol and you place eight ads on the show, you buy 240 GRPs of that show.

Although some media vehicles deliver more of your target audience, they may not be cost-efficient. More people will see a commercial aired during the Super Bowl than during a 3:00 A.M. rerun of a Tarzan movie. But the advertiser could run late-night commercials

every night for a year for the cost of one 30-second Super Bowl spot. To com- pare the relative cost-effectiveness of different media and of spots run on dif- ferent vehicles in the same medium, media planners use a measure they call cost per thousand (CPM). This figure reflects the cost to deliver a message to 1,000 people.

Assume that the cost of each 30-second commercial on American Idol is $400,000 but the number of target audience members the show reaches is 20 million or 20,000 � 1,000. The CPM of American Idol is $400,000/20,000 � $20 CPM. Compare this to the cost of advertising in Fortune magazine: A full- page 4-color ad costs approximately $115,000 and the readership includes approximately 2 million members of our target audience. The cost per thou- sand for Fortune is $115,000/2000 � $57.50. Thus, American Idol, while hav- ing a much higher total cost, actually is a more efficient buy.

Media Scheduling: How Often to Say It

After she decides where and when to advertise, the planner must decide how often she wants to send the message. What time of day? And what overall pat- tern will the advertising follow?

A continuous schedule maintains a steady stream of advertising through- out the year. This is most appropriate for products that we buy on a regular basis, such as shampoo or bread. The American Association of Advertising Agencies, an industry trade group, maintains that continuous advertising sustains market leadership even if total industry sales fall.57 On the down- side, some messages can suffer from advertising wear-out because people tune out the same old ad messages.

A pulsing schedule varies the amount of advertising throughout the year based on when the product is likely to be in demand. A suntan lotion might

reach The percentage of the target market that will be exposed to the media vehicle.

frequency The average number of times a person in the target group will be exposed to the message.

gross rating points (GRPs) A measure used for comparing the effectiveness of different media vehicles: average reach � frequency.

cost per thousand (CPM) A measure used to compare the relative cost- effectiveness of different media vehicles that have different exposure rates; the cost to deliver a message to 1,000 people or homes.

The long-running Got Milk? campaign avoids advertising wear-out because it uses a steady stream of different celebrities (all with milk mustaches, of course) over time.

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Table 13.2 | A (Hypothetical) Media Schedule

Media Vehicle Rating (Percentage of Target Audience Reached)

Number of Ad Insertions During the Period

GRPs (Rating � Number of Insertions)

American Idol TV show

30 8 (2 ads on each week’s show for 4 weeks) 240 GRPs

NBC Nightly News

10 40 (2 ads each weeknight for 4 weeks) 400

The Today Show

20 40 (2 ads each weekday morning for 4 weeks) 800

Newsweek magazine

20 4 (1 ad in each of 4 editions during the 4-week period)

Fortune magazine

12 2 (1 ad in each of the 2 editions each month) 24

USA Today newspaper

7 8 (1 ad each Monday and Thursday during the 4-week period)

Total GRPs 1600

advertise year-round but more heavily during the summer months. Flighting is an extreme form of pulsing, in which advertising appears in short, intense bursts alternating with peri- ods of little to no activity. It can produce as much brand awareness as a steady dose of ad- vertising at a much lower cost if consumers noticed the messages from the previous flight and these made an impact.

Step 6: Evaluate the Advertising John Wanamaker, a famous Philadelphia retailer, once complained, “I am certain that half the money I spend on advertising is completely wasted. The trouble is, I don’t know which half.”58 Now that we’ve seen how advertising is created and executed, let’s step back and see how we decide if it’s working.

There’s no doubt that a lot of advertising is ineffective. Ironically, as marketers try harder and harder to reach their customers, these efforts can backfire. Many consumers have a love–hate relationship with advertising. Over half the respondents in a survey said they “avoid buying products that overwhelm them with advertising and marketing,” and 60 per- cent said their opinion of advertising “is much more negative than just a few years ago.”59

With so many messages competing for the attention of frazzled customers, it’s especially im- portant for firms to evaluate their efforts to increase the impact of their messages. How can they do that?

Posttesting means conducting research on consumers’ responses to advertising mes- sages they have seen or heard (as opposed to pretesting, which as we’ve seen collects reac- tions to messages before they’re actually placed in “the real world”). Ironically, many creative ads that are quirky or even bizarre make an advertising agency look good within the indus- try (and on the résumé of the art director), but are ultimately unsuccessful because they don’t communicate what the company needs to say about the product itself. We may re- member that weird ad, but have no idea what product it advertised.

Three ways to measure the impact of an advertisement are unaided recall, aided recall, and attitudinal measures:

1. Unaided recall tests by telephone survey or personal interview whether a person re- members seeing an ad during a specified period without giving the person the name of the brand.

posttesting Research conducted on consumers’ responses to actual advertising messages they have seen or heard.

unaided recall A research technique conducted by telephone survey or personal interview that asks whether a person remembers seeing an ad during a specified period without giving the person the name of the brand.

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2. An aided recall test uses the name of the brand and sometimes other clues to prompt answers. For example, a researcher might show a group of consumers a list of brands and ask them to choose which items they have seen advertised within the past week.

3. Attitudinal measures probe a bit more deeply by testing consumers’ beliefs or feelings about a product before and after they are exposed to messages about it. If, for example, Pepsi’s messages about “freshness-dating” make enough consumers believe that the freshness of soft drinks is important, marketers can consider the advertising campaign successful.

Public Relations Public relations (PR) is the communication function that seeks to build good relationships with an organization’s publics; these include con- sumers, stockholders, legislators, and other stakeholders in the organi- zation. Today marketers use PR activities to influence the attitudes and perceptions of various groups not only toward companies and brands but also toward politicians, celebrities, and not-for-profit organizations.

The basic rule of good PR is, Do something good, and then talk about it. A company’s efforts to get in the limelight—and stay there—can range from humanitarian acts to sponsoring band tours. The big advan-

tage of this kind of communication is that when PR messages are placed successfully, they are more credible than if the same information appeared in a paid advertisement. As one marketing executive observed, “There’s a big difference between hearing about a product from a pitchman and from your trusted local anchorman.”60

Public relations strategies are crucial to an organization’s ability to establish and main- tain a favorable image. Proactive PR activities stem from the company’s marketing objec- tives. For example, marketers create and manage publicity, unpaid communication about an organization that gets media exposure. It’s interesting to note that this aspect of PR is blend- ing into other promotional strategies as social media continue to mushroom. Essentially, buzz marketing is also one form of public relations because it tries to motivate consumers to talk up a brand or service to one another (ideally for free).

As many of the other function of public relations blend into buzz marketing activities, perhaps the most important function it still “owns” is crisis management. This refers to the process of managing a company’s reputation when some negative and often unplanned event threatens the organization’s image. Think about the unfortunate BP executives, for ex- ample, who had to communicate to the public as the explosion of an oil rig in the Gulf of Mexico took the shape of an epic environmental disaster, or those who had to reassure a for- merly loyal Toyota customer base that faulty accelerator pedals would not in fact cause their cars to speed out of control.

The goal in such situations is to manage the flow of information to address concerns so that consumers don’t panic and distributors don’t abandon the product. Although some or- ganizations don’t seem to learn this lesson, typically the best strategy is to be honest about the problem and to quickly take responsibility for correcting it. For example, a few years ago PepsiCo was rocked by claims that consumers had found hypodermic needles in Diet Pepsi cans. The company assembled a crisis team to map out a response and supplied video footage of its bottling process to show that it was impossible for foreign objects to find their way into cans before they were sealed at the factory. The claims proved false, and PepsiCo ran follow- up ads reinforcing the findings. Pepsi’s calm, coordinated response averted a PR disaster.

Even a single negative event can cause permanent damage to a company, the success of its products, and its stockholder equity. While it didn’t have the magnitude of a massive oil spill such as the one BP confronted, Wendy’s was faced with a similar public image disaster

aided recall A research technique that uses clues to prompt answers from people about advertisements they might have seen.

attitudinal measures A research technique that probes a consumer’s beliefs or feelings about a product before and after being exposed to messages about it.

public relations (PR) Communication function that seeks to build good relationships with an organization’s publics, including consumers, stockholders, and legislators.

publicity Unpaid communication about an organization that appears in the mass media.

crisis management The process of managing a company’s reputation when some negative event threatens the organization’s image.

3 OBJECTIVE

Explain the role of

public relations and

the steps in

developing a public

relations campaign. (pp. 402–408)

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when a customer said she found a finger in a bowl of its chili.61 The woman and her husband were both sent to prison after investigators discovered that he had actually obtained the finger from a co-worker who had lost it in a workplace accident. While the claim proved false, it still cost the company $2.5 million in lost sales.62 In another incident, a man stuffed a dead mouse in a Taco Bell burrito in an attempt to extort money from the fast-food chain.63 Supersize that!

Public relations professionals know that when a firm handles a crisis well, it can mini- mize damage and help the company make things right. Thus, a vitally important role of PR is to prepare a crisis-management plan. This is a document that details what an organization will do if a crisis occurs—who will be the spokesperson for the organization, how the orga- nization will deal with the press, and what sort of messages it will deliver to the press and the public.

Plan a Public Relations Campaign A public relations campaign is a coordinated effort to communicate with one or more of the firm’s publics. This is a three-step process that develops, executes, and evaluates PR objec- tives. Let’s review each step and then we’ll examine some of the more frequently used ob- jectives and tactics shown in Figure 13.5.

Like an advertising campaign, the organization must first develop clear objectives for the PR program that define the message it wants people to hear. For example the International Apple Institute, a trade group devoted to increasing the consumption of apples, had to de- cide if a campaign should focus on getting consumers to cook more with apples, drink more apple juice, or simply to buy more fresh fruit. Because fresh apples brought a substantially higher price per pound to growers than apples used for applesauce or apple juice, the group decided to push the fresh fruit angle. It used the theme “An apple a day . . .” (sound famil- iar?) as it mounted a focused campaign to encourage people to eat more apples by placing articles in consumer media extolling the fruit’s health benefits.

Execution of the campaign means deciding precisely how to communicate the message to the targeted public(s). An organization can get out its positive messages in many ways: news conferences, sponsorship of charity events, and other attention-getting promotions.

Objectives

• Introduce new products

• Influence government legislation

• Enhance the image of an organization, city, region, or country

• Provide advice and counsel

• Call attention to a firm’s involvement with the community

Activities

• Press releases

• Internal PR

• Investor relations

• Lobbying

• Speech writing

• Corporate identity

• Media relations

• Sponsorships

• Special events

• Guerrilla marketing

Public Relations

Figure 13.5 Snapshot | Objectives and Tactics of Public Relations Successful PR campaigns include clearly defined objectives and the use of the right PR activities.

public relations campaign A coordinated effort to communicate with one or more of the firm’s publics.

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One of the barriers to greater reliance on PR campaigns is evaluation; compared to many other forms of marketing communications, it’s difficult to devise metrics to gauge their ef- fectiveness. Who can say precisely what impact an appearance by Steve Carell on The Tonight Show to plug his new movie exerts on ticket sales, or whether Virgin’s sponsorship of the London Marathon boosted purchases of airline tickets? It is possible to tell if a PR cam- paign gets media exposure, though compared to advertising it’s much more difficult to as- sess bottom-line impact. Table 13.3 describes some of the most common PR measurement techniques.

Public Relations Objectives Marketing communication experts know that PR strategies are best used in concert with ad- vertising, sales promotion, and personal selling to send a consistent message to customers and other stakeholders. As part of the total marketing communication plan, they often rely on PR to accomplish the following objectives:

• Introduce new products to retailers and consumers. To make the most of the introduction of the iPad in January 2010, Apple staged a live press conference hosted by CEO Steve Jobs in his trademark blue jeans and black turtleneck.64

• Influence government legislation. Airplane maker Boeing spent over a decade in public re- lations activities to persuade regulators that jetliners with two engines are as safe as those with three or four engines even for nonstop international flights, some as long as 16 hours.65

• Enhance the image of an organization. The Ladies Professional Golf Association (LPGA) used a variety of public relations and other promotion activities—from product en- dorsements to player blogs to sexy calendars—in its “These Girls Rock” campaign. The program to change the image of ladies’ golf to a hip sport seems to be working, as both tournament attendance and television audiences have increased.66

• Provide advice and counsel. Because of their expertise and understanding of the effects of communication on public opinion, PR professionals also provide advice and counsel for top management. When a firm needs to shut down a plant or to build a new one, to discon- tinue a product or add to the product line, to fire a vice president, or to give an award to an employee who spends hundreds of hours a year doing volunteer work in his commu- nity, it needs the advice of its PR staff. What is the best way to handle the situation? How should the announcement be made? Who should be told first? What is to be said and how?

• Enhance the image of a city, region, or country. To promote Vancouver, British Columbia, and Canada around the world, the not-for-profit business organization Tourism Van- couver used a large variety of PR activities to make the most of the Winter Olympics in Vancouver in 2010.67

• Manage a crisis. PR specialists handle the crucial but often difficult task of communicat- ing with stakeholders when something goes wrong, such as when BP is involved in a massive oil spill or Toyota issues a massive recall of cars with faulty accelerator pedals. Organizations respond in many ways, ranging from (unfortunately) complete denial or silence to full disclosure. For example, when Toyota started to receive reports of unsafe cars in the U.K., the director of the carmaker’s operations there posted a five-minute video apologizing to consumers.68

• Call attention to a firm’s involvement with the community. U.S. marketers spend about $15 billion a year to sponsor sporting events, rock concerts, museum exhibits, and the ballet. PR specialists work behind the scenes to ensure that sponsored events receive am- ple press coverage and exposure. We’ll talk more about sponsorships later in this section.

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Table 13.3 | Measuring the Effectiveness of Public Relations (PR) Tactics Method Description Example Pros Cons

Personal (subjective) evaluation of PR activities

Evaluation of PR activities by superiors may occur at all levels of the organization.

Items in employee annual reviews relate to the successful fulfillment of PR role.

Simple and inexpensive to complete; assures an annual assessment will be completed.

Subjective nature of the evaluation may result in biased appraisal. Employees may focus on the annual review to the exclusion of some important PR goals.

Matching of PR activity accomplishments with activity objectives

Simple counts of actual PR activities accomplished compares with activity goals set for the period.

Goal: to obtain publication of three feature articles in major newspapers in the first quarter of the year.

Result: four articles published.

Focuses attention on the need for quantitative goals for PR activities and achievements.

Easy and inexpensive to measure.

Focuses on activity goals rather than image or communication goals.

Ignores image perception or attitudes of the firm’s publics.

Evaluation of communication objectives through opinion surveys among the firm’s publics

Surveys are used to determine if image/communication goals are met within key groups.

Goal: to achieve an improved image of the organization among at least 30 percent of financial community stakeholders.

Causes PR professionals to focus on actual communication results of activities.

May be difficult to measure changes in perceptions among the firm’s publics.

Factors not under the control of PR practitioners may influence public perceptions. It is relatively expensive.

Results may take many months, thus preventing corrective actions in PR activities.

Measurement of coverage in print and broadcast media, especially those generated by PR activities

Systematic measurement of coverage achieved in print media (column inches/pages) and broadcast media (minutes of air time).

Total number of column inches of newspaper articles resulting from PR releases.

Total number of articles including those not from PR releases.

Total amount of positive print and broadcast coverage.

Total amount of negative print and broadcast coverage.

Ratio of negative to positive print and broadcast coverage.

Very objective measurements with little opportunity for bias.

Relatively inexpensive.

Does not address perceptions, attitudes, or image issues of the organization.

Impression measurement

Measure the size of the audience for all print and broadcast coverage. Often assessment includes comparisons in terms of advertising costs for same number of impressions.

Network news coverage during the time period equaled over 15 million gross impressions. This number of impressions through advertising would have cost $4,500,000.

Objective, without any potential bias in measurement; provides a monetary measure to justify the expenditures of the PR office or consultant.

Relatively inexpensive.

Does not differentiate between negative and positive news coverage.

Does not consider responses of publics to the coverage.

Assumes advertising and PR communication activities are equal.

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Public Relations Tactics In order to accomplish their objectives, PR professionals choose from a variety of tactics as shown in Figure 13.5. These activities include press releases, activities aimed at specific internal and external stakeholder groups, speech writing and corporate communications, sponsorships and special events, and guerilla marketing activities.

Press Release

The most common way for PR specialists to communicate is by a press release. This is a re- port of some event or activity that an organization writes and sends to the media in the hope that it will be published for free. A newer version of this idea is a video news release (VNR) that tells the story in a film format instead. Some of the most common types of press releases include the following:

• Timely topics deal with topics in the news, such as Levi Strauss’s efforts to promote “Ca- sual Fridays” to boost sales of its Dockers and Slates casual dress pants by highlighting how different corporations around the country are adopting a relaxed dress code.

• Research project stories are published by universities to highlight breakthroughs by fac- ulty researchers.

• Consumer information releases provide information to help consumers make product de- cisions, such as helpful tips from Butterball about how to prepare dishes for Thanksgiv- ing dinner.

Internal PR and External Stakeholders

Internal PR activities target employees; they often include company newsletters and closed- circuit television to keep people informed about company objectives, successes, or even plans to “downsize” the workforce. Often company newsletters also are distributed outside the firm to suppliers or other important publics.

Investor relations activities focus on communications to those whose financial support is critical; this is especially vital for publicly held companies. It is the responsibility of the PR department to develop and distribute annual and quarterly reports and to provide other essential communications with individual and corporate stockholders, with investment firms, and with capital market organizations.

Lobbying means talking with and providing information to government officials to per- suade them to vote a certain way on pending legislation or even to initiate legislation or reg- ulations that would benefit the organization.

Speech Writing and Corporate Communications

An important job of a firm’s PR department is speech writing; specialists provide speeches for company executives to deliver. While some executives do actually write their own speeches, it is more common for a speechwriter on the PR staff to develop an initial draft of a speech to which the executive might add her own input. PR specialists also provide input on corporate identity materials, such as logos, brochures, building design, and even sta- tionery that communicates a positive image for the firm.

One of the tasks of the PR professional is to develop close media relations to ensure the organization will receive the best media exposure possible for positive news, such as publi- cizing the achievements of an employee who has done some notable charity work or for a product the company developed that saved someone’s life. And, as we’ve seen, good media relations can be even more important when things go wrong. News editors are less inclined to present a story of a crisis in its most negative way if they have a good relationship with PR people in the organization.

press release Information that an organization distributes to the media intended to win publicity.

internal PR PR activities aimed at employees of an organization.

investor relations PR activities such as annual and quarterly reports aimed at a firm’s investors.

lobbying Talking with and providing information to government officials in order to influence their activities relating to an organization.

speech writing Writing a speech on a topic for a company executive to deliver.

corporate identity Materials such as logos, brochures, building design, and stationery that communicate an image of the organization.

media relations A PR activity aimed at developing close relationships with the media.

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Sponsorships and Special Events

Sponsorships are PR activities through which companies provide financial support to help fund an event in return for publicized recognition of the company’s contribution. Many companies today find that their promotion dollars are well spent to sponsor a golf tournament, a NASCAR driver, a symphony concert, or global events such as the Olympics or World Cup soccer competition. These spon- sorships are particularly effective because they allow mar- keters to reach customers during their leisure time; people often appreciate these efforts because the financial sup- port makes the events possible in the first place.

A related task is to plan and implement special events. Companies find special events useful for a variety of purposes. For example, a firm might hold a press con- ference to increase interest and excitement in a new prod- uct or other company activity. A city or state may hold an annual event such as the strawberry festivals in Florida and California or the National Cherry Blossom Festival in Washington, D.C. to promote tourism. A company outing like the huge road rallies Harley-Davidson’s Harley Owner’s Group (H.O.G.) sponsors reinforces loyalty to- ward an existing product. Other special events aim simply to create buzz and generate publicity. For New York City shoppers, Unilever created its “All Small & Mighty Clothes Bus,” a 40-foot bus it covered in all the shirts, shorts, and socks that one bottle of super-concentrated All laundry detergent can wash. Consumers who spotted the bus during its 12-day campaign could “clean up” if they entered a sweepstakes to win a $5,000 shopping spree or $200 gift cards.70

Guerrilla Marketing

Organizations with tiny advertising budgets need to develop innovative—and cheap—ways to capture consumers’ attention. Guerrilla marketing activities are an increasingly popular way to accomplish this objective. No, this term doesn’t refer to marketers making monkeys out of themselves (that’s “gorilla marketing”). A guerrilla marketing strategy involves “am- bushing” consumers with promotional content in places where they don’t expect to encounter these messages. These activities include putting advertising stickers on apples, placing product-related messages on the backs of theater tickets and flags on golf courses, or even staging elaborate dance routines in train stations. T-Mobile pulled this off at the Liverpool sta- tion in the U.K. as 350 pedestrians suddenly congregated in the center and launched into an elaborate group routine as the song Shout! played on huge speakers (check out the video at http://www.youtube.com/watch?v5VQ3d3KigPQM&feature5player_embedded#at530).

Today, big companies buy into guerrilla marketing strategies big time. Burger King re- cently decided to increase sales in its Asia-Pacific stores by 25 percent. The company sent CDs with quirky marketing suggestions to local restaurant managers. These included put- ting “I♥BK” on T-shirts and placing the shirts on Ronald McDonald, placing large footprints from McDonald’s stores to Burger King outlets, placing signs on empty benches saying “gone to BK—Ronald,” and placing large signs at BK locations that are near KFC locations that read, “It’s why the chicken crossed the road.”71

Companies use guerrilla marketing to promote new drinks, cars, clothing styles, or even computer systems. Much to the annoyance of city officials in San Francisco and Chicago, IBM painted hundreds of “Peace Love Linux” logos on sidewalks to publicize the company’s adoption of the Linux operating system. Even though the company got hit with

McDonald’s, a sponsor of the FIFA World Cup since 1994, built on its sponsorship to create promotions in its restaurants around the world. McDonald’s global Player Escort Program sent 1,408 children ages 6 to 10 to the World Cup where they escorted players onto the field for all 64 FIFA matches. In Brazil, McDonald’s restaurants offered customers sandwiches with flavors from countries competing in the World Cup. World Cup beverage cups were available for customers in some countries, including China and the United States, and some locations in Europe offered consumers a World Cup burger, which was 40 percent larger than McDonald’s Big Mac.69

sponsorships PR activities through which companies provide financial support to help fund an event in return for publicized recognition of the company’s contribution.

special events Activities—from a visit by foreign investors to a company picnic—that are planned and implemented by a PR department.

guerrilla marketing Marketing activity in which a firm “ambushes” consumers with promotional content in places they are not expecting to encounter this kind of activity.

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a hefty bill to pay for cleaning up the “corporate graffiti,” one marketing journalist noted that they “got the publicity they were looking for.”72 Given the success of many of these cam- paigns that operate on a shoestring budget, expect to see even more of these tactics as other companies climb on the guerrilla bandwagon.

Sales Promotion Sometimes when you walk through your student union on campus you might get assaulted by a parade of people eager for you to enter a con- test, taste a new candy bar, or take home a free T-shirt with a local bank’s name on it. These are examples of sales promotion, programs that marketers design to build interest in or encourage purchase of a good or service during a specified period.73

How does sales promotion differ from advertising? Both are paid messages from identifiable sponsors to change consumer behavior or attitudes. In some cases, a traditional advertising medium actually publicizes the sales promotion, as when Denny’s restaurant used Super Bowl advertising to tell consumers about its free breakfast offer. But

while marketers carefully craft advertising campaigns to create long-term positive feelings about a brand, company, or store, sales promotions are more useful if the firm has an immediate objective, such as bolstering sales for a brand quickly or encouraging consumers to try a new product.

Marketers today place an increasing amount of their total marketing communication budget into sales promotion. Several reasons account for this increase. First, due to the growth of very large grocery store chains and mass merchandisers such as Walmart, there has been a shift in power in the channels. These large chains can pressure manufacturers to provide deals and discounts. A second reason for the growth in sales promotion is declin- ing consumer brand loyalty. This means that consumers are more likely to purchase prod- ucts based on cost, value, or convenience. Thus a special sales promotion offer is more likely to cause price-conscious customers to switch brands.

Marketers target sales promotion activities either to ultimate consumers or to members of the channel such as retailers that sell their products. Thus we divide sales promotion into two major categories: consumer-oriented sales promotion and trade-oriented sales promotion. In this chapter we will talk about the consumer type. We’ll talk about the trade type in Chapter 14. You’ll see some examples of common consumer-oriented sales promotions in Table 13.4.

Sales Promotion Directed toward Consumers As we said, one of the reasons for an increase in sales promotion is because it works. For consumer sales promotion, the major reason for this is that most promotions temporarily change the price/value relationships. A coupon for 50 cents off the price of a bottle of ketchup reduces the price while a special “25 percent more” jar of peanuts increases the value. And if you get a free hairbrush when you buy a bottle of shampoo, this also increases the value. Even the prize in the bottom of the box of cereal increases its value exponentially as every mother (unfortunately) knows. As shown in Figure 13.6, we generally classify consumer sales promotions as either price-based or attention-getting promotions.

Price-Based Consumer Sales Promotion

Many sales promotions target consumers where they live—their wallets. They emphasize short-term price reductions or rebates that encourage people to choose a brand—at least dur- ing the deal period. Price-based consumer promotions, however, have a downside similar

4 OBJECTIVE

Explain what sales

promotion is, and

describe the different

types of consumer

sales promotion

activities. (pp. 408–411)

sales promotion Programs designed to build interest in or encourage purchase of a product during a specified period.

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to trade promotions that involve a price break. If a company uses them too frequently, this “trains” its customers to purchase the product at only the lower promotional price. Price- based consumer sales promotion includes the following:

• Coupons: Try to pick up any Sunday newspaper without spilling some coupons. These certificates, redeemable for money off a purchase, are the most common price promo- tion. Indeed, they are the most popular form of sales promotion overall. Companies dis- tribute billions of them annually in newspapers, magazines, in the mail, in stores, by e-mail, and through the Internet. One company, Val-Pak, has created an entire business

Table 13.4 | Consumer Sales Promotion Techniques: A Sampler Technique Description Example

Coupons (newspaper, magazine, in-the- mail, on product packages, in-store, and on the Internet)

Certificates for money off on selected products, often with an expiration date, are used to encourage product trial.

Crest offers $5 off its WhiteStrips.

Price-off packs Specially marked packages offer a product at a discounted price.

Tide laundry detergent is offered in a specially marked box for 50 cents off.

Rebates/refunds Purchasers receive a cash reimbursement when they submit proofs of purchase.

Uniroyal offers a $40 mail-in rebate for purchasers of four new Tiger Paw tires.

Continuity/loyalty programs Consumers are rewarded for repeat purchases through points that lead to reduced price or free merchandise.

Airlines offer frequent fliers free flights for accumulated points; a carwash offers consumers a half-price wash after purchasing 10 washes.

Special/bonus packs Additional amount of the product is given away with purchase; it rewards users.

Maxell provides 10 free blank CDs with purchase of a pack of 50.

Contests/sweepstakes Offers consumers the chance to win cash or merchandise. Sweepstakes winners are determined strictly by chance. Contests require some competitive activity such as a game of skill.

Publisher’s Clearing House announces its zillionth sweepstakes.

Premiums: Free premiums include in-pack, on-pack, near pack, or in-the-mail premiums; consumers pay for self- liquidating premiums

A consumer gets a free gift or low-cost item when a product is bought; reinforces product image and rewards users.

A free makeup kit comes with the purchase of $20 worth of Clinique products.

Samples (delivered by direct mail, in newspapers and magazines door-to-door, on or in product packages, and in-store)

Delivering an actual or trial-sized product to consumers in order to generate trial usage of a new product.

A free small bottle of Clairol Herbal Essences shampoo arrives in the mail.

Consumer Sales Promotion

Price-based Consumer Sales Promotions

• Coupons • Price deals • Rebates and refunds • Frequency (loyalty/continuity) programs • Special/bonus packs

Attention-Getting Consumer Sales Promotions

• Contests and sweepstakes • Premiums • Sampling

Figure 13.6 Snapshot | Types of Consumer Sales Promotions

Consumer sales promotions are generally classified as price-based or attention- getting promotions.

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around coupons. You’ve probably received a Val-Pak envelope in the mail—it’s the one with dozens of coupons and other offers inside. Even industries such as pharmaceuti- cals that never tried this approach before now use it in a big way. This industry mails coupons that customers can redeem for free initial supplies of drugs. Coupons are also available through sites such as Viagra.com and Purplepill.com. Companies use the coupons to prompt patients to ask their physician for the specific brand instead of a competing brand or a more economical generic version.74

• Price deals, refunds, and rebates: In addition to coupons, manufacturers often offer a temporary price reduction to stimulate sales. This price deal may be printed on the package itself, or it may be a price-off flag or banner on the store shelf. Alternatively, companies may offer refunds or rebates that allow the consumer to recover part of the purchase price via mail-ins to the manufacturer. Today, many retailers such as Best Buy print the rebate form for you along with your sales receipt. After you mail it in, you can track whether the check has been sent to you by visiting the retailer’s Web site.

• Frequency (loyalty/continuity) programs: Frequency programs, also called loyalty or continuity programs, offer a consumer a discount or a free product for multiple purchases over time. Mike Gunn, former vice president of marketing at American Airlines, is widely credited with developing this concept in the early 1980s when he coined the phrase “frequent flyer” miles. Of course, all the other airlines were quick to follow suit, as were a host of other firms, including retailers, auto rental companies, hotels, restaurants—you name it, and they have a customer loyalty program. Virgin Atlantic has gone one step

farther with its frequent flyer program, which allows Virgin Atlantic Flying Club members the chance to redeem miles for a trip to outer space—only 2 million miles required!75 La Croissanterie, a French-style fast-food chain in Paris, offers an enhanced customer loyalty program that allows customers to identify themselves with a paper pass, a smart-phone application or their public transportation pass—no problem if you happen to leave the loyalty card at home.76

• Special/bonus packs: Another form of price promotion involves giving the shopper more product instead of lowering the price.77 How nice to go to Walgreen’s and find an 8-ounce bottle of Nivea lotion packaged with an- other 4 ounces free! A special pack also can be in the form of a unique package such as a reusable decorator dispenser for hand soap.

Attention-Getting Consumer Sales Promotions

Attention-getting consumer promotions stimulate interest in a company’s products. Some typical types of attention-getting promotions include the following:

• Contests and sweepstakes: According to their legal definitions, a contest is a test of skill, while a sweepstakes is based on chance.

• Ben & Jerry’s, famous for ice cream flavors such as Chunky Monkey and Phish Food, launched a contest for consumers to create an origi- nal flavor ice cream. Consumers enter the “Do Us a Flavor” contest by submitting their flavor name and description through Ben & Jerry’s Web site.78

rebates Sales promotions that allow the customer to recover part of the product’s cost from the manufacturer.

Ben & Jerry’s uses a game as part of its campaign to combat global warming.

frequency programs Consumer sales promotion programs that offer a discount or free product for multiple purchases over time; also referred to as loyalty or continuity programs.

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• As part of the kickoff of Disney’s global marketing campaign themed “Where Dreams Come True,” Disney offered consumers an online Keys to the Magic Kingdom sweepstakes. The winning family received a trip to Walt Disney World Resort and a day at the Magic Kingdom.79

• Oreo included consumers as not only the contest- ants, but also the judges in its Oreo & Milk Jingle Contest. The top five contestants’ renditions of the Oreo song were posted on the Oreo.com Web site. Consumers entered part of an Oreo package UPC to vote for their favorite; the winner re- ceived $10,000 and a recording session for an Oreo radio spot and a trip to Los Angeles to visit with American Idol judge Randy Jackson.80

• Premiums: Premiums are items you get free when you buy a product. The prize in the bottom of the box of ce- real—the reason many college students open the box from the bottom—is a premium. Prepaid phone cards have become highly popular premiums. Companies that jump on the phone card band- wagon offer cards emblazoned with pictures of sports heroes, products, and rock bands. Phone cards make ideal premiums because they are compact, they can display brand logos or attractive graphics, and they provide opportunities for repeat exposure. And an impor- tant benefit for the marketer is the ability to build databases by tracking card usage.81 Your “good neighbor” State Farm agent used to send you a calendar on your birthday—now you’re likely to get a phone card with 30 long-distance minutes on it, adorned with a re- minder of your agent’s phone number to be sure you won’t forget who sent it to you.

• Sampling: How many starving college students at one time or another have managed to scrape together an entire meal by scooping up free food samples at their local grocery store? Some stores, like Publix and Sam’s Club, actu- ally promote Saturdays as sampling day in their ad- vertising. Product sampling encourages people to try a product by distributing trial-size and sometimes regular-size versions in stores, in public places such as student unions, or through the mail. Many mar- keters now distribute free samples through sites on the Internet.82 Companies like Procter & Gamble, Unilever, S.C. Johnson, and GlaxoSmithKline are readily taking advantage of Web sites such as www .freesamples.com and www.startsampling.com that distribute the firms’ samples and then follow up with consumer-satisfaction surveys.

Now, that you’ve learned about advertising, public relations, and consumer sales promotion, read “Real Peo- ple, Real Choices: How It Worked Out” to see how it worked out for The Brownstein Group.

Oscar Mayer created an eye-catching promotion with its Weinermobile—guaranteed to draw attention from hot dog lovers.

premiums Items offered free to people who have purchased a product.

product sampling Distributing free trial-size versions of a product to consumers.

Cooking contest (such as the “Bourboncuing” contest sponsored by Jim Beam) are a popular way to let consumers “strut their stuff” and create a buzz about the company’s products.

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Brand YOU! Create an award-winning advertising campaign for your per- sonal brand.

Think of your cover letter and résumé as your advertising . . . the award is landing the job you want. Learn simple tips that can make your cover letter and résumé more powerful and stand out in the crowd. Check out the cover letter and résumé examples in Chapter 13 of Brand You.

Real People, Real Choices

Here’s my choice. . .

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

Why do you think Marc chose option #1?

How It Worked Out at Brownstein Group The client agreed with Marc, as its account executives felt their first priority was to clearly define the brand in the wake of the attacks by the rival. Marc’s agency rolled out an advertising campaign that used an educational approach to better explain what the new brand was and why it should be important to consumers.Ads appeared in print, outdoor, online, and on radio. As a result of this campaign, which “punched the bully in the nose,” the attack ads from the competition soon subsided.

1. Objective Summary Tell what advertising is, describe the major types of advertising, and discuss some of the criticisms of advertising. Advertising is nonpersonal communication from an identified sponsor using mass media to persuade or influence an audi- ence. Advertising informs and reminds consumers and creates consumer desire. Product advertising is used to persuade con-

(pp. 380–386) sumers to choose a specific product or brand. Institutional ad- vertising is used to develop an image for an organization or company (corporate advertising), to express opinions (advocacy advertising), or to support a cause (public service advertising). Retail and local advertising informs customers about where to shop. Most firms rely on the services of advertising agencies to create successful advertising campaigns. Full-service agencies include account management, creative services, research and marketing services, and media planning, while limited-service agencies provide only one or a few services.

Objective Summary Key Terms Apply Study Map CHAPTER 13

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User-generated content (UGC), also known as consumer- generated media (CGM), includes online consumer comments, opinions, advice, consumer-to-consumer discussions, reviews, photos, images, videos, podcasts and webcasts, and product- related stories available to other consumers through digital technology. To take advantage of this phenomenon, some mar- keters encourage consumers to contribute their own do-it- yourself (DIY) ads. Crowdsourcing is a practice in which firms outsource marketing activities (such as selecting an ad) to a community of users, that is, a crowd.

Advertising has been criticized for being manipulative, for being deceitful and untruthful, for being offensive and in bad taste, for creating and perpetuating stereotypes, and for caus- ing people to buy things they don’t really need. While some ad- vertising may justify some of these criticisms, most advertisers seek to provide honest ads that don’t offend the markets they seek to attract.

Key Terms product advertising, p. 381

institutional advertising, p. 381

corporate advertising, p. 381

advocacy advertising, p. 382

public service advertisements (PSAs), p. 382

advertising campaign, p. 382

limited-service agency, p. 382

full-service agency, p. 382

account executive, p. 382

account planner, p. 383

creative services, p. 383

research and marketing services, p. 383

media planner, p. 383

user-generated content (UGC) or consumer-generated media (CGM), p. 383

do-it-yourself (DIY) ads, p. 383

crowdsourcing, p. 384

greenwashing, p. 385

corrective advertising, p. 385

puffery, p. 385

2. Objective Summary Describe the process of developing an advertis- ing campaign and how marketers evaluate ad- vertising. Development of an advertising campaign begins with under- standing the target audiences and developing objectives for the message and the ad budget. To create the ads, the agency de- velops a creative strategy that is summarized in a creative brief. To come up with finished ads, they must decide on the appeal, the format, the tonality and the creative tactics and techniques. Pretesting advertising before placing it in the media prevents costly mistakes.

Media planning gets a message to a target audience in the most effective way. The media planner must decide whether to

(pp. 386–402)

place ads in traditional mass media or in digital media includ- ing Web site advertising, mobile advertising, and video sharing, variously referred to as owned media, paid or bought media, and earned media. Product placements, a type of branded en- tertainment, integrate products into movies, television shows, video games, novels, and even retail settings. Support media in- clude directories, out-of-home media, and place-based media. A media schedule specifies the exact media the campaign will use and when and how often the message should appear.

The final step in any advertising campaign is to evaluate its effectiveness. Marketers evaluate advertising through posttest- ing. Posttesting research may include aided or unaided recall tests that examine whether the message had an influence on the target market.

Key Terms creative strategy, p. 387

creative brief, p. 387

advertising appeal, p. 388

unique selling proposition (USP), p. 388

reminder advertising, p. 388

teaser or mystery advertising, p. 389

execution format, p. 389

tonality, p. 389

jingles, p. 391

slogans, p. 391

pretesting, p. 391

media planning, p. 392

digital media, p. 395

owned media, p. 395

paid media, p. 395

earned media, p. 395

banners, p. 396

buttons, p. 396

pop-up ad, p. 396

search engines, p. 396

Web directory, p. 396

e-mail advertising, p. 396

spam, p. 396

permission marketing, p. 397

mobile advertising, p. 397

video sharing, p. 397

vlogs, p. 397

branded entertainment, p. 397

augmented reality, p. 398

advergaming, p. 398

support media, p. 398

out-of-home media, p. 399

digital signage, p. 399

place-based media, p. 399

media schedule, p. 399

reach, p. 400

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Questions: Test Your Knowledge

1. What is advertising and what types of advertising do mar- keters use most often? What is an advertising campaign?

2. Firms may seek the help of full-service or limited-service ad- vertising agencies for their advertising. Describe each. What are the different departments of a full-service agency?

3. What is consumer-generated advertising and why is it growing in importance? What is crowdsourcing and how is it used in advertising?

4. What are some of the major criticisms of advertising? What is corrective advertising? What is puffery?

5. Describe the steps in developing an advertising campaign. What is a creative brief? What is meant by the appeal, ex- ecution format, tonality, and creative tactics used in an ad campaign?

6. What is media planning? What are the strengths and weaknesses of traditional media, that is, television, radio, newspapers, and magazines?

7. What is digital media? How do marketers use Web site ad- vertising, mobile advertising, and video sharing in their digital media activities? What are owned, paid, and earned media?

8. How do marketers use branded entertainment and sup- port media such as directories, out-of-home media, and place-based media to communicate with consumers?

9. How do marketers pretest their ads? How do they posttest ads?

10. What is media planning? How do media planners use reach, frequency, gross rating points, and cost per thou- sand in developing effective media schedules? What are continuous, flighting, and pulsing media schedules?

frequency, p. 400

gross rating points (GRPs), p. 400

cost per thousand (CPM), p. 400

posttesting, p. 401

unaided recall, p. 401

aided recall, p. 402

attitudinal measures, p. 402

3. Objective Summary Explain the role of public relations and the steps in developing a public relations campaign. The purpose of PR is to build good relationships between an or- ganization and its various publics and to establish and maintain a favorable image. Crisis management is the process of manag- ing a company’s reputation when some negative and often un- planned event threatens the organization’s image.

The steps in a PR campaign begin with setting objectives, creating and executing a campaign strategy, and planning how the PR program will be evaluated. Public relations is useful to introduce new products; influence legislation; enhance the im- age of a city, region, or country; polish the image of an organi- zation; provide advice and counsel; and call attention to a firm’s community involvement.

PR specialists often use print or video news releases to com- municate timely topics, research stories, and consumer informa- tion. Internal communications with employees include company newsletters and internal TV programs. Other PR activities in- clude investor relations, lobbying, speech writing, developing corporate identity materials, media relations, arranging spon- sorships and special events, and guerrilla marketing activities.

Key Terms public relations (PR), p. 402

publicity, p. 402

crisis management, p. 402

(pp. 402–408)

public relations campaign, p. 403

press release, p. 406

internal PR, p. 406

investor relations, p. 406

lobbying, p. 406

speech writing, p. 406

corporate identity, p. 406

media relations, p. 406

sponsorships, p. 407

special events, p. 407

guerrilla marketing, p. 407

4. Objective Summary Explain what sales promotion is, and describe the different types of consumer sales promotion activities. Sales promotions are programs that marketers design to build interest in or encourage purchase of a good or service during a specified period. Marketers target sales promotion activities ei- ther to ultimate consumers or to members of the channel such as retailers that sell their products. Price-based consumer sales promotion include coupons; price deals, refunds, and rebates; frequency (loyalty/continuity) programs; and special/bonus packs. Attention-getting consumer sales promotions include contests and sweepstakes, premiums, and sampling.

Key Terms sales promotion, p. 408

rebates, p. 410

frequency programs, p. 410

premiums, p. 411

product sampling, p. 411

(pp. 408–411)

Chapter Questions and Activities

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11. What is the purpose of public relations? What is a crisis- management plan? What are the some of the objectives of PR? Describe some of the activities that are part of PR.

12. What is sales promotion? Explain some of the different types of consumer sales promotions marketers frequently use.

Activities: Apply What You’ve Learned

1. Assume that you are a member of the marketing depart- ment for a firm that produces several brands of household cleaning products. Your assignment is to develop recom- mendations for several consumer sales promotion activities that will be used in introducing a new laundry detergent. Develop an outline of your recommendations for these sales promotions. In a role-playing situation, present and defend your recommendations to your boss.

2. As an account executive for an advertising agency, you have been assigned to a new client, a company that has developed a new energy soft drink. As you begin develop- ment of the creative strategy, you are considering different types of ad execution formats and tonality: a. Comparative advertising b. A fear appeal c. A celebrity endorsement d. A slice-of-life ad e. Sex appeal f. Humor

Outline the strengths and weaknesses of using each of these appeals for advertising the new soft drink. Using your recommendations, develop an outline for a TV com- mercial for the new product. Develop a report of your recommendations.

3. Assume that you are the head of PR for a regional fast- food chain that specializes in fried chicken and fish. A cus- tomer has claimed that he became sick when he ate a fried roach that was in his chicken dinner at one of your restau- rants. As the director of PR, what recommendations do you have for how the firm might handle this crisis?

4. As we discussed in this chapter, many consumers are highly critical of advertising. In order to better understand this, conduct a short survey of (1) your college classmates and (2) a different group of consumers such as your parents and their friends. In the survey ask the respondents about the criticisms of advertising discussed in this chapter, that is, that advertising (1) is manipulative, (2) is deceptive and untruthful, (3) is offensive and in bad taste, (4) creates and

perpetuates stereotypes, and (5) causes people to buy things they don’t really need. Be sure to ask respondents to give you examples of ads that they feel fall in these cat- egories. Develop a report that summarizes your results and compares the attitudes of the two consumer groups.

5. Watch three of your favorite TV programs. While you watch the programs, take notes on each product place- ment in the programs. Be sure to record how many sec- onds (approximately) the product is in view and where the product is located (e.g., was an actor holding the product, was it in the background, on a table, etc.). Develop a re- port that summarizes your findings.

6. As an alternate activity for #5 above, view a new hit movie and develop a report on the product placements in the movie.

7. Look through some magazines to find an ad that fits each of the following categories: a. USP strategy b. Demonstration c. Testimonial d. Slice-of-life e. Sex -oriented f. Humor-oriented

Critique each ad. Tell who the target market appears to be. Describe how the message is executed. Discuss what is good and bad about the ad. Do you think the ad will be ef- fective? Why or why not?

Marketing Metrics Exercise

Media planners use a variety of metrics to help in making deci- sions on what TV show or which magazines to include in their media plans. Two of these are gross rating points (GRPs) and cost per thousand (CPM).

Assume you are developing a media plan for a new brand of gourmet frozen meals. Your target market includes females ages 25–64. Following is a list of six possible media buys you are considering for the media plan. The plan is based on a four- week period.

1. Calculate the GRPs for each media buy based on the infor- mation given.

2. Calculate the CPM for each media buy. 3. Based on the cost of each buy, the reach or rating of each

buy, and any qualitative factors that you feel are important, select four of the media buys that you would recommend.

4. Tell why you would select the four.

Media Vehicle Rating Cost per Ad or Insertion Number of Insertions CPM

GRPs for This Number of Insertions

American Idol 30 $500,000 4 (1 per weekly episode)

NCIS 20 $400,000 4 (1 per weekly episode)

CBS Evening News 12 $150,000 20 (1 per weeknight news program)

Time magazine 5 $40,000 4 (1 per weekly publication)

Better Homes and Gardens magazine

12 $30,000 1 (1 per monthly publication)

USA Today 4 $10,000 12 (3 ads per week)

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Choices: What Do You Think?

1. Firms are increasing their use of search engine marketing in which they pay search engines such as Google and Bing for priority position listings. And social media sites such as Twitter are generating revenue by offering to sell “search words” to firms so that their posting appears on top. Are such practices ethical? Are consumers being deceived when a firm pays for priority positioning?

2. Because of concerns about the effectiveness of mass media advertising, more and more firms are using product place- ments, also referred to as branded entertainment, to put their product in front of consumers. But is this practice re- ally ethical? Are consumers deceived when they see a can of diet Coke on the American Idol judges’ table? Or what about the can of Dr. Pepper on the table of Tony Stark’s house in Iron Man 2? Does the average consumer believe the can is there because it is the favorite of a TV or movie celebrity or are most consumers savvy enough to recognize it as a paid product placement? Should the government reg- ulate product placements, perhaps requiring TV programs and movies to inform consumers about the paid place- ments? Are consumers really harmed by such practices?

3. Some people are turned off by advertising because they say it is deceptive or offensive, that it creates stereotypes and causes people to buy things they don’t need. Others argue that advertising is beneficial and actually provides value for consumers. What are some arguments on each side? How do you feel?

4. Today, advertisers are spending less on mass media adver- tising and more on alternative media, that is, online, mo- bile, entertainment, and digital out-of-home media. How has this affected the advertising industry so far, and do you think this will affect it in the future? What are some ways that advertising has so far responded to this? What ideas do you have for how they can respond in the future?

5. User-generated content (UGC), also known as consumer- generated media (CGM) includes online consumer com-

ments, opinions, advice, consumer-to-consumer discussions, reviews, photos, images, videos, podcasts and webcasts, and product-related stories available to other consumers through digital technology. What are the problems and benefits for marketers of UCG? How should marketers respond to UCG? Do you think marketers should encourage UCG or attempt to discourage it? Why do you feel that way?

6. Companies sometimes teach consumers a “bad lesson” with the overuse of sales promotions. As a result, con- sumers expect the product always to be “on deal” or have a rebate available. What are some examples of products for which this has occurred? How do you think companies can prevent this?

7. Some critics denounce PR specialists, calling them “flacks” or “spin doctors” whose job is to hide the truth about a company’s problems. What is the proper role of PR within an organization? Should PR specialists try to put a good face on bad news?

Miniproject: Learn by Doing

The purpose of this miniproject is to give you an opportunity to experience the advertising creative process.

1. First, you should create (imagine) a new brand of an exist- ing product (such as a laundry detergent, toothpaste, per- fume, or soft drink). If you are doing a marketing plan project in your course, you might use the same product for this miniproject.

2. Next, you should decide on your creative strategy. What appeal, execution format, tonality, and creative tactics do you think are best?

3. Create a series of at least three magazine ads for your product, using the appeal you selected. Your ads should have a headline, a visual, and copy to explain your product and to persuade customers to purchase your brand.

4. Present your ads to your class. Explain your ad execution and the reasons for the various decisions you made in de- veloping the ads.

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When low-cost carrier JetBlue Airways began operations in 1999, it promised customers cheap fares combined with excep- tional service. JetBlue planes offer more leg room and all seats on JetBlue planes offer passengers 36-channel DIRECTV® service on seat-back screens.

For seven years, JetBlue, with a few exceptions, kept its promise to passengers and shot to the top of customer satisfac- tion surveys J.D. Power and Associates conducted. On Valen- tine’s Day, 2007, however, the airline suffered the worst crisis in its history. Due to an unexpected New York ice storm, nine Jet- Blue planes full of passengers were stranded on the tarmac for over 6 hours—one plane and its 130 passengers sat on the tar- mac for 10 hours. The planes left the gate and then found they couldn’t take off, but the airlines, feeling that the storm would let up by midmorning, did not allow the planes to return to the gate. In the end, the wheels of the planes were frozen in the slush, unable to move.

In the next few days things got even worse for JetBlue as a snowball effect (pardon the pun) from the storm caused hun- dreds of flights to be cancelled—JetBlue’s flight attendants and pilots were not where they were needed, and the company’s communication system staff people were not trained to tell them what to do. At some airports, police had to be called in to help calm down the irate customers.

While the airline was far less than satisfactory in its response to the Valentine’s Day ice storm, its response to the crisis was a model of excellent PR. Seeking to swiftly respond to the crisis and appease angry customers, CEO David Neeleman quickly apologized to customers and explained what went wrong. He said he felt “mortified” and “humiliated.” To get his message across, he appeared on CNN’s American Morning, Today, Fox and Friends, and Squawk Box early the next day. But JetBlue did more than just apologize to consumers. The airline offered pas- sengers who were stranded on JetBlue planes for three hours or more a full refund plus a free round-trip ticket to any JetBlue des- tination. In all, the airline spent $30 million on vouchers for pas- sengers of the 1,102 cancelled flights.

In addition to its immediate response to the February can- cellations, JetBlue cited its dedication to “bringing humanity back to air travel” and established a Customer Bill of Rights retroactive to February 14. The Bill of Rights outlines what Jet- Blue will provide to its customers in cases of flight cancellations, departure delays, overbookings (customers who are denied boarding will receive $1,000), and even when the DIRECTV® is inoperable.

But will these changes satisfy customers? Most customers reacted with caution, saying that they would be watching the airline to see if it lived up to its promises. Other stranded passen- gers were less positive, and some vowed never to fly JetBlue again.

Will the Bill of Rights allow JetBlue to gain the level of cus- tomer loyalty it enjoyed before the crisis? While most cus- tomers of delayed flights may be satisfied, others may not. What about customers whose delays fall 10 minutes short of receiving a full-price trip voucher? And what will happen when another crisis occurs? JetBlue must continue to develop cus- tomer service and PR programs if it is to stay in the air for the long haul.

You Make the Call

1. What is the decision facing JetBlue? 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: Bloomberg News, “Airlines’ Proposals on Long Runway Delays,” New York Times (February 23, 2007), http://www.nytimes .com/ 2007/02/23/business/23air.html?scp5162&sq5jetblue&st5nyt (accessed April 21, 2008); Jeff Bailey, “JetBlue Cancels More Flights in Storm’s Wake,” New York Times (February 18, 2007), http://www.nytimes.com/2007/02/18/ business/ 18jetblue.html?scp5173&sq5jetblue&st5nyt (accessed April 21, 2008); Jeff Bailey, “JetBlue’s C.E.O. Is ‘Mortified’ After Fliers Are Stranded,” New York Times (February 19, 2007), http://www.nytimes.com/2007/02/19/business/ 19jetblue.html?scp5170&sq5jetblue&st5nyt (accessed April 21, 2008); Jeff Bailey, “Long Delays Hurt Image of JetBlue,” New York Times (February 17, 2007), http://www.nytimes.com/ 2007/02/17/business/17air .html?scp5174&sq5 jetblue&st5nyt (accessed April 21, 2008); “JetBlue’s Customer Bill of Rights,” http:// www.jetblue.com/about/ourcompany/promise/index.html (accessed April 21, 2008).

Marketing in Action Case Real Choices at JetBlue

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Chapter | 14

One-to-One: Trade Promotion, Direct Marketing, and Personal Selling

A Decision Maker at Woodtronics Jeffrey Brechman is a principal at Woodtronics Inc., a company that de- signs and builds trading room furniture and command centers and network op- eration control centers for financial insti- tutions, the military, and police and fire departments. Jeffrey moved into his ca- reer in an unconventional way. After a short stint in college, he started a paint- ing business and wasn’t thrilled about what he was doing. He got into a con- versation about his career aspirations with a woman whose house he was painting. She, in turn, set up a meeting

with her husband, who happened to be president of a company that manufactured and sold trading room console furniture. Trading room furniture is a very specialized niche business. It needs to accommodate a lot of electronic equipment to let bro- kers monitor the market, but also to take up a minimum amount of space so that brokerage houses can fit as many brokers as is comfortably possible in expensive floor space.

Jeffrey’s Info

What do I do when I’m not working? A) Spend time with my family and play golf.

First job out of school? A) Telemarketer for American Automobile Association.

Career high? A) Telling my family about the first deal I won, not the actual win itself.

Business book I’m reading now? A) Secrets of the Millionaire Mind: Mastering the Inner Game of Wealth by T. Harv Eker.

My hero? A) My grandfather.

My motto to live by? A) Treat everyone as an equal.

What drives me? A) To be able to provide not only for my family but the employees that work for me.

My management style? A) I let the situation drive my style . . . stern when needed.

Profile Info

Jeffrey Brechman

Real People Profiles

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Jeffrey landed his first job as a sales executive in New York after that meeting. He worked hard to

prove himself to this firm and he became its top salesperson in his very first year. He worked at that first company for four years, but then a competing company approached him to revitalize its business in the New York metro- politan area. This new company was losing money and was not a major com- petitor in the industry because it was not managed properly and it wasn’t making sales it should have been winning. Jeffrey believed he could turn the

company around, so he swallowed hard and moved to the competitor—Woodtronics. Within two years the company’s sales had tripled, and it’s now one of the leading man- ufacturers in the trading desk furniture in- dustry. The turnaround came by carefully examining each area of the business and building on employees’ strengths as well as improving products and customer service. In 2006, Woodtronics also opened an office in London to allow the growing company to ex- pand its business overseas.

An architect had a client in Chicago who was using one of Woodtronics’ best- selling trading desk products. The architect liked the product so much that he recom- mended it to another important client in Jer- sey City who would also be installing trading desks. Of course, Jeffrey was thrilled with the referral; this new client represented a major sale for Woodtronics. However, in the mean-

time the company had developed a prototype of a new model it called Evo- lution that Jeffrey believed would provide an even better solution for this new client. The Evolution technology platform is specifically designed for high-density technology trading environments; it maximizes work-surface area, allows for easier integration of new flat screen technology into the fur- niture, features a high-volume integrated heat removal system to increase the comfort for users, and also offers innovative designs to hide cumber- some computer cables, yet still provides access to them when needed.

Woodtronics really preferred to sell this new product, but the architect was hesitant to recommend it because he had used the older product in a prior project and it had worked out well for him. And this project would be the first large-scale installation, so he was afraid that his client would be a “guinea pig” by taking a chance on a product without a proven track record. To complicate the issue, the Jersey City client had shown a lack of enthusiasm for the original product because it didn’t exactly meet his pro- ject’s needs.

As a principal of the company, Jeffrey is personally involved in every one of its major sales. He had described the new product to the Jersey City client who was interested in learning more—but the architect was still resisting. Jeffrey had to make a critical sales decision or risk losing out completely on this large sale. Which product should he try to sell?

See what option Jeffrey chose and its success on page 439

You Choose

Which Option would you choose, and why?

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

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Here’s my problem. . . Real People, Real Choices

Jeffrey considered his Options 1 • 2 • 3 Push the original product even though this was not the best solution for the client. This approach would maintain the important relationship Jeffrey already had with the architect. But the new client wasn’t satisfied with the current product, so the company’s reputation was at risk if it offered a product it knew was not completely in line with the client’s needs. Sell the client using the prototype of the Evolution plat- form, arguing that this alternative would better meet his needs in terms of both price and functionality. This option would let Jeffrey lead with his best, state-of-the-art product. But he would risk alienating the architect who had been so helpful in bringing new business to Woodtronics. Concentrate on raising the architect’s comfort level with the new Evolution product and hope that he would be persuaded to recommend it to the new client instead. This option would deliver the right solution to the client and of course deliver a major sale to Woodtronics. If it succeeded, Jef- frey might even further boost the architect’s confidence in

Woodtronics to deliver the best solutions for his other clients down the road. But the architect was set on using the tried-and-true product; there was a real risk he would walk away from Woodtronics and find a competitor that didn’t want to “field-test” a new product on one of his clients.

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

Option

Things to remember

Woodtronics operates solely in business-to-business contexts, so the company relies primarily on personal selling to get and retain clients.

Jeffrey has both an ethical and a financial responsibility to do what’s best for the client. He needs to recommend the Woodtronics product solution that will be most likely to meet the client’s needs rather than just generating more business down the road with other clients.

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Trade Sales Promotion: Targeting the B2B Customer In Chapter 13 you learned about a variety of sales pro- motion techniques aimed directly at consumers. Now, we turn our attention to a different type of approach to sales promotion in which the consumer is decidedly not

the primary target. Here, the target is the B2B customer—located somewhere within the supply chain. Such entities are traditionally referred to as “the trade.” Hence, trade promotions focus on members of the supply chain, which include distribution channel members, such as retail salespeople or wholesale distributors with whom a firm must work to sell its products. (We’ll discuss these and other distribution channel members in more detail in Chapters 15 and 16.)

Trade promotions take one of two forms: (1) those designed as discounts and deals, and (2) those designed to increase industry visibility. Let’s take a look at both types of trade promotions in more detail. To help you follow along, Figure 14.1 portrays several of the most important types of trade sales promotion approaches, and Table 14.1 provides more details about each approach. You will note that some of the techniques, although primarily tar- geted to the trade, also appeal to consumers.

420 PART FOUR | COMMUNICATE THE VALUE PROPOSITION

Objective Outline 1. Identify the sales promotion elements

for B2B.

TRADE SALES PROMOTION: TARGETING THE B2B CUSTOMER (p. 420)

2. Understand the elements of direct marketing.

DIRECT MARKETING (p. 423)

3. Appreciate the important role of personal selling and how it fits into the promotion mix.

PERSONAL SELLING: ADDING THE PERSONAL TOUCH TO THE PROMOTION MIX (p. 427)

4. Identify the different types of sales jobs.

THE LANDSCAPE OF MODERN PERSONAL SELLING (p. 431)

5. List the steps in the creative selling process.

THE CREATIVE SELLING PROCESS (p. 433)

6. Explain the role of sales management.

SALES MANAGEMENT (p. 436)

(pp. 436–439)

(pp. 433–436)

(pp. 431–433)

(pp. 427–431)

(pp. 423–427)

(pp. 420–423)

Check out chapter 14 Study Map on page 440

Chapter 14

Trade Sales Promotions

Allowances, discounts, and deals

Co-op advertising

Trade shows

Promotional products

Point of purchase

(POP) displays

Incentive programs

Push money

Figure 14.1 Snapshot | Trade Sales Promotions Trade sales promotions come in a variety of forms. Some are designed as discounts and deals for channel members and some are designed to increase industry visibility.

1 OBJECTIVE

Identify the sales

promotion elements

for B2B. (pp. 420–423)

trade promotions Promotions that focus on members of the "trade," which include distribution channel members, such as retail salespeople or wholesale distributors, that a firm must work with in order to sell its products.

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Discount Promotions Discount promotions (deals) reduce the cost of the product to the distributor or retailer or help defray its advertising expenses. Firms design these promotions to encourage stores to stock the item and be sure it gets a lot of attention.

Allowances, Discounts, and Deals

One form of trade promotion is a short-term price break. A manufacturer can reduce a chan- nel partner’s costs with a sales promotion that discounts its products. For example, a man- ufacturer can offer a merchandising allowance to reimburse the retailer for in-store support of a product, such as when a store features an off-shelf display for a brand. Another way in which a manufacturer can reduce a channel partner’s cost is with a case allowance that pro- vides a discount to the retailer or wholesaler during a set period based on the sales volume of a product the retailer or wholesaler orders from the manufacturer.

However, allowances and deals have a downside. As with all sales promotion activi- ties, the manufacturer expects these to be of limited duration, after which the distribution channel partner will again pay full price for the items. Unfortunately, some channel mem- bers engage in a practice the industry calls forward buying: They purchase large quantities of the product during a discount period, warehouse them, and don’t buy them again until the manufacturer offers another discount. Some large retailers and wholesalers take this to an extreme when they engage in diverting. This describes an ethically questionable practice where the retailer buys the product at the discounted promotional price and warehouses it. Then, after the promotion has expired, the retailer sells the hoarded inventory to other re- tailers at a price that is lower than the manufacturer’s nondiscounted price but high enough

Table 14.1 | Characteristics of Trade Sales Promotion Approaches Technique Primary Target Description Example

Allowances, discounts, and deals

Trade Retailers or other organizational customers receive discounts for quantity purchases or for providing special merchandising assistance.

Retailers get a discount for using a special Thanksgiving display unit for Pepperidge Farm Stuffing Mix.

Co-op Advertising

Trade and consumers

Manufacturers pay part of the cost of advertising by retailers who feature the manufacturer’s product in their ads.

Toro pays half of the cost of Brad’s Hardware Store newspaper advertising that features Toro lawn mowers.

Trade shows Trade Many manufacturers showcase their products to attendees.

The National Kitchen and Bath Association trade shows allow manufacturers to display their latest wares to owners of kitchen and bath remodeling stores.

Promotional products

Trade and consumers

A company builds awareness and reinforces its image by giving out “premiums” with its name on them.

Coors distributors provide bar owners with highly sought-after “Coors Light” neon signs. Caterpillar gives customers caps with the Caterpillar logo.

Point-of- purchase (POP) displays

Trade and consumers

In-store exhibits attract consumers’ attention. Many POP displays also serve a merchandising function.

The Behr’s paint display in Home Depot stores allow consumers to select from over 1,600 colors including 160 Disney colors.

Incentive programs

Trade A prize is offered to employees who meet a prespecified sales goal or who are top performers during a given period.

Mary Kay cosmetics awards distinctive pink cars to its top-selling representatives.

Push money Trade A particular type of incentive program in which salespeople are given a bonus for selling a specific manufacturer’s product.

A retail salesperson at a cosmetics counter gets $5 every time she sells a bottle of Glow perfume by JLo.

merchandising allowance Reimburses the retailer for in-store support of the product.

case allowance A discount to the retailer or wholesaler based on the volume of product ordered.

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422 PART FOUR | COMMUNICATE THE VALUE PROPOSITION

to turn a profit. Obviously, both forward buying and diverting go against the manufac- turer’s intent in offering the sales promotion.

Co-op Advertising

Another type of trade allowance is co-op advertising. These programs offer to pay the re- tailer a portion, usually 50 percent, of the cost of any advertising that features the manufac- turer’s product. Co-op advertising is a win–win situation for manufacturers because most local media vehicles offer lower rates to local businesses than to national advertisers. Both the retailer and the manufacturer pay for only part (normally half) of the advertising, plus the manufacturer gets the lower rate. Normally the amount available to a retailer for co-op advertising is limited to a percentage of the purchases the retailer makes during a year from the manufacturer.

Sales Promotion Designed to Increase Industry Visibility Other types of trade sales promotions increase the visibility of a manufacturer’s products to channel partners within the industry. Whether it is an elaborate exhibit at a trade show or a coffee mug with the firm’s logo it gives away to channel partners, these aim to keep the com- pany’s name topmost when distributors and retailers decide which products to stock and push. These forms of sales promotion include the following:

• Trade shows: The thousands of industry trade shows in the United States and around the world each year are major vehicles for manufacturers to show off their product lines to wholesalers and retailers. Usually large trade shows are held in big convention centers where many companies set up elaborate exhibits to show their products, give away samples, distribute product literature, and troll for new business contacts. Today we also see more and more online trade shows that allow potential customers to preview a man- ufacturer’s products remotely. This idea is growing in popularity, though many indus- try people find it a challenge to “schmooze” in cyberspace (it’s also a little harder to collect all the great swag [promotional products] they give out at real-life shows!). An im- portant benefit of traditional trade shows is the opportunity to develop customer leads that the company then forwards to its sales force for follow-up.

• Promotional products: We have all seen them: coffee mugs, visors, T-shirts, ball caps, key chains, refrigerator magnets, and countless other doodads emblazoned with a company’s logo. They are examples of promotional products. Unlike licensed mer- chandise we buy in stores, sponsors give away these goodies to build awareness for their organization or specific brands. In many industries, companies vie for the most impressive promotional products and offer their business customers and channel partners upscale items such as watches, polar fleece jackets, and expensive leather desk accessories.

• Point-of-purchase (POP) displays: Point-of-purchase materials include signs, mobiles, banners, shelf ads, floor ads, lights, plastic reproductions of products, permanent and temporary merchandising displays, in-store television, and shopping card advertise- ments. Manufacturers spend over $17 billion annually on POP displays because it keeps the name of the brand in front of the consumer, reinforces mass-media advertis- ing, calls attention to other sales promotion offers, and stimulates impulse purchasing. Generally, manufacturers must give retailers a promotion allowance for use of POP ma- terials. For retailers, the POP displays are useful if they encourage sales and increase revenues for the brand.

It’s a challenge for marketers to come up with new and innovative POP displays that will grab attention, such as the now classic promotion Bausch & Lomb ran in Spain some years ago. The company wanted to encourage consumers with good vision to buy contact lenses that changed their eye color. By letting shoppers upload their pictures to a computer

co-op advertising A sales promotion where the manufacturer and the retailer share the cost.

trade shows Events at which many companies set up elaborate exhibits to show their products, give away samples, distribute product literature, and troll for new business contacts.

promotional products Goodies such as coffee mugs, T-shirts, and magnets given away to build awareness for a sponsor. Some freebies are distributed directly to consumers and business customers; others are intended for channel partners such as retailers and vendors.

Point-of-purchase (POP) displays In-store displays and signs.

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in the store and digitally altering the photos, the promotion allowed people to see how they would look with five different eye colors without actually inserting the contacts.1

• Incentive programs: In addition to motivating distributors and customers, some promo- tions light a fire under the firm’s own sales force. These incentives, or push money, may come in the form of cash bonuses, trips, or other prizes. Mary Kay Corporation—the in- home party plan cosmetics seller—is famous for giving its more productive distributors pink cars to reward their efforts. Another cosmetics marketer that uses a retail store sell- ing model, Clinique, provides push money to department store cosmeticians to demon- strate and sell the full line of Clinique products. This type of incentive has the nickname SPIF for “sales promotion incentive funds.” Even Starbucks has gotten into the incen- tive program business by offering gift cards that companies can purchase and provide for their salespeople to give clients as a small “thank you” for closing a sale.

Direct Marketing Are you one of those people who love to get lots of catalogs in the mail, pore over them for hours, and then order just exactly what you want without leaving home? Do you download music from iTunes or order books from Amazon.com? Have you ever responded to an infomercial on TV? All these are examples of direct marketing, the fastest-growing type of marketing communication.

Direct marketing refers to “any direct communication to a con- sumer or business recipient that is designed to generate a response in

the form of an order, a request for further information, or a visit to a store or other place of business for purchase of a product.”2 The Direct Marketing Association (DMA) reports that direct-marketing-driven sales represent about 10 percent of the total U.S. gross domestic product (GDP)—an astounding figure! Spending on direct marketing is increasing, while at the same time spending on traditional advertising has declined—especially fueled by ad cutbacks during the recent economic downturn. And the projections for growth in outlays on direct marketing during the decade beginning in 2010 are very bullish.3

Clearly, direct marketing has the potential for high impact. Let’s look at the four most popular types of direct marketing as portrayed in Figure 14.2: mail order (including cat- alogs and direct mail), telemarketing, direct-response advertising, and M-commerce. We’ll start with the oldest—buying through the mail—which is still incredibly popular!

Mail Order In 1872, Aaron Montgomery Ward and two partners put up $1,600 to mail a one-page flyer that listed their merchandise with prices, hoping to spur a few more sales for their retail store.4 The mail-order industry was born, and today consumers can buy just about anything through the mail. Mail order comes in two forms: catalogs and direct mail.

A catalog is a collection of products offered for sale in book form, usually consisting of product descriptions accompanied by photos of the items. Catalogs came on the scene within a few decades of the invention of movable type over 500 years ago, but they’ve come a long way since then.5

The early catalogs Montgomery Ward and other innovators such as Sears and JC Penney pioneered targeted people in remote areas who lacked access to stores. Today, the catalog cus- tomer is likely to be an affluent career woman with access to more than enough stores but without the time or desire to go to them. According to the DMA, over two-thirds of U.S. adults order from a catalog at least once a year.6 Catalog mania extends well beyond clothing and cosmetics purchases. PC marketers HP and Dell both aggressively send out promotional cat- alogs that feature their own products along with accessories from a variety of manufacturers.

direct marketing Any direct communication to a consumer or business recipient designed to generate a response in the form of an order, a request for further information, and/or a visit to a store or other place of business for purchase of a product.

catalog A collection of products offered for sale in book form, usually consisting of product descriptions accompanied by photos of the items.

2 OBJECTIVE

Understand the

elements of direct

marketing. (pp. 423–427)

push money A bonus paid by a manufacturer to a salesperson, customer, or distributor for selling its product.

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M-commerce

Direct-response Advertising

Mail Order • Catalogs • Direct mail

Telemarketing Key Forms of

Direct Marketing

Figure 14.2 Snapshot | Key Forms of Direct Marketing

Key forms of direct marketing are mail order (including catalogs and direct mail), telemarketing, direct-response advertising, and M-commerce.

Many stores use catalogs to complement their in-store efforts—Neiman-Marcus is fa- mous for featuring one-of-a-kind items like diamond-encrusted bras or miniature working versions of Hummers in its mailings as a way to maintain the store’s image as a purveyor of unique and upscale merchandise. These upscale features change regularly, and avid Neiman’s fans love to get the new catalog to find out what the next one is.

A catalog strategy allows the store to reach people in the United States who live in ar- eas too small to support a store. But also, more and more U.S. firms use catalogs to reach overseas markets as well. Companies like Lands’ End and Eddie Bauer do brisk sales in Eu- rope and Asia, where consumers tend to buy more goods and services through the mail in the first place than do Americans. Lands’ End opened a central warehouse in Berlin and at- tacked the German market with catalogs. The company trained phone operators in cus- tomer service and friendliness and launched an aggressive marketing campaign to let consumers know of the Lands’ End lifetime warranty (German catalog companies require customers to return defective merchandise within two weeks to receive a refund). Although local competitors protested and even took the company to court, the case was settled in the American company’s favor, and the Yankee invasion continues.

Catalog Choice started in 2007 as a Web site that enabled consumers to opt out of re- ceiving catalogs by big companies (much like a “do not call” list for telemarketers). By 2010 the Web site (www.catalogchoice.org) claimed to be used by over 1.2 million people in com- municating with nearly 3,000 catalogers! Part of the site’s motivation is to reduce the waste unwanted paper catalogs create. Back when the 2007 holiday season came around, many catalog marketers initially didn’t heed the requests of the consumers who signed up at Cat- alog Choice and mailed to them anyway. Since then, additional pressure has been put on the catalogers to comply and the Direct Marketing Association (DMA) itself has begun an ini- tiative to help firms better police their own practices.7

Direct Mail Unlike a catalog retailer that offers a variety of merchandise through the mail, direct mail is a brochure or pamphlet that offers a specific good or service at one point in time. A direct mail offer has an advantage over a catalog because the sender can personalize it. Charities, political groups, and other not-for-profit organizations also use a lot of direct mail.

direct mail A brochure or pamphlet that offers a specific good or service at one point in time.

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Just as with e-mail spamming, many Americans are overwhelmed with direct-mail offers—“junk mail”—that mostly end up in the trash. Traditional direct mail marketers are finding it increasingly difficult to get their promotional pieces to rise above the din of competitors’ offers. A perfect example of overwhelming direct mail was the seemingly endless offers for new credit cards that bombarded consumers earlier in the 2000s, often resulting in the receipt of multiple promotional letters the same week (or even the same day!). However, this trend was cut short by the tightened credit markets and new regula- tions of the financial markets that followed the recession that began in 2008. The direct- mail industry constantly works on ways to monitor what companies send through the mail and provides some help when it allows consumers to “opt out” of at least some mail- ing lists.

Telemarketing Telemarketing is direct marketing an organization conducts over the telephone (but why do they always have to call during dinner?). It might surprise you to learn that telemarketing actually is more profitable for business markets than for consumer markets. When business- to-business marketers use the telephone to keep in contact with smaller customers, it costs far less than a face-to-face sales call, yet still lets small customers know they are important to the company.

The Federal Trade Commission (FTC) established the National Do Not Call Registry to al- low consumers to limit the number of telemarketing calls they receive. The idea is that tele- marketing firms check the registry at least every 31 days and clean their phone lists accordingly. Consumers responded very positively to the regulation, and over 100 million have posted their numbers on the Registry to date. Some direct marketers initially chal- lenged this action; they argued that it would put legitimate companies out of business while unethical companies would not abide by the regulation and continue to harass consumers. However, the National Do Not Call Registry, along with similar operations at the state level, now is an accepted part of doing business through direct marketing. The FTC maintains a list of violators on its Web site.8

The major issue on the horizon for telemarketers is whether they will be able to access cell phone numbers, as many consumers fear. In fact, rumors crop up from time to time that it’s now necessary to place your cell number on the Do Not Call lists to avoid telemarketing calls (so far, that’s not true). Especially for many young people, their cell phone often is their only phone, which makes the lack of penetration of this media a glaring hole in a telemar- keting strategy.9

Direct-Response Advertising Direct-response advertising allows the consumer to respond to a message by immediately contacting the provider to ask questions or order the product. This form of direct marketing can be very successful. Although for many companies the Internet has become the medium of choice for direct marketing, this technique is still alive and well in magazines, newspa- pers, and television.

As early as 1950, the Television Department Stores channel brought the retailing envi- ronment into the television viewer’s living room when it offered a limited number of prod- ucts the viewer could buy when he or she called the advertised company. Television sales picked up in the 1970s when two companies, Ronco Incorporated (you may have seen Ron Popeil on TV) and K-Tel International began to hawk products such as the Kitchen Magi- cian, Pocket Fisherman, Mince-O-Matic, and Miracle Broom on television sets around the world.10 And who can forget the late Billy Mays’ enthusiastic hawking of Oxy Clean, Jupiter Jack, and nearly 20 other products on TV? Make a simple phone call and one of these won- ders could be yours. Direct-response TV (DRTV) includes short commercials of less than two minutes, 30-minute or longer infomercials, and the shows home shopping networks such as

telemarketing The use of the telephone to sell directly to consumers and business customers.

direct-response advertising A direct marketing approach that allows the consumer to respond to a message by immediately contacting the provider to ask questions or order the product.

direct-response TV (DRTV) Advertising on TV that seeks a direct response, including short commercials of less than two minutes, 30-minute or longer infomercials, and home shopping networks.

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Ripped from the Headlines

Ethical/Sustainable Decisions in the Real World Every once in a while in most Web surfers’ lives, a suggestion pops up on the screen that leads them to wonder: How did they know that about me? The mo- ment can seem magical, and a bit creepy. Consider this one. A female shopper at the retail site FigLeaves.com takes a close look at a silky pair of women’s slippers. Next a recommendation appears for a man’s bathrobe. This could seem terribly wrong—unless, of course, it turns out to be precisely what she wanted. This type of surprising connection will happen more often as e-marketers adopt a new generation of predictive technology fueled by grow-

ing rivers of behavioral data, from mouse clicks to search queries—all crunched by ever more powerful computers.

So, why the bathrobe? The e-commerce data cruncher for FigLeaves has found that certain types of female shoppers at certain times of the week are likely to be shopping for men. As mar-

keters scrutinize shoppers in greater detail, they’re edging closer to their ulti- mate goal: teaching computers to blend data smarts with something close to the savvy of a flesh-and-blood sales clerk. Just as in the customer’s first five minutes in a store when the salesperson is observing the customer’s body lan- guage and tone of voice, now machines are being taught to pick up those same insights from movements online.

This dissection of online shopping comes amid growing fears about in- vasions of privacy online and especially concerns about social media sites like Facebook’s access to our personal data and online behaviors. But unlike the most controversial advertising technology, which tracks Web surfers’ wanderings from site to site, many of these “preference prediction” meth- ods limit their scrutiny to behavior on a retailer’s own Web page. Much of the analysis looks simply at the patterns of clicks, purchases, and other vari- ables, without including personal information about the shopper. In most cases, personal details are incorporated only if a customer registers on the site and supplies them.

QVC and HSN broadcast. Top-selling DRTV product categories include exercise equipment, self-improvement products, diet and health products, kitchen appliances, and music.

The primitive sales pitches of the old days have largely given way to the slick infomercials we all know and love (?) today. These half-hour or hour-long commercials re- semble a talk show, often with heavy product demonstration and spirited audience partici- pation, but of course they really are sales pitches. Although some infomercials still carry a low-class, sleazy stereotype, in fact, over the years numerous heavyweights from Apple Computer to Volkswagen have used this format.

M-Commerce One final type of direct marketing is m-commerce. The “m” stands for “mobile,” but it could also stand for massive—because that’s how big the market will be for this platform. M-commerce refers to the promotional and other e-commerce activities transmitted over mobile phones and other mobile devices, such as smartphones and personal digital assis- tants (PDAs). With over 4.5 billion mobile phones in use worldwide—more and more of them Internet-enabled—it makes sense that marketers would want to reach out and touch this large audience.11 In fact, nearly 70 percent of the world’s population has a mobile phone today! In Russia there are far more mobile phones in use than there are people! The top five countries in total mobile phones in use are (the second number is the percentage of popula- tion with a mobile phone):

1. China—786 million, 59.6 percent

2. India—636 million, 53.8 percent

3. United States—286 million, 91.0 percent

4. Russia—214 million, 147.3 percent

5. Brazil—185 million, 96.6 percent12

M-commerce through text messages (such as an ad for a concert or a new restaurant) is known as short-messaging system (SMS) marketing. In terms of unwanted “junk mail,” m-commerce has the same potential dark side as other forms of direct marketing such as snail mail and e-mail. And the rise of the all-in-one smartphone on which the user engages in 24/7 social net- working has created an up-and-coming industry of social networking activity tracking and

infomercials Half-hour or hour-long commercials that resemble a talk show but actually are sales pitches.

m-commerce Promotional and other e-commerce activities transmitted over mobile phones and other mobile devices, such as smartphones and personal digital assistants (PDAs).

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

Should firms be able to use your online activities to attempt to predict your buying behavior? Does “being watched” (virtually at least) make you feel uncomfortable?

YES NO

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analytics such as Google Analytics and similar programs. The feature on ethics and sustain- ability highlights the new-age science of predicting Web buying behavior.

Personal Selling: Adding the Personal Touch to the Promotion Mix We saw in Chapter 13 that companies increasingly supplement tradi- tional advertising with other communication methods, such as public relations campaigns and various forms of social media, as they work harder and harder to cut through the clutter of competitors’ marketing communications. In this chapter, so far we’ve looked at two other forms of promotion—trade-directed sales promotion and direct marketing.

Now we turn our attention to one of the most visible, and most expensive, forms of market- ing communication—personal selling.

Personal selling occurs when a company representative interacts directly with a cus- tomer or prospective customer to communicate about a good or service. This form of pro- motion is a far more intimate way to talk to customers. Another advantage of personal selling is that salespeople are the firm’s eyes and ears in the marketplace. They learn which competitors talk to customers, what they offer, and what new rival goods and services are on the way—all valuable competitive intelligence.

Many organizations rely heavily on personal selling because at times the “personal touch” carries more weight than mass-media material. For a business-to-business market situation, the personal touch translates into developing crucial relationships with clients. Also, many in- dustrial goods and services are too complex or expensive to market effectively in impersonal ways (such as through mass advertising). An axiom in marketing is the more complex, technical, and intangible the product, the more heavily firms tend to rely on personal selling to promote it.

Personal selling has special importance for students (that’s you) because many grad- uates with a marketing background will enter professional sales jobs. The U.S. Bureau of Labor Statistics estimates job growth of 9 percent for sales representatives in manufactur- ing and wholesaling between 2006 and 2016. For technical and scientific products, the growth projection rises to 10 percent. Overall, sales job growth ranks high among all occu- pations surveyed.13 Jobs in selling and sales management often provide high upward mo- bility if you are successful, because firms value employees who understand customers and who can communicate well with them. The old business adage “nothing happens until something is sold” translates into many firms placing quite a bit of emphasis on personal selling in their promotion mixes. And the sales role is even more crucial during tricky eco- nomic times, when companies look to their salespeople to drum up new business and to maintain the business they already have.

Sold on selling? All right, then let’s take a close look at how personal selling works and how professional salespeople develop long-term relationships with customers.

The Role of Personal Selling in the Marketing Mix When a woman calls the MGM Grand Hotel in Vegas’ 800 number to book a room for a little vacation trip and comes away with not just a room but with show tickets, a massage booking at the hotel spa, and a reservation for dinner at Emeril’s, she deals with a salesperson. When she sits in on a presentation at work by a Web site renewal consultant who proposes a new content management system for her firm’s Web site, she deals with a salesperson. And when that same woman agrees over lunch at a swanky restaurant to invest some of her savings with a financial manager’s recommended mutual fund, she also deals with a salesperson.

personal selling Marketing communication by which a company representative interacts directly with a customer or prospective customer to communicate about a good or service.

3 OBJECTIVE

Appreciate the

important role of

personal selling and

how it fits into the

promotion mix. (pp. 427–431)

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Factors that Influence a

Firm’s Emphasis on Personal

Selling

If the decision maker has a higher status

within the organization

If the purchase is a

“new task” for the customer

If the product is highly

technical or complex

If the customer is very large

If the product is expensive

If the product is a custom good or personalized

service

If there are trade-in products

If negotiation is required

If a push strategy is used

Figure 14.3 Snapshot | Factors That Influence a Firm’s Emphasis on Personal Selling

A variety of factors influence whether personal selling is a more or less important element in an organization’s overall promotion mix.

For many firms, some element of personal selling is essential to land a commitment to purchase or a contract, so this type of marketing communication is a key to the success of their overall marketing plan. To put the use of personal selling into perspective, Figure 14.3 illustrates some of the factors that make it a more or less important element in an organiza- tion’s promotion mix.

In general, a personal selling emphasis is more important when a firm engages in a push strategy, in which the goal is to “push” the product through the channel of distribution so that it is available to consumers. As a vice president at Hallmark Cards once observed, “We’re not selling to the retailer, we’re selling through the retailer. We look at the retailer as a pipeline to the hands of consumers.”14

Personal selling also is likely to be crucial in business-to-business contexts where the firm must interact directly with a client’s management to clinch a big deal—and often when intense negotiations about price and other factors will occur before the customer signs on the dotted line. In consumer contexts, inexperienced customers may need the hands-on as- sistance that a professional salesperson provides. Firms that sell goods and services con- sumers buy infrequently—houses, cars, computers, lawn mowers, even college educations—often rely heavily on personal selling. (Hint: Your school didn’t pick just any student at random to conduct campus tours for prospective attendees.) Likewise, firms whose goods or services are complex or very expensive often need a salesperson to explain, justify, and sell them—in both business and consumer markets.

If personal selling is so useful, why don’t firms just scrap their advertising and sales pro- motion budgets and hire more salespeople? There are some drawbacks that limit the role per- sonal selling plays in the marketing communication mix. First, when the dollar amount of individual purchases is low, it doesn’t make sense to use personal selling—the cost per con- tact with each customer is very high compared to other forms of promotion. Analysts esti-

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mate that in 2010 the average total cost for a sales call with a consultative (problem-solving) approach to selling was about $350, and this cost will continue to increase at a rate of 5 percent per year. And, of course this figure is an average—depending on the industry, some sales calls are much more expensive to make. The per-contact cost of a national television commercial is minuscule by compari- son. A 30-second prime-time commercial may run $300,000 to $500,000 (or even around $3 million during the Super Bowl), but with millions of viewers, the cost per contact may be only $10 or $15 per 1,000 viewers.15 For low-priced consumer goods, personal selling to end users simply doesn’t make good financial sense.

Ironically, consumer resistance to telemarketing gives a powerful boost to a form of selling that has been around for a long time: direct selling. Direct selling is not the same thing as direct marketing. Direct sellers bypass channel inter- mediaries and sell directly from manufacturer to consumer through personal, one-to-one contact. Typically, indepen- dent sales representatives sell in person in a customer’s home or place of business. Tupperware, Avon, Mary Kay, and the Pampered Chef are some well-known examples. Many direct selling firms use a party plan approach where salespeople demonstrate products in front of groups of neighbors or friends. Direct selling is on a big upswing, with domestic sales volume doubling in the past 10 years to over $30 bil- lion annually. We’ll discuss direct selling in more detail in Chapter 16.16

Technology and Personal Selling Personal selling is supposed to be, well, “personal.” By definition, a company uses personal selling for marketing communications in situations when one person (the salesperson) in- teracts directly with another person (the customer or prospective customer) to communicate about a good or service. All sorts of technologies can enhance the personal selling process, and clearly today the smartphone is the communication hub of the relationship between salesperson and client. However, as anyone making sales calls knows, technology itself can- not and should not replace personal selling. As we’ll discuss later in this chapter, today a key role of personal selling is to manage customer relationships—and remember, relationships occur between people, not between computers (as much as you love your Facebook friends or checking in on Foursquare).

However, there’s no doubt that a bevy of technological advancements makes it easier for salespeople to do their jobs more effectively. One such technological advance is customer relationship management (CRM) software. For years now, account management software such as ACT and GoldMine has helped salespeople manage their client and prospect base. These programs are inexpensive, easy to navigate, and they allow salespeople to track all aspects of customer interaction. Currently, many firms turn to cloud computing CRM applications, which are more customizable and integrative than ACT or GoldMine, yet are less expensive than major companywide CRM installations. A market leader in such products is SalesForce .com, which is particularly user-friendly for salespeople. A key benefit of cloud computing versions of CRM systems is that firms “rent” them for a flat fee per month (at SalesForce .com, monthly prices are as low as $20 per user) so they avoid major capital outlays.17 Re- cently, some sales organizations have turned to a new-generation system called partner re- lationship management (PRM) that links information between selling and buying firms. PRM

Salespeople—even the really energetic types—can make only so many calls a day. Thus, reliance on personal selling is effective only when the success ratio is high. Telemarketing, sometimes called teleselling, involves person-to-person communication that takes place on the phone. Because the cost of field salespeople is so high, telemarketing continues to grow in popularity (much to the dismay of many prospects when calls interrupt their dinner). Of course, as we’ve seen, no-call legislation and do-not-call lists at the state and federal levels have given consumers a powerful weapon to ward off unwanted telephone selling.

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differs from CRM in that both supplier and buyer firms share at least some of their databases and systems to maximize the usefulness of the data for decision-making purposes. Firms that share information are more likely to work together toward win–win solutions.

Beyond CRM and PRM, numerous other technology applications en- hance personal selling, including teleconferencing, videoconferencing, and improved corporate Web sites that offer FAQ (frequently asked questions) pages to answer customers’ queries. Many firms also use intranets and blogs to facilitate access to internal and external communication.

Voice-over Internet protocol (VoIP)—systems that rely upon a data net- work to carry voice calls—get a lot of use in day-to-day correspondence be- tween salespeople and customers. With VoIP, the salesperson on the road can just plug into a fast Internet connection and then start to make and receive calls just as if she is in the office. Unlike mobile phones, there are no bad re- ception areas, and unlike hotel phones there are no hidden charges. One popular VoIP product is Skype, whose tagline is “The whole world can talk for free.” According to its Web site, Skype “is a little piece of software that al- lows you to make free calls to other Skype users and really cheap calls to or- dinary phones.” Skype even offers bargain rates to fixed lines and cell phones outside the United States.18

Thanks to Skype, webcams, instant messaging, and the like, customers of all types are becoming more comfortable with the concept of doing busi- ness with a salesperson who is not actually in the same room. As such, a good portion of the future of face-to-face sales calls may occur on your own com- puter screen. Consider the following hypothetical transaction related to buy- ing a set of solar panels for your roof—a complex and expensive purchase:

The sales consultant calls at an appointed time. You open her e-mail message, click a link to start the presentation, and a picture of your roof appears, courtesy of satellite imag- ing. Colorful charts show past electricity bills and the savings from a solar-panel system. A series of spreadsheets examine the financing options available—and these are dynamic doc- uments, not static images, so the salesperson can tinker with the figures right before your eyes. Would more panels be justified? A few keystrokes later, new charts displayed the costs and savings. Could they be shifted to another part of the roof? With a mouse, she moves some black panels from the east to the west side. How about more cash upfront? She scrolls to the spreadsheets, highlights three payment options, and computes the numbers over the next 15 years. In less than an hour, the exchange is over.

Perhaps for a few days or a week you mull over the choices and study the fine print in the contract, but the sale was essentially closed by the time you hung up the phone. You de- cided to make a major, complex purchase, worth thousands of dollars, without ever meet- ing anyone in the flesh and without holding any product in your hands. And unlike many purchases, you had no buyer’s remorse despite the fact it was done online—or maybe because it was online.19

For years now, all of us have been shopping online, taking in the bargains and wide selection, usually for relatively straightforward products and services and without any human contact unless a problem arises with the ordering technology itself. The brave new world of virtual selling adds another dimension and is yet another example of how the Internet transforms business and remakes job descriptions. These more sophisticated virtual selling capabilities won’t replace all face-to-face salesperson/client encounters any more than e-commerce replaced brick-and-mortar retailers. But smart sales organi- zations can find the right blend of technology and personal touch, tailored to their par- ticular clientele and product offerings, that makes the most of building strong customer relationships.

Salesforce.com is a popular CRM application.

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The Landscape of Modern Personal Selling Given what you’ve read about personal selling so far, you can begin to see why professional salespeople have very dynamic career opportuni- ties. In this section you’ll get a feel for what today’s jobs are like and two distinct ways salespeople approach their role.

Types of Sales Jobs There are several different types of sales jobs from which you can choose, each with its own unique characteristics. Maybe you aspire to work in sales someday, or perhaps you’ve al- ready held a sales job at some point. Let’s look more closely at some of the different types of sales positions. Figure 14.4 summarizes the most important types.

As you might imagine, sales jobs vary considerably. The person who processes a Dell computer purchase over the phone (if anybody orders them by phone anymore instead of online) is primarily an order taker—a salesperson who processes transactions the customer initiates. Many retail salespeople are order takers, but often wholesalers, dealers, and distrib- utors also employ salespeople to assist their business customers. Because little creative sell- ing is involved in order taking, this type of sales job typically is the lowest-paid sales position.

In contrast, a technical specialist contributes considerable expertise in the form of prod- uct demonstrations, recommendations for complex equipment, and setup of machinery. The technical specialist provides sales support rather than actually closing the sale. She promotes the firm and tries to stimulate demand for a product to make it easier for colleagues to ac- tually seal the deal.

Then there is the missionary salesperson whose job is to stimulate clients to buy. Like technical specialists, missionary salespeople promote the firm and encourage demand for its goods and services but don’t actually take orders.21 Pfizer salespeople do missionary sales work when they call on physicians to influence them to prescribe the latest and great- est Pfizer medications instead of competing drugs. However, no sale actually gets made un- til doctors call prescriptions into pharmacies, which then place orders for the drug through their wholesalers.

4 OBJECTIVE

Identify the different

types of sales jobs. (pp. 431–433)

The Cutting Edge

When Your Salesperson Is an Avatar Spend some time on the Web site of Tekno Bubbles (www.teknobubbles .com), and you are sure to encounter Dr. Funk. An aging hippie with wild hair and a penchant for tie-dyed clothes, the doctor is a key member of the com- pany’s sales force. He greets visitors and describes the company’s soap bub- bles, which glow when exposed to black light.“We can get you hooked up with some bubbles so you can check them out for yourself,” Dr. Funk says as he directs visitors to the site’s online store. There, he will suggest complemen- tary items that can be found on the site, such as bubble-blowing machines and remote-controlled timers.

Dr. Funk doesn’t work in Tekno Bubbles’ St. Louis office—or, for that mat- ter, in any physical location. His sales pitch is exclusively online. That’s because Dr. Funk is an avatar, an animated online character used to represent a person or brand. Broad public awareness of just what an avatar is took a quantum leap with the success of its namesake movie directed by James Cameron, and now

even many fuddy-duddy Baby Boomers understand. Originally confined to vir- tual worlds such as Second Life, avatars are increasingly making their way onto commercial Web sites as businesses seek new ways to interact with customers. By performing tasks such as greeting visitors and fulfilling orders, avatars can enhance a Web site’s sales and service, reduce the costs of live customer sup- port and, as with Dr. Funk, provide a sense of personality and playfulness.

In the first six months after Dr. Funk’s debut online sales have increased from 30 percent of Tekno Bubbles’ gross revenue to 50 percent. The company has also begun integrated marketing communication by using images of Dr. Funk in offline promotions, including trade show displays. The key is that he’s able to effectively touch the market the firm wants to touch. Still, avatars aren’t for everyone. They tend to work best when the Web site is a company’s main venue for purchases, lead gathering, or customer assistance. At least so far, they have been better suited for companies that sell to consumers rather than to other businesses.20

order taker A salesperson whose primary function is to facilitate transactions that the customer initiates.

technical specialist A sales support person with a high level of technical expertise who assists in product demonstrations.

missionary salesperson A salesperson who promotes the firm and tries to stimulate demand for a product but does not actually complete a sale.

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Sales Jobs

Missionary salesperson

New- business

salesperson

Technical specialist

Order getter

Team sellingOrder taker

Figure 14.4 Snapshot | Types of Sales Jobs A wide range of different types of sales jobs are available, each of which has different job requirements and responsibilities.

The new-business salesperson is responsible for finding new customers and calls on them to present the company’s products. As you might imagine, gaining the business of a new customer usually means that the customer stops doing business with one of the firm’s competitors (and they won’t give up without a fight). New-business selling requires a high degree of creativity and professionalism, so this type of salesperson is usually very well paid. Once a new-business salesperson establishes a relationship with a client, he or she of- ten continues to service that client as the primary contact as long as the client continues to buy from the company. In that long-term-relationship-building role, this type of salesperson is an order getter. Order getters are usually the people most directly responsible for a par- ticular client’s business; they may also hold the title of “account manager.”22

More and more, firms find that the selling function works best via team selling. A sell- ing team may consist of a salesperson, a technical specialist, someone from engineering and design, and other players who work together to develop products and programs that satisfy the customer’s needs. When the company includes people from a range of areas it often calls this group a cross-functional team.

Two Approaches to Personal Selling Personal selling is one of the oldest forms of marketing communication. Unfortunately, over the years smooth-talking pitchmen who will say anything to make a sale have tarnished its image. Pulitzer Prize–winning playwright Arthur Miller’s famous character Willie Loman in Death of a Salesman—a must-read for generations of middle- and high-school students—didn’t help. Willie Loman (as in “low man” on the totem pole—get it?) is a pathetic, burned-out peddler who leaves home for the road on Monday morning and returns late Friday evening selling “on a smile and a shoeshine.” His personal life is in shambles with two dysfunctional sons and a disaffected wife who hardly knows him. Great public relations for selling as a career, right?

Fortunately, personal selling today is nothing like Miller’s harsh portrayal. Selling has moved from a transactional, hard-sell approach to an approach based on relationships with customers. Let’s see how.

Transactional Selling: Putting on the Hard Sell

Willy Loman practiced a high-pressure, hard-sell approach. We’ve all been exposed to the pushy electronics salesperson that puts down the competition when she tells shoppers that if they buy elsewhere they will be stuck with an inferior home theater system that will fall

new-business salesperson The person responsible for finding new customers and calling on them to present the company’s products.

order getter A salesperson who works to develop long-term relationships with particular customers or to generate new sales.

team selling The sales function when handled by a team that may consist of a salesperson, a technical specialist, and others.

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apart in six months. Or how about the crafty used car salesman who plays the good cop/bad cop game: She gives you an awesome price, but then sadly informs you her boss, the sales manager, won’t go for such a sweet deal. These hard-sell tactics reflect transactional selling, an approach that focuses on making an immediate sale with little concern for developing a long-term relationship with the customer.

As customers, the hard sell makes us feel manipulated and resentful, and it diminishes our satisfaction and loyalty. It’s a very short-sighted approach to selling. As we said earlier in the book, constantly finding new customers is much more expensive than getting repeat business from the customers you already have. And the behaviors transactional selling pro- motes (that is, doing anything to get the order) contribute to the negative image many of us have of salespeople as obnoxious and untrustworthy. Such salespeople engage in these be- haviors because they don’t care if they ever have the chance to sell to you again. This is re- ally bad business!

Relationship Selling: Building Long-Term Customers

Relationship selling is the process by which a salesperson secures, develops, and maintains long-term relationships with profitable customers.23 Today’s professional salesperson is more likely to practice relationship selling than transactional selling. This means that the salesperson tries to develop a mutually satisfying, win–win relationship with the customer. Securing a customer relationship means converting an interested prospect into someone who is convinced that the good or service holds value for her. Developing a customer rela- tionship means ensuring that you and the customer work together to find more ways to add value to the transaction. Maintaining a customer relationship means building customer sat- isfaction and loyalty—thus, you can count on the customer to provide future business and stick with you for the long haul. And if doing business with the customer isn’t profitable to you, unless you’re a charitable organization you would probably like to see that customer go somewhere else.

The Creative Selling Process Many people find selling to be a great profession, partly because some- thing different is always going on. Every customer, every sales call, and every salesperson is unique. Some salespeople are successful primarily because they know so much about what they sell. Others are successful because they’ve built strong relationships with customers so that they’re able to add value to both the customer and their own firm—a win–win approach to selling. Successful salespeople understand and

engage in a series of activities to make the sales encounter mutually beneficial. A salesperson’s chances of success increase when she undergoes a systematic series of

steps we call the creative selling process. These steps require the salesperson to seek out po- tential customers, analyze their needs, determine how product attributes provide benefits, and then decide how best to communicate this to prospects. As Figure 14.5 shows, there are seven steps in the process. Let’s take a look at each.

Step 1: Prospect and Qualify Prospecting is the process by which a salesperson identifies and develops a list of prospects or sales leads (potential customers). Leads come from existing customer lists, telephone di- rectories, commercially available databases, and of course through diligent use of Web search engines like Google. The local library usually owns directories of businesses (including

transactional selling A form of personal selling that focuses on making an immediate sale with little or no attempt to develop a relationship with the customer.

5 OBJECTIVE

List the steps in the

creative selling

process. (pp. 433–436)

Prospecting and QualifyingProspect and Qualify

Preapproach

Approach

Sales Presentation

Handle Objections

Follow-up

Figure 14.5 Process | Steps in the Creative Selling Process

In the creative selling process, salespeople follow a series of steps to build relationships with customers.

relationship selling A form of personal selling that involves securing, developing, and maintaining long-term relationships with profitable customers.

creative selling process The process of seeking out potential customers, analyzing needs, determining how product attributes might provide benefits for the customer, and then communicating that information.

prospecting A part of the selling process that includes identifying and developing a list of potential or prospective customers.

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those state and federal agencies publish) and directories of association memberships. Some- times companies generate sales leads through their advertising or sales promotion when they encourage customers to request more information.

As you learned earlier in this chapter, trade shows also are an important source of sales leads, as are visits to your company’s Web site by potential customers. Accela Communica- tions is one company that tracks these responses for its clients in order to generate leads. Sales organizations turn to Accela to monitor, analyze, and summarize visitors to a com- pany’s Web site—in essence, to develop prospect lists. Accela then turns these lists over to salespeople for follow-up by phone or in person.24

Another way to generate leads is through cold calling, in which the salesperson simply contacts prospects “cold,” without prior introduction or arrangement. It always helps to know the prospect, so salespeople might rely instead on referrals. Current clients who are satisfied with their purchase often recommend a salesperson to others—yet another reason to maintain good customer relationships.

However, the mere fact that someone is willing to talk to a salesperson doesn’t guaran- tee a sale. After they identify potential customers, salespeople need to qualify these prospects to determine how likely they are to become customers. To do this they ask questions such as the following:

• Are the prospects likely to be interested in what I’m selling?

• Are they likely to switch their allegiance from another supplier or product?

• Is the potential sales volume large enough to make a relationship profitable?

• Can they afford the purchase?

• If they must borrow money to buy the product, what is their credit history?

Step 2: Preapproach In the preapproach stage, you compile background information about prospective cus- tomers and plan the sales interview. Firms don’t make important purchases lightly, and it’s often difficult even to get an appointment to see a prospect. It’s foolish for a salesperson to blindly call on a qualified prospect and risk losing the sale because of a lack of preparation. Salespeople try to learn as much as possible about qualified prospects early on. They may probe a prospect’s prior purchase history, current needs, or, in some cases, even try to learn about their personal interests.

Salespeople can draw information about a prospect from a variety of sources. In the case of larger companies, they can find financial data, names of top executives, and other information about a business from outlets such as Standard & Poor’s 500 Directory or Dun & Bradstreet’s Million Dollar Directory. They can also find a great deal of information for the preapproach on customers’ Web sites. And the inside scoop on a prospect often comes from informal sources such as noncompeting salespeople who have dealt with the prospect before.

Of course, if the salesperson’s firm has a CRM system, she can use it to see whether the database includes information about the prospect. Say, for example, a salesperson at Mike’s Bikes plans to call on a buyer at Greg’s Vacation Rentals to see about selling some new bikes for guests to use at Greg’s various resort properties. If Mike’s has had a CRM system in place for some time, any contacts with customers and potential customers (prospects) are recorded in the database. The salesperson can simply run an inquiry about Greg’s Vacation Rentals and with luck, the CRM database will deliver information on the company, prior purchases from Mike’s, when and why customers stopped buying from the company, and perhaps even the preferences of the particular buyer.

preapproach A part of the selling process that includes developing information about prospective customers and planning the sales interview.

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Step 3: Approach After the salesperson lays the groundwork with the preapproach, it’s time to approach, or contact, the prospect. During these important first minutes several key events occur. The salesperson tries to learn even more about the prospect’s needs, create a good impression, and build rapport. If the salesperson found prospect Anne Fahlgren through a referral, she will probably say so to Anne up front: “Melissa Sabella with Prentice Industries suggested I call on you.”

During the approach, the customer decides whether the salesperson has something to offer that is of potential value. The old saying “You never get a second chance to make a good first impression” rings true here. A profes- sional appearance tells the prospect that the salesperson means business and is competent to handle the sale.

Step 4: Sales Presentation Many sales calls involve a formal sales presentation, which lays out the ben- efits of the product and its advantages over the competition. When possible and appropriate, salespeople should incorporate a great PowerPoint presen- tation integrated with some sound and media into their sales presentations to jazz things up. The focus of the sales presentation should always be on ways the salesperson, her goods and services, and her company can add value to the customer (and in a business-to-business setting, to the customer’s com- pany). It is important for the salesperson to present this value proposition clearly and to invite the customer’s involvement in the conversation. Let the customer ask questions, give feedback, and discuss her needs. Canned ap- proaches to sales presentations are a poor choice for salespeople who want to build long-term relationships. In fact, sales managers rate listening skills, not talking skills, as the single most important attribute they look for when they hire relationship salespeople.25 In a sales call, it’s a good idea to put the 80/20 rule to work—that is, spend 80 percent of your time listening to the client and assessing his needs and only 20 percent talking (note: this rule-of-thumb is a spinoff of the 80/20 rule for market segmentation we discussed in Chapter 7).

Step 5: Handle Objections It’s rare when a prospect accepts everything the salesperson offers without question. The ef- fective salesperson anticipates objections—reasons why the prospect is reluctant to make a commitment—and she’s prepared to respond with additional information or persuasive ar- guments. Actually, the salesperson should welcome objections because they show that the prospect is at least interested enough to consider the offer and seriously weigh its pros and cons. Handling the objection successfully can move a prospect to the decision stage. For ex- ample, the salesperson might say, “Ms. Bloom, you’ve said before that you don’t have room to carry our new line of trail bikes, although you mentioned that you may be losing some sales by carrying only one brand with very few different models. If we could come up with an estimate of how much business you’re losing, I’ll bet you’d consider making room for our line, wouldn’t you?”

Step 6: Close the Sale The win–win nature of relationship selling should take some of the pressure off salespeople to make “the dreaded close.” But there still comes a point in the sales call at which one or the other party has to move toward gaining commitment to the objectives of the call—presumably

A good salesperson is well groomed and wears appropriate business dress. She doesn’t chew gum, use poor grammar or inappropriate language, mispronounce the customer’s name, or seem uninterested in the call. Visible tattoos, body piercings, and the like are controversial in professional selling.

approach The first step of the actual sales presentation in which the salesperson tries to learn more about the customer’s needs, create a good impression, and build rapport.

sales presentation The part of the selling process in which the salesperson directly communicates the value proposition to the customer and invites two-way communication.

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a purchase. This is the decision stage, or close. Directly asking the customer for her business doesn’t need to be painful or awkward: If the salesperson has done a great job in the previous five steps of the creative selling process, closing the sale should be a natural progression of the dialogue between the buyer and seller.

There are a variety of approaches salespeople use to close the sale:

• A last objection close asks customers if they are ready to purchase, providing the sales- person can address any concerns they have about the product: “Are you ready to order if we can prove our delivery time frames meet your expectations?”

• An assumptive or minor points close mean the salesperson acts as if the purchase is in- evitable with only a small detail or two to be settled: “What quantity would you like to order?”

• A standing-room-only or buy-now close injects some urgency when the salesperson sug- gests the customer might miss an opportunity if she hesitates: “This price is good through Saturday only, so to save 20 percent we should book the order now.” When making such closes, salespeople must be sure the basis they state for buying now is truthful or they’ll lose a valuable relationship for the price of a one-time sale!

Step 7: Follow-up Understanding that the process doesn’t end after the salesperson earns the client’s business is basic to a relationship selling perspective that emphasizes the importance of long-term satisfaction. The follow-up after the sale includes arranging for delivery, payment, and pur- chase terms. It also means the salesperson makes sure the customer received delivery and is satisfied. Follow-up also allows the salesperson to bridge to the next purchase. Once a re- lationship develops, the selling process is only beginning. Even as one cycle of purchasing draws to a close, a good salesperson already lays the foundation for the next one.

Sales Management Few, if any, firms succeed with just one star salesperson. Personal sell- ing is a team effort that requires careful planning to be sure that the or- ganization makes salespeople available when and where customers need them. Sales management is the process of planning, implement- ing, and controlling the personal selling function. Let’s review some of the major decisions sales managers who oversee this function must make as Figure 14.6 outlines.

Set Sales Force Objectives Sales force objectives state what management expects the sales force to accomplish and when. Sales managers develop sales force performance objectives such as “acquire 100 new cus- tomers,” “generate $100 million in sales,” or even “reduce travel expenses by 5 percent.” Firms that engage in relationship selling also state objectives that relate to customer satis- faction, loyalty, and retention (or turnover). Other common objectives are new customer de- velopment, new product suggestions, training, reporting on competitive activity, and community involvement.

Sales managers also work with their salespeople to develop individual objectives. There are two types of individual objectives. Performance objectives are readily measurable out- comes, such as total sales and total profits per salesperson. Behavioral objectives specify the actions salespeople must accomplish, such as the number of prospects she should identify,

close The stage of the selling process in which the salesperson actually asks the customer to buy the product.

6 OBJECTIVE

Explain the role of

sales management. (pp. 436–439)

follow-up Activities after the sale that provide important services to customers.

sales management The process of planning, implementing, and controlling the personal selling function of an organization.

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the number of sales calls, and the number of follow-up contacts she should make.

Create a Sales Force Strategy A sales force strategy establishes important specifics such as the struc- ture and size of a firm’s sales force. Each salesperson is responsible for a set group of customers—his or her sales territory. The territory struc- ture allows salespeople to have an in-depth understanding of cus- tomers and their needs through frequent contact, both business and personal. The most common way to allot territories is geographic to minimize travel and other field expenses. The firm usually defines a geographic sales force structure according to how many customers reside in a given area. If the product line is diverse or technically complex, however, a better approach may be to structure sales territories in terms of different classes of goods and services; this approach enables the sales force to provide more focused product expertise to customers. Kraft Foods has separate sales forces for its major product areas, such as beverages, cheese and dairy, and grocery items.

Still another sales structure is industry specialization in which salespeople focus on a sin- gle industry or a small number of industries. Firms often refer to such large clients as key ac- counts or major accounts. P&G uses cross-functional key account teams to focus on each of its major customers. For Lakeland, Florida–based Publix Supermarkets (one of the top 10 ranked supermarket chains in the United States by revenue), P&G fields a team of over 100 people headed by a top-level executive—customer managers, accountants, logistics people, and more—all of whom reside right in Central Florida to be right where the Publix action is. The idea behind this concentration on key accounts is the old 80/20 rule again —that is, if 20 per- cent of your customers account for 80 percent of your sales (and profits), those 20 percent deserve the bulk of your personal selling attention.

Putting salespeople out into the field is a very expensive proposition that greatly im- pacts a company’s profitability. Remember, cost-per-customer-contact is higher by a wide margin for personal selling than for any other form of promotion. Thus, it’s really important to determine the optimal number of salespeople you put into the field. A larger sales force may increase sales, but at what cost? A smaller sales force will keep costs down. But this lean and mean approach could backfire if competitors move in with larger teams; they will be in a better position to develop strong customer relationships because each of their salespeople doesn’t have to call on as many customers.

Recruit, Train, and Reward the Sales Force Because the quality of a sales force can make or break a firm, a top priority for sales man- agers is to recruit and hire the right set of people to do the job. The ideal candidates exhibit good listening skills, effective follow-up skills, the ability to adapt their sales style from sit- uation to situation, tenacity (sticking with a task), and a high level of personal organiza- tion.26 Companies screen potential salespeople to reveal these skills, along with useful information about interests and capabilities. Pencil-and-paper tests determine quantitative skills and competencies in areas that interviews can’t easily assess.

Are successful salespeople born or made? Probably elements of both inherent ability and trainable skills contribute to career success. Sales training teaches salespeople about the organization and its goods and services and helps them to develop the skills, knowledge, and attitudes they require to succeed. And training doesn’t end once a person “graduates” into the organization. Professional development activities continually prepare salespeople per- sonally and professionally for new challenges such as promotions and management respon- sibilities. They try to develop the salesperson more broadly than knowledge or skills training. Many sales organizations turn to outside consultants to help them develop sales

Recruiting, Training, and Rewarding the Sales Force

Set Sales Force Objectives

Create a Sales Force Strategy

Recruit, Train, and Reward the Sales Force

Evaluate the Sales Force

Figure 14.6 Process | The Sales Management Process Sales management includes four major areas of decision-making.

sales territory A set of customers, often defined by geographic boundaries, for whom a particular salesperson is responsible.

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force training and development programs. Sometimes a boost in creative thinking from the outside can do wonders to develop more productive salespeople. Today, with budgets tighter than ever, sales organizations expect identifiable returns on investments in training, and outside firms often deliver these quantifiable results.

Of course, a good way to motivate salespeople is to pay them well. This can mean ty- ing compensation to performance. A straight commission plan is based solely on a percentage of sales the person closes. Under a commission-with-draw plan, earnings come from commis- sion plus a regular payment, or “draw,” that may be charged against future commissions if current sales are inadequate to cover the draw. With a straight salary plan, the salesperson is paid a set amount regardless of sales performance. Sometimes a company augments a straight salary plan with a quota-bonus plan, in which it pays salespeople a salary plus a bonus for her sales that exceed an assigned quota or if she sells certain goods and services that are new or relatively more profitable.

Sales contests provide prizes (cash or otherwise) for selling specific goods and services during a specific period and can kick-start a short-term sales boost. Popular prizes for con- test winners include cruises, resort vacations, and products winners select from prize cata- logs. However, it’s easy for a firm to overuse sales contests; these incentives might motivate salespeople to simply wait to sell some goods and services until the contest period kicks in, so in reality there is no net increase in sales.

Although many salespeople like to work independently, supervision is essential to an effective sales force. Sales managers often require salespeople to develop monthly, weekly, or daily call reports, where they document information about customers they called on and how the call went. Today most salespeople generate these call reports electronically, often on their laptop computer as a part of the firm’s overall CRM initiative. They allow the sales manager to track what the salespeople do in the field, and they provide marketing managers with timely information about customers’ responses, competitive activity, and any changes in the firm’s customer base.

Evaluate the Sales Force A sales manager’s job isn’t complete until she evaluates the total effort of the sales force. First, it is important to determine whether the sales force meets its objectives. If it is not, the sales manager must figure out the causes. Is the problem due to flaws in the design and/or implementation of the sales force strategy? Or did uncontrollable factors con- tribute? An overall downturn in the economy such as the one that began in 2008 with the subprime mortgage loan crisis, a big drop in housing prices, and a huge escalation in the price of gasoline can make it impossible for the best sales force to meet its original sales objectives.

Managers normally measure individual salesperson performance against sales quotas for individual sales territories, even when compensation plans do not include bonuses or commissions based on the quotas. They may also include quantitative measures such as number of sales calls and sales reports the group completed when they evaluate perfor- mance. In addition to quantitative measures, many firms also evaluate their salespeople on qualitative indicators of performance, such as salesperson attitude, product knowledge, and communication skills. Increasingly, as firms focus on relationship selling, several important customer metrics such as customer satisfaction, loyalty, and retention/turnover are key measures of superior salesperson performance.

Finally, the company can consider the salesperson’s expense account for travel and en- tertainment since the best sales record can mean little to a company’s bottom line if the sales- person gouges the company with outrageous expenses. You think you’re creative when you

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spend money? Here are some classic expenses a few salespeople actually submitted, accord- ing to Sales and Marketing Management magazine:27

• Chartering a private plane to make an appointment after missing a regularly sched- uled flight

• A $2,300 round of golf for four people

• A set of china for a salesperson’s wife to use for a client dinner party

• Season baseball tickets for $6,000

• A three-day houseboat rental with a crew and chef for $30,000

Brand YOU! Personal selling works!

No one can sell your brand better than you can. Sell yourself by connecting with people you know. Net-

working helps you access the hidden job market . . . 80 percent of jobs are filled through networking. You know more people than you realize. And those people can lead you to more peo- ple. And before you know it, you’ll be interviewing! Master the skill of networking in person and on social networking sites in Chapter 14 of Brand You.

Real People, Real Choices

Here’s my choice. . .

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

Why do you think Jeffrey chose option #2?

Option Option

How It Worked Out at Woodtronics Jeffrey went directly to the client with a mockup of the new Evolution platform. He didn’t let the architect know he had done this until he was confident that the client was completely satisfied with the new alternative. Woodtronics got the sale; what’s more, the client decided to purchase the new product within a week of seeing the demo.

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440 PART FOUR | COMMUNICATE THE VALUE PROPOSITION

3. Objective Summary Appreciate the important role of personal selling and how it fits into the promotion mix. Personal selling occurs when a company representative inter- acts directly with a prospect or customer to communicate about a good or service. Many organizations rely heavily on this approach because at times the “personal touch” can carry more weight than mass-media material. Generally, a personal selling effort is more important when a firm engages in a push strategy, in which the goal is to “push” the product through the channel of distribution so that it is available to consumers. Today’s salespeople are less likely to use transactional selling (hard-sell tactics) in favor of relationship selling, in which they pursue win–win relationships with customers.

Key Term personal selling, p. 427

4. Objective Summary Identify the different types of sales jobs. Order takers process transactions that the customer initiates. Technical specialists are very involved in giving product demon- strations, giving advice and recommendations, and product setup. Missionary salespeople work to stimulate purchase, but don’t take actual orders. New-business salespeople, or order get- ters, are responsible for finding new customers and calling on them to present the company’s products. And finally, team selling has become very prevalent in many industries as a way to bring together the expertise needed to better satisfy customer needs. Transactional selling focuses on making an immediate sale with little concern for developing a long-term relationship with the customer. It is sometimes called the “hard sell” approach. In con- trast, relationship selling involves securing, developing, and maintaining long-term relationships with profitable customers. Developing a customer relationship means ensuring that you and the customer find more ways to add value over time.

Key Terms order taker, p. 431

technical specialist, p. 431

missionary salesperson, p. 431

(pp. 431–433)

(pp. 427–431)1. Objective Summary Identify the sales promotion elements for B2B. A sales promotion is a short-term program designed to build in- terest in or encourage purchase of a product. Trade sales pro- motions come in a variety of forms. Some are designed as discounts and deals, including co-op advertising, for channel members and some are designed to increase industry visibility. Approaches aimed at increasing industry visibility include trade shows, promotional products, point of purchase (POP) displays, incentive programs, and push money.

Key Terms trade promotions, p. 420

merchandising allowance, p. 421

case allowance, p. 421

co-op advertising, p. 422

trade shows, p. 422

promotional products, p. 422

point-of-purchase (POP) displays, p. 422

push money, p. 423

2. Objective Summary Understand the elements of direct marketing. Direct marketing refers to any direct communication designed to generate a response from a consumer or business customer. Some of the types of direct marketing activities are mail order (catalogs and direct mail), telemarketing, and direct-response ad- vertising, including infomercials and home shopping networks.

Key Terms direct marketing, p. 423

catalog, p. 423

direct mail, p. 424

telemarketing, p. 425

direct-response advertising, p. 425

direct-response TV (DRTV), p. 425

infomercials, p. 426

M-commerce, p. 426

(pp. 423–427)

(pp. 420–423)

Objective Summary Key Terms Apply Study Map CHAPTER 14

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new-business salesperson, p. 432

order getter, p. 432

team selling, p. 432

transactional selling, p. 433

relationship selling, p. 433

5. Objective Summary List the steps in the creative selling process. The steps in the personal selling process include prospecting and qualifying, preapproach, approach, sales presentation, handling objections, close, and follow-up. These steps combine to form the basis for communicating the company’s message to the customer. Learning the intricacies of each step can aid the salesperson in developing successful relationships with clients and in bringing in the business for their companies.

Key Terms creative selling process, p. 433

prospecting, p. 433

preapproach, p. 434

(pp. 433–436)

approach, p. 435

sales presentation, p. 435

close, p. 436

follow-up, p. 436

6. Objective Summary Explain the role of sales management. Sales management includes planning, implementing, and con- trolling the selling function. The responsibilities of a sales man- ager include the following: creating a sales force strategy, including the structure and size of the sales force; recruiting, training, and compensating the sales force; and evaluating the sales force.

Key Terms sales management, p. 436

sales territory, p. 437

(pp. 436–439)

Chapter Questions and Activities Concepts: Test Your Knowledge

1. Explain some of the different types of trade sales promo- tions marketers frequently use.

2. What is direct marketing? Describe the more popular types of direct marketing.

3. What is m-commerce? 4. What role does personal selling play within the marketing

function? 5. What is relationship selling? How does it differ from trans-

actional selling? 6. What is prospecting? What does it mean to qualify the

prospect? What is the preapproach? Why are these steps in the creative selling process that occur before you ever even contact the buyer so important to the sale?

7. What are some ways you might approach a customer? Would some work better in one situation or another?

8. What is the objective of the sales presentation? How might you overcome buyer objections?

9. Why is follow-up after the sale so important in relationship selling?

10. Describe the role of sales managers. What key functions do they perform?

Activities: Apply What You’ve Learned

1. Assume that you are a member of the marketing depart- ment for a firm that produces several brands of household cleaning products. Your assignment is to develop recom- mendations for trade sales promotion activities for a new laundry detergent. Develop an outline of your recommenda- tions for these sales promotions. In a role-playing situation, present and defend your recommendations to your boss.

2. Timing is an important part of a sales promotion plan. Trade sales promotions must be properly timed to ensure channel members fully maximize the opportunity to sell your prod- uct. Assume that the introduction of the new laundry de- tergent in question 1 is planned for April 1. Place the activities you recommended in question 1 onto a 12-month calendar of events. (Hint: The calendar needs to start before the product introduction.) In a role-playing situation, pre- sent your plan to your boss. Be sure to explain the reasons for your timing of each trade sales promotion element.

3. Consider carefully the potentially annoying downsides of various forms of direct marketing to consumers. As a mar- keter, what would you do to ensure that your firm’s direct marketing efforts don’t turn customers off your product?

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4. For you personally, what are the pros and cons of personal selling as a potential career choice? Make a list under the two columns and be as specific as you can in explaining each pro and con.

5. Assume a firm that publishes university textbooks has just hired you as a field salesperson. Your job requires that you call on university faculty members to persuade them to adopt your textbooks for their classes. As part of your training, your sales manager has asked you to develop an outline of what you will say in a typical sales presentation. Write that outline.

6. This chapter introduced you to several key success factors sales managers look for when hiring relationship salespeo- ple. Are there other key success factors you can identify for relationship salespeople? Explain why each is important.

Marketing Metrics Exercise

How does a firm know whether a salesperson is effective? Ob- viously, the short answer is that she produces high sales volume and meets or exceeds sales goals. But just increasing total dol- lar or unit sales volume is not always a good indicator of sales- person success. The problem is, everything else being equal, salespeople who are compensated strictly on sales volume will simply sell whatever products are easiest to sell to maximize to- tal sales. But these may not be the products with the highest profit margins, and they may not be the goods and services the firm identifies as key to future success in the market.

Because of the problems with using raw sales volume as the sole indicator of salesperson success, some firms turn to a variety of other metrics, including input and output measures. Input measures are effort measures—things that go into sell- ing, such as the number and type of sales calls, expense ac- count management, and a variety of nonselling activities such as follow-up work and client service. Output measures, or the results of the salesperson’s efforts, include sales volume but these also can be the number of orders, size of orders, number of new accounts, level of repeat business, customer profitabil- ity, and customer satisfaction.

Ultimately, the best approach to measure salesperson suc- cess is to use a variety of metrics that are consistent with the goals of the firm, to ensure the salesperson understands the goals and related metrics, and to link rewards to the achieve- ment of those goals.

If you were a professional salesperson, what type of met- rics would you prefer to be evaluated against? Why?

Choices: What Do You Think?

1. M-commerce allows marketers to engage in location com- merce when they can identify where consumers are and send them messages about a local store. Do you think con-

sumers will respond positively to this? What do you think are the benefits for consumers of location commerce? Do you see any drawbacks (such as invasion of privacy)?

2. In general, professional selling has evolved from hard-sell to relationship selling. Do organizations still use the hard- sell style? If so, what types? What do you think the future holds for these organizations? Will the hard sell continue to succeed—that is, are there instances in which transac- tional selling is still appropriate? If so, when?

3. One reason experts cite for the increase in consumer on- line shopping is the poor quality of service available at re- tail stores. What do you think about the quality of service you get from most retail salespeople with whom you come into contact? What are some ways retailers can improve the quality of their sales associates?

4. Based on the salesperson compensation figures the chap- ter supplies, do you think professional salespeople are ap- propriately paid? Why or why not? What is it that salespeople do that warrants their compensation?

5. Would training and development needs of salespeople vary depending on how long they have been in the busi- ness? Why or why not? Would it be possible (and feasible) to have different training programs for salespeople who are at different career stages?

6. What would be the best approach for a sales manager to determine the appropriate rewards program to implement for her salespeople? What issues are important when she decides what rewards to offer?

Miniproject: Learn by Doing

The purpose of this miniproject is to help you understand the advantages of following the creative selling process.

1. With several of your classmates, create a new product in a category that most college students buy regularly (for ex- ample, toothpaste, shampoo, pens, pencils, soft drinks . . . anything that interests you that might be sold through a drugstore like Walgreens). Make up a new brand name and some creative features and benefits of the new prod- uct you come up with.

2. Develop a plan for executing each of the steps in the cre- ative selling process. Carefully ensure that you cover all the bases of how you would go about selling your product to an organizational buyer at Walgreens for distribution to all stores.

3. Report on your plan to your class, and ask the other stu- dents for feedback on whether your approach will con- vince the Walgreens buyer to make a purchase.

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Marketing in Action Case Real Choices at Frito-Lay

Chips, chips, and even more chips! This might be the mantra for Frito-Lay salespeople as they carry out their daily assignments. Although it may not seem like it on the surface, it is a challenge to be effective in the salty snack sales environment. As with most forms of selling, the secret to success lies in finding ways to be both efficient and effective. There is only so much shelf space for all those tempting crunchy bags in grocery and con- venience stores, and lots of manufacturers that want their prod- ucts to be on them. The salty snack industry includes potato chips; tortilla chips; snack nuts and seeds (including corn nuts); popcorn; pretzels; extruded cheese; snacks; corn snacks; and other. Total retail sales in the United States totaled over $17 bil- lion in 2009.

Frito-Lay is one of the world’s leading producers of salty snacks. Frito-Lay North America is a division of PepsiCo, Inc. Based in Plano, Texas, the company’s most popular brands include Fritos, Lay’s, Doritos, Cheetos, and Tostitos. In 1932, C. E. Doolin pur- chased the recipe for Fritos and began to sell corn chips in San Antonio from his Ford Model T. In the same year, Herman W. Lay began his potato chip business in Nashville by purchasing a snack food manufacturer.

The Frito Company and the H. W. Lay Company merged in 1961 to become Frito-Lay, Inc. Eventually, in 1965 Frito-Lay, Inc. and the Pepsi-Cola Company combined and created PepsiCo, Inc. Today, PepsiCo is organized into four divisions: Frito-Lay North America, PepsiCo Beverages North America, PepsiCo In- ternational, and Quaker Foods North America.

In the retail atmosphere, Frito-Lay faces competition from many sources. This includes large multinational companies such as ConAgra (DAVID Seeds, Crunch ‘n Munch, Orville Reden- bacher), Kraft Foods (Nabisco, Honey Maid), and Procter & Gamble (Pringles). In addition there are numerous regional manu- facturers such as Cape Cod Potato Chip (chips, popcorn), Snyder’s of Hanover (chips, pretzels), and Jay’s Foods (chips, popcorn).

Relationships with retailers are critical as all these formida- ble competitors jockey for limited shelf space. The leadership of Frito-Lay’s sales organization believes that knowledge manage-

ment is the key to success so that salespeople in the field can constantly update what they know about each store and tailor their offerings accordingly. The challenge is that important in- formation must be captured in many different places and sys- tems. This can inhibit the sharing of knowledge across members of the sales organization.

Frito-Lay’s solution was to develop a knowledge manage- ment portal on the company’s intranet. The portal provides a central point of access to the database that integrates customer and internal corporate information. The goals for the Frito-Lay portal are to provide knowledge that is more efficient, make use of customer-specific data, and promote team collaboration. Given the company’s size, this is no easy task.

During the mid-2000s, the salty snack market grew slowly, and changes in consumers’ eating habits might provide an even slower future. A trend toward healthier snacking and concerns about weight loss will increase the competitiveness among the different snack food sales organizations. Salespeople have to continue to develop customer loyalty as consumers experiment with new products to enhance the at-home experience. Frito- Lay needs to decide just what pieces of information its sales force needs to know while not burdening them with too much data to be effective.

You Make the Call 1. What is the decision facing Frito-Lay? 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: Esther Shein, “Frito-Lay Sales Force Sells More Through Information Collaboration,” CIO.com, May 01, 2001 (http://www.cio.com/ article/30167/Case_Study_Frito_Lay_Sales_Force_Sells_More_Through_Information_Collaboration); Frito-Lay, Wikipedia, http://en .wikipedia.org/wiki/Frito-Lay (accessed July 14, 2010); Kat Fay, “Salty Snacks,” PreparedFoods.com, April 1, 2009 (http://www .preparedfoods.com/Articles/Feature_Article/BNP_GUID_9-5-2006_A_10000000000000569180); Sonia Reyes, “Strategy: Frito-Lay Gets Wise to Rival’s Revamp,” Brandweek, June 21, 2004 (http://www.allbusiness.com/marketing-advertising/branding-brand-development/ 4686710-1.html).

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Chapter | 16

Retailing: Bricks and Clicks

Real People Profiles

A Decision Maker at Eskimo Joe’s Stan Clark is a native of Tulsa, Oklahoma. He graduated from Oklahoma State Uni- versity in May 1975 with a bachelor of science degree in business administration. For more than a decade, Stan’s entrepre- neurial success story has captivated audi- ences all over Oklahoma and across the country. Among other honors he was a Regional Finalist for Inc. magazine’s En- trepreneur of the Year.

Stan’s Info

First job out of school? A) Eskimo Joe’s. I graduated from OSU in May 1975 and opened Joe’s about two weeks later. To do that, I turned down an assistantship to go into the OSU MBA program!

Career high? A) During his 1990 commencement address at Lewis Field at OSU, President George Bush mentioned Eskimo Joe’s in his speech. In 2006, George W. Bush did the same thing.

A job-related mistake I wish I hadn’t made? A) Killing the annual Joe’s Anniversary Party in 1993. It attracted tens of thousands of people but was getting unwieldy.

Business book I’m reading now? A) Hug Your Customers by Jack Mitchell and Discovering the Soul of Service by Len Berry.

My hero? A) My dad, who inspired me to be an entrepreneur, and my mom, who gave me a positive outlook on life.

My motto to live by? A) Live passionately, and make a difference.

Profile Info

Stan Clark

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Stan Clark, the colorful entrepreneur behind the toothy grin of the Eskimo Joe caricature and his

dog Buffy, faced a big problem. In 1975, Stan opened Eskimo Joe’s bar in Stillwater, Oklahoma—the home of Oklahoma State University. By the mid-

1980s the watering hole had become a huge favorite among OSU students. Situated right across from the OSU campus, Joe’s carved out a niche as “the” place to go for beer, music, pool, and foosball in this college town. Trading on the popularity of the bar as well as its quirky logo, Stan had also begun to sell some logo apparel over the counter. Before long, students, friends, parents, alums, and other visitors simply couldn’t get enough of the T-shirts sporting the wide smiles by the boy and his faithful dog. For Stan, life was good and also lots of fun.

So what could possibly go wrong? Try the fact that Oklahoma had just passed a statewide “liquor by the drink” law. Prior to this, Oklahoma had a patchwork quilt of post–Prohibition era liquor laws including “club card” requirements at bars and bring- your-own-bottle rules. Liquor by the drink opened up normal serving of beer, wine, and spirits at any establishment with a proper state liquor license—however, part of the new law was an increase in the legal drinking age from 18 to 21. Oops . . . a beer bar in a college town when you have to be 21 to drink? Not exactly an attractive business proposition. But, in the eight years since Es- kimo Joe’s opening, Stan had come to under- stand that the place represented a whole lot more to people than just pitchers of cold Bud on hot summer nights. There was a certain

mystique and a strong sense of community around the brand that made it more than just a place to drink. Brisk sales of T-shirts and other clothing over the counter were evidence that people saw something else in the retailer— something that made them want to wear these items again and again. The affection and interest reached almost cult-like proportions and were not lim- ited to Stillwater or even to Oklahoma. Stan had hit on something big, but what could he do? Big Brother in the person of the State of Oklahoma was about to regulate him right out of his core business.

Stan had to take a couple of steps back, take a new look at his business, and think about what he might do to ensure that his retail enterprise would survive the new law. The situation could be life or death for Eskimo Joe’s.

Stan considered his Options 1 • 2 • 3 Convert the beer bar into a full-service restaurant that focuses on selling great food. This option assumes that the equity of the Eskimo Joe’s brand would transfer into a brand- new market and product space. To accomplish this transforma- tion, Stan would have to extensively remodel the facility. He would have to figure out who the new target market is and

See what option Stan chose and its success on page 504

what type of menu fare would be most appealing to that customer. This was a risky proposition, since restaurants open and close all the time. On the other hand, if Stan could morph the location into a restaurant that also hap- pens to serve alcohol (which, under the new liquor law, would be legal—and potentially quite profitable), he would hopefully be able to continue to build the fledgling logo apparel business around the new restaurant theme, à la the Hard Rock Café.

Continue operating as a beer bar at the core and work to offset declining beer sales with an increase in apparel sales. From 1975 to 1984, Joe’s was “Stillwater’s Jumpin’ Little Juke Joint.” It was by far one of the highest-volume beer bars in the region, and it had built its entire reputation on this image. As the number-one competitor in this market space, Stan had

every reason to believe that the weaker competitors would be forced out of business by the law change, leaving their share of the market to him. Stan could continue to operate the bar in much the way it had always been op- erated, and if he liked he could use it as a cash cow to generate revenues and then invest the money elsewhere for growth. The upside of this plan would be that any attempt to rebrand Eskimo Joe’s as something other than what it had always been would be risky. However, the downside was the un- known of what it would mean to a retailer over the long run to lose its pri- mary customer base of 18- to 20-year-olds in a town brimming with college students.

Close Eskimo Joe’s bar and refocus resources on building the growing apparel business. The cult-like status of the Eskimo Joe’s brand and image may have begun at the physical location of the bar in Stillwater, but the way to replicate and per- petrate it on a national or international scale is by marketing the now-hip logo. Stan could build a small retail clothing boutique

in Stillwater but turn primarily to direct marketing through catalogs focused on his target primary age and demographic groups. A key benefit of this ap- proach is avoiding any unexpected problems with the bar that might occur in the liquor law transition, especially the very negative publicity that would result if Joe’s got caught selling beer to underage drinkers. The Eskimo Joe spirit would be maintained through the direct marketing and also through accompanying word of mouth. On the downside, to Joe’s loyal fans, closing Stillwater’s “Jumpin’ Little Juke Joint” would be like Harley-Davidson ceasing to make motorcycles: Who wants the logo apparel when there’s no product or place that still sports it? However, this option was tempting in that it would redirect Stan’s resources to the high-growth (and high-profit-margin) apparel retailing sector.

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

You Choose

Which Option would you choose, and why?

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

Here’s my problem. . . Real People, Real Choices

479

Option

Things to remember

Stan Clark successfully positioned Eskimo Joe’s as the place go for beer, music and good times near the campus of Oklahoma State University. Then, in the mid- 1980s the State of Oklahoma raised the legal drinking age from 18 to 21—and Stan had a big problem.

In the ten or so years it took to build the brand, Eskimo Joe’s also developed a certain mystique—its toothy spokescharacters appeared on T-shirts all over the world. Clearly people had developed a loyalty and affection for the brand that went well beyond just a place that sold pizza and beer.

As Stan decided how address the new change in his environment he had to think hard about just what he was selling in addition to brews and slices—and repackage those qualities for a new generation.

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Retailing: Special Delivery Shop ’til you drop! For many people, obtaining the prod- uct is only half the fun. Others, of course, would rather walk over hot coals than spend time in a store. Marketers like Stan Clark need to find ways to deliver goods and services that please both types of consumers. Retailing is the final stop on the distribution path—the process by which organizations sell goods and services to con- sumers for their personal use.

As we said in Chapter 15, planning for distribution of product offerings includes decisions about where to make the product available. Thus when marketers of consumer goods and services plan their distribution strategy, they talk about the retailers they will include in their channel of distribution. This, of course, means they need to understand retailing and the retailer landscape.

Of course, retailers also develop their own marketing plans. While our sample marketing plan represents the plan of a producer, the same elements are also seen in marketing plans for retailers. They must decide which con- sumer groups they can best serve, what product assortment and services they will provide for their customers, what pricing policies they will adopt, how they will promote their retail operations, and where they will locate their re- tail outlets. This chapter will explore the many different types of retailers as we keep one question in mind: How does a retailer—whether store or non- store (selling via television, phone, or the Internet)—lure the consumer? The answer to this question isn’t getting any easier as the competition for cus- tomers continues to heat up, fueled by the explosion of Web sites that sell branded merchandise (or that auction it like eBay), the “overstoring” of many areas as developers continue to build elaborate malls and strip shopping cen- ters, and improvements in communications and distribution that make it pos- sible for retailers from around the world to enter local markets. So, this chapter has plenty “in store” for us. Let’s start with an overview of where re- tailing has been and where it’s going.

Retailing: A Mixed (Shopping) Bag Retailing is big business. Despite nearly two years of economic downturn, in 2009 U.S. retail sales totaled more than $4.5 trillion.1 Over 1 million retail businesses employ over 14.5 million workers—more than 1 of every 10 U.S. workers.2

Although we tend to associate huge stores such as Walmart and Sears with retailing activity, in reality most retailers are small businesses. Certain retail- ers, such as Home Depot, also are wholesalers because they provide goods and services to businesses as well as to end consumers.

As we said in Chapter 15 retailers belong to a channel of distribution, and as such they provide time, place, and ownership utility to customers. Some retailers save people time or money when they provide an assortment of merchandise under one roof. Others search the world for the most exotic delicacies; they allow shoppers access to goods they would otherwise never see. Still others, such as Barnes & Noble café/bookstores, provide us with in- teresting environments in which to spend our leisure time and, they hope, our money.

Chapter 16

480 PART FIVE | DELIVER THE VALUE PROPOSITION

Objective Outline 1. Define retailing; understand how

retailing evolves and some ethical issues in retailing.

RETAILING: SPECIAL DELIVERY (p. 480)

2. Understand how we classify retailers.

FROM MOM-AND-POP TO SUPER WALMART: HOW MARKETERS CLASSIFY RETAIL STORES (p. 487)

3. Describe the more common forms of nonstore retailing including B2C e-commerce.

NONSTORE RETAILING (p. 493)

4. Understand the importance of store image to a retail positioning strategy and explain how a retailer can create a desirable image in the marketplace.

DEVELOP A STORE POSITIONING STRATEGY: RETAILING AS THEATER (p. 498)

(pp. 498–504)

(pp. 493–498)

(pp. 487–493)

(pp. 480–487)

Check out chapter 16 Study Map on page 505

1 OBJECTIVE

Define retailing;

understand how

retailing evolves

and some ethical

issues in retailing. (pp. 480–487)

retailing The final stop in the distribution channel in which organizations sell goods and services to consumers for their personal use.

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Globally, retailing may have a very different face. In some European countries, don’t even think about squeezing a tomato to see if it’s too soft or picking up a cantaloupe to see if it smells ripe. Such mistakes will quickly gain you a reprimand from the store clerk who will choose which oranges and bananas you should have. In developing countries like those in Asia, Africa, and South America, retailing often includes many small butcher shops where sides of beef and lamb proudly hang in store windows so everyone will be assured that the meat comes from healthy animals; vendors sell lettuce, tomatoes, and cucumbers on the sidewalk or neatly stack watermelons on a donkey cart; and women sell small breakfast items they cook out of the front of their homes for workers and schoolchildren who pass by in the mornings. Neat store shelves stacked with bottles of shampoo may be replaced by hanging displays that hold one-use size sachets of shampoo—the only size that a woman can afford to buy and then only for special occasions. Street vendors may sell cigarettes one at a time. The local pharmacist also gives customers injections and recommends antibiotics and other medicines for patients who come in with a complaint and who can’t afford to see a doctor. Don’t feel like cooking tonight? There’s no drive-through window for pick up but even better—delivery from McDonald’s, Hardees, KFC, Pizza Hut, Fuddruckers, Chili’s, and a host of local restaurants via motor scooters that dangerously dash in and out of traffic is just a few minutes away. You can even order your Big Mac or a spicy vegetable dragon roll for delivery online through sites such as Egypt’s www.otlob.com or Mumbai’s www.foodkamood.com

The Evolution of Retailing Retailing has taken many forms over time, including the peddler who hawked his wares from a horse-drawn cart, a majestic urban department store, an intimate boutique, and a huge “hyperstore” that sells everything from potato chips to snow tires. But now the cart you see at your local mall that sells new-age jewelry or monogrammed golf balls to passersby has replaced the horse-drawn cart. As the economic, social, and cultural pictures change, different types of retailers emerge—and they often squeeze out older, outmoded types. How can marketers know what the dominant types of retailing will be tomorrow or 10 years from now?

The Wheel of Retailing

One of the oldest and simplest explanations for these changes is the wheel-of-retailing hypothesis. Figure 16.1 shows that new types of retailers begin at the entry phase where they find it easiest to enter the market with low-end strategies as they offer goods at lower prices than their competitors.3 After they gain a foothold, they gradually trade up. They im- prove their facilities and increase the quality and assortment of merchandise. Finally, retail- ers move on to a high-end strategy with even higher prices, better facilities, and amenities such as parking and gift wrapping. Upscaling results in greater investment and operating costs, so the store must raise its prices to remain profitable, which then makes it vulnerable to still newer entrants that can afford to charge lower prices. And so the wheel turns.

That’s the story behind Pier 1 Imports. Pier 1 started as a single store in San Mateo, Cal- ifornia, that sold low-priced beanbags, love beads, and incense to post–World War II baby boomers. These days it sells quality home furnishings and decorative accessories to the same customers, who are now the most affluent segment of the American population.4 To- day, even low-cost retailer Walmart is moving up, as it tries to broaden its appeal to upscale shoppers. The retail giant opened a new upscale supercenter in Plano, Texas, that boasts a Wi-Fi-enabled coffee shop, a sushi bar, quieter cash registers, and grocery selections that in- clude more than 1,200 choices of wine and gourmet cheeses.5

New ways to sell products constantly appear. American Airlines is testing the concept of selling goods and services (other than pillows and blankets) on its flights. The carrier has

wheel-of-retailing hypothesis A theory that explains how retail firms change, becoming more upscale as they go through their life cycle.

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Trading-up Phase

High prices Luxurious facilities Excellent services and amenities

Vulnerability Phase

Moderate prices Better facilities Some services Increased quality merchandise

Low margin Low prices Limited or no services Low-end facilities

Entry Phase

Figure 16.1 Snapshot | The Wheel of Retailing The Wheel of Retailing explains how retailers change over time.

started by selling Heathrow Express train tickets on London-bound flights, and it offers items from the SkyMall catalog on 165 of its planes. Other options on the table include Broadway show tickets.6

Retailers, however, must be careful not to move too quickly and too far from their roots. Earlier attempts by Walmart to upgrade its clothing lines from basic T-shirts, tank tops, and tube socks to brand-name apparel alienated many of its loyal core customers who found the new items out of reach. Today Walmart reinvents its clothing offerings with higher fashion apparel while it maintains its focus on everyday apparel.7

The wheel of retailing helps us explain the development of some but not all forms of retailing. For example, some retailers never trade up; they simply continue to occupy a niche as discounters. Others, such as upscale specialty stores, start out at the high end. Of course, some retailers move down after they experience success at the high end. Sometimes they open sister divisions that sell lower-priced products (as when Gap Stores opened Old Navy), or they develop outlets that sell lower-priced versions of their own products (as when Nordstrom creates the Nordstrom Rack or Anne Taylor opens Anne Taylor Loft).

The Retail Life Cycle

Of course, retailers sell products. But in a way retailers also are products because they provide benefits such as convenience or status to consumers, and they must offer a competitive ad- vantage over other retailers to survive. And sometimes where a product is bought either adds to or takes away from its allure (which explains why some people secretly replace shopping bags from bargain stores with those from upscale stores to create the “right” impression).

So, another way to understand how retailers evolve is the retail life cycle shown in Figure 16.2. Like the product life cycle we discussed in Chapter 9, this perspective recognizes that (like people, soft-drink brands, and vacation destinations) retailers are born, they grow and mature, and eventually most die or become obsolete. The life cycle approach allows us to categorize retail stores by the conditions they face at different points in the cycle.8

In the introduction stage, the new retailer often is an aggressive entrepreneur who takes a unique approach to doing business. This may mean it competes on the basis of low price, as the wheel of retailing suggests. However, the new guy on the block may also enter the mar- ket by offering a distinctive assortment or a different way to distribute items, such as through the Internet. Internet grocery stores, for example, are in the introduction stage. In the intro- duction stage, profits usually are low because of high development costs. As the business en- ters the growth stage, the retailer (hopefully) catches on with shoppers, and sales and profits rise. But a new idea doesn’t stay new for long. Others start to copy it and competition

retail life cycle A theory that focuses on the various stages that retailers pass through from introduction to decline.

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Introduction

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Figure 16.2 Snapshot | The Retail Life Cycle The Retail Life Cycle explains how retailers are born, grow, mature, and (most) die.

increases, so the store needs to expand what it offers. Often the retailer responds by opening more outlets and develops systems to distribute goods to these new stores—which may in turn cut profits, as the firm invests in new buildings and fixtures.

By the time the business reaches the maturity stage, many other individual retailers have copied the unique idea of the original entrepreneur to form an entire industry. The in- dustry probably has overexpanded and intense competition makes it difficult to maintain customer loyalty. Profits decline as competitors resort to price cutting to keep their cus- tomers. We observe this pattern in department stores like Macy’s and fast-food chains like McDonald’s.

During the maturity stage, firms seek to increase their share of the market or to attract new customers. That has been the case with fast-food retailers for a number of years. In or- der to meet changing customer tastes, KFC offers grilled chicken for customers who want a finger-lickin’ lower fat meal. For low-carb consumers who want less bread, McDonald’s sells a Big Mac Wrap and KFC’s menu includes the “Double Down” sandwich without any bread (just pure fried chicken on a fried chicken roll!). Supermarkets have responded to con- sumers’ demand for healthy, locally grown food with more organic alternatives.

Other retailers use mergers to survive when their retail category matures. Mergers are when two or more separately owned retail firms combine. For example, Sears, a department store chain, recently merged with Kmart, a discount chain. Another strategy a firm in a ma- ture industry may choose is downsizing where it closes unprofitable stores or sells off entire divisions. Federated Department Stores, for example, became Macy’s, Inc. and combined its different department stores under two names, Bloomingdales and Macy’s, as it did away with less successful chains such as Stern’s, Marshall Field’s, and Filene’s. In the decline stage, retail businesses, like the general store or the peddler, become obsolete as newer ways of do- ing business emerge. Of course, the outmoded retailer does not have to fold its tent at this stage. Marketers who anticipate these shifts can avert decline if they change to meet the times. Some retailers, such as Starbucks, find growth opportunities in foreign markets. Star- bucks now operates over 16,000 stores in 50 countries.9

mergers When two or more separately owned retail firms combine.

downsizing When a firm in a mature industry closes or sells off unprofitable stores or entire divisions.

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The Evolution Continues: What’s “In Store” for the Future? As our world continues to change rapidly, retailers scramble to keep up. Four factors motivate innovative merchants to reinvent the way they do business: the economic environment, changing demographics, technol- ogy, and globalization.

The Changing Economy

As we noted in Chapter 5, all marketers including retailers must under- stand and respond to changes in the marketing environment. Recently, changes in the economic environment have been especially important. The 2008–2010 downturn meant that consumers worldwide were less willing to spend discretionary income. Instead they chose to lower their level of debt and to save. Retail sales, including the all-important Christ- mas sales, fell in nearly all retail segments.10 Sales for most upscale retail- ers were especially vulnerable while stores such as TJ Maxx, Marshalls, Dollar General, and online retailer Amazon.com that offer consumers low prices or discounted merchandise thrived. A number of retailers filed for bankruptcy including Sharper Image, Circuit City, CompUSA, and Waldenbooks.11

Other stores changed their merchandise assortment to meet con- sumers’ preferences. Private-label brands reached an all-time high in sales in 2009—on average 17.5 percent of a basket of U.S. groceries con-

sisted of store brands.12 Walmart and other mass merchandisers responded to this trend by allocating more shelf space to their own private-label brands and less to national brands. (As we noted in Chapter 11, Walmart later found this strategy aggravated many consumers and hurt overall sales and the chain has now returned many items to its shelves.13) Even the con- venience store chain 7-Eleven plans to release two private label wines that will sell for $3.99 a bottle. A zesty chardonnay with your corn dog?14

Demographics

As we noted in Chapter 7, keeping up with changes in population characteristics is at the heart of many marketing efforts. Retailers can no longer afford to stand by and assume that their customer base is the same as it has always been. They must come up with new ways to sell their products to diverse groups.

Here are some of the ways changing demographics are altering the face of retailing:

• Convenience for working consumers: Some retailers expand their operating hours and services to meet the needs of working consumers who have less time to shop. Other re- tailers, including dry cleaners and pharmacies, add drive-up windows. In some areas, mobile furniture stores replace design studios; designers pick out 8 or 10 sofas from their large inventories and bring them to your home so you can see how each will ac- tually look in your living room. And walk-in medical clinics located at retailer, phar- macy, or grocery stores not only provide convenience but also save both patients and insurers money on routine care.15

• Recognize ethnic diversity: Although members of every ethnic group can usually find lo- cal retailers that cater to their specific needs, larger companies must tailor their strate- gies to the cultural makeup of specific areas. For example, in Texas, California, and Florida, where there are large numbers of customers who speak only Spanish, many re- tailers make sure that there are sales associates who habla Español.

Like other marketers, retailers need to stay on top of cultural trends that affect demand for the merchandise they sell, such as fur-free vegan, or sustainable products.

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Technology

In addition to demographics, technology is revolutionizing retailing. As we all know, the In- ternet has brought us the age of e-tailing. Whether it’s a store that sells only on the Web or a traditional retailer such as Banana Republic, J. Crew, or Eskimo Joe’s that also sells on the Web, retailing is steadily evolving from bricks to clicks. Our personal computers have turned our homes into virtual malls. While many traditional retailers saw sales decline in 2008 and 2009, online retailer Amazon.com’s business grew. Fourth-quarter 2009 sales, which included the Christmas season, were 42 percent above the previous year.16

Some of the most profound changes are not even visible to shoppers, such as advanced electronic point-of-sale (POS) systems. These devices contain computer brains that collect sales data and connect directly into the store’s inventory-control system. Stores may use POS systems to create perpetual inventory unit control systems that keep a running total on sales, returns, transfers to other stores, and so on. This technology allows stores to develop computerized automatic reordering systems that are automatically activated when inven- tories reach a certain level.17 The store of the future will use RFID tags (and other technol- ogy) to assist the shopper in ways we haven’t even thought of. For example, an RFID tag on a bottle of wine can tip off a nearby plasma screen that will project an ad for Barilla pasta and provide a neat recipe for fettuccine with bell peppers and shrimp. Don’t remember what number printer ink cartridge you need? No problem. In-store kiosks will allow consumers to ask questions of a product “expert” in another city via a video-enabled screen, alleviating customer complaints about lack of knowledgeable store personnel while they create a cost- efficient way to provide expertise to dozens of customers at one time.18

Some restaurants already use technology to let diners order their food tableside directly from a screen complete with photos of the dishes it offers. The e-menus help customers be- cause they can see what every item on the menu will look like and, hopefully, avoid a sur- prise when the waiter arrives.19 This innovation also increases sales for the restaurant—who can avoid that mouth-watering picture of the four-layer chocolate cake with peppermint- stick ice cream on top?

Of course, technology is important to service industries also. Banking, for example, has become much simpler for both consumers and business customers because of electronic banking. For many years electronic banking has offered ATMs and Web sites where con- sumers can check their bank balance or transfer funds. To- day, most banks offer automatic bill-pay services. With bill pay services, consumers can schedule their rent or credit card or other payment online and the bank will write the check and mail it.

Globalization

As we saw in Chapter 3, the world is becoming a much smaller (and flatter) place. Retailers are busy expanding to other countries and they bring with them innovations and new management philosophies. McDonald’s, T.G.I. Fri- day’s, and Starbucks join the Hard Rock Café as they be- come global success stories for U.S. retailers. Similarly, Spanish fashion retailers Zara and Mango are now global brands, while Swedish home goods company IKEA fur- nishes homes around the world. Even French hyperstore chain Carrefours has stores in Europe, South America, Asia, North Africa and the United States.

Still, retailers need to adjust to different conditions around the world. In countries in the Middle East with large Muslim populations, you won’t find the riblet basket

point-of-sale (POS) systems Retail computer systems that collect sales data and are hooked directly into the store’s inventory-control system.

perpetual inventory unit control system Retail computer system that keeps a running total on sales, returns, transfers to other stores and so on.

automatic reordering system Retail reordering system that is automatically activated when inventories reach a certain level.

One form of retailing can be at different points in its life cycle in different business environments. In China, the department store is still in its growth stage. Chains like PCD are benefiting from a boom in China’s retail market and from shoppers’ growing love affair with luxury items. They flock to department stores to buy them because e-commerce isn’t well established in the mainland—and department stores have a reputation for avoiding the sale of counterfeit goods that pop up elsewhere around the country.20

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on Applebee’s menu, and McDonald’s offers customers McArabia Kofta sandwiches. And some countries require that certain percentages, often over half, of goods sold in retail stores are locally produced.

Ethical Problems in Retailing Retailers must deal with ethical problems that involve both their customers and their em- ployees. Losses due to shrinkage are a growing problem. Shrinkage is the term retailers use to describe stock losses due to shoplifting, employee theft, and damage to merchandise. A 2009 worldwide survey of large retailers in 41 countries found that shrinkage cost retailers $114.8 billion or 1.43 percent of all retail sales.21 That’s $208.39 per family.

Shoplifting

Shoplifting has grown in recent years to giant proportions. In 2009, shoplifting in the United States was estimated at $15.1 billion or more than 35 percent of all shrinkage.22

These thefts in turn drive consumer prices up and hurt the economy, and sometimes even cause smaller retailers to go out of business. For department stores, discount stores, and specialty stores, the items lifted include high-price-tag electronics, clothing, and jew- elry. For food stores, razor blades, condoms, pregnancy tests, cigarettes, and pain relievers are shoplifters’ common targets. The problem is so bad that many small stores now keep high-theft items such as analgesics under lock and key.

At its worst, shoplifting can be an organized criminal activity. Groups of thieves that use store floor plans and foil-lined bags to evade security sensors get away with thousands of dollars in goods in a single day. One survey reported that 92 percent of retailers said they had been the victim of organized retail crime.23 When Mervyn’s stores in Los Angeles found that its inventories of Levi’s jeans were mysteriously shrinking, surveillance cameras filmed organized gangs of thieves who whisked the jeans off shelves to waiting cars. Mervyn’s es- timated the stores lost more than $1 million before the company stopped the thieves.24 Iron- ically, the growth of online retailing boosts shoplifting from bricks and mortar stores because it facilitates a wide distribution of stolen goods—no longer do thieves have to fence their loot in the local market. One Houston, Texas, theft ring unloaded $258,000 worth of goods it stole from Target before it was caught.25 Of course, some shoplifting is more ama- teurish and nakedly obvious—as when a nude man walked into a Missouri convenience store on a hot August day and did a hula dance to divert attention while his partner stole a case of beer from the store.26 (Do not try this at home!)

Employee Theft

A second major source of shrinkage in retail stores is employee theft of both merchandise and cash. On a case by case basis, dishonest employees steal 6.6 times the amount shoplifters do.27A current trend in employee theft involves the use of store gift cards. Saks, for example, caught a sales clerk ringing up $130,000 in false merchandise returns and putting the money on a gift card.28 Employees not only have access to products, but they also are familiar with the store’s security measures. “Sweethearting” is an employee practice in which a cashier consciously undercharges, gives a cash refund, or allows a friend to walk away without pay- ing for items.29 Sometimes a dishonest employee simply carries merchandise out the back door to a friend’s waiting car.

Retail Borrowing

A third source of shrinkage is an unethical consumer practice the industry calls retail bor- rowing. Merchants over recent decades have developed liberal policies of accepting returns from customers because the product performs unsatisfactorily or even if the customer sim- ply changes her mind. Retail borrowing refers to the return of nondefective merchandise for

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

retail borrowing Consumer practice of purchasing a product with the intent to return the nondefective merchandise for a refund after it has fulfilled the purpose for which it was purchased.

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a refund after it has fulfilled the purpose for which it was purchased.30 Popular objects for retail borrowing include a dress for a high school prom, a new suit for a job interview, and a boom box for a weekend picnic on the beach. One study suggests that 12 percent of mer- chandise returns involve an intent to deceive the retailer. For the consumer the practice pro- vides short-term use of a product for a specific occasion at no cost. For the retailer, the practice results in lower total sales and often in damaged merchandise, unsuitable for resale.

Ethical Treatment of Customers

On the other side of the retail ethics issue is how retailers and their employees treat cus- tomers. While it may be illegal if a store doesn’t provide equal access to consumers of dif- ferent ethnic groups, behavior that discourages customers who appear economically disadvantaged or socially unacceptable is not. As a classic scene in the movie Pretty Woman starring Julia Roberts depicted, stores that seek to maintain an image of elite sophistication may not offer assistance to customers who enter the premises not meeting the requirements for that image—or they may actually ask the customer to leave.

Similarly, many would suggest that retailers have an obligation not to sell products to customers if the products can be harmful. For example, for many years some teens and young adults abused potentially harmful over-the-counter medicines. While government regulations removed many of these drug products from store shelves in recent years, retail- ers still have to carefully police their distribution. The same is true for products such as al- cohol and cigarettes, which by law are limited to sale to adult customers.

From Mom-and-Pop to Super Walmart: How Marketers Classify Retail Stores The field of retailing covers a lot of ground—from mammoth depart- ment stores to sidewalk vendors to Web sites to bars like Eskimo Joe’s. Retail marketers need to understand all the possible ways they might

offer their products in the market, and they also need a way to benchmark their performance relative to other similar retailers.

Classify Retailers by What They Sell Stan Clark’s dilemma boils down to what Eskimo Joe’s should sell—beer, food, clothing, some mixture of these? One of the most important strategic decisions a retailer makes is what to sell—its merchandise mix. This choice is similar to settling on a market segment (as we

Ripped from the Headlines

Ethical/Sustainable Decisions in the Real World Retailers know that if they create a better shopping experience for their cus- tomers, they create higher sales for themselves. But retailers need to know what’s wrong in order to “fix” it. What if customers find the aisles in stores too narrow, the merchandise on the top shelves too hard to reach, or no place to sit to tie a shoelace? Today hundreds of retailers around the world use observational research technology to improve the way they serve customers.This means they install video cameras, motion sensors, and other monitoring devices in their stores not to catch thieves, but to observe how their customers shop and

then to make improvements.31 But some critics are concerned about customer privacy. People don’t know they are being taped.We all behave differently when we think we are alone (which is the argument for using the technology in the first place).And what will happen when facial recognition technology allows a store to identify the individual customers they watch? Should retailers use cameras to monitor their shoppers without letting them know? Why or why not?

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

If you were a retailer looking to improve your store for your customers, would you install video cameras, motion sensors, and other monitoring devices to monitor customers’ behavior without their knowledge or consent?

YES NO

merchandise mix The total set of all products offered for sale by a retailer, including all product lines sold to all consumer groups.

2 OBJECTIVE

Understand how we

classify retailers. (pp. 487–493)

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discussed in Chapter 7: If a store’s merchandise mix is too limited, it may not have enough potential customers, whereas if it is too broad, the retailer runs the risk of being a “jack of all trades, master of none.” Because what the retailer sells is central to its identity, one way we describe retailers is in terms of their merchandise mix.

While we learned in Chapter 9 that a manufacturer’s product line consists of product offerings that satisfy a single need, in retailing a product line is a set of related products a re- tailer offers, such as kitchen appliances or leather goods. The Census of Retail Trade that the U.S. Bureau of the Census conducts classifies all retailers by North American Industry Clas- sification System (NAICS) codes (the same system we described in Chapter 6 that classifies industrial firms). A retailer that wants to identify direct competition simply looks for other firms with the same NAICS classification codes.

However, a word of caution: As retailers experiment with different merchandise mixes, it’s getting harder to make these direct comparisons. For example, even though marketers like to distinguish between food and nonfood retailers, in reality these lines are blurring. Combination stores offer consumers food and general merchandise in the same store. Supercenters such as Super Walmart Supercenters are large combination stores that com- bine an economy supermarket with other lower-priced merchandise. Other retailers like Target, CVS, and Walgreens drugstores carry limited amounts of food. In Japan, the major department stores have one floor that, like freestanding supermarkets, sells meats, vegeta- bles, and other fresh food items, while another entire floor offers store customers a wide range of prepared foods ready for the modern Japanese working woman (or man) to carry home for dinner.

Classify Retailers by Level of Service Retailers differ in the amount of service they provide for consumers. Firms recognize that there is a trade-off between service and low prices, so they tailor their strategies to the level of service they offer. Customers who demand higher levels of service must be willing to pay for that service, and those who want lower prices must be willing to give up services. Un- fortunately, some consumers don’t understand this trade-off and still insist on top-level ser- vice while they pay bottom-dollar prices!

Retailers like Sam’s Club that promise cut-rate prices often are self-service operations. When customers shop at self-service retailers, they make their product selection without any assistance, they often must bring their own bags or containers to carry their purchases, and they may even handle the checkout process with self-service scanners. Contrast that expe- rience to visiting a full-service retailer. Many of us prefer to shop at major department stores like Bloomingdale’s and specialty stores like Victoria’s Secret because they provide support- ing services such as gift wrapping, and they offer trained sales associates who can help us select that perfect gift. Other specialized services are available based on the merchandise the store offers. For example, many full-service clothing retailers will provide alteration ser- vices. Retailers like Macy’s, Bed Bath and Beyond, and Best Buy that carry china, silver, housewares, appliances, electronics and other items brides (and grooms) might want also offer special bridal consultants and bridal gift registries.

Limited-service retailers fall in between self-service and full-service retailers. Stores like Walmart, Target, Old Navy, and Kohl’s offer credit and merchandise return but little else. Customers select merchandise without much assistance, preferring to pay a bit less rather than be waited on a bit more.

Classify Retailers by Merchandise Selection Another way to classify retailers is in terms of the selection they offer. A retailer’s merchandise assortment, or selection of products it sells, has two dimensions: breadth and depth. These concepts strongly resemble the produce lines we discussed in Chapter 9. Merchandise breadth, or variety, is the number of different product lines available. A narrow

combination stores Retailers that offer consumers food and general merchandise in the same store.

supercenters Large combination stores that combine economy supermarkets with other lower-priced merchandise.

merchandise assortment The range of products a store sells.

merchandise breadth The number of different product lines available.

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merchandise depth The variety of choices available for each specific product line.

www.legendaryheroes.com: Internet retailer selling only merchandise for Lord of the Rings, The Highlander, Zena: Warrior Princess, Legendary Swords, Conan, and Hercules

www.Amazon.com: Literally millions of current and out-of-print books plus a long list of other product lines including electronics, toys, apparel, musical instruments, jewelry, motorcycles and ATVs

Airport Bookstore: A few Lord of the Rings books

Sam’s Club: A few Lord of the Rings books and a limited assortment of Lord of the Rings T-shirts and toys

Narrow

Shallow

Depth

Breadth

Deep

Broad

Figure 16.3 Snapshot | Classification of Book Retailers by Merchandise Selection Marketers often classify retail stores on the breadth and depth of their merchandise assortment. In this figure, we use the two dimensions to classify types of bookstores that carry science fiction books.

assortment, such as we encounter in convenience stores, means that shoppers will find only a limited selection of product lines such as candy, cigarettes, and soft drinks. A broad assort- ment, such as a warehouse store like COSTCO or Sam’s Club offers, means there is a wide range of items from eyeglasses to barbecue grills.

Merchandise depth is the variety of choices available within each specific product line. A shallow assortment means that the selection within a product category is limited, so a factory outlet store may sell only white and blue men’s dress shirts (all made by the same manufac- turer, of course) and only in standard sizes. In contrast, a men’s specialty store may feature a deep assortment of dress shirts (but not much else) in varying shades and in hard-to-find sizes.

Figure 16.3 illustrates these assortment differences for one product, science fiction books.

Major Types of Retailers Now that we’ve seen how retailers differ in the breadth and depth of their assortments, let’s review some of the major forms these retailers take. Table 16.1 provides a list of these types and their characteristics.

Convenience Stores

Convenience stores carry a limited number of frequently purchased items, including basic food products, newspa- pers, and sundries. They cater to consumers willing to pay a premium for the ease of buying staple items close to home. In other words, convenience stores meet the needs of those who are pressed for time, who buy items in smaller quanti- ties, or who shop at irregular hours. But these stores are start- ing to change, especially in urban areas, where many time-pressed shoppers prefer to visit these outlets even for specialty items. Store chains such as 7-Eleven and Wawa now offer customers a coffee bar, fresh sandwiches, and pastries.

Supermarkets

Supermarkets are food stores that carry a wide selection of edible and nonedible products. Although the large super- market is a fixture in the United States, it has not caught

convenience stores Neighborhood retailers that carry a limited number of frequently purchased items and cater to consumers willing to pay a premium for the ease of buying close to home.

Think convenience stores are just for convenience and a late night gallon of milk? Maverik Country Stores, Inc. doesn’t think so. The 187-store chain transformed itself from an Old West country store to match its slogan, “Adventure’s First Stop.” Customers from soccer moms to mountain bikers think it’s a fun place. The Adventure First Stop stores feature cascading waterfalls of fountain drinks, a winding river of coffee, and snowy mountains made of frozen yogurt. Unique names are also a part of the fun. Destination areas of the stores include Bodacious Bean coffee stations, Fountain Falls beverage dispensers, Big Moon restrooms (no comment), Big Bear Bakery, and Room with a Brew walk-in beer coolers. The stores even wrap their fuel pumps and tanker delivery trucks in murals of sports images such as jet skis and snowmobiles.32

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supermarkets Food stores that carry a wide selection of edibles and related products.

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Table 16.1 | Major Types of Retailers Different retailers offer varying product assortments, levels of service, store sizes, and prices

Type Merchandise Level of service Size Prices Examples

Convenience stores Limited number of choices in narrow number of product lines; frequently purchased and emergency items

Self-service Small Low-priced items sold at higher than average prices

7-Eleven

Supermarkets Large selection of food items and limited selection of general merchandise

Limited service Medium Moderate Publix, Kroger

Box stores Limited selection of food items; many store brands

Self-service

Bag your own purchases

Medium Low ALDI

Specialty stores Large selection of items in one or a few product lines

Full service Small and medium

Moderate to high Claire’s (accessories), Yankee Candle Co., Things Remembered

Category killers Large selection of items in one or a few product lines

Full service Large Moderate Toys “R” Us, Home Depot and Best Buy

Leased departments Limited selection of items in a single product line

Usually full service Small Moderate to high Picture Me portrait studios in Walmart Stores

Variety stores Small selection of items in limited product lines; low-priced items; may have a single price point

Self-service Small Low Dollar General, Dollar Tree

General merchandise discount stores

Large selection of items in a broad assortment of product lines

Limited service Large Moderate to low Walmart, Kmart

Off-price retailers Moderate selection of limited product lines; buy surplus merchandise

Limited service Moderate Moderate to low T.J. Maxx, Marshall’s

Warehouse clubs Moderate selection of limited product lines; many items in larger than normal sizes

Self-service Large Moderate to low Costco, Sam’s Club, BJ’s

Factory outlet stores Limited selection from a single manufacturer

Limited service Small Moderate to low Gap Outlet, Liz Claiborne Outlet, Coach Outlet

Department stores Large selection or many product lines

Full service Large Moderate to high Macy’s, Bloomingdales, Nordstrom

Hypermarkets Large selection of items in food and a broad assortment of general merchandise product lines

Self-service Very large Moderate to low Carrefour

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on to the same extent in other parts of the world. In many European countries, for example, consumers walk or bike to small stores near their homes. They tend to have smaller food orders per trip and to shop more frequently, partly because many lack the freezer space to store a huge inventory of products at home. Although wide variety is less important than quality and local ambiance to Euro- peans, their shopping habits are starting to change as huge hypermarkets become popular around the globe.

Box Stores

Box stores are food stores that have a limited selection of items, few brands per item, and few refrigerated items. Generally they are open fewer hours than supermarkets and are smaller and carry fewer items than warehouse clubs. Items are displayed in open boxes (hence the name) and customers bag their own purchases. ALDI stores, for example, carry only about 1,400 regularly stocked items, while a typical supermarket may carry up to 50,000 items.33 (About 95 percent of ALDI items are store brands with a few national brands that are special-buy purchases and are available for limited periods.)

Specialty Stores

Specialty stores have narrow and deep inventories. They do not sell a lot of product lines, but they offer a good selection of brands within the lines they do sell. For many women with less-than-perfect figures, shopping at a store that sells only swimsuits means there will be an adequate selection so they can find a suit that really fits. The same is true for larger, taller men who can’t find suits that fit in regular department stores but have lots of choices in stores that cater to big-and-tall guys. Specialty stores can tailor their assortment to the specific needs of a targeted consumer, and they often offer a high level of knowledgeable service.

Leased Departments

Leased departments are departments within a larger retail store that an outside firm rents. This arrangement allows larger stores to offer a broader variety of products than they would otherwise carry. Some examples of leased departments are in-store banks, photographic stu- dios, pet departments, jewelry departments, and watch and shoe repair departments.

Variety Stores

Variety stores originated as the five-and-dime or dime stores that began in the late 1800s. In these early variety stores such the iconic Woolworth’s, all items sold for a nickel or a dime. Today’s variety stores carry a variety of inexpensive items from kitchen gadgets to toys to candy and candles. It’s tough to buy something for a dime today, but many variety stores still stick to a single price point and some offer products that don’t cost more than a dollar. Some examples of today’s variety stores include Dollar General Stores, Family Dollar stores, and Dollar Tree.

Discount Stores

General merchandise discount stores, such as Target, Kmart, and Walmart, offer a broad as- sortment of items at low prices and with minimal service and are the dominant outlet for many products. Discounters are tearing up the retail landscape because they appeal to price- conscious shoppers who want easy access to a lot of merchandise. Kohl’s, for example, is

category killer A very large specialty store that carries a vast selection of products in its category.

specialty stores Retailers that carry only a few product lines but offer good selection within the lines that they sell.

leased departments Departments within a larger retail store that an outside firm rents.

variety stores Stores that carry a variety of inexpensive items.

general merchandise discount stores Retailers that offer a broad assortment of items at low prices with minimal service.

box stores Food stores that have a limited selection of items, few brands per item, and few refrigerated items.

The category killer is one type of specialty store that has become especially important in retailing today. A category killer is a very large specialty store that carries a vast selection of products in its category. Some examples of category killers are Home Depot, Toys “R” Us, Best Buy and Staples.

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one of the nation’s fastest-growing retailers. These stores increasingly carry designer-name clothing at bargain prices as companies like Liz Claiborne create new lines just for discount stores.34

Some discount stores, such as T.J. Maxx, Marshalls, HomeGoods, and A.J. Wright, are off-price retailers. These stores obtain surplus merchandise from manufacturers and offer brand-name, fashion-oriented goods at low prices. Warehouse clubs such as COSTCO and BJ’s are a newer version of the discount store. These establishments do not offer any of the amenities of a full-service store. Customers buy many of the products in larger-than- normal packages and quantities—nothing like laying in a three-year supply of paper towels or five-pound boxes of pretzels, even if you have to build an extra room in your house to store all this stuff! These clubs often charge a membership fee to consumers and small businesses. A recent survey showed that the typical warehouse shopper shops about once a month, is intrigued by bulk buying, hates long lines, and is drawn to the club retailer because of specific product areas such as fresh groceries.35And, consistent with the wheel of retailing, even these stores “trade up” in terms of what they sell to- day; shoppers can purchase fine jewelry and other luxury items at many warehouse clubs. The factory outlet store is still another type of discount re- tailer. A manufacturer owns these stores. Some factory outlets enable the manufacturer to sell off defective merchandise or excess inventory, while others carry items not available at full-price retail outlets and are designed to provide an additional distribution channel for the manufacturer. Al- though the assortment is not wide because a store carries products only one manufacturer makes, we find most factory outlet stores in outlet malls where a large number of factory outlet stores cluster together in the same location.

Department Stores

Department stores sell a broad range of items and offer a deep selection organized into dif- ferent sections of the store. Grand department stores dominated urban centers in the early part of the twentieth century. In their heyday, these stores sold airplanes and auctioned fine art. Lord & Taylor even offered its customers a mechanical horse to ensure the perfect fit of riding habits.

In many countries, department stores continue to thrive and they remain consumers’ primary place to shop. In Japan, department stores are always crowded with shoppers who buy everything from a takeaway sushi dinner to a string of fine pearls. In Spain, a single de- partment store chain, El Corte Inglés, dominates retailing. Its branch stores include store- size departments for electronics, books, music, and gourmet foods, and each has a vast supermarket covering one or two floors of the store.

In the United States, however, department stores have struggled in recent years. On the one hand, specialty stores lure department-store shoppers away with deeper, more cutting- edge fashion selections and better service. On the other hand, department stores have also been squeezed by discount stores and catalogs that offer the same items at lower prices be- cause they don’t have the expense of rent, elaborate store displays and fixtures, or high salaries for salespeople.

Hypermarkets

Hypermarkets combine the characteristics of warehouse stores and supermarkets. A Euro- pean invention, these are huge establishments several times larger than other stores. A su- permarket might be 40,000 to 50,000 square feet, whereas a hypermarket takes up 200,000 to 300,000 square feet, or four football fields. They offer one-stop shopping, often for over 50,000 items, and feature restaurants, beauty salons, and children’s play areas. Hypermar-

factory outlet store A discount retailer, owned by a manufacturer, that sells off defective merchandise and excess inventory.

department stores Retailers that sell a broad range of items and offer a good selection within each product line.

hypermarkets Retailers with the characteristics of both warehouse stores and supermarkets; hypermarkets are several times larger than other stores and offer virtually everything from grocery items to electronics.

A British discount store.

off-price retailers Retailers that buy excess merchandise from well-known manufacturers and pass the savings on to customers.

warehouse clubs Discount retailers that charge a modest membership fee to consumers who buy a broad assortment of food and nonfood items in bulk and in a warehouse environment.

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kets such as those the French firm Carrefour runs are popular in Europe and Latin America where big stores are somewhat of a novelty. More recently, Carrefour is expanding to developing countries such as China where a bur- geoning population and a lack of large retailers provide hyper-opportunities. Hypermarkets have been less successful in the United States where many other shopping options including discount stores, malls, and supermarkets are available. Consumers in the United States find the hypermarkets to be too large and shopping in them too time-consuming.

Nonstore Retailing Stores like the Limited succeed because they put cool mer- chandise in the hands of young shoppers who can’t get it elsewhere. But competition for shoppers’ dollars comes from sources other than traditional stores that range from bulky catalogs to dynamic Web sites. Debbie in Dubuque can easily log on to alloy.com at 3:00 A.M. and order the lat- est belly-baring fashions without leaving home.

As the founder of the Neiman-Marcus department store once noted, “If customers don’t want to get off their butts and go to your stores, you’ve got to go to

them.”36 Indeed, many products are readily available in places other than stores. Think of the familiar Avon lady who sells beauty products to millions of women around the world. Avon allows customers to place orders by phone, fax, or catalog or through a sales representative.

Avon’s success at giving customers alternatives to traditional store outlets illustrates the increasing importance of nonstore retailing, which is any method a firm uses to complete an exchange that does not require a customer to visit a store. Indeed, many conventional retailers—from upscale specialty stores such as Tiffany’s to discounter Walmart—offer non- store alternatives such as catalogs and Web sites for customers who want to buy their mer- chandise. For other companies, such as Internet retailer Amazon.com, nonstore retailing is their entire business. Catalog companies have, perhaps, had the easiest time making the tran- sition to the Web. Many have been able to use their experience delivering goods directly to consumers and make a successful jump to online sales. In Chapter 14 we talked about direct marketing done through the mail, telephone, and television. In this section, we’ll look at other types of nonstore retailing shown in Figure 16.4: direct selling, automatic vending, and B2C e-commerce.

Direct Selling Direct selling occurs when a salesperson presents a product to one indi- vidual or a small group, takes orders, and delivers the merchandise. The Direct Selling Association reported that in 2009, 15 million people en- gaged in direct selling in the United States and these activities generated $29.6 billion in sales.37 Of this, 66.3 percent of revenues came from face- to-face sales and 25.7 percent from party plan or group sales. Female salespeople accounted for 86.4 percent of all direct salespeople. The ma- jor product categories for direct sales include home/family care prod- ucts (such as cleaning products), wellness products (such as weight loss products), and personal care products (such as cosmetics, jewelry, and skin care products).

Discount department stores like Kohl’s are a go-to source for fashion today.

nonstore retailing Any method used to complete an exchange with a product end user that does not require a customer visit to a store.

3 OBJECTIVE

Describe the more

common forms of

nonstore retailing

including B2C

e-commerce. (pp. 493–498)

Automatic Vending B2C E-Commerce

Direct Selling • Door to door • Parties and networks • Multilevel networks and activities

Figure 16.4 Snapshot | Types of Nonstore Retailing Traditional retailers must compete with a variety of nonstore retailers from automatic vending to dynamic Web sites.

direct selling An interactive sales process in which a salesperson presents a product to one individual or a small group, takes orders, and delivers the merchandise.

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Door-to-Door Sales

Door-to-door selling is still popular in some countries, such as China. But it’s declining in the United States, where two-income households are the norm, because fewer people are home during the day, and those who are home are reluctant to open their doors to strangers. Door-to-door selling is illegal in communities that have Green River Ordinances; they pro- hibit door-to-door selling unless prior permission is given by the household.

Parties and Networks

At home shopping parties a company representative makes a sales presentation to a group of people who have gathered in the home of a friend.38 One reason that these parties are so ef- fective is that people who attend may get caught up in the “group spirit,” and buy things they would not normally purchase if they were alone—even Botox injections to get rid of those nasty wrinkles. We call this sales technique a party plan system. Perhaps the most fa- mous home shopping parties were the Tupperware parties popular in the 1950s.

Multilevel Marketing

Another form of direct selling, which the Amway Company epitomizes, is multilevel mar- keting or network marketing. In this system, a master distributor recruits other people to be- come distributors. The master distributor sells the company’s products to the people she entices to join, and then she receives commissions on all the merchandise sold by the peo- ple she recruits. Today, Amway has over 3 million independent business owners who dis- tribute personal care, home care, and nutrition and commercial products in more than 80 countries and territories.39 Amway and other similar network marketers use revival-like techniques to motivate distributors to sell products and find new recruits.40

One of the advantages of multilevel marketing is that it allows firms to reach consumers who belong to tightly knit groups that are not so easy to reach. Salt Lake City–based Nu Skin Enterprises relies on Mormons to sell its products in Mormon communities. Shaklee (which sells food supplements, cleaning products, and personal care items) recruits salespeople in isolated religious communities, including Amish and Mennonite people (who receive “bonus buggies” instead of cars as prizes for superior salesmanship).41

Despite the growing popularity of this technique, some network systems are illegal. They are really pyramid schemes: illegal scams that promise consumers or investors large profits from recruiting others to join the program rather than from any real investment or sale of goods to the public. Often large numbers of people at the bottom of the pyramid pay money to advance to the top and to profit from others who might join. At recruiting meet- ings, pyramid promoters create a frenzied, enthusiastic atmosphere complete with promises of easy money. Some pyramid schemes are disguised as multilevel marketing—that is, peo- ple entering the pyramid do not pay fees to advance, but they are forced to buy large, costly quantities of merchandise. Of course, in these organizations, little or no effort ever goes into actually marketing the products.42 That’s one of the crucial differences between pyramid schemes and legitimate network marketers.

Automatic Vending Coin-operated vending machines are a tried-and-true way to sell convenience goods, espe- cially cigarettes and drinks. These machines are appealing because they require minimal space and personnel to maintain and operate. Some of the most interesting innovations are state-of- the-art vending machines that dispense everything from Ore-Ida French fries to software. French consumers purchase Levi’s jeans from a machine called Libre Service that offers the pants in 10 different sizes. In the United States, vending machines that utilize touch screens and credit cards dispense pricey items like digital cameras and Elizabeth Arden cosmetics.43

party plan system A sales technique that relies heavily on people getting caught up in the “group spirit,” buying things they would not normally buy if they were alone.

multilevel or network marketing A system in which a master distributor recruits other people to become distributors, sells the company’s product to the recruits, and receives a commission on all the merchandise sold by the people recruited.

pyramid schemes An illegal sales technique that promises consumers or investors large profits from recruiting others to join the program rather than from any real investment or sale of goods to the public.

Green River Ordinances Community regulations that prohibit door-to- door selling unless prior permission is given by the household.

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In general, however, vending machines are best suited to the sales of inexpensive mer- chandise and food and beverages. Most consumers are reluctant to buy pricey items from a machine. New vending machines may spur more interest, however, as technological devel- opments loom on the horizon, including video kiosk machines that let people see the prod- uct in use, have the ability to accept credit cards as payment, and have inventory systems that signal the operator when malfunctions or stockouts occur.

B2C E-Commerce Business-to-consumer (B2C) e-commerce is online exchange between companies and indi- vidual consumers. Forrester Research reports that in 2009 shoppers bought $155 billion worth of consumer goods online.44 Furthermore, Forrester estimates $917 billion in offline consumer sales were Web-influenced. These two categories accounted for 42 percent of all retail sales. Forrester also estimates that offline Web-influenced sales will increase to $1.4 trillion by 2014 while online sales will top $250 billion.45

A number of factors prevent online sales from growing even more. Most consumers prefer stores where they can touch and feel items and avoid issues with returns and ship- ping costs. Also, many consumers don’t like to buy online because they want the product immediately. To address some of these issues, retailers such as Best Buy have merged their online and in-store sales functions. Consumers can select an item and pay for it online, then pick it up at their local store within hours—no wandering over the store to find the item or waiting in line to pay and no concerns about stockouts. We’ll talk more about these limita- tions and the benefits of B2C e-commerce next.

Benefits of B2C E-Commerce

For both consumers and marketers, B2C e-commerce provides a host of benefits and some limitations. Table 16.2 lists some of these.

business-to-consumer (B2C) e-commerce On-line exchanges between companies and individual consumers.

Table 16.2 | Benefits and Limitations of E-Commerce Benefits Limitations

For the consumer:

Shop 24 hours a day

Less traveling

Can receive relevant information in seconds from any location

More product choices

More products available to less developed countries

Greater price information

Lower prices, so less affluent can purchase

Participate in virtual auctions

Fast delivery

Electronic communities

For the marketer:

The world is your marketplace

Decreases costs of doing business

Very specialized businesses can be successful

Real-time pricing

For the consumer:

Lack of security

Fraud

Can’t touch items

Exact colors may not reproduce on computer monitors

Expensive to order and then return

Potential breakdown of human relationships

For the marketer:

Lack of security

Must maintain site to reap benefits

Fierce price competition

Conflicts with conventional retailers

Legal issues not resolved

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The Cutting Edge

Be Your Own Virtual Stylist Think shopping’s a bore? Hate hours of trying on outfits to see what looks best? Coutourious.com is changing that.46 Sign on to Coutourious.com and you can become your own clothing stylist by virtually styling 3-D models. Visitors to the site first choose a photo of a model with a body style like their own. Next they select tops, bottoms, dresses, shoes, bags, accessories, and

other items from 100 brands and place them on a fairly realistic model—just the way they want it. To enhance the experience, Couturious even made styles from six designers that were shown at New York City’s Fall 2010 Fashion Week but not yet in stores available to site visitors. The best part—for both Couturi- ous and you—is that you can buy the clothes online and then share your out- fit with friends on Facebook or Twitter.

From the consumer’s perspective, electronic marketing increases convenience as it breaks down many of the barriers time and location cause. You can shop 24/7 without leav- ing home. Consumers in even the smallest of communities can purchase funky shoes or a hot swimsuit from Bloomingdales.com just like big-city dwellers. In less-developed coun- tries, the Internet lets consumers purchase products that may not be available at all in local markets. The Web site Ideeli offers its customers the chance to buy heavily discounted lux- ury items in a kind of online “blue-light special” on your cell phone. Thus, the Internet can improve the quality of life without the necessity of developing costly infrastructure, such as opening retail stores in remote locations.

For some consumers, online shopping provides an additional benefit because it fulfills their experiential needs, that is, their desire to shop for fun. Consumers who are collectors or who enjoy hobbies are most likely to be experiential shoppers. While most online con- sumers engage in goal-directed behavior—they wish to satisfy their shopping goal as quickly as possible—between 20 and 30 percent of online consumers shop online because they enjoy the “thrill of the hunt” as much as or more than the actual acquisition of the item. Experiential shoppers linger at sites longer and a desire to be entertained is what motivates them. Consequently, marketers who wish to attract these customers must design Web sites that offer surprise, uniqueness, and excitement.

Marketers realize equally important benefits from e-commerce. Because an organiza- tion can reach such a large number of consumers via electronic commerce, it is possible to develop very specialized businesses that could not be profitable if limited by geographic constraints. The Internet provides an excellent opportunity to bring merchants with excess merchandise and bargain-hunting consumers together.47 When retailers become concerned that, due to economic downturns or other factors, consumers may not buy enough, they may utilize online liquidators such as Overstock.com and Bluefly that offer consumers great bargains on apparel and accessories, items retailers refer to as “distressed inventory.”

Even high fashion designers whose retail outlets we associate with Rodeo Drive in Los Angeles, Fifth Avenue in New York, and the Magnificent Mile in Chicago are setting up shop on the Internet to sell $3,000 skirts and $5,000 suits.48 Forrester Research predicts that soon luxury apparel online sales will approach $1 billion per year. Armani, for example, offers its entire Emporio collection at EmporioArmani.com. The high-end Neiman Marcus depart- ment store finds it can easily sell items like $7,900 Valentino gowns and $5,500 Carolina Herrera jackets online.

As we discussed in Chapter 11, one of the biggest advantages of e-commerce is that it’s easy to get price information. Want to buy a new Hellboy action figure, a mountain bike, an MP3 player, or just about anything else you can think of? Instead of plodding from store to store to compare prices, many Web surfers use search engines or “shop bots” like Ask.com that compile and compare prices from multiple vendors. With readily available pricing in- formation, shoppers can browse brands, features, reviews, and information on where to buy that particular product. This means that consumers can find all of this information in one central location, which makes shopping more efficient.

experiential shoppers Consumers who engage in on-line shopping because of the experiential benefits they receive.

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E-commerce also allows businesses to reduce costs. Compared to traditional bricks-and- mortar retailers, e-tailers’ costs are minimal—no expensive mall sites to maintain and no sales associates to pay. And, for some products, such as computer software and digitized mu- sic, e-commerce provides fast, almost instantaneous delivery. Music fans responded by buy- ing over 30 million downloads from sites including iTunes, Dell, and Walmart. Newer entertainment downloads have gone a step further with sites such as iTunes that offer online shoppers the opportunity to purchase or rent movies. Just download a flick to your iPod, plug it into your new flat-screen TV, and pop some corn. You’re set for the evening.

Limitations of B2C E-Commerce

But, all is not perfect in the virtual world. E-commerce does have its limitations. One draw- back compared to shopping in a store is that customers must wait a few days to receive most products, which are often sent via private delivery services, so shoppers can’t achieve in- stant gratification by walking out of a store clutching their latest “finds.”

Of course, some e-commerce sites still suffer from poor design that people find irritating. Customers are less likely to return to sites that are difficult to navigate or that don’t provide easy access to customer-service personnel such as the online chats that better sites provide. Customers are often frustrated with sites where their shopping baskets “disappear” as soon as they leave the site. Retailers need to take these navigational problems seriously. When con- sumers have problems shopping on a site, they are less likely to return to shop another day.

Security is a concern to both consumers and marketers. We hear horror stories of con- sumers whose credit cards and other identity information have been stolen. Although in the United States an individual’s financial liability in most theft cases is limited because credit card companies usually absorb most or all of the loss, the damage to one’s credit rating can last for years.

Consumers also are concerned about Internet fraud. Although most of us feel compe- tent to judge a local bricks-and-mortar business by its physical presence, by how long it’s been around, and from the reports of friends and neighbors who shop there, we have little or no information on the millions of Internet sites offering their products for sale—even though sites like eBay and the Better Business Bureau try to address these concerns by post- ing extensive information about the reliability of individual vendors.

Another problem is that people need “touch-and-feel” information before they buy many products. Although it may be satisfactory to buy a computer or a book on the Inter- net, buying clothing and other items for which touching the item or trying it on is essential may be less attractive. As with catalogs, even though most online companies have liberal re- turn policies, consumers can still get stuck with large delivery and return shipping charges for items that don’t fit or simply aren’t the right color.

Developing countries with primarily cash economies pose yet another obstacle to the global success of B2C e-commerce. In these countries, few people use credit cards, so they can’t easily pay for items they purchase over the Internet. Furthermore, banks are far less likely to offer consumers protection against fraudulent use of their cards, so a hacked card number can literally wipe you out. For consumers in these countries, there are a growing number of alternatives for safely paying for online purchases. PayPal is a global leader in online payments. Founded in 1998 and acquired by eBay in 2002, PayPal has 81 million ac- tive accounts and services customers in 190 markets and 24 currencies around the world.49

Twitpay is a service that permits consumers to send payments using the social network site Twitter. Twitpay’s RT2Give™ service offers consumers the opportunity to easily make pay- ments to nonprofits. After the disastrous earthquake in Haiti in 2010, consumers were able to donate money to the Red Cross for Haiti via Twitter.

As major marketers beef up their presence on the Web, they worry that inventory they sell online will cannibalize their store sales (we discussed the strategic problem of cannibal- ization in Chapter 9). This is a big problem for companies like bookseller Barnes & Noble,IS B

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which has to be careful as it steers customers toward its Web site and away from its chain of stores bursting with inventory. Barnes & Noble has to deal with competitors such as Amazon (with 40 million worldwide customers and annual sales of not only books but myr- iad products from apparel to cell phones of over $14.84 billion in 2007), which sells its books and music exclusively over its six global Web sites and so doesn’t have to worry about this problem.50 Of course, today books, including textbooks like this one, have gone digital and can be purchased and downloaded online. Tablet eBook readers such as Amazons Kindle, Sony’s Reader™, and Apple’s iPad have made eBooks even more attractive.

B2C’s Effect on the Future of Retailing

Does the growth of B2C e-commerce mean the death of bricks-and-mortar stores as we know them? Don’t plan any funerals for your local stores prematurely. Although some ar- gue that virtual distribution channels will completely replace traditional ones because of their cost advantages, this is unlikely. For example, although a bank saves 80 percent of its costs when customers do business online from their home computers, Wells Fargo found that it could not force its customers to use PC-based banking services. For now, clicks will have to coexist with bricks.

However, this doesn’t mean that physical retailers can rest easy. Stores as we know them will continue to evolve to lure shoppers away from their computer screens. In the fu- ture, the trend will be destination retail; that is, consumers will visit retailers not so much to buy a product but for the entertainment they receive from the total experience. Many retail- ers are already developing ways to make the shopping in bricks-and-mortar stores an expe- rience rather than just a place to pick up stuff. At the General Mills Cereal Adventure in the Mall of America, children of all ages cavort in the Cheerios Play Park and the Lucky Charms Magical Forest.

Develop a Store Positioning Strategy: Retailing as Theater A “destination retail” strategy reminds us that shopping often is part buying, part entertainment, and part social outlet. So far we’ve seen that we distinguish stores in several ways, including the types of prod- ucts they carry and the breadth and depth of their assortments. But re- call that a store is itself a product that adds to or subtracts from the goods the shopper came to buy there.

When we decide which store to patronize, many of us are less likely to say, “I’ll go there because their assortment is broad,” and more likely to say, “That place is so cool. I really like hanging out there.” Stores can entertain us, bore us, make us angry, or even make us sad (unless it’s a funeral parlor, that last kind probably won’t be in business for long). In today’s competitive marketplace, retailers have to do more

than offer good inventory at reasonable prices. They need to position their stores so that they offer a competitive advantage over other stores that also vie for the shopper’s attention— not to mention the catalogs, Web sites, and shopping channels that may offer the same or similar merchandise. Let’s see next how bricks-and-mortar retailers compete against these alternatives.

Walk into REI, a Seattle-based retailer with over 70 stores in 24 states, and you’ll find gear for camping, climbing, cycling, skiing, outdoor cross-training, paddling, snow sports, and travel. REI is more than that, though. The Seattle store, for example, features a 65-foot-high, ar- tificial climbing rock, while other REI stores include a vented area for testing camp stoves and

4 OBJECTIVE

Understand the

importance of store

image to a retail

positioning strategy

and explain how a

retailer can create a

desirable image in

the marketplace. (pp. 498–504)

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an outdoor trail to check out mountain bikes. Buying a water pump? Test it in an indoor river. Want to try out those boots before you walk in them? Take a walk on hiking boot test trails.51

Many retailers recognize that much of what they do is theater. Shoppers are an audi- ence to entertain. The “play” can cleverly use stage sets (store design) and actors (salespeo- ple) that together create a “scene.” For example, think about buying a pair of sneakers. Athletic shoe stores are a far cry from the old days, when a tired shoe salesman (much like Al Bundy in the TV show Married with Children) waded through box after box of shoes as kids ran amuck across dingy floors.

Now salespeople (actors) dress in costumes such as black-striped referee outfits at stores like Foot Locker. Foot Locker stores are ablaze with neon, and they display their shoes in clear acrylic walls so they appear to be floating.52 All these special effects make the buy- ing occasion less about buying and more about having an experience. As one marketing strategist commented, “The line between retail and entertainment is blurring.” In this sec- tion, we’ll review some of the tools available to the retailing playwright.

Store Image When people think of a store, they often have no trouble describing it in the same terms they might use to describe a person. They might come up with labels like exciting, boring, old-fashioned, tacky, or elegant. Store image is how the target market perceives the store—its market position relative to the competition. Restaurants provide a good example. While Outback’s décor attempts to look like an Australian steakhouse complete with “Kook- aburra Wings” and “Jackaroo Chops” on the menu, Olive Garden restaurants use foliage, stucco walls, and Italian background music to remind the diner of an Italian farmhouse. Just as brand managers do for products, store managers work hard to create a distinctive and appealing personality.

To appreciate this idea, consider the dramatic makeover now in place at Selfridges, long a well-known but dowdy British department store chain. At the newly renovated flagship store in London, shoppers can wander over to a body-piercing salon where store associates are teenagers in dreadlocks. Pe- riodic events that scream cutting-edge accent the store’s makeover, includ- ing the “Body Craze” promotion when thousands of shoppers flocked to see 650 naked people ride the escalators.53 Not every store can have (or wants to have) naked people running around the store, but even more modest strate- gies to enliven the atmosphere make a big difference. When a retailer decides to create a desirable store image, it has many tools including those shown in

Figure 16.5 at its disposal. Ideally, all these elements work together to create a clear, coherent picture that meets consumers’ expectations of what that particular shopping experience should be.

Store Design: Set the Stage

The elements of store design should correspond to management’s desired image. A bank lobby needs to convey respectability and security because people need to be reassured about the safety of their money. In contrast, a used bookstore might create a disorderly look so that shoppers think trea- sures lie buried beneath piles of tattered novels.

Atmospherics is the use of color, lighting, scents, furnishings, sounds, and other design elements to create a desired setting. Marketers manipulate these elements to create a certain “feeling” for the retail environment.54 To- day many retailers seek to create a “playground” for adults in their stores, often through the sophisticated use of lighting, more intimate retail spaces, and even strategic smells they pump into the space.55

store image The way the marketplace perceives a retailer relative to the competition.

The marquee of the Planet Hollywood restaurant in Myrtle Beach, S.C. is, quite naturally, a very large replica of a planet that can be seen from blocks away.

atmospherics The use of color, lighting, scents, furnishings, and other design elements to create a desired store image.

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At Levi’s Stores and other retailers, consumers experience a Jetsons- like virtual fitting room. A shopper steps into the cylindrical unit where holographic imaging technology performs a 360-degree body scan in less than 10 seconds. The customer then gets a printout with the store’s styles and sizes that will best fit his particular body type.56

Here are some other design factors that retailers consider:

• Store layout: This is the arrangement of merchandise in the store. The placement of fixtures such as shelves, racks, and cash registers is im- portant because store layout determines traffic flow—how shoppers will move through the store and which areas they will pass or avoid. Atypical strategy is to place staple goods shoppers purchase more fre- quently in more remote areas. Retailers stock impulse goods in spots shoppers will pass on their way to look for something else to encour- age them to stop and check them out.

A grid layout we usually find in supermarkets and discount stores consists of rows of neatly spaced shelves that are at right angles or parallel to one another. This configuration is useful when management wants to move shoppers systematically down each aisle, be- ing sure that they pass through such high-margin sections as deli and meat. Figure 16.6 illustrates how a grid layout in a supermarket helps regulate traffic flow.

In contrast, department and specialty stores typically use a free-flow layout be- cause it is more conducive to browsing. A retailer might arrange merchandise in cir- cles or arches or perhaps in separate areas, each with its own distinct image and merchandise mix.

• Visual merchandising: Just as we form impressions of people from their home decor, our feelings about stores are affected by furnishings, fixtures (shelves and racks that display

traffic flow The direction in which shoppers will move through the store and which areas they will pass or avoid.

BANK EXIT PHOTO

Staples

Impulse Items

VIDEO

ENTRANCE

DRUG STORE

Figure 16.6 Snapshot | Grid Layout

A grid layout encourages customers to move up and down the ailes, passing many different products, and supermarkets and many discount stores often use it.

Set the Stage: Store Design • Atmospherics • Traffic flow design • Visual merchandising • Music • Color and lighting

Store Personnel Pricing Policy

Figure 16.5 Snapshot | Elements of a Store Image A store's image is how the target market perceives the store relative to the competition. Marketers have many tools to use in creating a desirable store image.

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merchandise), and even how much “stuff” is packed into the sales area. Visual merchan- dising includes all the things customers see both inside and outside the store. Generally, clutter conveys a store with lower-priced merchandise. Upscale stores allocate space for sitting areas, dressing rooms, and elaborate displays of merchandise. Before customers even enter the store, the storefront or physical exterior and the sign that shows the store’s name, called a marquee, contribute to the store’s image. Retailers try to create a unique design that customers will associate with the personality of the store. The Toys “R” Us marquee, for example, uses a backward “R,” reminiscent of a mistake a child learning to write the alphabet might make.

• The sound of music: An elegant restaurant softly playing Mozart in the background is worlds apart from a raucous place such as the Hard Rock Café, where loud rock-and- roll is essential to the atmosphere. The music a store plays has become so central to its personality that many retailers, including Ralph Lauren, Victoria’s Secret, Au Bon Pain, Starbucks, and Pottery Barn, even sell the soundtracks specially designed for them.57

Muzak, the premier provider of commercial music for over 70 years, uses its library of over three million songs to create “audio architecture” for businesses including retail stores. For a clothing store, the music may be fun and upbeat, while a bar may want ro- mantic music to encourage late-night couples to stay and have another drink.58

• Color and lighting: Marketers use color and lighting to set a mood. Red, yellow, and or- ange are warm colors (fast-food chains use a lot of orange to stimulate hunger), whereas blue, green, and violet signify elegance and cleanliness. Light colors make one feel more serene, whereas bright colors convey excitement.

Store Personnel

Store personnel (the actors) should complement a store’s image. Each employee has a part to play, complete with props and costumes. Movie theaters often dress ushers in tuxedos, and many stores provide employees with scripts to use when they present products to customers.

Although the presence of knowledgeable sales personnel is important to shoppers, they generally rate the quality of service they receive from retail personnel as low. Retailers work hard to maintain service quality, though they often find that the rapid turnover of sales- people makes this a difficult goal to achieve. Perhaps they can learn from Japanese retailers. A visitor to a Japanese restaurant or store is greeted by an enthusiastic, cheerful, polite, and immaculately dressed employee who, no matter how busy she is, says “Irasshaimase” and bows to welcome the customer.

Some U.S. firms have turned superior customer service into a competitive advantage. Nordstrom’s chain of department stores is legendary for its service levels. In fact, some “Nordies” have even been known to warm up customers’ cars while they pay for their mer- chandise! The store motivates its employees by paying them substantially more than the av- erage rate and deducting sales commissions if customers return the merchandise. This policy encourages the salesperson to be sure the customer is satisfied the first time.

Pricing Policy: How Much for a Ticket to the Show?

When consumers form an image of a store in their minds, the price points, or price ranges, of its merchandise often play a role. A chain of off-price stores in the Northeast called Daffy’s advertises with such slogans as, “Friends Don’t Let Friends Pay Retail,” implying that any- one who buys at the full, nondiscounted price needs help. Discount stores and general mer- chandisers are likely to compete on a price basis by offering brand names for less.

In recent years, consumers’ desires for bargains have hurt department stores. Many re- tailers responded by running frequent sales, a strategy that often backfired because they trained consumers to buy only when the store held a sale. Some stores have instead reduced the number of sales they run in favor of lowering prices across the board. As we saw in Chapter 11, some stores, including Home Depot and Walmart, offer an everyday-low-pricing

visual merchandising The design of all the things customers see both inside and outside the store.

storefront The physical exterior of a store.

marquee The sign that shows a store’s name.

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(EDLP) strategy; they set prices that are between the list price the manufacturer suggests and the deeply discounted price stores that compete on price only offer.

Build the Theater: Store Location Any real estate agent will tell you the three most important factors when they sell a home are “location, location, and location.” The same is true in retailing. Walmart’s success is due not only to what it is but also to where it is. It was the first large discount retailer to locate in small and rural markets. When they choose a site, Walmart’s planners consider factors such as proximity to highways and major traffic routes. By carefully selecting “undiscovered” ar- eas, the company has been able to negotiate cheap leases in towns with expanding popula- tions. This is an important strategic advantage for Walmart because it means access to markets hungry for a store that offers such a wide assortment of household goods. In this section we’ll review some important aspects of retail locations.

Types of Store Locations

As Figure 16.7 shows, there are four basic types of retail locations. Stores locate in a busi- ness district, in a shopping center, as a freestanding entity, or in a nontraditional location.

• Business districts: A central business district (CBD) is the traditional downtown business area you’ll find in a town or city. Many people are drawn to the area to shop or work, and public transportation is usually available. CBDs have suffered in recent years be- cause of concerns about security, lack of parking, and the lack of customer traffic on evenings and weekends. To combat these problems, cities typically provide incentives such as tax breaks to encourage the opening of stores and entertainment areas such as Boston’s Quincy Marketplace. These vibrant developments or festival marketplaces have done a lot to reverse the fortunes of aging downtown areas from Boston to Baltimore.

• Shopping centers: A shopping center is a group of commercial establishments owned and managed as a single property. They range in size and scope from strip centers to massive superregional centers such as Minneapolis’s Mall of America, which offers 4.2 million square feet of shopping plus such attractions as a seven-acre Knott’s Camp Snoopy Theme Park. Strip centers offer quick and easy access to basic conveniences such as dry cleaners and

video rentals, though shoppers seeking more exotic goods need to look elsewhere. Shopping malls offer variety and the ability to combine shopping with entertainment. Rents tend to be high in shopping malls, making it difficult for many stores to be profitable. In addition, small specialty stores may find it hard to compete with a mall’s anchor stores, the major department stores that typically draw many shoppers.

A lifestyle center combines the feel of a neighborhood park with the convenience of a strip mall. These more in- timate centers typically are located in affluent neighbor- hoods and feature expensive landscaping; they are an appealing way for retailers to blend in to upscale residen- tial areas. Retailers including Williams-Sonoma and Tal- bot’s invest heavily in this concept.59

• Freestanding retailers: Some stores, usually larger ones such as IKEA, occupy their own facility. These retail- ers benefit from lower rents and fewer parking prob- lems. However, the store must be attractive enough on its own to be a destination point for shoppers, because it can’t rely on spillover from consumers visiting other stores at the same place.

central business district (CBD) The traditional downtown business area found in a town or city.

shopping center A group of commercial establishments owned and managed as a single property.

A popup store is a temporary retail space a company erects to build buzz for its products. As the sour economy creates a glut of commercial real estate, this concept is an increasingly popular way to test new product ideas or perhaps even to test if a neighborhood will be a good fit for a new store. A range of marketers, from eBay and Seven for All Mankind to upscale Hermés, have bought into the concept.

popup store A temporary retail space a company erects to build buzz for its products.

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A central business district is often found in downtown areas. Although U.S. retailers have been deserting impoverished center cities in droves for the past 20 years, these downtown areas are now staging a comeback. Sophisticated developments such as festival marketplaces including New York City Street Seaport, Union Station in St. Louis, Harborplace in Baltimore, and Boston s Fanueil Hall (shown here) are contributing to the renaissance of American cities.

A nontraditional location offers products to shoppers in convenient places. For example, Taco Bell now has locations inside Target stores as it tempts shoppers to take a taquito break.

A freestanding store is not located near other stores. This locational strategy, used by some big chains like Kids “R” Us, has the advantage of offering a lack of direct competition, lower rents, and adaptability. The store has the freedom to alter its selling space to accommodate its own needs. On the other hand, the store had better be popular because it cannot rely on the drawing power of neighbor stores to provide it with customer traffic.

A shopping center is a group of commercial establishments owned and managed as a single property. They range in size from strip centers to superregional centers such as the Mall of America, which covers 4.2 million square feet of shopping space. Shopping malls offer the ability to combine shopping with entertainment.

Figure 16.7 Snapshot | Types of Store Locations Different types of store locations are best for different types of retailers. Retailers choose from among central business districts, shopping centers, freestanding stores, and nontraditional locations.

• Nontraditional store locations: Innovative retailers find new ways to reach consumers. For example, many entrepreneurs use carts or kiosks to sell their products. Carts are small, movable stores that can be set up in many locations including inside malls, in airports, or in other public facilities. Kiosks are slightly larger than carts and offer store-like fa- cilities, including telephone hookups and electricity. Carts and kiosks are relatively in- expensive and a good way for new businesses to get started.

Site Selection: Choose Where to Build

A story from the past is that Sam Walton, the founder of Walmart, used to fly over an area in a small plane until he found a spot that appealed to him. Now factors such as long-term pop- ulation patterns, the location of competitors, and the demographic makeup of an area enter into retailers’ decisions. The choice of where to open a new store should reflect the com- pany’s overall growth strategy. It should be consistent with long-term goals and be in a place that allows the company to best support the outlet. For example, a chain with stores and an extensive warehouse system in the Northeast may not be wise to open a new store in Cali- fornia because the store would be an “orphan,” cut off from the company’s supply lines.

Location planners look at many factors when they select a site. They want to find a place that is convenient to customers in the store’s trade area, the geographic zone that accounts

trade area A geographic zone that accounts for the majority of a store’s sales and customers.

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for the majority of its sales and customers.60 A site evaluation considers specific factors such as traffic flow; number of parking spaces available; ease of delivery access; visibility from the street; local zoning laws that determine the types of buildings, parking, and signage al- lowed; and cost factors such as the length of the lease and the amount of local taxes. Plan- ners also consider population characteristics such as age profile (is the area witnessing an influx of new families?), community life cycle (is the community relatively new, stable, or in decline?), and mobility (how often do people move into and out of the area?). This informa- tion is available from a variety of sources, including the U.S. Bureau of the Census; the buy- ing power index (BPI) the trade magazine Sales & Marketing Management publishes each year; and research firms such as Urban Decision Systems and Nielsen Claritas that analyze many forms of demographic data to create profiles of selected areas.

Planners also have to consider the degree of competition they will encounter if they lo- cate in one place versus another. One strategy that fast-food outlets follow is to locate in a saturated trade area. This is a site where a sufficient number of stores already exist so that high customer traffic is present but where the retailer believes it can compete successfully if it goes head-to-head with the competition. As one fast-food industry executive put it, “Customers are lazybones. They absolutely will not walk one more step. You literally have to put a store where people are going to smack their face against it.” However, that task is getting harder and harder because at this point many of the good sites are already taken: The United States has 277,208 fast-food outlets from coast to coast—one for every 1,000 people in the country. Sub- way Restaurants opens a new store in the United States every three hours on average. Star- bucks unveils a new store every 11 hours, and Quiznos Sub opens a new door every 16 hours.61

Another strategy is to find an understored trade area, where too few stores exist to satisfy the needs of the population (this was Walmart’s strategy), and the retailer can establish it- self as a dominant presence in the community. Over time, these areas may become overstored so that too many stores exist to sell the same goods. Those that can’t compete are forced to move or close, as has happened to many small mom-and-pop stores that can’t beat the Wal- marts of the world at their sophisticated retailing games.

Now that you’ve learned about retailing, read “Real People, Real Choices: How It Worked Out” to see which strategy Stan Clark of Eskimo Joe’s selected.

Real People, Real Choices

Here’s my choice. . .

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

Why do you think Stan chose option 1?

How It Worked Out at Eskimo Joe’s Stan reopened Eskimo Joe’s as a trendy restaurant. Today the company consists of three restaurants that locals call “The Three Amigos.” The original Eskimo Joe’s, located right across from campus, still serves up burgers, cheese fries, and other fun fare, while Mexico Joe’s offers south-of-the-border food, and Joseppi’s is a family- style Italian place. And the rise of online shopping and the continued cult-like status of the logo have driven Stan’s Eskimo Joe’s clothing business to unanticipated heights.

OptionOption Option

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Brand YOU! You’re hired!

You successfully created and communicated your per- sonal brand. Now you have job offers to consider. How do you orchestrate the timing so you get all your offers at the same time? How do you determine which offer is really best for you? How do you negotiate and finalize the offer you want? Enjoy reading Chapter 16 in Brand You where your job search comes together.

2. Objective Summary Understand how we classify retailers. Retailers are classified by NAICS codes based on product lines sold; however, new retail models such as combination stores offer consumers more than one product line. Retailers may also be classified by the level of service offered (self-service, full-service, and limited-service retailers) and by the merchan- dise assortment offered. Merchandise assortment is described in terms of breadth and depth, which refer to the number of product lines sold and the amount of variety available for each. Thus, stores are classified as convenience stores, supermarkets, box stores, specialty stores, category killers, leased depart- ments, variety stores, general merchandise discount stores, off- price retailers, warehouse clubs, department stores, and hypermarkets.

Key Terms merchandise mix, p. 487

combination stores p. 488

supercenters p. 488

merchandise assortment, p. 488

merchandise breadth, p. 488

merchandise depth, p. 489

convenience stores, p. 489

supermarkets, p. 489

box stores p. 491

(pp. 487–493)1. Objective Summary Define retailing; understand how retailing evolves and appreciate some ethical issues in retailing. Retailing is the process by which goods and services are sold to consumers for their personal use. The wheel-of-retailing hy- pothesis suggests that new retailers compete on price and over time become more upscale, leaving room for other new, low- price entrants. The retail life cycle theory suggests that retailing institutions are introduced, grow, reach maturity, and then de- cline. Three factors that motivate retailers to evolve are chang- ing economic conditions, demographics, technology, and globalization. Some of the ethical issues retailers face include shrinkage due to shoplifting, employee theft, and retail bor- rowing. Retailers and their employees must also be cognizant of the ethical treatment of customers.

Key Terms retailing p. 480

wheel-of-retailing hypothesis, p. 481

retail life cycle, p. 482

mergers p. 483

downsizing p. 483

point-of-sale (POS) systems, p. 485

perpetual inventory unit control system p. 485

automatic reordering system p. 485

shrinkage, p. 486

retail borrowing p. 486

(pp. 480–487)

Objective Summary Key Terms Apply Study Map CHAPTER 16

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category killer, p. 491

specialty stores, p. 491

leased departments p. 491

variety stores p. 491

general merchandise discount stores, p. 491

off-price retailers, p. 492

warehouse clubs, p. 492

factory outlet store, p. 492

department stores, p. 492

hypermarkets, p. 492

3. Objective Summary Describe the more common forms of nonstore retailing including B2C e-commerce. The two more common types of nonstore retailing are direct selling and automatic vending machines. In direct selling, a salesperson presents a product to one individual or a small group, takes orders, and delivers the merchandise. Direct sell- ing includes door-to-door sales and party or network sales. State-of-the-art self-service vending machines can dispense products from French fries to iPods.

B2C e-commerce, online exchanges between companies and consumers, is growing rapidly. For consumers, B2C ben- efits include greater convenience, greater product variety, and increased price information. For marketers, B2C offers a world market, decreased costs of doing business, opportuni- ties for specialized businesses, and real-time pricing. The downside of B2C e-commerce for consumers includes having to wait to receive products, security issues, and the inability to touch and feel products. For Internet-only marketers, suc- cess on the Internet may be difficult to achieve, whereas can- nibalization may be a problem with traditional retailers’ online operations.

Key Terms nonstore retailing, p. 493

direct selling, p. 493

Green River Ordinances p. 494

party plan system, p. 494

(pp. 493–498)

multilevel or network marketing, p. 494

pyramid schemes, p. 494

business-to-consumer (B2C) e-commerce, p. 495

experiential shoppers p. 496

4. Objective Summary Understand the importance of store image to a re- tail positioning strategy and explain how a retailer can create a desirable image in the marketplace. Store image is how the target market perceives the store rel- ative to the competition and results from many different ele- ments working together to create the most desirable shopping experience and to ensure that shoppers view a store favorably relative to the competition. Color, lighting, scents, furnishings, and other design elements, called atmospherics, are used to create a “feel” for a store environment. Use of at- mospherics includes decisions on (1) store layout, which de- termines traffic flow and influences the desired customer behavior in the store; (2) the use of store fixtures and open space; (3) the use of sound to attract (or repel) certain types of customers; and (4) the use of color and lighting that can in- fluence customers’ moods. The number and type of store per- sonnel, pricing of products sold in the store, and store location contribute to a store’s image. The major types of re- tail locations include central business districts, shopping cen- ters, freestanding retailers, and nontraditional locations such as kiosks.

Key Terms store image, p. 499

atmospherics, p. 499

traffic flow p. 500

visual merchandising p. 501

storefront p. 501

marquee p. 501

central business district (CBD), p. 502

shopping center, p. 502

popup store, p. 502

trade area, p. 503

(pp. 498–504)

Chapter Questions and Activities Questions: Test Your Knowledge

1. Define retailing. What is the role of retailing in today’s world?

2. How do the wheel-of-retailing and retail life cycle theories explain the evolution of retailing? How do the economic environment, demographics, technology, and globaliza- tion affect the future of retailing?

3. Explain retail store shrinkage and the ways shrinkage nor- mally occurs. What are some of the ethical issues in retail- ers’ treatment of consumers? What is “sweethearting”?

4. How do marketers classify retail stores? Explain merchan- dise breadth and depth.

5. Describe the differences in merchandise assortments for convenience stores, supermarkets, box stores, specialty stores, category killers, leased departments, variety stores,

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general merchandise discount stores, off-price retailers, warehouse clubs, department stores, and hypermarkets.

6. Explain the different types of direct selling. What is the differ- ence between a multilevel network and a pyramid scheme?

7. What is the role of automatic vending in retailing? 8. What is B2C e-commerce? What are some benefits of B2C

e-commerce for consumers and for marketers? What are the limitations of B2C e-commerce?

9. What are some possible effects of B2C e-commerce on tra- ditional retailing?

10. How is store-positioning strategy like theater? 11. What is store image? Why is it important? 12. What is meant by store atmospherics? How can the ele-

ments of atmospherics be used to increase the store’s suc- cess? How are store personnel part of a store’s image?

13. What is visual merchandising? How do a retailer’s store front and marquee participate in development of a store’s image?

14. What are some of the different types of store locations? What are their advantages and disadvantages?

Activities: Apply What You’ve Learned

1. Assume you are a business consultant for a chain of 37 tra- ditional department stores located in 12 midwestern U.S. cities. In recent years, the stores have seen declining rev- enues as specialty stores and hypermarkets have begun to squeeze the department stores out. The chain has asked you for suggestions on how to increase its business. De- velop an outline of your recommendations and present your plan to your class.

2. Assume that you are the director of marketing for a na- tional chain of convenience stores. Your firm has about 200 stores located in 43 states. The stores are fairly tradi- tional both in design and in the merchandise they carry. Be- cause you want to be proactive in your marketing planning, you are concerned that your firm may need to consider making significant changes because of the cur- rent demographic, technological, and global trends in the marketplace. You think it is important to discuss these things with the other executives at your firm. Develop a presentation that includes the following: a. A discussion of the demographic changes that will im-

pact your stores b. A discussion of the technological changes that will im-

pact your stores c. A discussion of how global changes may provide prob-

lems and opportunities for your organization d. Your recommendations for how your firm might meet

the challenges faced in each of these areas 3. As a college graduate, you and a friend think the career you

really would enjoy means being your own boss—you want to start your own business. You feel that e-commerce is the place for you to make your fortune. You and your friend are considering two options: (1) an online business that sells custom-made blue jeans based on customers’ measure- ments, and (2) an online business that sells gourmet foods from around the world. In a role-playing exercise, debate with your friend the pros and cons of each of these two on- line retail businesses and make a decision about which is better.

4. All your life you’ve wanted to be an entrepreneur and to own your own business. Now you’re ready to graduate

from college, and you’ve decided to open a combination coffee shop and bookstore in a location near your college. You know that to attract both the college-student market and other customers from the local community, it will be necessary to carefully design the store image. Develop a detailed plan that specifies how you will use atmospherics to create the image you desire.

5. In your job with a marketing consulting firm, you often are asked to make recommendations for store location. Your current client is a local caterer that is planning to open a new retail outlet for selling take-out gourmet dinners. You are examining the possible types of locations: the central business district, a shopping center, a freestanding entity, or some nontraditional location. Outline the advantages and disadvantages of each type of location for a catering business. In a role-playing exercise, present your recom- mendations to your client.

6. Retailers are faced with the problem of shrinkage and what to do about it. Shrinkage comes, of course, from shoplift- ing and employee theft. More subtle, however, is shrink- age that involves customers such as “sweethearting” and “retail borrowing.” Many consumers feel such practices are okay. Conduct a survey of students in your school to study these two sources of shrinkage. You might want to include questions about the following: a. If and how frequently students engage in such practices b. The attitudes of students as to whether such practices

are unethical and why or why not c. What harm comes from such practices d. What respondents think retailers should do to prevent

such shrinkage Develop a report on your findings and present it to your class.

7. One problem that traditional retailers face when they open online stores is cannibalization. Select a traditional retailer where you and your fellow students might normally shop that also sells products online. You might, for example, se- lect Best Buy, Banana Republic, the Gap, or Walmart. Visit the retailer’s online store and make notes on the site’s prod- uct offering, pricing, customer service policies, and so on. (If the store you have chosen offers many different product lines, you might wish to limit your research to one or two different product lines.) Then visit the store and compare what is offered there with the online offerings. Develop a re- port that summarizes your findings and discusses the poten- tial for cannibalization and its implications for the retailer.

Marketing Metrics Exercise

Inventory management is an important aspect of retail strategy. For example, it is important to know when it is time to reorder and how much to order at a time.

This is the reorder point. As consumers buy a product day after day, the inventory level declines. The question for retailers is how low they should allow the inventory level to decline be- fore they place an order, that is, when is it time to reorder? If you order too late, you take a chance of losing sales because you are out of stock. If you order too soon, consumer tastes may change and you will be stuck with excess and unsellable merchandise. The decision of when to order and how much to order is critical to a retailer’s bottom line.I

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The simplest formula to determine the reorder point is

Reorder point � Usage Rate � Lead Time

But, of course, a retailer can’t exactly estimate the usage rate, so it needs to keep some “safety stock” on hand. Then the formula becomes

Reorder point � (Usage Rate � Lead Time) � Safety Stock

The Healthy Day Organic Food Store sells 20 containers of yogurt a day. It takes 6 days to place an order and receive a new shipment of yogurt. But to be prepared for the possibility of ex- tra sales or a late shipment, they need to have a safety stock equal to three days’ sales.

What is the reorder point for yogurt for Healthy Day Organic Food Store?

Choices: What Do You Think?

1. Pyramid-scheme promoters specialize in recruiting new members of the pyramid with exciting, even frenzied meetings where potential members are made fearful that they may pass up a great opportunity if they don’t join. Why do people continue to be lured into these schemes? What do you think should be done to stop these unethical promoters?

2. Most retail store shrinkage can be attributed to shoplift- ing, employee theft, and retail borrowing. What are some ways that retail store managers can limit or stop shrink- age? What are some problems inherent in security prac- tices? Should retailers create stricter merchandise return policies?

3. Experts predict the future of B2C e-commerce to be very rosy indeed, with exponential increases in Internet sales of some product categories within the next few years. What effect do you think the growth of e-retailing will have on traditional retailing? In what ways will this be good for consumers, and in what ways will it not be so good?

4. The wheel-of-retailing theory suggests that the normal path for a retailer is to enter the marketplace with lower- priced goods and then to increase quality, services, and

prices. Why do you think this happens? Is it the right path for all retailers? Why or why not?

5. Walmart has become a dominant retailer in the American marketplace, accounting for over 30 percent of the total sales of some products. Is this a good thing for consumers? For the retail industry as a whole? Some communities try to prevent Walmart from building a store in their area. Why do you think people feel this way?

6. Macy’s and other stores have used vending machines to sell electronics such as iPods. What are some other oppor- tunities for vending-machine sales? What are the negative and positive elements of vending-machine sales?

Miniproject: Learn by Doing

This project is designed to help you understand how store at- mospherics play an important role in consumers’ perceptions of a retail store.

1. First, select two retail outlets where students in your col- lege are likely to shop. It will be good if you can select two outlets that you feel are quite different in terms of store im- age but that sell the same types of products. You might consider two specialty women’s clothing stores, two jew- elry stores, two department stores, or two coffee shops.

2. Visit each of the stores, and write a detailed description of the store atmosphere—the storefront and marquee, col- ors, materials used, types of displays, lighting fixtures, product displays, store personnel, and so on.

3. Survey some of the students in your college. Develop a brief questionnaire asking about the perceptions of the two stores you are studying. You may want to ask about things such as the quality of merchandise, prices, compe- tence and friendliness of the store personnel, the attitude of management toward customer service, and so on. What is the “personality” of each store?

4. Develop a report of your findings. Compare the description of the stores with the results of the survey. Attempt to ex- plain how the different elements of the store atmosphere create each store’s unique image.

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Marketing in Action Case Real Choices at IKEA

How would you go about becoming one of the wealthiest peo- ple in the world? Ingvar Kamprad did it by flying coach, taking public transportation, driving 10-year-old automobiles, moving from Sweden to Switzerland (for lower taxes) . . . oh, and inci- dentally, founding IKEA—now the world’s largest furniture store.

Kamprad founded IKEA in Sweden in 1943 when he was just 17 years old and while the world was caught up in World War II. He began by dealing pens, picture frames, wallets, and other bargain items out of a catalog. In 1951 he started to sell furniture made by local carpenters, and in 1957 he opened his first IKEA furniture store in Sweden. Today, IKEA, with 23 bil- lion in sales and 280 retail outlets in 26 countries, is the world’s largest home furnishing company that is known for its contem- porary designs, affordable prices, and loyal customers.

IKEA retail locations are gigantic—roughly three times the size of a typical Home Depot—and they focus exclusively on the furniture and home decorating market. IKEA’s size and focus limit the breadth of items it offers, but they do provide a great deal of merchandise depth including furniture, decorative ac- cessories, and lighting fixtures for all rooms of the house. While the company has historically made only low-priced, flat-packed furniture, it recently introduced a new 82-piece collection it calls Stockholm to offer its shoppers more expensive furniture made from higher quality materials.

In designing its store layout, IKEA is responding to con- sumer interest in one-stop shopping—finding what the con- sumer wants in one store rather than having to visit numerous stores. Also, IKEA makes it easier for customers to shop once they enter the store. It sets up furniture displays in “lifestyle” themes that show the type of furniture that singles, couples, or young families might need. The company also uses vignette displays to suggest how a customer can put together various items to create a certain look. These types of displays are per- fect for the generation that is no longer interested in buying furniture to last a lifetime but rather that fits their lifestyle now.

IKEA has enjoyed great success throughout its history, and that success has not come by accident—IKEA got to where it is today through great marketing planning. Presently, one of the most important decisions facing IKEA is how and where it

should look to expand its business and its revenues. The com- pany has announced its desire to add new store locations in Russia, Germany, France, China, Italy, Japan, U.K., Finland, Spain, and Switzerland.

But IKEA is more than just a bricks-and-mortar retailer. In recent years the firm has also become a popular online store. Its Web site is very popular; it got 450 million hits during the year 2007 alone. Despite its renown among online furniture shoppers, IKEA recently announced plans to focus on the in- store experience as “the only sales channel.” It doesn’t plan to invest more money in home shopping or online sales channels. The company bases this decision on its belief that the chain can give customers the best offers and the lowest prices when it makes its products available only through its bricks-and-mortar stores. Despite IKEA’s successful history, there are no guaran- tees for the future in the hyper-competitive world of retailing. Is focusing solely on the in-store experience the right decision? Can IKEA reach its growth and revenue goals without online sales? In the U.S. alone, Internet sales of home furnishings are over $150 billion a year, and industry experts forecast contin- ued annual growth at double-digit rates. Would IKEA be better advised to continue to push online sales at least in some areas of the world?

You Make the Call 1. What is the decision facing IKEA? 2. What factors are important to understand 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: Cora Daniels and Adam Edström, “Create IKEA, Make Billions, Take Bus,” Fortune (May 3, 2004): 44; Emma Hall and Normandy Madden, “IKEA Courts Buyers with Offbeat Ideas,” Advertising Age (April 12, 2004): 10; “IKEA Report,” Datamonitor (February 10, 2008), www .datamonitor.com; Jon Ortiz, “Customers Drawn to IKEA ‘Experience,’” The Sacramento Bee (February 26, 2006): D1; Luisa Kroll and Allison Fass, “The World’s Billionaires,” Forbes.com, http://www.forbes.com/billionaires (accessed June 19, 2006); Marianne Rohrlich, “Currents: Furniture; IKEA for the Post-Collegiate Crowd: Fancier Finishes and Less Work,” New York Times (April 26, 2007), http://query.nytimes.com/ gst/fullpage.html?res59D00E4DF153EF935A15757C0A9619C8B63&scp53&sq5ikea&st5nyt (accessed May 1, 2008); Mei Fong, “IKEA Hits Home in China,” Wall Street Journal Online (March 3, 2006): B1; Mike Duff, “IKEA Eyes Aggressive Growth,” DSN Retailing Today (January 27, 2003): 3, 22; “News,” Chain Store Age (February 2008): 50; “Welcome Inside, Yearly summary FY09,” http://www.ikea.com/ms/en_US/ about_ikea/pdf/Welcome_inside_2010.pdf.

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